Explain The competitive analysis of the aforementioned fashion retail company.

 

Among the many growing economies in Asia, Malaysia is one the fastest growing and wealthiest economy in the continent. The retail industry is one of the major drivers in the economic growth and development of Malaysia. The retail sector has made considerable contribution in the GDP growth of the country for the last few years. Many global fashion retail companies like Zara, Debenhams, Gucci, H&M and many other global brands along with national brands like Reject Shop are now operating in the Malaysian market with stores in many leading shopping centres across Malaysia.

 

The purpose of this project is to critically analyze the competitive position of the fashion retail companies Zara, H&M and Reject Shop in Malaysian retail market. The project will shed light on the various competitive strategies of these companies comprising organizational, market, operational and functional strategies. The project will also aim to identify the problems and opportunities of these companies including analysis of its KPIs.

The competitive analysis of the aforementioned fashion retail company will include individual analysis of each of the necessary organizational functions. The competitive analysis will also comprise soft and hard analysis. The soft analysis will mainly include qualitative analysis exploring the external and internal factors affecting the business operations of these companies to compete in the Malaysian retail market (Gardetti & Torres, 2013). The hard analysis on the other hand, will mainly include quantitative analysis of the financial and market data of these companies and its performance in Malaysian Market. The hard analysis will be done by the aid of various financial management valuation measures such as price earnings ratio, gearing ratio etc.

 

Zara: Zara started its business operation in the year 1975 as the flagship brand of Inditex and started its business expansion since 1988. In Malaysian market, Zara has a total of 9 stores operating on a unique business model where customer preferences are given importance.

The boom in the Malaysian retail industry in last 3 years has also boosted up the sales of Zara especially in Zara’s online boutique accounting for an increase of 15% in net income by January 2016 (themalaysianreserve.com, 2016). Despite being one of the highest revenue generation sector in Malaysia, the rate of growth is slow in the apparel and cloth wear industry. Expecting an increase in the sales growth, Zara is also planning to increase its number of stores in Malaysia along with its plan to take in the smaller retail shops as a part of its expansion strategy in Malaysia (Refer to appendix 1).

H&M: H&M (Hennes and Mauritz) started its business operation in the year 1968 post its merger. The swedish company H&M started its expansion in the global market in 1976 and started its business operations in Malaysia in 2012. H&M accounted an increase in the sale by 19% in May 2014. H&M has expanded quickly in the Malaysian market by opening 27 stores compared to its major global rival Zara (Runfola & Guercini, 2013) (Refer to appendix 2).
Reject Shop: Reject Shop is a Malaysian retail chain store under Metrojaya group operating since 1990. Reject Shop is operating in 31 locations across Malaysia. The company is dealing with global brands from Europe, Australia and USA. The brand offers fashionable men, women and children clothing at discounted prices and other over-run stocks. The brand has stores in leading shopping centres in Malaysia offering products to price-sensitive customers (Refer to appendix 3).

 

A slow economic growth has been noticed in terms of apparel and clothwear industry in Malaysia. The overall competitiveness of the industry has been slowed down after a decrease in consumer spending. A key variance in consumer behaviour is noticed that products are not necessitated and customers make the purchase only during sales (Malaysia SME Info, 2014). Though sales and promotional campaigns are continuing to serve a key factor in marketing strategy, small departmental stores without any significant advertising campaigns have registered strong stimuli through sales activities. The prime issue faced by the apparel and clothing industry in Malaysia is intensive competition between international and domestic players. Local players until now get to remain competitive in market because of strong distribution in the country as well strong reputation built over past few years plays a crucial role from their part. On the other hand, global players such as Zara and H&M try to increase competitiveness through expansion strategies that help in increasing brand awareness (Hassan, Bakar Sade, & Sabbir Rahman, 2013). More importantly, the growth of competitiveness is supported with rapid urbanisation of malaysia, which facilitates establishment of a strong online retail channel. Even with strong reputation and awareness activities, the international players in global apparel industry are expected to continue with lower growth because customers are predicted to spend cautiously over high-end shopping.

It is imperative from the aforementioned information regarding Zara that the company has undergone many strategic changes depending on the roles and decisions of the senior managers and the upper management that contributed to the successes and failures of the brand in some of the emerging markets like Malaysia (Grandori, 2012). Moreover, the cut-throat competition in the Malaysian retail market and the different cultural perspective are other challenges for Zara to manage to be in the market leading position. In view of the fact that Zara is operating in a very tough and competitive industry, Zara is still performing despite having organizational and marketing issues and its strategies to compete with its global rivals brands like H&M and Reject Shop and with Hong Kong brands (Shen, 2014).

According to the above tables, Zara has been maintaining the best position in contrast to the other two firms. This is because the company has been able to retain higher cash in hand and releasing inventory at faster pace. In addition, the company has managed to minimise the turnover time for the debtors, which depicts the tight liquidity position of the business.
Therefore, it could be inferred that Zara has the best position in the industry among the three organisations.

The strategic analysis of Zara will be done in order to have a lucid understanding of its strategic business planning. The strategic analysis will be done by analyzing the Zara’s market in Malaysia along with the competition from its rivals in the same market. The strategic analysis will also include Zara’s operational and organizational analysis.

The market and competitive analysis will provide ample information about the internal and external business factors that affect and shape the business of Zara and its competitors in the Malaysian market. These analyses will be done by the aid of Modified Porter’s Five Forces Model.
The modified Porter’s five forces model or Six Forces Model will provide an overall assessment of the fashion retail industry in context of Malaysian market.
Market Competition The competition for Zara in the Malaysian market will be tough especially due to the presence of number of global players like H&M, Debenhams etc and national brands like Reject Shop and other domestic players. The industry is mature and the competitor size in the Malaysian market is more and they mostly offer similar kind of products to the customers (Hvass, 2015). It will be a challenge for Zara to offer slightly differentiated products from its rivals at affordable prices to the various customer segments in the Malaysian Market. The brand name and pricing strategy of Zara will play a significant role in competing with its rivals in the Malaysian market (Wong & Yazdanifard, 2014). The intent of market competition is high in this market.
New Entrants Like the global market, the apparel and the clothing industry in the Malaysian market is mainly concentrated by global brands like Zara, H&M and other national fashion retail shops like Retail Shop. However, intense competition between the global players and domestic players will also be difficult to penetrate the Malaysian market by any new entrants (Jamal, Maqbool & Zafar, 2013). High initial capital is also another barrier for new entrants. The threat of new entrants in this market will be low.

Bargaining power of buyers Many critical factors play in deciding the bargaining power of the buyers in context of Zara in Malaysian market. Price is a critical parameter for many customer segments in Malaysian market. If the price conscious customers feels Zara’s products to be more expensive than they may switch to other brands like Reject Shop who offers branded products at discounted prices. However, for the niche customer segments, quality and brand name holds more importance than price while making purchasing decision (Khan et al. 2015). In this customer segment, brand loyalty also plays an important role. Thus, it can be said that the bargaining of the buyers will be moderate.
Bargaining power of suppliers One of the biggest advantage of Zara more than 50% of the raw materials for production comes from its parent company Inditex. Other small suppliers also does not have much to bargain in case of Zara. Thus, the bargaining power of the suppliers will be low.
Substitutes There is no substitution in the apparel and clothing industry. Zara needs to ensure that their product offerings meets the expectations and budgets of different segments of customers in the Malaysian market. Thus, the threat from the substitutes is low.
Complementary products The complementary products in apparel and clothing industry comprises of bags and other fashion accessories like belts, scarves etc. Along with fashionable clothing line, Zara also offers different types of accessories in terms of shoes, bags, scarves, hats, jewelleries et cetera for different segments of customers. The threat from the complementary products will be low in this case (Lee, Hassan & Mohamed Udin, 2016).

The operations and organizational analysis of Zara in context of Malaysian market will be done by the aid of Balance score card. This strategic performance management tool will help in the evaluation of operation and organizational strategies both in short and long term. The Balance Score Card of Zara will be done by evaluating four important perspective namely, financial, internal business processes, learning and growth perspective and customer perspective.

Financial Perspective: The financial perspective in context of Zara will indicate the company’s financial strategies and its implementation in the assigned department and how far it has contributed to improve the profitability of the company in the Malaysian market (Kim, 2013). Apart from profit margins, financial perspective will include shareholder value, cash flow, sales growth, operating income, market share and ROE. The senior managers of Zara should also focus on the short term financial measures such as sales on quarterly basis owing to the tough competition in the Malaysian market.

Internal business processes: In order to add value to the customers, it is also imperative for the senior managers of Zara to decide its designs, processes and actions that are important for the internal operations within the Malaysian market (Kim & Martinez, 2013). This will also be important to understand and satisfy the needs of the different customer segments. The various internal parameters like time, employee skills, productivity etc. can make significant contribution in increasing the sales performance as well as customer satisfaction.

Learning and Growth perspective: The intensive competition in the fashion retail industry in the Malaysian market is compelling every fashion retail company to make improvements in their offerings and services on continuous basis (Nenni Giustiniano & Pirolo, 2013). Zara should also analyse its expanding capacity in introducing new products lines and expanding in new store locations.

Customer perspective: The customer perspective mainly includes concerns and preferences of the customers in the target market. The senior managers of Zara should decide their strategies in context of their mission statement regarding customer service and to those parameters customers in the Malaysian market (Kuang-Ying Loo & Hackley, 2013). The managers of Zara should understand that customers evaluate products of a company based on the parameters like quality, brand name, price and availability or accessibility. The accessibility of Zara products in the Zara stores along from its online portal will add to the value services contributed to the different segments of the customers. Quality and brand name will also go hand in hand in creating a brand perception in different segments of customers in Malaysia. The quality of the Zara products will also include other factors like defects, delivery time (in case of online purchase) et cetera.

 

The in-depth analysis of Zara along with its competitors in context of Malaysian market indicates that The company is expanding its business presence in Malaysia despite having a tough rival like H&M and comparatively slow growth in the matured cloth and apparel industry. Moreover, Zara has to specifically concentrate their marketing strategies in context of the different customer segments in Malaysia that has different parameters and perception in purchasing fashionable clothes and accessories. The analysis also reveals that certain segments of the customers will be price cautious despite having high purchasing powr. It will be an important tasks for brands like Zara and H&M to continue their efforts in building brand recognition among the customers of Malaysia.

Internet retailing:Although Zara has started its expansion in the Malaysian market owing it slow yet profitable growth in the Malaysian market, Zara has not yet made the option of online retail purchase for the different segments of the customers in Malaysia. The increase in the disposable income of the customers has led to the change in the way the customers view or shop for different products. Online shopping will also be preferred and suitable by those customers in Malaysia where there is no Zara store located near them. Increase in the sales growth and revenue can be expected from the internet retailing of Zara. Internet retailing is done by many brands in Malaysia and is accepted by the customers and is also feasible for the Zara to implement in its Malaysian operations.
Affluent consumer behaviour: The different customer segments have different parameters as well as preferences while making a purchasing decision. Zara should carefully decide their pricing, marketing and promotional strategies that are suitable and acceptable to the parameters like quality, price and brand recognition for different segments of customers. However, Zara should note that customers in Malaysia are price-cautious and has the possibility of switching over to other brands because of the price of the products. Zara should therefore consider the feasibility of a pricing strategy in different segments before final quotation of the product price.

 

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