Retailing Strategy - Term Paper Example

Retailing Strategy I. Introduction During the past decades, the retail sector has experienced significant transformation due to the expansion of the global economy and wide use of Internet as a platform of trade. Over the last decade, the e-tailing in global clothing industry has been growing rapidly attested by Kearney’s Global Retail E-commerce Index showing that 19% of the total online sales comprised of clothing (Tandon and Choudhary, 2014). a. International retailing in clothing sector The rate of this phenomenal growth of clothing industry’s online sales however is disproportionate among regions in the world. For example, India which is known for its rapid growth did not share this phenomenal increase in retail investment and sales in the clothing industry in 2013. While it is experiencing growth similar to the industry increase around the globe, its domestic growth in online clothing retail is lackluster that it did not even rank as one of the world’s top 30 markets for online retail investment in 2013. Comparing it to the western market and other emerging markets, apparel e-tailing is on the rise. This growth however is likely to decline because the growth had been happening over the past decade and the market is approaching saturation (Appendix 1). The slow entry of high street clothing companies in e-tailing such as the case of Swedish fashion retailer H&M that took 13 years to launch its online platform after entering in the US market is not expected to compensate or reverse the saturation of the US market (Dishman, 2013). On the other hand, the world’s emerging countries have been undergoing a significant growth in term of apparel e-tailing. According to the global Retail E-commerce Index, the developing countries feature prominently as a whole, holding 10 of the top 30 e-tailing markets. Especially, China, with e-tailing value as USD 64 billion, continued to be at the top spot for the second year, followed by Japan and the US. We can cite for example the legendary Dr. Martins brand that manufacture and retail high quality boxing shoes. The brand became iconic that it even assumed other unofficial names such as Doc Martens, Docs or DMs. Dr. Martens shoes traditionally sell its product line through brick and mortar stores especially with the nature of its product and market where products need to be tested by its customers (typically athletes and sports enthusiasts). The change of strategy in marketing that included expansion of its product line to clothes, distribution channel (multimedia channels including e-tailing) and effective advertising surged its sales in “31 March 2013 by more than Ј34m to Ј160.4m despite a squeeze on consumer spending as revenue grew in all the group's regions across the globe. It is the sixth consecutive year of revenue growth, up from Ј67.4m in 2007” (Devlin 2013). b. Future trend in international clothing retailing At present, global clothing retailing trend goes into two directions. First is the adoption of multi-channels in the clothing retailing which is now happening and expected to continue in future. The second trend in clothing retailing is the increasing significance and role of customer service in e-tailing. II. Market Entry There are several methods on how a business can enter into the retail industry. The most common strategy is through direct exporting. Direct exporting as a strategy meant selling a company’s product in a foreign market. The platform in this Strategy could be multi-channel. It could be availed through the traditional contact or the use of internet as a platform to connect the exporter to the importer. The importer could either be a distributor that will resell the products or a direct customer. Indirect exporting on the other hand is the use of third party to export the product either to resellers or direct customers. Joint venture is a business arrangement formed by two entities to enter into a new market. Common model of joint venture as a business strategy to enter into a retail business is between a supplier (exporter) and a distributor with the two benefiting from each other’s comparative advantage. The distributor will contribute familiarity and distribution channel in the market while the exporter will provide the product that will satisfy a certain need/want in the market. Strategic alliance on the other is the formation of partnership between groups of exporters and distributors to cover more products and market that would strategically enhance their position to dominate the market. Direct foreign investment on the other hand is the infusion of capital, assets, technology and other business implements to create the product in the local market that will be retailed in the domestic and foreign market. These methods are shown in the diagram below. a. Analysis Entry Strategy of Dr. Martens Segmentation Theory Segmentation is determining the market through the geographic, demographic, behavioral and psychographic characteristics of the market. Geographic is the proximity of its target market to its traditional channels of distribution while demographic is the age, gender, occupation, socio-economic group classification of the market. Behavioral is the attitude of the market towards the product that will make them buy while psychographic is the consideration of the market’s lifestyle to better approach them in marketing. The behavioral and psychographic aspect of segmentation did not change much for Dr. Martens. The geographic and demographic consideration however expanded as customers are no longer confined within the radius of cities because ecommerce allowed them to reach customers even in remote areas anywhere in the globe as long as they have an internet connection. The demography of its customer also expanded as the product lines of Dr. Martens expanded. The demography of their customers now includes women, children as they expanded their line to women and children’s shoes and clothing. Target Traditionally, Dr. Martens only sell shoes with young adults as their target market. Their products are distributed at highly urbanized cities to appeal to the sophisticated taste of their market. Today, Dr. Martens expanded its product line to include clothing for men, women and children as well as shoes. Positioning b. PEST Analysis Political factor – clothing lines can now be freely traded in the world with the lifting of trade barriers such as Multifbre Agreement (MFA, 1974 to 1994) and the Agreement on Textile and Clothing (1995 to 2004). Dr. Martens can now freely retail its product lines anywhere in the world without being subjected to trade quota (Marouani 2009). Economic factor – technology and the recent financial crisis made the consumers to be price sensitive. This price sensitivity is not expected to change especially with the presence of competitors who are willing to cut their price deep to garner market share. Social factor – e-tailing had changed the behavior of consumers in a manner that made shopping for them convenient. More and more consumers are now receptive to the idea of online shopping without the presence of human interaction. Technological factor – technology made retailing cheap through e-commerce that requires very minimal overhead with a global reach that afforded retailers to cut their price further. This however made competition stiffer as more and more retailers are willing to cut their price online. c. Different Market Entry Strategies PEST analysis revealed that there is no legal barrier for Dr. Martens to retail in UK and elsewhere in the world. It has to however be aware of competition especially those who are willing to cut down their prices at a predatory level just to garner market share. This kind of pricing became possible with the advent of retailing in the internet as overhead costs are going down with a global reach. This challenge however can be overcome with an effective market entry strategy even in foreign market. Country Market Analysis Marketing Strategy Result Advantage Disadvantage Tokyo (Japan) Licensing Humid climate, which makes Dr. Martens more marketable due to its durability. Few competitors in the market. Culture difference: language. Clothing lines are designed for European taste. May not appeal to Asian taste High quality product with excellent service. Cooperation strategy with other companies for easy penetration Handbook and sign are written in both English and Japanese to adapt to the culture. No ownership in the deal equaling to minimal returns in the profit. Get loyalties and other returns. Developing the theme park by themselves. Pairs (France) Partnership Same weather in UK making the products very applicable to the French market Stiff competition. France being the fashion capital of the world Partnership with a local distributor who knows how to position the product better. Enhanced probability of profit despite stiff competition. Hong Kong (China) Joint Venture Danger of being counterfeited that would defeat the brand. Minimal competition in the same product line Joint venture with a local business organization to protect the brand from being counterfeited and to effectively retail the products at the right market Greater protection from counterfeit that could potentially undermine the brand. Ability to penetrate the right target market. III. Recommendation PESTEL analysis revealed that retailing particularly in the fashion industry has changed dramatically since the market was globalised. Moreso with the introduction of internet as a platform of business that made ecommerce as another viable channel of distribution among retailers. It also changed the way retailers and customers interact with each other. Competition however intensified with the import of cheaper textiles abroad. The financial crisis of 2008 also aggravated the competition as consumers became more price sensitive. Experts predicted that this sensitivity towards the price of textile will now remain. Retailing is no longer confined to traditional brick and mortar stores. Technology savvy consumers can now also go online to buy their clothes. This could be good and bad for retailers. This is good for retailers because this could widen their customer base at almost no cost. It could be bad if retailers cannot adapt to this change because the downward pressure in price brought by e-tailing can make retailers uncompetitive and putting retailers on the danger of being obsolete. Analysis however showed that changes brought by e-tailing will not render the traditional brick and mortar retailing to be obsolete. It is acknowledged that technology intensified competition particularly the downward pressure on cost, Retail High Street just cannot is still here to stay. According to experts is “There’s a level of tangibility with fashion” (Smith, 2009 pg. 20). And this applies to Dr. Martens as their traditional brick and mortar stores in Retail High Street are still frequented by customers. Their product lines also expanded and easily penetrated the market because it was reinforced by the durable Dr. Martens branding. The number of people who shops online may have increased but traditional retail high street stores where Dr. Martens shoes are sold still exists. Traditional retail still provides what online stores cannot provide – that is the warmth and engagement with customer and the provision of customer service that cannot be surpassed by e-tailing due to the sheer absence of human interaction (Anon. 2007). The new retailing landscape may now have become tougher for the players in the UK retail industry due to the pressure of competition and downward cost but it also presents an opportunity to retailers as customers can now be easily reached at a lower cost that could potentially make the company more profitable. IV. Conclusion The experience of Dr. Martens have showed that the evolution in retailing to include e-commerce can in fact be beneficial to a company for as long as it can adapt to this change. From a mere Ј67.4 m sales in 2007, it jumped to Ј160.4m in March of 2013 after the company adopted to the change in industry. Of course the increase in sales is not only attributed entirely to the creation of its online store http://www.drmartens.com/uk/ but also a host of other strategies such as expansion of product lines to include women and children clothing and effective endorsement of celebrities. This only meant that even if retailing will transform itself in a dizzying pace, business can still profit if can adapt to these changes. References Anon. 2009. High Street Retail: Consumers now demand year-round discounting. Marketing Week. 32(22): pp. 1. Devlin, E. (2013, August 8). Insider Media Limited. Insider Media Ltd. Retrieved March 2, 2014, from http://www.insidermedia.com/insider/midlands/96009-dr-martens-renaissance-continues-20m-dividend-payout Marouani, Mohamed Ali (2009). Is the End of the MFA a Threat? Review of Development Economics, Feb2009, Vol. (13):99-110. Appendix 1: Internet retailing by category in the US Source: HKTDC, 2013 From the table above, it can be seen that the compound annual growth rate of apparel retailing in the US during 2007-2012 is higher than the average growth rate in total e-tailing. However, the compound annual growth rate from 2012 to 2017 is expected to be 5.6, lower than the average rate among all categories. Read More