Business Consulting Assignment: Case Analysis Of Zara

Question

Task:
Prepare a 1500-word report on business consulting assignment critically discussing the issues faced by Zara and propose solutions accordingly.

Answer

1.0 Introduction
As evident in the present context of business consulting assignment, the pandemic has created a market crisis due to which many companies are facing losses and other operational issues. It has become very important for the business organization for aligning internal and external business analytics to gain accurate insights about the changing market trends. Hence, the companies can hire third parties or manage talent for incorporating analytic culture to forecast the external market environment thereby improving profit margins. The report will analyse issues of the client (Zara) and solutions will be provided with the help of research.

2.0 About Zara (Client) and issues faced
Zara UK Ltd is engaged in the designing, production, and distribution of apparel and accessories for males, females, and children. It was founded in the year, 1988, while it operates in the fashion retail industry. In addition to this, Zara operates through 68 stores in Britain employing more than 3000 workforces through its operations. The company works on lean manufacturing practices due to which stocks reach the store only when required thus helping the firm toearn reasonable profits in times of difficult market conditions. However, the pandemic has disrupted the supply chain and normal operation due to cross-boundary operational restrictions, closing of factories, and other external market conditions.

2.1 Impacts of Fashion Industry of COVID- 19
The British Fashion Council declares that the fashion industry has been incredibly concerning in 2020. In this view, the fashion industry contributionto the UK GDP is expected to fall to $33.9 billion in 2020, which is down from £35 billion in the year 2019. In addition to this, Zara is a renowned fashion brand in fast fashion industry but has incurred huge losses due to emergencies arisen out of pandemic (Chapman, 2020). Zara has closed 3785 stores on global fronts, some of them are also based in the UK. The retailers like Zara are struggling to cope with the dropping in sales as the general population has been advised to stay at home and follow social distancing measures. The government of the United Kingdom has announced financial assistance of £350 billion (Jolly, 2020).

The company faced a major loss of 409 million that includes charges for closing the stores which are approximately 308 million. The retail dislocation has fallen by 44% in the initial three months from Feb to April due to series of lockdowns and other measures of the pandemic. The company earns the majority of its revenue from the stores established in Europe, however, 60% of Zara manufacturers are located in Spain, Morocco, Portugal, and Turkey. The online operations were not completely active until the brick and motor stores were shut down due to pandemic. The company managed to earn revenue through online operations even if the social distancing measures had to be followed. RFID technology is being used for tracking products and fulfilling online orders (Jolly, 2020). In addition to this, the company is highly committed towards its workforce, hence the factories established in many emerging markets were ordered to manufacture PPE kits, masks, and other products that are in high demand due to the pandemic. This has helped the firm in operating its factories and contacting new clients like health care units.

3.0 Problems of Zara during Pandemic
3.1 Competitors
The pandemic has hit all fashion manufacturers due to which major competitors of Zara like Burberry has also adopted similar measures. Burberry has been producing and supplying surgical masks, PPE kits, and other essential products to keep its factories running while also earning reasonable profits. Comparing the sales drop, Burberry experienced a 45% downfall in the profits while a 44% drop was confronted by Zara. Also, Burberry has cut down approximately 500 jobs while Zara repositioned its staff to manage online operations. It canbe said that the position of Zara in managing the crisis is better as compared to its competitors (Butler, 2020)The business model of Zara has proven advantageous in this pandemic as every store receives stocks according to customer requirement due to which costs of storage and human resources is reduced. Since the stores are closed, thus, the company has re-aligned its staff and operations to fulfil orders from online platforms and medical units due to which jobs and severe losses were saved. Also, the rivalry has increased as the majority of the competitors are shifting to digital platforms for clearing their inventories and coping with reduced demands, issues in supply chains, and shifting consumer demands.

3.2 Target Customer Market
Zara majorly targets individuals that are aged from 20- 40 years as this age group is considered to be fashion conscious. In the pandemic situation, the government of the UK had announced series of lockdowns due to which market demands shifted to purchasing and stocking up groceries thereby reducing market demand for garments and other accessories (Elle Hearst UK, 2020). Also, the fast fashion products are not part of essential commodities, hence the targeted customer shifted their purchasing patterns to emergency supplies for following rules of social distancing and staying at home. Since lockdown has been imposed and social distancing measures are being followed thus, social outings like marriages, birthdays, other occasions have been restricted thus the demand for fast fashion has also reduced.

3.3 Other External conditions
The external factors relate to economic conditions, employment level, the legal and regulatory framework of the region. In this view, the present external environment has been largely impacted due to COVID-19. It is said that the economy of the UK was largely impacted thus GDP was struck by 11.5% in the year 2020 as compared to Germany, France, and others. If the country faces a second peak of COVID-19, the GDP slump could drop by 14% in the upcoming years (Elan, 2020). However, the UK government has been supporting businesses in coping with economic disruption.

The change and shift in demands haveresulted in stocking up excess inventories by the retailers in the fashion industry. In addition to this, Zara uses lean manufacturing methods due to which storage costs of inventories are minimum. However, this fashion brand has been facing challenges of employing workforce to online operations and delivery of hospital equipment like PPE, surgical masks, gowns, and others as social distancing and supply chain restrictions are still prevalent(Elle Hearst UK, 2020). The economy is facing major issues in managing employment levels, thereby weaking purchasing power that has further reduced demands for fast fashion products of Zara.

However many companies like Zara have witnessed growth on their online channels thus, huge investments have been made for developing its digital platforms through which the losses incurred in 2020 will be recovered after the pandemic is over (Felsted, 2020).

4.0 Three Major Issues of Zara
In this view, the client has been facing major issues of declined demands, operating inventory flow, and saving jobs.

The company should apply analytics for forecasting demands and manufacturing products accordingly. For instance, accurate forecasting would have helped firms in manufacturing masks matching up with dresses and accessories thus reducing the struggles of earning revenues. The use of predictive and descriptive analytics will help the managers in accurate forecasting of future market conditions, hence adequate strategies can be applied for coping with challenging business cycles.

The operations and inventory flow can be maintained through applying IoT and AI which will also promote cost efficiencies and smooth operation that will further strengthen the resiliency of Zara in challenging market conditions. In recent times, RFID technologies and sensors have saved huge losses thus applying technologies in the entire supply chain will help Zara in meeting the demands.

Since economic disruption has resulted in employment loss hence, purchasing power has weakened so the people are spending on emergency and essential products. Zara has been successful in saving jobs as of now however, if the pandemic continues for a year then it would be challenging to maintain costs of human resources. Hence accurate market forecasting is important to shift its workforce for producing and delivering products in alignment with the external factors.

5.0 Conclusion
The fashion retailers like Zara have been facing major issues of selling their stocked-up inventories due to economic disruption caused by the pandemic. However, Zara has used strategies due to which it is earning measurable profits by operating through online modes and manufacturing medical supplies like PPE kits and masks.

Reference List
Butler, S. (2020) 'Burberry to cut 500 jobs worldwide in £55m cost-saving drive' The Guardian. Available at:https://www.theguardian.com/fashion/2020/jul/15/burberry-to-cut-500-jobs-worldwide-in-55m-cost-cutting-drive-covid-19 (Accessed 08 Dec 2020).

Chapman, B. (2020) 'Coronavirus: Zara owner Inditex shuts 3,785 stores globally as sales plunge'. Independent.Available at: https://www.independent.co.uk/news/business/news/coronavirus-zara-shut-stores-covid-19-sales-fall-inditex-a9408841.html (Accessed 08 Dec 2020).

Elan, P. (2020) 'UK fashion industry pleads for more aid to survive Covid-19 crisis' The Guardian. Available at:https://www.theguardian.com/fashion/2020/may/13/uk-fashion-industry-pleads-for-more-aid-survive-coronavirus-crisis (Accessed 08 Dec 2020).

Elle Hearst UK. (2020) 'How the Covid-19 Pandemic Is Affecting The Fashion Industry'.Available at: https://www.elle.com/uk/fashion/g32015646/coronavirus-fashion-brands/ (Accessed 08 Dec 2020)

Felsted, A. (2020) 'Zara's Latest Fashions Will Be a Post-Covid Hit'. Bloomberg Quint. Available at: https://www.bloombergquint.com/gadfly/zara-s-online-shopping-strategy-could-be-a-hit (Accessed 08 Dec 2020)

Jolly, J. (2020) 'Zara owner to close up to 1,200 fashion stores around the world'. The Guardian. Available at: https://www.theguardian.com/business/2020/jun/10/zara-owner-to-close-up-to-1200-fashion-stores-around-the-world (Accessed 08 Dec 2020).