Five force analysis of the UK fashion retail industry
The fashion industry is undoubtedly one of the most profitable and thriving industries in the world. With the advent of globalisation, the wish to adopt latest fashion trends has deeply penetrated into the minds of the consumers, all over the world. The United Kingdom has been a global fashion capital for over the centuries, housing one of the largest fashion hubs in the universe. The London Fashion week, held annually in the UK happens to be one of the largest fashion events, highlighting UK’s presence in the international fashion industry (McCormick, et al., 2014). The purpose of this assignment is to analyse the micro and macro environmental factors affecting the UK retail fashion industry and to evaluate the internal competencies of Zara, utilising which the company can develop new strategies to boost its performance and grow with the rising trend of the widely popular UK retail fashion industry.
The UK has been one of the pioneers of the global fashion industry, right from the early ages, being popular with the swinging sixties in 1960, romantic 1970s and cool image of the 1990s. From designing the products in the domestic tailoring units, the UK fashion companies are increasingly exporting or sourcing clothing products from the foreign retailers (Rycroft, 2011). The primary reason behind this being the high labour cost in the UK territories, along with the surges in the prices of raw materials. This has resulted in the outsourcing of the products to the developing nations with lower labour rates and higher availability of talented resources. The UK fashion retail industry is still being accredited with numerous innovations. A UK fashion retail- industry research revealed that in 2009 the UK consumer spending on the fashion retail had grown to over 6.5 percent compared to that of the previous year, totalling the industry sales figure to 2.5 billion GBP (Fox, 2010). One of the key retail players in the UK fashion market was seen to grow over 19 percent on annual basis (Daneshkhu, 2016).
Figure 1: UK Industry ratio
Bargaining power of Suppliers: High
(Source: Fashion United, 2016)
Despite being hit by the recession, the UK fashion retail industry is seen to flourish due to the increase in a number of consumers, becoming more fashion and brand consciousness about their clothing and styling. The UK fashion retail industry is seen to contribute significantly to the nation’s economy since the last few decades (Magrath and McCormick, 2013). Apart from being the fourth biggest UK employment provider, the fashion retail industry contributes to the nation’s GDP. The magnanimity of the UK fashion retail industry can be evidenced by the increasing interest of the foreign retail players to enter in the UK fashion market, despite the market being highly saturated with dominating players. The five forces model stated by Michael Porter is one of an essential tool in evaluating the competitive framework of any industry or market. This analysis also helps the firms in creating the sustainable competitive advantage (E. Dobbs, 2014). The five forces of the UK fashion retail industry are explained in the table below:
Table 1: Porter’s five forces of the UK fashion retail industry
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Bargaining power of Suppliers: High Suppliers tend to have the high power of bargaining with the firms when the number of the suppliers of the raw materials is minimum or the availability of the raw materials is limited. In the UK fashion industry, the suppliers are the vendors providing raw material like textiles, cotton, and other fashion accessories, require for manufacturing the apparels or fashion products. The UK fashion retail consists of few suppliers due to the associated high costs of the raw materials. Some of the fashion companies use traditional tailoring and manufacturing techniques, which again increases the manufacturing costs of the fashion items. The high investment costs associated with the setup up of the manufacturing units in the lavish territories of the UK restricts the emergence of fashion industry suppliers. Therefore the existing suppliers have high bargaining power with the fashion retail brands for manufacturing fashion items. However, the increasing interest of the UK fashion retails companies towards outsourcing their manufacturing units to the vendors situated in the developing economies have aided the firms in tackling with the monopolies of the UK suppliers. However, Zara organises different license and terms that are offered to its suppliers, which weakens the power of suppliers since they are required to adhere to the permitted provisions, thereby minimising the manipulation of designs or price surges of the required materials. Furthermore, the sustained liberalisation of the international trade has resulted from the decline in the power of the suppliers. Zara being a globally widespread brand has its own set of domestic suppliers in major parts of the globe, which ensures that the company never runs out of its raw materials or suffer for the supplier quality. Through sustaining a stable supplier network, Zara ensures that the monopolies of its suppliers are prevented which does not hamper its organisational output. Zara is having over 1300 suppliers just for procurement of its raw materials. Zara’s specific agreements and norms have lowered the Supplier power. Adding to it, the reduction in the price of the fabrics and textiles, along with the availability of the highly skilled and low ages workforce in the developing economies have given Zara more control and power over its suppliers, worldwide. |
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Bargaining power of Consumers: Moderate to High The Bargaining power of the buyers becomes high when the market is saturated with the presence of many companies offering the similar portfolios of diversified product lines. The presence of numerous competitors results in offering numerous options for the same product which puts the buyers in the deciding position, thus providing them with high power over the industry players or brands. The present fashion retail industry of UK is filled with famous domestic and foreign players like Marks & Spencer’s, H&M, Austin Reed, etc. who have provided ample choices for the fashion industry consumers. The fashion retails companies are often seen to woo their customers with value added benefits and promotional offers for visiting their retail outlets. This demonstrates the high bargaining power of the consumers in the UK fashion retail industry. The customers of Zara consist of the population lying in the upper middle class and the upper economic class, having substantial buying power with significant disposable income. In the UK fashion retail market, Zara shares its market with the companies offering the similar range of fashion apparels like Marks & Spencer’s, H&M and GAP, all of which tries to attract the consumers through innovative offerings and attractive promotional strategies. The consumers in the fashion retail industry are free from any switching costs, which make them look for the best value products. Therefore, Zara tries to be innovative in its designs for ensuring that the company is having maximum possible customer retention by offering the latest products in the global fashion industry. |
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Competitive rivalry within industry: High The UK fashion retail industry is characterised with the existence of numerous renowned global players like Next, H&M, Arcadia, Marks and Spencer’s, GAP, etc. to name a few, all having formidable company reputation and brand image, along with a wide range of impressive product portfolio to target the fashion enthusiasts. The presence of the stiff competition ensures the companies have to compete amongst each other to get a significant share of the highly attractive fashion market, developing new marketing and promotional strategies as well as exploiting the market opportunities as soon as it is available to sustain the leading positions. Besides the globally renowned player, some of the domestic players like Sophia Webster, Topman, ASOS, New Look, and Burberry are also stepping into the international markets to contribute towards the global fashion retail industry. The high exit barriers of the UK fashion retail industry have ensured that the existing players maintain their focus towards leveraging the industry growth. Furthermore, the common target group of customers has resulted in the firm emphasising on innovative design to retain the market lead and growth. Global fashion retail firms like the Zara must emphasise on innovating new designs remain in the leading position. |
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Threat of New Entrants: Low to Moderate The global garments fashion industry has developed an increasing awareness of the wide range of its diversified customers that serves a center of attraction for the new entrants. Reprisal by the present players involving around the promotional and pricing strategies ensures that the new players do not suddenly enter into this highly attractive market. Furthermore, the high exit barriers along with the presence of the dominant retail players restrict the entry of small players in the UK fashion retail market. Furthermore, the high cost of business establishment deters start-up firms from entering this market. Thus, there exist low threats from the new entrants in the UK fashion retail market. It is essential for any new entrant to possess adequate resources, required for enhancing the development of new fashion lines or products, making full use of latest garment technologies in effective innovation that attracts customers from the existing players, which is highly impossible to achieve while having the leading giants already having economies of scale. However, Zara with its renowned supply strategy and reputable brand image, possess a rigid and resilient strategy for its existing competitors, which also makes the entry of the new players quite challenging into the UK fashion retail market. Though the fashion industry market is quite an attractive market for the start-ups and investments, the presence of dominant players makes it difficult for the new players. The high setup costs associated with the maintenance of infrastructures and acquisition of latest technologies even increases the challenges for the new firms. Limited availability of the raw material supplies intensifies the level of barriers for the entering companies. |
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Threat of Substitutes: Low The substitutes refer to the alternate products having the equivalent potential of the original product. In other words, the substitute products hold the power to replace the original products in the market. The vintage and handmade clothing are considered to be the substitutes for the fashion retail products. Apart from that, there are no feasible substitutes available in the fashion retail market. Duplication of the premium designs by the local or domestic small scale firms are often counterattacked by the rigid lawsuits of the UK. However, the lack of good alternatives or the below average quality associated with economic pricing makes the fashion retail one of the highly secured segments. However, Zara is widely known for its reputable quality, innovative designs and efficient prices, which is difficult to imitate or replace. The worldwide presence of Zara provides the company in utilising the specific market opportunities and utilising the garment technologies in such a way that it contributes to the company’s long-term growth sustenance. |
(Source: Turker and Altuntas, 2014; Wrigley and Lowe, 2014; Lewrick, et al., 2015; Çifci, et al., 2016; Okonkwo, 2016)
The value chain analysis tools suggested by Porter is one of the most effective tools in evaluating the most valuable activities (or assets) and the areas (core competencies) which can be improved to avail the competitive advantages (Fearne, et al., 2012). The value chain analysis comprises of two sections- primary activities and support activities, explained in the figure given below:
Figure 2: Porter’s Generic value chain
(Source: Simatupang, et al., 2017)
Bargaining power of Consumers: Moderate to High
The Primary activities of Zara include:
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Inbound logistics Sourcing of raw material from developing economies like India and China, in order to tackle with the surging prices of the supplier materials of the fashion retail industry, while maintaining standard quality. The company maintains a vertical integration structure, where it receives it’s patterned, dyed and finished fabric from its fully owned subsidiary units in the developing nations, ensuring just-in-time procurement of raw materials. |
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Operations Zara has implemented updated telecommunication systems to ensure round the clock connectivity among its headquarters, supply and manufacturing units and sales outlets (retail locations). The company outsources its profile of price sensitive items while manufacturing the innovative designs and fashion sensitive products in its in-house production units. Zara maintains the long-term relationship with its team of over 400 swing workshops, which are separately located all around the globe. The company uses advanced garments technologiesalong with the highly automated systems that ensure precise designing and accurate cutting techniques. |
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Outbound Logistics The company maintains a centralised logistic structure for distribution of its goods to the retail outlets, which helps the firm in taking the decision in a highly co-ordinated manner. Its retail outlets place its procurement orders twice every week and Zara makes sure that are its operations and supply distribution fulfils the store requirements. Furthermore, due to this highly centralised and well-connected distribution structure, the company maintains timely delivery to its European stores within a maximum span of 24 hours and to its Asian and American outlets within a maximum of 40 hours. The cross-functional operational strategies, supplemented with the vertically integrated supply chains have provided Zara with the mass production abilities, along with the effectively managed inventories, higher value creation, better profitability and minimised markdowns. |
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Marketing and Sales Zara maintains minimal marketing strategies by allocating less on the marketing activities while spending more on the procurement of the raw materials. The company ensures to provide best products compared to that of its rivals. The company makes sure that its customers are well aware of the latest fashion trends available at the retail outlets of Zara- its objective of “fastest fashion first”. |
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Service Through capacity building and competency mapping, Zara implements in-depth training of its employees and workers to stay ahead of its rivals. The company maintains its network of well behave and helpful staff at its retail outlets to provide the best shopping experience to its customers, besides giving them consultation about the latest fashion trends. |
(Source: Mo, 2015)
The resources of Zara include:
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Physical The retail outlets are located in prime city locations around the world. Zara maintains attractive window displays to provide its customers with the unique physical in-store experience. The company ensures that it interprets the fashion needs of its customers and deliver fashion goods accordingly and quickly. The company makes us of sophisticated IT systems, starting from its textile technologies to establishing uninterrupted communication technologies. Recently the company is emphasising on developing its electronic commerce or e-business division, in order to reach the maximum number of fashion enthusiasts. |
Human Resource The company identifies the talents of young individual designers and thereafter co-operates with them by giving them the training to become adaptive enough for producing the required orders with the minimum materials, thereby resulting in cost efficacies. Zara trains its store employees since they represent the service value of the company thereby adding to the brand reputation. |
Organisational Rather than imitating the strategies of its rivals, Zara focussed on design innovations, emphasising on the demands of its customers and trying to increase its customer loyalty. |
(Source: Caro and Martínez-de-Albéniz, 2015; Cheung, 2016; Maria, 2017)
The cores competencies of Zara include customer feedback and insights, rigid and time efficient logistical operations, rapid designing abilities and quick response manufacturing. The ability to respond to the customer’s demand in the quickest way contributes to the competitive advantage of Zara. Due to its highly effective value system, the company is able to minimise the manufacturing and transportation costs, taking full advantage of the economies of scale. Zara maintains a limited supply of stocks to its retail outlets to ensure timely replacement of its inventories while minimising the level of stock inventories (de Jorge Moreno and Carrasco, 2016).
The SWOT analysis of Zara includes the external and internal factors that can be utilised in promoting the growth of the firm towards increasing the business revenues as well as sustains its market-leading share.
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The strengths include: Strong research and development Globally recognised as a recognised and high-value brand Trendy clothing and industry leading styles Rigid supply chain network One of the earliest companies to bring the updated fashion designs into the market |
The weakness includes: Higher risk associated with the implementation of latest and expensive technologies Inditex’s overdependence on Zara Maintaining a widely diversified network of centralised supply chain network which is expensive |
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The opportunities include: Stable and recession proof growth of the UK fashion retail industry Exploiting the governmental policies related to outsourcing of the manufacturing units in the emerging nations, while exploiting the business sales volume in the developed economy of the UK The accelerating growth of e-commerce divisions of the UK fashion companies |
The threats include: Oversaturation of the UK fashion retail industry The rise of the local fashion retailers Lower customer switching costs Number of choices available to the UK fashion consumers for the same product line Post-Brexit regulations in the UK territories hampering the easier trading norms with the European nations |
(Source: Cortez, et al., 2014; Norman and Kabwe, 2015; Fashion United, 2016;Rodriguez, 2016)
The unconventional business model of Zara minimises the risks associated with the global fashion retail organisations. While its rivals update their inventories and stocks once every season, Zara updates its stock twice in a week. Furthermore, Zara also maintains little stock levels at its retails, ensuring regular replacement of the stocks. Thus the company minimised the loss associated with the “fashion miss”. This strategy works in two ways- the fashion enthusiasts have to regularly visit the stores and the customers have to make the purchase once it is available in the stores before the stocks get exhausted, ensuring better brand loyalty and customer retention (Lutz, 2015). The fashion garments industry demands content innovation of designs and dynamic responses from the companies to satisfy the gradually changing tastes of the fashion apparel customers (He, 2012). For the time being, Zara can emphasise on developing a rigid e-business model that complies with the existing objectives of the company.
The e-business model relies on the efficiency of the supply chain network, which is one of Zara’s strengths. Furthermore, through analysing the page visits of its particular products, the company will be able to analyse the interests of the ever-rising online customer database. This will also help in identifying the designs, which the consumer will like to visit at their retail points before concluding the purchase. Furthermore, the e-business model will act as one of the most cost effective marketing tools through which Zara will be able to create awareness regarding its upcoming designs, which its customers can expect in their next store visits. This will not only help in higher customer retention but will also contribute to the sales growth, thus creating sustainable competitive advantage for Zara.
Competitive rivalry within industry: High
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