Zara - Spanish Fashion Company

Introduction to Management

Assignment

Submitted by: Suhrawadi bin Othman

Date: 09 JUN 2017

Student ID: CT0290966

Class: PT-DipComGS-18

Introduction (217 Words)

Zara is a Spanish fashion company that manufactures and sells fashion clothing and accessories. Zara is under the parent company of one of the leading distribution companies in the world, Inditex. Its founders, Amancio Ortega and Rosalia Mera, started the company back in 1975 in Spain and up till now, its headquarters is still located in Spain in Arteixo. It has evolved and established itself to be a global leading fashion company (ZARA, 2017) with 7013 stores in the world not including its online platform which deals with consumers worldwide directly (Inditex, 2015). As a fashion clothing retailer, its rivals include H&M, Uniqlo, GAP and Topshop.

In 2015, the net sales value of Zara was reported to be 13,628 (in millions or Euros), with 4,699 worth of net profit that hints at its scale and position in the fashion industry (Inditex, 2015). The company has achieved this thru its ability to be at the forefront of innovation and quick delivery of updated designs to the consumers with new range of clothing coming in every season. The CEO of ZARA has mentioned that this was done by their simplistic strategy which is to make a link between the consumers demand and its manufacturing; and then to link its manufacturing to the company’s distribution (Mcafee, Dessain, & SJÖMAN, 2007).

PESTEL Analysis (633 Words)

Political Analysis

The government is responsible in ensuring a stable platform for economic activity and improving the physical, social and market infrastructure. As ZARA is a multinational business, it is difficult to properly analyse the individual climate of the country that it operates in. However, in terms of the apparel industry, there is little to no import restrictions in between countries due to the General Agreement on Tariffs and Trade (The issues - Trade Tariffs and Barriers, 2017). This is both a blessing and a boon as competitor businesses will also enjoy such benefits.

Another political pointer that can be taken advantage of is the emerging markets of China and India which welcomes foreign investment with open arms. This will help the expansion of apparel companies that are looking to enter emerging economies of China and India (Henry, 2008).

Social Analysis

Nybo and Lama (Nybo & Lama, 2010) states that for any business to prosper, society is the most important factor to take into consideration. All the more, as one of the biggest fashion retailer that operates worldwide, it becomes more significant that social factors plays a monumental role for ZARA to look at its strategies for improvement and to move forward with its growth.

One of a key factor that affects consumers in the fashion industry is that they will prefer certain clothes that are in season or that are very current with the trend. As ZARA has a strong brand identity and is very famous in the fashion world, they have a level of social popularity and social acceptance of the brand which is a desirable trait for businesses (De Toni & Tonchia, 2003).

The working population age group is experiencing a constant rise which changes the demographic of the consumers. (Holodny, 2016) Due to this factor, more consumers are including formal wear as their daily wear. As such, the fashion industry might have to adapt its fashion line to suit the aging population of the public.

As part of the Social Environment factor, the image of ZARA also plays a part with its consumers. This image will affect the attitude of their consumers purchasing choices, more so since ZARA has a strong brand recognition. Such as a case whereby they were once linked with employing child labour with poor working conditions in their manufacturing factories in Argentina. Investigations were being held where they found labourers having to work up to 16-hour days without any breaks. (Osborne, 2013)

Technological Analysis

It is very important for a business to have strong technical infrastructure to be successful in the market today (Simon & Schuster, 2001). As a fashion retail company, having an updated technology is important in its retail shop management such as its inventory and stock taking management. Technological advancement such as the RFID tags and cashless sales are used by retailers to decrease operation costs, improve the value chain process and ensuring customers experience are enjoyable and easy (Pettigrew, Whittington, & Thomas, 2006).

Another area whereby Technological Factor has improved by leaps and bounds is in the online retail industry. In the modern world, less consumers are going into the retail outlets and more are doing their shopping online. Global online retail sales are growing and is estimated to reach 8.8% of total retail spending in 2018 as compared to 7.4% in 2016 (Saleh, 2017). As such, more retail companies are focusing their marketing towards the digital medium such as online adverts and search engines as part of their digital strategy to pull in the online consumers (Zarrela, 2010).

The advancement of technology also helps to improve the manufacturing process that can be broken down into easy and simpler tasks that enhances final assembly. This would quicken the manufacturing, ensuring that the products are delivered to their outlets fast, giving an advantage especially in the fashion industry.

Porter’s 5 Forces Analysis (602 Words)

Competitive Rivalry

Due to the nature of the fashion industry, the existence of many high end and fast fashion businesses such as H&M, Uniqlo, Gap and Topshop exist as direct competitors to ZARA’s business. These international fashion retail firms pose a high competitive rivalry for ZARA. A noteworthy point is that smaller fashion firms do not pose a threat to ZARA as the playing field is vastly different. These smaller firms lack market share and resources to compete with ZARA on a global scale. Only the big firms mentioned are true rivals to ZARA as they are all listed firms. Hence, it is imperative for ZARA to decide upon probable exit strategies (Wenderoth, 2009).

Threat of New Entrants

The appeal of the fashion industry has the ability to attract and pull in potential individuals and investors to enter and invest in the fashion market (Magretta, 2012). Having said that, it is difficult for start-up firms to obtain the required capital and resources to compete with large fashion businesses such as ZARA and its rivals in the international market. Moreover, ZARA has a strong brand identity among fashion consumers. Large fashion businesses hold a large share in the market and enjoy economies of scale where they have lower production costs and hence give more competitive prices for consumers. Smaller firms can only compete domestically with unique designs targeted at consumers. Hence, the fashion industry enjoy a low threat of new entrants.