Topshop Market Performance - Essay Example

?Executive summary This case study analyses the current operations of Topshop, a high street fashion retailer that originated in Britain and has grown into a renowned brand. In the study we look at Topshop’s retail strategy through the industry, its financial performance, market orientation, strategic positioning, relationship marketing, store location, information technology, retail value chain and global expansion. At the end recommendations are suggested to enable Topshop retain its market share and to ensure their continued success in the retail industry in future. Table of Contents Executive summary 1 Table of Contents 2 Introduction 3 Industry at a glance 4 Financial performance 5 Effect of market orientation 6 Customer orientation 6 Competitor focus 7 Cross-functional coordination 7 Strategic positioning 8 Relationship marketing and customer loyalty 8 Store layout & location 9 Retail value chain 10 Global expansion 11 Information Technology 12 Conclusion 12 Recommendations 13 References 14 Introduction Topshop, launched in 1964 in the basement of a Peter Robinson department store, is a retailer of trendy, moderately-priced apparel (Biesada, n d) that has grown remarkably from humble beginnings to 300 stores in the UK and over 100 in international territories. The brand gained its iconic status in 1994 when it took over a 90,000 square feet space at London Oxford Circus where it remains to date (“About Us - Topshop,” 2011). The London Oxford Circus shop alone attracts over 200,000 shoppers per week and as such has earned Topshop the accolade to be considered as the world’s largest fashion store on the high street. Topshop’s phenomenal success can be traced back to 1985 when Jane Shepherdson, then the director of Topshop, decided to take the company in a new direction. Jane put up a team of 16 stylists and made them travel the world in search of new fashion ideas. This team moved from trendy neighborhoods, to catwalks to flea markets in places as diverse as Tokyo, Paris and New York looking for fashion trends to interpret (Coco, n d). Using the unique ideas they had encountered Jane’s team of stylists revolutionalized Topshop into a fashionable and trendy boutique. Since 2000, Topshop’s covetable collections have been made available over the Internet through www.topshop.com, which draws tens of thousands of anxious shoppers. Topshop is owned by Arcadia Group, UK’s largest privately-owned clothing retailer. The Arcadia Group owns six other high street best-known fashion brands namely: Topman, Dorothy Perkins, Burton, Evans, Wallis and Miss Selfridge. Cumulatively Arcadia Group has more than 2,500 outlets (“About Us,” n d). Topshop is their flagship brand. All the same, as the global economy is recovering from the recession, the fashion industry is experiencing intense rivalry. Sir Philip Green, the owner of Arcadia Group, believes that the fashion houses likely to emerge stronger from this current environment would be the ones who are focused on having good store environments, fresh products and ‘newness’, at low prices. Sir Green says, “It’s not going to be just about price, it’s going to be about ‘price and nice’” (Hawkes, 2008). Does Topshop’s retail strategy encompass “price and nice”? Industry at a glance The fashion industry has dramatically evolved over the past few decades. Fashion products that used to be luxury items are now considered as basic commodity products and are bought by almost all segments of the society (Mazaira, Gonzalez, & Avendano, 2003). Some of the factors that may contribute to this growing demand for fashion products are the continuous low prices brought about by an increasing number of target markets and transfer of manufacturing sites to developing countries especially in Asia. With an increasing number of players in the industry, the rivalry is intense. Topshop’s main competitors are Zara, H&M and French Connection (Biesada, n d). The fashion industry is also characterized by consumers with a strong buying power. Today’s customers are well informed and ask about human rights issues and environmental issues of where raw materials were sourced, while also being exacting about their quality demands. According to Porter (2008) such savvy customers can force down prices by playing Zara, H&M French Connection, Topshop and others against one another. Industry players must therefore be wary about this consumer ploy while simultaneously seeking ways to better each other in the market. Financial performance Today’s managers recognize the impact that measures have on performance (Kaplan & Norton, 1995). Essentially, what you measure is what you get, and financial performance is one critical measure for assessing strategic planning and control (Walters & Hanrahan, 2000). Financial performance measures indicate whether the company’s strategy, implementation and execution are contributing to bottom-line improvement (Kaplan & Norton, 1992). For Topshop’s financial performance we have to use the financial results of Taveta Investments Limited, the holding company for Arcadia Group. In this light, it is important to note that though Taveta Investments Limited results represent financial data for several companies, Topshop generates profits which are nearly a third of the underlying operating profit generated across Arcadia (Hawkes, 2008). From Taveta Investment’s financial results for the 52 weeks ended August 28, 2010 the group’s operating profit had increased by 10.4% from ?253.3 million to ?279.6 million; while its debt had decreased by ?146.3 million, from ?610.4 million in the previous year to ?464.1 million. Total cash generated was ?386.2 million, which was ?42.8 million more than the previous year (“Taveta Investments Financial Results,” 2010). These are all very positive results. There are several critics who indict financial measures as being inadequate to guide and evaluate the journey that organizations such as Topshop must make to create future value (“What is the Balanced Scorecard?,” 2011). These critics would rather focus on investments in suppliers, customers, processes and innovation to reflect the performance of an organization. However, Kaplan and Norton (1992) argue that a well-designed financial control system can actually enhance rather than inhibit an organization’s performance improvement program. Carrying on with this line of thought Topshop’s improved financial statements reflect that the organization has a strong retail strategy that could counter the strong consumer power and complex supply chains. These improved figures, especially when one considers that Topshop’s key markets are coming out of an economic recession, could be reflecting higher market share, asset turnover or reduced operating expenses which are positive results for investors. Effect of market orientation Thinking in terms of market (not marketing) is essential in the highly competitive arenas of today (Slater & Narver, 1994). Topshop runs on an incredibly fast product cycle and this allows them to stay at the cutting edge of fashion where trends emerge on a weekly basis (Daniels, 2009). Market orientation refers to the organization-wide generation of market intelligence, dissemination of intelligence across the departments and organization-wide responsiveness to it (Jaworski & Kohli, 1993). Topshop has aligned its operations, processes and value-chain to enable it meet the short lead times required for it to satisfy its customers’ expectations and to have a competitive advantage over its rivals. However, when we refer to the short lead times alone it is difficult to differentiate Topshop from its main rivals: H&M and Zara. The three major components of market orientation are customer orientation, competitor focus, and cross-functional coordination. Customer orientation Customer orientation involves understanding that buyer value can be created at any point in the chain by making the buyer more effective in its markets or more efficient in its operations (Slater & Narver, 1994). Most clothing retailers segment their market by age group. Topshop stocks items ranging from US $15 to US$800 with their target being intelligent and savvy bargain-hunters and not age (Daniels, 2009). This makes their stores to be crowded with a spectrum of “fashionistas”. In line with its across all ages marketing strategy, Topshop offers students 10% discount all year round for purchases made both in-store and online (“About Us - Topshop,” 2011). More about customer orientation is found in the sections on store layout and location, and relationship marketing and customer loyalty. Competitor focus Competitor focus requires the company to keep competitors from developing an advantage by responding rapidly or anticipating their actions. It involves identifying and understanding the principal competitors’ short-term strengths and weaknesses and long-term capabilities and strategies (Slater & Narver, 1994). Other than getting its new designs quickly to market, Topshop differs from Zara and H&M, in that it appeals to a broader demography. It has also been able to quash the notion that inexpensive equals cheap, by emphasizing quality and maintaining the low prices (Smith, 2007). This mix of fashion and value has made Topshop a hit with both the masses and celebrities. The company also offers several services such as students, Topshop cards and personal shopping to sustain their competitive advantage. As we have already stated Zara, Topshop and H&M have similar fast product cycles, wide product lines, numerous options in collections and styles and established brand image. Both Zara and Topshop use scarcity marketing, where they deliberately make a limited number of fashionable clothing available at their stores and as such make them desirably rare. This semblance necessitates Topshop to work harder to differentiate itself now and in the future. Cross-functional coordination Inter-functional coordination is the understanding that at any point in the buyer’s value chain there is an opportunity for a seller to create value for the customer. Thus any individual in a seller firm can potentially contribute to value creation (Slater & Narver, 1994). At Topshop the culture of value is propagated right from the suppliers to the retail shops. Strategic positioning In contrast to operational effectiveness, strategic positioning refers to performing different activities than rivals or the same activities in a different way. While the model itself is often very easy to replicate, technology is essential to creating and enabling novel approaches to business that are defensibly different than rivals and which can be quite difficult for others to copy (Cuc & Tripa, 2007). However the challenge we find is that Zara and Topshop have almost identical strategies. Both companies have vertically integrated business model spanning design, just-in-time production, marketing and sales. Also, both companies have adopted a balanced mixture of standardization and customization with the objective being to be able to adapt their offers to customers’ desires at the shortest time. Relationship marketing and customer loyalty Topshop offers several services to its customers to win their loyalty. Topshop understands that students have limited budgets and thus offers a 10% discount to this category of customers all year round (“About Us - Topshop,” 2011). Other services geared towards creating customer lock-in include Topshop card, personal shopping and scarcity marketing. Within the personal shopping service there are several offerings depending on the appointment that the customer picks. For example the “in and out” personal shopping is a 30 minute appointment for the client who knows exactly what she wants, while the “miracle worker” is a two hour appointment for a total wardrobe overhaul for those customers who are completely in the dark about what they want or what suits them (“About Us - Topshop,” 2011). Topshop’s regular updating of fashion products, huge breadth and depth of product line and broad item price range, from US $15 to US$800, assures its customers of obtaining something that matches their fancy. The in-store style advisors are especially essential in building strong relationships with customers to the extent that they may even be consulted on items that do not fall within Topshop’s product lines. When we look at Topshop’s retail strategy we observe the presence of all the essential elements that encourage a customer to be loyal: good prices, remarkable product quality, excellent customer service, god brand strategy and good store locations. Store layout & location As already mentioned, Topshop unlike other apparel retailers targets a broader demography. It apparels target “fashiostas” from celebrities to the masses. To access such a broad demography, Topshop stores are located where such a diverse target market exists, which is the high street. The shops are generally big and spacious – to accommodate Topshop’s broad product line - and are often located in cities with huge populations such as Dublin, Edinburg, London, New York and Tokyo. Customer orientation at Topshop is also manifested through its stores. Daniels (2009) describes the Topshop in-store experience as being Disney-esque for example the store in New York has style consultants, a DJ booth, a hair-salon and weekly parties. These additional services increase convenience for customers who can now have a one-stop shop experience. All Topshop stores have employed several style advisors to upsell its products inside the stores, as well as to add an additional status appeal to its customers. This demonstrates that at any store customers can receive expert advice on what to or not to purchase. This interaction between in-store stylists and customers increases buyer-seller intimacy and instigates loyalty and customer lock-in. The UK Topshop customer has more than 300 stores spread through the isles while the international customer has been catered for with a few physical stores and a robust online portal. Topshop’s online store has not been in operation for long and the company first listens to its customers before increasing the regions that can be served by it. For example in 2010, Topshop.com added 12 new international shipping destinations following comments on its Facebook and Twitter pages, and analysis of its website traffic (just-style.com, 2010). However, Topshop.com web shopping experience is hampered by difficulty in getting the right images, and limited detail and size for accessories (Fashion marketing, 2008). The shopping experience at Topshop.com is not as enriching as walking into their physical stores. Also the limited number of countries that can shop through the website minimizes its potential to penetrate more international markets. Topshop needs to find ways to enhance the online experience while increasing the number of localities that can be served. Retail value chain Pfitscher and Wei (2005) describe a value chain as the value adding processes and activities of a products life cycle. Topshop like most apparel retailers has contracted overseas factories to manufacture their apparel while they concentrate on the design and creation of labels. This has resulted in a broadening of core competencies and Topshop entering into other facets of the supply chain. With increased off-shore sourcing, there arises the risk of slower reaction time and longer lead times. Topshop’s short lead times imply the presence of an efficient supply chain that is enabled by information technology (IT). We are informed that Topshop receives new orders with a lead time of two week in comparison to the six weeks that is the norm for traditional clothing retailers (Smith, 2007). The use of IT helps businesses to add value to each stage of production because data can be communicated quicker and more accurately. Topshop’s complex IT system uses an allocation system that leverages recent sales history and/or store plans to understand demand signals and send items to locations most likely to sell-through quickly. This often begins with Topshop.com adding new international shipping destinations based on web traffic and then opening new stores within those locations if market analysis shows presence of a market. Global expansion With the European markets becoming saturated, Topshop has been looking at stretching its product line and furthering its global expansion. The retailer is planning on expanding its operations in the US with additional sites in New York, San Francisco, Miami, Los Angeles and Las Vegas (Catherwood & Shannon, 2010). Similar store number expansions are expected in Japan. New market entries are expected in China and Brazil (Catherwood & Shannon, 2010). The Asian markets have been thriving in spite of the recession and all major global retailers seek to expand their market share there. Sir Philip Green, the owner of Arcadia Group, is no different. The Asian economies reported positive export growth while the recovery in the European economy as a whole remains sluggish (CB Richard Ellis, 2010). An international expansion strategy would be advisable considering that the cultural diversity could aid fast fashion. Also of note is the report by CB Richard Ellis (2010) that showed fast fashion and Food and Beverage chains as being the major drivers of demand in the post-recession era. Nevertheless, Sir Green acknowledges that to grow much larger, Topshop will have to make some radical changes to its existing supply chain and franchising model (Smith, 2007). Currently Britain is the hub of a centralized distribution system. Sir Green acknowledges that Topshop needs to develop an efficient, decentralized distribution system if it seeks to make a successful significant global expansion (Smith, 2007). Information Technology Information technology (IT) directly impacts the efficiency of the supply chain (Berman and Evans, 2006). The whole supply chain for apparel retailers is dependent upon fast data exchange (Cox and Brittain, 2004) especially at a time when most apparel retailers have outsourced their manufacturing functions to Asia. IT is not just experienced within the supply chain, it is also vital for e-commerce (topshop.com), enterprise retails systems, business intelligence and store operation systems. Topshop launched its web shop as part of its strategy to expand across the globe. Even though the shopping experience at Topshop.com is not as enriching as walking into their physical stores it has enabled the organization evaluate decision for entering new markets or not. Conclusion From the case, Topshop’s success as an apparel retailer is largely based on its fast product cycle, wide product lines, a wide price range and a good brand image. Topshop’s current strategy is working well reflected by its increasing sales and growth of number of stores across the world. However, we doubt that Topshop has been able to adequately differentiate itself from its competitors to the extent that its competitive advantage remains sustainable. Zara especially seems to have a bigger advantage over Topshop in the international market. Topshop should consider the following recommendations to ensure the future success of the company. Recommendations Topshop should improve the online shopping experience for its customers for example Fashion marketing (2008) points out that customers have difficulties in getting the right images and there is limited detail and size for accessories. Also, the company would need to increase the number of locales around the world that can utilize its web shop. This is crucial because Zara, Topshop’s top competitor, is considering pursuing this multichannel approach to apparel retailing. Whereas we are informed that Topshop is considering changing from a centralized to a decentralized distribution system, the firm needs to act fast if it is to stay ahead in this highly competitive industry. Finally, Topshop needs to continue with its expansion strategy especially in the United States where it has a limited physical presence. Too much of a presence in Europe may expose it to regional risks such as recession, changing supplier, buyer behaviors or even to legislative changes. References About Us. (2011). Arcadia Group Limited. Corporate Portal, . Retrieved March 29, 2011, from http://www.arcadiagroup.co.uk/about/index.html About Us - Topshop. (2011, March 29). TOPSHOP. Corporate Portal, . Retrieved March 29, 2011, from http://www.topshop.com/webapp/wcs/stores/servlet/StaticPageDisplay?storeId=12556&catalogId=33057&identifier=ts2-about-us&intcmpid=W_FOOTER_WK39_HP_UK_ABOUT_US Biesada, A. (n.d.). Topshop information and related industry information from Hoover’s United Kingdom (UK). Hoovers. Retrieved March 29, 2011, from http://www.hoovers.com/topshop/--ID__fffryyssrtrtrkfyjs--/freeuk-co-factsheet.xhtml CB Richard Ellis. (2010, February). Global Market View. CB Richard Ellis. Catherwood, A., & Shannon, S. (2010, May 20). Billionaire Philip Green Eyes Brazil, China for Topshop Chain - Businessweek. Bloomberg.com. Retrieved March 30, 2011, from http://www.businessweek.com/news/2010-05-20/billionaire-philip-green-eyes-brazil-china-for-topshop-chain.html Coco. (n.d.). Topshop - Fashion Label. tendances de mode. Retrieved March 29, 2011, from http://www.tendances-de-mode.com/en/2007/08/08/277-topshop Cuc, S., & Tripa, S. (2007). Strategy and Sustainable Competitive Advantage - The Case of Zara Fashion Chain. University of Oradea. Daniels, M. (2009, May 4). TopShop: deconstructing the retail-marketing phenomenon. mdaniels.com. Retrieved March 29, 2011, from http://www.mdaniels.com/topshop-marketing/ Fashion marketing. (2008, November 2). Fashion Marketing in London: Week 2 Excercise - Topshop SWOT Analysis. Fashion marketing in London. Retrieved March 30, 2011, from http://marangonimarketing.blogspot.com/2008/11/week-2-excercise-topshop-swot-analysis.html Hawkes, S. (2008, April 11). Sir Philip Green predicts record year for Arcadia’s Topshop and Topman. Times Online. Retrieved March 29, 2011, from http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article3723920.ece Jaworski, B. J., & Kohli, A. K. (1993). Market Orientation: Antecedents and Consequences. Journal of Marketing, 57(3), 53-70. Kaplan, R. S., & Norton, D. P. (1992). The Balanced Scorecard: Measures that drive performance. Harvard Business Review, January-February(92105), 71-79. Kaplan, R. S., & Norton, D. P. (1995). Putting the Balanced Scorecard to Work. In C. E. Schneier, D. G. Shaw, R. W. Beatty, & L. S. Baird (Eds.), Performance measurement, management, and appraisal sourcebook (pp. 66-78). Amherst, MA: Human Resource Development Press. Mazaira, A., Gonzalez, E., & Avendano, R. (2003). The role of market orientation on company performance through the development of sustainable competitive advantage: the Inditex-Zara case. Marketing Intelligence & Planning, 21(4), 220-229. Pfitscher, J., & Wei, J. (2005). Value Chain based E-Business in the Apparel Retail Industry. The Proceedings of the Information Systems Education Conference 2005. Columbus, OHIO. Porter, M. E. (2008). Five Forces that Shape Strategy. Harvard Business Review, (R0801E). Slater, S. F., & Narver, J. C. (1994). Market orientation, Customer value and Superior performance. Business Horizons, (March-April), 22-28. Smith, A. (2007, May 24). How Topshop Changed Fashion. TIME. Retrieved March 30, 2011, from http://www.time.com/time/magazine/article/0,9171,1625185-1,00.html Taveta Investments Financial Results. (2010). . Arcadia Group. Retrieved from http://www.arcadiagroup.co.uk/assets/pdfs/ArcadiaFinancialResults2010_v2.pdf Walters, D., & Hanrahan, J. (2000). Retail Strategy: Planning and Control. London: Macmillan. What is the Balanced Scorecard? (2011, March 29). Balanced Scorecard Institute. Retrieved March 29, 2011, from http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx just-style.com. (2010, March 23). UK: Topshop expands website’s international reach: Apparel and textile news & analysis. Just-style.com. Retrieved March 30, 2011, from http://www.just-style.com/news/topshop-expands-websites-international-reach_id107221.aspx  Read More