Analysis of UK Fashion Retail Environment - Essay Example

? Case Study Report Contents Contents 2 PESTEL analysis of UK Fashion Retail environment 2 Political Forces 2 Economic Forces 3 Social forces 3 Technical forces 3 Legal Forces 4 Key trends potential trends 4 Environmental forces 4 Analysis and evaluation of the organisation and its competitors 5 Future strategic direction, goals and objectives 6 Conclusion and final justification 8 References 8 PESTEL analysis of UK Fashion Retail environment Political Forces One of the key political decisions which affect the industry is the rate of tax levied on the retailers by the governments. Presently the corporation tax was cut down to 20 percent so that it can stimulate the economic activity of the industry. But with rising deficit the government can increase the tax at any time (Lorat, 2009, p. 21). Economic Forces Unemployment in the nation has continued to fall faster than the expected levels. According to the latest figures unemployment is down to 7.4 percent. In 2008, the global financial crisis led UK into the deepest and longest recession ever in their history. But the good news is that the consumer spending is rising because of cheap and easy credit. The GDP of the country which is the main economic growth indicator rose by 0.8 percent in Q3 2013. This shows that the country is slowly recovering (Henry, 2008, p. 217). Social forces The changes in social and cultural factors have a profound effect on the fashion industry. The shopping habits in UK are beginning to evolve because of the rapid ageing population and migration trends which are changing the ethnic makeup of the towns and cities. According to KPMG, over the next ten years, around two-thirds of all the retail spending growth in UK will come from people who are aged 55 or above. The main challenge to the Fashion retailers in UK is to come to terms with the ageing population of UK and change their product portfolio according to their specific demands and tastes. Technical forces The fashion retailers are now developing online business models which complement the traditional form of retailing like the brick and mortar retailing. The fashion retailers are also making their presence across social networking sites where they can interact with their customers. Legal Forces The UK retail business has to comply with a number of regulations like Minimum wage legislation. This requires the UK employers to pay a minimum of ?6.19 on hourly basis to the employees aged above 21. They have to incorporate equal opportunities legislation and other parliament acts so that they can ensure equality both in the recruitment and selection and in the work place. Key trends potential trends Over the past 20 years the fashion retail industry has become one of the world’s most fiercely competitive industries in retail sector. There have been major structural changes in the way a fashion retailer do business. In the early 1990s there were a few big retail fashion players like Next, Littlewoods, and Spencer’s. Now the market is more crowded with players like Arcadia, Primark, Inditex and Forever 21 fighting to own larger market share. The major change has been the rise of internet. Majority of the fashion retailers are now going online to make their business global. The fashion retailers have created new standards for themselves. According to a study in the next five years, 40 percent of all the high street stores are up for renewal. Stores are getting more exciting for the customer to visit. Another important change is that the customers now get more value for their price. Both the cost prices and the selling prices have now fallen and the customers can now get superb quality of material at much lower price as compared to 20 years ago (Sadler, 2003, p. 164). Environmental forces The physical environment in which fashion retail industry operates in UK is relatively benign as compared to other areas in the world which suffers from natural disasters like hurricanes, earthquakes and forest fires. But the customers are becoming more aware of the impact business has on their environment. In fashion retail segment the business must reduce the waste, use more ethical sourcing polices and run more efficient transport operations. Any failure to comply with the demands of the consumer will result in decrease in profitability. Analysis and evaluation of the organisation and its competitors Fat Face is a clothing retailer who sells their own branded products and has over 190 stores in the United Kingdom. With passage of time the company grew in size with its turnover being over ? 100 million per year. The company took a bold decision of increasing their volume of business which paid off. This shows that its founders Jules Leaver and Tim Slade were able to predict the demand and respond quickly to the market demand. The company diversified its portfolio by producing products for windsurfing and sailing (McRobbie, 2004, p. 87). This proved to be success for them. Hence the company did well to use a diversified product portfolio ranging from normal T-shirts to activity based products like sailing, windsurfing, skiing etc. This helped the company to target both male and female population aged between 25-55 years. Thus the company increased its target market and successfully secured its position as a fashion retailer within the middle market. The company is now in a right position to build on its business so that it can create viable options for its future (Jeffs, 2008, p. 87). The company has been able to understand their customers by gathering feedback from them and discuss it with their design team immediately. They mainly run their business relying on their profits instead of taking loans. Hence the company don’t have much liability and they have adequate flexibility on their part to run their operations. But since the company is a mass market consumer it means that the brands can get affected by change in economic conditions. The two main competitors of the company are Quba & Co. and White Stuff. They all targeted the same market. Fat face offers children’s wear range within their collection which the other competitors don’t have within their portfolio. The competitors don’t have credible overseas expansions. They are new to out of town expansion while Fat Face has opened many stores outside (Barnes and Lea-Greenwood, 2006, p. 282-289). Future strategic direction, goals and objectives The Motto of Fat Face is “Life is Out There” and its philosophy is “Better a bad day on the slopes or the water, than a good day in the office.” Fat face as a company is mainly marketed as active outdoor clothing company. The company targets individuals who are actively engaged in sports like Skiing, windsurfing, sailing etc. The company manufactures good quality products at a reasonable rate. The unique feature of the company is that the company sells products which are often quite quirky. Their products have either quirky prints or they have unusual design details. They produce normal casualwear like jeans, active wear, leggings tee-shirts with their unusual colourful lining and buttons. This makes the company unique. They mainly target young female and male customers who like to wear funky dresses like leggings, jersey dresses, skirts all in a quirky print (Jones, 2006, p. 198). The company should try to build themselves along similar line. The company should target the children so that they can get more profits out of this. Children normally like to wear such funky colourful dresses. This will definitely increase their opportunities. They must try to come out with new products which are of latest fashion to attract new consumers. The company has their store locations across many countries like Malaysia, Singapore, and Kuwait etc. With globalisation countries like India, China, and Brazil are fast emerging as premier destination of many fashion retailers. The GDP of the BRICS nations are much higher as compared to the European nations and the Middle East. The consumer spending is increasing in these countries. Fat Face should aim at setting up shops in these locations to get a share of the market. One of the key factors behind the growth is the strong economic growth along with expanding populations in these countries. The company must identify and evaluate the favourable factors so that they can achieve their objective. Fat face needs to analyse new competition in their market. Fashion is a rapidly changing industry and hence they need to keep in touch with the latest trends. High Street shopping is changing and this change should be closely looked at by them. There has been marked change in the way developers and landlords manage the retail property. Ten years ago, the lease agreement between the landlord and retailer were for a period of 15 years. But nowadays those long agreements have been reduced to five or ten year term agreement. They are now responding according to the market forces and hence the rent keeps on changing. Fat Face needs to take this into consideration since the rent prices have been going up and they need to have a balanced cost structure to make their business model viable. The company again must look at Price wars with the competitors. Excessive discounting can eat into their profit margin. The company must position itself as offering colourful funky clothes to customers at reasonable price. Fat face must run its operations using their profits. To make their business global they might consider raising money through issue of shares and taking loan from the market. The company should try to raise money partly through issue of shares and partly by taking loan from the market. The company should try to find its capital structure which will be in line with its growth plan. The company should try to make their presence online which will make them reach out to a larger segment of consumers. They should launch their website so that customers can easily buy their products online. This also reduces their cost structure since running a brick and mortar store is more costly than a website. The company should look at improving the consumer environment and make sure that they are soundly financed. Conclusion and final justification The retail sector in UK is fast changing. High street retail investment is a sustainable business in most of the cities across UK. But the retail trends described above represents a challenging context for the business to be successful. Retail sector is continuously undergoing changes and hence Fat Face must keep updating them according to that. They must aim at increasing the number of stores across the world. Presently they have 190 stores across US. They must try to bring up stores in US, China, India, Brazil where the young age of the population and its rising disposable incomes provide the company with enough opportunities so that they can get a share of the profit. Fat Face has established itself well and has so far generated healthy profits because of its diversified portfolio. The company must now look for different set of fashion clothes to target new market segment. References Barnes, L. and Lea-Greenwood, G. 2006. “Journal of Fashion Marketing and Management”, An International Journal, Vol. 10 (3), pp. 282-289. Henry, A. 2008. Understanding Strategic Management. London: Oxford University Press. Jeffs, C. 2008. Strategic Management. London: Sage. Jones, R. 2006. The Apparel Industry. New Jersey: Wiley. Lorat, N. 2009. Market Audit and Analysis. Berlin: GRIN Verlag. McRobbie, A. 2004. British Fashion Design: Rag Trade or Image Industry? London: Routledge. Sadler, P. 2003. Strategic Management. London: Kogan Page Publishers. Read More