Retail Theory in Zara: A Report on the UK Fashion Industry

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RETAIL THEORY IN ZARA
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RETAIL THEORY IN ZARA
Table of Contents
Introduction to Retail Industry.........................................................................................................3
Introduction to ZARA as leading Firm............................................................................................4
Relevant Changes in the UK Fashion Industry................................................................................6
Relevant Changes in the Micro Environment..................................................................................9
Suggested Tactics..........................................................................................................................12
Recommendations..........................................................................................................................15
Conclusion.....................................................................................................................................15
References......................................................................................................................................17
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Introduction to Retail Industry
The modern business industries are driven by different trends that take the products or services to
the consumers through different formats. In the case of Fashion industries across the world, there
is a forecast of development as consumer demands grow at a very effective rate. United
Kingdom’s fashion industry is regarded as one of the most active ones in the globe as the market
value and the range of products contribute massively to the country’s economy. However, as
demand grows, more fashion organizations are looking forward to open retail chains in the
market. This decision can be backed up by the definition of retail as the process of selling goods
or services to individual consumers for their own consumption (Rafiq, 2014). Retail industry in
the United Kingdom can be backed up by stats as well. In 2017, the economic output of the retail
industry amounted nearly 93 Billion Pounds and thus it can be considered as one of the booming
industries. The industry also had nearly 320,000 different businesses across UK in 2018 and
therefore the outreach of such industry can be considered as very high. However, when a retail
industry such as UK’s is paired up with the already established fashion industry worth 66 Billion
Pounds, then results are expected to be in favor of large fashion dealers like Zara.
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Figure 1: Opportunities in the UK Fashion Industry
Source: Hagman, 2017
Introduction to ZARA as leading Firm
In the booming fashion industry across the world, several leading brands hold most of the market
shares in different regions. However, in Europe, it is very difficult to look beyond Zara while
making the list of top fashion brands. The organization is based on Spain and it caters to a large
consumer base across the world with over 10,000 stores. 44 years ago in 1975, the organization
started with founders Amancio Ortega and Rosalía Mera having the vision to provide consumer
bases with exclusive choices of fashion. Currently the firm is headquartered at Arteixo (A
Coruña), Spain. The firm generally deals in clothing and accessories and one of the key features
of this firm is that it can provide up to 20 different clothing collections in a year. The
organization however is owned by the parent company Inditex that is regarded as the largest
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RETAIL THEORY IN ZARA
apparel retailer in the world. The parent organization also owns brands such as Massimo Dutti,
Bershka and Stradivarius etc. Therefore, it can be said that the brand is safe as far as executive
level management is concerned.
The success of the organization is heavily dependent on the fact how it has been effectively
adapting its operations as per changing market situations and consumer demands. In the 1980’s a
major change was introduced by Ortega as major elements such as design, production and supply
functions were changed. The general objective was to reduce the lead time in terms of reacting to
new fashion trends in the market. Since 1990’s Zara has been following a reverse milk-run-type
production which was designed by Toyota Motor Corp. This approach has enabled the firm in
being able to develop a new product and supply in to stores within just one week. It can be said
that Zara can also climb on top of the global fashion leadership list if all operations from now
onwards go as per planned.
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RETAIL THEORY IN ZARA
Figure 2: Zara Outlet
Source: Zara.Com, 2019
Relevant Changes in the UK Fashion Industry
Fashion Industries across the world are rapidly changing as per the situations in the external
environment. However, in the external environment there are several different elements that
decide an organizations stance in terms of operations. In order to effectively understand each
aspect of the external environment, the PEST Analysis will be generating important information.
The PEST Analysis will comprise of discussion regarding different elements such as Political
Environment, Economical Environment, Social Environment, and Technological Environment.
Political Environment
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Political situation of a country is very much important for the stability of a business as the
government’s policies depend largely on the political context. In UK, the organization can face
difficulties if sudden political turmoil hits the market. UK as a nation is facing a political turmoil
with different nations of Europe and therefore the supply chain is very much getting affected.
The industry receives a large part of its raw materials from countries in Europe and therefore, a
political turmoil increases the rates of such materials as well as the difficulties in supply chain
(Lion, 2018).
Economical Environment
As per the economic situation in the market is concerned, the industry has no such issues as the
organization is part of the fashion industry worth 66 Billion Pounds and this industry contributes
a significant 7% to the economy of United Kingdom. Therefore, it can be said that the fashion
industry is an important part of the economical structure. As competition in the market is
increasing, brands across the world are brining major chances into their costing strategies, which
can automatically help in terms of adapting an affordable pricing strategy (Mena, 2016). This
affordable pricing is increasing the amount of consumer base for organizations such as Zara and
thus, the contribution of the fashion market to the economy is set the increase. The GDP per
capita is also set to rise and is currently nearly at 47,000 Dollars.
Social Environment
The social environment is also an important factor in terms of the UK Fashion Industry as the
elements such as workforce is dependent on the social environment. In UK, the fashion industry
employs a massive number of 33 Million people across the world. The industry is currently
operating with over 555,000 people in the United Kingdom alone and as demand grows, the need
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for workforce is expected to rise. However, it is predicted that the high immigration rates will
mitigate any chances of shortage of workforce. As the immigration rates in UK increases, the
amount of consumer belonging from different communities and cultures will be increasing and
thus, it can be said that fashion brands will have to cater to a much diverse target market as
fashion choices are significantly different in different communities.
Technological Environment
In terms of Technological Development in the business environment in fashion has been very
much effective in terms of adapting with the latest machinery and software. The organizations
are more data driven and whether it is online or retail sales, the consumers are put through survey
processes so that data can be generated and the services can be made more consumers friendly
(Clemmensen, 2015). The fashion market is also driven by fast reactions and organizations are
shifting to more fast-paced fashion production, as it will help in capturing large chunks of the
market share.
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Figure 3: PEST Analysis of Zara
Source: Singh, 2018
Relevant Changes in the Micro Environment
An effective internal analysis is essential to perform effective study on the business process of an
organization. The following part consists of the SWOT analysis of ZARA in an effective and
efficient manner.
Strengths of ZARA
 Unique design of ZARA- Unique design of the products is one of the major advantages
of ZARA that helps to retain the sustainable customer base for the organization. The
clothes of ZARA are made up of finest clothes and unique design is the main Unique-
selling proposition of the brand (Anwar, 2017). It helps the company to enhance the
profit by almost 15%.
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RETAIL THEORY IN ZARA
 Brand value of ZARA- Zara is listed in the Forbes magazine as one of the strongest
brand. It has huge revenue of 10 .7 billion dollars. In the Developed market due its strong
brand value, it has a steady sales growth. Besides that, the brand has stayed away from all
types of controversies that has helped in creating an excellent brand image for ZARA.
 Strong supply chain management- ZARA has one of the best supply chain management
that is one of the greatest assets of the company (Saraswat, 2018). Approximately, it
takes 2 weeks for ZARA to design a conception and present it in the Zara store due to its
strong supply chain. On the other hand, it takes almost 6weeks for the competitors of
ZARA to perform the same task.
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Weaknesses of Zara
 Lacuna in Advertising- Compared to the other brands ZARA performs almost 7 % less
promotional activities compared to its rivals like Louis Vuitton. It affects the sales of the
ZARA in a negative manner.
 Low safety stock- This is one of the major weakness of ZARA. Most of the products that
are manufactured by ZARA are unique. Most of the time the company do not have
effective reserve stock of the same products (Mierzejewska, 2017). If a particular design
is in demand in the market the consumers has trouble to get that product due to limited
availability in the ZARA outlets.
Opportunities
 Online Ecommerce- The online e commerce is enhancing in the UK fashion market in
an effective manner. It is seen that more that almost 70% of the transaction is done online
in the fashion industry (Wang, 2018). This is one of the prime opportunities for the
organization like ZARA. It may use this opportunity to enhance its business in an
effective manner.
 Growing Market potential- Due to globalization there is rise in the customer demand to
use designer products in an efficient manner. The market is expanding in a steady rate
that is one of the prime opportunities for the UK fashion industry.
Threats
 Competition- Due to globalization there is fierce competition in the fashion market of
UK. Different foreign organization is coming in UK as if Gucci form Italy has enhanced
the competition of the company.
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 Outreach- Zara has less presence in multi brand stores and the business totally depends
on its own stores that approximately affect the sale of ZARA by 5%.
Figure 4: SWOT of Zara
Source: apessay.com
Suggested Tactics
In terms of the Macro Environment, Zara has witnessed a very significant change in the
technological department. The modern fashion industry is witnessing more data driven designing
and production activities. However, to effectively execute data driven activities Zara needs to
make sure that it has hands on accurate consumer data. Therefore, the use of CRM techniques or
software is an effective path, which Zara can adapt. By using CRM tactics, the organisation will
have access to consumer choices and consumption patterns that will effectively help the
organisation to produce as per demands in the market (Steve Wood, 2010). As mentioned before,
one of the key strengths of Zara if that it can produce a large number of collections in a single
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