Pestle Analysis for Zara PDF

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Shrouq Gamil

27/10/2020

PESTLE Analysis for Zara

Introduction Zara is a Spanish clothing retailer that is based in Galicia, Spain. It was founded by Amancio Ortega in 1975, and it is a flagship chain store of the Inditex group, the world’s largest apparel retailer. Zara is one of the world’s largest international fashion companies. The company operates over 2,264 stores and is present in 96 countries. Zara is most famous for its introduction of the concept of fast fashion as they have consistently acted as a pioneer in fast fashion. In 2019, Zara was ranked 29th on global brand consultancy Interbrand’s list of best global brands. Its core values are found in four simple terms: beauty, clarity, functionality, and sustainability. Zara’s success is in its ability to keep up with the rapidly changing fashion trends and this was a significant gap in the market that Zara filled1.

Political Factors Political factors can have a big impact on the business and especially on an international business as every nation and its government does not have the same outlook on business especially since some governments are not very open to foreign direct investment. The political environment of any nation also affects the condition of businesses there. If the political environment of a country is safe and peaceful, the brands operating there are happier. Political disruption results in the disruption of the market and the economy which could disrupt the supply chain and Zara overcame this problem by limiting its supply chain operations to its home country and some neighboring nations. 1 Roll, M. (2020, August 5). The Secret of Zara’s Success: A Culture of Customer Co-creation | Martin Roll . Martin Roll. https://martinroll.com/resources/articles/strategy/the-secret-of-zaras-success-a-culture-of-customer-co-creation

Shrouq Gamil

27/10/2020

Zara also benefited from the European Union as it gave access to a broader customer base within all European countries without paying extra border tariffs which helps to boosts its sales. Spain also has a well-established framework of extensive trade agreement which helps Zara to import raw materials and export finished products and merchandise across the world involving little effort and low cost2.

Economic Factors The level of economic activity in any nation or market also has a major effect on how businesses are operating there, as the economy is always a critical factor in terms of business. Spain has one of the highest rates of unemployment and Zara takes advantage of that by having a low cost of labor. Spain also experiences a slow growth in the economy and it went through lots of crisis and economic recessions however Zara was still able to make profit and stay relevant. When Spain’s economy shrank by almost 10 percent between 2009 and 2013, Inditex shares soared 67 percent as global revenue jumped 10 percent3, and this was due to Zara being a top fashion label that is trendy as well as affordable. Zara also deals in dollars and safer currency and the company always evaluates the economical condition and currency rates of that country before entering its new markets which were how it was able to withstand economic fluctuations.

Social Factors Social factors are of utmost importance in the case of business and especially in the case of Zara. Brands that lose the attention of cultural aspects of business and marketing are at the risk of losing their customers and Zara has minded this aspect of the business since volatile social trends 2 Fashion Revolution. (2015, January 15). Europe in the World: The garment, textiles & fashion industry - Fashion Revolution . Fashion Revolution. https://www.fashionrevolution.org/europe-in-the-world-the-garment-textiles-fashion-industry/

3 Bloomberg. (2018, March 2). How Zara Transformed Its Hometown Into a Spanish Powerhouse. The Business of Fashion; The Business of Fashion. https://www.businessoffashion.com/articles/news-analysis/zara-hipsters-transform-their-hometown-into-aspanish-powerhouse

Shrouq Gamil

27/10/2020

have a huge impact on demand as well as supply of the company’s products. However, Zara does not practice good social responsibility, which is an important thing since customers are mindful of the business’s responsibility towards society, because of its concept of fast fashion. Zara doesn’t enter any new market without doing its preliminary research into the social and cultural nuances of its target market, and this has been one of the leading causes behind the worldwide acceptance of Zara. This is an important step as people generally prefer buying things connected with their culture and something alien to their culture finds lower acceptance among the customers from a specific cultural group. Therefore Zara does its research and makes products that rhyme with the local culture, as it doesn’t believe much in experimentation. This allows the company to provide fashion that is readily acceptable by its target demographic, and also at prices that they can afford4.

Technological Factors Technology is changing things globally making them happen at a faster rate and Zara has been mindful of utilizing the power of technology to its profit. No business makes its important decisions without data and analytics and since Zara has the money as well as the customer base to extract the most out of the data it invests huge amounts of money to understand and analyze huge data sets to find efficient ways to appeal to its customers. The brand has a popular website through which it interacts with customers from the entire world, and it makes it easy for them to collect and collate immense amounts of customer data and information to unearth a better understanding of customer preferences. Zara established a successful partnership with Toyota applying concepts of JIT and Lean facilities across its manufacturing operations which helps in improving operations across the entire supply chain. Zara has also

4 Layan Jawdat. (2014, January 18). Zara, Globalization & Culture | CCTP-725: Remix and Dialogic Culture. Georgetown.Edu. https://blogs.commons.georgetown.edu/cctp-725-fall2014/2014/01/18/zara-globalization-culture/

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implemented an RFID system5 for tracking inventory along its value chain which has improved Zara’s entire inventory management process. Overall technology helped Zara to increase their responsiveness to their customers.

Legal Factors Law is everywhere, a business cannot expect to remain uninfluenced by it as there are many laws that businesses are required to abide by. Moreover, Zara is a brand that prioritizes ethics and sustainability so they’ve made separate laws for the wages of their employees as Inditex has implemented programs that guarantee living wages for its labor force. Zara also makes sure to adhere to local laws in the local markets wherever it operates. However the brand has run into copyright infringement issues as they ‘ve been accused of stealing designs and clothing concepts from that of Adidas and Balenciaga, and this is because sometimes it's impossible to implement copyright law. After all, the brand produces a lot of clothing6. Even though they have copyright infringement issues, Zara values their brand equity because they develop a bond with their customers through their brand names and trademarks.

Environmental Factors Sustainability that started as a trend has now become one of the most important concerns for businesses globally especially fast fashion brands like Zara which have come under customer scrutiny, as they’re being seen as the primary cause of the wastefulness of clothes. Since today’s customers are growing more eco-conscious than ever brands like Zara need to adopt sustainable ways to avoid negative impacts. In response to that Inditex has pledged to make its stores 100% eco-efficient by 2020 as they explained that they will use less energy in manufacturing and in stores as well as using recycled wool and Tencel.

5 Dowsett, S. (2018, June 15). Zara looks to technology to keep up with faster fashion. U.S. https://www.reuters.com/article/us-inditex-technology-focus-idUSKBN1JB0HG 6 Chavie Lieber. (2018, April 27). Fashion’s copycat problem: why brands like Zara get away with rip-offs. Vox; Vox. https://www.vox.com/2018/4/27/17281022/fashion-brands-knockoffs-copyright-stolen-designs-old-navy-zara-h-and-

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27/10/2020

Different environmental factors also affect Zara such as natural disasters. A series of disasters struck Japan in 2011, the tsunami was one the biggest one that devastated Japan in many ways and Zara faced damage to local infrastructure, power irruptions, and from closed ports. Moreover, weather in Asian countries is different from the European countries as five extreme seasons rule the weather, and this requires rapid fashion change based on the local weather7.

7 Japan earthquake: apparel industry impact. (2011). Just-style.com. Retrieved 16 March 2016, from http://www.juststyle.com/analysis/apparel-industry-impact_id110630.aspx...