Fashion in the Midst of Recession - Research Paper Example

Fashion in the midst of recession BY YOU CONTENTS Introduction………………………………………………………………………. 2. Forces impacting business decision………………………………………………. 2.1 External forces…………………………………………………………… 2.2 Internal forces……………………………………………………………. 3. Strategies for launch of GIVe…………………………………………………….. 4. Recommendations…………………………………………………………………. References Fashion in the midst of recession 1. Introduction George Davies is looking to launch a new fashion line built on the back of a previous successful brand. Named George IV or branded as GIVe, this fashion line launch dedicates resources toward corporate social responsibility and also provides higher-end merchandise most associated with the latest fashion trends and catwalk models. The concern is whether or not the current recessionary environment creates opportunities or higher levels of risk when creating new business strategy for the GIVe brand. This report illustrates the impact on business decision-making from both internal and external influences, explains strategies used by Davies in launching this new line, and proposes recommendations about whether this new launch can provide a return on the investment. 2. Forces impacting business decision 2.1 External forces The PEST Analysis, as part of environmental scanning, provides an opportunity to witness the different external conditions that influence decision-making. This model recognises political, economic, social and technological forces that will determine a firm’s adaptability to external trends. From the political view, Davies’ new business intends to launch 25 stores. Success domestically will determine whether to take this brand international and strategy could be impacted by different taxation or tariffs on imported products, cutting into the profit margin. Depending on the country where Davies might export his goods, political forces can determine speed of new market entry or regulate volume being delivered. The economic environment plays a considerable role in how a business develops strategy. Where this new line will be introduced, the UK, there is a current recession that impacts consumers at all different levels and market segments. In response to consumers slowing their purchases, especially in retail, high-end companies like Versace have stopped production on five different product lines in lower-priced ranges since they were not showing signs of profitability (Choi, 2009). Further, Tiffany closed its business focusing on Iridesse pearl jewelry to focus on diamonds due to sales slumps (Choi). This illustrates how the economic environment drives companies to streamline their product lines or enhance their sales focus on higher-profiting products. Spending patterns in consumer groups can strongly impact strategic direction, especially at the operational level like at Versace. Social trends, also external, impact how a company conducts business in a certain environment. A recent survey of citizens in Asia identified that Asians tend to worry about money-related issues constantly, in much higher proportion that Germans or Americans (Blecken, 2009). Companies that will be selling their products on Regent Street will not only be selling to local markets, but foreign visitors as well. The social trend to have high concern with money could impact the business when travel is reduced or when purchases are scaled back to include less expensive alternatives. If the company hopes to take GIVe global, social worries about money would impact sales negatively in Asia. Socially, many companies are finding changes in buyer behaviour that demand guarantees. “Companies that offer no guarantees in their value propositions will have difficulty finding market share” (Alexander, 2009, p.17). Retail organisations generally have their own return policies and other short-term guarantees, however social pressures related to value might have companies in the fashion industry having to offer longer periods of return or quality discount guarantees in the event of defects or other production issues. Though the goal is not to discount, reinforcing the company’s or retailer’s commitment to handling customer issues in the event of quality defects or perceived inferior material in a form of value proposition could be a strategic option. Changes in social attitude about the role of a product and the company providing it have given rise to new consumer value focus. Brock (2002) offers that value based only on a product feature, pricing and performance cannot provide long-term results. This is driving companies to change their value focus to include lifestyle positioning through marketing and promotion and having to develop the internal culture and processes that can support new value focus or handle guarantees. 2.2 Internal forces With companies considering the importance of providing value today, aligning the organisation to meet external demand is necessary when developing strategic direction. The company needs some sort of model that helps to develop human resources talent and also focuses on enhancing productivity. In order to be successful in this kind of fashion industry, the company must have market orientation. Narver & Slater (1990) describe market orientation as a process with three parts: competitor orientation, customer orientation and inter-functional coordination. This means that the business must be aware of what competition is doing in terms of promotion, product or processes and then looking for methods to outperform these actions. Customer orientation is gearing the business toward providing total customer value through product offerings or through marketing positioning. Inter-functional is where the demands from the external environment impact business, as it deals with the organisational culture and organisational structure. Labour and their ability to accept change or adopt a new brand vision strongly impacts whether a strategic plan can be carried out. This might involve having to refocus on heavier training to meet sales goals or radically change elements of the supply chain or production in order to meet external demand. In order to have the components described by Narver & Slater, a business needs to be customer-centric. This includes setting the vision by asking how the product or service fits the customer’s lifestyle (Arussy, 2010). If changes need to be made to the physical product, is the internal production system equipped to give customers a better lifestyle-focused product? This type of strategy conducts considerable planning related to buyer needs and then restructures the business internally to meet these needs. In many modern organisations, the leaders use transformational leadership theory to build employee support for a new vision, using characteristics such as inspiration, encouragement, and decisiveness to build better relationships (Endrissat, Muller & Meissner, 2005). This new GIVe brand will need to be supported by office personnel, designers, research and development, or any other division responsible for production and distribution of the product. This means that their competency levels need to be superior, they must understand their role in the business from a human resources perspective, and they need to be encouraged to provide problem-solving ideas. Internal support and training needs are one major internal challenge that impacts how decision-making occurs. Strategic auditing of capabilities in all support roles should be conducted to identify weaknesses in the entire internal value chain. In times of economic recession or when labour audits indicate a problem offering support, a retail company can consider outsourcing or automating some of the sales force. The Internet can provide relevant and up-to-date sales information between different sales groups, automate certain support functions like pricing or proposal development, and can maintain a database of sales force customer contacts (Prasad, Ramamurthy & Naidu, 2001). If there are genuine budget issues related to labour costs, use of automated technologies to enhance different job roles can consolidate activities and assist in moving forward with the strategy despite the risks associated with high costs. Internal needs or lack of resources to devote toward training and development or building cross-functional teams could create an internal need to automate or use technology to improve supply chain or other areas related to fashion production and distribution. The internal organisational culture needs to be geared toward meeting the goal of launch and sales expectations for GIVe. The success of the brand is not just inside the retail facility, it is associated with the development of well-trained staff able to deliver quality, value and professionalism to business clients and internal sales representatives. Especially in an environment where the delivery of sales service is so transparent to the customer, launching a new brand without a diversity-focused organisation that promotes respect and talent development would meet with minimal positive results. It is about leading through integrity, being willing to admit a mistake is made and then taking corrective action proactively (Sawers, 2007). Getting employees to model these positive behaviours is the difficult part of organisational restructuring or new value focus. 3. Strategies for launch of GIVe Davies is attempting to launch the new brand by dismissing the risks associated with price sensitivity in certain markets during recessionary periods. Under Porter’s Five Forces model, buyer price sensitivity and how they identify with the brand are considerable forces that impact forward decision-making (quickmba.com, 2007). Davies is using his historical successes with different fashion lines in an attempt to use reputation as a main selling strategy. He, as a strategist, considers that the positive public relations materials illustrating his new fashion brand will be enough to outperform price-conscious consumers that have scaled back retail purchases in many different demographic segments. Davies’ overall opinion of the merchandise the company will be offering is that of quality that will generate interest through heavy promotional investment. This is a lifestyle-focused strategy that segments customers based on their psychographic marketing profiles that find value in catwalk advertisements and other media publicity associated with the designer or manufacturer. This strategic model relies on the social condition, primarily, as a means of outperforming competition. Davies also does not seem to consider the potential availability of substitutes, another external force, that could erode sales if this PR-focused strategy is unsuccessful. Higher-end retailers may be forced to discount merchandise to guarantee sales in a time where consumers are cautious about spending, therefore flooding the market with low-cost substitutes. Efforts to close unproductive lines at Versace and even Tiffany show indications that substitutes could be a legitimate risk to Davies when launching GIVe. This strategy is somewhat ethnocentric in relation to the level of reliance on brand reputation and designer reputation to launch during a period where substitutes are a real risk. GIVe is also using many strategies related to corporate social responsibility by offering a percentage of sales to charity. This is another push in the public relations-based strategy to link ethical business with fashion retailing. There is much pressure from consumer segments of all varieties in relation to conducting business responsibly, in areas of environment especially. Large retailers such as Tesco and Wal-Mart are committing millions of dollars in campaigns to reduce energy consumption or improve their carbon footprint (Winston, 2008). Consumers are also exhibiting what is referred to as ethical consumption behaviours linked to their social consciousness (Carrigan & de Pelsmacker, 2009). Pressures from other companies to meet green initiatives or satisfy clients’ social demands push other retailers to adopt these same principles. The risk to GIVe is whether this effort toward charitable corporate social responsibility will be noticed by buyers as a transparent profit move or a genuine concern for charitable organisations. However, by offering the donations on each piece of merchandise sold, Davies will be able to attract the buying attention of certain segments that value this type of business philosophy related to CSR, appealing to the growing need for guarantees. However, this group will likely make up a niche market segment and may not have enough resources to support Davies’ high profit expectations listed in the case. This represents a diversification strategy, but not associated with the product, rather surrounding elements of service. This includes organising the business to include different style consultants and the availability of in-store alteration services. Where rival competition is heavy, the company is looking to outperform other retailers by providing new service concepts in an effort to satisfy the consumer. However, a recent study found no clear link between customer satisfaction and loyalty (Pleshko & Baqer, 2008). This service concept strategy for competitive advantage might not achieve the loyalty expected for new market segments, with Davies relying on only current loyalists to the George brand of products. In-house alterations and style consultants represent budget costs associated with labour and are activities easily mimicked by competitors if they conduct their own environmental analysis and indicate it has built a positive brand identity with customers. If the strategic intent is loyalty creation through service redesign, there is no evidence that it will bring long-term success if the only outcome is customer satisfaction. 4. Recommendations Launching this new business idea at a period where low-end and high-end customers alike are scaling back purchases or considering new retail alternatives related to pricing seems like a risky venture. Heavy competition guarantees the availability of many different fashion substitutes, especially at a period where competitors are scaling back production or being forced to offer discounts to move merchandise. Even Davies, in the case study, identifies that many companies are turning toward low prices as a means to build sales interest. Davies believes that his change in the service elements and service delivery, coupled with public relations support, will build a positive brand. If Davies is going to rely on these elements to support GIVe, the promotion of value must be instilled. It is recommended to formalise a value proposition that describes the guarantees offered and clearly lists the benefits of new service philosophy. This value proposition can be displayed on the company or brand website or any other promotional materials that show the company’s strong belief in the provision of value. It should show how the company understands lifestyle and attempts to transform its service offerings into an experience rather than a visit to the clothing store. There is definitely a trend in buyer segments that demand more than just product or service value and it starts with propositioning value prior to launch. The largest threat is that the company’s new service offerings can be mimicked by other high-end retailers in an effort to seize market share from GIVe. There is nothing in the organisational model or the sales model that cannot be duplicated, especially in house consultants and alteration services. If another organisation recognises these competitive advantages and incorporates them into their model, anything making GIVe brand unique, other than the product itself, will be outperformed. The company needs to consider long-term strategies for unique service development that has contingency plans in place in the event of competitors adopting GIVe’s service model. The strategists should be asking what additional services could be launched in the event of competitor actions and does the organisation have the talent necessary to achieve support of new service ideals. It is recommended that the business devote more resources toward researching mid-priced to high-priced buyer segments to understand their perceptions of value related to service. Such research, in the form of questionnaires or surveys, can provide data about the elements of service most important in their retail experience and then begin developing alternative service plans in the event of competitors moving in on elements such as style consultation or alteration services provided in-house. Any reputable strategy for launching a new product requires having back-up strategies in the event of competitive moves, especially when they can be replicated quickly and rather easily by other fashion houses. It might be difficult to strategically differentiate service offerings from competitors unless they cannot be mimicked. References Arussy, L. 2010, Customers don’t buy what you sell, Customer Relationship Management, Medford. 14(2), p.12. Alexander, J. 2009, It’s still all about guarantees, National Underwriter Life & Health, 113(19), p.17. Blecken, D. & Leung, J. 2009, Asians more cautious due to slump, Media, Hong Kong. October 8, p.5. Brock, D. 2002, Is there real value in your value proposition?, Partners in Excellence. http://www.excellenc.com/Is%20There%20Real%20Value%20In%20Your%20Value%20Proposition%20DOE%20Version.pdf (accessed April 8, 2010). Carrigan, M. & del Pelsmacker, P. 2009, Will ethical consumers sustain their values in the global credit crunch?, International Marketing Review, London. 26(6), p.674. Choi, S. 2009, Global luxury brands’ strategies to fight recession, SERI Quarterly, Seoul. 2(4), pp.108-113. Narver, J. C. & Slater, S. F. 1990, The Effect of a Market Orientation on Business Profitability. Journal of Marketing, 54(4), pp. 20-35. Pleshko, L. & Baqer, S. 2008, A preliminary study of the relationships among consumer satisfaction, loyalty, and market share in health club consumers, Allied Academies International Conference, 13(1), pp.51-58. Prasad, V., Ramamurthy, K. & Naidu, G. 2001, The influence of Internet-marketing integration on marketing competencies and export performance, Journal of International Marketing, 9(4), pp.82-98. Quickmba.com. 2007, Porter’s Five Forces – A model for industry analysis. http://www.quickmba.com/strategy/porter.shtml (accessed April 9, 2010). Sawers, A. 2007, Importance of being honest, Financial Director, London, June, p.42. Winston, A. 2008, The Green Wave, Retail Merchandiser, 48(5), p.15. Read More