Zara’s Porters five forces analysis

Zara is an apparel retailer company whose headquarters is in La Coruna, Spain. It is a flagship chain store of Inditex Corporation owned by Amancio Ortega. The company was founded in the year 1975, and it is well known for its fashionable trendy designs, which are affordable to people. The company’s mission is to hold a big market share among the young and fashion conscious urban dwellers in every continent by quickly responding to their demands. Ever since its establishment, the company has grown by expanding its stores and business operations to almost all the seven continents. It is increasing its stores in diverse countries worldwide though the number of stores only account for one-third of stores that of Inditex. Their business model is based on producing great choices of style and clothes, short deadlines and decrease quantities. The company’s corporate concept is to offer trendy, fashionable designs at a reasonable price to its consumers thus their key to success is offering consumers latest fashion trends before their competitors.

The company classifies itself as a fast fashion brand rather than a clothing line company. It incorporates a vertical integrated approach where it controls the designing, manufacturing, supply chain and distribution of its products. This has helped in its growth as a company because it meets consumer demands. Their market includes all people of all age and both gender. Their products are of high quality, and they include men and women’s clothes, shoes, cosmetics and children’s clothes. The company is currently doing well when compared to its competitors. This is because its sales and profits keep rising while those of its competitors such as H & M, The Gap and Benneton keep going down. Though it is doing well in the apparel industry, it has some fall backs, which challenge its success.

Common Zara assignments

  • The Inditex – Zara case study
  • Zara History And Background Business Essay
  • Zara Company analysis
  • A case study analysis of Zaras Operations Strategy
  • Strategic Decision In Zara – One Of The Worlds Fastest Growing Retailers
  • Digital Marketing Plan Zara Clothing Marketing Essay
  • Assessing the Zara brands success worldwide
  • Entry Mode Of Zara Into The Indian And Chinese Market
  • Supply chain management at zara fast fashion
  • The Possible Risks in Apparel Retailing Firm Zara Finance Essay
  • Marketing Problems And Issues Faced By Zara Marketing Essay
  • Performance review of the Spanish ZARA Brand
  • The history of Zara and the founders profile
  • History of Information Technology application in Zara

Zara Strategic Issues

Zara’s main strategy is the ability to respond in a fast way to the demands of target consumers. The company identifies the diverse trends and meets the demands with the aid of an autonomous organized structure, as well as an effective value chain system. The company sells its products, which is a good thing, but it does this without using any form of advertisement. Advertising in business is essential because it helps in making a company’s products known and thus purchased by consumers. It makes consumers buy products from one company and ignore the other making competition a key problem. Zara faces competitive pressure from its competitor H & M, which is known globally for its unique and different fashion lines due to collaborating with different designers, an aspect that is different from Zara.

In comparison to H & M and other rivals, it is the one that has most sales revenue, earns a lot of profit and was able to flourish even through an economic crisis. Though this is the case, in order to maintain this success and ensure it maintains high revenue and sales growth, the company needs to change its marketing ways. Since the apparel industry is known to face the challenges of the ever-changing market and their needs, it is important for Zara to incorporate advertising. Secondly, apart from the existing rivals, the industry keeps growing because of new emerging companies, which are also competitors. This also justifies why Zara should incorporate advertising and should keep developing their fashion lines in order to maintain competitive advantage. Moreover, carrying out e-commerce in advanced countries or regions such as, the Middle East and Turkey will be essential to the company, as it will capture a wide market share ensuring Zara of consumers.

Will Zara change their strategy to improve the company in terms of growth, sales, revenues and market share and are they utilizing the market to their advantage?

Zara’s Porters five forces analysis

Zara’s rivalry position can is viewed to have a dual edge over its main rivals; the company generates the most top level earnings (as evidenced in 2008 when the company emerged the top biggest fashion retailer globally coming on top of GAP), sustains low cost distribution and manufacturing retail connections globally. The company shifts from concept to store on an average of 15 days which is about 10-12 times quicker than its nearest competitor GAP and H & M which bears a factor advantage of 17.4 in costs of advertisement.

Porter’s five forces is a common model applied by organizations to evaluate the weight of the five forces in the market that influence the quality and feasibility of the industry. This five forces model by Porter comprises of the buyers power, the supplier power, rivalry amongst the existing firms, threats of new entrants and substitute products. This model is applied to show that the rivalry forces that influence the garment industry feasibility extend beyond competition amongst the existing sellers and comprises of forces from the other four factors. These forces enable people to evaluate the viability of the industry in relation to realization of profits. In the garment industry, competitive rivalry is so high where the market is taken as a cutthroat field of battle. In contrast, the alternative product is a feeble force, even though it widens their liberty of alternative for strategic course of action, considerably they position power in the jurisdiction of the companies that make up the industry. Industry with strong forces is less attractive compared to the industry with weak forces.

Buyer Power: Moderate pressure

In spite of the existing world economic crisis, the garment retail industry has continued to grow strongly at a commendable rate. Coupled with lack of costs for switching by the buyers and the high differentiation of the product, there is an implication that competition existing within the industry is not more than average. Customers of Zara in general range from middle class to upper class who considerably posses a high buying power as they seem to have more income at their disposal. There are also other garment retail suppliers who distribute considerably same line of products to Zara; as a result the buyers might finally call for more innovative or fashionable line of products i comparison with the present products offered.

In the fashion industry there is a high rivalry amongst the sellers. Fundamental strategies of fighting the competition is attraction of the buyers with lower prices, more designs that are unique, high quality designs, efficient customers services as well as a solid image of the brand. Therefore, Zara being amongst the market leaders as well its closest rivals such as Gap and H & M all make efforts to solidify their position in the market by making use of their unique strategies. The preferences by the buyers form the centre of focus for the business which entails satisfying their special needs.

It is notable just like Zara, most firms react rapidly to the up to date trends of fashion which are found in the business reports, published in magazines and made available to the public through internet or in printed form. This strategy of assessing the latest data enhances the company’s ways of upgrading its market and performance of the business. For instance, the philosophy by Zara is to capitalize on the competitive advantage of the new fashion trend. The company has a motto to have precise fashion at reasonable prices within the right time. The company true to its word is faster compared to its rivals in obtaining the right designs into the market and improving its sales revenues considerably. As a result its reputation has gone high among its competitors.

In addition, given that there are a considerable number of retail outlets which offer similar products, there is low customer loyalty to the company’s products which places more weight on innovation. The demoralizing factor in this case is that demand by the buyers goes down hence firms could end with excess inventory at their disposal. The buyers have been found to make comparisons amidst the retail shops which force the firm to differentiate its products by putting into account the economic aspects and environmental changes. Therefore a huge battle exists for the sellers given that the buyer has relatively more power to decide where to buy. The companies have craft strategies that will attract the customers to their products. As a matter of fact most companies such as Gap and H & M are pursuing the Chinese market to follow the steps of Zara.

Supplier Power: Moderately high

As there is continued liberalization of the global trade, the power of the supplier in the industry goes down through rivalry from the producers in low wage boundaries such as China. Furthermore suppliers are weakened by the absence of dynamism which makes the apparel industry increasingly significant to their operations. Zara organizes the various licenses offered to all suppliers and hence with the existing licensing contract, the power of the suppliers is further weakened as they are required to stick to particular provisions which minimize variation or manipulation of the designs.

Suppliers as one of the forces in this industry has been noted to be considerably high hence it consumes more time to establish quality partnerships. The supplier power of bargaining is more solid when the members in the industry experience higher costs by switching to a new supplier since the suppliers are well knowledgeable on standards of safety and quality hence firms have a tendency to sustain a strong and stable supplier network. Therefore suppliers tend to have a more arbitrage by exercising monopoly power in price setting based on limited inputs which firms seem to prevent. In addition, as stated in the case the company has 1,398 suppliers to which they get their raw materials, even though there are doubts on the supplier quality.

New Entrants: High pressure

The world garment retail industry has developed diffidently i value in the recent years, which constrains its attraction of the new entrants. Hidden costs of switching for the consumers imply that they are at liberty to transfer their tradition to new entrants. Reprisal by the present players, like initiation of price war, is potential, particularly where the new player shifts into a more focused segment in the market. Even though Zara has a long background and wealthy heritage, similar products from new entrants that have reduced price has a great effect. The force of new players is high since the apparel and retail industry is very attractive. It pools more new entrants to the fashion market which poses a strong probable threat. The present players in the industry such as Gap, Zara and H & M are currently the strongest. Zara for a start has a reputable brand and supply strategy which makes it rigid for new players with intention of reaching out to new geographical markets. A new player must have adequate resources to enhance development of new lines of fashion and make them make use of technological gadgets in the efficient innovation to trigger demand from the existing and new markets.

Substitutes: Moderate pressure

Clothing has a diverse use compared to simply keeping the wearer warmer. It does act as symbol of the socio-economic class and a way of demonstrating personal identity. Duplicate fashion can be considerable threat to the revenue realization in some market such as India, China and Indonesia. In this case the substitute products are a weak factor in the clothing industry. This is because good alternatives are not available or rather they are costly with poor quality. For instance Zara’s products are more affordable and made with exceptional high quality natural materials. Another aspect is the less stiff the rivalry pressure presented by the substitute products the higher the cost of switching. Nevertheless, consumers from a dynamic culture have unique tastes and might have preference to visiting tailors to make their design with the cost determined by the tailor. Nevertheless, most tailors might be good enough or yet might not be accessible. In this scenario, the consumers have no option but to buy from the retail shops. Therefore, the low threat of substitutes is uniquely based on the popularly branded firms’ potential to enhance high fashion clothing which attracts to different tastes and preferences by consumers.

Rivalry: Moderate pressure

There is a segmented apparel and retail industry globally. Hence there is allowance for a considerable number of smaller firms in this industry. Over the past five years there has been an industry performance of not more than average. Even though Zara has very many direct rivals such Gap and H &M its brand has still considerable loyal consumers. The chances of buyers’ cost of switching to other brands are relatively high in case they do not like the price setting. They are more concerned about the reputation of the brand. For example, there was an investigation that was initiated by Brazil in the year 2011 where Zara was alleged of global labour infringements. Immediately Zara made to efforts to stop the claims. It is notable that buyers tend to be influenced by certain news through a word of mouth which impact greatly to the sales revenue. As a matter of fact, the image of the brand is a vital aspect for popularly known firms hence they normally inspired to scale to the top of the game. The buyers purchase in small quantities which imply that they have no power to bargain based on the small quantities. Besides, an increased demand establishes a market for the seller and moves the power of bargaining to the sellers. Therefore a company such as Zara offers quality which makes the buyers to lack other close options.

Recommendation and conclusion

To sum up, the apparel and retail industry has a very stiff rivalry and all the five porters’ forces have a great influence to the attractiveness of the industry. Amongst the five forces the competitive rivalry for the current players is most high followed by the threats of new entrants which reduce the attractiveness of the industry. These two aspects trigger a company to respond aggressively but morally to guarantee customer loyalty in offering substitute choice in the garment industry. Generally, the combined force makes it very hard for majority of the firms to make considerable returns.

The pressure from these forces demonstrates that firms which maintain costs as low as possible to make profits. The prospects by Zara are efficient, even in the early phases of growth, the company has shown resilient faster rate of growth over its rival which is evident in its profit growth. The garment industry is a feasible industry for the intention of investment. With continued innovations, market pattern movement and dynamic response from the customers. Based on the estimates in the case, the industry has a successful outlook as firms diversify their area of comfort in attracting new players. The main concerns experienced in the industry include economic downturn, fluctuation in the personal income, dealing with customers prefers, stern regulations in the less developed nations in connection operation and the ability to be innovative and creative in the industry. All these must be regularly reviewed by the company to remain competitive in the industry.

Written by: Joash Steve
May, 2013

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