A Strategic Review of Burberry UK - Report Example

Executive Summary Burberry which is a famous brand was started by Thomas Burberry in the year 1856. It is now known globally due to its immense success in the fashion industry. It manufactures and sells various products such as trench coat and baseball caps among others; hence, has been listed on the London Stock Exchange. It is obvious that the group has succeeded in penetrating various markets across the globe, including Middle East and Russia. However, various external factors have affected its success such as political conditions in countries such as China, economic downturn, aging population, and counterfeits. Despite its challenges, it has been able to reach the market because of its high quality technological strategies such as the use of online advertisements and live shows, which are endorsed by celebrities. The company should focus on using its opportunities and strengths to reduce its weaknesses and threats and ensure a competitive edge. Therefore, this report kicks off by analysing the external environment, including the political conditions, economic, social-cultural, environmental, and technological factors that have affected the brand either positively or negatively. In addition, it will closely examine its resources such as the intangible and tangible assets. This will include human capital, such as the human resource and the firm’s infrastructure. In addition, under resources there will be a brief overview on ways the technology has helped the brand and an in-depth analysis of other forms of resources. In addition, under competences, there will be a review of digital innovation and its impacts and the artoftrech website, which has helped consumers in customising their designs. Subsequently, there will be a recommendations section where threats, opportunities, strengths, and weaknesses of the brand will be closely examined and how the prospects can help to counterattack the weaknesses as well as threats. The success options such as feasibility, acceptability, and suitability, will also be closely examined. A Strategic Review of Burberry UK Strategic Analysis of the Organisation The main goal of this part of the report is to analyse the impact that the external environment has on Burberry group, its resources and capabilities as well as the core competences. Environmental Analysis A company needs to be in tune with its immediate environment. In that case, there is a need to have market scanning to ensure there are sound strategic responses, which can be done by PESTLE analysis. Such analysis looks at the legal, political, economic, technological, social, and environmental factors that affect a given firm (Elearn 2009). Political Factors Political factors comprise of taxation policies, the stability of the government, local and foreign regulation as well as the policies dealing with social welfare. The Burberry brand operates in numerous countries such as Russia, India, Middle East and Eastern Europe, which are subject to changes in policies and laws, including the standards of accounting as well as environmental laws. Therefore, it should consider the taxation policies as well as the trade regulations when marketing its products to countries that are outside Europe. Research shows that the company sources approximately 60% of all its raw materials from Europe; hence, is unaffected by Chinese imports. However, the group faces immense competition from developing nations due to inexpensive copies of its brand where laws of copyright do not exist. On the same note, political conditions such as unstable government and civil wars has affected the company; hence, failed to import its products across borders that are facing civil unrest. Nonetheless, it is obvious that the company has a strong brand, which can only be feasible in some demographics and geographic environments. It is also to be noted that Burberry attempts to move to the Chinese markets though the security of contracts in the country is challenging. On the same note, the country faces a major challenge in getting visas for the Chinese people (Zakaria 2010). Economic Factors The global economic downturn of the year 2008 affected the level of customer spending and the company was forced to cut its staff by 10%. In addition, with the financial crisis, there was less disposable income. There is also increased competition from other local and international brands; hence, putting the company under immense pressure. Moreover, consumers mostly those in the Middle East and Russia who buy products while travelling overseas generate immense proportion of the company’s sales. Therefore, shifts in the travelling patterns can end up affecting trading results. Therefore, the group should monitor the inflation and recession rates, since they might directly affect the purchasing capacity (Friedman 2011; Suttle n.d). Socio-Cultural Factors The social as well as the cultural environment of countries in which the group operates in affects it due to different lifestyles. In addition, with the aging population, its consumers expect them to sell products that are respectful to their environment. It is also to be understood that the brand is defined by historic icons, Britishness, democratic positioning, and authentic outwear; hence, makes it popular. Therefore, the group has a mandate to explore the socio-cultural factors of all its emerging markets, mostly considering that the mass market is moving towards buying cheap products. On the same note, partnership with the ‘chavs’ culture has damaged the brand; hence, strategic solutions should be reached upon (Bothwell 2005). Technological Factors Most of the consumers buy their products from the internet; hence, changing the way in which products are often promoted. Burberry was one of the pioneers of catwalk shows; hence, allowed consumers to order their products directly. In addition, the group has invested on reality applications, which allows consumers to try products they see on pictures. Research also shows that in e-commerce, the brand achieved around 60% growth; thus, the company is committed to using the latest technology to ensure a competitive edge over its rivals such as Gucci, Coach, and Polo (Grieve, Idiculla & Tobias 2013). Environmental Factors Any firm should consider factors such as laws relating to environmental protection, energy consumption, pollution in the supply chain, and waste disposal. Burberry renewed its focus in regard to diverting its waste products from landfill and converted more than 130 tonnes of wastes from the law materials into car door insulations. In addition, in nations where they have suffered from natural disasters, the group has been heavily affected due to loss of sales; hence, has been at a competitive disadvantage (Annual Review 2010). Legal Factors The group faced immense challenges in dealing with companies that infringed its trademark such as those of China and spent approximately £2 million per year fighting the counterfeits. Moreover, it faces immense competition from developing nations since most of them do not have copyright laws; hence, sell the products at a lower price (Sowray 2012). Porter’s Five Forces Threat of New Entrants Threats of new entrants in the fashion industry is generally low. However, due to increase in emerging brands, this could change overtime. Competitive Rivalry There is intense competition from brands such as Armani, Coach,Polo, as well as Gucci (M’Jacobson n.d). Power of Buyers The economic downturn and inflation has affected the consumer’s purchasing power; hence, there are few buyers (Friedman 2011). Power of Supplies The power of supplies is low because there are many suppliers with little market share. However, with the immense interest in the clothing supply chain, this will ultimately change in future. Threat of Substitutes There are numerous brands, which have established their names in the fashion world; hence the threat is higher (Elking 2001). Strategic Group Analysis The brand’s strategy is marked by a competitive market position that is combined with solid franchise in various established nations along with the use of emerging markets platforms to enhance growth and increase earnings. Its main competitors include Polo, Coach, Armani, and Gucci which are the top brands in the UK and across the globe. Both Gucci and Coach are focused more on fashion accessories whereas Armani and Polo are based on apparels. The Burberry group maintains solid online products, which fall into continuity and fashion categories. In that case, the market positioning of the the brand burberies; hence can appeal to the old and the young. Relative to Burberry’s competitors, they have all positioned themselves in the midst of their consumers whereby Coach mostly appeals to consumers who love handbags and shoes and is accessible to the general population. On the other hand, Polo sells its products at a lower price as compared to Burberry and their brand has an immense brand equity. Armani has also been able to maintain a strong position in the market while Gucci was ranked as the highest priced brand for all accessories. Generally, Burberry competitive positioning is highly suitable in the long term. This is because while brands such as Gucci and Coach focus mostly on accessories, while Polo and Armani embark on apparel market, the Burberry brand has shown competence in penetrating to both the apparel and accessory market. It has also positioned itself between other brands such as Lauren, and Ralph in apparel and between Gucci and Coach in Accessories while successfully remaining as a luxury oriented brand (M’Jacobson n.d). Industry Life Cycle All products go through four major stages, which include introduction phase, growth, maturity stage, and decline (Kotler 2003; Kotler et al. 2009). The stages are shown in th diagram below: Source: Merrit 2012 Research shows that the product lifecycle of the Burberry brand is quite different because instead of the products declining and people losing interest, the brand constantly develops its designs to ensure that there is a firm grip of the customers. In that case, new lines are often added with diverse ranges, which have celebrity endorsements. In that cawe, the development stage of the cycle helps maintain the brand’s success. In addition, it is to be noted that there will always be growth and maturity, considering that there is always demand for high-quality fashion. Consumers even purchase older stoks in bulk just to get the excitement that comes with buying designer clothes. This means that the brand will unlikely decline like other items on the market such as smart phones (Merrit 2012). Resources and Competencies Analysis The aptitude to perform at the required level to survive as well as prosper is underpinned by competencies as well as resources of the firm(Friedman 2011). Therefore, Burberry’s reputed brand name and its sound appeal to consumers has ensured a competitive edge and made it flourish. Resources Resources can be either tangible or intangible, whereby the former consists of physical assets such as labour and finance whereas the intangible assets are the non-physical assets such as reputation, information, and knowledge. Burberry group is the leading luxury Brand in the UK; hence was awarded Royal Warrant by Prince Wales and Queen Elizabeth. In that case, it has a strong brand and good reputation. In addition, some of its tangible resources include its trench coats, which account for approximately 30% of its sales, competent workforce, and a loyal consumers who adore its products(Johnson, Scholes & Whittington 2006; BBC News 2002). Moreover, the company boasts of its technological development, which allows online consumers to buy products remotely. It also has a firm infrastructure such as finance group, accounting, legal and supportive human resource group, which helps in retaining as well as recruiting competent designers to ensure a competitive edge(Grive, Idiculla, & Tobias 2013). Competences Competences are processes as well as activities in which an organisation is able to deploy resources successfully (Johnson, Scholes, & Whittington 2006). The group’s main competence is the digital innovation, which is driven by a desire to connect consumers with the brand. For instance, the live stream fashion show as well as the artoftrech website allows consumers to customise designs. Other competencies included endorsing the group’s brand through sound advertisement strategies featuring numerous celebrities such as Nicole Appleton and Beckham (Swinton 2014). Recommendations for Future Development TOWS Matrix In TOWS Matrix, the external environment, which includes threats and opportunities are analysed first then the internal environment, consisting of strengths as well as weaknesses are examined later. Threats Burberry faces immense competition from brands such as Gucci, Armani, Polo, and Coach. In addition, the ‘Chavs’ culture is a major threat and it is unfortunate that the company often attracts it back to its brand; hence, losing control in the operations of the business. Moreover, with the aging population, the company is forced to design clothes that are environmentally healthy to avoid resistance. Another main threat is the economic downturn, which leads to loss of consumers and sales and high purchasing power among the buyers since they are few (Richardson & Gosnay 2010). Opportunities Burberry has various opportunities that it can use to counterattack its threats. For instance, it has various untapped markets in numerous nations; hence, can continue establishing its brand to ensure high productivity. Additionally, it has been able to successfully tap online consumers through body scanning technology as well as reality applications. Moreover, it has an opportunity to design products for the aging population; hence gain more income as the group has more income compared with the youths. The group also uses celebrities in most of the live shows and advertisements to ensure more brand recognition and increased sales. Finally, the company has a chance to design clothes that are of ethical value as most consumers are focused on purchasing decent designs (Ranker n.d). Weaknesses Most of the low income earners are unable to purchase the products; hence, the cheap counterfeits prove to be a challenge to the firm as they sell inexpensively. In addition, the company’s brand was in a way damaged sue to its association with the ‘chav’ culture. Also the company is associated with numerous celebrities; hence, most people have the perception that the products are only meant for high ranking profiles. There is also the danger of losing the known British appeal because the company focuses on outsourcing materials outside the country (Cadwalladr 2012). Strengths The company has a strong brand and image, exceptional reputation, exemplary value chain, and high quality products. In addition, it has an effective corporate social responsibility strategy, solid market positioning, and has a live show, which attracts people from different backgrounds; hence, increasing sales (Campbell 2013). Moreover, in the year 2012 and 2013, it had revenue of approximately £1, 99 billion and a profit of roughly £428million (Annual Report 2011). References Annual Report, 2011, Burberry: Annual Report 2011, [Online] Available at [viewed 21 February 2014] Annual Review, 2010, Burberry: Annual Review 2009-2010, [Online] Available at[viewed 21 February 204] BBC News, 2002, Business: Burberry’s Journey through Fashion, [Online] Available at[viewed 21 February 2014] Bothwell, C, 2005, Burberry versus the Chavs. [Online] Available at [viewed 21 February 2014]. Cadwalladr, C, 2012, The hypocrisy of Burberry’s “Made in Britain” appeal. [Online]. Available at [viewed 21 February 2014]. Campbell, P, 2013, The A-List Loves… Burberry. [Online] Available at< http://www.elleuk.com/star-style/celebrity-fashion-trends/celebrities-wearing- burberry#image=1>[viewed 21 February 2014] Elearn, 2009, Business Environment Revised Edition, United Kingdom: Routledge. Elking, K, 2001, Customer Acceptability for Online Fashion Shopping, Germany: Diplomarbeiten Agentur. Grieve, J., Idiculla, A & Tobias, K, 2013, Entrenched in the Digital World, [Online] Available at [viewed 21 February 2014]. Read More