Retail Theory and Practice Retail of Zara

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Running Head: MANAGEMENT 0
Retail theory and Practice

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MANAGEMENT 1
Contents
About Retail...............................................................................................................................2
Background to Zara....................................................................................................................2
Key significant changes within the UK fashion retail...............................................................3
Significant variations within the microenvironment..................................................................5
Tactics and Strategies.................................................................................................................6
Recommendations......................................................................................................................8
Summary....................................................................................................................................9
Reference List..........................................................................................................................10
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MANAGEMENT 2
About Retail
Retail concerns with the sales of products from a single point (such as supermarket, malls and
departmental stores) directly to the consumer in small quantities for meeting the purpose of
end use. In retailing, there is direct interface with the customer and the synchronisation of
business activities from end to end – right from the design or concept stage of an offering or
product, to its delivery service to the consumer (Beck and Rygl, 2015). Globally, retail
industry is one of the fastest growing and vibrant industries that have contributed to the
economic growth of many countries. For instance, the economic output of the retail sector in
2017 was £92.8 billion and it represents 5.0 per cent of the UK total GDP. The retail industry
is the UK major private sector employer with nearly 3 million peoples and in 2019, it has
generated £394 billion worth of retail sales. Furthermore, Growth in UK retail sales in 2019
was 3.4 per cent (retaileconomics.co.uk, 2020).
Background to Zara
Zara is one of the leading home brand store and a part of Inditex Group founded in 1975 with
its first store in Spanish coastal city. From its commencement of business, Zara is always
committed to its core values and put customer at the heart of their unique business model.
Furthermore, the brand has established its store and online network in more than 96 countries
globally and with its 2238 number of stores. The company brand value is also increasing
parallel to the revenue as in 2019, its brand value comes out at nearly 18.4 billion U.S. dollars
(statista.com, 2019). One of the unique things about the company is its manufacturing
development and supply chain. As per the research, 50%, 26% and 24% of Zara products and
accessories are developed in Europe, Spain and Africa.
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MANAGEMENT 3
Globally, Zara has also maintained a network of 1,800 suppliers and the company also have
implemented various cost effective measures such as assigning 57% of its product facilities in
close proximity to their main markets such as Spain, Portugal, Morocco and Turkey
(inditex.com, 2018). In the evolving fast fashion industry, Zara also maintaining its pace with
digital and technological innovation. For instance, Zara comes up with self-checkout stores in
2016, placing RFID technology in stores (Gilliland, 2016) and also using cutting edge
systems to track down the place of products and match the demand and supply instantly.
These developments of the company have been enriched by increasing competition from both
offline retailers like H&M and online retailers like Amazon.
Key significant changes within the UK fashion retail
The UK fashion and clothing sector has been undergoing a significant change in response to
globalization, shift in consumer demand and also the changing business activities in relation
with strategic market decisions. The fashion retail industry of UK needs to keep moving to
stay alive and here collections come and go with the periods while carrying a renewed wave
of trends, however, in recent years, there has been seen a basaltic shift in the sector driven by
technological progressions and rising pressures from customers for greater transparency and
developed social and ethical standards (McCormick et al, 2014). To better analyse the UK
fashion environment, PEST tool has been used to analyse the industry and business
environment on a macro level with identifications of its impact on Zara.
Political Factors – With the UK exists on the EU, the fashion companies including Zara
have to face various uncertainties like increase in tariffs. The UK and Spain before being a
EconomicPolitical
Social Technological

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MANAGEMENT 4
member state of the EU enjoy free trade and now Zara who clothes manufacturing done in
Spain have to bear some importation tariffs so as to sale it in the shops of the UK
marketplace. It will lead to an increase in the costs and then Zara has to raise the prices of its
clothes and bring more competition from the UK based fashion companies such as Arcadia.
In December 2018, the minister of trade in the UK also fix a meeting with the UK Fashion
and Textile Association (parliament.uk, 2019), however, the businesses not have received any
sort of clear direction, on how will they do business after the Brexit.
Economic Factors – According to Soni (2020), the UK is at the sixth places in terms of
largest economies in the world and high population with promising infrastructure helps the
companies in their smooth business. However, with the economic recession in 2008 also hit
the UK and the recessionary situations are just plummeting slowly. Zara is known for storing
its cloths two times in a week, however, at the time of recession, this target could not be
attained. Meanwhile, recession’s time also leads to high living costs of the population and
making its challenging to buy branded clothes all time and this had made negative impact on
Zara brand as the company has to stores the clothes in stores for a much longer period than
likely. Rising inflation rates is also one of the major economic change that touch markets of
UK. In 2017, the UK inflate rate hit at 3.1 per cent (Romei, 2020) and this automatically
leads to rise in the clothes prices and put challenges for the customers to buy them.
Social Factors – Social factors also plays an important role in the growth of the fashion and
cloth industry. Zara has to deal with the changes in UK cultural factors more effectively as
UK market characterize multi-ethnic cultures, unlike Spain where the market is related to one
race with a similar culture. The next factor is increasing efforts of the climate activism that
have forced various large fashion retail companies such as H&M and Zara to make
commitments to sustainability and for the benefits of society, Zara stated that they will use
100 per cent sustainable fabrics by 2025 (Conlon, 2020).
Technological Factors – The UK offers one of the fastest internet speed on the continent and
smartphone penetration has been increased since last decade. Such transformations in the
environment stimulate people to change their shopping preferences to online shopping and
people are now started to shop over various e-commerce channels. This presents various
challenges to the UK fashion retail firms and they are now investing in e-commerce as well
as mobile shopping applications. Zara has never left out with such campaign and changes in
environment and in 2014, the company has launched its online boutique in the UK.
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MANAGEMENT 5
Furthermore, the in-store experience competition in the UK also makes Zara strengthen its
UK based stores. For instance, Zara in 2018 comes up with new U.K. based concept stores
ranging new experiences from robotics to holograms and offering new ways to boost
efficiency (digitalcommerce360.com, 2018).
Significant variations within the microenvironment
Starting from fast fashion, designer dupers and new trends to declining brick and mortar and
the evolution of online clothing stores, the retail sector has developed and transformed
meaningfully in recent times. However, this has also increased in competition for the all UK
based fashion retailers including Zara. Pi Datametrics (search intelligent specialist) also
analyse nearly 1000 UK brands and identified that traditional players in the fashion sector
continue to dominate search volume.
Rivalry among existing
firms is highly intensive
Threat of New Entrants is Low
Threat of Substitute is low
Bargaining
Power of
Buyers is high
Bargaining
Power of
Suppliers is
Low
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MANAGEMENT 6
The micro environment of UK fashion industry can be further analysed with using Porter 5
Forces model. In terms of bargaining power of suppliers, it is low as they have not significant
force in the fashion retail industry of UK and this makes them follow the rules set by the big
buying brands such as M&S, Zara. Taking example of the biggest UK fashion retailer M&S,
the company has a number of suppliers sites such as in China, India, Vietnam, Bangladesh
and others and company source from suppliers who meet their standards on an agreed
timescale. In relation of bargaining power of buyers, it is high as they have many alternative
locations to shop their apparels such as Zara, H&M and other mortar and bricks stores. The
competitive rivalry is high due to presence of various big brand stores both offline and online
also the physical shops. For instance, M&S have 7.6 market share in the year 2018 and also
by the year 2020, physical shops and offline purchases are anticipated to continue
accountable for nearly 71.2 per cent of sales (Sabanoglu, 2020).
Considering threat of new entrants, it represents a weak force as UK fashion industry is a
densely populated industry with presence of big brand retailer’s including Zara, M&S and
Arcadia and for a new brand to success, it requires a significant level of differentiation. Apart
from this, there is also a requirement to develop infrastructure, human resource and
distribution chain and therefore, it is very challenging for a new brand to enter into UK
fashion and cloth industry. Lastly, the threat of substitute comes from inside the industry and
due to intense rivalry, every brand is coming up with new products as per latest trends and
with high end styles. This is a positive aspect for Zara as the company is known for bringing
trendy clothes and apparels at relatively quicker from its competitors.
Tactics and Strategies
A short term strategy and plan that Zara can implement is to further penetrate their entry into
the UK market to gain greater market share from M&S. Zara in 2018 comes up with new
U.K. based concept stores ranging new experiences from robotics to holograms
(digitalcommerce360.com, 2018) and so now the goal through joint venture is to continue
their expansion starting with the larger areas such as Wales and also open new flagships store
featuring with interactive mirrors that can make outfit recommendations based on clothing
you are holding and radio frequency identification. Even though competitors such as Arcadia
and M&S dominate the market, Zara must continue R&D to establish ways to differentiate
themselves.

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MANAGEMENT 7
As a part of long term plan and strategy, Zara must continue its entry and presence into other
countries such as Japanese market and the United States. As their markets have a larger
population and hence, offers higher growth opportunities. However, Zara required to invest
lot in R&D so as to determine the consumers in these new markets as their culture is highly
different from the European market. For better market capturing, it is recommended to the
company to look at a joint venture or a store in the supermarket, as there are many difficulties
to obtain prime retail space. Furthermore, developing manufacturing centres can also be
beneficial in terms of reducing shopping costs and lowering the prices in these new markets.
On the basis of the macro environment, Zara can open a manufacturing plant in the UK as
beforehand, they depend on the products developed in Spain and transported to the UK. At
present, Zara has its manufacturing plants in Spain, Portugal, Morocco and Turkey
(inditex.com, 2018). As there will also rise in tariff after UK exit from EU, there is definitely
an increased in the clothes price imported by the company. To overcome this issue, the brand
can sell its clothes manufactured in the UK under free trade terms of the country. In retail
fashion market, most of the retailers face difficulties due to ever changing trends in the
market. Although, Zara has a well aligned strategic approach in this area to sell its clothes,
however, training of employees is very important. As the company is also incorporating new
technologies in its stores and providing necessary training to all the employees will raise
customer experience to a greater side.
Zara is also known for its minimal promotion and not relies upon aggressive promotional and
marketing strategies. However, with increasing competition in the UK market due to the
competitors including M&S, Arcadia and other mortal & bricks store requires Zara to exploit
different models of promotional channels such as digital marketing and chatbots to reach
people in the most cost effective manner. In relation to retail life cycle, Zara is currently on
the maturity point and to extend its position in a product life cycle, Zara should focus on
converting non-users, entering new market segments such as clothes and accessories for kids
and bring new ways of using the products with using celebrity endorsement approach. In
consideration of types of needs, Zara us successfully focusing on utilitarian needs, however,
the company can strengthen its position in the UK with focusing on hedonic needs. Since
apparel is a sort of sensory experimental product, the interaction with consumer hedonic
(Blazquez, 2014) or emotional experience in the market environment decides if the
consumers would pay for the product or not. Such needs can be fulfilled by making up
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MANAGEMENT 8
change and raise experience in the brand stores such as stimulation via background music and
so forth.
Recommendations
In terms of recommendations, Zara should use various channels to make and boost its sales
Together with it, innovation as a competitive tool can be used to reduce the intense
competition. There are many online platforms which are indulged in selling of various
products without being a fashion retailer or specializing in a specific product. It is
recommended to Zara to collaborate with such firms to selling the products of brand on top of
Zara online boutique. Digital marketing is also becoming popular in retail market and offer
low cost advertising advantage and therefore, can be used as another competitive tool to
outcompete its rivals in both domestic and international regions. Having lawsuits against a
corporation risks its existence and loss of capital through covering fines. This further requires
Zara to comply with the necessary UK regulations enforced by relevant authorities. It should
also be transparent and relevant towards the commitment of company towards society and
environment. Forecasting is also necessary and it requires constantly carrying research on
which clothes to sells to a specific ethnic group like the UK market culture is inclusive of
various cultures. All such practices will lead Zara to penetrate UK market in a more effective
and viable way and also help the company to gain a competitive verge in contrast to its major
rivals.
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MANAGEMENT 9
Summary
In the limelight of above study, Zara required to be more proactive in its environment
monitoring and strategic positioning and therefore forge its own destiny in the fashion and
retail clothing market. The change in political environment of UK cause adverse impact on
Zara in terms of increasing risks and threats, however, it can be controlled by Zara if they
managed to open manufacturing plant in the UK. From future perspectives, the company can
look for new market to gain further opportunities and ultimately, achieving economy of scale.
Furthermore, the company is also required to strengthen its online selling platform to reduce
down the competition from e-commerce channels and companies.

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MANAGEMENT 10
Reference List
Beck, N. and Rygl, D. (2015) Categorization of multiple channel retailing in Multi-, Cross-,
and Omni‐Channel Retailing for retailers and retailing. Journal of Retailing and Consumer
Services, 27(1), pp.170-178.
Blazquez, M. (2014) Fashion shopping in multichannel retail: The role of technology in
enhancing the customer experience. International Journal of Electronic Commerce, 18(4),
pp.97-116.
Conlon, S. (2020) Zara clothes to be made from 100% sustainable fabrics by 2025
[ONLINE] Available from: https://www.theguardian.com/fashion/2019/jul/17/zara-
collections-to-be-made-from-100-sustainable-fabrics [Accessed 27/03/2020].
digitalcommerce360.com. (2018) Zara opens a high-tech omnichannel store [ONLINE]
Available from: https://www.digitalcommerce360.com/2018/05/18/zaras-high-tech-
omnichannel-store/ [Accessed 27/03/2020].
Gilliland, N. (2016) Zara introduces self-checkout in-store: How will it impact the customer
experience? [ONLINE] Available from: https://econsultancy.com/zara-introduces-self-
checkout-in-store-how-will-it-impact-the-customer-experience/ [Accessed 27/03/2020].
inditex.com. (2018) Annual Report 2018 [ONLINE] Available from:
https://static.inditex.com/annual_report_2018/pdfs/en/Inditex%20Annual%20Report
%202018.pdf/ [Accessed 27/03/2020].
McCormick, H., Cartwright, J., Perry, P., Barnes, L., Lynch, S. and Ball, G. (2014) Fashion
retailing–past, present and future. Textile Progress, 46(3), pp.227-321.
parliament.uk. (2019) Fixing fashion: clothing consumption and sustainability [ONLINE]
Available from: https://publications.parliament.uk/pa/cm201719/cmselect/cmenvaud/1952/
full-report.html [Accessed 27/03/2020].
retaileconomics.co.uk. (2020) UK RETAIL STATS & FACTS [ONLINE] Available from:
https://www.retaileconomics.co.uk/library-retail-stats-and-facts [Accessed 27/03/2020].
Romei, V. (2020) UK inflation slips to three-year low [ONLINE] Available from:
https://www.ft.com/content/98b75fb2-377a-11ea-a6d3-9a26f8c3cba4 [Accessed 27/03/2020].
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MANAGEMENT 11
Sabanoglu, T. (2020) Apparel market in the United Kingdom (UK) - Statistics & Facts
[ONLINE] Available from: https://www.statista.com/topics/3348/apparel-market-in-the-uk/
[Accessed 27/03/2020].
Soni, P. (2020) These are the 5 largest economies in the world — India ranks fifth surpassing
UK and France [ONLINE] Available from:
https://www.businessinsider.in/policy/economy/news/these-are-the-5-largest-economies-in-
the-world-india-ranks-fifth-surpassing-uk-and-france/articleshow/74187167.cms [Accessed
27/03/2020].
statista.com. (2019) Global brand value of Zara from 2016 to 2019 [ONLINE] Available
from: https://www.statista.com/statistics/980126/brand-value-of-zara-worldwide/ [Accessed
27/03/2020].
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