Channels of Distribution Topshop - Case Study Example

Table of Contents Table of Contents 2 Introduction 4 Channels of Distribution 4 Focal Important Distribution Channels 6 Topshop 6 The Brand and its Achievements 7 Paramount Stores 7 Channels of Distribution: Topshop 8 Factors concerning Channels of Distribution 8 Compatibility of a Distribution Channel with Topshop's Products 9 The innovation of A New Distribution Channel by Retail Outlet based companies 10 Owning Retail Outlets v. Franchising 12 Latest Franchising Controversies 14 Introduction 15 Tie - up in Japan With Mori Ryutsu System 15 Tie - up in India with the 'TATA' Group of Companies 16 How could TATA's accomplishments help Topshop 16 Comparison of Distribution Channels: 'Topshop' versus 'Marks and Spencer' 18 Introduction 18 Conclusion 19 Works Cited 21 Introduction Channels of Distribution Being a prominent element of the Marketing Mix, the Distribution channel plays a vital role in the overall promotion, branding, and even advertisement of any product. A very general paradigm to clarify this concept could be: A company may either choose to place their products at renowned (established and branded) stores in order to generate tremendous goodwill so as to expect superb returns in the future; or if the company is short on Working Capital, it may also prefer to place their products at any store that's willing to purchase the product in bulk with fast payment turnaround. (Rolnicki) The above was just a very basic exemplar of the Distribution Channel, which was sort of within the juvenile grade. We would further discuss about the Distribution Channels meticulously within the latter segments of this report; as that example was just to clear a basic concept whilst ascertaining the lofty significance of the 'Distribution element' of the Marketing Mix concept. Both of the afore mentioned examples suit various different class of companies / firms and this element of the Distribution Channel could be decided by distinguishing the class, price range, quality, company's capacity, etc. That is, the Distribution Channel is closely related to the Place, Price as well as the Product differentiation elements of the Marketing Mix. (Rolnicki) By and large, the following are usually classified as various categories of the Channels of Distribution element (Rolnicki): Direct Selling concept: This element of the distribution channel generally refers to the door to door selling concept. Although, new authors have also included Telephone sales, e-mail sales, direct mail sales, and online (e - commerce) sales within this concept. Via Agents: Agents acts as middle - men between the company and either end user or wholesaler. That is, they purchase goods from producers (manufacturers) and sell them to interested sellers (sometimes within specific geographical boundaries, as a company may appoint many agents, but according to ethical principles, it is always in the best interest of everybody to clearly distinguish and identify the geographic regions for each) with prior (usually written) consent from the company. Retailer: Within this normally 3 concepts are involved: The first being, a manufacturer directly sells his good to retailers, this is usually in case if the production capacity of the Manufacturer is medium to lower levels. Second concept here could be self-retail prospects, through which a manufacturer could sell his goods at his self owned retail store / s. Another concept which has been added by the author of this report is, retailing through previously recognised and somewhat legendary retail franchisees such as our Case Study of TOPSHOP. Allotment of regional Distributors: Through the means of this concept a company may depute various distributors on a regional basis, this is quite similar to the agent concept; but is used where a much larger geographical coverage is required (minimum at State level / National Level), and has normally been seen effective where the manufacturer has a huge brand name. Whole selling: A company may also opt to choose wholesalers to market their product, this is a step above retailing. Advertisement: Yes, advertising is in fact also an element under Distribution Mix. Focal / Important Distribution Channels Based on the author's personal point of view, the geographical distribution network is the most important amongst all the afore - mentioned channels. Although, our principal Case Study candidate uses the dealer / franchises network, and this report will further prove that franchises / self-retail network is undoubtedly the best for this business. (TOPSHOP) Although various authors have different opinions about the distribution channels, to be precise (and neutral of course), distinctive channels of distributions are suitable for unlike businesses. Thus answering the query as to the most important distribution channels; is in fact out of the question. Topshop An illustrious dominant brand name in the retail clothing industry; the brand Topshop's holding company clings on an influential second position in the United Kingdom and has franchisee operations in over 100 countries including a dominant consumer base in the United Kingdom (UK base of corporate operations = London), the United States of America (USA's base of corporate operations = New York City), Ireland, Japan, and over 100 countries including the afore mentioned. (TOPSHOP) The Brand Name and its Achievements The brand name Topshop is a company which is subsidiary to the prominent Arcadia Group of Companies, which in fact holds other influential brand names in the industry such as Topman, Evans, Dorothy Perkins, etc. (TOPSHOP) The Holding company executively operated by the famous Sir Philip Green, who gained the stature of Knighthood in 2006, undoubtedly a memorable and probably the greatest achievement by good Sir Philip Green. Many prominent fashion reporters believe that the knighthood obtained by Sir Philip Green has significantly boosted the reputation as well as the good will of the company and its subsidiaries by times (Fashionunited). But based on the author's research through credible sources, the company's profits have constantly declined since the past couple of years. There by proving that the fashion reporters were in fact wrong (Tungate). Although another factor that could be related to the decline in profits could very well be the drastic economic circumstances that have gobbled up this planet like a French lady does so with a piece of Chocolate. Paramount Stores Undoubtedly the flagship store in the heart of London, which is spread over 90,000 square feet, is like Solomon's treasure for the company. This store which is undoubtedly a royal jewel for the company attends to over 27,000 people per day (on a yearly average basis, excluding prominent seasons such as Christmas). (TOPSHOP) The second largest store of the company is the Topshop New York, which is yet spread over an area of 60,000 square feet. (TOPSHOP) Channels of Distribution: Topshop As per mentioned in the Introduction section of this report, the brand Topshop focuses on Self retailing as well as franchisee allotment. But the strategy of Topshop and another industry leader brand (which will be revealed in the later section of this report), and in fact other such companies use a similar approach towards marketing. (Rolnicki) (Rosenbloom) Their primary focus is entering a country (foreign regions) by the means of tie - ups with either large scale construction companies or other similar National Companies. Factors concerning Channels of Distribution Distribution element of the Marketing Mix is very closely related to the placement of the products, distribution as the word suggests concerns placement of the product to the end user or the consumer; some factors which affect decisions based on Channels of Distribution are as follows (Rosenbloom): Inventory supervising system. Transportation. Pricing. Margins. Comparative analysis amongst competitors. Order dispensation procedure. Compatibility of a Distribution Channel with Topshop's Products Amongst the various channels of distribution, namely; Direct Sale, Agent, Distributors, Wholesalers, and Retailing; Retailing is the basic channel of distribution used for the product range at Topshop. Specifically, franchising appears to be a greatly better word then Retailing. Topshop provides franchises to certain investors who are willing to invest and open stores there by granting them the license to sell the original products under the brand name Topshop. There by increasing the turnover of brand name Topshop with minimal investments. (Superbrands) Although, except for the franchisee licenses that Topshop provides, the brand also 'owns' several retail outlets, an example for this is the Flagship retail outlet of Topshop in London, which is spread in more than 90,000 square feet. (TOPSHOP) As a matter of fact, most of Topshop's competitors also wander along the same path, as this is undoubtedly the most profitable scheme, considering the low amount of investment involved. The innovation of A New Distribution Channel by Retail Outlet based companies Very recently (within the past 3 years) some companies along with Topshop have stated a new scheme, which is very similar to the franchisee part. The features of this new technique of franchising are as follows: (Rosenbloom) An Introduction to the new distribution channel This new technique of franchising is an instant success amongst interested investors looking to hold a franchisee license of such hefty brand names; this new scheme has particularly attracted construction companies. Based on this scheme, the fashion companies pay the rent to the owner of the viable showroom location. Rates differ from location to location (geographically). Within this scheme, in order to become a franchisee, an individual or a company must be willing to invest on the following assets: A viable location (vacant space in a reputable Mall), or possibly an aristocratic location. The company's officials decide whether the location is worthy enough for such a well - bred brand name "Topshop". Based on their undisclosed terms, the officials place their opinions regarding the land, which allows the prospected franchisee to move further. Furniture as suggested by the company's officials: Having analogous stores increase the goodwill of company by times. Besides, analogous stores are very easily identifiable, there by, benefiting the franchisee owner too. The investment on the furniture, fixtures, and any other asset is to be borne by the franchisee applicant. Initial Safety Deposit: The companies (particularly Topshop) demands Safety deposits from interested candidates. This deposit is usually refundable except for a few terms and conditions, which were not available. The exact amount of the safety deposit is also undisclosed. Initial deposit for primary stock: Topshop also demands an initial deposit in order to dispatch their first consignment to the franchisee. (Fashionunited) This is what the company provides in return against those investments: Usage rights for Brand Name: The Company would grant the franchisee with some special rights concerning the brand name, logo, stationery, etc. This greatly helps the franchisee to generate further business thus beneficial for both the company as well as the franchisee. Permanent rent to the franchisee depending on the prevailing property prices, to be able to judge an estimate, professionals are appointed which decide the actual rent amount and try to negotiate it with the franchisee owners. Besides the rent of the store, the company Topshop will also pay the salaries for all staff appointed in the company's 'official' store. Training for staff: Topshop also provides training to the staff, which is a feature used to hone creative or technical skills of staff. This training is normally provided to hair stylists, fashion advisors, make up (product) advisors, etc. This training is fully paid up by the company Topshop and no franchisee would ever be charged for this. Undisclosed Margin on sale: Besides the afore - mentioned modes of income, the company also provides a share of their profits for the goods sold. These margins usually differ from product to product. Extremely attractive incentives: Besides their usual share form profits, Topshop also provides incentives to retailers who've exceeded the sales or turnover targets, which undoubtedly motivates these franchisee owners to work hard for the brand, thus building brand recognition and profits at the same time. (Fashionunited) Owning Retail Outlets v. Franchising Minutiae Owning Retail Outlets Franchising Investment Undoubtedly, the investment involved in order to Purchasing, furnishing, managing, and maintaining of a retail store is quite high. It is not that the company does not have adequate funds to manage the whole operation, but still excluding the 'middle man' would be helpful for the company in fiscal terms. Investment involved is extremely diminutive as compared to Owing retail outlets, as major investments are done by the franchisees. Management Management in this case would be much more tougher than Franchising, particularly because the major chunk of work is to be tackled in house. Management in this case would be much more easier than Franchising, particularly because the major chunk of work is related to logistics, which can in fact be outsourced. Many transport companies have started their own complete solution logistics services, but the charges and expenditure here would be much higher, as 2 additional channels come into action. The logistics can also be appointed to a C & F agent or a Carrying and forwarding agent, which could undoubtedly handle financial, transportation, and management hurdles faced within this situation. Method Chosen by Topshop Both. Both. Although the prime focus in on franchising. Most progressive factor / Higher Growth Prospects ] A big weight on the management, and thus creates hurdles in the path to growth. Extremely helpful. There is a reason as to why franchising is the prime choice for the company' It is because if the company would not have started franchising, it would not have a solid base in over 100 countries. Table 1 DISTINCTION With the above mentioned table (table 1), it is clear that Franchising takes a huge lead over owing company's own retail outlets. Besides, surrendering a small part of profits can take a major weight off the company's shoulders. No wonder the prime choice for all these companies is franchising. Latest Franchising Controversies Introduction This segment of the report focuses on most recent (distribution channel) franchising activities and controversies surrounding Topshop through out the world (within the most recent times, not more than a year). Many scholarly and news articles were under research while compiling this segment of the report. Tie - up in Japan With Mori Ryutsu System Mori is a humongous real estate / construction company of Japan, which is undoubtedly the reason for Topshop to propose a tie - up with Mori Ryutsu System. Mori Ryutsu System already owns several numerous shopping malls and has been proposed of several similar tie - ups in the past, but it was Topshop's proposal that attracted Mori Ryutsu System the most. Besides, considering Topshop's credentials Mori Ryutsu System had to ultimately accept the proposal and work as a franchisee of Topshop/Topman. The deal has been made amongst Topshop's holding company and Mori Ryutsu System, and the terms are simple, all the investment for expansion in Japan shall be incurred by Mori Ryutsu System. And this hit the Japanese government as a 100 pound bomb, considering there was no inflow of money into the country, but profits would ultimately be traded away from the country. According to the officials at Mori Ryutsu System, Japan is a growing economy and premi're branded wear is becoming more and more common as the epoch passes by, which could result in the escalation of the brand since their initialization in Japan. (Editor, Japan Consuming) Although, the fact is unclear as to what the Japanese government wants to do regarding this matter, but Topshop's executives have faith in their tie - up and are certain that Mori Ryutsu System will take care of any matter that arises. But the gloom of the Japanese government can be witnessed through their discontent in the media regarding this matter. (Editor, Japan Consuming) Tie - up in India with the 'TATA' Group of Companies Topshop's deal with the TATA Group of companies is almost at its peak and almost all the formalities have been taken care off. TATA group is amongst the largest business houses in India and has been bestowed with numerous awards mostly related to ethics and fair business practices. Based on the authors research the portfolio of the TATA Group of Companies is far larger than that of Topshop's holding company Arcadia Group. (TATA Sons Ltd.) How could TATA's accomplishments help Topshop The Chairman of the TATA Group, Ratan Tata, had also been bestowed with the prestigious title of "The Most Influential Man of Asia". So undoubtedly as soon as the Topshop brand gets launched in India, the populace will have faith in it as it will be managed by the most respectable company in the country. Entering into a deal with the TATA Group of companies will also boost up their sales in India, as the TATA group is supposedly the most trusted brand in India since the past 200 years. Furthermore, the TATA Group also has several retail subsidiaries. Based on the authors research, the TATA Group is into many business sectors such as Steel (5th Largest Manufacturer of the World, as 2 years ago its subsidiary TATA Steel had purchased Corus Steel), another subsidiary TATA Motors owns Jaguar brand, and a huge stake in Fiat Motor; furthermore, another company TATA Consultancy Services is amongst the largest IT companies of the world and provides employment to over 120,000 people; and many more accomplishments. The Tetley tea brand is also owned by a subsidiary of the TATA Group, TATA Tea. The TATA Group also owns a huge chain of Retail fashion outlets by the name of 'Westside'. Furthermore, the presence of the TATA Group is humongous in the retail sector, as only a handful of malls in India do not have one or the other TATA outlet. Very recently the TATA group has generated tremendous fame, considering TATA Motors has created a $ 2,000 four seat car, with safety features and environmental features approved by the UK government, and has beat Ford Motor Co. to its dream of developing the world's cheapest car. The car is scheduled to launch throughout the world on 28th December 2008 itself, which is also the chairman's birthday. At around the same time the deal with Topshop is bound to reach its peak, which could provide a big boost for the company. (TATA Sons Ltd.) Comparison of Distribution Channels: 'Topshop' versus 'Marks and Spencer' Introduction This segment of our report will compare and contrast the distribution channel of Topshop and 'Marks and Spencer', which is the industry leader and has left Topshop's holding company at number 2. 'Marks and Spencer' and Topshop follow a very parallel pattern of marketing, even the marketing pattern for both the companies is same. Although due to the recent dryness in the markets and the economic crunch, both the companies have reported a slower growth rate as compared to previous year. (Rolnicki) Although the number of stores of 'Marks and Spencer' is much higher than Topshop and its sister concerns, but overall Topshop's holding company has a network in over 100 countries, where as 'Marks and Spencer' has only about 30 countries under its regime. So the major differentiation of a strategy here is the choice of location for both these companies is very diverse. 'Marks and Spencer' tries to concentrate only in regions where prime demands are higher as opposed to Arcadia Group (holding company of Topshop), which has spread its base across all the 7 oceans. (Tungate) But 'Marks and Spencer' has an edge over Topshop as it is into a diversified industry and also owns food chains through out the European Continent and abroad. Thus providing a higher grasp over the specific market areas and considering that the stock prices of 'Marks and Spencer' are presently less than 50 % as compared to its peak value, the situation doesn't sound so good. And hence these companies look for franchisees that are willing to conduct business with them, and companies such as 'Marks and Spencer' and Topshop are looking for retail outlets that could be initiated with the most minimum amount of investment. The distribution mix and prime focus audience is almost the same for both the companies. As a matter of fact, a major share of these retailing companies relies on franchisee investment. Thus generating more and more competition for the likes of 'Marks and Spencer' and Topshop. Conclusion It is eminent that even though the flagship stores of Topshop are fully operational and generating profits, the company is not able to generate further revenues, due to the following possible reasons: The franchisees have failed to perform and the company has to bear the liability of paying them rent and salary. The company has spread its leg just too far off. A consumer base in over 100 countries is hard to manage, especially when the company could be liable of any of the franchisees incur a significant loss. The economic crunch has scared off the public and people are not opting for premium or super premium brands. Many authors believe that the last point about the credit crunch is the one and only reason as to why these companies were not able to maintain their yearly growths. Another important fact that could be noted here is the question: Will premium brands such as Topshop be able to survive the crunch, and not conk out in mid way' Most scholars believe that it is not that tough for these companies as they have limited liabilities, and the cash reserves are at peak which could mean that if the government ever decides to launch a bail out package, this block buster will not need it. Concluding the strategy used by Topshop, it is eminent that the company has been a Winner in the past and will further emerge as yet another winner once the economy gets over the crunch. It is also to be noted that the company is very aggressive in terms of expansion and strong hopes are that the company will soon finish all the pending theme related to further tie - ups, and soon the company could even expand its base further by focusing in most of the left out areas where 'Marks and Spencer' is a tiugh rival. Works Cited Editor, Japan Consuming. TopShop signs franchise deal in Japan. 10 October 2008. 27 November 2008 . Tungate, Mark. Fashion Brands: Branding Style from Armani to Zara. Kogan Page Publishers, 2008. Read More