External Analysis of Zara Fashion - Case Study Example

Topic: Case Analysis: Zara: Chic and fast fashion Name Unit Introduction Zara Fashion is a branch of Inditex group which has its headquarters in Spain. Inditex group has other brands apart from Zara which are Massimo Dutti, Pull and Bear, Oysho, Stradivarious and Bershka. The company has been recording positive sales results over the past years. In the year 2011, the company was able to record high sales. The company net income was recorded to be 1.9 billion Euros. These sales markers a 12 % increase from the previous year’s sales. The company was able to expand its workforce to 109,512 employees and the stores were increased to a total of 5,527. This was through opening of 483 extra stores. Looking at the company global presence, they were able to expand to new territories including Australia, South Africa and Peru which made their operations to be carried out in more than 80 countries and five continents. The main driver of Inditex has been through offering affordable fashions and a strategic planning in their business (Suzy, 2012). Inditex started in La Coruna Spain and expanded fast to be a world leader in the retail clothing sector. Of the Inditex brand, Zara has been the most successful brand name. Zara fashions have been a model retailer who has been able to show how to respond fast in the fast fashion industry. The company has excelled in the fast fashion sector where the clothes take a short time from the inception to the stores. The company has been able to have more than 1400 suppliers who are strategically located near the clients. This is in addition to more than 1000 designers who are based in Spain. One of the areas that Zara fashions have excelled in is logistics in reaching their markets. The company is able to supply the European market within a period of 24 to 36 hours and other world market in a period of 48 hours. One fact about Zara fashion is that their clothes are affordable and trendy, but not cheap and functional. The company sales promotions are enhanced by celebrity promotions and consumer preference. The company fashions are mostly based on the notions that the fashion trends are global (Suzy, 2012). Strategic issue Zara fashions have been able to lead in the retail fashion industry. The company has been able to tap in the emerging trend fashion thorough swift response to changes. At the moment, the company has been able to create more than 1400 suppliers worldwide who are near the retail market. The company has a large range of professionals, including more than 1000 designers. The fast fashion industry has been growing at a very fast rate making the company to reap great profits. The company has made great strategic decisions which have enabled them to out-compete the rivals. The company has a fast and flexible supply network, invested on the e-commerce platform and cost control. The company strategy has made it possible for the company to make positive profit margins and survive the economic crisis. The company has been targeting the multi channel growth economies such as the rapid developing countries. Though the company has not invested heavily in carrying out advertisement, it has targeted putting up stores in the appealing commercial markets (Suzy, 2012). The main issue is whether Zara Fashion’s strategy will be able to match with the trends that are in the apparel industry. External analysis The Apparel industry is dynamic and highly competitive. This is the case with Zara Fashions retail clothing industry. The customers taste, spending trends and economic situations are bound to changes abruptly. There are also changes that are brought by the technology, politics, regulations and the trade barriers. To be able to succeed in their retail clothing business, there is need to be vigilant and monitor the consumer preferences and note any change in the market. Anticipating the changes and reacting fast to them is a key driver in the success of the apparel industry. Making the wrong judgment in the consumer market may lead to high loses and need to have markdowns. This is due to fact that this leads to excess inventory. Such problems were witnessed with GAP clothing line attempt to change logo. The attempt led to backlash from customers (Marqui, 2010, Oct 14). This leads to a requirement that the companies in this industry have to move fast in their response to market and do it accurately. If the company is not able to react to the customer preference fast enough, there is a possibility of loss and collapse. The apparel industry has benefited a lot from the online commerce. The move from the traditional mode of sales has led to a fast growing online market channel. The customers have the ability to make their shopping online at any location. The customers do not have to be physically available to the store making it more convenient. Online marketing has been supported by several factors (Apax Partners, 2011). One of the factors that have pushed up online marketing is the increase of smart phones in the market. Most peoples have been able to access the internet through their phones and the trend has been growing at a very fast rate. Statistics have proved that 80 percent of the smart phones owners use the phone to do online shopping. This has been a positive trend but has been faced by the fact that not all business has a mobile enabled site or homepage (Apax Partners, 2011). Use of social media is another platform that has shaped the business. There are several sites such as twitter, YouTube and facebook, through which business has been able to communicate with their customers. There have also been innovations in the search engines which have enabled the consumers to make personalized searches. One type of those searches is the Google plus One which the customers are able to make decisions on purchase based on recommendations given by others. This has made the requirement to the companies that they must be present online so as to be able to interact with the consumers. This shows that technology has been able to offer enormous benefits to the business that has embraced it (Apax Partners, 2011). Though online commerce has been a key driver in the industry, the channels also have several drawbacks. One of the challenges is the fact that the global business has diversity of the cultures. The business is supposed to interact with customers from diverse cultures. Different countries have different tastes and may require different tailored products. The e-commerce platform requires that the company invests in the technological expertise who are capable of optimizing the search engine, advertise and design the website. The consumers are more attracted to the WebPages that have all the required product information, images of the products and which are efficient and easy to check. The companies must also be able to handle small orders made through the site to different localities. This has been supported by the change in trend where large orders have been surpassed by multiple small orders (Apax Partners, 2011). In the global apparel industry, having good research and development platform has a great impact on success. The research and development should focus on the style, materials and the technology to be used in the industry. Innovations in the apparel sector have the ability to offer better quality at a reduced cost to the consumers. The use of the computer programs in the clothing industry makes then work of the designer easy. The process of making the clothes involves many specialists and is very flexible. The process starts with making the orders designing and producing the samples (Apax Partners, 2011). The global nature of apparel industry leads to challenges and opportunities arising from the operations and supply chain. There have been significant changes in the lifestyle of the world population due to globalization. There are also dynamics in the apparel industry, which are brought up by the changes by the governments and politics in a region. Changes in the policies, especially in the developing countries have an effect on their development. This is especially when the countries make policies encouraging investment (Apax Partners, 2011). The spending habits of the consumers are directly affected by the economic condition of a country. When there is an economic crisis, the general public spending decreases. This was witnessed in the global financial crisis, which made the consumer expenditure to decline sharply. During such an event, most of the countries adopt fiscal policies that are unfavorable for investment. The recovery from the crisis also takes time which affects the business operations. One of the main problems which affect the apparel industry after the crisis is reduced expenditure by consumers. The reduced spending by the consumers leads to the companies recording reduced sales, high costs which eventually lead to reduced profits. Despite this, the apparel industry has been making profits. There is an estimated growth of the retail fashion industry from 700 billion Euros to a 1.1 trillion in the year 2020 (Apax Partners, 2011). Using porters five forces analysis, Zara fashion can analysis can be summarized in terms of suppliers, competition, threat from substitutes, purchasing power and threat from new entrants. Suppliers Zara fashions have been able to make their brands well known in the global arena. This has been promoted by their online presence and expansion in over 80 countries worldwide. The company has been able to lay a strong distribution network who have been able to offer their products at an affordable price and timely. The company has been faced in some instances by cases involving the quality of suppliers. There was a case where a subcontractor in the company had been investigated for the condition of the workers and shop (Suzy, 2012). Despite this, the fashion retailer has a great distribution network. Competition/ rivalry The apparel industry is highly competitive. The industry is composed by many other multinational companies who compete for the same market such as H&M and Benetton. Zara has been able to achieve a competitive edge through offering quality products at an affordable price. The company has been able to market its products in the fast fashion industry and make a strong brand name that has been able to retain customers. Zara has been able to outdo their competitors in the apparel market (Suzy, 2012). Threat from substitutes The apparel market has many players such as H&M, Fubu and Gap. Zara being in the apparel industry faces threat from substitute from other apparel companies. The company has managed to reduce this threat by being able to offer their clothing at an affordable price than their competitors and making sure they are of high quality. This has made the threat from substitute limited (Suzy, 2012). Purchasing The company has a large number of small scale buyers. These are customers who make small purchases which makes them to have weak bargaining power. The customers are also forced to take new products as they appear on the display line in the stores. This is due to the fact that the clothes in the lines are fast moving. This makes the bargaining power of the buyers weak (Suzy, 2012). New entrants For a new entrant in the apparel industry, there are several hurdles to be overcome. The industry is highly competitive making it hard for threat of a new entrant. The company has also been able to establish a strong brand name making it hard for a new entrant to make it. The new entrants have low chances of offering competitions to the established brands such as Zara (Suzy, 2012). Opportunities The rise of information technology can be utilised further by the company. This can be done through collaborating with mobile app developers in making beneficial applications for the company. Zara can also collaborate with other designers. This can help the companies to expand fast to other markets. Collaboration also reduces advertising costs due to sharing. Zara Fashions also have the capability to increase their advertisement so as to reach a wider audience. Macro environment Inditex has been able to maintain outstanding financial results as compared to the competitors. The main competition comes from Inditex, Benneton, the Gap and HM. The year 2011 gives a clear picture of a high rise in revenue despite competition. Inditex sales rose by 10 % and profit by 12%. This is in comparison with the competitors’ profits falling by more than 15 %. The effects of the competitive rivalry may act to reduce profits but the high demands for the fast fashion renders the decrease insignificant (Suzy, 2012). Key success factors The key success factors at Inditex are creativity and innovation. The industry was able to change from the traditional design methods and adopt the fast fashion to meet the market demands. The company has been able to link the customers with the designers. This is done through the designers seeking information from the customers from different sources such as chain stores. The success can also be attributed to the ability to utilize vertical integration in their manufacturing. Zara has been able to manufacture their products based on demand from the customers and offering them at a reasonable cost (Suzy, 2012). Product development Geographic Zara Fashion develops their products depending on the demand in different stores. To cater for the different markets, the company uses online sales platform. This enables customers from different geographic locations to access the products. The newly developed products are brought to the market fast using the company integrated distribution channel. Though most of the companies outsource cheap labor, Zara Fashion has invested in product development. This has enabled them to develop high quality products (Suzy, 2012). Use of technology Zara Fashion uses the latest technology in their product design. The company is capable of maintaining all the records pertaining to their sales on the products using technology. This helps the designer during the product development in making new products or modifying the existing ones (Suzy, 2012). Selective outsourcing The product development at Zara Fashion is done on a selective basis. For example in a store, it is possible to find that certain type of the clothes comes from one country. This is done according to the customers’ preferences. The consumers may be willing to pay a high cost for the products from a certain region as opposed to another (Suzy, 2012). Industry life cycle By looking at Zara Fashion, the industry is at a mature phase. The company has shaped its production and design. Zara at this phase is more involved in process innovation rather than product innovation. Zara have already excelled in product innovation and are more concerned on optimizing their processes. The company have utilised successful strategies that has enabled it to make high sales. Being the pioneers in the fast fashion, Zara Fashion has been able to reap from their products hence more concerns is based on how to be more efficient and satisfy customers (Suzy, 2012). References Apax Partners. (2011). Apax Partners Fashion Retail Conference, Global Opportunities in Fashion Retail, Retrieved March 14, 2014 Marqui, (2010, Oct14). Gap’s Re-branding Misfire, Retrieved March 14, 2014 Suzy H., (2012, November 9). How Zara Grew Into the World’s largest Fashion Retailer, New York Times, Retrieved March 14, 2014 Read More