Zara

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Industry Analysis: Within the global apparel chain, profits are derived from “unique combination of high-value research, design, sales, marketing, and financial services that allow retailers, brand marketers, and branded manufacturers to act as strategic brokers in linking overseas factories” with markets (Gary Gereffi). Barriers to entry are fairly low. Not much capital is needed to enter the industry, as franchises and joint ventures are popular methods of establishing retail stores while keeping costs low. Buyers do not have much bargaining power. Since buyers are aware apparel companies are quick to do away with failed fashion trends, they usually purchase products as soon as they are available. Most fashion conscious shoppers come from middle to upper income families and therefore, have the discretionary income to spend on clothes. The threat of substitutes in the apparel industry is high. Customers do not incur critical costs or uncertainties when switching to a substitute and therefore, switching to another brand or continuing to wear clothes they already paid for is not challenging. Suppliers have little bargaining power with apparel retailing chains. Cascading labor efficiencies in developing countries have resulted in cheaper labor and inputs. This results in lower costs and multiple supplier options for retailers. Rivalry among competitors is a concern for apparel retailers. There are many large players of similar size. For instance, Zara has 4% market share in Spain, while H&M hit 10% in Sweden, only to see like-for-like sales declines, proving that there are tight constraints on gaining a dominant market share in the industry. The clothing products are fairly standardized, non-complex, and not heavily differentiated. With three out of Porter’s five forces being of concern, the clothing retail industry is of average attractiveness. Internal Analysis (VRI/N: Valuable, Rare, Inimitable, Non-substitutable): Zara’s strategic advantage lies in the...
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