Analyse the macro environment of Zara and clothing retail industry using pestle and the impact of external factors followed by Zara Swot Analysis.

Introduction

Zara, founded in 1975 by Amancio Ortega and Rosalia Mera is a Spanish fashion (clothes and accessories) retailer based in Galicia, Spain (Forbes 2017). It’s one of eight child brands of Inditex company which is one of the world’s largest fashion retailers according to Inditex.com. It has a global market share of 1% with major competitors Nike, H & M and adidas having 2.8%, 1.4% and 1.8% market shares respectively (Statista 2018). According to its 2017 financial report, its profit margin and revenue (turnover) increased from 6.15% to 8.95% and from $1,740,345tn to $1,853,434tn respectively from 2016 to 2017.

1.0 Zara Pestle Analysis 2018

1.1 Political factors

The free trade agreements in Europe have helped boost Zara UK sales and its overall group sales. With Europe’s free trade agreements, goods can move freely between European countries with no border tariffs, no restrictions on quality or quantity of imported or exported products and a common custom tariff for goods imported or exported to other countries. The European Union being UK’s biggest export market for textiles and clothing accounts for 74% of its exports hence Zara can reach more customers in more European countries without extra border tariffs which has boosted its sales (Geoghegan 2017).

1.2 Economic factors

Spain’s fast-growing economic environment has favored Zara’s sales and overall sales of the clothing retail industry. This is because with Spain’s astonishing high levels of unemployment and high population, the cost of labor is low leading to low production costs and high-quality products with reduced prices which in turn attracts more customers (Goodman 2017).

However, the British exit from the European Union has resulted in pound depreciation leading to high inflation rates and increased costs of living with less disposable income for consumers (Blanchflower 2017). Therefore, Britons have slashed their spending on new clothes resulting to decrease in Zara product sales and overall profitability of the apparel and clothing industry (Wood 2017).

1.3 Social factors

The increasing urge by consumers to shop online due to its advantages like ability to shop 24/7, ability to compare prices and lack of associated transportation costs has forced Zara to open multiple online shops (Skrovan 2017). This has in turn proven successful as overall sales at Inditex (parent company of Zara) have increased by 10% (Hipwell 2017).

In addition, since Zara operates in many countries around the globe catering for diverse cultures, it researches new markets and cultures and makes products specific for the different cultures. For example, Zara’s lungi skirt is high street style for men particularly in South Asia (Janmohamed 2018).

1.4 Technological factors

Technology has influenced the development of a new augmented reality technology by Zara which will allow customers to see how models wear specified pieces of clothing whenever they approach a sensor with a smartphone somewhere in their stores. Customers can then click on the product and purchase it if they desire. The technology will also be incorporated with online orders with a sensor on the order’s packaging and if the consumer uses a sensor, he/she will immediately be presented with a wide range of other outfits. This technology is mainly meant to target young customers (Looveren 2018).

1.5 Legal factors

Big fashion retailers like Zara, H & M need to strongly enforce copyright laws so that when their products are launched, they can not be reproduced at local shops at lower prices but rather only marketed through their brand names and trademarks. For example, Target clothing company is being Sued for infringing Burberry’s genuine scarfs which could cost it a lot of time and money in fines and penalties (Hanbury 2018).

1.6 Environmental factors

As governments strive to create a greener environment, Zara’s parent company Inditex has pledged to make its stores eco-friendly by 2020 and has invested over $7.5B in sustainability targets which include production of sustainable clothes prepared from organic material using sustainable energy and equipping its stores with energy efficient and regulatory features (Scarano 2017).

In addition, H&M and are stepping up in-store recycling initiatives which allow customers to drop off unwanted items in ‘fashion bins’ in high street shops to boost textile collection, recycling rates and reduce waste to landfill (Gould 2017).

2.o Zara Swot Analysis 2018

2.1 Strength

• Zara being a child company of the world’s largest fashion retailer Inditex has a large capital investment with over 2200 stores in 93 countries (Forbes 2017). This has enabled it to reach more customers across many countries hence increasing its sales and market share.
• Also, Zara can design and stoke a new outfit in its international stores within 20days compared to other retailers who take six months. And with the rapid evolution of e-commerce, customers can get new products sooner. This has enabled the fashion retailer to sale many different design outfits in a short period of time hence increasing its sales (Varma 2017).
• In addition, Zara’s ability to exploit online shopping has enabled it to reach many customers in different countries and enhanced its sales as Inditex’s online sales rose by 41% thereby increasing its profit margins (Alex 2018).

2.2 Weakness

• Zara’s reluctance to utilize digital platforms to advertise and market its goods like its major competitors, Nike and Adidas has greatly hindered its development. With the changing technology, consumers are most likely to see adverts online compared to traditional advertising forms like Televisions or posters therefore Adidas and Nike have heavily invested in digital marketing leading to increase in their sales (Gallagher and Elder 2017).

2.3  Opportunities

• Zara can exploit online shopping to increase its market share. For instance, Zara can open more stores worldwide like its click and collect store in London primarily designed for ordering and collecting of online orders to reach a wide range of customers and increase sales (Jahshan 2018).

• Zara can also establish itself in emerging markets like Brazil, South Africa and Nigeria but also open more stores in China, India and UK. This will help Zara increase its number of retail outlets and penetrate a larger market (Christy 2017).

• With the high rate of unemployment in Spain, Zara group can get cheap labor which leads to low production costs and low costs of final Zara products which increase its sales because customers are attracted to high quality products associated with low prices (Financial Tribune 2017).

• In addition, Zara like its competitors Nike and Adidas can fully utilize digital platforms to target young consumers who always frequent them. For example, app-based commerce has enabled Nike’s online sales to double in two years to $2 billion (Joseph 2017). This platform would help enhance Zara’s sales.

2.4 Threats

• The fashion industry in most countries does not have same copyright protection as other creative media like art, literature and film, Zara’s fashion designs are most likely to be copied by other fashion designers or reproduced at local shops and sold at lower prices which affects its sales (Lieber 2018).

• In addition, Zara faces a threat of economic instability in the different countries where it operates. For example, the high inflation in the UK caused by British exit from the European Union resulted in increased prices for clothes and food leading to decrease in sales and overall profitability of the apparel and clothing industry (Wallace and Scott 2017).

Conclusion

From the above pestle and swot analysis, we can note that Europe’s free trade agreements have over the years favored the growth of Zara due to lack of border tariffs between the countries. However, the Brexit is set to affect this trade agreement where imports and exports from UK will be heavily taxed which affects the profitability of Zara. Nonetheless, Zara’s major threat is competition from competitors such as Nike, Versace, Dolce and Gabbana, among others. The Swot analysis describes major growth opportunities, strength and weaknesses of Zara.    

References

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Christy John (2017) “Top Emerging Market Economies” The Balance [online] at https://www.thebalance.com/top-emerging-market-economies-1979085 [Accessed on 14th.5.2018].

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Goodman Peter (2017) “Spain’s Long Economic Nightmare is Finally Over” New York Times [online] at https://www.nytimes.com/2017/07/28/business/spain-europe-economy-recovery-unemployment.html [Accessed on 11th.5.2018].

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Varma Ankita (2017) “Zara’s secret to success lies in big data and an agile supply chain” The Straits Times [online] at https://www.straitimes.com/lifestyle/fashion/Zaras-secret-to-success-lies-in-big-data-and-agile-supply-chain [Accessed on 4th.5.2018].

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