Zara - Spanish Fashion Company

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Threat of Substitution

Theoretically, the threat of substitutes are products which provides similar function as the original. In the case of the fashion apparel industry, the plausible substitute products are just normal, non-fashion clothing alternatives that may be a cheaper alternative for consumers. However, apparel is apparel and there are no substitutes for it since it existed since ancient times. The only difference is the choice of consumers to invest in fashion clothing and with the highly competitive prices fashion giants are offering, there is not such a big gap between the prices of non-fashion clothes vs fashion clothes. In a sense, the only threat of substitutes in this industry may be in the form of price differences, or different designs of clothes from other boutiques that offer more appeal to the consumers (Moran & Riesenberger, 1994).

Suppliers’ Bargaining Power

Suppliers bargaining power refers to the ability of suppliers to exert pressure on a business by raising prices when the raw material related in the industry is in limited quantity or when there are limited suppliers in the market for that industry (Karra, Philips, & Tracey, 2008). In the case of the fashion industry, the raw materials included are in the form of cotton or man-made fibres for their clothing. Due to the liberalisation of international trade, fashion retailers are able to overcome international barriers and obtain supplies from developing countries such as China and India. Hence, the bargaining power of suppliers are relatively low as there are many alternative suppliers especially in developing countries leading to helping ZARA driving down costs.

Consumers’ Bargaining Power

Bargaining power of consumers is high as there exists a lot of competitive brands in the fashion industry to ZARA such as H&M, Topshop, Uniqlo and GAP. On top of this, the increase in the online retail platform for various clothing brands provide vast alternative choices for consumers increasing their buying power. As such, the switching costs that consumers enjoy are quite low as competitors provide similar priced goods in the industry. The only saving grace for ZARA is in its brand identity and in order to limit consumer switching, it has to be at the forefront in proving new fashion products and keep updating its line of apparel for the consumers.

4 Strategic Recommendations (438 Words)

In summary, here are the Opportunities and Threats that we can observe from ZARA from the PESTEL and PORTER’s Five Forces analysis done in the sections above:

Opportunities

- Emerging markets of India and China

- Strong brand name

- Increase in working age group, changing the demographic of consumers

- Growth in technology directly impacting the industry – RFID tags, cashless services, inventory management, better manufacturing facilities leading to lower supply costs

- Growth in online retail sector worldwide

Threats

- Ease of rivals in enjoying low supply costs pushing prices down – might lead to a price war

- Strong image of ZARA backfired from issue of child labour employed in its manufacturing process

- Intense rivalry in the fashion apparel industry

- High bargaining power of consumers with the ease of customer switching

The first recommendation that should be implemented is to capitalise on the emerging markets of China and India. This would heavily impact on ZARA’s business as it opens the company to a high number of consumers since these two nations enjoy the largest two populations in the world (The World Population and the Top Ten Countries with the Highest Population, 2017). In doing so, ZARA can also obtain an advantage over its rivals in this highly competitive industry by using its strong brand name to reach these developing countries first. Moreover, opening their businesses in these two countries will also allow them to directly communicate with their suppliers and opening manufacturing plants here will help them secure an advantage over their competition by further pushing their supply costs down.

This leads to the second recommendation to be implemented by ZARA. With the expansion of its business into China and India, Zara should also take this opportunity to upgrade its manufacturing and retail facilities with updated technology such as RFID tags, cashless payment and better manufacturing facilities. This would help ZARA to push costs down and help their consumers’ ease and enjoyability in shopping with ZARA. In addition, ZARA will be able to directly monitor the conditions of these plants to prevent the previous instance of the unethical practices by their plant in Argentina. This could also be implemented in their existing manufacturing plants to keep their quality of their products high and costs low. With this, ZARA should be able to revert their image to having a strong brand name with proper ethical practices.

With these upgrades, ZARA can then move on to the third recommendation which is to have continuous updates of its product line and include products that matches the current trends together with the changing demographic. With better manufacturing facilities and closer distance between its manufacturing and retail outlets, ZARA can obtain a competitive edge over its rivals by pushing its products out faster to its consumers. With constant updated product lines and faster delivery, ZARA will be able to lower down of the bargaining power of the consumers by decreasing their switching power as ZARA will have the latest fashion first at affordable prices.

Lastly, ZARA should also take advantage of the online retail world as more consumers are moving to online shopping. With the abovementioned recommendations in hand, ZARA now has more manufacturing facilities globally, lower costs and faster product updates that will aid their online retail consumers to enjoy these benefits. With this, online consumers that shop with ZARA will be able to receive updated products with faster delivery over their rivals.

Conclusion (217 Words)

ZARA is currently one of the leading fashion retail company in the world amongst rivals H&M, Topshop, Uniqlo and GAP. However, any business has a chance and ability to continue to