Case study of Zara Company

Introduction to retail

Retail is the sale of products from one single point to customers in small quantities directly or indirectly and primarily for their end-use. Retailing is done with the purpose of satisfying the needs of the consumers, and as such, it acts as a convenient, comfortable and also a convincing method by which retailers sell their goods, as well as services. Although it is an old form of business, trade and also commerce, it is evident that presently, retailing has taken new shapes and forms, owing to new management techniques, which retailers are using, and also due to the forever changing consumer psychology (Fernie & Sparks, 2018). Of importance to this report is fashion retailing, which involves the flow of merchandise from the original design selection that are supposed to be produced to the sale of products to the final retail consumers, with the ultimate goal of maximizing the sales and profitability of the company. Fashion retail primarily depends on understanding the desires of the consumers and responding by use of appropriate products (Nickson et al., 2017). As such, fashion retailers do use sales-tracking data, media coverage, target groups as well as other significant means that ascertain customer preferences and in turn, urges them to provide feedback to fashion designers or manufacturers regarding a type or product or product quality to be produced (Stone & Farnan, 2018).

Introduction to the company

Zara is one of the largest recognized international fashion companies that belong to Inditex. The company has its headquarters based in Arteixo, Spain (Zara, 2019). Notably, Zara Company offers a significant compelling fashion blend, which good quality, and prices, which it offers in its attractive stores, which are strategically positioned in prime locations on various premier commercial streets in upscale shopping centers. The company’s in-house design, as well as production capabilities enables it to produce fresh designs (Loeb, 2015). Zara has its new stores, which are about 1200 square meters (size), with about 500,000 square meter distribution centers that feature 211 km of moving rails. Zara operates in over 2000 countries in 96 markets, which include UK, Turkey, US amongst others. In the UK, the company is among the top 20 list of apparel retailers that are based on the UK market share. Nnotably, the research company global had ranked it on the 19th position in the UK, with a 1.5% market shares as compared to Marks & Spenser, which is only a market leader in the UK, with a market share of 9% (Stein, 2019). Zara has plans on setting a launch of its online sales, with the aim of bringing its fashion collections to about 106 new markets. Zara distributes apparels across the globe and this includes a wide choices range, including a collection for women (approximately 58%), children (approximately 20%), and even men (approximately 22%). Notably, the company supplies its products to various outlets in different countries, based on customer trends. In this regard, it also has a highly responsive supply chain purposes to supply its products to its various stores twice in every week (Inditex, 2019).

Key relevant changes within the UK fashion retail

In determining the relevant changes that are encountered within the UK fashion retail, it is of great significance that the PESTEL analysis of Zara in the UK, is looked into critically. This is as provided below:

Political environment

Free trade agreements across Europe have enables Zara’s UK sales, as well as the overall Inditex group sales. With these agreements goods can be moved freely in European countries without encountering border tariffs, restrictions on quantity or quality of either the imported or exported products, and there is a common custom tariff for the goods that are either imported or exported to other various countries. Notably, the EU is the UK’s biggest export market, especially for textiles and clothing and this accounts for 74% of its significant exports, thus enabling Zara to reach many customers in various European countries without having to encounter extra border tariffs and this has boosted its sales (Thompson & McLarney, 2017).

Economic environment

UK has a fast growing economic environment, which favours Zara’s sales, as well as the sales of the entire clothing retail industry. This is owing to the fact that with the UK’s astonishing high-levels of unemployment, as well as high population, there is low costs of labour, which lead to low production costs, as well as high-quality products, having reduced prices that purpose to attract more customers (Phillips & Moutinho, 2018). However, it is evident that Brexit has resulted in pound depreciation that lead to higher rates of inflation, and increased living costs, with income that is less disposable, especially on clothes, thus resulting in a decrement in Zara’s product sales, as well as the overall profitability of the clothing industry.

Social environment

There is an increasing urge, which make customers to prefer online shopping, owing to advantages like it enables them to shop 24/7, compare prices and escape transportation costs. Evidently, this has forced Zara to plan on launching multiple online shopping platforms, which would significant prove to be successful in enhancing its sales, as well as the sales of its mother company (Inditex). Additionally, it is evident that Zara operates in various countries across the world and as such, the company is obligated to cater for diverse cultures, wherefore, forces it to research on various new markets, as well as cultures and make its products for different cultures (Evans, 2017).

Technological environment

It is evident that through technology, Zara has been able to develop a new augmented reality that allows its consumers to see the manner in which models wear specific clothing at any time that they approach a sensor with a smartphone positioned somewhere in their various stores. In this regard, customers are able to click on a specific product and buy it whenever they desire. Zara also plans to incorporate technology with online orders, having a sensor attached to a given order’s packaging and in an instance where a customer uses a sensor, the customer is immediately presented with a variety of other outfits (Sung et al., 2017). Notably, this technology will be targeted to the younger generation.

Environmental factors

Governments are striving to create greener environment and at the same time, Zara, in togetherness with its mother company purpose to make its various stores to be eco-friendly come 2020. In this regard, the company has invested approximately $7.5B in order to meet sustainable targets, including producing sustainable clothes that are manufactured from organic materials by use of sustainable energy and also, equipping its stores with significant features that are regulatory and also energy-efficient. Additionally, Zara is stepping up in enhancing in-store recycling initiatives that enable customers to drop-off their unwanted items in significant ‘fashion bins’ in their various outlets, in order to boost their textile collection, reducing wastes to landfill, and also recycling rates (Brownbridge et al., 2018).

Legal environment

Zara should enforce copyright laws, in which case, when it launches its products, other local shops cannot reproduce them at lower prices, rather, they shop market them through Zara’s brand name, as well as trademarks (Moody et al., 2018).

Relevant changes within the micro environment

Similarly to the changes in the macro environment, it is evident that Zara also encounters changes within its internal environment. These are provided below, whilst looking at the SWOT analysis

Strengths

Zara has a strong presence in the market as it has continually expanded its presence across the world. For instance, by 2015, it already had 2100 stores globally, having an average sales of 15.9B, and by 2016, it expanded even further. Second to this, Forbes has ranked Zara brand position 53 in its overall brand ranking and presently, it is valued at a 10.7B dollars. In addition, it is evident that there are various positive points that leads to Zara’s excellent brand equity. Finally, it is notable that Zara has a positive reputation of launching approximately 1000 new designs each year globally. As a consequence, a customer that may purpose to visit other stores either twice of thrice years with the aim of checking the latest fashion might have to visit Zara monthly to see what’s new (Febrian et al. 2017).

Weaknesses

Zara has a generalized collection, owing to the fact that it does not specialize in anything and as such, has everything for any individual. Notably, one of the major reasons why customers can shift to another competitor is when the competitor focuses on one thing. This may be shirts, pants or dresses but such immediate focus lacks in Zara. Secondly, it is evident that Zara lacks advertising (Madsen, 2016). Whilst this may result into a cost advantage, and cost poses as one of the company’s strengths, lack of advertising poses as a weakness as the brand can double its profits, as well as its turnover through advertising its various collection.

Opportunities

Zara has the opportunity of taking advantage of online e-commerce and thus, make it products available on all platforms. Notably, online business would definitely hike the company’s sales. Secondly, the company has a growing market potential, owing to the fact the wherever it is currently existing, the brand becomes more popular, thus resulting into great market growth. Finally, it is evident that Zara has an opportunity of expanding its market. This is owing to the fact that new markets would always give new potential and profitable businesses to Zara. As such, the company should keep an eye on various emerging markets (Jin & Cedrola, 2019).

Threats

Zara is not the only fashion company known to have unique chic designs. This is owing to the fact that other companies such as H&M and Mango also have their loyal customers who love their designs. However, Zara has its edge over its competitors as it provides better designs to its customers at affordable prices. It is evident that this competition results into saturation, especially in the semi-premium segment, thus indirectly affecting the margins. Additionally, Zara needs to purpose on increasing its reach to its customers tremendously. This is owing to the fact that it operates exclusively through its widely distributed stores and as such, does not have shops in other display outlets such as supermarkets. Notably, this is where its competitors get advantage (Sinha et al., 2016).

The theory of retail life cycle applies to retail organizations, as they pass through various identifiable stages, which include innovation, development, maturity and decline. This theory changes over time in various retailing outlets and it majorly aim at technological factors, which drive the fashion industry. Similar to a product’s life cycle different stores are subject to change as they pass through the stages of the retail life cycle (Bodie, 2015). As fashion department stores reach the decline phase, there is much more that need to be done in order for a given fashion retail to survive the stiff competition in the industry. Zara has been able to develop a new augmented reality that allows its consumers to see the manner in which models wear specific clothing at any time that they approach a sensor with a smartphone positioned somewhere in their various stores. Customers are then able to click on a specific product and buy it whenever they desire (Loeb, 2015). In addition, the company plans to incorporate technology with online orders, having a sensor attached to a given order’s packaging and in an instance where a customer uses a sensor, the customer is immediately presented with a variety of other outfits. It is worth noting that the wheel of the retailing theory describes the evolution process, which brings forth the opinion that vulnerability imposed on innovation poses as an inevitable change.

Moreover, eco awareness as demonstrated by various retailers poses as a significant aspect that enhances the sustainability of businesses. There are two significant ways in which retailers adopt environmentalism, whereby, the first one associates with the product and the second one focuses on the entire process of operating a retail business. Zara, in togetherness with its mother company purpose to make its various stores to be eco-friendly come 2020. In this regard, the company has invested approximately $7.5B in order to meet sustainable targets, including producing sustainable clothes that are manufactured from organic materials by use of sustainable energy and also, equipping its stores with significant features that are regulatory and also energy-efficient (Stein, 2019). In addition to this, the company is stepping up in enhancing in-store recycling initiatives that enable customers to drop-off their unwanted items in significant ‘fashion bins’ in their various outlets, in order to boost their textile collection, reducing wastes to landfill, and also recycling rates.

Finally, it is significant to take note of the fact that customers do have preferences to the kind of products that they purchase from their retailers. Owing to the fact that Zara purposes to meet the satisfaction of its customers, the company has a higher branding position it the globe’s market share. For instance, Forbes has ranked Zara brand position 53 in its overall brand ranking and presently, it is valued at a 10.7B dollars. In addition, it is evident that there are various positive points that leads to Zara’s excellent brand equity. It is also notable that Zara has a positive reputation of launching approximately 1000 new designs each year globally. As a consequence, a customer that may purpose to visit other stores either twice of thrice years with the aim of checking the latest fashion might have to visit Zara monthly to see what’s new (Zara, 2019).

Recommendations

In order to meet the challenges, which Zara is presently facing, thus might give its competitors an edge, the company should purpose to take the following recommendations into consideration:

The company should be hasty into making its plan of selling online a reality. This is owing to the fact that selling on an online platform is a good tactic as the company has already adopted to its low-cost approach of selling, which is contrary to the high-price strategy used by its competitors. Online selling reduced the cost for rent and it also increasing the sales and overall profitability of the company and its mother company (Inditex). In addition to this, is the fact that most people prefer shopping at any time, whilst reducing the cost of transport.

As it is said above that Zara lacks advertising, it is of great importance that the company should lay its resources on advertising its products, in order to increase its sales. Lack of advertising poses as a weakness as the brand can double its profits, as well as its turnover through advertising its various collection.

Finally, Zara should focus on increasing its reach to its customers. This is owing to the fact that it operates exclusively through its widely distributed stores and as such, does not have shops in other display outlets such as supermarkets. Notably, this is where its competitors get advantage. As such, the company should purpose to display its products extensively and thus, reach most of its customers.

Conclusion

Based on the above provisions, it is evident that Zara Company is a retailer that uses significant strategies, as well as tactics in responding to major changes occurring in the fashion clothing market. It is worth noting that Zara understands the desires as well as expectations of its consumers and thus, responds to their demands appropriately. Through the SWOT and Pestel analysis, this report has been able to find out that Zara is has to succumb to various environmental changes in the dynamic fashion industry, which Zara has to use significant tactics and strategies, in order to overcome. Overall, the aforementioned tactics and strategies that Zara uses have been able to make the company strive in the fashion industry and thus, overcome its competitors.

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References

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