Zara Case Study - Strategic Planning and Global Environment

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Competitor Analysis:

The three main competitors to Zara that pose the biggest threat are Mango, H&M and Gap. Gap is one of Zara’s main competitors as it also sells the same merchandise as Zara does but at more affordable prices. H&M is another threating competition to Zara as it has been quick to internationalize that allows it to gain sales in countries outside its native Sweden. Mango is another Spanish fashion retailer with approximately the same number of stores located in the same number of countries worldwide as Zara. Mango stores are located in prime positions, whether in the main shopping centers or premises located inside the city centers (Zara, 2016). Zara remains one of most dynamic companies in the clothing sector and its strength lies in its control over a short supply chain and its ability to take new fashion ideas, re-engineer them for the mass market and get them into shops in less than six weeks. This appeals to a lot of customers who like to be on trend with the latest fashion (Mintel, 2013).

Micro Environment Analysis

Michael Porter’s Five-Forces Model:

Michael Porter’s model identifies and analyzes 5 competitive forces that shape and help companies to determine their industry’s degree of competitiveness and therefore helping the companies to develop their strategies (Porter, M. E., 1991).

Threat of New Entrants:

It is quite difficult for new companies to enter the fashion industry and succeed in such a competitive and saturated market as the UK. Some companies have already obtained a significant market share and have a good brand image for their unique goods and services (Mintel, 2015) (Bonnin, A. R., 2002). Thus, it is difficult for new companies to gain a market share and a target audience. Existing fashion organizations have the advantage of being prior movers with large capital investments in the market (Adewole, A., 2005). These facts show that the threat from new entrants is low.

Threat of Substitute Products or Services:

The threat of substitutes refers to new products that are capable of replacing existing products. The main Zara competitors are H&M and GAP, although there are some differences between their products. Zara is dedicated on development of trendy and at the same time low-cost fashion, which meets the requirements of their customers. However, the low-cost does not necessarily mean low quality and it is reflected by their sales (Forbes, 2015). Hence, the threat of substitution may be low in terms of the fashion retail industry.

Bargaining Power of Customers:

The fashion retail industry has considerable potential (Doyle, 2012). However, it is gradually and slowly becoming very competitive. Moreover, customers can gather information about new, fashionable clothes by using media like the internet and TV which can influence brand performance. Customers always look for low prices and better quality and the fashion industry retailers strive to fulfil the requirements of customers (Tuttle, B., 2011). Therefore, it can be said that the threat of customers bargaining power is moderate.

Bargaining Power of Suppliers:

Fashion companies are almost the only customers of their vendors and suppliers. Therefore, suppliers depend heavily on these companies. Zara obtains about 40% of its raw materials and resources from ‘Comditel’ which is a wholly-owned subsidiary of Inditex group. Furthermore, Comditel deals with the dyeing, patterning, and finishing of gray fabrics for all of Inditex’s chains, including Zara, and supplies finished fabrics to external as well as internal manufacturers (Fashionworld, 2016) (Ferdows, K., Lewis, M., and Machuca, J., 2003). These factors indicate that the apparel industry has low bargaining power with its suppliers.

Rivalry among Existing Competitors:

The fashion industry is extremely competitive and the product’s life cycle is very short. Furthermore, it depends largely on recent trends, prices and the customer’s satisfaction. Several leading competitors in the industry present a constant threat to others. For example, the target groups of these three companies (Zara, GAP and H&M) are almost the same (Mintel, 2015). Therefore, the threat of rivalry among existing competitors is likely to be quite high.

Based on the external analysis made above it can be concluded that the Opportunities and Threats for Zara are as follows:

Opportunities:

- Global expansion in fast-growing demand from Asian markets.

- Demand for high fashion products at affordable prices

Threats:

- Fierce competition from H&M, GAP and Mango.

- Changes in customer behavior towards fashion apparel.

- High labor cost in European regions.

Internal Analysis

The internal environment of an organization compromises of various factors such as: its culture, strategy, management style and other information systems. The internal environment is what makes the organization what it is, and it derives from the people who are its members and other characteristics that it has (Blythe, J. and Megicks, P., 2010). The analysis of the internal environment leads to the strength and weaknesses of the organization.

References:

Akbareian E., 2014. High street giant Zara launches new tagging technology to restock sizes and styles faster [online]. Independent. Available at: http://www.independent.co.uk/life-style/fashion/news/high-street-giant-zara-launches-new-tagging-technology-to-make-fashion-even-faster-9614955.html [Last accessed 15th Jan 2016].

Blythe, J. and Megicks, P., 2010. Marketing Planning: Strategy, Environment and Context, 1st ed. Essex: Pearson Education Limited. p80-113.

Bonnin, A. R., 2002. 'The Fashion Industry in Galicia: Understanding the 'Zara' Phenomenon'. Business Source Complete, 10(4), p519-527.

Chaudhuri S., 2015. Europe’s Fashion Retailers Under Pressure From Strengthening Dollar [online]. London: WSJ. Available at: http://www.wsj.com/articles/europes-fashion-retailers-under-pressure-from-strengthening-dollar-1427211363