Recession Hits Fashion Industry: of Emporium - Case Study Example

The business world is operates in an unpredictable environment in which one day a company can be on top of its industry, and few trimesters later thesame firm could be at the blink of extinction. Business operating in today’s landscape must deal with the effect of the current economic crisis. The global economic crisis is the biggest recession the world has seen since the Great Depression of 1929 (Illinois). During bad economic cycles businesses of all types are impacted negatively. In a recession specialty retail stores that sell luxury items will be impacted more than other business segments because consumers are more hesitant to spend due to uncertainty (Varian, 2003). This report analyzes the UK based fashion boutique company the Emporium in order to determine the impact the recession is having of the firm and offer recommendation on how to deal with the situation. The Emporium has 18 stores across the United Kingdom all of which are owned by the group. The real estate of the location is reflected as an asset in the balance sheet of the company. The company belongs to the fashion industry which is a $250 billion industry (Givhan, 2009). Emporium concentrates on the upper scale market of fashioned designer women clothes. Due to their market positioning the company has a high business risk which can result in a complete collapse of its operations. Retailers have been dropping like flies during the last year. The International Council of Shopping Centers reported that in 2008 148,000 retailers closed down their operations and another 73,000 are expected to shut down during the first half of 2009 (Claudia, 2009). Sales numbers of those who have been able to keep their doors open have drastically dropped. This is the business behavior Emporium has endured for several months and if the sales continue to drop the fashion firm could be one of these 73,000 that are expected to close down during this semester. In order to establish a mitigation plan for the company its executive staff must look at the United Kingdom economic outlook for 2009. The United Kingdom economy is feeling the effects of the global recession. Unemployment is rapidly rising with the February 2009 official governmental figures showing a 6.3% employment rate which is 1.3% higher than the previous year (Hrmguide, 2009). The retail business segment in the United Kingdom is not doing very well. This past Christmas season was one of the worst ever and companies had to resort to price dumping in order to achieve their sales targets. One of the worst sectors was the clothing industry. Clothing retailers had to reduce their prices by an average of 10.3% (Bbc, 2009). These types of price reduction hurt profitability and can lead to liquidity problems. The overall outlook for the retail industry in the UK in 2009 is not positive. Johnathan Foster a retail business analyst who works at the prestigious Ernst & Young accounting firm said, “In line with deteriorating economic fundamentals, we believe even tougher times lie ahead with little evidence of retail recovery until 2010” (Potter, 2008). The UK economy in 2009 is going to experience very low inflation which is going to translate in a depreciation of the pound currency in the foreign exchange marketplace. Due to the market condition Emporium has to adjust its business practices in order to continue to survive this bad economic wave. The company currently has 18 stores in the UK region. The first step is to perform a critical evaluation of each of the stores. Since the company owns all stores including the infrastructure it could close down contract its operation by eliminating the worst three performing stores. Closing these operations will help the profitability of the firms because a large chuck of the losses will be eliminated. Also these losses could be converted into income by renting out the building space. Another option is selling at least one of the buildings in order to improve the company’s cash flow position. The fact that the overhead the company is low places the firm in a favorable position in comparison with other retailers in the fashion industry. Emporium must place immediate attention at its supply chain and improve so of the areas which are currently causing problems. The company is facing issue with its purchasing cycle due to its high dependence on foreign suppliers and the devaluation of the pound currency. The firm must start a search for local suppliers to temporally replaced 50% of its imports with local suppliers and set a goal to retain 25% of these suppliers in the long term. One of the secondary objectives of the change is suppliers is to begin to offer alternative merchandise that offers value for the customers while retaining high quality standards. Payroll has become a big issue for the all company in the UK. Emporium does not have a large workforce, but in order to remain competitive it must make some adjustments to its human resource. The staff employees of the company effective immediately will become part-time employees. The action creates greater flexibility for the company. The assistant manager position hourly workload is going to be reduced to 30 hours per week in stores with 4 employees. In stores in which there are less than 4 employees the assistant management position will be eliminated. It is imperative for companies to adjust their business practices based on the changes in the environment. The economic recession all businesses, especially retail stores which depend on high turnover in order to remain competitive. The Emporium has suffered heavy losses due to the bad economy. Changing the organizational structure, the business concept, adjustment to its supply chain, the composition of its workforce, and its pricing policies are some of the strategies that can help keep the business profitable. Works Cited Page Bbc.co (2009). Big fall in UK inflation to 3.1%. BBC News. Available from [Accessed 5 March 2009]. Claudia, P. (2009). New York Fashion Week adjusts in face of recession. Medill Money Mavens. Available from [Accessed 5 March 2009]. Givhan, R. (2009). Recession hits fashion industry. Washington Posts. Available from [Accessed 5 March 2009]. Hrmguide.co (2009). UK Unemployment. Available from [Accessed 5 March 2009]. Illinois.edu. About the Great Depression. Available from [Accessed 5 March 2009]. Potter, M. (2008). Retail outlook worst since early 1990’s. Reuters UK. Available from [Accessed 5 March 2009]. Varian, H. (2003). Intermediate Economics: A Modern Approach (6th ed.). New York: W.W. Norton & Company. Read More