the company began in the textiles industry in 1963. started into business as a dressmaker , Zara opens its first store in the centre of La Coruña, Spain, after 12 years of work by Amancio Ortega Gaona as a textiles maker. Zara's approach to fashion is a success with the public, which drives its expansion materialising in nine new store openings in Spain's biggest cities. Zara's first garment factories, make their home in Arteixo . GOA was the company's first head office. Zara begins to sell its fashions online in the US and Japan.
Zara strengthens its expansion throughout all the geographical areas with the integrated growth of its online . Flagship stores of all the commercial brands keep opening and expanding, e-commerce is launched in new markets .
Internal and external key factors for Zara:
2.Social, cultural, demographic, and natural environment forces
3.Political, governmental, and legal forces
Porters Five Forces
Porters Five Forces allows us to look at the five forces which help us determine the competitive intensity and the attractiveness of a market.
Porters Five Forces Analysis
Threat of Competitors
Zara faces a lot of competition in the market. There are a large number of competitors in the market such as H&M, Benetton, Gap, etc. Fortunately The high level of competition makes it tough for everyone as they are all struggling to get a piece of the pie . The biggest problem is that due to the large number of competitors the growth rate is low due to the number of manufacturers around. The clothing industry has peaked and it is very difficult for people to stay in the industry as the competition is cut throat. Customers are spoiled for choice due to the number of brands within the market. They are also very fickle minded and base their buying habits on the basis of new trends. They will only buy based on price and brand recognition and this is why the manufacturers have to keep changing what they do and come up with new ways of gaining customers. The costs of manufacturing new goods are quite high plus it is not easy to procure raw material so that's why the ones who have the resources and the ability to do so are able to survive within the market.
Threat of New Entrants
There is always the threat of new entrants but then the risk is not so much as Zara already has a huge presence in most parts of the world. The barriers for entry for distribution are quite low in Spain New entrants will have it easy as the cost of distribution is quite low as they only need to rent a shop and need a bit of capital to start out. However when it comes to manufacturing then the barriers of entry are really high mainly due to the fact that it requires a huge investment to get started within the market.
There is no threat of substitutes as it is a basic necessity for everyone.
Customer's Bargaining Power
Customers have varying levels of bargaining power as they can decide what they want. Customers are quite fickle when it comes to buying clothes. However the good thing is that each customer has a love purchase volume and that means that even if some tend to change their brand there will still be some who will buy Zara. It is not an item like a burger or a snack which is available easily anywhere for a low price. The good thing about the clothing business is that there is no risk nonpayment because customers pay for clothes during purchase.
Supplier Negotiation Power
There are too many suppliers in the market which is one reason why the suppliers don't have much negotiating power. The fact that Zara procures or makes most of the stuff itself is also another factor which doesn't work in the suppliers favor. If the supplier decides to cut down the supplies the manufacturer can easily go to another manufacturer.
The PEST analysis is a study of the environment before a company begins its marketing process. It is a study of the external macro environment. It stands for "Political, Economic, Social, and Technological analysis" and is an environmental scanning component of strategic management
Political - The political factors affecting Zara are when the government intervenes into the economy and comes up with laws which change the way things are done in the country. The government can easily change its policy and change the ways a business can operate in the country. They can change the laws and do drastic things like changing the interest rate. Zara needs to know the entire system and to be prepared for any potential problems it can face from the government due to a change in policies.
Economical - Economic factors come into play as they are related to factors such as interest rates, taxation changes, economic growth, inflation and exchange rates. These have the potential to create many problems in the future. There are different duties and levels of tariffs in different countries and this can cause the prices of products to vary in different countries. The price of goods will also vary based on the country of origin and that's what Zara needs to keep in mind.
Social - If there are Changes in social trends it will have a huge impact on the demand for Zara's products and the availability and willingness of individuals to work. However that is not likely to happen as it's not as if Zara makes niche products. They focus on a huge market and make different types of products so it is quite unlikely that there will be a social shift in this part. However the company still needs to work on trends and to make sure it's updated with the times so that it can satisfy its customers and meet the demands of its demographics.
Technology - Due to advances in technology companies have to make sure that they keep up. Zara has to make sure that they have the latest technology and that they are innovative in every way. The more advanced the technology the more it can bring about some quality. Zara has invested in technology and it has to keep improvising because if they don't then their competitors will get a head start on them.
Ansoff matrix analysis :
How does ZARA use intensive growth strategies to increase its sales? The first step is market – penetration strategy.
ZARA encouraged its current customers to buy more. This work when ZARA noticed major weaknesses in competitors' product or marketing programs.
ZARA moves fast. With an house design team , and a tightly controlled factory and distribution network, the company says it can take a design from drawing board to store shelf in just two weeks. That lets ZARA introduce new items every week, which keeps customers coming back again and again to check out the latest styles.
ZARA's success is because at least half its factories are in Europe, where wages are many times higher than in Asia and Africa. But to maintain its quick inventory turnover, the company must reduce shipping time to a minimum. The fast-fashion approach also helps ZARA reduce its exposure to fashion faux pas.
the secret to ZARA's success is its control over almost every aspect of the supply chain, from design and production to its own worldwide distribution network. ZARA makes 40 percent of its own fabrics and produces more than half of its own clothes, rather than relying on a hodgepodge of slow – moving suppliers. New styles take shape in ZARA's own design centers, supported by real-time sales data. New designs feed into ZARA manufacturing centers, which ship finished products directly to 450 ZARA stores in 30 countries, saving time, eliminating the need for warehouses, and keeping inventories low. Effective vertical integration makes ZARA faster, more flexible, and more efficient than international competitors . ZARA can make a new line from start to finish in just three weeks .
ZARA use a market development
First, identified potential users groups in the current sales areas. ZARA is timeless, classic and unique. In fact, it is a good idea to anaylze student 's opinion on fashion. It is really a big market.
Second, ZARA consider selling in new locations in new market.
ZARA's parent company, Inditex, got fastest growing clothing manufacturer in the world. ZARA, Inditex's fastest growing division, turns its inventory twice as fast as major competitors, with an inventory-to-sales of 7% compared to an industry average of 14%. Their profitability in European operations (15%) is fifty percent higher than that of its major competitors. From the Inditex' annual report, the researcher that ZARA focus on the developed fashion market or
country . For example, it has 20 shops in Belgium, 48 shops in Portugal, 98 shops in France. Compared with 7 shops in China, 3 shops in Thailand.
Management should also consider new- product possibilities. ZARA develop new features quickly because it has a fast development from concept to point of sale. On average, this takes 6 weeks. ZARA's “affordable fashion” positioning clearly denotes that it's not a luxury brand, its target customers are a great number of people that are eager to purchase fashion while quite sensitive to prices. They want to be different, unique. The relentless introduction of new products in small quantities at fast speed and at affordable prices seems to be the answer to the large scale customization requirements of the target customers.
ZARA also has super business teams which constantly monitor external developments – consumers on catwalks, at airports, shopping areas, sport events, movies and other events. It seems that ZARA, has some 200 of such teams traveling the world with the aim of discovering new fashion behavior and trends. This helps explain why ZARA's team, which consists of passionate and able designers, experienced market specialists and procurement and production planners, is able to annually create approximately 40,000 new designs from which about 10, 000 are so quickly selected for and put into production.
Most important thing is, instead of more quantities per style, ZARA produces more styles, roughly 12,000 a year. Thus, even if a style sells out very quickly, there are new styles already .
Diversification growth makes sense when good opportunities can be found outside the present business.
ZARA could seek new products that have technological or marketing synergies with existing product line, even though the new products themselves may appeal to a different group of customers. It might start information technology aided manufacturing operation . Once the team selects a prototype for production, the designers refine colors and textures on a computer-aided design system. If the item is to be made in one of ZARA's factories, they transmit the specs directly to the relevant cutting machines and other systems in that factory.
The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply chains to amplify small disturbances. A small change in retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted through wholesalers and distributors. In an industry that traditionally allows retailers to change a maximum of 20 percent of their
orders once the season has started, ZARA lets them adjust 40 percent to 50 percent. In this way, ZARA avoids costly overproduction and the subsequent sales and discounting prevalent in the industry.
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