Pestle analysis of Zara fashion brand. Zara is a multinational European (Spanish) fashion company. Shoes, swimwear, accessories, beauty items, fashion products, perfumes, and retail apparel are some of the major products of the company. Zara is a subsidiary company of Inditex, a distribution company.
Amancio Ortega and Rosalia Mera are the founders of Zara and they established the company in 1975 in Spain. The brand’s headquarter is situated in Arteixo, Spain. Amancio Ortega is still playing the key role of Chairman and a major deciding factor of the company. Zara has a world network of 2270 retail stores and the brand uses the same model for designing, production, distribution, and sale of its products.
According to an estimate conducted by Forbes, Zara has a brand value of 14.7 billion US dollars by the end of 2020. The company is a major contributor (70%) to the revenue of its parent brand, Inditex. The brand has employed 152854 employees to manage its stores across the world. According to a report by Owler, the annual revenue of the company in 2020 was 21.9 billion dollars.
Today, we’ll discuss the pestle analysis of Zara. How macro-environmental like political, economical, social, technological, legal, and environmental factors are impacting the company. If you want to learn about the internal factors of the fashion brand, check out the swot analysis of Zara. Read my article and learn more;
Political factors Impacting Zara
Trade Agreement with Europe
As we know that Zara is a Spanish multinational fashion brand. The advantage of being a European brand, the company can trade and distribute its products with other countries across Europe. Politically the company doesn’t have to face border restrictions and extra tariffs in Europe. It’s one of the biggest advantages to the fashion company.
Import/Export of Raw Material
Most importantly, Zara can import/export raw material and distribute finished goods across European countries. The company doesn’t have to pay extra taxes on imports and exports. It saves a lot of expenses to the company. In simple words, the EU trade agreement is highly beneficial to the fashion company.
Politically Brexit deal (exit of Britain from the EU) has been a huge setback to Zara. The UK was the biggest export fashion market for the company. According to an estimate, Zara exports approximately more than 70% of its products in Europe.
Country’s Financial Regulations
Zara is a multinational fashion company and it’s operating its business in different countries across the world. The politically influenced financial regulations also play a key role in the revenue stream and profitability of the company. For instance, the financial regulations of the Indian and Chinese markets are very strict. They’re like red tape for the company and it’s not easy for the brand to conveniently run its business like Europe.
A stable political environment is a key to the success of any business, and fashion brand Zara is no exception. When the country’s political environment is unstable, it disrupts the supply chain and the distribution network of the company. Such disruption increases the cost and impacts the profitability of the company. The company has no other choice except to limit its business to neighboring countries only.
Economical factors affecting Zara
Employment Opportunities in Spain
As some of you know that the unemployment rate is very high in Spain. That’s why labor cost is low in Spain compared to other European countries like the UK, France, Germany, and Switzerland.
Since Zara is a Spanish brand, therefore, the company rarely outsources its production work into other Asian countries. It’s because the brand has the cheap labor available in the home country. In other words, Zara creates job opportunities locally.
Economical & Popular Brand
The economic growth and financial performance of Zara have been very low. But the company is still a popular fashion brand in the country and the regional neighboring countries. It’s because the company is satisfying the needs and desires of the majority of people.
Most importantly, the brand has a big database of loyal customers. If you compare the price range of Zara with other European brands like Gucci and others (pestle analysis of Gucci). Then the company charges very economical prices. That’s why Zara is popular in the less economically developed countries and among the people of the lower class.
Pandemic of Covid-19
The pandemic of covid-19 and lockdown have shutdown businesses across the world. Zara has no other choice except to shut down 2270 of its worldwide retail stores. One of the smartest decisions the company has ever made is to bring its business online. It helped to minimize the damage.
Britain has been the top export of Zara in Europe and the high sale in Britain define the success and growth of the company. Brexit deal (exit of Britain from Europe) has had a huge impact on fashion. Clothing and apparel sales have dropped significantly. It’s because Brexit doesn’t allow free trade of European brands in the UK.
The decrease in sales means that the company has to decrease the production rate and lay off the extra workforce. The unemployment rate would increase and the purchasing power of customers would drop.
The cost of raw materials like cotton and other items increases the retail price of the company’s products. The higher retail price would reduce Zara’s sales. It means a decrease in revenue and profit of the company.
Social factors Impacting Zara
Changing Social Trends
The interesting thing about the fashion industry is that it doesn’t stay the same. The social trends keep on changing and they impact the supply and demand of a company’s products. The target market for Zara is very big and large. The company offers a great variety of products to its customers. They don’t always create social trends. Sometimes they do, and the other times they don’t.
Despite its economic price range and other advantages, Zara is a catchy brand name for many shoppers. It’s because of the company’s work on quality products and years of brand marketing. The customers feel exclusive when they buy Zara’s products. The shareholders of the company earn a great profit and customers feel that they’ve got a great deal.
General Products Range
Zara is an old fashion brand. When it came to existence, the concept of a niche and focused market was new and unpopular. The company has always offered a broad range of products and services to its customers and still does. But the customers’ market has become highly focused in recent years. Now they prefer brands that offer product range in one category.
Cultural trends play a very important role in influencing the purchasing decision of customers. It could be clothing, apparel, shoes, or some other product. If the customers do not find the trend assimilating to their environment, they won’t accept it. Zara, on the other hand, launches products that are locally and culturally trending.
Technological factors affecting Zara
When the pandemic of covid-19 hit the world, the wave of lockdown and shutdown of businesses emptied streets, shopping malls, and shops across the world. Zara was quick to invest in the e-commerce and online retail tech business. It paid off the company very well.
As we know that Zara has a huge database of customers. The brand uses advanced analytical tools and algorithms to find the trends and shopping patterns of customers. It would help the company to launch products that would appeal to the customers better.
The website and e-commerce platform of Zara has an interactive interface and worldwide customers interact with it every day. The brand also uses various communication channels to connect with its customers.
The physical retail stores of Zara are very big and they offer a plethora of variety to its customers in every category. When it comes to finding a needle in a haystack, it’s a very big issue. Zara uses the RFID technology at its stores to address the logistic and inventory problem.
Partnership with Tech Companies
Zara has also made alliances and strategic partnerships with other tech and mechanical engineering companies like Toyota. It has made the company apply JIT tech at its manufacturing facilities. As a result, Zara was able to increase the customers’ response rate.
Legal factors Impacting Zara
Labor Law Issues
Inditex has roundabout 7108 factory units across the world and the brand deals with 1520 worldwide suppliers. Zara has laid down many laws and regulations for employees and labor wages. But when it comes to implementing it, critics have found many contradictions in them. For instance, the situation of employees in Myanmar is very low.
Zara has a very complicated history with patent and copyright laws. Balenciaga and Adidas have accused Zara many times of stealing their clothing and other designs.
As I said earlier that Zara is an old brand and it follows the old ideology, where stealing ideas and designs weren’t a big deal. The brand still does it without considering anything else. Therefore, Zara should consider the implementation of copyrights and patent laws, because they would help save its digital and intellectual assets.
Environmental factors affecting Zara
Impact of Fashion
The fashion industry follows the simple formula of disposable products, use and throws it away. The fashionable products usually don’t last long. People only use it to look good and make some pictures in them. Fast fashion makes people just to follow the trend.
Nowadays, customers are becoming more and more environmental-friendly and they want environmentally sustainable products. They no longer accept the trend of use and throw away, because it’s nothing more than increasing wastefulness.
Eco –Friendly Commitment
Zara has publically pledged to produce environmentally sustainable products on its platform. The brand has also shown commitment towards animal welfare, sustainable material, clean water, biodiversity, and other environmental issues. If the company takes the environmental issues seriously, it would win the heart and loyalty of customers.
After a careful study of the pestle analysis of Zara, we have realized that the company has maintained a very good balance between cost and profit. The brand charges economical prices to the customers and shareholders earn a good amount of revenue. The copyright issues are also serious; Zara should also try to reduce environmental waste.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.