Retail Theory and Practice - Zara

RETAIL THEORY AND PRACTICE- ZARA Name Course Professor’s Name Institution Location of Institution Date Retail Theory and Practice- Zara Retail is a practice that has been in play for years. Retailing allows goods and services to move from the manufacturers and reach the consumers. Retailers, thus, facilitate the distribution process by purchasing products from manufacturers in large quantities and selling them to consumers in small quantities, at a profit (McCormick et al. 2014, p.6). Retail is, thus, an essential part of the economy because it acts as the go-between manufacturers and consumers. Consequently, fashion retail involves a retailer-based market system that is focused on fashion products such as accessories, clothes, and footwear. Retailers in the fashion industry ensure that products and fashion-related information move from their point of conception to their consumption point (Choi 2014, p.1). Fashion retailers can have physical or online stores where they display their products for the convenience of the customers. In the UK, fashion retail has been the backbone of the fashion industry (McCormick et al. 2014, p.7). This is because it ensures that the needs of consumers are met conveniently. Introduction to Zara Zara is one of the largest and well-known brands in the fashion industry, with footprints in many countries across the globe. Zara’s parent company, Inditex, is also one of the largest fashion retailers globally. Zara was first established in 1975 in Spain and have since become a global sensation (Inditex, n.d.). Zara has seen considerable growth in the UK market, and as revealed by Jahshan (2018), it registered a 17% increase in sales in the year 2018. Zara operates 64 stores in the UK, out of the 2,251 global stores (Inditex 2017, p.16). This forms about 2.8% of the total number of Zara stores in the world. In terms of market shares in the UK, Zara has been ranked at 19 in the top 20 category by GlobalData, and has a market share of 1.5% (Wood, 2017). Zara’s largest competitors in the UK include Primark, Next, and Marks & Spencer. Zara is likely to increase its markets shares in the UK, first given its increase in sales over the last year, and second, given that it has refurbished some stores and opened bigger ones in the UK, such as the recently opened Zara Westfield Stratford flagship. Not only is this store bigger than the one formerly in East London shopping centre, but it also has automated online order points which allow UK customers to purchase Zara products online (Street, 2018). The success of Zara, not only in the UK but also globally, is attributed to its core values and the intimate relationship the brand has created with its customers. The four main core values behind Zara’s success are functionality, clarity, sustainability, and beauty (Inditex, n.d.). In addition, Zara is continuously utilizing technology and social sites to attract more customers and facilitate convenience. Current Trends in the Fashion Industry The fashion industry has experienced enormous changes in the last decade, thanks to technology. Some of the major trends in this industry are, thus, related to technology and social media. The first trend is a growing awareness among consumers. Consumers are aware of social and ecological issues and are now looking at how companies respond to such issues before making purchases. Retail companies in the fashion industry have experienced backlash from consumers either because of their poor environmental policies or racism. Social media platforms have allowed consumers to collect and share information on different issues (Sudha & Sheena 2017, p.14). This has allowed retailers to attract more customers, especially if their brands are good at handling environmental and social issues. However, it has also allowed customers to switch easily between retailers because they have information on different retailers. The second trend is the rapidly emerging influencers. Fashion influencers are fashion enthusiasts who recommend fashion products to their followers on social media platforms (Sudha & Sheena 2017, p.14). Thus, influencers have become a low-cost form of product marketing for fashion retailers who use paid partnerships with these influencers to reach more consumers. The third trend is the speed-to-market technique where fashion retailers are using technology to deliver products to consumers as fast as possible. Zara has embraced this trend and is using robotic arms and automated machines to ensure that deliveries are done fast (Street, 2018). Key Relevant Changes within the UK Fashion Retail Over the years, the UK fashion retail has experienced some major macro-environment changes, which will be reviewed in this section. PESTLE will be used as the tool on macro-environment analysis. Political Factors Political factors that are likely to affect Zara include government imposing changes in financial policies and regulations and any political disruptions within the region of operations. Zara faces some major challenges following the UK’s government decision to leave the European Union (EU) after 51.9% of voters supported its exit from the EU (Bulmer &Quaglia 2018, p.1089). The EU has in the past allowed free movement of goods with no restrictions among the European countries, which will change due to Brexit. Economic Factors EU has been instrumental in creating a favourable economic environment for Zara and other companies within the EU. However, Brexit will disrupt this environment. In fact, a 3.8% drop in the spending habits of consumers in clothing and other fashion related products have already been registered, as revealed by Wood (2017). Brexit is affecting the spending power of consumers, which means that Zara will experience a decrease in their sales volume. In addition, Brexit also poses a threat to the economic environment in the UK because as revealed by Tobin (2019), barriers to trade could be imposed and importers will be forced to pay charges upfront. Social Factors Being a global company, Zara has to serve consumers from diverse cultures. Zara UK has to make sure that their products are in line with the UK culture. In addition, Zara has to meet the changing trend in consumption, especially given the ever-changing nature of fashion consumption. For instance, consumers are now leaning more towards online shopping. In response to this, Zara UK is slowly opening online stores, starting with the click-and-collect store at West Stratford, London (Street, 2018). This has met the consumers’ need to shop within the comfort of their homes. Technological Factors Technology has facilitated many changes in the fashion industry. In order to keep up with competitors and improve their customer services, Zara UK has adopted some of the best technologies. For instance, the West Stratford flagship has two automated collection points where consumers can collect their orders efficiently through the help of robotic arms that organizes and delivers the orders (Street, 2018). The technological environment in the UK’s fashion industry is conducive and there are many technologies that Zara can utilize to better serve their customers. They include location intelligence and virtual assistants, and according to Dowsett (2018), Zara’s parent company, Inditex, is already testing some of these technologies. Legal Factors The fashion industry faces many legal issues, especially concerning infringement and reproduction of products. Zara needs to be aware of any legal issues before launching a design or product to ensure they do not face lawsuits. Zara has in the past faced litigation for the infringement of OTB’s IP rights (Cooper, 2018). Under the EU, Zara was found guilty of infringement and had to stop the sale and production of the product under question. It is important for companies such as Zara to understand the regulations in their region of operation to avoid such legal issues. Environmental Factors Environmental conservation and sustainability have become a global issue and consumers are shifting towards environmental-friendly products. As such, Zara has to ensure that it maintains its customer base by using organic raw materials in the production of their designs. In addition, the retailing industry is moving towards green retail in an effort to preserve the environment. Part of Zara’s efforts in environmental protection involves reusing unused textiles, instead of sending them to landfills (Cotton, 2018). This will reduce pollution and also prevent wastage of resources. SWOT Analysis Strengths One of the strengths that Zara possess is its huge investment in technology. Zara is using Artificial Intelligence (AI) for effective customer service, especially at their collection points (Street, 2018). This has been especially helpful as Zara is embracing the speed to market trend in the fashion industry which focuses on getting products to consumers at the fastest speed. Another of Zara’s strength is the fast growth over the years. Zara has experienced increased sales in the UK, as revealed by Jahshan (2018). Further, Zara UK has experienced growth in the online fashion industry. The number of Zara’s online stores in the UK has increased over the last few years, in response to changes in customers’ shopping preferences (Street, 2018). Zara also has a strong online presence through its website and other social platforms such as Instagram. Weaknesses Zara faces high competition from other fashion brands in the UK. For instance, Marks & Spencer is one of Zara’s biggest competitors in the UK with a 9% market share, which is quite high, compared to Zara’s 1.5% (Wood, 2017). Zara has also been unable to reduce its production cost unlike some of its competitors such as H&M whose production cost is lower (Ringstrom, 2017). This has, in turn, affected Zara’s ability to compete on prices. Opportunities Zara has an opportunity for further expansion in the UK. As revealed by Jahshan (2018), Zara UK has 64 stores, which is a drop from the previous 66 stores that were there in 2017. This drop shows that Zara can still expand their stores to cover the high demand of Zara products in the UK if proper strategies were put in place. Another opportunity lies in continued investment in online stores, which will specifically target customers who are no longer interested in physical shoppingg. Threats The biggest threat to Zara is imitations of products by smaller fashion companies, who then sell these products at lower prices. Protection of IP rights is crucial to ensure there is no reproduction, which can lead to a decrease in market shares and overall sales. Another threat is the economic climate that is currently in the UK due to Brexit. According to Wood (2017), Brexit has affected the spending power of consumers which has been evidenced b...