Inditex (0QWI) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Inditex (United Kingdom)

Based on various researches at Oak Spring University , Inditex is operating in a macro-environment that has been destablized by – increasing government debt because of Covid-19 spendings, customer relationship management is fast transforming because of increasing concerns over data privacy, there is increasing trade war between United States & China, digital marketing is dominated by two big players Facebook and Google, there is backlash against globalization, central banks are concerned over increasing inflation, increasing energy prices, increasing household debt because of falling income levels, technology disruption, etc

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Introduction to SWOT Analysis of Inditex

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Inditex can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Inditex, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Inditex operates in.

According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of Inditex can be done for the following purposes –
1. Strategic planning of Inditex
2. Improving business portfolio management of Inditex
3. Assessing feasibility of the new initiative in United Kingdom
4. Making a Retail (Apparel) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Inditex

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Strengths of Inditex | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of Inditex are -

Innovation driven organization

– Inditex is one of the most innovative firm in Retail (Apparel) sector.

Organizational Resilience of Inditex

– The covid-19 pandemic has put organizational resilience at the centre of everthing Inditex does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Cross disciplinary teams

– Horizontal connected teams at the Inditex are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.

Superior customer experience

– The customer experience strategy of Inditex in Retail (Apparel) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.

Low bargaining power of suppliers

– Suppliers of Inditex in the Services sector have low bargaining power. Inditex has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Inditex to manage not only supply disruptions but also source products at highly competitive prices.

Diverse revenue streams

– Inditex is present in almost all the verticals within the Retail (Apparel) industry. This has provided Inditex a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.

Learning organization

- Inditex is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Inditex is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Inditex emphasize – knowledge, initiative, and innovation.

Sustainable margins compare to other players in Retail (Apparel) industry

– Inditex has clearly differentiated products in the market place. This has enabled Inditex to fetch slight price premium compare to the competitors in the Retail (Apparel) industry. The sustainable margins have also helped Inditex to invest into research and development (R&D) and innovation.

Strong track record of project management in the Retail (Apparel) industry

– Inditex is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.

Digital Transformation in Retail (Apparel) industry

- digital transformation varies from industry to industry. For Inditex digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Inditex has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.

Training and development

– Inditex has one of the best training and development program in Services industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.

Operational resilience

– The operational resilience strategy of Inditex comprises – understanding the underlying the factors in the Retail (Apparel) industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

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Weaknesses of Inditex | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of Inditex are -

Workers concerns about automation

– As automation is fast increasing in the Retail (Apparel) industry, Inditex needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.

Slow to strategic competitive environment developments

– As Inditex is one of the leading players in the Retail (Apparel) industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Retail (Apparel) industry in last five years.

High dependence on existing supply chain

– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Inditex supply chain. Even after few cautionary changes, Inditex is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Inditex vulnerable to further global disruptions in South East Asia.

High dependence on Inditex ‘s star products

– The top 2 products and services of Inditex still accounts for major business revenue. This dependence on star products in Retail (Apparel) industry has resulted into insufficient focus on developing new products, even though Inditex has relatively successful track record of launching new products.

Lack of clear differentiation of Inditex products

– To increase the profitability and margins on the products, Inditex needs to provide more differentiated products than what it is currently offering in the marketplace.

High cash cycle compare to competitors

Inditex has a high cash cycle compare to other players in the Retail (Apparel) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

Slow decision making process

– As mentioned earlier in the report, Inditex has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Retail (Apparel) industry over the last five years. Inditex even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.

Need for greater diversity

– Inditex has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.

Low market penetration in new markets

– Outside its home market of United Kingdom, Inditex needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

Increasing silos among functional specialists

– The organizational structure of Inditex is dominated by functional specialists. It is not different from other players in the Retail (Apparel) industry, but Inditex needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Inditex to focus more on services in the Retail (Apparel) industry rather than just following the product oriented approach.

High operating costs

– Compare to the competitors, Inditex has high operating costs in the Retail (Apparel) industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Inditex lucrative customers.

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Inditex Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of Inditex are -

Remote work and new talent hiring opportunities

– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Inditex to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Inditex to hire the very best people irrespective of their geographical location.

Buying journey improvements

– Inditex can improve the customer journey of consumers in the Retail (Apparel) industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.

Identify volunteer opportunities

– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Inditex can explore opportunities that can attract volunteers and are consistent with its mission and vision.

Reconfiguring business model

– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Inditex to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.

Building a culture of innovation

– managers at Inditex can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Retail (Apparel) industry.

Changes in consumer behavior post Covid-19

– consumer behavior has changed in the Retail (Apparel) industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Inditex can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Inditex can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.

Using analytics as competitive advantage

– Inditex has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Retail (Apparel) sector. This continuous investment in analytics has enabled Inditex to build a competitive advantage using analytics. The analytics driven competitive advantage can help Inditex to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Inditex can use these opportunities to build new business models that can help the communities that Inditex operates in. Secondly it can use opportunities from government spending in Retail (Apparel) sector.

Low interest rates

– Even though inflation is raising its head in most developed economies, Inditex can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects Inditex can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Retail (Apparel) industry, but it has also influenced the consumer preferences. Inditex can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Use of Bitcoin and other crypto currencies for transactions in Retail (Apparel) industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Inditex in the Retail (Apparel) industry. Now Inditex can target international markets with far fewer capital restrictions requirements than the existing system.

Loyalty marketing

– Inditex has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.

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Threats Inditex External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of Inditex are -

Technology acceleration in Forth Industrial Revolution

– Inditex has witnessed rapid integration of technology during Covid-19 in the Retail (Apparel) industry. As one of the leading players in the industry, Inditex needs to keep up with the evolution of technology in the Retail (Apparel) sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.

High dependence on third party suppliers

– Inditex high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.

Easy access to finance

– Easy access to finance in Retail (Apparel) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Inditex can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

New competition

– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Inditex in the Retail (Apparel) sector and impact the bottomline of the organization.

Consumer confidence and its impact on Inditex demand

– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Retail (Apparel) industry and other sectors.

Shortening product life cycle

– it is one of the major threat that Inditex is facing in Retail (Apparel) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

Instability in the European markets

– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Inditex will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.

Stagnating economy with rate increase

– Inditex can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Retail (Apparel) industry.

Environmental challenges

– Inditex needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Inditex can take advantage of this fund but it will also bring new competitors in the Retail (Apparel) industry.

High level of anxiety and lack of motivation

– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Inditex needs to understand the core reasons impacting the Retail (Apparel) industry. This will help it in building a better workplace.

Increasing international competition and downward pressure on margins

– Apart from technology driven competitive advantage dilution, Inditex can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Inditex prominent markets.

Barriers of entry lowering

– As technology is more democratized, the barriers to entry to Retail (Apparel) industry are lowering. It can presents Inditex with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Retail (Apparel) sector.

Capital market disruption

– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Inditex.

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Weighted SWOT Analysis of Inditex Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Inditex needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants. We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –

First stage for doing weighted SWOT analysis of Inditex is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.

Second stage for conducting weighted SWOT analysis of Inditex is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.

Third stage of constructing weighted SWOT analysis of Inditex to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Inditex needs to make to build a sustainable competitive advantage.

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