The Business Environment of ZARA in the United Kingdom (UK)

ZARA – ANALYZING BUSINESS ENVIRONMENT IN THE UK
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Introduction
The business environment experienced a paradigm shift due to the pandemic outbreak in the recent epoch. Today, businesses maintain social distancing and transform the business model to digitalization. Companies operating as manufacturers or service providers are compelled to exhibit a digital presence through online channels to reach the relevant target markets and penetrate potential marketplaces to explore new growth opportunities (Amankwah-Amoah, Khan, and Wood 2021). This report aims to examine the business environment of ZARA in the United Kingdom (UK), one of the largest fashion apparel manufacturers and retailers. The applied tools would investigate the internal and external factors in the business environment, followed by different market forces that influence the strategic decisions for ZARA in the British market. The analysis would use the fundamental tools designed for performing environmental scanning, namely SWOT Analysis Framework, PESTLE Analysis, and Porter's Five Forces Model
ZARA is a signature apparel brand of Inditex's largest textile manufacturing and retailing company. ZARA is a pioneer brand in fast-fashion culture. The company has the largest retail store globally in the UK and other regions. In FY2019-FY2020, ZARA recorded total revenue of €7.71 billion and a net income of €3.4 billion in the European area. The brand became a popular household name in fashion apparel (Russell 2019). According to Debter (2020), Inditex became the 11th largest retailer worldwide because of ZARA's unprecedented growth, market penetration, and revenue generation. However, the fashion apparel industry is experiencing significant competition, transformations, and influences in the business environment.
Company Structure
Inditex UK has the following brands under its portfolio:
* ZARA
* ZARA Home
* Massimo Dutti
* Bershka
* Oysho
* Pull & Bear
ZARA and ZARA Home follow a different brand strategy, considered signature brands for Inditex UK. ZARA focuses on creating a fast-fashion culture in the British marketplace. The brand would promote the frequently changing collection with the following tagline:
"Freshly Baked Clothes"
ZARA manufactures fashion apparel for men, women, and children. The brand follows shorter lead-time culture and creates artificial scarcity by selling lower quantities to people and presenting the brand with a luxury image. The lead-time and artificial scarcity principle allow ZARA to keep British customers intact with each collection and persuade the purchase decision to lead the competition. Furthermore, the business model structure also focuses on a range of styles. ZARA is reported to launch approximately 12,000 types each year. The company avoids producing a quantity of a single class. As a result, the customers are more likely to enjoy more choices and feel connected with the brand activities throughout a fiscal period (MR 2021). Figure 1 below exhibits a few signature collections of ZARA for Winter 2021-2022:
Figure SEQ Figure \* ARABIC 1: ZARA/ZARA Home Signature Collection
Source: (Goldstone 2021)
PESTLE Analysis
The PESTLE framework examines the influence of external factors in the business environment. Components like political, economic, social, technological, legal, and environmental investigate the macro-environment broadly to determine business feasibility (Syarafina and Wibowo 2021). PESTLE Analysis allows the organizations to measure the relevance and efficacy of the business strategies with the macro-environment factors. Businesses can understand the forces to maximize the opportunities and mitigate threats simultaneously. PESTLE analysis for ZARA is as follows:
Political
ZARA experienced political burden in the UK after British Exit (BREXIT) from the European Union (EU). The company was forced to relocate the production unit from the EU to the UK. Besides, ZARA experiences profit reduction due to freight complexities, increased political bureaucracy, and frequent order cancellations (Wadham 2021). The political factor is unfavorable in the UK due to weaker relationships with neighboring countries in the European region, mainly Italy and Germany.
Economic
ZARA and other fashion retailers are experiencing inflationary effects in the UK. The Consumer Price Index (CPI) increased to 5.1% with the Omnicron challenge, the new version of the COVID-19 outbreak. The Bank of England (BoE) also increased the interest rates, which further damaged financing options for businesses (Dodd 2021). The economic factor is unfavorable for ZARA.
Social
The social factor experienced a paradigm shift. During the pandemic, British consumers prefer resistible clothes. The COVID-19 influenced disposable income, which mitigates frequent apparel purchases in the UK (SRD 2021). Hence, the UK's social factors are not favoring the fast-fashion culture initiated by ZARA.
Technological
ZARA made technological advancements in recent times to survive pandemic effects in the British market. ZARA shuts 3,500 stores in the UK and shifted focus towards online sales during lockdowns. The company invested approximately £1 billion to strengthen the digital infrastructure and engage customers for revenue generation (Hardcastle 2020).
Legal
ZARA struggles to provide rational working conditions to factory workers. According to Sainato (2020), workers accused ZARA of continuously avoiding the health and safety (H&S) of factory workers to keep production costs minimal. The labor regulatory in the UK kept factory working conditions under supervision for ZARA.
Environmental
According to the SRD (2021) consumer survey, fashion brands are forced to offer environmentally friendly apparel. Consumers and environmental regulations in the UK are pressurizing brands like ZARA to mitigate plastic use and manage recycling processes for reducing ecological footprints. ZARA is making necessary efforts to improve environmental standards in the production processes.
SWOT Analysis
SWOT Analysis framework examines the micro business environment of an organization. The components, namely strengths and weaknesses, determine the competencies and gaps in the process controls, respectively. The opportunities and threats select the untapped growth areas and strategic disparities, respectively (Syarafina and Wibowo 2021). The SWOT analysis for ZARA is as follows:
Table SEQ Table \* ARABIC 1: SWOT Analysis for ZARA UK
Strengths
- Strong brand image
- Broader value chain network
- Fast-Fashion pioneers
- Broader retail store network in the UK

Weaknesses
- Poor factory conditions
- Environmental footprints are high due to mass production network
- Incompetent work practices for factory workers

Opportunities
- Consumer shifts to digital platforms
- Digital diversification could reduce store management expenditures
- Probability to reduce marketing expenditures through online channels

Threats
- Reduced fast-fashion culture among consumers
- The paradigm shifts in work practices during the COVID-19 outbreak
- Unexpected lockdowns disturbing manufacturing processes

Porter's Five Forces Model
Porter's Five Forces model identifies the industrial trends and influences for the companies. The factors engage customers, competition, and suppliers to conduct 360-degree scrutiny of the industry to measure operational feasibility for brands (Syarafina and Wibowo 2021). The model focuses on measuring the efficacy of a business against the working environment. The forces determine the business strength towards the active players in the industry. The analysis for ZARA is as follows:
Figure 2: Porter's Five Forces Model
Bargaining Power of Buyers
Customers have a solid bargaining position while purchasing fashion apparel. Customers are offered more options in a high-street fashion from H&M and Uniqlo. Hence, ZARA struggles with customer retention and announcing sales promotions regularly to sustain the business model.
Bargaining Power of Suppliers
In recent times, customers have demanded sustainable products in fashion apparel from brands like ZARA. Unfortunately, China and Vietnam's existing supply chain networks are incompetent to reduce plastic use and carbon emission, highlighting the brands' environmental footprints. Until 2025, most fashion brands aim to shift production units to Bangladesh (McKinsey 2019). Hence, existing suppliers' bargaining position is weak.
Threats of New Entrants
During the pandemic, the fashion apparel sector recorded growth of 61% si...