ZARA PESTEL Analysis

A PESTEL Analysis of ZARA

Zara’s popularity has kept growing during the past few years. It is one of the most known names in the world of fast fashion known for excellent designs and affordable prices. Another important attraction of Zara are its faster fashion cycles. Instead of two or three, it brings several cycles an year. The fast rising fashion brand has seen a lot of success in the recent years and is moving fast and expanding internationally. In several countries it is selling online and in several more it is still to grow its online presence and sales. The continuously rising popularity of Zara is a result of its focus on customers’ happiness. The result is visible. The crowd inside Zara stores has kept increasing. The flagship brand of the Inditex group is geared for greatness and the threat is being felt across the market by the other brands both big and small. However, this does not mean that Zara has made it possible without any efforts and just by serving a luxury cheaper.

There are pressures in the international market and if Zara has seen success, there is smarter planning somewhere in its business. Zara too is subject to several forces in the international market. Here is a PESTEL analysis that can help you understand what kinds of forces a fast fashion brand may be touched by in the fast moving business world. Let us take a closer look at these forces and the extent to which they affect Zara’s business. PESTEL is an acronym for Political, Economic, Social/socio-cultural, Technological, Environmental and legal. These forces are important and their effect on businesses is deep. This PESTEL analysis of Zara will make it clear how these forces can affect businesses directly and indirectly.

Political:

The most common political factors that impact any business are the financial regulations of a country. Every nation and its government does not have the same outlook on business. Not all of them are as open to Foreign Direct Investment. In many nations local laws can make entry difficult to very difficult. Apart from partnering the local brands, there remains no other way to penetrate such markets. An example is China. In both of the important Asian nations including India and China, red tape is a major barrier for the foreign brands trying to enter. Similar, other barriers exist when a foreign brand tries to enter or expand in a local market. The political environment of any nation 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 because it affects the economy. Political turmoil can also disrupt the supply chain and then give rise to several difficulties for the brands. ZARA has overcome this difficulty by limiting its supply chain operations to its home country and neighboring nations. In this way, it has minimized the threat from political disruption. In countries where political turmoil is regular, businesses are always under a threat. Moreover, government policies too can spoil the game of brands if they are not friendly. So, a friendly political environment is one of the most important necessities for any brand operating internationally.

Economic:

The level of economic activity in any nation or market also has a major effect on how businesses are going to do there. Economy is always a critical factor in terms of business. ZARA has a great strategy and that is of affordable pricing. So, even if the economic activity declines and people are cost cutting, they may switch away from the luxury brands but not from brands like Zara that sell at affordable prices. Affordable pricing strategy helps fight off some of the effects of low economic activity. The world has recently been through a complex web of low economic activity. The recession had hurt brands deeply and since then a stronger dollar has made the situation not so pleasant for them. A stronger dollar means reduced profits from the markets outside US. Lower economic activity reduces the purchasing power of the customers who start cutting costs or are forced to do it. This can take a heavy toll on sales. Moreover, a rise in labor or production costs or that of raw material can also lead to increased financial burden for businesses. Increased economic activity leads to better business and faster growth. The importance of economic factors can also be understood by the fact that any news of decline in economic activity affects customer sentiments deeply.

Social/Socio-cultural:

Social factors are of utmost importance in case of business. Businesses cannot stand divorced from the society. They have to work according to social trends and mind their social responsibility too. A large number of companies are investing in social responsibility which is not just to attract attention but because investing in society is always a worthy thing to do. It is always worth it and generates proven results. Society and culture are important for businesses has been proved by research. Brands that lose attention of cultural aspect of business and marketing are at the risk of losing their customers. ZARA has minded this aspect of business. It does not enter any new market without doing its preliminary research. The reason is that if you do not do your homework, the risk of your brand and products not gaining popularity gets high. So, ZARA researches new markets and cultures before releasing any new product or investing in new markets. It eases a lot of risks for businesses. Culture influences people’s buying decisions. People generally prefer buying things connected with their culture. Something alien to their culture finds lower acceptance among the customers from a specific cultural group. So, Zara does its research and makes products that rhyme with the local culture. It makes and sells fashion that is acceptable for local people. So, if its products sell like hotcakes everywhere, you know there is a reason behind it.

Technology:

Technology is changing things globally making them happen at a faster rate whether it is in terms of communication, transport, or other aspects of day to day business. From manufacturing to marketing and supply chain, there is hardly a business that has remained unaffected by technology. The use of data has reached an unprecedented level. Now, no business makes its important decisions without Data and analytics. If ZARA is being called the most disruptive new name in the fashion industry, then it is also because ZARA has been mindful at utilizing the power of technology to its profit. In the 21st century, technology has disrupted the market equation like never before. ZARA partnered with Toyota in 2014 for the application of JIT and Lean facilities across its manufacturing operations. Technology increases a firm’s responsiveness.

It has also enabled ZARA to respond to customer demand quicker as well as coordinate its supply chain and logistics activities better. Technological efficiency has become a mark of effectiveness in 21st century. Whether it is inventory management or customer service, technology reduces the pressure on companies and increases their reach and efficiency. ZARA has also implemented an RFID system for tracking inventory along its value chain. It enables the store employees to track inventory in the other stores or on ZARA website and improve customer experience. This has improved ZARA’s entire inventory management process. RFID has streamlined the replenishment order operations and increased the pace of inventory counting. This has spelled supply chain success for ZARA.

Environmental:

Sustainability that started as a trend has now become one of the most important concerns for businesses globally. The green side of business has become more important now than ever. ZARA has also invested in sustainability. Its parent company Inditex has pledged to make its stores 100% eco efficient by 2020. As a part of this plan, ZARA stores will consume less energy and water as compared to the ordinary stores. These stores will be equipped with energy efficient and better recycling features. ZARA is also committed to the elimination of all kinds of hazardous waste from it supply chain system. This may sound like a huge feat but for brands like ZARA it has always been worthwhile to invest time and efforts in green business. Not just this, ZARA and Inditex have also invested in sustainable wear or clothes prepared from organic material using sustainable technology. Inditex calls it Green to wear technologies. As Chantal Fernandez wrote for Fashionista, “Zara’s “Join Life” pieces are made from organic cotton, recycled wool and Tencel. (Tencel, or lyocell, is a fabric made from wood cellulose sourced from certified socially and environmentally responsible forests.)”

Legal:

As the popular saying goes Law is everywhere, a business cannot expect to remain uninfluenced by it. ZARA’s focus is also on ethics and sustainability across its business and its supply chain. There are several laws that businesses are required to comply with. Inditex has implemented programs that guarantee living wages for its labor force. Apart from it ZARA is also focused on creating an ethical brand image. Legal compliance is an important requirement and the brand has invested in compliance throughout its system including the supply chain. It ensures that the brand adheres to local laws in the local markets wherever it operates.

This PESTEL analysis shows how deeply these six factors influence businesses. From economic to political, social, technological and others, all these factors have a very deep impact on businesses. ZARA has invested in several things to manage some of these forces very well like technological, social and environmental. Its affordable pricing strategy has also enabled it to tackle the economic pressures. Regarding the legal forces too ZARA behaves quite cautiously. This analysis shows how and why ZARA is being so successful by investing intelligently in all or most of these areas.

Sources:

https://rctom.hbs.org/submission/zara-disrupting-the-fashion-industry/