Internal and External Environment of Christian Dior SA - Case Study Example

Internal and External Environment of Christian Dior Student’s name Institution’s Affiliation Course +Code Professor’s name Date Internal and External Environment of Christian Dior SA The fashion industry is considered among one of the most profitable and thriving globally. This is further underscored by the number of major brands penetrating their reach and expanding to accommodate emerging markets in Africa, Asia, and Latin America. However, the said industry is controlled by major European household names (Business of Fashion (BOF) & McKinsey & Company 2017). These product labels range from Spanish fashion type Zara to France’s Christian Dior among others. Brands from the USA, UK, France, Italy, and Spain continue to dominate the world fashion industry (Global Newswire 2017). With a focus on French fashion company, Christian Dior, this report assesses and explores the style industry. The article uses theoretical analysis reproductions that include SWOT framework and PESTLE model to evaluate both external and internal environment of the French fashion brand. Further, the report provides a scrutiny of the organization’s global strategy that makes it remain one of the dominant fashion industry players. An Overview of the Global Fashion Industry In their report titled “The State of Fashion 2017”, Business of Fashion and McKinsey & Company assert that the global fashion industry faces several trends that continue to shape its direction. While conservative figures value the industry at about $ 300 billion, the report indicates that the sector continues to experience difficult times with many companies attempting to create strategies that will offer them a competitive advantage over their rivals (Business of Fashion (BOF) & McKinsey & Company 2017). Further, the report identifies massive shifts in consumer behavior and increased demand to produce more using fewer resources regarding time, money and labor. According to the report, most people across the different markets and demographic segments believe that the fashion industry is changing, challenging and unpredictable because of an array of problems that it faced in 2016.Similarly, the report states that most of the players are more concerned about their top and bottom line due to reduced profit margins and a slowdown in sales growth (Business of Fashion (BOF) & McKinsey & Company 2016). Despite these challenges, many industry analysts remain optimistic that there exist growth opportunities, in particular through digitization and e-commerce. Christian Dior SA Background Christian Dior SA is a French fashion multinational established after the end of WWII in 1946 by Christian Dior who was a dressmaker. The Paris-headquartered luxury goods firm deals in diversified product portfolio consisting of six product lines. These include fashion and leather goods, selective retailing, jewelry and watches, Christian Dior couture, wines and spirits, cosmetics and perfumes. The label mainly targets women based on its product lines (Darmon 2013). However, in recent times, the iconic fashion brand has established the Dior Homme department dedicated to men and the baby Dior label for children’s clothes (Hendriksz 2015). Christian Dior has put in place a great distribution network of stores and licensed distributors in the United States, Europe, Asia-pacific, and Japan. The company is the principle holding firm of French’s fashion conglomerate LVMH together with Louis Vuitton. As of 2014, LVHM had a market capitalization of over $ 91.6 billion. Christian Dior has over eighty thousand employees in its global stores grossing a turnover of more than $ 22 billion (Christian Dior 2014). Internal Environment Analysis The following SWOT analysis provides an overview of the firm’s internal environment. Strengths In the first instance, the exclusivity of its merchandises is one of the strengths of Christian Dior. The company has maintained its legacy and reputation through its products. Retail distribution in over 400 of its stores around the world is exclusive. As a result, the company offers standardized customer experience and control of both its promotional and marketing activities (Tomes 2017). Secondly, the firm owns exceptional marques that include Zenith and Dior perfumes, in addition to Louis Vuitton. Dior has successfully ventured into the diversified luxury consumer goods segment that includes apparels, watches, and perfumes (Global Newswire 2017). Its eyewear is considered one of the most iconic in today’s market and especially in developed economies with products such as Louis Vuitton scaling new heights while in the same breath remaining emblematic (Darmon 2013). Thirdly, superb advertising, branding, and marketing strategies have endured the brand to customers. For instance, the company spent close to half a billion dollars on marketing activities in 2014 (Hendriksz 2015).In the fourth part, the acquisition of Louis Vuitton has enhanced the brand presence and value of Dior in many markets around the world (Darmon 2013). Further, its market capitalization in addition to reference among the first 100 most valuable brands in the world by Forbes Magazine gives it more recognition and reputation (Hendriksz 2015).Additionally, it encompasses highly qualified workforce and supports upcoming fashion artists and designers. Weaknesses In the first example, its presence is only limited to the developed world where it derives about sixty percent of its revenue. These profit regions include Europe, the United States, and Japan. The fashion type has a limited presence in emerging markets in Asia, Brazil, India, and China. Secondly, the make suffers low recognition among men since most of its product offerings target women. Thirdly, seasonality in demand affects both the organizations’ revenues and profits. For instance, about twenty-seven percent of Dior Couture and thirty percent of LVMH requests come in the fourth quarter of the year when the holiday season is at its highest level (Darmon 2013). Fourthly, foreign exchange risks also affect the Group’s overall bottom line. The company carries a significant portion of its sales in the form of the US Dollar and Japanese Yen, yet most of its manufacturing costs are in the form of Euro. Therefore, fluctuation in exchange rates affects both its earnings and revenues that are given off in the form of Euros. These differences make a comparison of its performance in different years a complicated affair. Opportunities The first occasion is the expansion of the male product portfolio as most of its product offering is aimed at enticing women. While the company has ventured into the male segment through apparels and accessories, it can expand through innovative strategies and increased product portfolio. Second, expansion in the emerging markets in Asia, Latin America, Middle East and Africa with huge young populations seeking luxury goods is an opportunity that the company should consider (Darmon 2013). These markets have expanding middle class that seeks uniqueness and exclusivity. Third, the firm should increase its technological innovations and become more tech-savvy through its product offering (Global Newswire 2017). For instance, it should venture into smart watches’ market that is showing increased demand. Further, its innovative approaches like the use of VR technology to transport headset-clad shoppers demonstrate its digital upgrades initiatives (Business of Fashion (BOF) & McKinsey & Company 2016). It can also consolidate its operations and market share by acquiring smaller competitors. Threats Competition in the industry remains strong, especially from brands like Chanel that have kept pace with changing trends. Second, counterfeiting and separate distribution are a threat to the company since imitations may damage its brand reputation and erode consumer perception and confidence in the brand (Jeantel 2012). Such events have a direct impact on revenues, earnings, and future growth prospects. Third, uncertainty in the growth of global economy, especially key markets is a huge threat to the company and the entire industry (Gockeln 2014). For instance, falling oil prices that affect currencies, terrorist attacks in the main cities across Europe and economic turmoil after the Brexit have changed consumer perceptions of the world (Business of Fashion (BOF) & McKinsey & Company 2016). External Environment Analysis PESTEL Analysis of the Fashion Industry The PESTEL model offers a macro analysis of the global fashion industry by considering the political, economic, social, technological, environmental and legal issues that companies in the sector may face in their operations. Political and legal factors concerned with government stability based on changes in government and regional policies may not have strong influence in the fashion industry (Gockeln 2014). However, it is essential for players to understand the degree of state interference, changes in legislative policies related to taxation and their impact on the industry. However, political and government policies like the recent Brexit vote affects industry dynamics because of market access and taxation (Business of Fashion (BOF) & McKinsey & Company 2017). For the purpose of this analysis, the paper will focus on the other factors; economic, social, technological, environmental. Economic factors Different economic factors affect the fashion industry. Firstly, the declining rates of unemployment in OECD countries have led to reduced disposable income. Most economies are slowly recovering from the financial crisis of 2008-2010. The trends indicate less people going for fashion clothes. However, those with higher disposable incomes will spend more on fashion and luxury goods to remain unique. Many anticipate that the global economic growth will remain robust; especially the fast growth in emerging markets (Gockeln 2014). Many analysts predict that the emerging markets will account for over fifty percent of world GDP growth by 2050. Further, future trends indicate the women’s apparel market will grow by over fifty percent. However, the rising costs of production based on labour and raw material costs may negatively affect revenue growth in the industry (Business of Fashion (BOF) & McKinsey & Company 2017). Outsourcing production remains one of the most effective approaches in tackling the problem but only for a while since these source markets will have increased prices in the future. Social factors Socio-cultural issues affect the fashion industry. For example, most of the population in OECD countries is aging (Gockeln 2014). Effectively, fashion players may face threats from teenage-focused as competition intensifies due to the shrinking market segment (Déri 2013). Conversely, it can also offer an opportunity to produce for more mature clients through appropriate sizes and designs. The second trend is that most customers are getting more concerned about their health as many spend more on their health. As a result, they may seek to know the material used, the processing methods, the origin and demand more transparency and accountability from the fashion firms like Dior. Because of this, many customers want “green” product and support ethical and sustainable efforts by fashion companies (Gockeln 2014). Further, fashion trends and tastes of young adults and teenagers are diverse and fast-changing. Their trends are influenced by the media and celebrities (Déri 2013). Further, ethical issues like Corporate Social Responsibility activities of these companies are essential factors influencing customers. Most consumers do not want to be associated with products manufactured through bad labour practices like child labour, poor working conditions and unethical marketing practices. Therefore, customers are changing their perceptions and attitudes towards fashion firms because of these issues as they demand for processes and wages that do not violate workers’ conditions. Technological factors Technology is has a significant influence on the fashion industry, especially how the products are manufactured, supplied and delivered to consumers. For example, the emergence and growth of the Internet and advancement in communication technologies have increased the flow of information on new trends, preferences and brand awareness between customers and retailers (Business of Fashion Team & McKinsey & Company 2016). The companies in the industry respond to these needs to stay competitive and increase consumer demand. Technological advancement leads to transfer of knowledge and increases interaction among retailers, distributors and manufacturers, especially through efficient supply chain management and communication channels. Further, the increased advertising platforms, particularly the use of social media and corporate websites have reduced the cost of marketing products while other innovative trends like online shopping increase markets for the retailers like Dior (Gockeln 2014). Environmental factors Climate change and global warning constitute some of the most critical challenges to the fashion industry. For example, natural disasters caused by climate change like flooding, prolonged drought and tsunami can affect the growth of cotton (Déri 2013). Most of the fashion companies have moved their production plants to developing nations, particularly in Asia that are vulnerable to climate change. Further, these companies must fulfill stakeholders’ demand to reduce their carbon emission levels and use environmental-friendly practices in their entire supply chain. Studies have demonstrated that the fashion industry leaves a significant environmental impact in its supply chain (Gockeln 2014). For example, stakeholders seek these organisations to grow organic cotton as opposed to inorganic that needs more water, chemicals and pesticides that end up having huge impacts on the long-term environmental sustainability. In additional, over-consumption in the industry is a common trend that leads to wastage and disposal issues. Therefore, to maintain customers, especially those keen on environmental protection, these companies need to reduce their effect on the environment (Déri 2013). Second, they need to invest more in sustainable and environmental-friendly practices aimed at reducing waste and minimising water and air pollution. Dior’s Strategy (Strategic Position and Value Proposition) Dior SA continues to dominate the fashion industry because of its strategy based on position and value proposition. Dior’s strategic position is founded on its long tradition of standing for luxury, excellence, design and passion in the industry. Since its inception, the brand has positioned itself as a luxury brand for the higher end female market segment (Hendriksz 2015). In addition, through innovative practices, the brand has continued to diversify its product portfolio in a bid to create value proposition for its customers. In its 2014 annual report, the company notes that it spends over half a billion dollars in its branding and promotional campaigns. Again, it focuses on boosting its classic designs through exhibitions. Its iconic products like Miss Dior continue to attract many consumers in emerging markets like China (Jeantel 2012). The company also uses celebrities to market its iconic outfits that resonate with the higher end market segment. The marketing strategies include celebrity filled editorials, online and print adverts. It is based on these strategies that the company stays ahead of the rest in the fashion industry. The enhanced and expanding product portfolio, standard stores and customer experience allow the company to create value for its customers and the reason why they should transact with the organisation (Gockeln 2014). Therefore, maintaining its heritage and legacy through classic designs and products remains the most fundamental strategic tools in building and sustaining Dior’s business model. It is also core to the company’s competitive advantage and success in the fashion industry. Conclusion The fashion industry remains competitive and volatile dues to the existing market dynamics. The report demonstrates that players like Christian Dior SA must create value proposition for their customers through their strategic positioning in the industry. Dior SA has attained its success despite the challenges because of its strategic approach where it values its heritage and legendary brands or products. The maintenance of the classic designs is core to the organisation’s success in the global fashion industry. References Business of Fashion Team & McKinsey & Company, 2016 December 19. “10 Forces That Shaped Fashion in 2016”. Accessed on August 24, 2017, from Business of Fashion (BOF) and McKinsey & Company, 2017. “The State of Fashion 2017”, Accessed on August 24, 2017, from Christian Dior, 2014. “Christian Dior: Annual Report as of June 30, 2014”. Accessed on August 24, 2017, from Darmon, A., 2013. “Optimization of a Supply Chain: Christian Dior Couture”. Accessed on August 24, 2017, from Déri, E., 2013. Challenges of Environmental and Social Responsibility in the Fashion Industry. Master thesis in Sustainable Development at Uppsala University, No. 144, 41 pp,15 ECTS/hp http://www.diva-portal.org/smash/get/diva2:630384/fulltext01.pdf Global Newswire, 2017. “Christian Dior: 2016 Results”. Accessed on August 24, 2017, from Gockeln, L., 2014. “Fashion Industry Analysis: From the Perspective of Business Model Dynamics”. Accessed on August 24, 2017, from Hendriksz, V., 2015, December 2. “Why Christian Dior and LVMH are co-dominating the luxury industry”. Accessed on August 24, 2017, from Jeantel, K.M., 2012. “LVMH: MOETHENNESSY. LOUIS VUITTON: Company Analysis & Investment Recommendation”. Accessed on August 24, 2017, from Tomes, J., 2017. “The New Look: How Christian Dior revolutionized fashion 70 years ago”. Accessed on August 24, 2017, from Read More