Business Environment: Zara's Strategies in UK Fashion Market

This report provides a comprehensive analysis of Zara's operations within the UK fashion retail market. It begins with an introduction to retail and the company, followed by an examination of the macro and micro environments using PEST and Porter's Five Forces frameworks, respectively. The political, economic, social, and technological factors impacting Zara are explored, along with the competitive landscape and market dynamics. The report then delves into Zara's strategies and tactics, including the application of the wheel of retailing theory and environmental theory, as well as recommendations to meet the challenges in the UK fashion market. Finally, the report concludes with a summary of key findings and implications for Zara's future.

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changes in the UK fashion clothing market

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Contents
Introduction to Retail..............................................................................................................2
Introduction to the Company..................................................................................................2
UK Fashion Retail Macro Environment................................................................................3
UK Fashion Retail Micro Environment.................................................................................4
Strategies and Tactics for the Macro and Micro Environment...........................................4
Recommendations to Meet the Challenges............................................................................6
Conclusion.................................................................................................................................7
References.................................................................................................................................8

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Introduction to Retail
Retail comprises of all the activities in selling products or services to the final
consumers for their individual and non-business application. In relation with the
fashion retail environment of contemporary industrialized economies, opportunities to
exploit really new products are rare, yet competent retailers succeed to make the
illusion of freshness and newness in their range by building, choosing and editing
innovative product disparities (Turker and Altuntas, 2014). At an international level,
fashion retail industry is getting tougher economic and social environment with
changing consumer trends and shifts in the fashion system and the brand which has
the courage to self-disrupt are emerging at a fast pace. In case of UK, the fashion
industry has gained great growth over the past two decades and it represents for
5.4% of the country GDP with employing 55000 individuals through the nation
(Sleigh, 2018). In addition, UK online clothing market is also becoming more
protuberant with representing more than 20% of the entire sales (Sabanoglu, 2020).
Introduction to the Company
One of the largest global fashion company i.e. Zara belongs to Inditex, one of the
global prime distribution group. From the starting, Zara strategy is to make the
process for locally, fast-in house manufacturing of new trends, straight from the
sketch and this makes the company to consistently act as a pioneer in fast fashion
based in an extremely responsive supply chain. Some of its major sister brands
include Massimo Dutti, Zara Home, Uterque, Berkshka, Stradivarius and Pull & Bear.
The company have a network of 2250 Zara stores and nearly 600 Zara Home Stores
in operations globally and this makes the brand as one of the most valuable clothing
brands in the world (statista.com, 2019). In Forbes list, Zara is at #46 rank as world
most valuable brand 2019 having operations in nearly 96 countries (forbes.com,
2019).
The biggest competitors of Zara in UK are Burberry, Next Plc., Mark & Spencer and
ASOS with the market capitalization of 10 billion dollars, 7.16 Billion, 6.18 billion
dollars and 6.18 billion dollars respectively (fashionunited.uk, 2020). Zara fast
fashion model depends upon an integrated supply chain and a big group of
competent designers and besides the well-designed stores, the company is also
investing in technology to offers the buyers a higher shopping experience. The
fashion products carry by Zara targeted to all customer groups i.e. men, women and
kids. Zara operates 64 stores in the United Kingdom as of 2018 (Hoeijmans, 2018)
and in 2019, the company name gets over one million searches every month in the
UK (billiondollarboy.com, 2019).

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UK Fashion Retail Macro Environment
Every industry is affected by various political, economic, social, environment,
cultural, legal and environmental factors and to identify and assess these macro-
environmental factors, Rothaermel (2016) suggested PEST framework as one of the
most effective tool help management to scrutinize such factors in a context that allow
business to assess itself against different market variables, competitor and other
elements of change that are causing significant impact on the business operations.
Below, the tools have been used on UK fast fashion macro environment considering
its impact on Zara.
A. Political Environment – The fast fashion retail companies in the UK have to
face various challenges such as a rise in tax rates and tariffs after the UK
exits from the EU on 31st January 2020 (Murphy, 2020). As Zara is a Spanish
originated company and when the UK and Spain are both parts of EU, the
companies enjoy free trade, but now cost of Zara products will rise for the
cloths manufactured in Spain. The next factor is increasing uncertainty for
Zara to do business in Europe due to Brexit as in 2018, UK trade minister also
conducts a meeting with UK Textile and Fashion Association, however, as per
the media, no businesses were much sure how to businesses after the total
Brexit.
B. Economic Environment – Increasing inflation rate in the UK is also an issue
for the fast fashion industry in the country. For instance, the inflation rate in
2017 hit at 3.1% and this indirectly creates impact on Zara to increase its
prices of the different apparels and therefore, reduced the sales of products
accordingly. However, there is also one positive side for the fast fashion
retailer including Zara as UK with a $2.83 trillion GDP is the sixth largest
economy in the world and this presents various benefits to Zara to reach to a
wider market segment including a promising infrastructure
(worldpopulationreview.com, 2020).
C. Social-Cultural Environment – It includes factors such as the growth of plus
size fashion as in UK, there is increasing obesity and an ageing populace and
the country is also known to be as “Fat man of Europe” (Knapton, 2016). As a
result of this, many shoppers evade from shopping at certain retailers as of
lack of plus-size varieties and sizes and this creates a key gap market
opportunity for the clothing retailers who do not cater this range. Hence, Zara
and other brands in UK must start investing in plus size clothing range. The
next factor is change in cultural environment as in Spain, the market is
associated to one race with an identical culture, unlike the UK that is
attributed to multi-ethnic cultures. This also requires Zara and other clothing
retailers to emphasis more on change in cultural trends and aspects.
D. Technological Environment – In UK, there is increasing growth and
development of e-commerce and UK clothing retail as verified by the rise of
online players including Amazon, Boohoo and Asos. This new platform brings
greater competition for Zara and brick and motor businesses as these
technological changes are shaping the new retail environment. In addition,
many companies such as H&M having a major market share are improving
their in-store experience and this also requires Zara to come up with new tech
store setup similar like they came out in 2018 where the store in UK built with

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providing new experiences to all the buyers and shoppers (Geoghegan,
2018).
UK Fashion Retail Micro Environment
In relation with UK micro business environment, it can be analysed with the help of
Porter five forces framework, as according to Lasserre (2017), this framework can be
used as a tool to assess the different external factors that will impact the business
competitive position over the upcoming years. In relation with UK industry
environment and Zara competitiveness, it includes 5 key areas such as bargaining
power of buyers, bargaining power of suppliers, competitive rivalry, threats of new
entrants and threat of substitutes.
In UK fast fashion retail industry, the bargaining power of suppliers is low and there
are various numbers of big brands available both as offline and online that sets
various guidelines, rules and standards for its suppliers. For instance, M&S have
numbers of supplier’s network in countries like Vietnam, India, China and
Bangladesh and they make decide on only those suppliers who are readily available
to agree on their set standards and timescale. Considering the bargaining power of
buyers, it is high due to existence of various numbers of shopping stores and online
platforms. In the UK itself, the shoppers can decide where to purchase either from
H&M, Zara or Burberry.
In relation with competitive rivalry, it is also intense as due to presence of big
numbers of offline and online retailers. In addition, all big fashion brands are fighting
for gaining more number of market share like M&S from a long time ago had the
highest portion of market share and also dominated the UK clothing market from
decades but Primark is poised to nab the title of the UK leading clothing brands as
there is exponential growth, growing from 4.7% in 2008 to a projected 7 % in 2018
(Stevens, 2018). This will be more challenging to the Zara to come up with a
competitive strategy so that to gain higher numbers of existing and potential
customers in the UK.
There is a moderate threat of substitute as all the brands and companies are
pushing many efforts to bring latest and trendy clothes for the UK buyers and this
can be a beneficial point for Zara as the company globally, is known for bringing the
fast fashion comparatively quicker from its rivalries. At last, the threat of new entrants
in UK clothing retail environment is also low as it requires high capital investment as
well as there is already a presence of top brands including H&M, Zara, Burberry and
Primark. However, the company can enter through an online platform as it is not that
much developed in the UK and therefore, allow new or existing companies to gain
first mover advantage.
Strategies and Tactics for the Macro and Micro
Environment

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Retail competition evolves in a number of ways and rather than trying to appeal to
consumers of clothes, apparels and accessories all under the one roof, Zara has
shifted its strategy with incorporating Zara Home that offers a home collection corner
as a separate division, however, creating synergies in the whole Zara brand. In
2018, Zara built concept based stores in the UK offering new experiences to the
shoppers with robotics and holograms (Geoghegan, 2018) and this must be
continued as opening more and more flagship stores in the country together with
upgrading existing stores with further technology capabilities such as RFID and
smart mirroring same like done in other countries stores.
In relation with the wheel of retailing theory, retailers have to go through 3 stages i.e.
entry phase, trade-up phase and vulnerability phase. In the UK, Zara is not in the
entry phase as they are not new in the marketplace as the company currently
operates 64 stores in the United Kingdom as of 2018. Zara comes up in the trading
up phase where the company is expanding its services and facilities, however, also
raising their operational costs. The vulnerability phase determines retailers to
continue raise their prices to stay profitable and become susceptible to new retailer
entering the marketplace like Primark who is trying hard to gain a greater number of
market share in the UK.
As a part of long term plan and strategy, it is also necessary for Zara to increase its
presence in the US and Japanese marketplace due to higher number of population
and market growth opportunities. The best and viable strategy for Zara in expansion
into these countries will be joint venture as it will allow the brand to get prime retail
space in such nations. In addition, Zara can also develop more manufacturing
centres as it allows the brand to be beneficial in terms of reducing the prices as well
as shipping costs and therefore, directly benefit the customers and shoppers, in turn,
raise the market share.
In the UK, Zara should also focus on developing a manufacturing plant as it will help
the brand to decrease tariffs costs when the products get transported from Spain,
Morocco, Portugal and Turkey to the UK. This will help Zara to reduce the clothes
price in UK and ultimately, allow buyers to shop for less cost gaining more loyalty
and brand awareness. According to environmental theory, retail organisations are
economic entities and have to confront the environment which is made up of
competitors, customers and changing technology.
In case of Zara, it is best fit to their environment and, therefore, more likely to sustain
for a longer period of time. Some of the major environmental factors impacting
retailing include change in technology and competition, social factors, change in
customer characteristics including age of the population and so on. The best
example can be seen in 2018 when Zara started using in-store tech to enhance its
frustrating shopper experience like introducing its first ever click and collect store in
London Westfield refurbished. It is recommended to Zara to follow similar strategy in
all of its stores of UK to gain competitive advantage.
From a long period of time, Zara does not believe on aggressive promotion and
marketing, however, with increasing competition in the UK and expanding of Primark
in the UK markets, it is recommended to Zara to use more and more number
marketing channels. Considering the retail life cycle, Zara position is on the maturity
stage and to hold and increase its position in the life cycle, the brand must undertake
innovative and differentiation approaches same like Zara Home to increase its

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business reach and competitiveness. The strong competition between rivals, an
economic scale and consumer selection is influencing the pricing under the pressure
to presents debates discounts for the consumers. Zara can execute both short and
long term pricing strategies like £9.99, £14.98, £20.98 etc. or changing the price to
the pound like £30.00, £50.00, £60.00 etc.
Recommendations to Meet the Challenges
Zara is doing great in terms of bringing fast fashion to the UK and other countries,
however, there is an increasing cost in managing the stores and the online platform.
For this purpose, the company can rely upon on other online platform and channels
to sell its products as this will reduce the overheads costs of operations in various
areas. Zara must offer their buyers reward interchange for the collected points as
this practice benefits the business in terms of an advantage to trail behaviour of the
customers and accordingly help the management to develop significant strategies to
retain existing customers and find for prospective buyers.
After the UK exits from the EU, it is recommended to Zara that the company should
show complete transparency together with complying with the necessary UK
regulatory bodies and legal authorities. It will help Zara to develop good and long
term relations with the government and therefore, help in the long run and expansion
of business in UK. Considering the competition, Zara can be improvised on
enhancing in-store customer experience in all UK stores through further investment
in technology such as AI and virtual reality. It will attract more numbers of buyers to
the brand and therefore, results in raising the brand equity and awareness.

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Conclusion
Ultimately, there are many changes going on in the retail fashion environment as of
UK exists from EU. Zara is an organisation maintained robust position in the retail
marketplace by establishing itself as a brand name which offers latest fashion
products at low cost and that are also superior than its rivals. Though, it is necessary
that the company should be aware of the different environment factors that directly or
indirectly impact on the external corporate market and exploit its inner strengths to
make sure that its competitive edge is sustained. It would also allow the brand to
sustain a distinct position within the marketplace. Zara‘s overall business operations,
comprising the production process, design process and the distribution process, all
are so refined and synchronised that it aids Zara becomes the forefront in the
fashion retail industry.

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