ZARA Case Study- PESTLE - SWOT Analysis

1
CASE STUDY - ZARA - PESTLE
2
Profile of Zara

• Zara is a Spain-based clothing and accessories
  retailer founded by husband-wife duo Amancio
  Ortega and Rosalia Mera under the umbrella of
  Inditex Group. Inditex is a large multinational
  conglomerate, which is made up of almost 10
  companies, which specialize in clothing. Zaras
  estimated share of the total revenue of Inditex
  Group is 80 (Wlodzimierz, 2012). Its uniqueness
  of tracking and involving customers preferences
  made Zara the market leader in the apparel
  industry. The three products lines of Zara are
  women, men and children are showcased through its
  1700 stores and an online store all over the
  world. Zara is noted for selling modern designs
  that the public needs with quality at affordable
  prices. Fashion director Louis Vuitton described
  it as the most devastating retailer in the world.
  CNN has called it a Spanish success story.

3
Zara - Details

• Type of Industry
• Headquarters
• Sales/Revenue
• Area Served
• Number of Stores
• Competition
• USP
• Target Group
• Products
• Website

Lifestyle and Retail Artexio, Spain 83.26
Million Worldwide 1923 in 88 countries Mango,
Uniqlo and HM, GAP, Benetton Perfect combination
of high end fashion at affordable price People
with high and medium purchasing power who love
stay in fashion Clothing line for women, men and
children www.zara.com
4
SWOT Analysis - PESTLE Analysis of ZARA

• This study is conducted to understand the market
  potential of Zara internally and externally. In
  this study, we are going to analyze the internal
  and external market environment of Zara and
  sharing some suggestions that the company should
  consider continuing their success. For the
  purpose of the study, the data presented here, is
  collected from various published sources and
  different case studies conducted on Zara. We have
  used two market analysis methods SWOT and PESTLE
  analysis to review Zaras business frameworks.

5
SWOT Analysis

• Strength stands for all those aspects of the
  company, which give it a competitive advantage
  over other company. 
• Weakness stands for the all the aspects which
  give the rival companies a competitive
  advantage. 
• Opportunities are the areas of potential
  advantage, which the company can use profitably
  in future in order to outpace its rivals. 
• Threats are those areas, which the company needs
  to be careful about if it wants to dominate the
  market.

6
SWOT Analysis
7
StrengthsWOT
8
Strong Control Over Supply Chain

• Zara possesses 90 of its stores in 88 countries
  including United States, Europe, Asia, Middle
  East and many, and the rest is the joint ventures
  or franchises. It boasts in-house production
  factories within proximity of the headquarters
  (Hill, Jones Schilling, 2014). It affords the
  company self-containment throughout the stages of
  its supply chain raw material selection,
  production, distribution etc. Here is a graphical
  representation of Zara supply chain for better
  understanding

9
Adroit Design Strategy

• Traditionally, fashion companies use media in
  order to promote seasons trend. On the other
  hand, Zara is called fashion imitator because
  instead of predicting trends, it imitates the
  trends of the season and provides such fashion
  trend to its customer at the minimum amount of
  time possible. Zara maintains a supply chain that
  enables them to embrace the fast-changing tastes
  of its customers. It introduces new clothing
  models within few weeks only (Crandall, Crandall
  Chen, 2014). It reacts quickly designs new
  styles, gets them into stores in few days.

10
In-House Production and No Outsourcing

• Zara does not outsource its products in the hope
  of its reducing labor cost. Instead of
  outsourcing its work to cheap labor markets of
  Asia, it makes the most out of the cheap labor
  supply of Portugal and Galicia. This retailer
  giant is vertically integrated, unlike its
  competitors, HM, Gap, Benetton, control its
  designs, and RD facility production facilities,
  distribution centers, transport fleet, and 90 of
  its shops (Wlodzimierz, 2012). When the company
  is paying for factory time in China, the company
  does not own the company, they are a number of
  uncertainties they will counter. It helps the
  company to reduce the cost of warehouses as
  shipping is done from production factories
  itself. 

11
Efficient Production Management

• Zara produces more designs than all its rivals.
  As we mentioned earlier it produces about 10,000
  designs annually as opposed to only 2000 designs
  for its rivals. Fast response to its customers
  demand enables Zara to meet customers
  expectations and ultimately that lead them to
  success. Such demand management lacked in Marks
  Spenser and to some extent with Sainsbury, they
  did not match their product with their customers
  expectations and this led the companies into
  trouble. Zaras design-to-stock-cycle varies from
  4 to 6 weeks compared to the average six months
  of the traditional industry.

12
Zara Product Design Strategy

• Zara commits six months in advanced to only 15
  to 25 of a seasons line, which means it
  produces 50 of its clothes are designed and
  manufactured in the middle of the season. If
  trends change, Zara reacts quickly, designs new
  styles according to the new fashion trends. With
  the help of their efficient vertically integrated
  supply chain, they get the designs into the
  stores while the trends are still peaking.

13
Large Distribution Network and Greater Reach

• Zara has 1923 stores across 88 countries in
  Africa, America, Asia-Pacific and Europe. Higher
  number of stores means greater distribution
  network and greater reach to the customers.

14
How Zara Become a Global Brand?
15

• 1975 - Opened its first Zara Store in downtown A
  Cortuna, Spain
• 1990 - Opened first Zara store outside Spain in
  Oporto, Portugal, then expanding to New York
  (1989) and Paris (1990)
• 2002 - Introduced its new distribution hub in
  Zaragoza, Spain
• 2003 - Opened first Zara home outlet
• 2004 - Unveiled store in Hong Kong, expanding
  global footprint to 56 countries
• 2007 - Introduced first online store to global
  consumers
• 2010 - Opened its first store in Bulgaria, India
  and Kazakhatan, increasing its presence to 77
  countries
• 2011 - Opened online Zara stores in the USA and
  Japan
• 2012 - Revamped image based on four principals
  beauty, clarity, functionality, and
  sustainability. 

16
Strategic Locations of the Stores

• Zara stores have been popping up all over the
  world. The company invests a handsome amount of
  money buying storefronts beside luxurious brands
  to own the label of luxurious brands. It choose
  its locations very carefully to cater local
  customer by understanding their needs. They also
  follow tailored retail strategies to satisfy
  customers according seasonal trends

17
Affordable Prices

• Owing to its affordable brand label, customers
  get to enjoy high-end fashion clothes at
  affordable prices. Zaras apparel pricing ranges
  from 5 to 322, however, the average price point
  at Zara is 48. While comparing its prices with
  its one of the biggest competitor HM, the
  differential pricing structures of these two
  brands can be noticed. HMs most priced bracket
  in tops is 20 - 30, whereas, Zaras is 40 -
  50.

18
SWeaknessesOT
19
Self-Contained Distribution System

• Centralized distribution system is the biggest
  problem of Zara. If there is any technical snag
  occur in the distribution network then the whole
  system can collapse. But in other apparel
  companies, the distribution networks are
  decentralized and not self-contained like Zara.
  As such even if one part of the network falls,
  there is no wholesale collapse of the entire
  network. Zara controls its production, suppliers,
  distribution system, retails stores, unlike its
  rivals that make it prone to unpredicted problems.

20
Imitator, not Creator

• The Fast Fashion strategy also has its own set of
  weaknesses. Zara can never be one of the premium
  luxury brands in the fashion world because it is
  considered as the great fashion imitator since it
  usually imitates runway fashion rather than
  predicting the styles of the season (Hansen,
  2012). No doubt it provides its customers
  high-end designs, but its designers play smart a
  trick by copying designs of fashion week, rather
  creating some original on their own.

21
Spends Zero Revenue on Their Advertisement

• Zara does not spend much money on advertising. It
  has a zero advertising policy unlike its rival
  Benetton, HM and GAP (Hansen, 2012). However,
  some of the major names of the glamour world are
  the brand ambassador of these companies. One of
  the biggest marketing moments for Zara was when
  Kate Middleton wore Zara dress (49.99) the day
  after her wedding to Price William
  (Dailymail.co.uk, 2016). However, this zero ad
  policy gives its rival greater public exposure.

22
SWOpportunitiesT
23
Scope for Global Expansion

• Zara has global market penetration. The company
  has market presence in all the four major
  continents. However, it still needs more
  expansion in Africa and Asia. In Africa, it has
  stores only in Egypt, South Africa, Morocco,
  Tunisia and Algeria. The company has more
  opportunities here. Africa has full potential
  stored for this company. Similarly in Asia,
  countries like China and Japan have more stores
  than India, Singapore, UAE and Saudi Arabia
  despite that fact that these countries have a
  substantial number of rich people.

24
Expand in E-Commerce Sector

• Another area is online marketing where the
  company needs to concentrate. The reason is most
  of the other companies like Benetton and GAP do
  not have good online marketing channels. Zara is
  already operating numerous online stores for a
  number of countries. However, it needs to expand
  its base for other countries as well in which
  online shopping is not available. It needs to
  invest more revenue in e-commerce sector in
  giving their products more exposure in front of
  their customers.

25
More Attention to Distribution Network

• Finally, distribution network in the US needs to
  increase while keeping the basic elements in
  mind. Statistics projects that US has only 52
  Zara stores as compared to 453 in Spain, 157 in
  China, 92 in Japan and 84 in Russia. The huge
  geographical expanse of US calls for a greater
  number of stores. A large population of US
  requires more stores to satisfy the needs of the
  growing customer base in the US.

26
SWOThreats
27
Fierce Competition

• Zara experiences fierce competition, not only
  locally but also globally. Locally Zara faces
  competition from Swedens HM and in-house brands
  like Massimo Dutti and Stradivarius, whereas, on
  the global platform, it faces competition with
  international brands such as in the US, the
  toughest competition is from the US based GAP.

28
No Collaboration with International Designers

• Zara shares no collaboration with international
  designers unlike HM, which has collaborated
  profitably with international designers like Karl
  Lagerfeld, Lanvin, and Alexander Wang. This can
  be a serious threat to the company. When a
  company collaborates with an internationally
  noted designer, young shoppers get interested in
  buying designer labels.

29
PESTLE Analysis
30

• PESTLE, one of most popular marketing tools,
  helps to analyze the external factors that affect
  an organization. PESTLE is mostly used when
  manager attempt to identify factors pose as
  threats to the organization or the opportunity
  that company can use to climb the ladder of
  success. PESTLE is acronyms of six essentials
  factors, 

31

• Political factors refer to the policy of the
  government that involves legal and economic
  aspects 
• Economic factors mainly demonstrate the changes
  in taxation, inflation in economic growth, the
  rate of exchange and rates of interest. 
• Social factors mainly highlight any alteration
  in trends in the society, and its potential
  effect on the companys consumers. 
• Technological factors concentrate on the
  advancement of technology and how the development
  of technology benefits to the customers. 
• Legal factors purely talk about litigation or
  legal procedure that company has to undergo 
• Environmental factors refer global situations
  like global warming, greenhouse effect, natural
  calamities, etc.

32
Government Intervention

• Government Intervention
• Whenever, Zara plans to expand its roots to
  another country. It has to know the entire system
  before taking any permanent step. The reason is,
  the government of a country can easily change its
  policy, which will affect on the companys
  operation.
• British Riot Situation
• Whenever, Zara plans to expand its roots to
  another country. It has to know the entire system
  before taking any permanent step. The reason is,
  the government of a country can easily change its
  policy, which will affect on the companys
  operation.
• Expanding Business in Europe
• Zara is planning to expand its business in the
  Europe Union because of its safe and prediction
  economic circumstances. It will help the company
  to predict its market growth because Europe
  economy rarely changes

33
Economic Factors

• Fluctuating Economy
• Zara has been witnessing fluctuation in last few
  years, but Zara is drawing its revenues
  successfully for last years. The recession in
  2011, has not affected the company as such. The
  reason is, Zara deals in dollars and safer
  currency for its dealings. The company always
  evaluates the economical condition and currency
  rates of that country before entering its new
  markets (Knox, Agnew McCarthy, 2014).
• Prices differences in various countries
• Due to different customs duties and level of
  tariffs in various countries, the prices of Zara
  products vary in different countries. Here is a
  comparative study conducted by newspaper El
  Confidential demonstrating pricing differences in
  various countries, 22 to 24 higher in France,
  Italy and Germany.

34
Social Factors

• Sizes of Clothes 6 -16
• Keeping societal factor in mind, Zara creates its
  products while keeping the basic factors like,
  geographical position, race and origin of the
  country population. So you can find clothes for
  someone who is very skinny or for someone who is
  heavy weighter. It gives the company a societal
  advantage.
• Discounts and offers
• It is in our habit to incline to perceive add-ons
  such bonus packs as gains so as price discounts.
  Zara provides promotional codes, vouchers and
  offers deals to its customers. Zara promotes its
  products by various coupon sites where one can
  find its discount codes, which can be redeemed at
  their online shopping site or store.

35
Technological Factors

• Launching Apps for Feasibility of Customers
• Zara tactfully uses information technology to
  support its international logistic system and an
  online store where exchange and return of
  products are involved. Zara gives its customers
  the chance to buy its products by iPod and
  in-house apps (Forbeswelcome, 2016).
• Interactive Maps to locate the store
• Zara projects a store locator on the website
  where you can easily locate a store by entering
  your desired region and location. The store
  locator will show you the closest stores around
  the entered location. Hence, it gets easier for
  the consumers to discover stores as the online
  maps show the exact location of the store.
• New Experience with Zara iPad app
• Zaras attempt in online shopping is
  revolutionizing the entire online buying
  experience. With just a few clicks on your iPads
  Zara online shopping app, you will now be able to
  conference with your friend while looking at the
  clothes on your tablets. This technology gives
  any buyer the opportunity to involve their
  friends suggestions while shopping for their
  own. The options like video chat, instant
  messaging and voice chat are available
  (Thestir.cafemom.com, 2016).

36
Environmental Factors

• Earthquake in Japan
• A series of disasters struck Japan in 2011, the
  tsunami was one the biggest one that devastated
  Japan in many ways. For the apparel industry and
  its supply chain, the short-term impact can
  affect organizations in log term. Damage to local
  infrastructure, power irruptions, closed ports
  are many few among the problems that apparel
  industry faced during this time.
• Asian Countries require rapid fashion change
• Weather in Asian countries is totally different
  from the European countries. Five extreme seasons
  rule the weather, whereas winter rule in European
  countries. Variation in seasons requires rapid
  fashion change based on the local weather.
  Instead focusing on seasonal changes, Zara sells
  clothes for the normal weather.

37
Legal Factors

• Litigation changes in different countries
• The government of Russia, India and Mexico
  provides their own version of corporate policies,
  and the company has to alter operation according
  to the set policies. In this manner, the pressure
  is always on the Zara products in terms of
  ensuring that they are following proper
  litigation in their business operations.
• Copyright Issues
• Big fashion retailers like Zara value their brand
  equity because they develop a bond with their
  customers through their brand names and
  trademarks. But sometimes, it becomes impossible
  for the organization to implement copyright law.
  It is true that the Zara launch its new design,
  you will find the same design at lower cost at
  some local shops. But sometimes the company
  itself face few copyright issues, the recent one
  with global brand Fendi. Roman fashion brand
  Fendi claimed that Zara had unlawfully used their
  photographs that had been taken from Fendis show
  in the 2013 fashion week.

38
(No Transcript)
39
CONCLUSION

• It might be said that Zara has the potential to
  be largest clothing retailer in the world.
  However, fast fashion policy must also go hand in
  hand with aggressive marketing using all modes of
  marketing channels. Distribution network must
  expand especially in Africa and America to get
  the maximum exposure for the brand. After
  assessing its internal and external factors, it
  is noticed that Zara manages to stay up at the
  revenue growth due to its unique and strong model
  of the business. It is advisable that the company
  should continue to launch creative and fresh
  fashion to satisfy the need of customers. 
• Based on SWOT and PESTLE analysis, Zara will
  stay as the leader in the apparel industry is
  spite of the challenges and threats it would
  face. Its unique supply chain infrastructure and
  efficiency of the business operation give the
  company the competitive advantage, which reflects
  in their sales and revenues.