Mission, Vision, Strategy, and Goals of Giorgio Armani Group - Assignment Example

?Giorgio Armani Group 0 The Giorgio Armani Group designs, manufactures, distributes and retails luxury and fashion goods. The behemoth hasa vast array of products in its repertoire which are sold under different brand names. This paper elaborates the mission, vision, strategy and goals of the Giorgio Armani Group. A detailed discussion about the various stakeholders of the Group has been carried out. The paper analysis the business environment in which Giorgio Armani operates. It also gauges the impact of AMD and Competition Policy on the fashion house. The ambit of the paper includes the assessment of the market structure of the apparel, accessories and luxury goods market in the United Kingdom. The market forces including cultural changes that have impacted Giorgio Armani have been touched upon. Finally an attempt has been made to gauge the impact of globalization, international trade and WTO on the functioning of Giorgio Armani Group. 2.0 Introduction The Giorgio Armani Group is a leading player in the luxury and fashion goods market. The group is privately owned and is vertically integrated. The behemoth designs, manufactures, distributes and retails its products through a network of close to 500 stores in 46 different countries of the world (Armani, 2013). Since its inception in 1975, the Giorgio Armani Group has grown by leaps and bounds through a series of important alliances, relevant acquisitions and rolling out licenses. Its teaming up with Reebok to manufacture high-end fashion shoes under the brand name EA7 is one such example of sound business tie-ups. The group’s product portfolio includes a vast array of lifestyle and fashion items including apparel, accessories, cosmetics, eyewear, fragrances, home furnishings, jewellery, shoes and watches (Armani, 2013). Giorgio Armani is the founder of the vast empire that bears his name. The group comprises of the Giorgio Armani S.p.A, the parent company and many other subsidiaries. Unlike Gucci and Prada, Armani did not create multiple brands. All the brands in the Giorgio Armani Group bear the Armani name. The fashion house sells its merchandize under numerous brand names like Giorgio Armani  Prive, Giorgio Armani,  Emporio Armani, Armani  Collezioni, AJ | Armani Jeans, A/X Armani Exchange, Armani Junior, Armani Teen, Armani Baby, Armani/Casa, Armani Beauty, Armani Hotels, Armani/Fiori, and Armani/Dolci (Armani, 2013). 3.0 Mission, Vision, Strategy and Goals The group’s mission is to ‘create clothes and accessories that aspire to a kind of perfection that transcends fashion’. The group’s vision is to dominate the world of fashion in the long run. The Giorgio Armani Group pursues its mission and vision by investing in technology and infrastructure that enables it to manufacture new product lines and create new divisions to handle its ever expanding portfolio of products and services. The fashion house strives to create an ambience in its retail stores that that ingeniously give a boost to the displayed products (Annunziato, 2001). Today, Armani is one of the strongest brands in the world. It enjoys the enviable position of being one of two Italian companies along with Prada to find place in the top 100 brands drawn up by Interbrand and Business Week (Galbraith, 2004). The long term strategic goal of the group is to keep its luxurious image intact. The group has diversified into various other industries but it the customers still see it as the epitome of luxury and fashion. As a strategy, the Armani Group keeps a tight control over all aspects of its business, be it manufacturing, distribution or retail. The apparel maker has limited the Emporio Armani merchandise to Emporio Armani stores because of the issue of control (Business World, 1998). The group has bought back factories from licensees to ensure tight control over production. In fact, Mr Giorgio Armani is known to be a hard task master who takes decisions on his own. While he listens to suggestions and takes feedback, the ultimate decision rests in his hands (Elder, 2009). 3.1 Tesco: Purpose Statement Tesco is one of the largest retailers in the world. The retailer operates brick-and-mortar stores as well as sells merchandize through its online store. The core purpose of Tesco’s presence and existence is reflected in this simple statement; ‘We make what matters better, together.’ Tesco believes that the responsibilities of an organization exist beyond earning profits. The organization should contribute towards tackling other challenging issues that a society confronts. It is for this reason that Tesco feels that the ‘more is better’ belongs to a bygone era and that that the correct philosophy to have is ‘making what matters better’. The values of Tesco urge its employees to understand the needs of the customer and satisfy them. The employees trust and respect each other. The culture of the organization encourages them to share knowledge and experiences. The company uses its scale to create value for its customers as well as the society (Tesco Plc, 2013) 3.2 Stakeholders of Armani The Giorgio Armani Group has turned down quite a few takeover offers during its road to stardom. Other giant players in the industry including LVMH also bid for the group but in vain (Rawsthorn, 1999). Conglomerates like LVMH and Gucci expanded through the inorganic route by acquiring small players in the luxury market space, however, Giorgio Armani preferred to consolidate its position by tightening control over manufacturing and marketing aspects of its business. Its rivals went on an expansion spree through debt-financing; however Armani concentrated on building cash pile. Giorgio Armani is the sole shareholder of the privately owned Armani Group. There are no bank loans to be repaid. The entire expansion of the group has been financed by reinvesting profits. This financial independence has helped Giorgio Armani tremendously. The group has been under no pressure to achieve any kind of sales targets or register a certain amount of profit. The urge to maintain complete control over all aspects of business can be gauged from the fact that the Giorgio Armani Group has an in-house advertising agency. Mr Armani is ably supported by a small coterie of highly dependent and loyal advisors which include some of his relatives including his two nieces and one nephew. Overall the top management team is pretty small. Some top level executives leave the organization since there is little upside career potential (Galloni, 2012). The Armani Empire does not have to worry about the labor unions. The company is a good paymaster and therefore tends to retain talent. However, it must be admitted that employees have little role in the decision making process. Rival organisations acknowledge that people trained at Armani know their work well. To that extent, work experience at Giorgio Armani would make an individual more employable. Typically as fashion house employs a creative director who designs and an executive who manages other aspects. However, when it comes to Armani, it is a single man army. He takes full responsibility of anything that bears his name (Elder, 2009). This heightened involvement does reassure the customer about the brand Armani; however this practice of taking onus of just about everything has left a serious void in the Giorgio Armani Group. There is no succession plan in place even as the founder himself is more than 78 years of age (Galloni, 2012). Since Giorgio Armani has been playing a pivotal role in every aspect of his business, it is difficult to fathom the existence of the group without him. With a no clear successor in place, the mere existence of the company may be jeopardized. If we apply the salience model of stakeholder management, the employees can be termed as the ‘dependent stakeholder’. The key parameter is urgency, however there is no power. The employees or even the other members of the board do not possess the power to compel Mr Armani to finalize a succession plan even though the demand is urgent as well as legitimate. Armani has responsibilities towards other stakeholders; the customers, the government and the management team that has toiled hard and yet let Mr Giorgio Armani hog the limelight. He made some changes in the top management to ensure that the group continues to grow. Galbraith (2004) avers that one option for Mr Ambani is to sell his empire to another fashion house. The tycoon could also explore the possibility of a foundation that would look after his heirs' financial holdings and also provide strategic guidance to the group (Galloni, 2012). 4.1 Business Environment of Armani Giorgio Armani is a dominant player in Europe. In the recent past the uncertainty of sustainability of Greece’s public debt cast a shadow of threat on the operations of the Group. The fashion house is also impacted by the international financial markets given the fact that it has an international presence. The government shutdown in the United States over fiscal issues and debt ceiling had the potency to snowball into a global financial crisis. Such events tend to have an adverse impact on organisations like Giorgio Armani. The Giorgio Armani Group has contractual obligations and purchase and sale orders with foreign players. These contracts are in currencies other than Euro. The operations of the group may thus be impacted by currency fluctuations in the US dollar, Japanese yen as well as the British pound. The group therefore hedges foreign currency to mitigate this risk. Fashion houses like Giorgio Armani are greatly impacted by the state of the economy. The latest recession of 2008 had led to a major squeeze in profitability of many industries worldwide. Since fashion and luxury items depend on the discretionary income of the customers, recessionary conditions in the economy may lead to sluggish sales. Furthermore, the Giorgio Armani Group deals in fashion and luxury merchandize, the risk of inventory obsolescence is high. The world trade in textiles has been freed of all restrictions, courtesy the WTO (World Trade Organisation). As a result fashion companies have been beleaguered by influx of cheaper items manufactured in emerging markets like China (Michaels, 2008). This trend may compel Armani to create more diffusion brands so that the price sensitive customers do not churn. The UK economy is the second-largest economy in the European Union and the 7th largest in the world. The economy is a highly developed market-based economy. Its citizens enjoy a high standard of living with extensive social welfare services provides most residents with a high standard of living and have access to basic social and healthcare needs (Oxford Economics Ltd, 2009). The total population of UK was 61.4 million in 2008 and has risen to 63.2 million by 2011. A steady rise in the population leads to normal increase in demand for the marketers However, given the target market of Giorgio Armani, it is important to consider people who have high incomes. The rate of inflation will also have a considerable bearing on the purchasing power of people and their ability to buy Giorgio Armani brands. The rate of inflation in UK had risen to 4.5 percent in 2011, up from 3.3 percent in 2010. A high rate of inflation can have a dampening impact on the sales of Giorgio Armani products. 4.2 Concept of AMD When the aggregate demand increases, consumers tend to spend more. There is heightened investment spending by companies and government expenditure on publicly provided goods and services also increases. This scenario gives a boost to the overall economy and business houses tend to flourish. The demand for luxury goods and services tend to be more elastic than normal goods. Luxury and fashion items have high income elasticity of demand. Therefore, as income rises, demand for goods and services offered by Giorgio Armani will also rise. Likewise, the demand will witness a fall if incomes fall. Since the offerings of Giorgio Armani epitomize affluence and prestige, an increase in price may not lead to a decrease in demand. To that extent, the price elasticity of demand will be inelastic. A general fall in the level of income tax will increase the personal disposable income in the hands of the consumers. Such a scenario will lead to more expenditure on discretionary items such as apparel, accessories and other luxury goods. Thus the demand for goods and service of Giorgio Armani Group are likely to increase if the is a cut in tax rates. If the value of the pound increases, importers will benefit. Apparel and other luxury products manufactured at Armani factories outside UK will be cheaper to import. If the pound falls against the Euro, the imports from Armani factories will become dearer. This will lead to an increase in the prices of products and the company may have to pass this increase in cost to the consumers by way of charging a higher price. If the European Central bank (ECB) cuts the interest rates, the demand for UK currency will increase and so will the value of the pound. A large increase in unemployment does not bode well for companies like Giorgio Armani. An increase in government spending will bolster economic growth. This increase in growth, in turn, has the potency to put more money in the pockets of the average citizen. Needless to say, the government spending would improve business infrastructure. Thus Giorgio Armani as an organisation would welcome increased government spending. 4.3 Competition Policy The government of UK has framed certain policy measures to regulate the behaviour of enterprises and structure of the industry. The Competition Commission that implements the Competition Policy in UK ensures that there is healthy competition among the various players in the industry. The ultimate aim of the competition policy is to safeguard the interest of the consumers. Some legislation like the legislation pertaining to employment is the responsibility of the member states of the European Union. However some aspects of employment are affected by EU legislation. UK is not the member of the European Monetary Union; however it is a member state of the European Union and is therefore governed by the competition policy for the European Union framed by the Directorate-General for Competition. In addition to this, Giorgio Armani Group would have to adhere to the various provisions of the Employment Rights Act, the Sex Discrimination Act, the Equal Pay Act, the Health and Safety at Work Act and the Race Relations Act. Due to the increase in global warming, organisations have been compelled to resort to ‘green’ measures. The government has enacted legislations like Environmental Protection Act, Climate change Act and the Energy Act in order to prevent environmental degradation It has been observed that top fashion houses pay scant respect to corporate ethics and corporate social responsibility. Many of them have not yet started reporting the environmental impact of their business operations. Giorgio Armani should remain ethical and ensure that it does not use animal fur in its products. This will help the fashion house remain in the good books of the government and customers alike. 5.1Market Structure The United Kingdom apparel, accessories and luxury goods market grew to $82,179 million in 2012, an increase of 3.6 percent over 2011. The outlook for the UK apparel, accessories and luxury goods market is positive and according to estimates, the industry will grow by 15.8 percent from 2012 through 2017 (Entertainment Close-Up, 2013). UK accounts for 13.6 percent of the European apparel, accessories and luxury goods market, next only to Germany which accounts for 17 percent of the European market. The UK apparel, accessories and luxury goods market had stagnated in 2009 due to poor economic growth in the region. The industry has low entry barriers and therefore the threat of new entrants always looms large. As it is, the existing competitive rivalry is pretty intense given a large number of players including Versace, Diesel, LVMH, Gucci, Dior, Prada, Gap and H&M vying for a larger chunk of the consumer’s budget. 5.2 Market Forces The management of Giorgio Armani Group recognizes the fact that providing top-notch customer service to its customers is a critical element of its success. To further this objective of delighting customers, the company invested heavily in IT based store systems. The company also streamlined its supply chain management by putting in place a web-based Product Lifecycle Management and Production Tracking system. In 2008, Armani announced its plans of a 'fast-track' expansion wherein it would open outlets in various airports to cash in on the duty free and travel retail marketplace. Mr Giorgio is a designer, innovator and entrepreneur all clubbed in one. While he is instrumental in deciding the strategic plans for the group, he does not give the operational aspects a miss. 5.3 Cultural Changes When Giorgio Armani founded his first company, fashion was synonymous with trendy clothing. At best, one could think of accessories like handbags and other similar accessories as fashionable. As things stand today, fashion is all pervasive. Therefore the scope of the fashion and luxury industry has increased tremendously. The Armani Group has capitalized on this opportunity. It launched the Emporio Armani which is about ‘relationship and lifestyle.’ The brand specifically aims to woo a younger demographic profile; consumers aged between 25 and 40. On the other hand, Giorgio aims to target consumers who are 35 and above (Edgar, 2007). As a fashion designer, Mr Armani can be credited with revolutionizing the wardrobes of professional women. Back in the 1980s, the most common items in the women’s wardrobe were floral skirts. These were replaced by chic, deconstructed pantsuits courtesy Mr Armani. As an organisation, Giorgio Armani resorted to celebrity advertising and also indulged in product placement in various movies. This provided much visibility to the brand. 6.0 Globalisation, International Trade and WTO The era of globalization and opening up of economies in the developing world has enabled Giorgio Armani to expand internationally (Roberts, 2008). BRIC countries have become the preferred destination for many organisations (Houston, 2013). Big names like Bulgari, JLo and Wal-Mart have either set foot or are seriously contemplating an entry into BRIC (Brazil, Russia, China and India) countries which have registered phenomenal growth rates at a time when the other countries of the world had been struggling to keep their head above the water. China, termed as ‘Workshop of the World’ is already an apparel manufacturing hub with many companies of the West outsourcing production to this Asian giant. According to estimates given by Credit Suisse, the consumer spending in China will spike more than 400 percent and is likely to touch $3.7 trillion in 2014 (Clark et al, 2006). China had to eliminate illegal state subsidies and reform its currency policy in order to meet its WTO obligations (The Economist Intelligence Unit, 2005). These aspects provided the foreign players a level playing field and the confidence to enter the country. The foray into this lucrative market is fraught with challenges though. Giorgio Armani will have to deal with an enigmatic government, policies that encourage local protectionism, weak intellectual property rights and a culturally diverse target market (Clark et al, 2006). Wattanapruttipaisan (2005) opines that the Association of Southeast Asian Nations is likely to benefit due to the abolition of the import quotas. The world trade in textiles has been freed of all restrictions, courtesy the WTO. As a result fashion companies of the developed countries have been beleaguered by influx of cheaper items manufactured in emerging markets like China (Michaels, 2008). This may compel Armani to create more diffusion brands so that the price sensitive customers do not churn. 7.0 Conclusion The Giorgio Armani Group deals in various product categories and operates in a dynamic business environment. Since inception, the company has made sound strategic decisions which have helped it increase its operations and also venture into foreign markets. Mr Giorgio Armani who founded the group in 1975 still maintains a very tight control and oversees most aspects of the business personally. The Group has a huge assortment of brands which cater to different target markets. Giorgio Armani has seized the opportunity presented by the WTO and has made foray into lucrative emerging economies like India and China. The company is well poised to take on competition in all the markets that it operates in. Lack of succession planning is perhaps the biggest weakness of the company and may well prove to be its nemesis. References Annunziato, L. 2001, "Armani's Atelier", Contract, vol. 43, no. 7, pp. 62-65. Armani. (2013).[Online].Available from: http://www.armani.com/ [Accessed: 07 November 2013] Business: The sorry state of fashion today; European textiles 2005, The Economist Intelligence Unit, London. Clark, E. & With contributions from Vicki Rothrock, Hong Kong, and,Lisa Movius 2006, "Eyeing the pot of gold: Retailers rush to China as barriers come down, WWD, vol. 192, no. 69, pp. 1. Edgar, M. 2007, "Armani aims to put the bling in Emporio", WWD, vol. 193, no. 122, pp. 9. Elder, M. 2009, "Giorgio Armani Talks Succession", WWD, vol. 198, no. 89, pp. 2-n/a. "Emporio Armani: a fashion empire", 1998, BusinessWorld, pp. 0. Houston, M. 2013, "All in all, just another BRIC in the wall", Irish Medical Times, vol. 47, no. 5, pp. 18. 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