The Business Potential of United Kingdom Based ABCD Fashion to Expand Internationally - Case Study Example

Report On Business potential of UK based ABCD Fashion to expand internationally Table of contents Executive Summary 3 Terms of reference 4 Introduction 4 Procedure 5 Findings 5 Conclusion 9 Recommendations 9 References 12 Executive summary ABCD Fashion is a high-end UK garment retailer which is facing huge competition from domestic and foreign apparel houses. The company needs to evolve innovative strategy and creative input within its operations to identify and exploit new opportunities of growth. Zara, a member of the Inditex group of Spain, was studied and used to compare and contrast the business imperatives vis-à-vis Strategic orientation towards product-market development; competitive strategy pursued; product innovation; technological innovation; and financial strength. Zara was primarily taken as benchmark because it is one of the biggest success stories within the fashion industries that have been able to retain its competitive edge even in the tough economic conditions. The firm, ABCD Fashions is recommended to follow the model of Zara and expand its operations globally, especially in emerging economies like India, China. Terms of reference The consultancy report is prepared by the Marketing Manager for the Board members of UK based fashion retailer, ABCD, on the potential of expanding the business across the globe. The major purpose is to recommend the best way to proceed over the next three years in the current competitive business environment. Introduction ABCD Fashion is a high-end UK garment retailer which is facing huge competition from domestic and foreign apparel houses. While Primark and Tesco attract customers with their low cost fashion garments, Mark & Spencer, Zara etc. offer a wide range of high-end garments which become very attractive for customers during discount seasons. Today, contemporary fashion is more influenced by the changing socio-cultural paradigms of rapid globalisation and the myriad channels of communication such as the Internet, international magazines, TV etc. have evolved as crucial tools that facilitate greater awareness regarding the changing fashion trend across the customers. Moreover, lack of variety in fashion clothing, problems of cultural biases faced by retailers and the recessive trend in the economy have significantly impacted the performance of the firm and the industry in general. The company therefore, needs to evolve innovative strategy and creative input within its operations to identify and exploit new opportunities of growth. Procedure Another similar business, Zara, a member of the Inditex group of Spain, was studied and used to compare and contrast the business imperatives vis-à-vis Strategic orientation towards product-market development; competitive strategy pursued; product innovation; technological innovation; and financial strength. Zara was primarily taken as benchmark because it is one of the biggest success stories within the fashion industries that have been able to retain its competitive edge even in the tough economic conditions (Fisher & Raman, 2010). As part of Inditex group, Zara has been known for fastest expanding apparel firm of fashion clothing which is constantly meeting the changing preferences of the people with its affordable and quality garments. Indeed, it has shown remarkable 12% increase in net profit in 2012 and its 13% increase in net sales in the tough economic climate of 2010 have revealed its genius at exploiting new opportunities successfully (Dishman, 2012). Studying Zara from different lens would therefore, give important insight into new business strategy and opportunities that can be exploited by ABCD to gain competitive advantage within the garment industry. Findings Strategic orientation towards product-market development Zara exploits technology as it is perceived as a critical tool that enhances productivity, operational efficiency and global competition (Berkeley & Steuer, 2000). ABCD also uses technology within its production and other business activities. As per Mills & Snow (1978) typology, Zara’s business approach broadly defines it as being a prospector. Zara tends to exploit the strategic choices within the scope of external environment and internal competencies that are aligned to provide the firm with unique competitive advantage through effective supply-chain management and strong communication across all business activities. Zara applies the same within its product-market development strategy with short lead-time by identifying and understanding the psychology of changing customers’ requirements to predict fashion trend (Strategic decision, 2003). ABCD does not exploit customers’ psychology of buying. Zara uses customers’ feedback to innovate and design new products as per the changing preferences and demands of the customers (Mazaira et al., 2003). Though ABCD has excellent customer service but it fails to exploit the fast changing demands of the customers due to lack of proper feedback system. The firm exploits the concept of ‘scarcity and opportunities’ within its stores by keeping small inventories of clothes and fashion goods for about a fortnight so that it can constantly update the fashion by introducing new products (Castro, 2003; Crawford, 2000). The customer therefore, tends to buy the clothes straight away as he/she knows that it would not be there the next time they visit the store. It is centrally managed that gives it speed and flexibility to introduce new products which is difficult for its competitors. ABCD’s has slow movement of inventory. It has huge inventory of unsold products in all its retail outlets It is unable to keep up with the contemporary fashion. Competitive strategy pursued Zara tends to use apply Porter’s generic strategies to its advantage. Its value creation strategy with short lead-time and inventory is highly successful. Zara’s competitive strategy includes creation of niche brand position within the garment industry and to provide the customers with the latest fashion apparels at affordable cost. Despite the relatively low cost of its fashion garments, it does not compromise on the quality of its products. Inditex’s aggressive expansion strategy has emerged as important element of Zara’s success. Expanding globally has been one of the key factors that have significantly contributed to Zara’s competitive advantage within the industry. Established in 1975 in Spain, Zara had rapidly expanded its operations across Europe, America and South East Asia with nearly 120 stores across the world (Loeb, 2013). Its recent entry into Russian market has Zara’s stores are all located in prime areas that highlight unique interior ambience which are designed to make customers feel greatly appreciated. Thus, Zara outlets become major source of information without actually resorting to extensive advertising propaganda (Ghemawat and Nueno, 2003). ABCD’s stores are all located in the shopping complex having limited space. Product innovation Zara is vertically integrated company that is centrally managed that gets daily feedback from its various branches and franchisees across the globe (Lleonart & Fabregat, 2009). The feedbacks are then used by designers to produce goods which are sent to the stores on a fortnightly basis. This is essential element of competitive advantage as stores located internationally tend to enjoy the same fashion that gives their clients the advantage of being part of current fashion trend. ABCD has feedback system for customers but does not take prompt actions on them. It uses outsourcing for manufacturing clothes. The management does not encourage innovative approach. Technological innovation Technology is integral part of its business strategy. Apart exploiting technology within its various operations, including production, sales, marketing and administration etc., Zara’s online business has significantly contributed to the growth of the group in the recessive global economy. The web based sales and marketing has hugely facilitated the firm to respond with high speed to the fast changing preferences of the customers. ABCD has state of the art technology driven operations. Financial strength Zara’s financial strength lies in its stupendous growth and annual net sales that are constantly increasing. It contributes nearly 66% of its parent company’s turnover which makes it cash rich firm (Zara, 2013). ABCD is backed by strong financial background of its founders. Conclusions ABCD is finding it impossible to meet its recurring expenditures due to reduced sale. The company needs to improve and improvise its business strategy to meet the challenges of the current economic crisis. The firm must expand its business globally in order to compete within the garment industry. Zara’s vertical integration has equipped the firm with unique capabilities for a faster turnaround than its competitors. Thus, ABCD could expand its business internationally on the lines of vertical integration, thereby helping the firm to exploit its internal competencies of its designers and production to introduce its product in the emerging market like India and China which have wide scope. Recommendations Zara’s vertical integration is powerful element of its success. By adopting this model, ABCD would be able to exploit its competencies and internal resources to expand business globally. ABCD needs to adopt aggressive expansion strategy across the globe to penetrate new market and exploit the huge potential of emerging and developing economies. In the highly competitive global business, it is important for ABCD to identify and exploit new opportunities in emerging markets which have huge business potential. .The current huge inventory in its various retail outlets need to be sold urgently as it could provide them with necessary finance and also make available more space for new fashion clothing. The management needs to introduce creative sales pitch like discount coupons and gifts to influence customers’ buying behaviour. This would help the stores to reduce inventory of unsold goods. In the current market of highly competitive business, customers’ changing preferences become the most important factor of business activities (McGoldrick, 2002). Thus, the current feedback system of ABCD needs to be innovatively applied so that they can be translated into business success. Company’s expansion strategies can include development of effective franchisee based outlets across emerging economies like India and China. This would help the firm to focus on its core business competency of fashion designing and develop network activities to support its expansion programs and strategies. The diversification of product and services are vital facilitators of competitive advantage (Stonehouse et al., 2004). ABCD can diversify its product line to include fashion accessories and different segment for children and urban working women in the upcoming stores in the emerging market. Indeed, the diversification of the business in new area would provide the organization with new opportunities to explore further business potential. Zara’s recent entry into Russian market has revealed the vast potential of the maturing retail market in the country. The Russia’s business potential, especially the online market is expected to have growth rate of nearly 40% which must be exploited by ABCD (pwc, 2011). Russian online market becomes attractive mainly because the recent liberalization offers new ventures huge opportunities to invest in the country as fast expanding internet services have its vast potential benefits which significantly reduce the burden of physical shopping, especially in hard terrain and cold weather. Introduction of online marketing and sales has considerably redefined business strategies across the globe. It helps the businesses to cut the role of intermediaries and directly interact with the customers who have become powerful end-users of the internet-based business (Balutis, 2009). Thus, online business presence would enable the firm to adopt a more creative approach in their interaction with online customers and evolve mutually satisfying mechanism of online shopping. (words: 1639) Reference Balutis, Alan P. (Spring 2009). Addressing the Technology Challenge, NY: The Public Manager. Berkeley, N. and Steuer, N. (2000), Comparative analysis of EU and national trends in the textile and clothing industry, available: http://www.stile.coventry.ac.uk/adapt [27 July 2014]. Castro, I. (2003) Zara Japan Corporation, Boletin Economico de ICE, vol. 2770, pp. 95-98. Crawford, L. (2000) ‘Management fashion retailing’, Financial Times, 26 September. Dishman, Lydia. 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