Inditex (IXD1) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for Inditex (Germany)

Based on various researches at Oak Spring University , Inditex is operating in a macro-environment that has been destablized by – digital marketing is dominated by two big players Facebook and Google, technology disruption, cloud computing is disrupting traditional business models, wage bills are increasing, supply chains are disrupted by pandemic , customer relationship management is fast transforming because of increasing concerns over data privacy, increasing commodity prices, increasing household debt because of falling income levels, increasing government debt because of Covid-19 spendings, 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 Germany
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 -

Successful track record of launching new products

– Inditex has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Inditex has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.

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.

High switching costs

– The high switching costs that Inditex has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.

Innovation driven organization

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

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.

Effective Research and Development (R&D)

– Inditex has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Inditex staying ahead in the Retail (Apparel) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.

Highly skilled collaborators

– Inditex has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Retail (Apparel) industry. Secondly the value chain collaborators of Inditex have helped the firm to develop new products and bring them quickly to the marketplace.

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.

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.

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.

Ability to lead change in Retail (Apparel)

– Inditex is one of the leading players in the Retail (Apparel) industry in Germany. Over the years it has not only transformed the business landscape in the Retail (Apparel) industry in Germany but also across the existing markets. The ability to lead change has enabled Inditex in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.

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.

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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 -

Low market penetration in new markets

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

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.

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.

Ability to respond to the competition

– As the decision making is very deliberative at Inditex, in the dynamic environment of Retail (Apparel) industry it has struggled to respond to the nimble upstart competition. Inditex has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.

Capital Spending Reduction

– Even during the low interest decade, Inditex has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Retail (Apparel) industry using digital technology.

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.

High bargaining power of channel partners in Retail (Apparel) industry

– because of the regulatory requirements in Germany, Inditex is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Retail (Apparel) industry.

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.

Compensation and incentives

– The revenue per employee of Inditex is just above the Retail (Apparel) industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.

Aligning sales with marketing

– From the outside it seems that Inditex needs to have more collaboration between its sales team and marketing team. Sales professionals in the Retail (Apparel) industry have deep experience in developing customer relationships. Marketing department at Inditex can leverage the sales team experience to cultivate customer relationships as Inditex is planning to shift buying processes online.

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.

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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 -

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.

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, Inditex can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help Inditex to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

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.

Learning at scale

– Online learning technologies has now opened space for Inditex to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.

Creating value in data economy

– The success of analytics program of Inditex has opened avenues for new revenue streams for the organization in Retail (Apparel) industry. This can help Inditex to build a more holistic ecosystem for Inditex products in the Retail (Apparel) industry by providing – data insight services, data privacy related products, data based consulting services, etc.

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.

Redefining models of collaboration and team work

– As explained in the weaknesses section, Inditex is facing challenges because of the dominance of functional experts in the organization. Inditex can utilize new technology in the field of Retail (Apparel) industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

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.

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.

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.

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.

Lowering marketing communication costs

– 5G expansion will open new opportunities for Inditex in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Retail (Apparel) industry, and it will provide faster access to the consumers.

Manufacturing automation

– Inditex can use the latest technology developments to improve its manufacturing and designing process in Retail (Apparel) sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.

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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 -

Backlash against dominant players

– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Inditex business can come under increasing regulations regarding data privacy, data security, etc.

Increasing wage structure of Inditex

– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Inditex.

Aging population

– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.

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.

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.

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.

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.

Regulatory challenges

– Inditex needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Retail (Apparel) industry regulations.

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.

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.

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.

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.

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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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