MAN301 ASS2 - Zara with PESTEL and Porter\'s Five Forces PDF

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Zara with PESTEL and Porter's Five Forces...

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STRATEGIC MANAGEMENT MAN301 ASSESSMENT 2

NAME: DUC TAI, BUI ID: 1037334 LECTURER: DR. AMAN ULLAH

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Executive summary Australia’s fashion retail market is growing sharply with potential macro environment. Zara is among the leading fashion retailers with advanced technologies and unique supply chain impressing market noticeably. However, Zara is also confronting with harsh competitiveness from both local and foreigner players in Australia market.

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Table of Contents Executive summary...................................................................................................................1 I.

Introduction......................................................................................................................4

II. Market size and trends......................................................................................................4 III.

Strategic options............................................................................................................5

3.1.

PESTEL.....................................................................................................................5

3.1.1. Political environment.............................................................................................5 3.1.2. Economic environment...........................................................................................5 3.1.3. Social environment.................................................................................................5 3.1.4. Technological.........................................................................................................6 3.1.5. Legal environment..................................................................................................6 3.1.6. Environmental factor.............................................................................................6 3.2.

Porter’s 5 forces........................................................................................................6

3.2.1. Competitive Rivalry................................................................................................6 3.2.2. Bargaining power of suppliers...............................................................................7 3.2.3. Bargaining power of buyers...................................................................................7 3.2.4. Threats of new entrants..........................................................................................7 3.2.5. Threats of substitutes..............................................................................................7 IV. V.

Conclusion....................................................................................................................7 Recommendation..............................................................................................................7

References.................................................................................................................................9

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I.

Introduction

For the last few years, it has been highly challenging for clothing retailers to operate in the Australia market due to various reasons such as intensive competition, increasing lease expenses, customers’ cautious spending behaviour, etc. Regardless these challenges, the fashion retail sector still experienced an annual growth of more than 2% offering over 220,000 jobs to the local communities. In order to stay sustainable in the harsh competitive market, it is compulsory for fashion retailers in Australia to respond innovatively to the market trends. And Zara has been recognized as the leading innovative fashion retailer thanks to its unique global supply chain and production process. Within this part, an overview about the Australia’s fashion retail market in terms of market size and trends will be presented. Then, a throughout analysis of Zara’s macro environment via the utilization of PESTLE and Porter’s Five Forces model will be conducted prior to providing some recommendations for Zara’s better performance in the Australia’s fashion retail sector. II.

Market size and trends

In the era of Internet and advanced technologies, the fashion retail market is getting more and more innovative and challenges to all retailers regardless their business scope and volume. Customers nowadays can do their shopping 24 hours a day without barriers of space, distance or time making the retail industry more competitive than ever. Up to now, Australia fashion market has the total domestic market value of over 28.5 billion Australia dollars. According to Magenable report in 2016, fashion e-commerce in Australia reached value of $3.15 billion while over $2 billion is spent on the local brands. To some extents, Australia’s clothing retail is among the leading industries in the national economy with the annual retail sales of over 21 billion Australia dollars. In average, the consumer expenditure on clothing and footwear per year reached 28.5 billion Australia dollars creating more than 37,000 jobs in textile, clothing, leather, and footwear production. Within the Australian clothing industry, fast fashion is considered the fastest-growing segment with the annual growth rates of 19.5% and the total value achieving at $2 billion for the first time since 2013 (IBIS World). Australia apparel retail market contributes more than USD $11.5 billion of annual revenues to the national GDP. It is a fact that Australia has a high-cost labour market making its clothing have higher price tag than other manufacturers in low-wages markets. This is also the root cause for Australia’s fashion retailers to set priorities on key customers’ goods including leather, textiles, luxury fashion items, etc. Despite the fact that Australia’s fashion retailers are investing on diversifying their product range and retail access, it is a trend among them to 4

explore the local audiences. Different from its strong presence in the local market, Australia’s retailers have limited access to the international market comparing to other rivals. It is suggested that Australia’s fashion retailers should recruit the most designers in the world as well as cooperate with other global brands to strengthen their new market presence. III.

Strategic options

III.1. PESTEL III.1.1. Political environment Since 2018, the free trade agreement between EU and Australia has created various opportunities for Zara Australia to increase its sales performance. Thanks to the Europe’s free trade agreements, Zara’s goods can be moved in free of border tariffs, quality/ quantity restrictions, and common tariffs for imported/ exported goods among European nations which are considered as Australia’s second biggest trading partners. More than 70% of Australia’s export market for textiles and clothing are covered by the European countries. Hence, Zara Australia gains lots of advantages to approach bigger market shares in these destination countries without additional border tariffs contributing significantly to improvement of sales revenues (Geoghegan 2017). III.1.2. Economic environment According to OECD (2013b), most of OECD countries witnessed a sharp increase in disposable income of households implying customers’ bigger budget for clothing purchase contributing to the increasing sales revenue of fashion retail company. However, European Commission (2013) also indicated that these countries coped with declining employment rate as the consequence of 2008’s financial crisis. From this information, it can be said that there are fewer people capable of shopping fashion items due to increasing unemployment rate while the affordable ones are willing to pay larger amount of money thanks to their higher disposal income (Wood 2017). According to Goodman (2017), the apparel’s manufacturing costs keep increasing due to the increasing scarcity of raw materials such as oil, water, etc. In addition to the manufacturing sector’s decrease, the resources of skilled workforce are getting scarcer and more expensive posing great threats to the industry’s competitiveness (European Commission, 2014). As a result, it is a trend among fashion retailers to cut down on their manufacturing and labour costs via the production outsourcing to low-cost manufacturing regions like Bangladesh, Cambodia, etc. III.1.3. Social environment

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Skrovan (2017) pointed out that customers are getting more and more interested in online shopping thanks to its outstanding advantages such as 24/7 shopping, quick comparison of prices, time and cost savings for transportation to the offline showroom, etc. The changing shopping behaviour of customers while purchasing fashion items helps Zara increase up to 10% of overall sales revenue (Hipwell, 2017). Fully recognize the roles of culture in international business, Zara focuses on conducting market researches to gain more insights about Australia’s markets and cultures for designing the most appropriate and specific for the local customers (Janmohamed, 2018). III.1.4. Technological Zara strives to lead the Australia’s clothing retail market with the combination of unique supply chains, manufacturing process and the cutting-edge technologies as well. Zara has been successful in impressing its customers via the development of new augmented reality technology allowing customers to see how a model would be on the body only with a smartphone. Then, customers can purchase their desired items by only a click. This cuttingedge technology is also adopted online to bring all customers the same experience of advanced technology for higher satisfactory shopping experience. This type of technology is expected to highly satisfy the young customer base of Zara (Looveren 2018). III.1.5. Legal environment In order to avoid the legal issues while operating in foreign markets like Australia, copyright laws should be prioritized by Zara to ensure that no local brands can remake their product categories at lower prices. In addition, there is no opportunities for local brands to use Zara’s brand image or brand to market for their similar products if Zara strongly enforced Australia’s copyright laws (Hanbury 2018). III.1.6. Environmental factor In Australia, the government is on its way to build up a greener environment. In order to cooperate better, Zara has invested large budget on fulfilling its eco-friendly by 2020 together with improving its sustainability with the total budget of more than $7.5 billion for organic materials, energy efficient solutions, etc (Scarano, 2017). Furthermore, Zara also strives to increase its in-store recycling initiatives in terms of recycling rate improvement, waste reduction, etc. (Gould, 2017) III.2. Porter’s 5 forces III.2.1. Competitive Rivalry In Australia, Zara has to confront with the five strongest rivals including Jac and Jack, Maticevski, Staple the Label, Romance Was Born, and Dinosaur Designs which accounts for 6

17%, 13%, 10%, 8%, and 7% of market share respectively reflecting a high level of competitive rivalry. Among these competitors, Zara is the most reasonable brand with the most responsive supply chain model. It takes Zara only two weeks to put forward new clothing line comparing to months of other brands. Thanks for the limited stocks for shorter time period, Zara is very successful in attracting its customers and achieving 80% of the full ticket price on its retail market. III.2.2. Bargaining power of suppliers Despite the weakening power of suppliers due to the low wage countries like China, Bangladesh, etc, it can be said that Zara has to cope with quite high power of suppliers. It is a tendency among brands to create and maintain a sustainable relationship with a qualified supplier in terms of safety and quality standard to avoid the high switching costs. III.2.3. Bargaining power of buyers The bargaining power of buyers on Zara is moderate. Zara’s limited stock availability and its limited budget (only 0- 0.3% of its budget) on marketing foster its customer loyalty level making them always engaged in lining up for their new clothing lines. III.2.4. Threats of new entrants It can be said that the threats of new entrant in the market sector of Zara in Australia is low. Zara succeeded in dominating its market thanks to reasonable prices satisfying the market’s demands of economical goods, its shortest sales cycle, style diversification and strong brand recognition. It also owns unique supply chain throughout its stores across Australia making it more challenging for new entrants to enter. III.2.5. Threats of substitutes Zara has to cope with moderate threat of substitutes from some other brands like H&M, Pull & Bear, etc. due to their acceptable quality and affordability. IV.

Conclusion

In a nutshell, it can be said that Australia’s fashion retail market is highly potential with various prospects and growth opportunities in the next few decades. Regardless the rising competitiveness from local’s strong brands, Zara still maintains its leading position thanks to its reasonable, high-quality, and diversified style products, shortest sales cycles, advanced technologies and sustainability. V.

Recommendation

In order to approach wider customer base, especially the young customer sector, it is highly recommended for Zara to:

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-

Invest more on its cutting-edge technology to impress the young customers

and leverage their shopping experience -

Improve its quality and product uniqueness to overcome the threats of

substitutes from H&M, Pull & Bear, etc.

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