Word count: 3799
Table of Contents
Executive summary 2
Zara background 3
External factors and competitive forces 3
Porter’s 5 4
Internal factors 6
Resources and capabilities 6
Public relations crisis and their effect on peformance 8
Evaluation of strategic options and recommendation 10
This project aims to provide an in-depth analysis of external and internal factors affecting performance of world leading retailer Zara. First of all, the brief background on Zara is provided in order to familiarise reader with the business model they implement. Secondly, the PESTEL ...view middle of the document...
751 stores on the premium locations in the world's largest cities (Inditex website).
There are three key pillars Zara is running its business on. First of all, time between new collections deliveries is very small. Stores are supplied every two weeks with new fashionable garments and in small batches in order to achieve an effect of scarcity, which is a second key element of the Zara business model. The third one is delivering many different styles in all forms and shapes so that there are more chances customers will like the clothes (Inditex website). Analysis of the Zara business model along with external and internal factors affecting its operations is given further.
External factors and competitive forces
Analysis of the competitive forces and external factors affecting Zara performance is conducted through the PESTEL analysis, which encompasses political, economic social, technological, environmental and law-related factors.
Political factors may affect company’s performance in case regions where Zara performs its operations become politically instable thus endangering Zara’s sales and elevating costs of operations. However, the global presence of Zara helps diminish the adverse effects due to the diversification of its business units.
Economic factors can have a significant effect on company’s operations since apparel industry is very price sensitive and in times of crisis customers will be choosing to spend less on expensive clothes. Since Zara operates world-widely effects of regional economic crisis could be avoided at some level. However, currency risk is the risk that will always be present and depending on the dollar/euro rate operational costs for Zara will be increasing or decreasing. Due to the current euro crisis the American dollar is becoming stronger compared to euro and as a result costs of raw materials that Inditex is buying mostly in American dollars will go up.
Socio-demographic factors are important for analysis due to the specific aging structure of customers of Zara clothes since it is mostly worn by young people looking for fashionable garment. Cultural differences between regions Zara clothes are sold also matter as well as the purchasing power of customers. For instance US market has a high purchasing power. On the other hand “slim” designs of Zara do not match with the demand on that market. Furthermore, Inditex is now supporting eight brands and Zara is regarded to be a growth engine as it makes up one-third of group’s sales (Murphy, 2008). The strategy of Inditex in based on the openness to the society: “Inditex makes a solid commitment to transparency and develops different initiatives to guarantee fluid access to its different groups of stakeholders to information on the performance of its activity.” (Inditex annual Report, 2012)
Technological factors are not usually crucial when it comes to the apparel industry; however Zara due to its specific business model is an exception....