Introduction

Industry structure is crucial factor that can affect the profitability of a company. In this case study on Zara, analysing how industry life cycle and associated industry structure can affect the competitive advantage of the company will be performed.

Industry Life Cycle

In theory, there are five phases of industry life cycle: development, introduction, growth, maturity and decline (as shown below).

On average and from a global perspective, the fashion industry is already a matured market (i.e., not at a phase of fast growth). This can be seen from the increasing competitiveness of the industry (Kachi, 2011). Because of theta, one can only expect moderate growth within the fashion industry. Nevertheless, the fashion industry is a very fast changing and dynamic industry, and there are new products that go in or out of fashion every year (Scozzese, 2013). As such, it is also crucial to mention about how the product life cycle can be a more important factor affect the competitive landscape of fashion industry, rather than the industry structure. To explain, within the industry, the product life cycle is very short (Freeman, 2008). For that, ability to meet the dynamic and fast changing consumers demand is crucial for competitiveness in the industry (Dunn, 2006).

Industry Structure

The industry structure can be analysed by Porter Five Forces. The analysing will therefore be conducted from five dimensions as follow.

Rivalry among existing Competitors

Zara is a big corporation with 2,000 stores globally (Goldfingle, 2014). Overall, Zara is a company that offer the latest fashion in medium quality at affordable prices (Bhardwaj, Eickman & Runyan, 2011). The large scale of Zara contributed to the economies of scale, which is a factor that is positive to the positioning of Zara in the fashion industry.

Overall, the fashion industry is somewhat a mature market (especially in those developed market), but is an industry with moderate growth in those developing countries. This can be observed from the slowing sales in developed countries due to relatively stagnant economy (Kachi, 2011). The slow growth rate in the industry can put pressure on the industry players to compete between each other.

In a way, the fashion industry is very competitive, which sometime even is being described as a cutthroat competitive industry (Arturo, 2002). Globally, there are many competitors for Zara, which some of those more prominent one includes: Benetton, The Gap, Uniqlo, Teseo, Topshop and H&M (Matherly & Richards, 2013; Kachi, 2011; Medina, 2011; Diderich & Barker, 2010). These are all competitive competitors as well, and that cause the industry to be very challenging.

Bargaining Power of Buyer

The customers have many choices – as they are many choices of fashion for them (Jacob & Mamgain, 2011). Nevertheless, the consumers may have less bargaining power for branded products, or products of lower prices (Berton, 2009). For example, brand loyalty can enhance the bargaining power of Zara towards the customers.

Bargaining Power of Supplier

The bargaining power of suppliers facing Zara is low, as Zara is a big giant in the global landscape. However, for the smaller fashion player, they may not have any bargaining power on suppliers.

Threats of New Entrants

As the industry is already competitive, it would be reasonable to expect that new entrants to the fashion industry is not likely – unless the new entrants have some special competencies that they think they could beat over the existing industry players. For that, it would be rational to argue that threat of new entrants is moderately low.

Threats of Substitute Product

There are actually no effective substitute products on fashion products. Rather, the substitute that can affect the profitability of a fashion retailer such as Zara is more about the substitute of the traditional brick and mortar retailing shop outlets. In other words, it can be seen that online stores are becoming very effective substitute on traditional stores (Bjork, 2010).

How Industry Can Affect Competitive Advantage

On Industry Life Cycle

In the competitive and mature industry, a firm must differentiate itself to be outstanding. For that, Zara is successful because the company able to differentiate itself with these criteria: fast turnaround time, agile supply chain, great insights in market, just in time, as well as superior information system to cope with industry or demand changes (Bhardwaj, Eickman & Runyan, 2011; Caro, Gallien, Díaz, García, Corredoira, Montes & Correa, 2010). In short, Zara gain its competitive advantage in a mature industry (of which that the product life cycle in the industry is very short) by differentiating in the right direction, to become one that offer relatively good quality fashion at lower prices (Crawford, 2000; Bhardwaj, Eickman & Runyan, 2011).

On Industry Structure

Industry structure has great impacts on the performance of a company, and Zara is successful as many of its strategies can cope effectively with the competitive forces in the industry.

For example, the importance of economics of scale can be understood when analysing how Zara expanded to the global context, and how the company truly gaining bargaining power on suppliers (Runfola & Guercini, 2013), not to mention about how the company gain its superior brand name.

Fortunately, Zara is also expanding to the online retailing model as to stay competitive (Crawford, 2007). That is important as internet allow Zara to become lean while reach more audience.

Indeed, as the industry is becoming very competitive, efficiencies play very crucial role in affecting the performance of a company (Walker, Bovet & Joseph, 2000). Zara is having a right strategy as it realise the competitive industry structure by focusing on efficiencies (without losing sight on importance of quality of products), through its philosophy of “fashion on demand” (Jones, 2001), rapid response business model via agile and lean supply chain (Crawford, 2000), as well as made-to-order concepts (Folpe, 2000).

Conclusion

In short, the changes or conditions of an industry can affect performance or ways a firm can gain competitive advantage. Even in a mature and very competitive industry, Zara able to emerge as the winner, because the company have strategies that able to deal effectively with the competitors. The company focus on efficiencies, which is very necessary to deal with the cut throat competition. Yet, the company also focus on fast innovation and fast fashion, which is crucial to deal with short product life cycle. Zara had also expanded fast to gain the scale necessary to reap the benefits of economies of scale. Last but not least, Zara also venture to online retailing to cope with the trends. These enable Zara to eventually gain competitive advantage even in the maturing industry.

References

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Caro, F., Gallien, J., Díaz, M., García, J., Corredoira, J. M., Montes, M., & Correa, J. (2010). Zara uses operations research to reengineer its global distribution process. Interfaces, 40(1), 71-84, 92-97.

Crawford, L. (2000). Putting on the style with rapid response: MANAGEMENT FASHION RETAILING: Some clothing retailers feel threatened by the transience of fashion. Zara sees it as an opportunity. Financial Times.

Crawford, L. (2007). Inditex in online foray with Zara brand. Financial Times.

Diderich, J., & Barker, B. (2010). H&M and Zara enter new markets. WWD, 199(115), 4-8.

Dunn, B. (2006). INSIDE THE ZARA BUSINESS MODEL. DNR, 36(12), 11.

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Goldfingle, G. (2014). Company profile: Zara’s expansion slowdown boosts profitability. Retail Week.

Jacob, S., & Mamgain, P. (2011). Spanish retail brand Zara favourite among Indian shoppers retailing. The Economic Times (Online).

Jones, B. (2001). Madrid: Zara pioneers fashion on demand. Europe, (409), 43-44.

Kachi, H. (2011). Corporate news: Uniqlo fashions global push — parent fast retailing wants to supplant Zara and gap at top of apparel sector. Wall Street Journal.

Matherly, L., & Richards, C. (2013). ZARA: Chic and fast fashion. Journal of Strategic Management Education, 9(2), 55-60.

Medina, A. E. (2011). An international state of mind. Display & Design Ideas: DDI, 23(1), 8.

Runfola, A., & Guercini, S. (2013). Fast fashion companies coping with internationalization: Driving the change or changing the model? Journal of Fashion Marketing and Management, 17(2), 190-205.

Scozzese, G. (2013). From the supply chain management to the demand chain management in fast fashion: Zara’s winning model. International Journal of Management Sciences and Business Research, 2(5), 43-48.

Walker, B., Bovet, D., & Joseph, M. (2000). Unlocking the supply chain to build competitive advantage. International Journal of Logistics Management, 11(2), 1-8.

Zara reportedly opening discount stores in china to digest inventory. (2013, Jan 31). Morning Whistle.

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