Analyzing Zara's Corporate Strategy

Introduction

The corporate strategy is referred to the strategic plan of the company that defines their overall goals and directions as well as the way in which they are intended to achieve them with effective strategic management activities. This strategy helps the organisation to determine its overall value based on which the strategic goals are built that are informed to the workers and accordingly they are motivated to work to achieve them. In this report, the PESTEL analysis and Porter's Fiver forces analysis of Zara are to be executed to understand threat and opportunities they are experiencing in the market according to which they are to set their corporate strategy. Later, the current effect of corporate strategy being used by Zara is to be analysed through SAF framework.

Analysis

Zara has a huge and effective market presence in the UK which is evident as they incurred £51 million as pre-tax profit by January 2018 that was 30% more than the previous year (retailgazette.co.uk, 2018). However, Brexit is seen to cease many trade agreements present between the EU and the UK which is going to impact on increasing import duty and raising business complication with companies present in the EU (transporteca.co.uk, 2018). Since Zara is a Spanish company who was operating in the UK, the impact Brexit has created is going to act as threat to their business (inditex.com, 2018; zara.com, 2019). This is because increased trade complication and rise of import duty are going to result Zara face hindrance in freely operating their business in the UK as well as be prepared to raise the price of their products due to increased import charges for their goods. As mentioned by Grubb (2015), the increased price of products leads consumers to avoid buying them. This is because they feel they are inappropriately spending their finances to avail products of the same quality that can be bought with lesser prices. Thus, price surge in products of Zara as a result of Brexit poses threat for them to lose customers to other fashion brands in the UK who are providing similar quality clothes at lower prices.

The UK fashion industry is presently estimated to be £26 billion and has created 800,000 jobs which make it one the largest creative industry in the country (britishcouncil.org, 2016). As mentioned by Leigh and Li (2015), operating in large industry creates opportunities for the company to have better economies of scale. This is because large industries offer the companies have ability to attract more customers through increased level of production, in turn, saving the cost of business operation as the per-unit fixed cost for the products are reduced. Therefore, Zara by operating in the UK have the opportunity to experience cost advantage which would help them to save more finances to be spent for further expanding their business. In the UK, the fashion industry has contributed £32.3 billion to the UK GDP and is forecasted to grow by 10.4% from 2018 to 2023 (standard.co.uk 2018). The fact acts as an opportunity for Zara who has a major market in the UK as such better growth indicates that the company would have the feasibility to make better business expansion in the industry to incur more finances and profits.

In the UK, it is seen that the fashion needs and demands of the people are diverse and are changing at an immense rate (britishcouncil.org, 2016). As mentioned by Madhani (2016), fulfilling diverse needs and demands of the customers by the companies helps them to provide increased customer satisfaction that makes them achieve increased customer loyalty. This is because meeting the needs of customers makes them feel valued and respected by the companies, in turn, making them satisfied with the purchase. In the case of Zara, it is seen that they recruit innovative fashion designers and experienced personnel who comply as well as effectively understands the changing needs and demands of the UK population. Moreover, Zara is found to produce clothes that are related to the current trends in the industry (inditex.com, 2018; zara.com, 2019). Thus, the facts ensure Zara has effective business opportunity to operate in the UK as they have all form of clothes to satisfy the diverse demands and needs of the population of the country. As argued by Iran and Schrader (2017), lower consumption of products within a certain industry indicates that the companies operating in the industry would have less scope to make profit or finances. This is because there are limited numbers of customers who have restrictive purchases. However, in the UK fashion industry reports that people buy more clothes per person than any other country (britishcouncil.org, 2016). Therefore, operating in the UK provides opportunity for Zara to have increased sales, in turn, improving the financial collection for the company to successfully operate business.

In the UK, increased preference to use online and social platforms are seen for making purchase of clothing and apparels (telegraph.co.uk, 2019). This is because most of the people are busy in their jobs which offer them limited time to be spent on physically buying clothes by visiting stores. In case of Zara, it is seen that they have effective online presence in the UK which is evident as they have separate company website designed for the country where all form of their fashion clothing and apparels are present which can be bought and to be delivered at customer's doorstep (zara.com, 2019). Thus, Zara’s online presence in the UK fashion industry creates opportunity for them to execute their business in the country as they can reach all forms of customers without any restriction to help them buy from the company. In the UK, it is also seen that the fashion industry is using different nature of technology to improve customer experience in buying and production of clothes (standard.co.uk, 2019). Zara is seen to use Radio Frequency Identification Technology (RFID) to allow most famous clothing rapidly available to customers. In addition, they are using updated technology to develop fine quality clothing for its customers (uk.fashionnetwork.com, 2017). This fact acts as opportunity for Zara to operate in the UK industry because they would be able to draw more customers towards them as they are seen to appropriately using technology to provide better services to customers as demanded in the country. Therefore, out of satisfaction, more customers are going to buy from Zara ensure them have better sales and economic opportunity while operating in the UK.

In the UK, the fashion industry is seen to produce increased amount of waste and carbon footprint that is damaging the environment (publications.parliament.uk, 2017). As asserted by Bloodworth et al. (2015), companies that are involved in creating less damage to the environment are often preferred by the customers. This is because the customers feel that by buying from those companies they can be able to save the environment. In case of Zara, it is seen that they through the “Join Life” collection and eco-stores are producing sustainable clothing that would have less negative impact on the environment. Moreover, they are also involved in production of recycled clothes (inditex.com, 2018). Thus, Zara in this condition has better opportunity to operate in the UK as they are acting to save the environment of the country which would eventually make customers prefer to buy from them. This is because they by availing Zara would contribute to save the environment which in turn is going to increase the sales of the company as well as flourish their business. The Copyright, Designs and Patents Act of 1988 in the UK provides protection to the artists and designers as well as others in protecting their works from being illegally used (legislation.gov.uk, 1988). Thus, Zara by operating in the UK would have effective legal opportunity to save them from copyright issues ensuring protection of their designs and works to be unable to be used by others.

Porter’s Five Forces Analysis

Porter's Five Forces framework is the tool that is used for analysing the existing competition of the business in the industry (Mathooko and Ogutu, 2015).

Threat of New Entry:

Zara already has an established brand image in the UK fashion industry where they supply high-quality clothes and apparels of different fashion according to diverse nature to the customers. As mentioned by Obeng et al. (2016), new entrants to operate in the market require huge capital. This is because to develop an established image proper advertisement of the brand is to be done as well as funds are required to meet the specific needs of customers. However, the new entrants often do not have much funds to be invested to work at par with established companies. This is because new companies have low funds and less investor as they are less known in the market (Cozzolino and Rothaermel, 2018). Since Zara is a well-known apparel brand who already have an effective amount of finances to be spent to improve their business the force is weak for them. Moreover, threat of new entrant for Zara in the UK market is weak as it is difficult to establish the same image at par with Zara who have developed their brand over the years through trusted and quality services and products in the UK market.

Threat of Substitution:

Zara ensures that they produce most effectively variety of clothing of different sizes and shapes by considering the demands and needs of the customers. In addition, Zara provides clothes that are of high quality as well as relates with the current trends in the industry (inditex.com, 2018). Thus, this nature of services has made consumers avoid looking for substitutes against Zara creating the threat of substitution a weak force for the company. In the fashion industry, there is low scope for developing substitutes for clothes and apparels (Gwozdz et al. 2017). Since Zara provides most of the diversified clothes required by customers and existing in the industry thus the threat of substitution is weak.

Bargaining Power of Suppliers:

The number of suppliers present in the UK fashion industry is huge (Winter and Lasch, 2016). This makes the suppliers have low bargaining power for Zara as the company can replace any of its suppliers if required without facing any hindrance. In case of Zara, it is seen that they offer assistance to its suppliers as well as help their suppliers develop action plans to improve the management of goods. Zara also provides plan for improvement as well as training for assisting its suppliers ensure providing effective services to the companies (inditex.com, 2018). Thus, it indicates that Zara offers effective assistance to its suppliers as well as helps them during difficulty in turn showing value towards them. Therefore, it makes the bargaining power of suppliers weak for Zara as the supplier is provided whatever assistance required to ensure the smooth operation of services thus fulfilling most of their demands allowing the suppliers to have limited scope to make bargain with the company.

Bargaining Power of Buyers:

Zara is seen to design diverse range of clothes according to the needs and demands of its customers (inditex.com, 2018). This ensures that Zara provides value to the expectation of the customers which make the bargaining power of the buyers in the UK fashion industry weak for the company. As mentioned by Chen et al. (2017), providing products at lower prices with improved quality leads the company to develop an effective loyal customer base. This is because the consumers as a result of meeting of their expectation within low expenditure prefer to buy from the company. Zara provides high-quality clothing at economic prices to its customers which leads the buyers have weak bargaining power towards the company as most of their expectations are already met by the organisation through their products.

Competitive Rivalry:

In the UK fashion industry, increased numbers of competitors are present for Zara. This is evident as numerous brands such as H&M, Benton, Gap and others are present who provide similar nature of diverse products of same quality and price to the customers (owler.com, 2019). Thus, while operating in the UK fashion industry Zara is going to experience strong competitive rivalry as they have to face increased number of competitors who would be competing at all level with Zara to attract their loyal customers towards them to gain competitive advantage in the market.

Zara’ Strategy

The current online strategy implemented by Zara is free delivery of products to be collected at the Zara store for boosting online sales (www.zara.com, 2019).

SAF Analysis

The SAF framework is the tool which is used for analysing strategic possibilities of the organisation. The SAF refers to suitability, feasibility and acceptability ().

Suitability:

The suitability involves checking whether or not the mentioned strategy is able to meet the goals of the organisation. In case of Zara, the buy online and receive in-store strategy is suitable for them to meet the goal of attracting increased online purchase because the strategy would require the customers avoid paying extra charges for their delivery as well as quicker delivery of their products. This is evident as the strategy would lead retailers to avoid the cost of last-mile shipping since the buyers would be picking up the product from the store. Moreover, it leads retailers to fulfil orders of the customers in the nearest store rather transporting the product from a centralised DC (Gao and Su, 2016). The advantage of implementing this strategy is that it offers increased freedom to the customer to receive their order. This is because the strategy provides opportunity to the customer to pick up their purchase from the mentioned location at whatever time they wish. The weakness to be faced by Zara in this aspect is lack of store near the location of the customers and lack of presence of the product in the physical store. Thus, it would make them face the threat of experiencing customer dissatisfaction towards their services as the products wished by them are not received in time (Jin et al. 2018).

Feasibility:

The feasibility of including buy online and receiving in-store strategy for Zara is that it is effectively financed by the organised to ensure its success. The proper financing of strategy helps it to be properly implemented as finances and resources required to make it realistic in each step is able to be arranged by the management (Swanson and Frederick, 2016). In addition, Zara has included training program to its employees to make the process be executed in smooth way. Thus, the strategy is feasible as the required knowledge needed by the employees to institutionalise it is properly arranged through training by Zara.

Acceptability:

The strategy established by Zara is acceptable in nature because it offers great advantages to them as well as its customers. It is evident as buy online and receiving in-store leads the companies to face few processed returns. The processed returns are often found to be expensive in nature as no charges can be taken from the customers and the while investment in processing it is to be made by the company without any profit (Bernon et al. 2016). The strategy is advantageous for the stakeholders of Zara because it helps them to face ease in shopping. This is evident as while going through the aisle in physical stores the consumer may be unable to locate required product at once and need to spend increased amount of time finding them. However, the online purchase resolves the hindrance faced and therefore increases the impulse of the consumers to buy products.

Conclusion

The above discussion informs that Brexit poses a threat for Zara to operate in the UK market as trade complication and increased import duties are to be experienced by them. The social, economic and technological factors are seen to create opportunity for Zara to operate in the UK fashion industry. The Porter’s five forces analysis informs that competitive rivalry is the force which is acting strongly against Zara because of the presence of increased number of competitors of Zara in the UK fashion industry who are delivering similar quality clothes at similar prices like Zara. The current online strategy implemented by Zara is buy online and receive in-store.

References

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