CASE STUDY - ZARA - PESTLE

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. Zara’s estimated share of
the total revenue of Inditex Group is 80% (Włodzi ierz, 2012). Its uniqueness
of tracking and involving usto ers’ 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.
 Zara - Details

Type of Industry Lifestyle and Retail

Headquarters Artexio, Spain
Sales/Revenue 83.26 Million
Area Served Worldwide
1923 in 88 countries
Number of
Stores Mango, Uniqlo and H&M, GAP, Benetton
Perfect combination of high end fashion at
Competition
affordable price
USP People with high and medium purchasing power
Target Group who love stay in fashion
Products Clothing line for women, men and children
Website www.zara.com
 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
Zara’s business frameworks.
 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.
SWOT Analysis
Strengths
W
O
T
 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
 Adroit Design Strategy
Traditionally, fashion companies use media in order to promote
seaso ’s trend. On the other hand, Zara is called fashio
i itator 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.
 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, H&M, Gap, Benetton, control
its designs, and R&D facility production facilities, distribution centers,
transport fleet, and 90% of its shops (Włodzi ierz, 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.
 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 ri als. Fast respo se to its usto ers’ de a d e a les Zara to eet
usto er’s e pe tatio s a d ulti atel that lead the to su ess. “u h
demand management lacked in Marks & Spenser and to some extent with
“ai s ur , the did ot at h their produ t ith their usto ers’
e pe tatio s a d this led the o pa ies i to trou le. Zara’s desig -to-stock-
cycle varies from 4 to 6 weeks compared to the average six months of the
traditional industry.
 Zara Product Design Strategy

Zara commits six months in advanced to only 15% to 25% of a

seaso ’s 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.
 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.
 How Zara
Become a
Global Brand?
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.
 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
 Affordable Prices

Owing to its affordable brand label, customers get to enjoy high-

end fashion clothes at affordable prices. Zara’s 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 H&M, the differential pricing structures of these two
brands can be noticed. H&M’s most priced bracket in tops is $20
- $30, whereas, Zara’s is $40 - $50.
S
Weaknesses
O
T
 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.
 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.
 Spends Zero Revenue
on Their Advertisement
Zara does not spend much money on advertising. It has a zero
advertising policy unlike its rival Benetton, H&M 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.
S
W
Opportunities
T
 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.
 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.
 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.
S
W
O
Threats
 Fierce Competition

Zara experiences fierce competition, not only locally but also

globally. Locally Zara faces competition from “ ede ’s H&M 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.
 No Collaboration with
International Designers

Zara shares no collaboration with international designers unlike

H&M, 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.
PESTLE Analysis
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,
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,

a d its pote tial effe t o the o pa ’s 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.
 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
o pa ’s 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
o pa ’s operatio .

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
 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.
 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.
 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:

Zara’s atte pt i o li e shoppi g is re olutio izi g the e tire o li e u i g
experience. With just a few clicks on your iPad’s Zara online shopping app, you will
now be able to conference with your friend while looking at the clothes on your
ta lets. This te h olog gi es a u er the opportu it to i ol e their frie d’s
suggestions while shopping for their own. The options like video chat, instant
messaging and voice chat are available (Thestir.cafemom.com, 2016).
 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.
 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 Fe di’s show in the 2013 fashion
week.
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.

CONCLUSION