PEST Analysis of Footwear Industry - Aeolus Air - Case Study Example

Analysis of Industry Profitability of the of the Table of Contents Introduction 3 PEST Analysis of Footwear Industry 3 Industry Structure 4 Evaluation of Opportunities and Threats for Aeolus Air 4 Evaluation of Strengths and Weaknesses of Aeolus Air 5 Industry Attractiveness 5 Porter’s Five Forces Analysis 5 Decisions Made 6 Year 11 6 Year 12 6 Year 13 6 Year 14 6 Year 15 6 Year 16 7 Comparison of Financial Records of Aeolus Air with Other Three Companies 7 Conclusion 10 References 10 Introduction The US footwear industry is saturated and mature with the existence of several small and large scale wholesalers, retailers and manufacturers. These entities generally compete globally and also in their domestic counterpart (Sorenson & Audia, 2000). The US is considered as one of the biggest importers of footwear across the world. The footwear industry of the United States comprises of total revenues which are generated by means of the sales of all forms of children’s, women’s and men’s shoes. In the United States, the annual revenue of the footwear industry is $48 billion and the total consumer spending on the footwear product is $20 billion. The country comprises of 29,360 numbers of total shoe stores and the industry employs 188,866 people (Statisticbrain, 2015). Due to the rising imports, the revenue of the footwear industry as well as the consumer spending is declining. To stay afloat especially in the footwear market, the only way is to create a presence or existence in the niche markets (Sorenson & Audia, 2000). The essay will focus on the relationship between industry structure, environmental change and industry attractiveness by taking into consideration the industrial structure and attractiveness of Aeolus Air in order to show the level of the industry profitability. The comparison of Aeolus Air, which is a hypothetical company; will be shown with other three companies which are also fictitious companies in order to reflect the management and performance of Aeolus Air on several grounds. PEST Analysis of Footwear Industry The PEST analysis of the footwear industry of the United States has been done in order to show the positive as well as negative effect of the environmental factors. This will further help to examine the opportunities as well as threats for the footwear industry. Political factors: The competitive tax structure and the currency exposure risk hold a threat for the footwear industry. The policies of the foreign direct investment disallow full ownership of the retail stores. Therefore, these policies generally hold threat towards internationalization (Marx, 2008). Economic factors: Due to the economic recovery, the footwear industry has been growing. However, increasing rates of interest will adversely affect the growth of this industry. Rise in the imports is affecting the revenues of the companies within the footwear segment. High dependency on the overseas manufacturing as well as outsourcing is a threat for the industry. Moreover, increase in the company resources and raw materials’ shipping costs also affects the growth of the footwear industry. Social factors: In this type of industry, people give more importance to the quality instead of price and this comes as an opportunity for the footwear industry. Enhanced quality will assist in driving growth and revenues. Participation in the sports is the main part of the United State culture and the women athletes is growing in numbers. This gives opportunity to the footwear companies to manufacture athletic shoes. Technological factors: There has been augmentation in the utilization of e-commerce as well as mobile commerce. The system of social media is also becoming popular which will help the customers to purchase products online. In the United States, new technologies are emerging which allow footwear companies to become energy efficient and also to reduce their manufacturing costs. Industry Structure PEST analysis has helped to focus on the industry structure by taking into consideration the opportunities as well as threats for Aeolus Air. Evaluation of Opportunities and Threats for Aeolus Air Opportunities: Nowadays, people are more quality conscious than price conscious. As Aeolus Air has got a rating of five in terms of its styling and quality, therefore, the enhanced quality of its products will provide opportunity to the company to drive more revenues by drawing more number of customers. In the United States, participation in the sports is the major concern and this will offer opportunity to the company to create athletic shoes (Applegate & Johnsen, 2007). With the rapid growth of technology, Aeolus Air has several opportunities to expand its business and attract larger base of customers. The company also has the opportunity to expand globally especially in the developing countries. Threats: The competitive tax structure can be a threat to Aeolus Air. The rising rates of interest will also adversely affect the growth of the company. As the company operates in various countries, therefore, fluctuation in the rates of foreign exchange can also prove to be a threat for Aeolus Air. Evaluation of Strengths and Weaknesses of Aeolus Air Strengths: Aeolus Air offer free shipping of its products and also engages celebrity to promote its product. It will help to drive growth and revenue because customers have this perception that the products promoted by celebrities are of superior quality. The company gets a rating of five in terms of styling-quality (S/Q) rating which indicates that their product is of superior quality and is preferred by many customers. The retail outlets of Aeolus Air have increased dramatically in the year 2014, which will help to generate more sales and earnings. Weaknesses: Aeolus Air is not good in its advertising practice and it is regarded as its weakness. The company had less number of retail outlets in the year 2011 which resulted in less number of sales. In the year 2015, the company has got the S/Q rating of four out of ten in its private-label segment which signifies its weakness. The retail outlets of Aeolus Air have also decreased in 2015, in comparison to its competitors. However, it has managed to maintain it and increased its numbers in the subsequent year. Industry Attractiveness Industry attractiveness will be shown by the help of Porter’s five forces analysis. Porter’s Five Forces Analysis Threat of new entrants: The threat of new participant to enter into the market is high because the access to the inputs is very easy. The government policies are not very strict in the footwear industry which provides opportunity to the new participants to enter easily into the market (Grant, 2010). Threat of the substitute products: The threat of the substitute products is moderate because the switching costs of the customers are low in the footwear industry. The product can be substituted apart from the athletic shoes by the normal shoes or sandals (Rao, 2006). Bargaining power of customers: As there are several brands within the footwear industry, therefore, the bargaining power of the customers is high. If the customers are not satisfied with the design, price or quality of the shoes, then they can easily switch from one brand to other (Rothaermel, 2012). Bargaining power of supplier: The bargaining power of suppliers is low because the companies can switch easily from one supplier to other in case they do not meet their expectation in terms of quality. One more reason behind the low bargaining power is the presence of large supplier base across the world (Thompson & Martin, 2010). Rivalry within the industry: Due to the presence of many reputed brands within the footwear industry, the competitive rivalry is high as more emphasis is given on the non-price competition such as quality and style rather than price competition. Companies try to enhance their product range in order to attract more customers (Porter, 2008; Ormanidhi & Stringa, 2008). Decisions Made Year 11 In this year, Aeolus Air decided to recycle their packaging process and they have also invested a huge sum of money to provide ethics training to their employees. The company also decided to involve in workforce diversity to attract huge talent all over the world. The managers decided to do free shipping of the products. Year 12 In this year, the managers decided not to do free shipping and they have also offered fewer models as compared to 2011. This has affected their internet sales of products. Further, the decisions have been made on not to cancel the existing contract with various partners. Year 13 The managers of Aeolus Air decided to keep the wholesale price of their product same as the previous year in the North-America market. They have also decided to keep their advertising costs same as previous year. Year 14 Aeolus Air decided to increase the number of retail outlets in the North America, Europe-Africa and in the Latin America market. Further, they have decided to offer same number of models in all the four markets. Year 15 In this year, the managers decided to engage in the workforce diversity program to provide all round development to their employees. The company has maintained the quality of the products and due to this reason; they have got the rating of five in terms of style and quality (S/Q). Year 16 Aeolus Air decided to improve the total quality management (TQM) practice in their supply chain process in order to offer best quality product to their customers. The company has also decided to increase the wages of their workforce to motivate them to put their best effort in their job. Comparison of Financial Records of Aeolus Air with Other Three Companies The comparison of Aeolus Air (A) has been made with Baha Footwear (B), C Company (C) and D Dynamo (D) in order to show the financial performance of Aeolus Air on various grounds. Earnings per Share (EPS) It has been observed that the EPS of Aeolus Air has increased continuously in all the years except in 2014, but then again, it has improved it in 2015 and also its EPS is higher than all the three companies which represent the good position of Aeolus Air in the footwear industry. Further, it has been projected that it will maintain a high EPS of 9.54 in 2016. Return on Equity (ROE) From the above table, it can be said that Aeolus Air has performed well than its competitors by maintaining a higher ROE of 17.4 in the year 2015. Its ROE has also increased from the previous year which indicates that the strategies adopted by the managers of Aeolus Air have proved to be highly effective. Stock Price Improvement in the performance of Aeolus Air has been observed in the year 2015 with a stock price of 72.75, which is more than Baha Footwear and C Company. The C Company has shown a very poor performance with a ROE of 16.91 only. The projection of 2016 also reflects that the ROE of Aeolus Air will be greater than all the three companies. Year 16 Scoreboard The year 16 scoreboard shows that Aeolus Air and Baha Footwear have got the same investor expectation score and the best-in-industry score. However, the score of D Dynamo is greater than all three of them. Based on its performance, Aeolus Air has got the 1st rank and has also beaten D Dynamo and C Company. Game-to-Date Scoreboard The overall score of game-to-date scoreboard of Aeolus Air is 113 which is higher than all the three companies and because of this, it has got the 1st rank for the year 2016. Credit Rating Aeolus Air has got a high credit rating of A+ in the year 2014 and 2015 and based on its good performance in terms of EPS and ROE; it has been projected that it will receive the A+ credit rating in the year 2016 also. Moreover, its credit rating is good than Baha Footwear and C Company. Image Rating In terms of image rating, Aeolus Air has got the higher score than Baha Footwear and C Company. However, it has been expected that its score will decrease in 2016. Corporate Responsibility Award It has been observed that D Dynamo held the first position in the corporate responsibility award and Baha Footwear has obtained the second place. However, it has been projected that Aeolus Air will get the second position because the company is engaged in recycling their packages and boxes and also invested a huge sum of money to provide ethics training to their employees. Conclusion The simulation game focuses on the importance of evaluating the macro environment, opportunities, strengths, threats and weaknesses of a company. Assessment of macro environment has been done through PEST analysis, which permits managers to have deep knowledge of the market in which they are operating. Porter’s five forces evaluation has been done to show the industry attractiveness. The simulation game helped the researcher to have an idea of the level of complexity which is involved in managing a company. The performance of Aeolus Air has been compared with other three companies and it has been revealed that it has got the highest score than all the three companies in terms of best-in-industry score. It reflects that Aeolus Air has performed best in terms of its ROE, EPS, credit rating, image rating and stock price. References Applegate, E. & Johnsen, A. (2007). Cases in advertising and marketing management: Real situations for tomorrow’s managers. Lanham: Rowman & Littlefield Publishers, Inc. Grant, R. M. (2010). Contemporary strategy analysis and cases: text and cases. New Jersey: John Wiley & Sons. Marx, A. (2008). Limits to non‐state market regulation: A qualitative comparative analysis of the international sport footwear industry and the Fair Labor Association. Regulation & Governance, 2(2), pp.253-273. Ormanidhi, O. & Stringa, O. (2008). Porter’s model of generic competitive strategies. Business Economics, 43(3), pp.55-64. Porter, M.E. (2008). Competitive strategy: Techniques for analyzing industries and competitors. New York: The Free Press. Rao, V. R. (2006). Analysis for strategic marketing. New Delhi: Pearson Education India. Rothaermel, F. (2012). Strategic management. New York: McGraw-Hill. Sorenson, O. & Audia, P. G. (2000). The social structure of entrepreneurial activity: geographic concentration of footwear production in the United States. American Journal of Sociology, 106(2), pp.424-462. Statisticbrain. (2015). Footwear Industry Statistics. Retrieved from http://www.statisticbrain.com/footwear-industry-statistics/. Thompson, J.L. & Martin, F. (2010). Strategic Management: Awareness & Change. Boston: Cengage Learning. Read More