Table of ContentsPolicy:Economic Factors:Social Factors:Legal Factors:Environmental Factors:Industry Level AnalysisBuyer Bargaining PowerSupplier Bargaining PowerThreat of SubstituteThreat of CompetitorsBarriers upon entry/threat of a new entrantStrategic positioningStrength:WeaknessOpportunitiesThreatProduct: Location: Price: Promotion: Zara is a fashion retailer originally manufactured in Spain and a subsidiary of the Inditex Group, the largest retailer in the world. They sell clothing for men, women and children as well as home furniture. While being one of the largest international fashion companies, Zara has thrived and continued to dominate the fast fashion industry. They achieved this by strengthening the “design, manufacture, distribution and retail” strategy of their parent companies. They are best known for their ability to respond quickly to new trends and distribute them to stores. Zara's recent financial performance showed that in the 2018 financial year, the company managed to achieve a turnover of 0.9 billion. Their recent marketing performance has shown, through their subtle and minimal advertising, that they are still able to compete fiercely in the fashion industry. Zara dominates while being the most valuable Spanish brand with a value of 0.8 billion (Wang at Kantar 2019). Additionally, their recent marketing activity has shown that they are considering merging Zara and Zara home to capitalize on the synergies between the two companies (Mintel 2019). Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essay I will explore how the external environment can impact Zara's performance. I will use PESTLE to analyze a variety of factors that could potentially affect Zara. Politics: The political state of the UK surrounding Brexit has caused massive uncertainty. Faced with potential new legal requirements, the fashion industry is cautious about how to respond. Zara in particular, as they are based in Spain, are now vigilant about their actions with the UK being one of their largest markets. Since Zara operates in the fast fashion industry, its ability to respond to trends can be difficult for this reason. For example, their distribution channel could be affected by changing trade agreements, which could cause Zara to pay additional customs duties, increasing its costs. This will have a specific impact on Zara, as they operate under a vertical integration method. Its own distribution center based in Spain had given Zara a competitive advantage, but it could now work against it. As a result, this could mean that Zara will have to pass this cost on to customers. This could lead to damage to Zara's brand image, characterized by affordable prices for luxury items. Additionally, their model is fundamentally based on their rapid ability to respond to new consumer trends and distribute them to their stores through their rapid supply chain. However, this may be in danger. Economic Factors: Economic instability can have a profound impact on consumer confidence. A change in the business cycle can have a domino effect on things like cost of living, disposable income and interest rates. This means that Zara's profits will decline as their products are considered semi-luxury, with consumers less likely to spend their money there and switch to competitors suchthan Primark. Additionally, Zara is sensitive to exchange rate fluctuations, as the majority of half of its sales are made in non-euro currencies. Inflation is also a factor to consider because although Zara is affordable, it is still expensive compared to Primark or New Look. Zara is known for having a strong internal presence as it sells its products in 202 different markets. However, growing markets like Brazil and India offer retailers the opportunity to diversify their risks and grow. Social Factors: Another factor to consider is that when entering new markets, research needs to be done thoroughly. Indeed, each market may differ in terms of age, disposable income, geographic area, tastes or attitudes. Additionally, as Zara operates in a wide range of countries, they need to ensure this is culturally appropriate and respectful. Indeed, each market is different and consumers in different geographic areas may have different tastes and needs. For example, Zara had produced a lung-shaped skirt, known to be worn by Asian men. Consequently, they have been criticized for cultural appropriation. It is also important that large fast fashion retailers are able to respond to changing social trends, especially for Zara's target market of 20-30 year olds. Employee diversity is also important in today's society, which Zara and Inditex strongly reinforce. Zara’s parent company claims that its “171,839 people represent 97 different nationalities, speak 54 languages ​​and have different profiles, cultures, backgrounds and experiences” (Inditex 2017). This gives them new ideas from different perspectives and cultures, which is a good thing for their market. many countries because they may have the necessary knowledge. Advances in technology have meant that fashion retailers have changed from what they used to be. This allows them to be innovative and responsive to customer needs. This also means that the fast fashion industry is more competitive due to the availability of data and the speed with which information travels. This is why Zara needs to integrate cutting-edge technology into its business to be able to operate effectively. For example, Zara has integrated a system called RFID, which allows employees to track inventory in stores and other branches. Additionally, the rise of social media means retailers have other ways to discover the latest clothing trends or connect with customers. Technology has also had an impact on how retailers manage to sell and reach their customers. Websites and social media are able to get the word out about their clothing and reach more markets without opening physical stores, which is an advantage for retailers as online sales increasingly grow. Legal Factors: The fashion industry is subject to many laws and strict rules. regulations. The impact of legal requirements on retailers is profound as they can affect their brand image and costs. Companies known for not following the law have a bad reputation. Due to negative publicity, customer trust may decrease and shift towards competitors instead. It is therefore essential that retailers comply with laws such as copyright, legal wages or any other issues. Environmental factors: Consumers and businesses are increasingly aware of the impact they can all have on the environment. The marketZara's target audience, especially the 20s to 40s, is more educated and aware of their carbon footprint and understands that climate change is an important issue that can affect us. Consumers are aware of the impact businesses have on the environment in terms of waste, sweatshops and pollution. Despite being one of the largest retailers in the world and having a global presence, companies like Zara have a greater responsibility when it comes to being accountable for their actions. Companies associated with social responsibility are more likely to have a better reputation than those that are not and do not run the risk of being reprimanded. For example, Zara is committed to being sustainable by making all its stores eco-friendly by 2020. Industry Level Analysis Buyer Bargaining Power Buyer power in this industry is moderately high due to the high variety and availability of retailers. Customers can also find even more alternatives online and perhaps even cheaper because the market is very saturated. Fast fashion retailers' business models are fundamentally based on customer tastes, meaning that retailers sell similar clothing. However, Zara sells luxury clothing at an affordable price that may not be able to be replicated by other competitors for the same price and style. In addition, the buyer's bargaining power depends on the region where the buyer is located. For example, in Europe, in the United States, Zara is considered more affordable, but in developing countries like China, the Philippines or Thailand, they are considered more expensive and, in turn, will be more sensitive to price, which limits their negotiating capacity. suppliersSuppliers have weak bargaining power. Indeed, the high availability of suppliers reduces their value. Result: suppliers are inflexible on prices. In addition, many suppliers depend on one main customer due to the large number of suppliers, making companies that are well-known or order large quantities have more bargaining power when achieving economies of scale. Since raw materials like fabric are relatively cheap, buyers can easily find other suppliers who sell the materials at a better price, allowing them to have better profit margins. Zara being part of the Inditex Group, the world's largest retail company, gives it a competitive advantage through economies of scale. As Zara operates under a vertical integration model in which they manufacture and distribute their inventory themselves, they will likely have more knowledge about the materials needed, giving them an advantage over their competitors who outsource. Threat of Substitution Threat of substitution is high, especially in retail. industry. Competitors replicate the same type of clothing or style and charge lower prices. This is because the clothing industry operates based on satisfying current trends that occur seasonally and producing them. So it makes sense that all competitors are doing the same thing and making similar products. If consumers cannot find stores like Zara that offer the latest design or style, they may look to competitors or if they find that the clothing and range they produce is stagnating. However, Zara has established a strong relationship with its customers, where loyalty is demonstrated through repeat purchases. Threat of competitors The clothing industry isfacing a strong threat from competitors due to the saturated nature of the market. This means having access to many different brands; retailers may have to compete on price. The Internet has given online retailers the opportunity to compete with big brands like H&M. The mere availability of brands means that companies must compete with their competitors on price, quality or brand image. The clothing sector also requires significant investment in assets as fixed costs are high. With their capital tied up, businesses are often reluctant to leave even if they are not making much profit. Companies must differentiate themselves and their products in order to stand out. This is why Zara has created a synergy with the Zara houses to distinguish themselves from their competitors and diversify their risks. Barriers to entry/threat of new entrantsBarriers are relatively high for those just entering the market. It takes many years to establish as customer loyalty takes years of trust as customers are already brand loyal to established businesses. Additionally, it is difficult for new, smaller brands to achieve economies of scale because they are unlikely to work and require large orders like brands such as Zara or Gap that are already established. This gives big brands a competitive advantage over them. Additionally, start-up costs are high to produce clothing or purchase space to open their store. Strategic PositioningStrength: The main strength of Zara is that it is able to respond to trends very quickly. Their ability to achieve this has largely contributed to Zara's success. Zara was able to do this thanks to its vertical integration model. Because Zara does not outsource its manufacturing elsewhere, it is able to control its prices and keep its costs low. So, Zara is able to quickly produce new items within 2 weeks, while other retailers take 2 months. Another strong point is that their branding is very powerful. They have managed to establish a loyal customer base, which has allowed them to use minimal advertising while remaining one of the most powerful players in the industry. This also means that customers are less price sensitive because they trust Zara as a brand. Zara produces more models than all its competitors. Zara produces around 12,000 styles per year, compared to a retail average of 3,000 (Harbott 2011). They also strategically place their locations in locations that match their branding and are in prime real estate. WeaknessOne of Zara's biggest weaknesses is its lack of advertising. Although this has made their profit margins high, Zara would greatly benefit from marketing their stores more. This would increase awareness, attract more customers and thus increase their revenue. The lack of advertising could give competitors H&M and Gap a competitive advantage over Zara. Second, Zara keeps a limited buffer stock, meaning it cannot meet unexpected increases in demand or must increase its inventory in an emergency if stock is damaged. OpportunitiesA major opportunity for Zara is to enter more new markets in developing countries like India and China. or in Brazil. For example, the middle class is growing in Asia, and in India alone, this social class numbers 330 million people. With increasing disposable income, Zara will be able to increase profits while creating a larger global presence.,