The assignment title is “International Retail Marketing Analysis” – the company I’m choosing to work on is “ZARA” you must choose an International country where your chosen company is ACTIVE/PRESENT (the choice of country must be outside of UK; as for the purpose of this assignment “UK” is considered as domestic market)
Please follow carefully the Instructions/guidelines document I’ve uploaded.
And also please follow the example/ template to do exactly what they did but about Zara.
INTERNATIONAL RETAIL MARKETING ANALYSIS “ZARA”
Executive Summary
Zara is a brand of Inditex and one of the largest fast-fashion retailer in the globe. Over the years, the brand has gradually expanded its operations internationally to boost its profitability by attracting a broader customer base and enhancing its sales. Among such countries in which Zara operates in is China.
This report analyzes the situations surrounding Zara’s operations in China and finds that the brand operations are profoundly impacted by political, social, economic, cultural, legal and technological factors in the country. The report also finds that Zara operates in a highly competitive environment. Furthermore, findings from the report show that Zara has strengths that it leverages, threats that it ought to react to, opportunities it should seize, and weaknesses it should overcome to remain competitive in China’s fast-fashion industry. Additionally, the report addresses the retail marketing programmes run by Zara by analyzing the manner in which the 7ps are incorporated in its marketing plans and utilized to meet its business objectives. The report concludes that Zara has a strong market position in China. However, it should monitor and incorporate trends in the international retail industry, such as AR, to boost its competitive advantage in China’s market.
Introduction
Over the past few decades, Zara has maintained a strong market position in the apparel retailer industry. The Inditex brand, which was first established in Coruna, Spain, distributes its products in approximately 202 markets, enabling the firm to have a significant market share globally (Zara). Since opening its first store in Coruna, Zara has gradually expanded its operations in several countries, such as China, with a view of making more profits through attracting a broader customer base.
Therefore, this report aims at conducting a situational analysis of Zara’s international marketing environment, including the micro and macro factors that surround its operations in China. The report also addresses the market strategy that Zara used to penetrate China’s apparel retail industry. Furthermore, the report analyzes the manner in which the company segments, targets, and positions its brand in China’s market. Additionally, an analysis of Zara’s retail marketing programmes is conducted, including the manner in which the latter enable the firm to achieve its retail objectives. Finally, the report provides recommendations on practices that ZARA should adopt to remain competitive in China’s industry.
2. Body
a. Situational Analysis
- External Market
- Macro
| Legal | · China’s current legal environment appears to favor the establishment and operations of foreign retail firms. In 2019, policymakers introduced a new Foreign Investment Law that seeks to protect intellectual property rights, and ensure equal treatment of international firms (Zhou 2019). Such laws present an opportunity for Zara to compete with domestic firms in the fast-fashion clothing industry in a leveled playing field.
· Nonetheless, there also exist E-Commerce laws that may subject Zara to unfavorable legal situations. Most notably, given that Zara aims to keep pace with trends in the fashion industry, it may easily face legal issues in instances where it borrows clothes concepts from other brands. |
| Social | · China has a unique cultural environment that impacts the operations of foreign brands. Notably, scholars observe that China is loyal to a collectivist culture (Lawrence, 2010). Thus, consumers may be more inclined to do business with domestic entities. This cultural factor requires Zara to partner with local companies to enhance its visibility and preference among consumers. |
| Political | · China is characterized by frequent misunderstandings between the different levels of government. Studies show that the central, provisional, and local governments are often in constant battles over applicable law and observance and non-observance of it (Lawrence, 2010). Therefore, Zara may find itself in unfavorable political situations for failure to know the exact rules to be followed. |
| Economic | · China has one of the fastest-growing retail markets, which provides an opportunity for Zara to expand its operations and maximize profit.
· Furthermore, the cost of labor in China is relatively low compared to countries such as the U.S. (Ceglowski & Golub, 2007). Thus, the brand can minimize operational expenses and maximize profit. |
| Technological | · E-commerce is growing substantially in China’s retail industry. As such, to keep up with this trend, Zara opened its first e-store on Alibaba-owned Tmall.com in 2012 (Guyot, 2014). The e-store, which has millions of users, enables Zara to enhance its visibility in the retail industry. |
| Environmental | · China has been enhancing its environmental protection laws to promote environmentally friendly business processes. In conformance with these environmental laws, Zara has been investing heavily in green business and sustainable technology to meet China’s ecological requirements. |
- Micro
- Competitors
Zara faces fierce competition from both domestic and foreign firms operating in China’s clothing store industry. Zara’s main competitors are H&M and Uniqlo, which have considerable market shares in China’s clothing industry. Competition in the sector is attributable to the commitment of the World China’s Trade Committee to open China’s economy for foreign investment, making it easier for more firms to penetrate the industry.
- Business
China’s clothing store industry has been growing significantly over the past few years. A Statista report shows that the sector will grow annually by 7.0% between 2020-2025 (Apparel, n.d.). This growth is likely to boost Zara’s sales and revenue in the long run.
- ii. Internal Market
| Strength | Weakness |
| · Fast fashion approach (Towson, 2017)
o Zara utilizes a fast-fashion approach, which enhances the frequency of customer visits in the stores compared to its counterparts. · Seamless supply chain o Zara controls its supply chain, making it easy to minimize the consumer lead time. |
· Marketing promotions
o The brand does not indulge in advertisements, an aspect that constrains its ability to boost its sales. · Late adoption of e-commerce o Zara’s adoption of e-commerce has been a recent move that was solidified in 2012 through its partnership with Alibaba’s e-store. This entry is a late move as the majority of its competitors have been using the platform for years. |
| Opportunities | Threats |
| · E-commerce
o Zara can take advantage of the growing e-commerce market in China to enhance its visibility and sales. · Further expansion o Zara can expand its stores in other cities in China. |
· Competition (Towson, 2017)
o Competition from local manufacturers is growing stiffer, posing a significant threat to Zara’s profitability. Besides, local firms have been moving upmarket, challenging the dominant position that Zara ones boasted. · E-commerce (Towson, 2017) o E-commerce in China is growing at a fast rate; thus, Chinese customer experience is highly characterized by online ecosystems (Towson, 2017). Zara’s slow speed in adopting e-commerce poses a significant threat to its operations, mainly because the majority of its competitors have been capitalizing on such digital platforms. · Sales decline (Jun, 2019) o China’s fast-fashion is recently growing at a slower rate, posing a significant threat to firms due to reduced sales. Most notably, it is estimated that Zara’s net sales in 2018 rose by 3 percent compared to 9 percent in recent years, signifying the declining sales in China’s market. |
b. Market Entry Strategy
It appears that Zara utilized Greenfield foreign direct investment (FDI) to enter China’s fast-fashion clothing industry. Greenfield FDI involves the construction of non-existent facilities in a foreign country (Bayar, 2017). Zara established a new distribution store upon arrival in China. The selection of Greenfield FDI over other market entry strategies may have been triggered by the intentions of the firm to maintain total control over its operations in the foreign market.
c. Segmentation/ Targeting/ Positioning (S/T/P)
i. Segmentation
Zara utilizes a mix of three variables for market segmentation- demographic, geographic, and psychographic.
| Demographic | Demographic segmentation is the division of prospective customers based on identifiable and factual data such as age, gender, and income (Camilleri, 2018).
Zara’s demographic segmentation constitutes: Age: 13-40 years old Gender: Female and male Income: Middle-income earners Class: Individuals oriented in fashion trends |
| Geographic | · First and second-tier cities in China
o Zara’s geographic segmentation can be classified into first and second-tier cities. These cities are characterized by increased population and economic growth (Mingye, 2017). Zara likely segments its consumers on a geographic basis to optimize revenue from the most affluent consumers who are mainly found in the first and second-tier cities. |
| Psychographic | Psychographic segmentation involves grouping consumers according to their personality traits, values, motives, interests, and lifestyles (Camilleri, 2018).
· Zara’s psychographic segmentation comprises individuals with a busy lifestyle. This aspect is evidenced by the firm’s involvement in online marketing, which enables this category of consumers to shop conveniently. · Small and plus-sized consumers o Zara also segments its consumers based on their physique. As such, it has products for both small and plus-sized consumers, which enables the firm to attract a large customer base in China. |
ii. Targeting
Besides market segmentation, Zara also employs various targeting strategies. Targeting, in this context, involves identifying the sub-groups the firm wishes to serve and there forth creating products that meet the needs of consumers in these segments. An analysis of products offered by Zara reveals that the firm utilizes a differentiated targeting approach. Most notably, this approach entails targeting several segments and developing individual product or service offerings for each category of consumers (Camilleri, 2018). In this context, Zara offers different products such as womenswear, menswear, and Zara Kids to fulfill the needs of multiple demographic segments in the fast-fashion clothing industry. Zara’s differentiated targeting strategy is ideal as it enables the firm to attract a broad customer base from different segments in the highly competitive China’s sector.
iii. Positioning
Product positioning in Zara refers to the position that its clothes occupy in its consumer’s minds. Based on an analysis of the brand’s product, it is evident that it employs a comparative positioning strategy. The positioning strategy is evidenced by the fact that Zara is committed to offering fast fashion within two weeks compared to its competitors who take about 6-months to introduce new designs in the market. As such, consumers perceive Zara as the store with the trending fashion compared to other industrial participants.
Retail Marketing Programmes
| Product | · Zara satisfies the needs of the Chinese market through standardized product offerings. Scholars define standardized product offering as a strategy in which similar marketing mix variables are used in markets in which a firm operates (Schilke, Reimann & Thomas, 2009). Notably, the same marketing mix variable used in China is also used in other international markets in which Zara operates, such as the U.K. |
| Pricing | · China’s market is highly competitive due to the existence of multiple domestic and foreign companies. As such, Zara utilizes a market-based pricing strategy in its product offering, whereby prices are set based on existing market prices for similar products. This strategy enables Zara to fulfill its objective of maintaining a competitive edge in China’s market while avoiding overpricing or underpricing its products. |
| Place | · Zara utilizes selective distribution whereby its products are mainly distributed in first and second-tier cities in China, such as Shanghai. This strategy enables Zara to attain the objective of expanding its operations in large, highly populated regions. |
| People | The brand has a diverse workforce constituting of:
· Designers who consistently design clothes based on consumer’s changing preferences and market trends (“Annual report”, 2018). · The workforce in the logistics, manufacturing, central services, and stores which ensure that the apparels are manufactured, distributed, and made available to consumers on a timely basis. |
| Process | · Zara utilizes a combinative buying process. This structure of international retailing exists where the authority to purchase products operates at both a central and local level (Moore, Bruce & Birtwistle, 2007). In this context, a significant percentage of Zara’s merchandise is purchased centrally based on consolidated consumer orders, while the rest is bought by local managers to meet the varying consumer needs across the outlets. Zara’s combinative purchasing structure enables the brand to achieve its business objective of consistently distributing its newly released fashions to consumers.
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| Physical evidence | Physical evidence refers to the tangible features that consumers are likely to see in a firm. In this context, Zara has physical evidence, both online and offline.
In its offline stores, Zara boasts a unique layout and design defined by beauty, clarity, functionality, and sustainability (“Zara”). Also, the firm has an online presence whereby it operates a website and other social media platforms such as Pinterest, Facebook, and Twitter. Zara’s offline and online physical evidence enables the firm to fulfill its commitment to promote sustainability and enhanced consumer experience (“Zara”).
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Recommendations/ Conclusion
In summary, Zara has significant strengths that it leverages to survive in China’s industry. Nonetheless, the Chinese market is gradually becoming more competitive because of the reduced barriers of entry for new industrial participants. As such, moving forward, Zara should focus on the acquisition and retention of prospective customers. Zara can achieve this goal by monitoring and incorporating new trends in the international fast-fashion clothing industry in its business plan, such as adopting AR in its online and stores to enhance consumers’ experience. The use of AR may help Zara attract and retain consumers who have busy schedules by creating convenience in the manner in which they fit and purchase clothes.
References
‘Annual Report’ (2018). Inditex [online] available from https://static.inditex.com/annual_report_2018/pdfs/en/Inditex%20Annual%20Report%202018.pdf. Accessed 1 July, 2020.
‘Apparel’ (n.d.). Statista [online] available from https://www.statista.com/outlook/90030400/117/apparel/china. Accessed 1 July 2020.
‘Zara’ (n.d.). Inditex [online] available from https://www.inditex.com/about-us/our-brands/zara. Accessed 1 July 2020.
Bayar, Y. (2017). ‘Greenfield and Brownfield Investments and Economic Growth: Evidence from Central and Eastern European Union Countries,’ Our Economy, 63(3), p19-26.
Camilleri, M.A. (2018). ‘Market Segmentation, Targeting and Positioning,’ In travel marketing, tourism economics and the airline product (Chapter 4, p69-83). Cham, Switzerland: Springer
Ceglowski, J., & Golub, S.S. (2007). ‘Just How Low are China’s labour costs?’ World Economy, 30(4), p597-617.
Guyot, O. (2011). ‘Zara Raises Controversy in China,’ Fashion Network, 27 April [online] available from https://uk.fashionnetwork.com/news/zara-raises-controversy-in-china,511834.html. Accessed 1 July 2020.
Jun, X. (2019). ‘Foreign Fast Fashion Brands Face Falling Sales in China,’ Global Times, 13 May [online] available from https://www.globaltimes.cn/content/1149687.shtml. Accessed 1 July, 2020.
Lawrence, G.K.F. (2010). ‘Business Environment in China: Economic, Political, and Cultural Factors,’ MBAA Proceedings [online] available from https://www.usi.edu/media/3654697/Business-Environment-China.pdf. Accessed 1 July 2020.
Mingye, L. (2017). ‘Evolution of Chinese Ghost Cities,’ China Perspectives, 2017(1), p69-78.
Moore, C., Bruce, M., & Birtwistle, G. (2007). ‘International Retail Marketing.’ Routledge.
Schilke, O., Reimann, M., & Thomas, J.S. (2009). ‘When Does International Marketing Standardization Matter to Firm Performance?’ Journal of International Marketing, 17(4), p24-46.
Towson, J. (2017). ‘Two Threats to the Big China Dreams of Zara and H&M,’ Ecommerce, 22 September [online] available from https://ecommerceiq.asia/zara-and-hm-in-china/. Accessed 1 July 2020.
Zhou, Q. (2019). ‘China’s New Foreign Investment Law: A Background,’ China Briefing, 17 October [online] available from https://www.china-briefing.com/news/china-new-foreign-investment-law-backgrounder/. Accessed 1 July 2020.
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