Zara Pestle Analysis

The business idea of Zara is to link customer demand to manufacturing, and to link manufacturing to distribution. And based on this general idea, Zara has several essential elements for its business model. First, speed and decision making, which means that in the external level, Zara need to respond very quickly to demands of target customers, and always keep in style. While for the inside, Zara treasure intelligence and judgment of common employees who enjoy a great deal of autonomy. Second, its marketing, merchandising and advertising strategy. Zara does not spend on virtually advertising, while it spends heavily on stores, and no selling online because of

Zara and Benetton: Comparison of two business models. 2010. [e-book] p. 10. Available through: Google Scholar [Accessed: 25 Nov 2013].

No business in this type of industry has total control over the market price and there are no barriers to entry and exit. Because of its monopolistically competitive playing grounds, Zara’s conduct is to increase its market power by producing demand for its heterogeneous products. Through differentiation and cost leadership, Zara attempts to increase market demand by offering new items weekly while keeping a low inventory, thus making its products unique and attractive to consumers. Because of its backward vertical integration model, Zara creates a strong synergy throughout its production process. Zara has sustained a competitive advantage globally by expanding into new markets and becoming more efficient. In a monopolistically competitive industry, Zara is expected to make profits in the short run but will break even in the long run because demand will decrease as average total costs increase. This means in the long run, a monopolistically competitive firm, such as Zara, will make zero economic profit (AmosWEB, 2001).

Following is an analysis of Zara 's current expansion strategy into the US retail market and recommendations on future tactics to ensure a successful expansion. Zara 's expansion strategy thus far has been quite successful; however, with every new store opened, its ability to maintain an efficient centralized production system and a strong, unique culture will be diminished.

The basic strategy for fighting competition is to attract buyers at lower prices, more unique designs, high-quality design, efficient customer service and solid image brand. Thus bargaining power of buyer for apparel industry is high as the products falls under the basic needs in human lives. There is no much difference in terms of products offered by the apparel company, so if buyer is unhappy with the product or service they can easily switch to another brand. Thus, Zara are trying to strengthen its position in the market by using their unique strategy by giving priority to buyer to meet their special needs.

Zara’s product differentiation strategy is based on high quality and low prices. The company wants to be fashionable and desire for everyone. This is the reason of their strategy (low price and high quality).

Zara uses vertical integration, in a vertical integration several stages of production and distribution of a commodity are influenced by a single company.

In comparison to competitors, Zara’s business strategy, in regards to strategic partnerships and cost of production, provide for a strategic competitive advantage. Zara, unlike its competitors such as Gap, Benetton, and H&M, does not use Asian outsourcing. Eighty percent of Zara’s materials are manufactured in Europe, with 50% made in Zara controlled facilities in the Galicia region of Spain near headquarters. Most of Zara’s competitors have 100% outsourcing to cheap Asian countries. Though the cost of production in Spain is 17-20% more expensive than Asia, Zara does have a competitive advantage over its competitors in regards to operations. The local strategic partnerships that Zara maintains with manufacturers in Europe allow for a product throughput time of 3-4 weeks from conception to distribution. To make this happen, the company designs and cuts its fabric in-house and it acquires fabrics in only four colours to keep costs low. The proximity of these suppliers gives Zara great flexibility in adapting their product lines based on up to date market trends and consumer behaviour. It also decreases costs of holding inventory. Zara’s competitors, through outsourcing to Asian countries such as China, sacrifice the benefits of proximity for low labour and production costs.

Zara is a brand widely known across the globe for its unique fashionable cloths .It is a part of inditex which is known as one of the world’s largest distribution group in the world and the owner of the company is Spanish businessman named Amancio Ortega .This company was formed in 1963 as a fashion retailer for women clothes but the company became a success after the addition of a new brand named Zara in 1975 .Today Zara is amongst one of the largest international company producing the fashionable clothes. After the success of the inditex as a successful brand (ZARA) maker, inditex was able to expanded itself with more successful brands across the world in different countries at the end of the 1980.from 1976 to 1983 Zara turned out to be a successful retailing brand and introduced itself with nine new outlets to the biggest cities of the Spain with its first headquarter in Goa. Year 1984 turned out to be the witnesses of first logistics headquarter of Zara covering a large area of 10,000 square metres. New York

This can be seen from Fig 3 that the export and import during 2005 and 2006 have significantly increased and it is foreseen that the future global trend would be increasing. Also, in order to lower the production costs, lots of international companies will transfer part of work in some countries with lower labor and material costs. This kind of out-sourcing activity enhances the global cooperation as well.

Zara is a clothing company that was founded in 1975 and came from Spain. Its under Inditex group which owns other brands such as Massimo Dutti, Pull & Bear, Oysho, Uterques and many more companies. Zara grew very fast and currently in 2012 has 1,617 stores worldwide. With a large name in the fashion industry, besides that, Zara faces tough competition internationally including H&M, Benetton, and GAP. In order to keep up with the speed chic, Zara need to keep up also with the information system to run their business.

“PESTEL model involves the collection and portrayal of information about external factors which have, or may have, an impact on business.”

Strategy can be defined as being different from one’s competitors, finding the race to operate and accomplished it. According to Michael Porter (1996), while becoming better at what you do is desirable, it will not benefit you in the long run because it is something other competitors can also do. Strategies for organizations are originally developed by Michael E. Porter in 1979 by introducing the five forces model. A company can identify the industry profitability and attractiveness by analyzing the five forces of Porter (Johnson et al., 2008). And then a reasonable strategy can be set up in line with the strengths and the weakness of an organization is able to create a plan for a stronger position for the organization within its

Next, the essay will concern about five performance objectives that help Zara achieve competitive advantage in business. About quality, beauty, affordable prices and fashion are factors leading to magic success of Zara as well as other brands of Inditex, but it is not easy to do that. Amancio Ortega is president of the corporation with 32,000 employees, but he still has habit of operating as a family company with a clever and simple style. Zara operates with closed model from research, design, production, distribution and retail. Diversity, abundance and frequent changes of clothing design have become the biggest competitive advantage of Zara. The competitors expect to have the attraction like Zara. Most customers feel loss or lack

Zara states that its mission is that “Through Zara’s business model, we aim to contribute to the sustainable development of society and that of the environment with which we interacts”.