Zara is one of the known largest international fashion retailers, which has gained extensive acclaim, being one of the leaders of the high street fashion industry. The retailer is a Spanish brand of clothing, which was founded in the year 1975 by Rosalia Mera and Amancio Ortega in Artexio (Pratap, 2019). Zara is the flagship chain store of the world's largest apparel distributor, Inditex. It owns other brands, such as Stradivarius, Bershka, Oysho, Zara Home, Uterque, Massimo Dutti, Zara, and last but not the list Pull and Bear (Pratap, 2019). Zara is currently available in 86 countries and operates a total of 1763 outlets worldwide, and to complete its line, the company deals with men's clothing, women's clothing, children's clothing, and accessories ("Inditex Annual Report," 2018). It utilizes a team of creative sourcing specialists, designers, and product development in the three lines of products for women, men, and children. Throughout its expansion across the world, the apparel retailer has concentrated on the core fashion philosophy to respond to the market demand with creative and quality intended clothing. Its success story lies in the innovative strategies the company has adopted over the years. These strategies have helped Zara to grow fast with a creative and innovative business model assisting the company to have the best competitive advantage both at the international and local levels. The paper aims to give a strategic review report of Zara, based on its current position where it will carry out external analysis of the company through SWOT analysis, PORTER'S 5 Forces analysis and PESTEL analysis. Further, it will present an internal review of Zara using tools, such as the VRIO framework, and evaluate strategies put in place by the retail clothing giant by use of SAFe tests.
External Business Environment
The big picture of Zara's external environment involves all the outside factors that influence its operations. External factors affect the types of products created, choice of business to acquire, types of services offered, nature of the position, and market segmentation strategies. These external factors are technology, political, economic, social, environmental, and legal considerations. These external factors, directly and indirectly, affect both the distributors and suppliers. Therefore, finding and appraising external opportunities and threats of Zara helps to develop a clear mission, come up with strategies, and attain both short term and long-term goals. SWOT analysis, PESTLE analysis, and PORTERS 5 forces area key will be used to analyze the external business environment.
The seamless distribution strategy has contributed significantly to the success of Zara in the fashion retail market. Zara has ensured that whether offline or online, the customer can see the same branding, values, structure, and tone. The customer can have a great shopping experience, whether by buying online or in mortar stores ("Inditex Annual Report," 2018). It is an excellent opportunity for the Zara fashion retail since it has enhanced customer satisfaction and retention, which has seen Zara dominate the fashion industry over the years. Therefore, technology advancement is an opportunity for Zara to introduce new fashion to the market regularly.
Increased Environmental Issues
Rising environmental issues contribute positively to Zara's opportunities. Zara fashion retailers are very keen to have the status of being an eco-friendly apparel retailer in the market through their eco-friendly operations. The company has also ensured that its mission goes hand in hand with environmental conservation by stating that through its business model, Zara aims to contribute to the sustainable development of the society and environment. Therefore, this is an opportunity for Zara.
International recognition is very critical and necessary in any business since it increases customer base and sale returns. Besides, it makes the companies win customer's trust. In connection to that, Zara has had significant international recognition due to its quality products and dominance across the world (Pratap, 2019). It of the best fashion retailers. It is the best among other retailers operating under Inditex. Further international recognition is a factor that is the most essential to Zara's opportunities since it the key to its expansion and future growth.
The rise in Middle Class in Asia
The continuous increase of the middle class in Asia is a plus for the Zara company because Asia is a flourishing continent with high GDP. Also, most of the Asians have a taste which Zara offers, therefore, posing an excellent opportunity for the company (Pratap, 2019). As a result, Zara is expanding boldly in these emerging markets in the Asian continent. An increased number of the middle class in Asia is an opportunity for Zara.
Aggressive competition is one of the biggest problems Zara had and currently faces from giants such as H&M and Primark (Pratap, 2019). It majorly poses a danger for Zara to win and maintain customer loyalty. However, the good news is that Zara has invested extensively in product promotion compared to its competitors, such as Primark, who uses very little on product promotion. It will help Zara to enjoy remarkable growth due to its supply chain. However, competition is a threat to Zara in terms of winning customer loyalty.
Imitation of goods is widespread in the fashion industry. Zara's products are prone to imitation by competitors and persons who do counterfeiting. It will end up increasing sales of Zara's counterfeit and imitated goods and fewer sales for Zara's actual sales.
Legal and political regulations are unpredictable. Government and legal agencies are often regulating businesses. The laws and regulations set differ from market to market, and this may pose a significant constraint to fast growth (Pratap, 2019). Most fashion retailers like Zara have their outlets in very many countries. They operate internationally where legal and political regulations vary from state to state. This a significant threat to many fashion retailers since these regulations become constraints on their supply change and daily operations. Zara should ensure it has conducted intensive research on country regulation policies and laws before establishing its outlets in these countries. Therefore, these regulatory policies are a substantial threat to Zara as a fashion retailer.
Michael Porter's Five- Forces Model
This model aims to analyze five competitive forces that help companies to determine their degree of competitiveness in the industry. It will purposely help Zara to develop other strategies that will improve its level of competitiveness. Porter's five forces is an approach to identifying external factors that are relevant to the development of Zara. This approach argues that there are five forces, all acting together to come up with a particular environment within a specific market or situation.
Threat of Entry
It is worth noting that it is difficult for new players to venture into the fashion industry and dominate in such a competitive and saturated market of other fashion retailers in the UK. It is because the already existing fashion companies have already established their brand, thus making it very hard for the new players to attain customers' attention at the beginning. Customers will consider trading with companies that have been in existence for long compared to the new ones, either due to customer loyalty or the built trust.
Bargaining Power of Suppliers
The bargaining power of the suppliers within the fashion industry is low. Many fashion retailers outsource their products to developing countries to reduce costs. Fashion retail giants, such as Zara has a great opportunity when changing suppliers. Zara obtains at least 50% of its resources from companies such as Inditex, and therefore the strategy of dependence on external suppliers is not considerable.
The intensity of Competitive Rivalry
The fashion industry retail market is tremendously competitive. Due to this, several companies who are the leading giants compete against each other hence posing a threat to other fashion retail players. Fashion retail giants like Zara and H & M are almost the same such that they keep coming up with new strategies often to counter each other (Uriarte, 2016). As a result, this has posed a significant threat to other companies.
Bargaining Power of Consumers
The threat of customer's bargaining power is moderate. In such a fast-paced fashion world and internet, customers gather information about new fashion of clothing, quality, and prices from the internet. Therefore, the retailers strive hard to meet these requirements of consumers by all means.
Threat of Substitution
The risk of substitution is low in terms of the fashion retail industry because many fashion companies have applied a niche marketing strategy such that they have introduced various, fashionable clothes at pocket-friendly prices. It makes it hard for these clothes to have no other substitutions.
By carefully looking at the above Michael porter's five forces, it is evident that there highly competitive rivalry within the fashion retail industry. Therefore, Zara ought to establish itself with a competitive advantage during such tough times, keeping it in mind that customers have a lot of power, but costs are critical to the situation.
Today's world is fast-paced technologically, and thus the fashion retail market ought to adapt to these factors to dominate the market. Technology has influenced how products are manufactured and supplied to customers. Matrix coding and online shopping are some of the technological advancements that have made fashion retailing easy ("Inditex Annual Report," 2018). Additionally, customers can quickly gather information about the way, and this has resulted in a boom in customer demand, pushing giants such as Zara to be more innovative and adopt these technological advancements to remain relevant in the industry (Wang, 2018). The operations at Zara are technology-enabled hence has a faster response communication. It speeds up complex tasks, error, and lower cycle time. Additionally, it helps Zara make apparel that customers want and ensure they get to the market faster.
Political and Legal Factors
Political factors such as trade restrictions, tax, and labor policy, political instability have a high impact on the fashion retail market. Therefore, Zara and other fashion retail companies need to prepare themselves for future legislation and policy changes and adjust without a stretch. Legal changes such as consumer rights, health, and safety and advertising standards keep changing over time. Therefore, Zara should keep itself at per with what is and not legal to avoid unethical company operations that might affect its customer loyalty.
Inflation, employment exchange rates, and interest rates have, in a big way, impacted the fashion retail industry. Gross domestic product (GDP), income and disposable income, and per capita income continues to be substantially affected by the global recession and financial debt. As a result of this, many customers are sensitive to price and avoid high priced items. Zara should stick to the low pricing strategy to keep customers and realize returns.
In the UK, social factors significantly affect the fashion retail market. Young people run for new fashion and fashionable, leading to success in the fashion industry since it keeps fashion retailers on their toes to keep up with their customer's demand and taste. However, diversification, which...
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