PRESENTED BY:

GUDDALSAURABH

PESTEL ANALYSISSWOT ANALYSISFIVE FORCE ANALYSIS

Zara is the flagship brand of the Spanish fashion giant Inditex (Industrias

de Diseño Textil S.A.) .

The group operates approximately 1,520 stores in 72 countries for the

Zara brand (Inditex Group 2009).

Inditex primarily operates in Europe, where about 80% of its sales are

made.

The company is headquartered in La Coruna, Spain and employed about

89,112 people of financial year 2008.

Product line ranges from women’s Men’s and kid’s wear and known for its

fast introduction of runaway fashions as well its own design to relative

mass market.

Political factors

Economical factors

Socio-cultural factors

Technological factors

Environmental factors

Legal factors

Political situation emphasize on:

▪ Role of govt. and its impact in a company or firm.

▪ Extent of participation in a political situation.

Indian market

▪ Open market and

▪ Govt. willing for foreign investment

▪ Govt. has their own policy which are to be adhered by

organizations.(joint venture)

Technological factors for ZARA : Use of advanced technology for operational purpose.

It has established an internet platform where recent trends can be purchased online.(wall street jounal 2009)

Strong information technology for business operation and organizational purpose.

Benefits zara could reap:▪ Opportunity to grow in the market▪ Full use of state of the art technological facility.▪ Enhance the quality of service given by private and public corporations.

When the economy falters, consumers simply buy less andmay move a greater share of their wallet to less-stylish andlower-cost offerings from deep discounters like Wal-Mart.

Zara is particularly susceptible to conditions in Spain, sincethe market accounts for nearly 40 percent of Inditex sales, aswell as to broader West European conditions (which withSpain make up 79 percent of sales).

Global expansion will provide the firm with a mix of locationsthat may be better able to endure downturns in any singleregion.

Very important factors when entering a foreign market.

Indians don’t change their wardrobe too often.

Foreign market such as India has diverse culture and society and there is vastamount of change across regions.

Spending power has increased but customers are still very price conscious.

Western wear concept is catching on, but traditional still dominates.

Strong preference for bright colors as opposed to black white and brown in west.

• Plagiarism in the fashion industry, has become a huge issue. Trends are often copied and cheaply as well as illegally sold in the street .

Global expansion bears problems in terms of legal securities and political stability.

As the European market has a well working trade and legal system facilitating business operations in member countries, other countries globally will not offer the same securities.

Especially in communistic countries the threat of losing a private run company to the local government is very real.

Source: Investors Cronicle 2009

Zara is respected as one of the most responsibleFashion manufacturer.

Zara is pioneer in going green. In fall 2007, the firm’sCEO unveiled an environmental strategy thatinclude the use of renewable energy systems atlogistics centers including the introduction ofbiodiesel for the firms trucking fleet.

It gives a lot of attention to sustainablemanagement of all its operations.(Inditex group)

If there are changes in socio-cultural environment of supplier’s countries or community; there could be change in:

1. Sharing of Risks and opportunities through the value chain.

2. Better CSR activities.3. Balance between intensely competing

producers and relatively few buyers in the global market puts the small suppliers at the receiving end; the change will give rise to justice in surplus sharing.

SINGLE OWNERSHIP No conflict over asymmetric new investments No mistrust over proprietary knowledge No performance ambiguity - how to split the

pie No lack of parent firm support No cultural clashes No if, how, and when to terminate the

relationship

STRENGTH

WEAKNESS

OPPORTUNITY

THREAT

strength

Diversified product

range

Remarkable revenue growth

High turnover

Vertical integration

Supply chain

weakness

Europe:

Lack of flexibility

Diseconomies of scale

Vertical integration

Frequent new product

Limitations of Zara’s Spain-centric, just-in-timemanufacturing model.

By moving all of the firm’s deliveries through just twolocations, both in Spain, the firm remains hostage toanything that could create a disruption in the region.

Firms often hedge risks that could shut downoperations—think weather, natural disaster,terrorism, labor strife, or political unrest—byspreading facilities throughout the globe. If problemsoccur in northern Spain, Zara has no such fall back.

Rising transportation costs are another concern.If fuel costs rise, the model of twice-weeklydeliveries that has been key to defining the Zaraexperience becomes more expensive to maintain.

Zara is able to make up for some cost increasesby raising prices overseas In the United States, Zara items can cost 40 percent or

more than they do in Spain. Zara reports that allNorth American stores are profitable, and that it cancontinue to grow its presence, serving forty to fiftystores with just two U.S. jet flights a week.

Varied range of target customers in India.

Expansion of Premium level of customer base.

IF thinks about Decentralization, Zara can make use of Resources of India and make it distribution and manufacturing hub.

Rivals have studied the firm’s secret recipe, and while none have attainedthe efficiency of Zara, many are trying to learn from the master.

There is precedent for contract firms closing the cycle time gap withvertically integrated competitors that own their own factories. Dell (afirm that builds its own PCs while nearly all its competitors use contractlabor) has recently seen its manufacturing advantage from verticalintegration fall as the partners that supply rivals have mimicked itstechniques and have become far more efficient.

H&M has increased the frequency of new items in stores, Forever 21and Uniqlo get new looks within six weeks, Renner, a Brazilian fastfashion rival, rolls out mini collections every two months, andBenetton, a firm that previously closed some 90 percent of U.S. stores,now replenishes stores as fast as once a week.

The firm is potentially more susceptible tofinancial vulnerabilities as the Euro hasstrengthened relative to the dollar.

Zara’s Spain-centric costs rise at higher ratescompared to competitors, presenting achallenge in keeping profit margins in check.

Source:maxi-pedia.com

HIGH Globally Zara’s closest competitors are H&M and

Gap . Price points are mostly below its international

competitors in India, including Mango, Guess,Esprit, and French Connection so strategicpricing.

Zara’s worldwide retail sales reported aconsistently strong performance between 2006and 2008, most recently outperforming itsclosest competitors. E.g.:-Inditex’s operatingprofit margin is 21.6% and H&M’s is 13.1%.

Operating profit margin:profit per euro of sales.

The company operates an extremely efficient supply chainand distribution network within Europe as well as itsAmerican and Asian markets

Inn India, Western wear accounts for just Rs. 3,000 crore ofthe Rs. 49,000 crore women’s wear market, which includesethnic wear, woollens, intimates, etc. But now, the entryof Indian and international brands is helping drive change.The segment is growing at a faster rate than the overallmarket.

In more general terms the fashion industry is very fast andthe product’s life cycle very short. Furthermore it dependslargely on recent trends, prices and the customer’ssatisfaction; hence the market is extremely competitive.

LOW Consumer’s decision to purchase a certain

article depends on personal taste(and peergroup approval), trend as well as price .

A substitute for fast fashion, at least for somewealthy costumers, could always be designerclothes (as they are the creators of trends for“tomorrow”) ; change of segment as well asstrategy.

It is one of the essential consumer goods, Itcan be argued that there are no realsubstitutes for clothing products in general.

As a Retailer, it is associated with unique anddifferentiated products as well asservices(fast fashion) whose exact andrelevant substitution is near impossible.

LOW Zara as part of the Spanish Inditex Group, can

benefit from the micro- economic concept of theEconomies of Scale. Hence it gains costadvantages as production (scale) increases.

Zara is operating within the market of “fastfashion” hence size as well as economicefficiency matter. Inditex’s superior supply chainmanagement has been consistently built overmore than a decade . Thus it would be very costintensive and difficult, for a new entrant to themarket to imitate Zara’s operations.

New entrants will have to deal with high fixcosts that require a large and immediateamount of incoming revenues.

MODERATE Retailers have to make sure that they offer

whatever their customers are looking for,immediately and to an acceptable quality, inorder to remain competitive .

In times of increasing internet usage and anintense high street representations of alldifferent retail stores and fashion brands. Henceprice comparisons became rather easy andhence increased Bargaining power.

Consumers are willing to pay more for acertain brand name. Fashion articles strife foruniqueness and exclusiveness, thuscustomers are obliged to pay a certain pricein order to acquire the exact piece of fashionclothing they were looking for.

In India, due to its unique and fast fashionoffers, the bargaining power of Buyer’s isLow.

LOW The bargaining power of suppliers depends on

their products. However especially in the textileindustry, competition is numerous and suppliers’power thus marginal.

Raw materials(un-dyed fabric) are bought in socalled “low-cost-countries” like Far East,Morocco and India.

The pieces cut in Zara were distributed forsewing among 350 small workshops.