ZARA UK Market Analysis

This report examines the UK fashion clothing market and its impact on ZARA, a leading fast fashion retailer. It uses PESTEL and Porter's Five Forces analysis to identify key changes and competitive forces. The report then proposes strategies and tactics for ZARA to address these challenges and maintain its market position, including pricing strategies, supplier management, customer engagement, and benchmarking against competitors.

ZARA UK

Table of Contents
INTRODUCTION...........................................................................................................................1
(a). Key relevant changes in UK fashion clothing market..........................................................1
(b). Strategies and tactics that could be used by retailer in respect to the major changes
occurring in fashion clothing market..........................................................................................4
CONCLUSION................................................................................................................................7
.........................................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Retail sector includes any business who deals in selling products directly to consumers. It
is further divided into three sectors which independent on each other. It had drastic changes over
the last couple of years. The UK apparel industry provide huge number of fashion brands to both
domestic and international customers. It is one of the most vibrant and creative business sectors
in the country. It has many fashion retailers selling foreign brands. It is highly competitive. The
changes in it occurs at a very fast pace due to changing fashion trends and choices of the buyers.
Also, BREXIT has affected the business of the outlets operating in this sector and market. To
study relevant changes in UK fashion clothing market that affect a retailer, ZARA has been
chosen. ZARA is a Spanish fast fashion retailer having its headquarters at Arteixo, Spain. It was
founded in 1975 by Amancio Ortega and Rosalia Mera and is the main brand of Inditex group,
world's largest apparel retailer. As per the report filed by ZARA UK at Companies House, it
recorded a 17% increase in sales have been recorded despite the rising selling and distribution
costs and other challenges. This shows that it is going strong in this sector (ZARA UK's profits
and sales, 2018).
(a). Key relevant changes in UK fashion clothing market
Clothing retailers in UK have been facing challenging operating situations such as prices
have fallen due to increased competition and to survive in this market, many shops are offering
discounts. Online retailing is the new trend that is being used by most of the retailers to sell their
products, especially by apparel retailers. Online sales of fashion increased for 24% in 2017 from
17% in 2013. Rising of online shopping has made stores invest extensively into this. It has
increased the revenue generation, also improved delivery capabilities. ZARA is one of the
world's leading fashion retailer offering variety of products to fulfil the demands of customers
and earn higher profits. Since, it is operating in in this industry in UK, it has faced and still
suffering from many changes that have affected it both positively and negatively (Goworek and
et. al., 2012). Moreover, the rivals like Mark & Spencer, ASOS, NEXT Plc. And Burberry give
high competition to it. To sustain in such a competitive market, it modifies its strategies and
procedures. Some of the major changes occurred in UK clothing market are rising costs, increase
in store closure, decline in employment level, higher level of discounting, lack of confidence in
consumer due to BREXIT, shifting of channel of offering products, fluctuations in currency price
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and so on. To understand major changes and their impact of ZARA, PESTEL has been
conducted.
PESTEL is an analysis to assess and identify key drivers of changes in business
environment. ZARA offers products for women, men and children and has 1700 plus physical
outlets and online store across the world (Laitala, 2014). Therefore, it should make tactical plans
and strategies to retain the current position. However, such plans will be failed if they are made
without considering the key changes and their effect on the business. PESTEL analysis will
provide a better insight, which is as follows:
Forces Description of impact on ZARA
Political Environment Globalization and free trade agreements across Europe and other
parts of world have increased ZARA's UK sales along with its group
divisions sales. This enabled movement of goods without any
barriers in European states. Also, restrictions on quality and quantity
of imported or exported have been removed and a uniform custom
tariff rate has been made applicable. The member countries in EU are
the biggest export market for textiles and clothing which has boosted
its sales. Also, policies can be made to increases its inter-state
offerings without paying extra tariff. Also, there high competition in
the market, and company have strong market position but to survive
for long term, it has to lower its cost per unit due to increased
production. Further, it should emphasize more on gaining access to
larger market.
Economic Environment ZARA is a multinational company. It has to operate according to
economical conditions of each country. Spain's fast- growing
economic environment has shown positive results in ZARA's sales
across the world. This has been possible due to high degree of
employment with high quality at lower costs (Kim, 2013). However,
BREXIT has affected the exchange rate of pound which increased
the inflation rate and appreciated costs of living with less disposable
income for consumers. This has made UK citizens to cut their
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spending on new clothes. It affected its sales and profits of apparel.
The another reason could be recession in the economy which rose the
unemployment level and more and more customers have become
price sensitive.
Social Environment There is a rise in online shopping due to its features such as ability to
shop all the time, comparison of prices, reduced logistics costs forced
ZARA to invest in multiple online shops. This was a successful a
step which resulted an increase in sales by 10%. Also, it has outlets
across the globe which fulfils the diverse demands and needs of
people around the world. The demands change very quickly as
buyers like to see new clothes in their wardrobe, therefore, it should
cater to meet those demands by maintaining its profits along with
reduced costs. It should make strategies to retain strong brand
identity in international market (ZHOU and et. al., 2013.).
Technological
Environment
Technology has a major impact on the business of ZARA. It had
developed and implement advanced technology to provide its
customers with an option to click picture and buy later and is done
through sensor that have been attached in their outlets. Also, various
technological changes have been in its online shopping site to track
the ordered product. This has been adopted to provide real-time
information about items that it is selling. Advancement has been
made to target and attract UK's young generation to buy its clothes.
Further, it uses software to improve it supply chain management to
gain competitive advantage.
Environmental factors It is the duty and responsibility of every company to formulate and
implement procedures which are environmental friendly.
Government of UK impose regulations on big companies like
ZARA,H & M etc. It is compulsory to comply with these laws and
follow the standards. ZARA has launched its collection made from
sustainable materials. Also, it has plans to make huge investment to
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make eco-friendly stores by 2020.
Legal Environment Laws are very important to protect misuse of ZARA's brand by any
other shops. ZARA abide by intellectual property laws so that its
products are marketed under its brand names and trademarks only. It
saves time, fines and penalties.
(b). Strategies and tactics that could be used by retailer in respect to the major changes occurring
in fashion clothing market.
Strategies and tactics are used to achieve organizational goals. The former is basically
concerned with direction to attain objectives and later refers to practices, plans, resources etc.
These are formulated and implemented with an aim to curb the negative effect that has occurred
due to environmental changes (Hiller Connell and et. al., 2012). These are modified according to
both external and internal forces to meet the changing requirement and remain competitive in the
market. ZARA is a leading company in fashion, thus, it is important for it to use strategies and
tactics that will enhance its sales and profitability. Porter's Five Forces and SWOT are two
techniques that are conducted before deciding the strategies to be followed. These two have been
mentioned below:
Porter's Five Forces Analysis of ZARA:
It is a business analysis model used to evaluate competition level, profitability of market,
and attractiveness.
 Threat of competitors- ZARA has huge number of competitors, this contributes to low
growth rate because of number of manufacturers in UK market. Customers gets attracted
to that brand which provides new trends. To remain competitive and customer's favourite,
it has to manufacture new items very frequently, which increases costs of production.
 Threat of new entrants- ZARA is a renowned and world recognized brand and has its
outlets in most parts of the world. Due to this reason, the risk of new entrants is low.
However, free trade agreements in European countries make it easy to start a business as
distribution costs are low but investment in manufacturing process to sell products under
own brand is high which makes it difficult fir new entrants (KAPUSTINA and et. al).
 Threat of substitutes- It is moderate in UK clothing retail market as ZARA has huge
number of rivals who are offering the same items at a reduced price to attract customers.
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These are basic survival things as required by everyone but a customer will buy the
things who will offer same quality product at lesser price.
 Customer's bargaining power- Customers are very choosy when its comes to buying
clothes. They have specific choice and design. ZARA offers huge volume of clothes with
diverse variety to cater the demands of customers (Shephard and Pookulangara, 2013).
Also, it has huge customer base, who are loyal to its products because they have unique
designs which are not available in any other brand or shops.
 Supplier's Negotiation Power- UK market has too many suppliers due to which the
bargaining power of suppliers is low. Most of ZARA's products are manufactured by
itself which doesn't allow other suppliers to produce items for it. A manufacturer can
change his suppliers when he faces problems of high cost.
SWOT Analysis:
It a used to identify and analyse internal and external factors that have influence on a
project, product and place. Basically, these are used by business organization (Peskin, 2012).
SWOT analysis of ZARA is as follows:
Strengths
 It has over 2200 stores in 93 countries.
 Online shopping enabled an increase by
41% in sales.
 The average time take by ZARA to
introduce and make it available in
stores is 20 days as compared to 6
months in case of other retailers.
 The changes in collection are done by
taking feedbacks from the customers
which saves in costs and maximise
their satisfaction.
Weaknesses
 It suffers problems in development due
to not using digital media such as
online platform to advertise its
products.
 Having only one manufacturing and
distribution channel can be a weakness.
Opportunities
 It can focus more on online shopping
Threats
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sites to target huge customers.
 It can open shops in developing
countries like Brazil, Nigeria etc. to
increase number of retail outlets.
 Due to high inflation in UK caused by
BREXIT has increased the prices of
clothes resulting decline in sales and
profitability.
From the above analysis, it has been comprehended that ZARA should implement
various strategies and tactics to retain its position in the market. This will gain competitive
advantage by capturing market, by increasing its market reach. The areas where there is scope
improvement are as follows:
1. Strategies to capture market share: Pricing is a method that company use for fixing a
suitable price of products and services. A price is important to attract customers as they
look for good quality in low prices. ZARA has many competitors who offer products
with good quality at low price, this makes it lose its customers. To capture high market
share, it may introduce new products in stores and follows penetration pricing to target
large number of UK people (Vu and Medina, 2014).
2. Strategies for Suppliers: There are huge number of manufacturers in UK market. ZARA
provides variety of products and update its collection with new trends rapidly, therefore,
it is important to choose the right supplier who will provide raw material at lower price.
Along with this, it may apply six sigma to improve its supply chain management so that
there is no delay in delivery of the product.
3. Strategies for buyers: It has customer who are loyal to its products and prefer ZARA to
buy clothes. There is not much requirement of implementation of tactics and strategies
for this. However, to increase its sales it has to attract more and more consumers, which
can be achieved by applying various marketing strategies such as cause marketing and
digital marketing. Along with this, innovation can be used in its products. When creative
products will be offered by ZARA, more and more customer will be attracted. Also, the
risk of substitution will be reduced as the designs offered by won't be available in other
outlets. These tactics will help in promoting ZARA's products. Also, the brand image will
be increased due.
4. Strategy for competitors: ZARA has to compete its competitors in UK market as the
level of competition is rising day by day. To remain competitive, it may use
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Benchmarking strategy (Mierzejewska, 2017). It is a process which is used to evaluate
products, services and practices against its toughest rivals or against those, who are
leaders in the particular industry. ZARA may use this strategy to assess its competitors
such as H & M, ASOS etc. products and compare them with its own products to know the
areas where it is lagging behind. This will improve the overall efficiency of organization,
when activities are performed in co-ordination. Further, this will reduce costs that are
incurred in business processes. In nutshell, internal processes are measured against
external standard.
CONCLUSION
From the above report, it has been concluded that clothing retail sector is strong enough
to survive the challenges in UK market. BREXIT has affected this industry due to fluctuations in
currency rate. Also, competition is rising, which can be best assessed by conducting PESTEL
analysis and to know ascertain the competitive advantage, Porter's five forces model can be used.
SWOT is another method that can b used to know about the strengths, weaknesses, opportunities
and threats to work on the areas where improvement is required. Further, appropriate strategies
and tactics after these analysis will be implemented to create competitive advantage. These will
provide a direction and way to achieve the organizational goals. These will impact overall costs
and improve the efficiency of an entity's activities.
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REFERENCES
Books & Journals :
Goworek and et. al., 2012. The sustainable clothing market: an evaluation of potential strategies
for UK retailers. International Journal of Retail & Distribution Management. 40(12).
pp.935-955.
Laitala, K., 2014. Consumers' clothing disposal behaviour–a synthesis of research
results. International Journal of Consumer Studies. 38(5). pp.444-457.
Hiller Connell and et. al., 2012. Sustainability knowledge and behaviors of apparel and textile
undergraduates. International Journal of Sustainability in Higher Education. 13(4).
pp.394-407.
KAPUSTINA and et. al., COMPETITIVE POSITION OF THE ZARA BRAND IN THE
CLOTHING MARKET. Challenging the Status Quo in Management and Economics,
p.779.
Peskin, M., 2012. Charles Schwab and Zara: an investigation of strategic IT alignment A report
for Information Technology Management course (Module C).
Vu, T. and Medina, S., 2014. Storytelling marketing and its impact on developing company
brand identity, case company Zara.
Mierzejewska, J., 2017. Analysis and evaluation of marketing strategies for clothing companies
on the example of Zara and H&M (Doctoral dissertation, Katedra Procesów
Zarządzania).
ZHOU and et. al., 2013. Comparative Analysis of Supply Chain? for Wuhan Garment
Enterprises and ZARA/H&M. Journal of Wuhan Textile University. 2 p.005.
Kim, B., 2013. Competitive priorities and supply chain strategy in the fashion
industry. Qualitative Market Research: An International Journal. 16(2). pp.214-242.
Shephard, A. and Pookulangara, S., 2013. The slow fashion process: Rethinking strategy for fast
fashion retailers. Fast Fashion Systems: Theories and Applications. 4. p.9.
Online:
ZARA UK's profits and sales. 2018. [Online]. Available through:
<https://www.retailgazette.co.uk/blog/2018/10/zara-profits-sales-surge-uk/>.
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