An Analysis Of Inditex’s SWOT And Strategies

Strengths

Discuss about the Analysis Of Spanish Multinational Clothing Organisation.

Inditex is a Spanish multinational clothing organisation and it is working in fashion retail industry. Inditex has it headquarter in Arteixo, Spain and it was established in the year 1985 (Inditex.com, 2018). Inditex is the biggest fashion organisation in the world and it operates with approximately 7,200 stores in 93 different national markets. Revenue of the organisation touched €23.32 billion in 2016 and almost 162,400 employees are working Inditex Group. Inditex has numbers of subsidiaries like Zara, Bershka, Pull & Bear, Oysho and Ulterque.

Strengths of Inditex lie in the brand name of the organisation as it is the leading fashion retailer and it is the parent organisation of formidable fashion brands. Inditex has taken the strategy of vertical integration as Inditex has to work in the competitive market. Product life is short and the competitors bring differentiated products. Inditex needs to use low-cost outsourcing. Vertical integration of Inditex provides the strength of shortening the production cycle (De Jorge Moreno & Carrasco, 2016). Inditex has a large customer base and it can reach almost 93 countries. Inditex maintains a link between store staffs and products team through real-time data and communication.

Weaknesses of Inditex lie in the underdevelopment of non-Zara brands. Zara is a world-famous subsidiary of Inditex; however other brands are not famous as Zara generates almost 6.5 times more sales than other subsidiaries. In addition, Inditex is mostly depended on European section and domestic markets (Choi, 2016). Inditex generates almost 60% sales from European sector and 22% of the sales come from Spain.

Inditex’s opportunities lie in the online sales as Inditex has increased its online sales by 9% in the American region. Inditex is trying to use the social networking site to increase the sales of Zara and other subsidiaries brands of Inditex (De Jorge Moreno & Carrasco, 2016). Inditex has taken the strategy of expansion as the organisation has thought of 8% of growth to make the organisation sustainable in next ten years. There is room to expand the business in the Asian market and Inditex has opened 190 stores in 2011-12 in the Asian region.

Threats of the organisation lie in ‘fast fashion fatigue’ concept as fashion trend dies in no time in the market. Inditex has been facing the threat of increased competition in the global market from H&M and Mango (Turker & Altuntas, 2014). Inditex is expanding the business and the organisation has been facing the issue of centralised design, distribution process and logistics.

Weaknesses

Evaluating four current strategies:

MNE strategies: Multinational Enterprise means the business that locates in different components of its operations in more than one country (Ross, 2015). Inditex has its operations in more than 93 countries and it takes the strategies of ‘subsidiary companies’. Inditex has subsidiaries like Zara, Oysho, Bershka, Zara Home, Pull & Bear and Ulerque. Inditex’s subsidiary strategy provides its benefits of a presence in abroad market and widens its reach. The subsidiary strategy provides the benefits of lesser investment to open up new stores in the different country.  

Vertical Integration: Vertical integration strategy is the combination of one firm of two or more stages of production normally operated by different firms. Inditex takes the strategy. Zara takes the process in which several steps in the production or distribution of products by it in order to increase the company’s power in the marketplace.

Market Development strategy: Since the beginning, Inditex has been using the strategy of market development. Inditex has been using the existing products in order to reach a different market. In the year 1988, Inditex went to Porto, Portugal and it was their first internationalisation. Inditex is trying to expand the business in China and Indian market recently.

Store sales	2016	2015
Europe excluding Spain	44%	46%
Spain	22%	26%
Asia	20%	17%
Americas	14%	12%

Table 1: Diversified sales platforms

(Source: Turker & Altuntas, 2014)

Differentiation strategy: Inditex takes the differentiation strategy regarding new stylish products of clothing. Inditex’s differentiation strategy is based on enhancing the numbers of available styles and decreasing the quantities of the same products in the inventory (Wilhelm et al., 2016). For each design, Inditex asks the subsidiaries to produce small quantities for each design.

Identify three main strategic issues

Low in-store inventory:

Inditex asks the subsidiaries to immediate reacts on the trends and the subsidiaries follow the Just-in-Time production process. Inditex follows the significant amount of in-house production and production to proximity is equals to the scarce supply (Mahmood & Kess, 2016). Manual inventory management is based on the direct observation and store management judgement. In addition, factories of Inditex reserve 85% of their capacity for in-season adjustment. Therefore, Inditex does not want the stores to be filled with similar styles of clothes. Sometimes customers return from the stores as they do not find the same design of clothes what they have seen the online platform of Inditex.

Quality and perception issues:

In Asian sectors, Inditex’s subsidiaries have been facing the issue of quality and perception. Many of the Asian customers favour the foreign brands because of the international appeal and perceived higher qualities (Macchion et al., 2015). Inditex’s brands Zara, Pull & Bear and Zara Home cannot provide with the high-quality designer clothes in their pricing range. The process of the products of Inditex is high and sizes do not match for the customers. In China, Zara could not pass three of the quality tests, pH value, skin irritation and fabric contains alkaline. The perceived value of Inditex brands are still better among European countries; however, GAP and Mango are trying to capture the market with recent fashion trends. Minimal advertisement in the Asian market is another reason for the perceived low quality of the products.   

Opportunities

Local transportation costs:  

Inditex believes in the synergy between operation strategy and business strategy of the organisation. Inditex takes the strategy of Just-in-Time production because the market trends change always (Park, Jeon & Sullivan, 2015). Inditex takes the strategy of centralised logistics as Inditex sticks to predictable, deep and fast rhythm logistics to fulfil the demands of the stores. However, in foreign markets, Inditex fails in fulfilling the stores demand through local transportation. Inditex has to improve the numbers of local transportation and it has increased the transportation cost. Solid distribution network enables the company to deliver the distribution within 24 hours and it increases the transportation cost of the company.

	Threats 1.      Increased competition 2.      Fast Fashion fatigue 3.      Growing more quality products	Opportunities 1.      Online sales 2.      Continued expansion 3.      Events and sponsorships
Weaknesses 1.      Underdevelopment of non-Zara brands 2.      No independent retailer 3.      Expensive	Prices may have to be reduced (T2, W3) Quality enhancement (T3, W1) Expansion of the market through independent retailing or franchisee (T1, W2)	Product promotions in growing industry (O1, W1) Deals and offers on products (O1, W3) Despite no independent retailer, events can promote the brand (O1, W2)
Strengths 1.      Vertical integration 2.      Brand name 3.      Real-time data and communication 4.      Customer Reach	Customers are with Inditex despite cheaper competitors (T3, S2) Loyal customers (T1, S4) Shipping fast to the international market (T2, S3)	Bigger target market (O2, S2, S4) Promotes new strengths (O3, S4) Better supply chain (O1, O2, S3)

Table 2: TOWS matrix of Inditex

(Source: Self-developed)

Improvement of supply chain management: Inditex mainly manufacture the fashion clothing with limited edition and Inditex mainly uses the inventory optimisation model so that it can help the organisation to determine the quality that would be delivered to every retailer. In addition, Inditex needs to fill the inventory of the retailers every two days. The logistics of Inditex must be operated in a timely manner and each of the staffs should deliver the products on time. Local supply chain should work in synchronise way so that the distribution network must work in a perfect manner. Inditex can use the RFID (Radio Frequency Identification) technology in supply chain to track the products. 

Cost leadership strategy: The cost of the Inditex subsidiaries are high and most of the common people cannot afford these brands. Mainly in the Asian market, the costs of the products are high. Inditex can take the strategy of low-cost leadership as the organisation can set the price lower than the competitors. Low cost in the market will definitely lead to the higher customers’ base. 

Promotions to improve customers’ perceived value: Inditex uses the online media to promote the brands. In addition, Inditex needs to use the social media content advertisements to show the corporate social responsibilities and manufacturing process of the products so that the customers believe that the quality of the products are good and the organisation is responsible for the society. It would increase the customers’ perceived value.

Conclusion

Inditex is a global Spanish fashion retailer and this organisation takes has famous subsidiaries to operate different parts of the globe. Inditex has the strengths in brand names, following fashion trends and communication with the customers. Weaknesses of Inditex are the changing of the fashion and the local supply chain. Inditex takes the strategy of differentiation, vertical integration in supply chain and market development. Strategic issues of Inditex is associated with the supply chain and logistics, low in-store inventory and perceived value of the customers.  

TOWS matrix of Inditex shows that the organisation can take the strategy of low-cost leadership in order to increase the customer base. In addition, local supply chain needs to be improved using the RFID technology. Moreover, Inditex can take the strategy of promotional events and online marketing to use the content advertising so that the customers’ perceived value can be improved.

Reference List

Choi, T. M. (2016). Inventory service target in quick response fashion retail supply chains. Service Science, 8(4), 406-419.

De Jorge Moreno, J., & Carrasco, O. R. (2016). Efficiency, internationalization and market positioning in textiles fast fashion: The Inditex case. International Journal of Retail & Distribution Management, 44(4), 397-425.

Fashion Retail – inditex.com. (2018). Inditex.com. Retrieved 17 April 2018, from https://www.inditex.com/

Macchion, L., Moretto, A., Caniato, F., Caridi, M., Danese, P., & Vinelli, A. (2015). Production and supply network strategies within the fashion industry. International Journal of Production Economics, 163, 173-188.

Mahmood, S., & Kess, P. (2016). An Overview of Demand Management through Demand Supply Chain in Fashion Industry. International Journal of Management Science and Business Administration, 2(12), 7-19.

Park, H. H., Jeon, J. O., & Sullivan, P. (2015). How does visual merchandising in fashion retail stores affect consumers’ brand attitude and purchase intention?. The International Review of Retail, Distribution and Consumer Research, 25(1), 87-104.

Ross, D. F. (2015). Distribution Planning and control: managing in the era of supply chain management. Springer.

Solberg, C. A. (2017). International Marketing: Strategy development and implementation. Abingdon: Routledge.

Turker, D., & Altuntas, C. (2014). Sustainable supply chain management in the fast fashion industry: An analysis of corporate reports. European Management Journal, 32(5), 837-849.

Wilhelm, M. M., Blome, C., Bhakoo, V., & Paulraj, A. (2016). Sustainability in multi-tier supply chains: Understanding the double agency role of the first-tier supplier. Journal of Operations Management, 41, 42-60.