Mango expands in the world markets - Essay Example

?Retail trends of the world’s pret-a-porter market In 1960s the fashion market was dominated by haute couture but this trend was going to change rapidly with the emergence of mass-consumer society and pret a porter or ready-to-wear clothing1. Initially consumers we not very welcoming of the idea and consider ready-to-wear clothing inferior, but by 70s the trend changed as pret a porter showcased collections at par with haute couture 2.Over the years businesses have proven that the retail provides a brand with the highest number of options to showcase its potential3). It is noteworthy that Spain was one of the countries which had a significant impact of the European financial crisis in 2008. This worsened the situation for most Spanish businesses as there was low productivity, high unemployment and low FDI4 . Even during these tough times fashion brands like Zara, Mango and Massimo Dutti were well prepared for the crises due to their high international presence, adaptation and up-to-date collections based on urban trends5. Mango Positioning and Competitive Environment Mango is one such popular pret a porter brands that have an international presence. Mango’s aim right from the beginning has been to dress the urban young woman in premium quality trendy clothing at very affordable prices6 . Mango has been expanding rapidly globally and has managed to attain its goal “…of having a store in every major city of the world” 7. Mango has its origins in Spain and initially Spanish consumers were price-conscious but not as fashion-conscious as their Italian counterparts. So it was Italy who entered the international arena first. Mango had a small presence at the time when they entered the international market but they followed the franchising model and also offered return policies to their consumers8. Key Players and their Performance Mango globally is recognized as a key player in the industry of “fast fashion”, other key players include megabrands like Sweden’s H&M, Spanish Zara, American Gap and the U.K. retail chain New Look 9. By “fast fashion” we mean that these stores turn-over their inventory on a weekly-basis as opposed to a monthly one10 .The key concept promoted by all these brands is to make trendy and inexpensive clothing accessible to everyone at a very rapid pace. Currently a dominant trend in the apparel retail has been that they have started forming alliances with celebrity designers. This strategy has worked wonders for most brands and pulled the retail label in-line with high-end celebrity brands. According to Interbrand H&M has been particularly very ardent towards embracing this trend by working in collaborations with the likes of Stella McCartney and Roberto Cavalli (2008). Zara however has not embraced this trend very enthusiastically and sells a somewhat similar product and price range, Mango has attempted to differentiate itself by bringing designers like Mila Jovovich11 , Together they work towards providing affordable clothing to people while having been designed by a top-notch designer. Zara is a member of the Spanish group Inditex, which is considered the world’s largest clothing retailer12 . Presently Zara is showing phenomenal growth and performance as compared to others, here is a representation of sales performance for the brand and some other retail brands for the year 2001 and 2002. Source: Torun, F. “ZARA-A European Fashion Brand.” Mango Positioning and Closest Competition In terms of branding Mango would be a “branded own label” by this we mean that they have a private label proposition as well as environment and pricing strategy13. However, in light of the positioning Zara would be the closest competitor for Mango, because their target market, country of origin, business methodology I very similar. Both are examples of “fast fashion” retailers who have invested extensively n designing and supply chain management to ensure that their inventory levels are managed every week rather than on a monthly basis. Mango handles all steps from product conception to the first point-of-sale 14. Unlike Mango, most of the production for H&M is outsourced15 and they also have greater lead-time than either Mango or Zara. Zara on the other hand has used a different approach in positioning as opposed to their home country, this is specially applicable to UK where they charge premium prices that can be as high as 40% more than Spain16 . This strategy has distinguished Zara from mass market brands. Another rival in the field is H&M but their pricing is somewhat lower than Mango. They focus extensively on advertising and store displays17. Mango in international markets Mango opened their business in Spain and in 1992 they extended their boundaries into the international markets by opening two retail stores in Portugal. The main objective for Mango is to design clothes for a woman who can use them for daily wear as well as special occasions. This has led for Mango’s unique approach of having design collections instead of individual garments18 (www.ceeman.org). This has been made possible by their collaborative team of designers who are working on multiple dresses together instead of a designated one. Source: Mango Sustainability Report 2010 In order to succeed in today’s economy it is imperative that fashion retails create a balance between their online and brink-and-mortar presence. Online retailing presently contributes greatly to the success of retail store however the presence of physical retail stores cannot be undermined19 . According to Pluknett consumer research, there has been significant impact of mail order and online presence for most retailers. This trend has led for key players in apparel retailing like Zara, H&M and Mango to move online with interactive websites and competitive prices . In fashion and apparel a great role is played by word-of-mouth and friends share their opinion of social websites and blogging. Retailers now focus on regularly maintaining their facebook pages and provide great offers and sweepstakes to their online audience. However it is expected that cell phones will play a very important part in the future as they are easily available and can now support fast web browsing easily. Mango’s Supply Chain According to Ghemawat & Nueno Mango is a global apparel chain, Mango and other such chains are classic examples of buyer-driven chains, by this we mean that these chains invest a great deal in research, design and sales and marketing20 . Moore suggests that marketing and operational efficiency and very vital for the appropriate management of supply chain for any retailer (2002). Managing a supply chain effectively can result in a significant competitive advantage for a brand. In the retail scenario it is almost the backbone. However, supply chains are difficult to manage and become exceedingly so when a brand crosses their boundaries. According to the Plunkett Research Ltd. Mango has a very cleverly designed their distribution system which gives them a distinct competitive advantage by keeping their inventory and products up-to-date (2008). This system allows Mango products to reach the consumers in as little as four weeks which is a phenomenal speed in retail clothing. Mango also uses a unique approach in facilitating fast purchases; they would display only size of a particular item in their retail stores. This facilitates a need for urgency in the customer as they are left wondering if they don’t do am immediate purchase the size may not be available later21, this strategy has worked well for Mango. Mango believes in two seasons each year spring-summer and winter-fall and designs four collections each year accordingly22 . They ensure that each garment has accessories which go together to complete “a look”, this form of bundling technique has worked well for the brand. Cultural issues are very important to address once a brand crosses their country’s boundaries. However, retail brands such a Mango, H&M and Zara have proven themselves by overcoming cultural barriers even “in the fickle world of fashion” 23. MNG Turnover Source: Mango Sustainability Report 2010 Impact of Trade Regulations According to the Harvard Center for Textile and Apparel Research, by 2005 the WTO eliminated the concept of quotas on textiles and apparel; this also had significant impact on FDI and trade24. However, it is noteworthy that although quotas ended back in 2005, tariffs still remain and are likely to be so for several years. Mango and FDI In light of the FDI theirs proposed by Hill (2010), Mango would fall in the Eclectic Paradigm theory because it incorporates a little of each of the economic theories of FDI. In terms of Ownership, Mango achieves a competitive advantage in terms of its innovative designs, expert supply chain management and also economies of scale in comparison to designer labels. In terms of Location advantages. Mango determines which location to enter prior to taking an action by measuring the market potential of the host country. They also determine the cost of production and transportation, cultural impacts and political scenario. A very key application of the Internationalization concept is that of ensuring that Mango has a presence in each major city of the world. Mango has maintained its identity in spite of cultural differences between Spain and their host nation. The international business practices of Mango have been a backbone from their exceptional business practices in terms of corporate social responsibility. Mango in America According to Harvard Center for Textile and Apparel Research between 1989 and 2004, apparel imports into the United States has risen remarkably from 21 billion USD to 65 Billion USD which represents about 60% of all the apparel sold in the country25. The World Bank Poverty Reduction and Economic Management Network suggests that the European market is vastly different from the American counterpart, this is so because the American is more homogenous in terms of size, tastes and preferences and also because of an increase in clothing imports have shown a significant potential for foreign brands in the market26 . So instead of focusing on exports, FDI in fashion retail holds much promise. According to Forbes, every year an average American spends upto 1700 USD on clothes alone (Farfan, 2011). This is a very attractive statistic for apparel chains like Mango who are aiming to enter the US market. Entry Barriers in US Market One very obvious entry barrier in the US market would be the high degree of competition not only from foreign brands like ZARA and H&M but also local ones like GAP. So getting a portion of the pie of the US market may be very lucrative but it is not an easy feat. Spanish apparel brands could have an advantage over American brands in terms of low cost of production but they would not match the Chinese low cost of production. As apparel is a labor intensive industry, any manufacturer who can save on cost of labor can gain a competitive advantage in terms of cost. US also have very stringent policies in terms of complying with environmentally safe business practices. Other barriers could be the cost of doing business in terms of high labor costs, taxes and other operating costs. Mango can establish their differential advantage by offering products in shorter lead times and keeping their stock up-to-date and trendy. Mango Strategy in United States By the time Mango made its presence in the United States competitive brands like H&M and Forever 21 were already present and doing business. Mango had to come up with a strategy to distinguish it from the competition. According to Coleman Research Group, Mango opened their first US store in South Coast Plaza Mall in California in 200627. They entered the US market with very aggressive goals of expansion and creating brand loyalty. In spite of their popularity in Asia and Europe, Mango did have a tough time penetrating the American market. The American consumer did not know who they were and their low advertising during launch did not help the brand28. Mango also put all their stores in malls and not on separate locations on the main street. Soon Mango changed tactics and launched the brand in collaboration with the American household name JCPenny. Mango has recently collaborated with the retail chain JCPenny. They have introduced the concept of MNG which means “shop-within-a-shop”. This move has provided access to Mango to open 72 MNG by Mango in the 42 states of United States of America29. The Mango collections available at JCPenny MNG include business clothing, sports-wear and accessories. The concept is good because it has minimum risk of high investment in terms of store-space but and also provides the benefits of brand exposure with multi branding. JCPenny can benefit with the collaboration too as Mango will bring in their target audience of young women that are style-conscious and trendy. For retail clothing a very big challenge is to stand out, offer a specialty item that is not available elsewhere. The exclusivity of JCPenny and Mango collaboration in breaking the “sameness” and “me-toos” has been very effective as customers know that MNG clothes will not be available elsewhere30. Source: Foreign Retailers in the U.S. Fashion Retailing- March, 2009 Mango’s Entry into the Asian Markets Last year very interesting trends were observed in the Asian markets, there was a change in “balance of power” as China replaced Japan as the world’s second biggest economy. On the other hand the political unrest has had a negative impact on the economies of Egypt and the Middle East. However according to a study conducted by A.T.Kearney, China appears to have the most attractiveness in apparel retail in Asia, followed by UAE and Kuwait31 . China appears to be a good candidate because of their high population and high disposable income of their middle class, which is a target market for Mango. Rank Country Market Attractiveness Retail Development Country Risk Score 1 China 37.0 14.3 10.1 61.4 2 UAE 38.8 8.2 11.9 58.9 3 Kuwait 31.4 7.2 9.9 48.6 4 Russia 30.4 8.1 7.8 46.4 5 Saudi Arabia 25.6 7.4 10.9 43.9 6 India 25.8 8.0 8.2 42.0 7 Brazil 23.6 7.5 9.0 40.1 8 Turkey 21.3 7.3 8.8 37.4 9 Vietnam 23.3 6.9 7.1 37.3 10 Chile 16.4 8.3 12.2 36.9 Source: Retail Apparel Index-2011, http://www.atkearney.com Prospects for Mango in Retail in India India is a very fast growing market and has tremendous potential for the Mango brand. India also has great potential to grow because they have a large number of young populations32 . According to Selvarasu a massive two-thirds of the Indian population falls under the age of 35 and also hosts 25% of the global population of people under the age of 23. This is a very attractive statistic for Mango because they can attract the target market before they start earning at the age of 23 and have considerable amount of disposable income as they grow older, by that time they will have established considerable brand loyalty and recognition for Mango. The following table shows the untapped market potential for India in comparison to other Asian countries and the United States. Source: Retail Market and Opportunities. A report by Ernst & Young for IBEF. P-7 Factors Effecting Mango’s performance in India In India business conditions are very conducive for FDI. In big cities extensive support is provided to retail businesses by the government to facilitate business in the region which leads to economic development33. According to the Tax Incentives and Foreign Direct Investment Survey conducted by the United Nations, the Indian government provides incentives to FDI in terms to tax benefits and exemptions based on sectoral incentives, regional incentives as well as free trade zones (2000). From an economic perspective, the cost of skilled labor is much lower than other countries such as Singapore and Malaysia. Source: Retail Market and Opportunities. A report by Ernst & Young for IBEF. P8 The living standards of Indians have improved significantly which creates tremendous opportunities for retail brands like Mango. According to Kulshrestha India’s entry into the WTO has provided Indian shoppers with a great deal of choice with international brands coming in. The Indian government had softened their stand on imports by reducing import duties from 100% to 30% and in order to promote FDI in apparel industry, they allowed 51% of single-brand stores34. Although Indian consumers are willing to pay the price for quality but in order to appeal o a larger audience Mango would have to ensure their prices are reachable by the Indian consumer. Mango entered the Indian market in 2001 with collaboration with Mumbai-based fashion distributor Major Brands and is showing a lot of promise35. References Kearney’s 2011 Retail Apparel Index Finds China is Most Attractive Emerging Market, Followed by U.A.E. and Kuwait. A.T. Kearney Inc. [Online] Available at [Accessed 1 March 2012] Abernathy,F. , Volpe, A & Weil, D. 2005. The Future of the Apparel and Textile Industries:Prospects and Choices for Public and Private Actors. Harvard Center for Textile and Apparel Research Berman, B & Evans, J.R. 2006 Retail Management: A Strategic Approach 10th Edition . Lebanon, Indiana, U.S.A.: Prentice Hall; 10th edition Best Retail Brands 2011. Interbrand. Creating and Managing brand value. 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[Online] Available at < http://www.ibef.org/download/Retail_220708.pdf> [Accessed 1 March 2012] Selvarasu, A, Agarwal, A, Filipe, J, Jha, R, & Ferreira, M 2010, 'MODEL PREDICTING PROFIT AND TURNOVER PATH OF APPAREL-RETAIL COMPANY', Journal Of Economics & Engineering, 2, pp. 4-13, Academic Search Complete, EBSCOhost, viewed 2 March 2012. Tax Incentives and Foreign Direct Investment: A Global Survey, UNITED NATIONS. 2000. ASIT Advisory Studies. No. 16. New York. [Online] Available at [Accessed 1 March 2012] Version: December 22, 2005 Read More