Macroeconomics Analysis of N Brown Group Plc - Essay Example

? Contents Overview of the Company 3 PEST Analysis 3 Political 3 Economic 4 Social 5 Technological 6 Five Forces Analysis 6 Competitive Rivalry 6 ThePower of Suppliers 7 The power of buyers 7 The threat of substitutes 7 The threat of entry 7 References 8 Overview of the Company N brown Group Plc is one of the key market players in e-based home-shopping retailing industry. It is included amongst the largest home-shopping retail businesses in Britain. The basic idea that N Brown Group plc adopts, is the marketing and distribution of its offerings through catalogs, emails, e-marketing tools etc. The company has clothing and households as major offerings and has distinguished its products by acquiring and generating a number of brand names like JD Williams, Ambrose Wilson and others. The company captures its target population by segmenting the whole in to two major groups: under-50 target group and 50 plus target group. The products that N brown Group Plc offers include ladieswear, footwear, menswear, and home & Leisure with their respective revenue percentages of 48%, 11%, 13% and 28% (N Brown Group Plc 2012). Over 50% of the total sales are earned through the online retailing procedures including 16% online sales increase attributable to the year 2012. In order to take an investment decision, there are a number of factors other than or complementary to the profitability and financial position of the company to be considered. These issues are related to the environment that the company is operating in and the industry that it is working under. This paper, hence, aims at providing an environmental and industry analyses of N Brown Group plc using PEST analysis and porter’s five forces as tools. PEST Analysis Political The free trade agreements topped up by the globalized economy has led N Brown Group Plc to spread and strengthen its business in countries including both developed and developing countries. The share of its suppliers categorized geographically, includes China, India and Bangladesh, Other Asia, UK, EU and Other with 62%, 11%, 7%, 11%, 5% and 4% respectively. Like Marks & Spencer, Tesco and many other retailers, N Brown Group Plc also expanded its operations around the globe. The terrorist attacks and political instability in the developing countries hinder the operations, yet the low cost production and distribution evens out the issues. The company, in order to avail political support and appraisal, follows an Ethical Trading Policy for safe and healthy working environments to the workers in every country of its operations (N Brown Group Plc 2012, p. 21). The employment laws and legal concerns relating to this area are, hence, harmonized to a great extent. Economic The retail industry is highly sensitive to the interest rate fluctuations and economic downturns. The recent recession has made it difficult for the companies to increase their sales growth as the inflation and income growth are both unfavorable to the businesses (N Brown Group Plc, 2012, p. 09). The recent development towards a better economy shows signs of recovery in the economy. The company’s increase in revenues (by 4.8% in 2012), in a slow and downward moving economy, are related to the company’s individual efforts to reduce costs, increase sales and earn consumer confidence. In order to compete over prices and win more customers the company is continuously improving its e-based business environment. The recent financial year saw an increased profitability due to an increase in the online sales. It has been observed that online sales are 25 percent more profitable than telephone orders with reduced costs. As per the changes made in the online shopping database and wit the introduction of ‘my account’ facility, telephone sales have been reduced by 17% compared to the overall increase in the company’s sales (N Brown Group Plc, 2012, p. 11). The economic factors also affect the company when managing the supply chain. The increase of 160% in cotton prices during the year 2011, for instance, with a remarkable increase in raw materials, like polyester and fibers, due to oil price boosts created difficulties for the company to manage its prices (FE Investegate, 2011). Social The fashion industry is highly susceptible to changes as per the values, cultural changes, weather conditions, style preferences and lifestyles of the targeted population. The changing trends need to be incorporated effectively in the company’s plans to stay in business. N brown Group Plc understands the social need of people to acquire branded, celebrity designed and highly reputed products to maintain their social status (FE Investegate, 2011). Celebrity endorsement and brand awareness gives and will give N Brown Group Plc an advantage of keeping the prices, and hence the profits, higher. Moreover, the social acceptance of online purchasing has a stronger impact on increasing sales of N Brown Group Plc. Research Suggests that online spending has increase by 35% in the UK (Employee Benefit Org, 2008). The company’s focus on improving the online system is in line with this socially acceptable practice followed by the customers. Group annual reports for 2012 suggest that most of the ?19.9m expenditure was invested in the online systems which earn a major portion of the total revenues that the company earns. Since environmental concerns are of greater value to the clients these days, N Brown Group Plc has taken initiatives and reduced the emission from diesel, gas and electricity by 6.2% since 2008.The Company further recycled 99% of wastes to increase its environmental credibility (N Brown Group Plc). The business employs 56% of females and provides incentives including pension, healthcare, holidays, employee counseling and other voluntary benefits to motivate and retain the staff. This further enhances the organizations value and credibility in the consumer, government and other stakeholders’ views. Technological The increased concentration on online shopping has created a large number of opportunities for N Brown Group Plc. The business has kept its options open and is continuously opening new and advanced ways to capture a wider population. The use of its new ‘my account’ facility is an example of its technological focus to increase profitability as the telephonic orders were reduced which were more costly and less in value. The ‘mobile-optimized checkouts’ and ‘Magic Mirrors’ are two other examples of the business’s technological advancement and investment to attract and retain consumers. The association of magic mirrors, for instance with social websites like facebook, provides clients with an option to attain comments and reviews from friends and people. Such exciting innovations attract customers with the uniqueness of the ideas and social exposure to the consumer’s lifestyle (N Brown Group Plc, 2012, p. 4). Five Forces Analysis Competitive Rivalry The competition in the fashion and clothing industry is higher than usual. The clothing and fashion products provided by the key market participants like Nike, Marks & Spencer and many others have higher reputation in the industry than N Brown Group Plc. However, the extremely competitive and technologically advanced online infrastructure is a differentiating factor for the company. Moreover, the company is continuously developing and acquiring brands to capture market. The operating profits of the company in 2012 are lower compared to increased revenues as the company has proposed aggressive discounts to capture the dormant customers increase the customer base. Price competition has made it difficult for the company to boost profits. The Power of Suppliers During the year 2011, an increase of 7% in sales prices was observed which was brought in due to the increased prices forced by the suppliers in Far East (FE investigate 2011). This shows that the suppliers’ power is high. However, the company continues to look for cheaper alternatives. The power of buyers There re numerous alternatives with an extremely high competition in the fashion and clothing industry. As a result, the power of buyers is high and they may switch in case of any discrepancy related to the quality, expectation gap or loss of reputation. This keeps the company moving towards new designs, better infrastructure and unique ideas to capture customers and retain the market share. The threat of substitutes The easily available substitutes like M & S, Nike and other local brands keep this threat high. The reputation and high social value is an even greater threat to the products and offerings of N Brown Group Plc. The threat of entry The competitive environment makes it difficult to capture the share of N Brown Group Plc in the short run. It is difficult to enter and cover the global market with ease and in a short span of time. Moreover, the consumers’ need of social recognition makes it difficult for a newer competitor to share the market and pose a threat to an existing and running business. The companies that exist have already reached economies of scale and it is difficult for a new competitor to maintain the price prevailing in the market. References N BROWN GROUP PLC. (2012). Annual report and Financial Statements 2008 [online], N Brown Group Plc. [Accessed 3 March 2013] Employee Benefits org (2008, September). Discovery Service for Cybrary: Tailored to FIT.EBSCO Publishing Service Selection Page. Retrieved March 4, 2013, from http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?vid=11&sid=c6b7b472-797e-478f-a9de-d1b81fb18fb0%40sessionmgr10&hid=105 Fe Investegate (2011, May 10). FE Investegate |Brown (N.) Group PLC Announcements | Brown (N.) Group PLC: Final Results. InvestEgate | Company Announcements | Home | FTSE 100, 250, AIM, techMARK. Retrieved March 4, 2013, from http://www.investegate.co.uk/brown-(n.)-group-plc/rns/final-results/201105100700192501G/ N Brown Group Plc. (n.d.). N Brown Group plc - Environment. N Brown Group plc - Home. Retrieved March 4, 2013, from http://www.nbrown.co.uk/environment Read More