American Apparel Business - Case Study Example

?Bargaining Power and Leverage of Suppliers American Apparel, footwear and accessories industry does not involve forced market leverage on one specific company. However the characteristic expectations of the consumers and tactful market strategies adopted by the companies have created a substantial market power in favor certain producers in the industry. Brand Name Lead Leverage of Suppliers Brand name plays a significant role in luxury goods market. Consumers pay for the popular “brand name” when they are purchasing apparel, footwear and accessories. Such a brand name cannot be created overnight. In general consumer loyalty strategically developed over long run is essential to build company’s brand reputation. Established companies in the industry thus have a distinctive advantage over the newly emerging companies. Initially the new companies have to snatch consumers from the pool of consumers in the giant companies. In an industry where brand name is significant snatching consumers from other companies is not an easy task for the new entrants. Lack of financial resources, experiences and market information worsen the disadvantageous market position of such new entrants. Financial Strength Lead Leverage of Suppliers In 2012 Coach Inc. spent approximately 89.2 million dollars for refining the marketing programs & enhancing the consumer communications, aiming at increasing the productivity of its market channels & optimizing the product distribution (Coach, 2012). Furthermore established companies invest largely on innovation and continuous product improvement. Thus the level of newness is accelerated, product offering in retail showrooms is elevating and the in-store experience of consumers is enhanced. Improving the quality of products and services leverage the company’s leadership position in the market (27). Emerging companies have to compete with such giant companies who annually invest large sums on marketing and product development strategies. Leverage Ratio (LR) of a company is given by the following equation. In December 2012 LR of Coach Inc. amounted 0.57. Only one other company in the industry had recorded a better financial stability than Coach Inc. It also ranked number 22 among the S&P 500 companies list according to the LR. Financial strength of the company and the sustainability of its market development are evident in the improving trend of LR annually (CSIMarket, 2012). Figure 1 depicts the improvement of Leverage Ratio of Coach Inc. during the three quarters of year 2012. Figure 1: Quarterly Leverage Ratio of Coach Inc. in 2012 Source: CSIMarket, 2012 Marketing Strategy Lead Leverage of Suppliers Marketing strategies adopted by a specific company can create market leverage. Example: market expansion of Coach Inc. in various geographic locations, invading the niche and newly emerging markets in the world. Coach Inc. Annual report (2012) states that company aims to open 500 retail stores in America including 30 stores in Canada in 2013. Accordingly the company expects to open 10 new retail stores and 18 factory outlets in the coming year. By increasing the number of retail outlets and manufacturing plants, the availability of a given company’s products is increased compared to the availability of the products of other companies. Thus the market power of said company is also increased. Market Information Lead Leverage of Suppliers Companies such as Coach Inc. have data bases developed over decades. Company has years of experiences and extensive market information relating to the consumers, partners, importers, distributors and competitors. Example: Coach Inc. collects data on consumer’s demographic characters and their preferences. Marketers and financial experts of Coach Inc. continuously observe the business environment. They identify the trends in the macro economy and the marketing strategies of the competitors including the new entrants. Company’s annual invests for market research is approximately 2 percentage proportion of the net sales (Coach, 2012). These companies can accurately predict the impact of new entrants to the market demand and supply. Thus access to market information is a source of market leverage. Power of Buyers Middlemen in apparel, footwear and accessories industry have a minimum to average power over Coach Inc. a significant proportion of the company’s net sales comprise of “Direct-to-consumer” and hence its dependency on middle agents is low. However the degree of buyers’ power differs across the geographic locations. Direct-to-Consumer marketing comprised approximately 89 percentage proportion of the total net sales of Coach Inc. while the indirect marketing comprised only 11 percentage proportion (Coach, 2012). Figure 2 depicts the middlemen involvement as a percentage proportion of total net sales of Coach Inc. Figure 2: Net Sales Percentage Proportion by the Customer Segment Data Source: Coach Inc. Annual report, 2012 Buyers Power in America Sixty three percentage proportion of the total net sales of Coach Inc. is derived from the company operated retails stores and online retailing in the United States and Canada. Compared to the other geographic locations the involvement of agents is low within America. Involvement of wholesalers/agents (represented as the indirect customer segment in Coach Inc. Annual report, 2012) can be estimated as approximately 11percentage proportion of the total net sales of the company. Wholesale marketing represented approximately 6 percentage proportion of the total net sales of Coach Inc. in 2012. There are approximately 990 wholesale buyers attached to Coach Inc. in the U.S. and Canada. The most significant customers of these are Macy’s (including Bloomingdale’s), Dillard’s, Nordstrom, Lord & Taylor, Carson’s, the Bay and Saks Fifth Avenu. There are also online retailers purchasing from Coach Inc. such as macys.com, dillards.com, bloomingdales.com, lordandtaylor.com, belk.com, vonmaur.com and nordstrom.com (7). Coach Inc. advocates that market competition from indirect market segment is a challenge to the company. Buyers power in other countries Coach International represented approximately 4percentage proportion of the total net sales of the company in 2012. International wholesale distributors and authorized retailers are the consumers of Coach Inc. in this marketing channel. The most significant international wholesale customers of the company are the DFS Group, Shinsegae International, Tasa Meng Corp, Lotte Group and Shilla Group (7). Company continues to decrease the buyers’ power in these locations by strategically assuming the direct control of retail business in these locations. Example: Company assumed direct control of the retail business in Malaysia in July 2012 in accordance with the agreement with Valiram Group. Similarly the agreement with Shinsegae International permitted direct control of Korean retail business in August 2012. Furthermore, Coach Inc. is expecting to enter into procurement agreements with Venezuela, Colombia, Panama and Peru in the future. Company’s strategy for acquiring power in the international markets is evident in the number of company controlled retail stores which in increasing annually. Simultaneously it also decrease the number of wholesaler partnerships in other countries. Example: in 2011 there were 211 international department stores. It was reduced by 3 percentage proportion of the total outlets in year 2012. Figure 2 depicts the increasing control of Coach Inc. at international level over the years. Figure 3: Increasing the Company Control of International Market Threats of New Entrants into the Industry “Apparel, footwear and accessories” is an industry which has been matured over centuries. There are countries (example, France, England and America) and manufacturers (example: Coach Inc.) recognized for creating new products and designs of world class quality. Producing laudable designs that can compete with the established brands is highly challenging. World class creativity, technical skills as well as substantial financial assets are required for this purpose. Consumers in other countries tend to follow the western fashions. Thus the established brands in Western countries have a distinctive advantage in apparel, footwear and accessories manufacturing industry in the world. The entry barriers relating to manufacturers’ reputation lies in favor of Coach Inc. However the production cost associated with the industry vary across the geographic locations. Example: the labor cost and energy cost is comparatively low in China, India and other Asian countries. Designing and manufacturing of apparel, footwear and accessories involve high amount of labor input. Moreover the energy and transportation cost in America is disadvantageous for the apparel, footwear and accessories producers compared to the Asian countries. New entrants can have “cost advantage” over the established brands such as Coach. The diversity of the apparel, footwear and accessories industry has considerably grown during the past decades due to the globalization and extensive use of information technologies. Thus “apparel, footwear and accessories” has become a rapidly renewing industry compared to the other consumer goods. Established companies are vulnerable to being rejected by the consumers. Company’s survival in such a dynamic business environment largely depends on its ability to comply with the changing consumer preferences. Such threats can cause a significant challenge even to the popular European and American luxury brands. Threat of Substitute Products Apparel, footwear and accessories industry which is also referred to as the “affordable luxuries” in this case study is definitely a well established industry. Market of affordable luxury goods substantially grew despite the economic down turn experienced across the world during late 2009. During this period it was also observed that consumers did not abate buying of luxury goods. Alternatively they switched to rather value oriented and less expensive products from the same industry. Thus it can be seen that product substitution is observed within the industry rather than shifting into a different industry. Major life style change could switch people from purchasing luxury goods. However such a change is not expected in the foreseeable future. Coach Inc. is a giant in this industry and has proved its ability to survive in a challenging dynamic business environment for decades. During December 2009, consumers across the world purchased Coach products despite having less credit than normal, having increased domestic savings, being more cautious and pessimistic about the future (BRAND, 2011). Customers seek quality, authenticity and a brand name when purchasing luxury goods. Considering these expectations of the consumers, products substitution can be stated as a minimal probability in affordable goods industry. References BRAND. Coach – A Recessionary Time Success Story. Ahead of the Curve, 29 August 2011. Web. 25 March 2013. http://curvedotwordpressdotcom.wordpress.com/2011/08/29/coach-a-recessionary-time-success-story/ Coach. Annual Report. Coach Inc., n.d. Web. 9 March 2013. http://www.coach.com/online/handbags/genWCM-10551-10051-en-/Coach_US/CompanyInformation/. CSIMarket. Compare COH Leverage Ratio to its Peers, 2012. Web. 25 March 2013. http://csimarket.com/stocks/singleFinancialStrength.php Read More