IndexPolitical:Economic Factors:Social Factors:Legal Factors:Environmental Factors:Industry-Level AnalysisBuyer Bargaining PowerSupplier Bargaining PowerThreat of SubstituteThreat of CompetitorsBarriers to Entry/Threat of New EntrantStrategic PositioningStrength :WeaknessOpportunityThreatProduct: Location: Price: Promotion: Zara is a fashion retailer originally made in Spain and a subsidiary of the Inditex group, the largest retailer in the world. They sell clothing for men, women and children, as well as home furnishings. Despite being one of the largest international fashion companies, Zara has been able to thrive and continue to dominate the fast fashion industry. They did this by strengthening their parent companies' strategy of “design, manufacturing, distribution and retail.” They are best known for their ability to quickly meet new trends and distribute them in stores. Zara's recent financial performance showed that in the fiscal year 2018 it managed to achieve a turnover of 0.9 billion. Their recent marketing performance has shown that, with subtle and minimal advertising, they are still able to compete fiercely in the fashion industry. Zara dominates despite being the most valuable Spanish brand with a value of 0.8 billion (Wang at Kantar 2019). Furthermore, their recent marketing activity has shown that they intend to merge Zara and Zara Home to exploit the synergies between the two companies (Mintel 2019). Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay I will explore how the external environment can impact Zara's performance. I will use PESTLE to analyze a number of factors that could potentially influence Zara. Political: The political state of the UK relating to Brexit has caused mass uncertainty. With potential new legal requirements, the fashion industry is cautious about how to react. Zara in particular, as it is based in Spain, is careful about its moves now that the UK is one of its largest markets. Considering that Zara operates in the fast fashion industry, its ability to react to trends may be difficult because of this. For example, their distribution channel may be affected because trade agreements may change, which may cause Zara to pay additional tariffs, which would increase Zara's costs. This will have a specific impact on Zara as it operates in a vertically integrated manner. Their Spain-based distribution center had given Zara a competitive advantage, but now it could be detrimental to them. As a result, this could mean that Zara will have to pass this cost on to customers. This could lead to an attack on Zara's brand image of affordable prices for luxury items. Furthermore, their model is essentially based on their rapid ability to meet new consumer trends and distribute them in their stores aided by their rapid supply chain. However, this could be in danger. Economic factors: Economic instability can cause a profound impact on consumer confidence. A change in the economic cycle can have a domino effect on things like the cost of living, disposable income and interest rates. This means Zara's profits will decline as their products will be seen as semi-luxury as consumers are less likely to spend their money there and turn to competitors like Primark. Furthermore, Zara is sensitive to exchange rate fluctuations as most half of its sales are made in currencies outside the euro. Inflation is also afactor to take into consideration as even though Zara is affordable, it is still expensive compared to Primark or New Look. Zara is known for having a large domestic presence as it sells its products in 202 different markets. However, growing markets such as Brazil and India offer retailers the opportunity to diversify risk and grow. Social Factors: Another factor to take into consideration is that when moving into new markets, research must be conducted comprehensively. This is because each market can differ in age, disposable income, geographical area, tastes or attitudes. Additionally, since Zara operates in a wide range of countries, it needs to make sure it is culturally appropriate and respectful. This is because every market is different and consumers from different geographical areas may have different tastes and needs. For example, Zara had produced a maxi-like skirt that is known to be worn by Asian men. As a result, they had faced criticism for cultural appropriation. Furthermore, it is important that major fast fashion retailers are able to cater to changes in social trends, especially for Zara's target market of young people in their 20s and 30s. Employee diversity is also important in today's society, which Zara and Inditex strongly reinforce. Zara's parent company states that "171,839 people represent 97 different nationalities, speak 54 languages ​​and have different profiles, cultures, origins and experiences" (Inditex 2017). This gives them new ideas from different perspectives and cultures, which is good since they market to as many countries as they might have the relevant knowledge. Technological advances have meant that fashion retailers have changed compared to before. This allows them to be innovative and responsive to customer needs. It also means that the fast fashion industry is more competitive thanks to the availability of data and the speed at which information travels. This is why Zara needs to incorporate cutting-edge technology into its business in order to function efficiently. For example, Zara has integrated a system called RFID, which allows employees to track inventory in stores and other branches. Additionally, the rise of social media has meant that retailers have alternative ways to find out what the latest trending clothing items are or to connect with customers. Technology has also influenced how retailers are able to sell and reach customers. Websites and social media are able to increase awareness of their clothing and reach more markets without opening physical stores, which is a boon for retailers as e-commerce sales have grown more and more. Legal Factors: The fashion industry is subject to many strict laws and regulations. regulations. The impact of legal obligations on retailers is profound as it can impact their brand image and costs. Companies known for not complying with the law have a bad reputation. As a result of negative publicity, customer trust can decline and go instead to competitors. Therefore, it is essential for resellers to comply with laws such as copyright, legal wages or any other issues. Environmental factors: Consumers and businesses are increasingly aware of the impact everyone can have on the environment. Zara's target market, especially those in their 20s and 40s, are more educated and aware of their carbon footprint and know how climate change is a significant issue that can impact us. Consumers are well informed about the impact companies can have on the environment in terms of waste, labor exploitation and pollution. Despite being one of the largest retailers in the world andWith their global presence, companies like Zara have a greater responsibility to be held accountable for their actions. Companies that are associated with being socially responsible are more likely to have a better reputation than those that don't and are not at risk of being reprimanded. For example, Zara is committed to being sustainable by making all of its stores green by 2020. Industry-Level Analysis Buyer Bargaining Power Buyer power in this industry is moderately high due to the large variety and availability of retailers. Customers can also find even more alternatives online and perhaps even cheaper as the market is highly saturated. Fast fashion retailers' business models are fundamentally based on customer tastes, which means that retailers sell similar clothing. However, Zara sells luxury clothing at an affordable price which may not be replicable by other competitors with the same price and style. Furthermore, the buyer's bargaining power depends on the region where the buyer is located. For example, in Europe, America Zara is considered more affordable, but in developing countries such as China, the Philippines or Thailand they are considered more expensive and, in turn, will be more price sensitive, which allows them to limit their capacity of bargaining. of suppliersSuppliers have low bargaining power. This is due to the great availability of suppliers which decreases their value. As a result, suppliers are inflexible with prices. Additionally, many suppliers are dependent on one major customer because there are so many suppliers, which results in companies being well-known or ordering large quantities to have more bargaining power where they gain economies of scale. Considering that raw materials like fabric are relatively cheap, buyers are easily able to find other suppliers who sell the materials at a better value, allowing them to have better profit margins. The fact that Zara is part of the Inditex group, the largest retail company in the world, gives them a competitive advantage of economies of scale. Since Zara operates as a vertically integrated model where they produce and distribute their own inventory, they will likely have greater knowledge of the materials needed, giving them an advantage over competitors who outsource. Threat of substitutesThe threat of substitutes is high especially in retail. industry. Competitors replicate the same type of clothing or style and charge it at lower prices. This is because the apparel industry operates on the basis of adhering to current trends that occur seasonally and producing them. So it makes sense that all competitors do the same thing and produce similar products. If consumers don't find stores like Zara featuring the latest design or style, they may turn to competitors or find that the clothing and range they produce is stagnant. However, Zara has established a strong relationship with its customers where loyalty is evident through repeat purchases. Threat from Competitors The apparel industry has a high threat from competitors due to the saturated nature of the market. This means having access to many different brands; retailers may have to compete on price. The Internet has given online retailers the ability to compete alongside high-end brands like H&M. The absolute availability of brands means that companies must compete with competitors on price, quality or brand image. Operating in the apparel industry also requires high investment in assets as fixed costs are high. Since thetheir capital is tied up, businesses are often reluctant to leave even if they don't make much profit. Companies need to differentiate themselves and their products to stand out. This is why Zara has created a synergy with Zara houses to stand out from competitors and diversify risks. Barriers to Entry/Threat of New Competitors Barriers are relatively high for those just entering the market. It takes many years to establish as customer loyalty takes years of trust to form as customers are already brand loyal to established companies. Furthermore, it is difficult for new small brands to achieve economies of scale as they are unlikely to operate and command large orders like brands such as Zara or Gap that are already established. This gives larger brands a competitive advantage over them. Additionally, there are high startup costs needed to produce clothing or purchase space to set up your own store. Strategic Positioning Strength: Zara's main strength revolves around the fact that they are able to cater to trends very quickly. Their ability to do so has largely contributed to Zara's success. Zara was able to do this thanks to its vertically integrated model. Because Zara does not outsource production elsewhere, it is able to control prices and keep costs low. Therefore, Zara is able to quickly produce new items within 2 weeks compared to other retailers take 2 months. Another strong point is that their brand image is very powerful. They have been able to establish a loyal customer base, which has allowed them to use minimal advertising while being one of the strongest players in the industry. It also means that customers are less price sensitive because they trust Zara as a brand. Zara produces more models than all its rivals. Zara produces approximately 12,000 models per year compared to the retail average of 3,000 (harbott 2011). They also strategically position their headquarters in locations that fit their brand image and are located in prime real estate. Weaknesses One of Zara's biggest weaknesses is the lack of advertising. While this has made profit margins high, Zara would benefit greatly from marketing its stores more. It would increase awareness and attract more customers and, in turn, increase their revenue. The lack of advertising can give their competitors H&M and Gap a competitive advantage over Zara. Secondly, Zara maintains limited stocks, which means they cannot cope with unexpected spikes in demand or have to increase them in an emergency if the stocks are damaged. Opportunities One of the main opportunities for Zara is to enter new markets in developing countries such as India and China. or Brazil. For example, the middle class is increasing in Asia, in India alone there are 330 million people belonging to this social class. As disposable income increases, Zara will be able to increase its profits and create a stronger global presence. Furthermore, Zara could produce flagship models of its own stores. Instead of having to renew inventory every 2 weeks, Zara will be able to have certain items of clothing or styles always available. This will differentiate Zara from its competitors and give them the opportunity to build a stronger individual identity. Threat The biggest threat Zara currently faces is Brexit. It has caused great uncertainty within the industry and companies are unsure how to prepare for its effects. If Brexit were to introduce tariffs on imports and exports, Zara would be hugely affected. This is because Zara is vertically integrated where it produces and distributes its clothing,