Published by MBA Skool Team, Last Updated: October 28, 2019
PESTLE Analysis of Zara analyses the brand on its business tactics. Zara PESTLE Analysis examines the various external factors like political, economic, social, technological (PEST) which impacts its business along with legal & environmental factors. The PESTLE Analysis highlights the different extrinsic scenarios which impact the business of the brand.
PESTLE analysis is a framework which is imperative for companies such as Zara, as it helps to understand market dynamics & improve its business continuously. PESTLE analysis is also referred to as PESTEL analysis.
The political factors in the Zara PESTLE Analysis can be explained as follows:
Zara is a Spanish brand that was born out of the European union and has successfully established operations all over the world. The country has a well-established framework of extensive trade agreement which helps Zara to import raw materials and export finished products. The framework also aids Zara in exporting merchandise across the world involving little effort and low cost. The European union is UK’s biggest export market for textiles and clothing. The industry accounts for 74% of the total exports of EU and hence it gives access to Zara to a broader customer base within all European countries without paying extra border tariffs which helps to boosts its sales. Financial regulations of the country also have a great impact on the smooth functioning of any business. Asian countries like India and China post major challenges in front of the businesses in form of red tapism. Another major factor that affects the market is political disruption as it affects the economy and disrupts supply chain. Zara overcame this problem by limiting its supply chain operations in its home country and some neighboring nations.
Below are the economic factors in the PESTLE Analysis of Zara:
Since Spain has one the highest rate of unemployment and Zara is a Spanish brand, it enjoys the benefit of low cost of labor especially in comparison to other western European countries such as France, Germany and the United Kingdom.
Even though Spain experiences a slow growth in the economy, Zara is one of the most popular brands in the country. The ability of the brand to cater to the needs of the majority of the shoppers helps Zara to establish a loyal customer base. Zara is a relatively less expensive brand in comparison to other European brands which rewards Zara a greater market share in comparison to its competitors. A complex web of low economic activity across the world can seriously deteriorate the financial health of the organization. A rise in labor or overall production cost can put the company under financial distress. The British exit from the EU, also known as Brexit has lead to a decline in the value of pound resulting in high inflation rates and less disposable income in the hands of the consumers to spend on clothing. Thus, it has reduced the sales of Zara and overall sales of the clothing industry.
Following are the social factors impacting Zara PESTLE Analysis:
Volatile social trends have a huge impact on demand as well as supply of the company’s products. It also has a huge impact on the availability and willingness of individuals to work. Since, Zara has a huge market and makes a variety of products it is quite unlikely that there will a shift with respect to such social factors. The company isn’t focused upon a niche market rather caters its products to different segments although the company doesn’t enter any new market without doing its preliminary research. Culture influences buying decisions of consumers especially in the clothing sector. Any product that the customers cannot identify with doesn’t find acceptance in that particular cultural group. Zara makes its products rhyme with the local culture as it doesn’t believe much in experimentation. The brand is also invested in a variety of initiatives for the society. To conserve energy, Zara have focused on eco-friendly approaches in managing its stores.
The technological factors in the PESTLE Analysis of Zara are mentioned below:
The brand has the money as well as the customer base to extract the most out of the data. It invests huge amounts of money in order to understand and analyze huge data sets to find efficient ways to appeal to its customers. The company has a popular website through which it interacts with customers from the entire world. The company communicates with the customers through both online and personal touchpoints. Zara established a successful partnership with Toyota applying concepts of JIT and Lean facilities across its manufacturing operations. Technology also increases a firm’s responsiveness to customer.
The company has implemented RFID technology to track its goods and inventories.
Following are the legal factors in the Zara PESTLE Analysis:
Zara is a brand that has prioritized its emphasis upon ethics and sustainability. Their focus is to establish these principles across the entire line of their operating business as well as supply chain. Big brand names like Zara have to follow certain rules and regulations. The company provides living wages to its workers for which they have developed separate laws. Concurrence with legal laws is a growing requirement for the brand and the company has invested for the same through its supply chain management. In order to introduce clothes in line with the latest trends, the company has run into some copyright infringement issues in the past. The brand has been accused of stealing designs and clothing concepts from that of Adidas and Balenciaga. The outdated legal doctrines are one of the reason brands are able to copy each other without facing any significant repercussions. At the same time these brands such as H&M, Zara also need to strongly enforce copyright laws as the clothes that they launch in the market involves investment of time, effort and money.
In the Zara PESTLE Analysis, the environmental elements affecting its business are as below:
The entire world of fashion is wrongly associated with wastefulness as the customers change trends and preferences easily. This can be a major factor for a fast fashion brand like Zara to come under customer scrutiny. Since today’s customers are growing more eco-conscious than ever brands like Zara need to adopt sustainable ways in order to avoid the negative impacts. Zara has been preparing & planning to make all stores 100% eco efficient. The plan charts out various policies through which the brand focuses to reduce its energy and water consumption. The brand has actively shown its commitment to climate change and energy, biodiversity, sustainable materials, animal welfare and other environmental issues in depth. The company has ensured to remove all kinds of hazardous waste from its supply chain system.
The company Inditex has also decided to join the pact to reduce their carbon footprint. They have decided to achieve 17 goals on Sustainable Development in order to overcome the problem of climate change. Issues related to poverty and inequality are also covered under the umbrella of these set goals.
To conclude, the above Zara PESTLE Analysis highlights the various elements which impact its business performance. This understanding helps to evaluate the criticality of external business factors for any brand.
This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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