The Bussiness and Competitive Environment/ Burberry - Report Example

1. Introduction Burberry is a British fashion-clothing brand, which had started initially with outerwear, garments for the sportsmen of Basingstoke but is today a leading luxury brand with global business. It is defined by its authentic British heritage and enjoys unique positioning within the luxury arena. It is based on the principles of quality and function and has globally recognized portfolios. The company strategy is to enhance consumer responsiveness and operate more efficiently and effectively. Burberry thrives on a unique, passionate and seasoned management team. Burberry is now a household name in the international market and globalization has enabled the organization to achieve this feat. 2. History Burberry was started in 1856 by a 21-year old apprentice and because of his dedication to quality and innovation, by 1870, the small shop had grown into an emporium. From its inception, the brand has experienced massive growth and now owns thousand of outlets and franchises throughout England. The company specializes in menswear, womenswear, children’s wear and non-apparel garments. Out of these, the largest share of its revenue comes from womenswear. The brand has lately introduced a wide range of fragrances in their inventory. In 1995, the group’s stake was purchased by General Universal stores. However, in 2005, General Universal Stores divested their stake in 2005. The current CEO of the group is Angela Ahredts, who replaced Rose Marie Bravo (Burberry Official Website, 2010). 3. PESTEL Analysis 3.1 Political – The UK has a stable and productive background for doing business and is a part of the world’s major trading entity. The unnecessary barriers have been removed and there is less red tape which enables businesses to take advantage of the European markets (UKTI, 2007). The construction of the EU has made the business in Europe easier. With the construction of the EU, the barriers of trade were removed from the countries and businesses were able to do free trade. (Britain’s relationship with the European Union, n.d.) However, amidst the advantages, there have been certain problems for the country. The commencement of the common currency of the continent as Euro has been almost complete. However, UK has not adapted Euro as the currency. The Pound Sterling has been troubled by the recent recession. (Should Britain join the Euro, 26th June, 2003). In the case of the expansion, the company has been contemplating moving to the Middle East. The company has opened up stores in the Middle East in collaboration with Jashanmal. The political conditions of the Middle East are quite different from that of the UK and that can affect the business. (Burberry announces joint venture in Middle East, November 18, 2008) 3.2 Economic – Traditionally, the economy of the UK has been one of the most stable economies of the world. However, the dependency on the US economy has been a bane for the business houses in the UK. The recession which originated in the US had a tremendous effect in the economy of UK. The economy of the UK had shrunk by 1.5% as shown in the last quarter of 2008. Burberry’s profits have declined which is evident from the Group’s income statement for the year showing a profit of £99.8m as compared to £170.9m that were earned a year before. (UK economic conditions, n.d.; UK recession is over, 8th September, 2009) 3.3 Social – Burberry has been an up market retail outlet and has been catering to the upper and middle class of the society. The population of UK consists of a total of 44% of the category. (Buyer Behavior, n.d.). There has been a tendency of online purchases in UK in the case of the clothing sector. 90% of the traffic that visited the retail sites was converted and that augurs well for the company of the stature of Burberry. (Riseley, October, 2008). This affected the sales of the company. The price of the items of the company had affected the sales as people moved towards cheaper source of clothing. However, in the luxury segment, people purchase luxury goods for self-identity and well-being, and it must fulfill their emotional needs (Cheng, 2006). The luxury product market has increased manifold. Nevertheless, the fashion industry is marked by short life-cycles, high volatility, low predictability and high impulse purchasing (Christopher, Lowson & Peck, 2004). 3.4 Technology – Burberry has making use of technology in their operations as well as in marketing. They use e-commerce to develop and grow while using technology even in its supply chain management. The company has installed SAP technology for reduction of the costs. The system was installed in 2009 and the company has been able to reduce the operating costs as the data received was of higher quality. The stock update could be handled better with the help of SAP. (Burberry hits 50 m pounds saving with SAP, 17th November, 2009) 3.5 Ethical – Burberry has always been maintaining environmental balance in its operations. Climate change is a major issue in the UK and the clothing industry has been held responsible for damaging the environment (Rouse, 2009). However, Burberry has devised its ethical trading policy based on Ethical Trading Initiative Base Code and other key International Standards such as the ILO fundamental conventions (Burberry, n.d). Burberry recognizes and respects all the different national cultures, laws, norms and traditions in its supply chain. They have also been able to reduce Carbon Dioxide (Co2) emissions by 13 percent from the company’s head office building. 3.6 Legal - Burberry has to comply with the regulations and they were questioned when they decided to shut one plant in UK and send manufacturing jobs overseas (Stone, 2007). As the company was running in profits they could not justify their decision of sending jobs overseas and hence were not permitted to shut down the unit. Other than this, the company has a problem due to the maintenance of the stores in various parts of the world. The rules and regulations of the countries are different from one another and the management has to closely monitor the proceedings. 4. Porter’s Five Forces 4.1 Threat of new entrants The fashion market has been revolutionized as the super markets have entered the apparel sector. The time starved customers can now purchase cheap clothing instead of visiting high street shops. This has turned the UK fashion market and luxury market upside down. The fashion conscious now follows the mantra – “buy it, wear it and chuck it” (Mesure, 2007). The recession has resulted in the growth of the budget companies in the country. However, the market of the UK has been affected at the middle level. There has been increased competition in this level, which forced many companies to shut down. The top end of the market where the Burberry operated has not been affected much. (Clothing market in the United Kingdom, 2008) 4.2 Bargaining power of buyers As entry is not restricted and easy to manipulate, the bargaining power of buyers is high. Because of this, Burberry had to change its strategy in 1997 as it had a narrow customer support including middle aged, fashion-conservative men (Moore & Birtwistle, 2004). They had to revise their business model and made changes to attract the young, fashion-forward customers. The company introduced apparels and have also included items of women in the products. In this way, the company has been able to provide to different types of customers. 4.3 Bargaining power of suppliers For a few of the firm’s product categories, they rely on small number of suppliers and hence the bargaining power of suppliers is high. Most of the firm’s business is being carried out in Japan and hence they have over reliance on a few suppliers. In the case of the suppliers of the company, the management has a strict control over the affairs. The ethical policies of the company does not allow the suppliers to indulge in practices like the use of child labor, inhumane treatment etc. Therefore, though there are a small number of suppliers the control is strict and thus the bargaining power is lesser for the suppliers. (Burberry ethical trading policy, n.d.) 4.4 Competitive rivalry Competition is intense as there are several fashion retailers that are in the foray. Moreover, price is least important for the fashion conscious customers. (Mesure, 2007). Burberry has implemented changes in the technological field with the introduction of the SAP. This has ensured better control over the affairs of the company. The cost has been reduced and that has been advantageous for the company. The company has been introducing wider range of products also to attract the customers. 4.5 Threat of substitutes In the case of the fashion industry, the threat of substitutes is not much. There are no substitutes for cloth but there are substitutes for the types of clothes. Therefore, in the case of high class fashion retailer like Burberry, the company has been catering to s specific group of customers. The company has been maintaining good quality of products to negate the threat of the substitutes. The threat of new entrants is high and so is competitive rivalry. Taking a look at the SWOT analysis (Appendix) can give a better idea about the company’s position. Thus the bargaining power of the buyers is also high. This means that Burberry needs to have a point of differentiation and hence sustaining competition would rely on competitive advantage. 5. Conclusions and Future Direction Burberry has been a brand name in the sector of fashion. It has been one of the best performing corporations in the UK. This has resulted in the growth of the company in the other parts of the world. However, the company of late has been plagued by several problems. The fashion industry itself is one of the most challenging sectors where the tastes and the preferences of the customers change frequently. In the case of the fashion industry, one of the vital components is the supply chain. The supply chain is well developed in the case of Burberry but there is scope for improvement. They need to re-structure the supply chain strategy so that they are not reliable on a few suppliers, thereby reducing the bargaining supremacy of suppliers. (Daft, 1994) The company may also refer to outsourcing some parts of the manufacturing process to outsourcing. This has been done by most of the companies of the world. Since consumers have become conscious of sustainable clothing, they should try and cater to this demand as well. However, the youth wants value for money and they look for emotional value like pleasure, excitement and aesthetic beauty. The elders try to balance the tangible and the intangible value with price (Salzman, 2009). The globalization of the business has opened up huge opportunities for the business. The customer base is huge and a renowned brand like the Burberry’s would do well to attract the customers. This can be done with the help of marketing and PR activities. They should keep in mind the culture of different parts of the world. Therefore, the company will have to cater to the different needs of the customers of the various regions. The use of technology in this case is a good option. The company has a well developed website and this can be extended to all parts of the world. These measures also ease the pressures of the competition for the company. Various players have punctuated the fashion industry and the company has to do well to hold its ground. Another problem is the economic conditions of the world. This supports the policy of the expansion of the business to various regions. Thus, following these policies, the company will be able to establish itself as one of the leaders in the global fashion industry. References Bakewell, C., Mitchell, V., & Rothwell, M. (2006). UK Generation Y male fashion consciousness. Journal of Fashion Marketing and Management. 10 (2), 169-180 Burberry. (n.d.). BURBERRY ETHICAL TRADING POLICY. Available from< http://www.burberry.com/downloads/pdfs/EthicalTradingPolicy.pdf> [Accessed 12 April, 2010] Burberry Group. (2010). Official Website. Available from< http://www.burberryplc.com/bbry/corporateprofile/history/> [Accessed 12 April, 2010] Burberry Group Limited. (2008). Annual Report of 2008.[Accessed: 5 January 2010] Cheng, C. (2006). The Impact of Brand Image on Consumer Behaviour of Luxury Goods of Fashion Industry in China. 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Available at: http://www.burberry.com/downloads/pdfs/EthicalTradingPolicy.pdf (Accessed on 15th June, 2010) APPENDIX SWOT ANALYSIS Read More