MARKETING MANAGEMENT – I

Assignment 1 on PESTEL Analysis

Industry: Apparel
Product: Clothing Line
Brand: ZARA

Group 7
Arun Sharma (0409/56)
Deeksha Sinha (0419/56)
Digvijay Trighatia (0421/56)
Karan Sanghavi (0464/56)
Lakshay Garg (0437/56)
Sanjay Natra (0447/56)
Vibhuti Singh (0478/56)
Vinaya Patil (0454/56)

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Introduction
Zara is a Spain-based fashion retail brand under its parent company, Inditex. It’s one of the world’s
leading fast fashion brands and has been a pioneer in the apparel industry with over 2,200 stores across
93 countries. Zara has an annual income of ~$19bn, behind only H&M (~$25Bn) and has largely
managed to stay ahead of the curve in the fashion industry. The following analysis looks at the micro
and macro-environment in which Zara operates.
Macro-Environmental Analysis – PESTEL
Political Factors
Zara is well protected from political disruption in the supply chain because most of it supply chain
operations are limited to Spain and a few of its neighbouring nations. The Spanish brand saw double-
digit sales growth in 2018 and is actively trying to expand its business in the UK. Brexit will have a
direct impact on the net income of the company as the existing trade deals will disappear and Zara will
have to pay tariffs of approximately 11% on clothing and footwear in order to continue its UK
business7. On the manufacturing front, the decision to ban the sale of cattle for slaughter by the Indian
government has created uncertainties in procurement of leather, which is an important raw material8.
Zara is among the many international brands that uses Indian leather in its manufacturing processes,
and this could disrupt its operations.
Economic Factors
In India, the apparel market witnessed a CAGR of 13.8% in FY’18. Rising income levels, especially
amongst women, and increased spending on apparel is a major advantage for the company. However,
due to increased competition from the likes of H&M, Westside and soon Uniqlo, the market has
become quite competitive. To compete on the e-commerce turf, Zara slashed its prices by as much as
50% in 2018. As a result, Zara faced a 13% drop in its FY’19 profits9. A weakening Rupee against the
Euro will also negatively impact the company’s sales revenue.
Zara’s supply chain is globally distributed, with about 60% centred around Spain (trendy designs with
short design-to-store time). The rest is outsourced to Asia (products with a flexible fulfilment time).
This helps them better manage the high demand for their products in Europe. However, in case the
demand from China and India increases, higher air freight from Europe will increase costs.
Additionally, in the Indian context, the government is incentivizing domestic manufacturing, and
textile imports will become expensive10.
Social Factors
Due to the elastic nature of its demand, consumer spending patterns and changing fashion trends are
of extreme importance for Zara. It relies on population demographic surveys to be able to produce
according to population structure. As the brand caters to diverse cultures, it must account for a variety
of socio-cultural factors. For example, Zara’s restrained colour palette is somewhat at odds with the
rather colourful Indian taste11. Other market regulations also place hurdles; Zara has 20 outlets in India,
and the lack of commercial property suggests that adding more stores may be a struggle. More and
more consumers are looking for diverse brands that celebrate inclusivity in the sizes and types of
clothes they offer. Although Zara boasts a wide range of plus-size products, it received some flak for
its #MakeMySize campaign, which was criticized for its lack of options in the plus-size category.
Technological Factors
With the ever-increasing need and use of technology, Zara has not wasted any time creating the best
of business ideas which exists in the open world. The flagship store of Zara in London is a prime
example. The store makes use of augmented reality to create a hologram of person wearing the full

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outfit, creating a novel experience for the customer, and improving purchase efficiency by reducing
the time spent in waiting rooms12. Zara has been successful in creating an omnichannel of brick and
mortar type and E-retail, thus extracting the best out of both worlds. According to Annual Report of
Inditex e-commerce sales increased 41% last year, while overall growth slowed, highlighting the
importance of the ecommerce sector13. Big Data has been the key to success for Zara: data analysis is
used to find the average weight of residents in a neighbourhood and thus help determine what size to
ship where. Zara has been following the “test and repeat” model, which helps maintain inventory only
for those designs which sell and take a bad investment off shelves as soon as possible. Use of
technology has helped in save on inventory which is a major expense in fashion industry.
Earlier Zara had an edge over the competitors as it could spot trends sooner based on feedback from
retail stores. However, the increasing penetration of new social media platforms (mainly video-based)
in emerging markets has enabled competitors to catch up.
Environmental Factors
The fast fashion industry has recently come under fire for its major contribution towards the problem
of unsustainability and climate change. As per data from the UNEP (Nov’18), “20 percent of the
world’s wastewater and 10 percent of global carbon emissions can be attributed to the fashion industry
alone, and a major contributor towards this is fast fashion.”14 Zara’s holding company Inditex alone,
put a staggering 1.5 Billion products in the market in 201715. However, Zara as a brand has been taking
progressive steps towards decreasing its impact on the environment. There are two very clear indicators
of this. Firstly, the Join Life collection by Zara, which is a label primarily comprised of clothes made
from sustainable materials. The materials used in this line are “recycled wool, sustainable Tencel, and
organic cotton”16. Secondly, Inditex has pledged to make its stores 100% eco efficient by 202017. These
are signs of a company realising the strain it is putting on the environment and taking steps (although
relatively small) to reverse it.
Another issue attributed to the fast fashion industry is the volume of unconsumed goods, a consequence
of rapidly changing trends in the market. H&M faced severe backlash back in 2017 when it was
discovered that it burnt about 19 tonnes of obsolete clothing in a waste-to-energy plant18.
Legal Factors
Worldwide, awareness about the conditions of labour in the garment industry has been rising, in part
due to the collapse of the Rana Plaza building in Bangladesh in 2013, which housed five garment
factories that manufactured apparel for the likes of Primark, Walmart and Mango. The incident led to
the death of 1,132 individuals and injured over 2000 more19. As recently as April 2018, the Workers’
Rights Commission found multiple instances of human rights violations carried out in a factory in
Bangalore, where Zara clothes were being manufactured20. These incidents have led to the Government
implementing stronger labour laws for the protection and welfare of apparel workers.
The Ethical Fashion Report 2019, which looks at various aspects of worker employment, policies,
auditing and supplier relations gave Inditex the grade ‘A’21. The company scores high on maintaining
traceability throughout the manufacturing process of a garment and conducts regular risk assessments
of its supply chain to improve its labour management system. However, it scores poorly on
transparency, and generally does not disclose individual factory indicators and assessments. It also
scores poorly on resolution of workers’ issues relating to wages and overtime.
Micro-Environmental Analysis
Customers - Zara’s core target segment is women of age 24-35, although it offers clothing for both
women and men, and its business model is very customer-centric1. It does not characterize its clothes
differently based on age, race or weight; its focus is on being a trendsetter for all its customers. Zara

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has the privilege of having a brand equity so strong in its customers’ minds that customers visit Zara
17 times a year as opposed to 3-4 times for its competitors. Customer preferences are now also shifting
towards sustainable clothing options, and Zara has been quick to address this demand.
Suppliers - Zara sources 50% of its raw material and finished products from various suppliers across
the world. Its parent company Inditex has a Code of Conduct which all its suppliers are required to
abide by, and they carry out regular audits to ensure these policies are in fact in place. It also has a
total ban on child labour and takes strict action suppliers who default.
Competitors - Zara is priced relatively high compared to other players in the Indian market such as
H&M and Forever 21. Japanese-owned Uniqlo is also set to launch in India by the end of 2019. Various
Indian stores such as Westside and Lifestyle are also moving towards the trend of fast fashion, and
expanding their online and offline businesses
Employees - Given that Zara has several thousand direct and indirect employees, there is bound to be
some dissatisfaction. However, the condition of labour in the apparel industry is under heavy scrutiny,
and Zara needs to be vigilant to ensure its factory workers are treated well. On one occasion, unpaid
factory workers reportedly hid desperate notes inside Zara clothing, pleading for help2.
Shareholders - Zara stores in India are run by the retail arm of the Tata Group - Trent. The company
is expanding its own apparel business (Westside) and opening new stores. As per Trent India’s 2018-
19 Annual report, it views its relationship with Inditex as one of a mere “financial instrument” and
doesn’t see it as a “long term strategic relationship”3.
Media - Zara has been in the news for various issues, including the alleged theft of intellectual
property. Zara has been accused of plagiarising the work of small independent artists for its designs4,5,6.
The company claimed to have taken ‘inspiration’ from some of these designs and not lifted them
outright, but media reaction was largely negative.
Conclusion – Threats and Opportunities
Zara provides high value to customers by staying trendy while creating good quality products. Its
supply chain operations across Spain and Asia helps maintain a quick turnaround time and makes for
a convenient customer experience. However, its e-retail channel currently delivers only to a limited
number of cities in India. It is touted globally as an affordable fast fashion brand but is expensive
compared to its competitors in India. It misses out on a large proportion of the Indian market due to its
high cost. It could bring its costs down by expanding production facilities in India and reducing import
costs. It has a good brand image overall, but Zara needs to improve its communication strategy to re-
establish public trust when it comes to plagiarism of designs. If the company is using another artist’s
designs, credit should be given where it is due, and the artists should be adequately compensated.
With sustainability becoming a major global issue, Zara should innovate to make fast fashion energy-
efficient and sustainable. This largely entails making most of its clothing line from
sustainable/recyclable raw materials. On the technology front, Zara should focus on voice-controlled
shopping with Google Home and Alexa, which could be a game changer in e-retail shopping.
Improving transparency, taking timely action on issues of non-compliance or worker mistreatment,
improving conflict resolution at the factory level are necessary for Zara in the current legal macro-
environment of the country.

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References
1. ‘CASE STUDY CONCEPT: Zara’s Unique Business Model is Driven by Its Supply Chain
Capabilities.’ https://www.scmglobe.com/zara-clothing-company-supply-chain/
2. Young, Sarah. “Unpaid labourers are ‘slipping pleas for help into Zara clothes’”.
Independent, 4 November 2017. https://www.independent.co.uk/life-style/fashion/zara-
istanbul-unpaid-workers-inditex-bravo-clothing-tags-notes-a8037256.html
3. Kamath, Raghavendra. “For Tata's Trent, Zara is just a 'financial investment'”. Business
Standard, 10 July 2015. https://www.business-standard.com/article/companies/for-tata-s-
trent-zara-is-just-a-financial-investment-115071000010_1.html
4. Puglise, Nicole. “Fashion brand Zara accused of copying LA artist's designs”. The Guardian,
21 July 2016. https://www.theguardian.com/fashion/2016/jul/21/zara-accused-copying-artist-
designs-fashion
5. Misener, Jessica. “Zara Steals Street Artist's Design For T-Shirt?” Huffington Post, 04
September 2012. https://www.huffingtonpost.in/2012/09/04/zara-rip-off-patrick-waldo-
moustache-street-_n_1855486.html
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Savoir Flair, 19 July 2017. https://www.savoirflair.com/fashion/320248/zara-copyright-
infringement-problems
7. Tobin, Lucy. “How will Brexit impact the UK fashion industry?”. Evening Standard, 13
March 2019. https://www.standard.co.uk/lifestyle/esmagazine/how-will-brexit-impact-the-
uk-fashion-industry-a3931611.html
8. Ghosal, Sutanuka. “Cattle slaughter ban making global brands like Zara, Marks & Spencer
and Prada jittery” Economic Times, 05 June 2017.
https://economictimes.indiatimes.com/industry/cons-products/fashion-/-cosmetics-/-
jewellery/cattle-slaughter-ban-making-global-brands-like-zara-marks-spencer-and-prada-
jittery/articleshow/58901369.cms
9. Tandon, Suneera. “Fashion retailer Zara reports 13% drop in FY19 profit in India”. Livemint,
28 June 2017. https://www.livemint.com/companies/news/fashion-retailer-zara-reports-13-
drop-in-fy19-profit-in-india-1561735546473.html
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duty on over 50 textile products”. Business Today, 18 July 2018.
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clothes-as-govt-doubles-import-duty-to-push-make-in-india/story/280372.html
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https://www.translatemedia.com/translation-blog/zara-tackling-india-china/
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16 April 2018. https://www.forbes.com/sites/emmasandler/2018/04/16/zara-stores-targets-
millennials-with-augmented-reality-displays/#664eced23150

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13. Inditex Annual Report
2017. https://static.inditex.com/annual_report_2017/assets/pdf/memoria_en.pdf
14. ‘Putting the brakes on fast fashion’, 12 Nov 2018, https://www.unenvironment.org/news-and-
stories/story/putting-brakes-fast-fashion
15. ‘Fashion Transparency Index’, 24 April 2019,
https://issuu.com/fashionrevolution/docs/fashion_transparency_index_2019/
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initiative/2016092021831
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much
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