Zara’s role

The porters analysis through its five forces model is an illustrious tool to get an insight of both the fashion apparel industry as a whole and more importantly Zara’s role with various major factors affecting the company itself. We will now take a look at this analytical tool as given below:

Threat of New Entrants: The major features involved while determining this aspect of the model are the cost of entry, restrictions through laws of any government and sustainability to name a few. While the cost of entry may not be huge with regard to capital and product cost, the cost ends up being high due to economies of scale. As existing brands competing within the same market that have already acquired a reasonable amount of brand resonance, it is difficult for the new entrant to gallop immediately on the market share (Flandez, 2009). Due to suppressed demand, economies of scale cannot be achieved and the entrant usually faces losses in the beginning. Hence, while capital and technology might be easily available, market experience, product differentiation and brand establishment do act as barriers to entry against new entrants. Even though H&M’s and Zara’s brand values of $12 billion and $9 billion respectively may seem extremely high, we also have to take into account the experience and expertise that have given them those valuations today (Interbrand, 2012).

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In addition, another major threat that Zara faces is a growth of a new entrant through copying the same business model as that of Zara. However, Zara’s style of operations is so unique that “the Inditex (Zara’s parent company) way is an all-or-nothing proposition that has to be fully embraced to yield results” (Capell, 2008). Despite this reason, new apparel chains are trying to develop this model such as the US based Chico’s which even taps on a trademark Zara strength of Fast Fashion with the slogan , “You will always find something new every day at Chico’s” (Tiplady, 2006).

Threat of Existing Competitors: An interesting situation about this industry is that even if the competition is extremely high there are not many fast fashion brands like Zara. While H&M, Mango, Forever 21 would be considered as main competitors for Zara, it operates on a whole new business model of fast fashion which provides Zara with a major competitive edge (Hall, 2008). It is able to move designs from sketch pad to their stores throughout their world in 2 weeks or less even. Vertical integration including majority of production, in house designers, centralized inventories are some of the main reasons why Zara is comfortably ahead of its competition. Analyzing from another point of view, despite Zara offering over 33,000 item varieties in a year compared to industry average of 3000 items, it is twelve times faster than Gap and at least six months ahead of H&M which is its closest competitor (Economist, 2005). Hence, differentiation and key value drivers helps Zara put itself ahead in the industry.

Zara also produces its items in small batches creating a level of exclusivity not seen amongst competitors. In this way while other retail chains often slash prices by 50 percent to move mass quantities out of stock, Zara does the same but only by 15 percent (Surowiecki, 2000). In addition, Zara is a fashion follower where its designs are based on current trends and fashion shows. The benefit of this is summarized by Jose Luis

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