Business Analytics: Analyzing Zara Company's Declining Profitability

This business analytics report delves into the declining profitability of Zara Company, a prominent clothing retailer, focusing on the period after the COVID-19 pandemic. It identifies the core problem as a consistent decline in sales revenue, leading to negative profit margins, particularly in the financial year 2020. The analysis considers factors such as the pandemic's impact on consumer buying power, Zara's premium pricing strategy, and the company's limited focus on e-commerce. The report highlights the opportunity for Zara to leverage the growing e-commerce market and adjust its pricing to attract a broader customer base. A dashboard solution is presented to visualize the decline in net profit, gross profit, and operating profit margins. The report concludes with recommendations for improving profitability through e-commerce expansion and competitive pricing strategies, aiming to restore Zara's market performance.

BUSINESS ANALYTICS

Table of Contents
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................5
Theoretical framework to link problem / opportunity.................................................................5
Critical analysis and justification of dashboard solution.............................................................6
Conclusion and Recommendation...............................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business analytics is a practice to assess and interpret the data and information related to
the actual business situation. This project is based on the case study of Zara Company. The
organisation was established in the year 1975 by the founders Amancio Ortega and Rosalia
Mera. Headquarter of the company is located in Spain. Currently company is serving at
approximately 2270 locations at a global level. The organisation is currently dealing in the
clothing line. IN the previous few years the organisation is facing an issue of decline in the
profits of the company. The sales revenue of the organisation has also decreased in the previous
few financial years. The covid 19 pandemic has created a massive impact over the performance
of organisation especially after the financial year 2019. The company own the opportunity to
improve its current performance and growth opportunity in the respective target market. The
pandemic has challenged the organisation position in market and especially to the offline sale of
company. The e-commerce sector of company could improve at some level but the offline sales
channel of company with the presence of stores could face a significant decline in the market.
This project will give emphasis over the theoretical problem associated with the case study. Brief
description about the problem or issue company is facing at this point in time. This project will
discuss the business case of the respective organisation. The problem will discuss in detail under
this project. Furthermore, the business intelligence and data analysis will be done to analysis the
entire issue and problem. The dashboard will present in the project to disclose the entire situation
and the problem the organisation facing in the recent time. The critical analysis will be done to
discuss the dashboard situation of the organisation. The opportunity that is available with the
organisation and the respective issue of the business will be discussed. On the basis of the
dashboard situation and projection the entire evaluation will be done to discuss the respective
problem and possible solution to address the issue identified. On the basis to the problem
identified and the respective opportunities are assessed the necessary recommendation will be

given to overcome the situation and improve the whole situation in favour to the organisation.
The recommendations will also provide to improve the condition and situation of the
organisation in market.
MAIN BODY
Theoretical framework to link problem / opportunity
The Zara Company is facing the situation of decline in the profits of the organisation. The
recent years has denoted the constant trend of decline in the sales revenue of company which
could further influence the net profitability of the business. The statistics and record are showing
the fact that the company could address the negative profit margin the the last financial year.
Zara Company is among the big brand in its own sector and to address the decline in the sales
and profits of company is a key issue. This further could challenge to the dominance of the
organisation in respective target market (Adisa, Aiyenitaju and Adekoya, 2021). The covid 19
pandemic can also seem as an impact for the organisation behind the decline in the performance
of the venture. The pandemic could completely impact over every single sector and industry that
could get an influence from the pandemic situation. Zara Company is associated with the retail
sector. The industry could rapidly influence due to the pandemic situation. As the covid
completely challenge to the buying power or capacity of the potential customer in the market.
Zara is a premium brand in the retail market and the organisation also target to only the
upper middle class customer base and upper economic category of consumer. The pandemic
situation could result into many people could loose the employment, businesses went into decline
and many of such could completely shut in the whole situation, lock down imposed that could
reduce the possibilities of business to maximise growth, rise in the pay of salaries of people
couldn't take place in the whole pandemic situation (Celano, 2021). The brand value of Zara is
also premium in nature that could further allow the organisation to attract only such economic
categorise of consumers. All these possible become the core reason behind the sales revenue of
the organisation in the previous few financial years. The buying power or capacity of the
customers and people across the globe could also damage in the entire pandemic situation. At
one point in time Zara Company owned the brand value of world's largest apparel retailer. In the
last three financial years specially the decline sales of company become the huge challenge area
for the organisation.

The price structure offer by the organisation could restrict the organisation to target the
certain category of customer base only. This is another key challenge which Zara Company is
facing in the market. Currently the organisation is serving at approximately 2270 location at a
global level. The global expansion of business could allow the organisation to delegate the well
diversified business chain. The product line of company is also segregated into different
segments such as cloths, perfumes and such other. Irrespective to the global presence of
company, product expansion and such features still the sales of the company could decline (Chen
and Chi, 2021). The diversified product line of company could allow the organisation to delegate
to almost every category of customer in the market. Even after having a diversified product
range, targeting to multiple category of customers, diversified product portfolio of company,
global brand presence still the business of the organisation is suffering from a decline in the sales
revenue. This issue further allow the organisation to create an opportunity for adopting
techniques and strategies that can favour the business to strengthen the business performance.
E-commerce is a massive opportunity for the organisation. The covid pandemic has
created a huge scope for the e-commerce market. The records are showing the facts that in the
time of covid pandemic the e-commerce sector has grown at the rate of 29%. This is the situation
arises due to the pandemic when the low-down was imposed and only the limited scope was
available for the companies to operate offline trading functions. Zara Company hold the great
opportunity to expand its e-commerce line (Florido-Benítez, 2021). IN the current situation also
the organisation is working in the sector. In future the organisation can follow more strategies
and promote its e-commerce decline over its marketing campaign that will further create a
growth opportunity for the company. The pandemic has changed the entire market. Earlier the e-
commerce market was not dominating especially in the retail market but due to the covid
pandemic this sector has emerged significantly. Company can also change its pricing practice by
making it more competitive in nature. This will allow the organisation to expand the current
customer base. As the company is currently targeting to only upper middle class and upper
economic background of people. Change in the pricing practice would allow the company to
attract more number of customer in market. As the pandemic could decline the buying capacity
of customer which also became the reason behind the low sales revenue of the organisation.

Critical analysis and justification of dashboard solution
The dashboard is clearly demonstrating that the net profit of the company is decreasing in
every financial year. The decrease net profitability of the organisation is a result of the decline in
the sales of the company. The sales of the organisation hold the direct relation with the net profit
margin entertain by the company in respective financial year. As the sales of the Zara Company
is the prominent source of income for the business that further influence to the net profit of the
business entity (Imam, 2021). IN the previous few financial year especially after 2019 due to the
covid 19 pandemic the complete decline in sales of company has noticed by the professional. In
the year 2020 the net profit margin of company has been negative.
The above mentioned graph is clearly reflecting that the profitability of the company
could completely decline to a negative mark. This indicate that in te financial year 2020 Zara
Company faced the net loss in the business. The net profit margin is a key indicator about the
performance of the organisation (Kumar and et.al., 2020). The negative profit margin of
company clearly demonstrate about the decline in the performance of the organisation. The covid
pandemic has a great influence over the business performance which can further affect to the
overall performance of the business under respective target market.

The above disclosed graph further disclosed the decline in the gross profit margin of the
organisation. The 2016 was the year when Zara Company witnessed the maximum amount of
gross printability that further decline in the following financial year. IN the year 2019 the gross
profitability could increase at a certain level from 16307531 to 18446097 in the year 2019. The
2020 was the year when the gross profit margin of the company fall and further decline to -
5234538. Gross profit margin is a net revenue company has achieved against making a trade in
the business (McGaughey, 2020). Negative level of profit margin demonstrate that the business
is considering more expenses to complete the trade than the sales is delivering by the
organisation. Due to the gross loss achieved by the company in the financial year 2020 the
further losses are gained by the Zara Company.

The operating profit is a profitability business could gain against delivering the operation
of the venture. The Zara Company could further decline its operational profitability by
considering an operational loss in the financial year 2020. The business was facing the gross loss
in the business that will further result into the loss to the operations perform by the organisation
(Omrane and Bag, 2021). For a company like Zara which is among the leading brand in fashion
negative operating profit and gross profit margin is a key challenge which company is witnessing
at this point in time. Covid 19 pandemic has been one of the major reason behind the decline or
negative sales and revenue company could witness in the business. The influence of the
pandemic can easily been witness in the gross profit, net profit and operating profit margin
govern by the company.
Zara Company is currently hold the practice of premium pricing strategy that could
further improve the sales price offer by the business. In the current situation of covid 19
pandemic where the buying power and capacity of the people across the world could challenge at
a huge level affordability become a key challenge. The premium nature of the pricing practice
follow by the company could further affect over the sales of the business. The impact of the
premium cost price and selling price adopted by the company has been over the revenue and
potential of the business to generate sales in the market.

The lack of focus of the company over the e-commerce trade could also become the key
barrier for the company to approach the sales and profitability in the recent year. The
management at the Zara Company provide a major emphasis over its offline stores acors the
world hence the organisation could not give much emphasis over improving the sales on e-
commerce platform (Raynal-Peceny, 2021). This could further challenge the business to achieve
sales in the market. In the upcoming financial years company hold the opportunity to improve its
profitability and as sales. The pricing practice of the business can modify at a certain level so that
business can maximise its sales and profits in business. E-commerce sector will allow the
business to grow rapidly in the upcoming time. The covid pandemic has allowed the e-commerce
sector to gain its market presence tat will support the Zara Company to improve its market
performance. The pandemic situation has allowed the e-commerce sector to gain its presence in
market. Further, the competitive pricing strategy is another great opportunity associated with the
Zara Company to maximise the market growth. The organisation can further adopt the digital;
marketing practices with the use of Facebook, Instagram and other search engine optimisation
platform that will allow the Zara Company to improve its brand value in the market. This
practice will support the company to attract the potential customer in the market.

Conclusion and Recommendation
Zara Company has faced the decline in the performance in the recent financial year. The
sales of the company could decline in the year 20231 due to te pandemic situation in market. The
impact pandemic has created over the buying capacity of the customer in market that further
could affect the performance of the venture in respective target market. The decline sales of
company could further affect to the profitability of the business in market (Ruiz-Fernández and
et.al., 2021). There are plenty of reason behind the decline sales and revenue of company which
primarily involve the pandemic of covid 19 that could affect the buying capacity of the
customers across the globe. Further that the pricing practice of the company is also become the
major reason behind the ow sales of the company. The pricing strategy adopted by the company
is premium in nature which could not allow the Zara Company to attract the buying behaviour of
the customers. This is important that the pricing policy of the company match up with the buying
capacity of the organisation. Zara Company is further own the restricted product portfolio that
could also influence to the performance of the organisation in market.
Recommendations
 Zara Company can follow the practice of competitive pricing which will allow the
organisation to decline its profit percentage at a certain level but this will further allow
the organisation to improve the sales in market.
 Digital marketing will be a key strategy that Zara Company can adopt in the market. This
strategy will support the organisation to improve its e-commerce sales of the
organisation. This is recommended that the Zara Company may adopt the digital
marketing which would allow the organisation to channelise the marketing campaign
over the social media application and the digital platforms to attract the interest of the
existing as well new potential customers of the organisation.
 The leadership at the Zara Company may change its style or approach. Currently
company is focusing only on the premium customer range but the organisation may
change its policy by trying to attract middle class economic background of people (Ye,
Hung Lau and Teo, 2021). This would allow the business to regain its market dominance.
 Zara Company should further try to give emphasis over expanding its current product
line. This will allow the business to target other category of retail customer as well. The
major emphases of the company is only on the clothing line but the organisation may

give emphasis to the other retail product segment as well. This will allow the company to
expand the existing customer base of the company that will fuehrer improve the revenue
of the business.
 This is recommended that the social media can further be used by the company to
improve the e-commerce sales of the company.

REFERENCES
Books and Journal
Adisa, T. A., Aiyenitaju, O. and Adekoya, O. D., 2021. The work–family balance of British
working women during the COVID-19 pandemic. Journal of Work-Applied
Management.
Celano, S., 2021. Eco-canvas and circular economy: a proposal for a sustainable fashion business
model.
Chen, Y. and Chi, T., 2021. How Does Channel Integration Affect Consumers’ Selection of
Omni-Channel Shopping Methods? An Empirical Study of US
Consumers. Sustainability. 13(16). p.8983.
Florido-Benítez, L., 2021. International mobile marketing: a satisfactory concept for companies
and users in times of pandemic. Benchmarking: An International Journal.
Imam, M. H., 2021. Risk management at the garments industry in Bangladesh during the Covid-
19.
Kumar, A. and et.al., 2020. COVID-19 impact on sustainable production and operations
management. Sustainable Operations and Computers. 1. pp.1-7.
McGaughey, F., 2020. Australia’s Modern Slavery Act and COVID-19: a get out of jail free
card?. Journal of Modern Slavery. 5(2). pp.41-45.
Omrane, A. and Bag, S., 2021. Which strategies are appropriate for the fight against the
worldwide coronavirus crisis?. International Journal of Indian Culture and Business
Management. 23(4). pp.416-430.
Raynal-Peceny, E. V., 2021. Circular fashion: a sustainable alternative to fast fashion.
Ruiz-Fernández, L. and et.al., 2021. Quantitative Analysis of the Fashion Industry Comparing
Spanish and British Small and Medium-Sized Companies. In Firms in the Fashion
Industry (pp. 67-86). Palgrave Macmillan, Cham.
Ye, Y., Hung Lau, K. and Teo, L., 2021. Transforming supply chains for a new competitive
market alignment–a case study of Chinese fashion apparel companies. International
Journal of Logistics Research and Applications. pp.1-33.
Online:
Zara Company finncila position, 2021. [ONLINE]. Available Through:
<https://www.morningstar.com/stocks/xamm/zara/financials>.