Zara’s principal key issue is rivalry in the apparel retailing market, mainly from GAP and H&M. Swedish H&M differs from Zara because they outsource all of their production, spend more money on advertising and are price oriented. Likewise, they are both European based companies, fashion forward at lower price retailers and have a strong international expansion strategy. U.S.-based Gap has a number of advantages, including brand recognition, more stores and bigger revenues. In does not have however Zara’s cheap chic fashion appeal.
As the market is labor intensive despite continually advancing technology, labor costs are a major issue. While more and more retailers source from low labor cost countries to benefit from the cost advantages associated with it, Zara insists on sourcing mainly from Europe and relying on its in-house design and production, which provides advantages such as short lead times, effective logistics control and high response rates to clothing trends. The major impact of currency rates on operational and labor costs make Zara financially vulnerable due to the European currency’s strong value.
More than 40 percent of Zara’s garments are manufactured in Spain. Although this ensures timely delivery and service, any disruption caused by uncontrollable political factors, such as terrorist attacks from the Basque separatist group Eta, which is very active in the country, could shut down nearly half of the production and affect Zara dramatically....