Introduction

Strategic Analysis of Zara in Singapore

Introduction

Zara is a clothes and fashion brand based in Spain, with retail locations throughout the United Kingdom. In 1975, Rosalia Mera and Amancio Ortega founded the company, which is now the primary brand of the Inditex Group, the world’s largest clothing retailer (Frichou 2020). Currently, the corporation operates in over 86 countries, with 1,763 locations throughout the world. Zara, Zara Home, Pull &Bear, Bershka, Massimo Dutti, Oysho, Stradivarius, and Uterque are among Inditex’s eight brands. Zara has an attractive design for males, ladies, and toddlers. In addition, the company sells add-ons to its extensive product ranges. The gross profit in 2016 was €13.3 billion, up 10% from the previous year. The total revenue on sales has hit 57.0 percent.

PESTLE, Porter’s 5 Forces, SWOT, Porter’s Generic strategies, as well as other resources and ability methods are examples of such techniques.

External Environment

 2.1. Michael Porter’s Five Forces Model

Porter’s Five Force Model is made up of five competing forces that determine the industry’s competitiveness and attractiveness (Frichou 2020)). 2.1.1. Obstacles to Entry To be sustainable and profitable, the fashion and garment industry requires a large amount of fixed capital and scale economies. Marketing and promotion (in-store) account for 3.5 percent of revenue, which is a substantially fixed expenditure. Further, Zara, for example, announced €450 million in commercial and logistics commitments in its campaign. Zara’s goal is to ensure that the first lead times of only two weeks encourages customers to come to the stores frequently to purchase the new designs before they sell out.

Threats of Substitute

According to the proclivity of customers due to competitor companies from other Zara rivals such as H&M, MANGO, and Uniqlo, the fast-fashion business faces a mild threat of substitution. The ability to substitute an item with some other rival brands is aided by low buyer switching costs from one brand to the other (The Secret of Zara’s Success 2021).

2.1.3. Power of Buyers

In the accelerated business, buyers have a moderate amount of power. Despite customers’ fast switching strength from one company to the other, brand loyalty centrists this influence, with Zara enjoying higher customer loyalty. Zara has put in place a low-end role in the fulfilment of the Eastern European, European, and American sectors in overcoming consumerism. Zara relies on quality products in other rising regions such as China, India, and Indonesia.

Power of Suppliers

Given the abundance of suppliers eager to supply garment raw materials, Zara’s supplier leverage is limited. As contracts in clothing made, stitching operations, and equipment are accessible with low fabric costs and the existence of supporting local functioning without union movement, suppliers have limited bargaining leverage (The Secret of Zara’s Success 2021).

In addition, due to strong entry barriers enabled by fixed SG&A costs, the fast-fashion market has a lot of competition. Furthermore, the business has excess inventory as a result of cash attached and out stock and excellent advertising experiences. Due to the high level of competitiveness in the sector, Zara devotes 3.5 percent of the total revenues to marketing.

2.2.1. Internal audit

Strength In certain ways, Zara has an advantage. First, the company has a global reach, which boosts its customer base and spreads the risk connected with its operations. Second, before opening a store, Zara performs site research that takes into account all demographic aspects. Zara also is a good distribution network that allows for quick product delivery to stores, resulting in faster inventory clearing (Bhasin & Maillet 2020). Fast-changing collections are an efficient method for ensuring fresh product manufacturing every fifteen days.

2.2.2.

Weaknesses Zara creates limited quantities as fast fashion, which necessitates the publication of new merchandise every two weeks. Consumers, on the other hand, may regard the firm’s strategic aim to restrict production adversely if they are unable to locate the brand they wish to purchase. Zara also faces a stiff competitive advantage when it comes to pricing its products in contrast to its rivals.

2.3.1. External Audit

 Opportunities

The growing middle class in emerging economies such as China, India, and Indonesia are expanding Zara’s market. Expanding distribution centres in emerging markets will increase the efficiency of distribution networks and lower production. Furthermore, the Zara brand has a high level of worldwide awareness, providing a potential for the company to expand strategically.

2.3.2. Threats

Zara’s biggest challenge is tough rivalry from rivals such as H&M, forever 21, and Korea, yet because of the renown of its brands, Zara may enjoy significant market share with appropriate advertising. Another issue Zara and its vendors face is a lawsuit relating to sweatshop labour, which might raise production costs and cause them to lose cost-leadership strategy (Bhasin & Maillet 2020).

3.1 Political factor of the PESTEL Analysis

Zara’s success is influenced by import and export rules enacted by the markets in which it operates. Labour laws, licencing laws, and foreign direct investment laws are among several rules.

3.2. Economic Factors

Customers’ ability to acquire Zara goods is influenced by economic considerations. During a recession, for example, potential customers have less expendable cash, limiting their purchasing power. Market and economic disruptions have an impact on the production’s long-term viability.

3.3. Social Factors

The fashion industry’s performance is influenced by spending patterns and social status. Due to the increasing consumer ability to purchase things, rising middle-class earnings in Asia may boost its efficiency. Brand acceptance is also impacted by knowing the community-based culture (Bhasin & Maillet 2020).

3.4. Technological factors

Zara’s digital footprint has grown as technology has advanced, improving engagement with customers and thereby increasing revenues. Besides, expanding its online presence through eCommerce websites for selling and social networks for customer loyalty will help it compete effectively.

3.5. Environmental Factors

Zara may face higher costs as a result of accordance with environmental rules and availability of raw materials as pressure for emission modification grows.

3.6. Legal Factors

Zara is confronted with a slew of legal issues, including licencing, taxation, patent law, patent law, as well as other legal frameworks. Certain determining actions aid in the prevention of anti-competitive behaviour (Payton 2020).

Conclusion

This type of analysis is important in both education and practitioners because it identifies strategies that a company may undertake to gain a sustained competitive advantage. According to the findings, Zara is applying the bulk of frameworks required for industry and economic expansion and competition. Even though there is fierce rivalry, research shows that Zara has a market edge.

Furthermore, to grow its market share, the corporation should adopt strategic strategies to regulate its activities in new areas. The company has devised a differentiating policy in which it focuses on producing high-quality, one-of-a-kind businesses.

References

Bhasin, H., & Maillet, D. (2020). Business Model of Zara – How Does Zara Make Money? Retrieved from https://www.marketing91.com/business-modelof-zara/

Frichou, F. (2020, March 24). 5 Reasons Why Customer Experience is the Pulse of Every Business Right Now. Retrieved from https://business.trustpilot.com/reviews/blog/5-reasons-why-customer-experience-is-thepulse-of-every-business

Payton, S. (2020). How the Zara Marketing Strategy Makes Billions and Spends $0. Retrieved from https://www.referralcandy.com/blog/zara-marketingstrategy/

The Secret of Zara’s Success: A Culture of Customer Co-Creation. (2021). Retrieved from https://martinroll.com/resources/articles/strategy/the-secret-of-zarassuccess-a-culture-of-customer-co-creation/