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Environmental Analysis

Discuss about the Report for Strategic Analysis of Zara in Singapore.

Introduction

Zara, a flagship brand of Inditex group, is an influential Spanish apparel retailer based in Arteico, Galicia, but with stores stretching across 94 countries, including Singapore (Inditex, 2013). It classifies itself as a fast fashion that quickly adopts high-fashion apparel to reach the consumers affordably. Zara employs a direct channel mode of supply and adequately invests in consumer knowledge.

The company utilizes a team of creative of designers, sourcing specialists, and product development personnel in its three lines of products of Zara for Men, Women, and children (Inditex, 2013). In the 2015/2016 financial year (From February 1, 2015, to January 31, 2016), Zara’s earnings before amortization, interest, tax, and depreciation rose by 15% to €4.7billion up from €4.1billion recorded in the previous year.

A deep assessment of the environment will effectively aid Zara in the decision to expand Singapore retails from the current nine, and in setting its future goals. The section will analyze Zara’s current choices including potential risks and opportunities in Singapore, and will specifically focus on PESTLE analysis.

Political Factors

Political considerations include the involvement of the government in the economy and legal aspects (Yüksel, 2012). The government of the day takes notice of almost every business activity and may interfere with the private sector either directly through restriction of certain products, and indirectly through taxation.

According to Political and Economic Risks Consultancy (PERC), Singapore has the lowest political risk of doing business in the continent. Zara can quickly expand its business in Singapore because of the existing peace and stability that translates to a safe working environment and improved business opportunities.

Economic Factors

Singapore has ASEAN’s highest per capita- income. The economy is developing at a fast pace. The motivated, well- educated workers, as well as financial and legal framework, assist in strengthening it (Reyes, 2014). Another factor that contributes to the success of businesses is the strategic location. Cheaper labor from the neighboring countries has added to saved costs. Some of the constraints to Zara’s performance include rising labor costs, labor shortages, and declining productivity (Jackson & Buchanan, 2013).

The factors are critical because variations in the social trends may affect the demand for Zara products as well as the willingness of people to work (Yüksel, 2012).  The younger generation in Singapore has the tendency to follow western values and culture. The residents are hard working and are continually seeking to satisfy their material desire. Their urge to do well has helped to increase the nation’s productivity and their purchasing power. The level of literacy is very high. Residents have a good command of English and Chinese languages.

PESTEL Analysis

Technological Factors

The internet is playing a central role in Singapore’s advancement. It has increased connectivity and eased communication. The time and cost of doing business have significantly reduced. Singapore has boosted social networking, enabling residents to connect to the rest of the world. The penetration rate for household broadband internet is well over 70 percent. More than 10 Mbps of broadband internet connection are available to the homes.

Legal Factors

The government holds the view that a favorable business climate depends on transparency and market favorable regulations and legislation. The country has introduced some e-commerce initiatives and cross-border policies, and laws. Some of them include Intellectual Property Rights, Content Regulation, Tax Issues, Electronic Transactions Act, and Export and Import Procedures.

The Ministry of the Environment is relentless on air quality and other environmental factors. Any organization violating environmental measures will face a tough time in Singapore market and may find itself banned from the country. Zara needs to consider whether its products are made from environmentally friendly materials and have strict policies regarding waste materials and the byproducts.

Summary of PESTEL

Factor

Favoring factor

Constraint

Political

-       Democratic country

-       Lower risk of doing

-       business

-       Peace and stability

-       Corruption free

-       No bureaucracy

Economic

-       High per capita income

-       High purchasing power

-       A growing economy

-       Cheaper labor from neighboring countries

-       Rising cost of labor

-       Labor shortages

-       Declining productivity

Social

-       Hardworking residents

-       High literacy levels

-       Good command of Chinese and English languages

-       Language barrier (the company is Spanish based)

Technological

-       High-speed internet connection

-       Good transport network

Legal

Environmental

-       Favorable legal framework

-       Intellectual property rights

-       Tax issues

-       Content regulation

-       Long import and export procedures

-       Strict environmental laws

Conclusion

It is evident that Singapore is an outstanding country. It houses a hardworking, talented and well-educated population. It has great business opportunities. The favorable government policies enhance domestic business. Its enterprise-friendly approach also helps to boost business.

Internal Analysis

The company continually trails users’ preferences and trends and places orders with internal and external suppliers to meet the demand on time. It takes approximately two weeks for Zara to design a product, make it to the market to meet users’ preferences, as opposed to competitors, who on average take 6-8 weeks. Because the fast fashion industry is dynamic and hard to predict, the retailer has the keys to success in its flexibility.

While the product is classified into three lines, extensive distribution is avoided. Zara manufactures products based on high turnover, fast fashioning concept, that is, more than ten thousand products a year. The apparel is made according to the varying trends in the market. Zara products are affordable. It has mastered the art of cheap production, yet it has no cost management leadership. It has also succeeded in maintaining a low operating capital.

More than 450 million items are produced each year. To do it, Zara controls its supply chain and manufacturing more than any other retailer. The company has its competitive advantage in its supply chain. It competes with only itself in the speed in the market, adapts designs, makes them, and distributes them within 14 days of the new design appearing on fashion shows (Tsai and Tombs, 2015). When a particular design suddenly becomes a rage, Zara responds quickly and delivers to the stores while the trend is still on the peak.

Political Factors

Zara uses just in time process to produce trendy fashions to cater for different tastes. Production is significantly in-house, which helps with the flexibility in the frequency, variety, and amount of new products launched (Day et al., 2011). About 85 percent of their factories’ capacity is reserved for in-season adjustments.

While the industry on average gets 60 to 70 percent of the full price on clothes, Zara gets 85 percent. The industry’s average of unsold stock is 17-20 percent in comparison to Zara’s 10 percent. Unlike its competitors, Zara believes that it does not need to discount as much. It capitalizes on the rhythm in the supply chain, and for this reason, it can afford shipping costs and extra labor required to meet the seasonal change in consumer demand (Mo, 2015). Zara avoids the piling of inventory in any part of the supply chain, be it the raw materials or the finished product. Inventory is well managed. Each store only receives the needed amount, and this helps to avoid unnecessary stock build-ups.

SWOT Analysis

Strengths

-       Seamless distribution strategy

-       Less inventory stocks

-       Centralized management

-       Fast changing collections

-       Strategic location

-       Strong research and development designers

-       Vertical supply chain

-       Strong branding (loyalty and awareness)

-       High financial performance

-       Just in time system

Weaknesses

-       Limited stocks

-       Lack of proper marketing

-       Tagging by competitors

-       High costs of vertical integration

-       Lack of e-commerce sector

-       Risks associated with single distribution

-       Less variation in styles

Opportunities

-       Increasing demand for high fashion

-       Growing market

-       Online markets offer a huge chance to grow and expand

-       They can enter into segments and areas they haven’t explored

-       Providing more customer oriented products

Threats

-       Competition may saturate the market

-       Lawsuit risks as a result of environmental issues

-       Possible brand imitation

-       Exchange rate risks

-       Cost up in labor

-       Tax, and import-export related procedures

-       Change in customer demand

Strategic Implication

Zara is facing fierce competition in Singapore market from both the global and local brands such as H&M, Top Shop, and Uniqlo. Competition is a major issue. Competitors have the potential to saturate the market with cheaper products and drive Zara out of businesses. Zara is positioning itself as a fast fashion, investing in knowing consumer needs, providing high-end products affordably and creating a strong brand to beat the competition.

Zara has thrived in the concept of fast fashion. Managers in Singapore retails continually work to identify new trends, who then inform a team of designers in Spain, including more than 300 stylists (Kim and Lee, 2014). The developers take the information, analyze it, and propose new designs. Unlike competitors, Zara is moving parallel to the emerging market trends. The industry on average takes 6-8 weeks to respond to new trends as opposed to Zara, which takes two weeks. Since consumers are on the look for new trends, Zara’s fast response gives it a significant competitive advantage. By the time other competitors are responding to emerging trends, consumers have already bought them from Zara, and another trend is already emerging.

Other companies are moving towards a consistent and continuous communication with the market in the bid to keep contact with the customers- the primary target of the business- taking their feedback, and developing products to meet their demands. Zara has dominated the market as no other rival has succeeded in reaching a faster delivery of inventory in the store. 

Economic Factors

In the bid to minimize the operating costs, Zara has focused on customers’ short- term needs. However, it would be better to introduce long-lasting styles in the market. There is still a domain of customers willing to try them, but Zara has not yet started to produce it (Lloyd & Luk, 2012). The company should move into the market segment of clients needing stylish clothes over an extended period, while still concentrating on short term needs. To do it, Zara would need to advertise its products effectively through both print, television, and the internet.

It is worth noting that Zara uses 0.3% of its sales revenue in advertising, in contrast to its competitors, who use 3-4% of their income. Zara currently utilizes the prime retail locations to advertise its products instead of the traditional media. It ensures that the displays and storefronts are kept fresh, attractive, and the items on display are regularly changed.  To market effectively to the untapped segment of customers needing stylish clothes for a long time, Zara should consider increasing the advertising budget. There is the need to tap into new advertising channels.

The internet is a better platform to market to the young generation looking for stylish and affordable clothing, and the older generation. Zara should regularly post on social media sites such as Twitter and Facebook. It should post at least twice a week. To create brand awareness, there is the need hold frequent photo sharing contests (Kang and Sung, 2010). The company should have an initiative where, by liking its page, one gets at least 10% discount on the next purchase. There is also the need to promote new arrivals using Twitter and excellent blogs, hoping for a return of favorites and retweets (Royoâ€ÂVela & Casamassima, 2011). Other platforms that Zara needs to capitalize on include Instagram, YouTube, Pinterest, and Wanelo.

Zara has taken some serious steps to strengthen its brand and corporate identity in the market (Keller, 2012). Corporate identity refers the means by which an object or a product becomes known to the people and through which people can relate to, describe, and remember. The company has become synonymous with high-end fashion. Unlike its competitors, it has opened retail locations in areas where traffic is high. It is also making some efforts to have online stores to have customers make purchases on the go. Zara has a clean, bright, and spacious space on the rack for a comfortable shopping experience. A good brand image is one of Zara’s most useful tools. A better image ensures survival and sustainability in the market.

Social Factors

It is important to appreciate the fact that the present day customer is well aware of environmentally friendly products and belongs to organizations that take care of the environment. In the times when global warming has attained a wide attention, the benefits of going green cannot be underestimated (Tanwar, 2013). Issuing quarterly reports about their eco-friendly activities will go a long way in not only assuring the government of its commitment towards the environment but in giving it a competitive advantage.    

Zara should continue in its environmental protection agenda and seek to obtain eco-efficient and eco-friendly certificates and awards in Singapore. The most prestigious award is the Singapore Environment Achievements Award (SEAA), which was launched in 1997 to recognize organizations’ efforts towards environmental stewardship. The criteria used by SEAA focuses on the organizations’ leadership, environmental improvements achieved, and the ability of the organization to train staff, innovate, and establish procedures to make breakthroughs in the environmental protection. So far, more than 90 organizations have been awarded, but none of them is from the fashion industry. By achieving the award, Zara can market to the customers as the first fashion retailer to attain SEAA in Singapore, hence achieve the competitive advantage.     

Another way Zara can show its commitment to the environment is through the use of eco-friendly packaging. Many companies in Singapore offer customized eco-friendly packagings that are reusable, collapsible, and returnable so that the clients may reduce waste and save money. Zara should seek to source these products or make its eco-friendly packaging.

Zara should encourage proactive approach towards environmental challenges. Water is increasingly becoming a scarce resource in Singapore. By advocating for water conservation on its websites and social media pages, Zara can significantly influence consumers’ perception of its products. The retailer will not only become synonymous with high-end fashion but also to minding the consumer’s welfare. The use of green technologies and appliances in its Singapore outlets and involving the staff in reforestation can significantly help.

The retailer should mention its mission its commitment to environmental protection. Following this objective will give Zara a competitive edge. Some major competitors are in the process of getting this milestone and Zara Singapore should make new plans and market its commitment in its website and through social media and create more benchmarks in this eco-friendship race.

Major manufacturing tasks such as assembly of components are done at a center in Spain, so as to benefit from economies of scale, cut the costs, and compete effectively. Through this, Zara has been able to stay ahead of completion and deliver products to consumers affordably. Corporate Social Responsibility is an untapped area, where Zara can use to fight emerging competition.

Technological Factors

The ministry of environment in Singapore is working tirelessly to protect the environment, promote air quality, and curb pollution. Water shortage is also a major issue in Singapore. About 30% of Singapore mangrove has been lost.  As part of its corporate social responsibility, Zara should seek ways to address environmental concerns through engaging in reforestation and through other means.

The importance of corporate social responsibility cannot be underestimated. It brings benefits such as costs savings, risk management, human resource management, and improved customer relationship (Peters, 2014). The time set aside to cater for the society’s needs through reforestation not hamper work but will enhance personal learning, team interaction, and will promote team spirit. Engaging in environmental protection as part of corporate social responsibility can also help to change the perception of the business beyond profit driven, and create a new partnership with the media, social and interest groups, and policymakers. Environmental protection, being a felt need in Singapore market, is a good area to capitalize.

To achieve on the opportunities discussed above, Zara Singapore will need a team of personnel with strong management, leadership, and internet marketing skills. The current administration has already taken some positive steps, some of which have been implemented successfully. The time is ripe for Zara to expand Singapore retails from the current nine.

A skilled HR team will also be required if Zara is to enter new market segments with lower products cost. To balance the brand’s image in the market, a consistent and continuous representation of company’s outlook in the marketplace will also be necessary. Entering newer segments will cause supply issues since the company currently does not have numerous distribution centers.

Conclusion

After analyzing Zara’s internal and external factors, we come to the conclusion that it is an active player in the industry and derives its major competitive advantage in the competitors lacking sufficient customer responsiveness. While Zara does not have many investments in the market, it relies on the most active aspect of the business- the clients. The retailer listens to its customers, obtains the feedback, and uses the information to evaluate its production, resulting to more consumer gratification. Zara uses complicated means of production and is at the forefront in producing the latest designs that the customer has requested in the least period. However, to compete effectively, the company needs to enter new segments, open multiple distribution channels, and use newer methods of advertising.

References

Day, J., Ward, L., Choi, S. and Zhao, C. (2011). Catching the long tail: competitive advantage through distribution strategy. Journal of Hospitality and Tourism Technology, 2(3), pp.204-215.

Inditex. (2013). Our team. [online] Available at: https://www.inditex.com/en/who_we_are/our_team [Accessed 29 Aug. 2016].

Inditex. (2014).Timeline. [online] Available at:

https://www.inditex.com/en/who_we_are/timeline [Accessed 29 Aug. 2016].

Jackson, J. and Buchanan, I. (2013). Singapore in Southeast Asia: An Economic and Political Appraisal. The Geographical Journal, 139(3), p.534.

Kang, J. and Sung, Y. (2010). The Impact of Information Technology on the Process Innovation and Competitiveness in the Fashion Industry -Case Study of Fast Fashion: ZARA-. Journal of the Korean Society of Clothing and Textiles, 34(1), pp.1-13.

Kim, G. and Lee, S. (2014). Business Strategy of Fast Fashion -A Case Study of Zara-. Journal of the Korean Society of Clothing and Textiles, 38(2), pp.175-190.

Keller, A. A. (2012). Zara Strategic Marketing Plan. Retrieved August 29, 2016, from Oeconomicae: https://www.oeconomicae.com/documents/Author/Strategic%20Marketing%20Plan,%20Zara,%20Arteixo,%20Spain.pdf

Lloyd, A. and Luk, S. (2012). The Devil Wears Prada or Zara: A Revelation into Customer Perceived Value of Luxury and Mass Fashion Brands*. Journal of Global Fashion Marketing, 1(3), pp.129-141.

Mo, Z. (2015). Internationalization Process of Fast Fashion Retailers: Evidence of H&M and Zara. IJBM, 10(3).

Peters, J. (2014). Social Responsibility is Free & Sustainable - Why Doing Good While Doing Business is Good Business. Nang Yan Business Journal, 2(1).

Reyes, V. (2014). Issues of Citizenship, National Identity and Political Socialization in Singapore: Implications to the Singapore Education System. Studies of Changing Societies, 2013(1).

Royoâ€ÂVela, M. and Casamassima, P. (2011). The influence of belonging to virtual brand communities on consumers' affective commitment, satisfaction and wordâ€Âofâ€Âmouth advertising. Online Information Review, 35(4), pp.517-542.

Tanwar, R. (2013). Porter’s Generic Competitive Strategies. IOSR Journal of Business and Management, 15(1), pp.11-17.

Tsai, Y. and Tombs, A. (2015). FASHION IS “ME TOO” STYLE IS “ONLY ME”: CONSUMER PREFERENCES TOWARDS FAST FASHION AND LUXURY FASHION. GFMC, 1(2), pp.45-46.

Yüksel, I. (2012). Developing a Multi-Criteria Decision Making Model for PESTEL Analysis. IJBM, 7(24).

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