UK Luxury Fashion Online Retailer Net-A-Porter - Coursework Example

Development proposal for UK luxury fashion online retailer Net-A-Porter Introduction The fashion industry is not a saturated marketplace as it is ever changing. Customers preferences tend to shape and provide enthusiasm for trends in fashion industry. Net-a-Porter is a luxury fashion online retailer that provides exclusive accessories and apparels to customers. Since its inception in the year 2000, the company has been running three websites namely, mrporter.com, net-a-porter.com and theoutnet.com. In the world of 21st century, one of the most productive means to reach customers is through advanced technologies. In the past people relied mainly on brick-and-mortar stores to access luxury fashion apparels and accessories. The biggest challenge for Net-a-Porter is to successfully put luxury items online for sale and establish an active e-market place where customers will be able to buy luxury clothes through online media. The present state of the company appears to be quite impressive since it was acquired by Richemont in the year 2010 for $530 million. Currently the company has over 350 designers and on an average attracts it over six million visitors per month in the website (it includes both existing and unique customers). The average amount spent by the customers on luxury clothes and accessories is approximately $850 (or £500). The internet bubble burst has affected the faith of investors in e-commerce business and studies show that during the past decade investors mainly held pessimistic views regarding the future outlook of online retailers. This report has identified two key challenges that the company faces: Revive faith of investors and convincing designers that luxury goods would do good business in present and future Convince customers to purchase luxury accessories and clothes using online media 2. Company Profile 2.1 Current structure of the company Net-a-Porter is a luxury fashion retailer that provides products and services to customers online. The main USP of the company’s website is that it is designed like a magazine. Presently the company has many brands popular that it retails including Yves Saint Laurent, Diane von Furstenberg and Stella McCartney. Although the economy of UK and US is experiencing a general slowdown after the global financial crisis, the company shows no signs of holding up operations. It has recently launched a beauty products segment, a new publishing business, and planned logistics expansions in the Asia-Pacific regions. The company also added a dedicated sportswear section to their website. 2.2 Markets covered The company presently operates in three offices located in two countries, US and UK. It is headquartered in London and it has distribution centres in US. The business model of Net-a-Porter is e-commerce based and hence it provides 24/7 services to customers. It has 2600 employees and it is also planning to expand full-scale operations in emerging economies such as China where the demand is very strong. 2.3 Products The main products of the company may be classified into major segments, apparels and accessories. Different types of luxury clothes are offered by the company including beachwear, coats, bridal, Denim, gowns, jumpsuits, shirts, sportswear, premium suits, jeans and jackets. The accessories include products like belts, gloves, jewellery, hats, shoes, etc. The company recently launched beauty products that include fragrances hair care, makeup, skincare, candles, bath and body products. 2.4 Customer base The company claims that its official websites gets 6 million unique visitors every month (Smith, 2014). 3. External environment analysis 3.1 Economic, Societal The economic and societal factors determine the overall success or failure of online retailers in contemporary market. This is because the consumer behaviour is highly influenced by economic factors like income, inflation, industry growth, etc. The concept of globalization is also influenced by economic factors. Almost every ambitious company that has necessary financial, technological and human resources are planning to expand their business overseas. The general slowdown in developed markets especially US and UK is forcing organizations to implement alternative business growth strategies (McCormick, 2014). The founder of Net-a-Porter, Natalie Massenet, appreciates prospect of strong growth in emerging markets like China and hopes to expand services in growing economies. Companies like Tesco Plc, Apple Inc., etc. that sells premium products have also changed their marketing strategies drastically in order to adapt to changing business environment. External environment analysis reveals that culture of one country is different from another. For example, a country’s economic progress may be thriving but in context of fashion industry, if such country is conservative towards fashion then chances of success for launching products in conservative economy will be very low. This report has identified the following factors that can influence online luxury retailers:- Cultural diversity – The cultural and societal differences are very prominent and hence companies are adopting localization strategies to incorporate cultural diversity. The human resources are most important assets of a company and it should be utilized very efficiently. There are existing opportunities for Net-a-Porter if it follows the footsteps of companies like Tesco or Apple. The company employs around 2600 customers and by encouraging its human resources to embrace cultural diversity, it will be able to maintain key position in the industry. Demography – The structure of demography is also important economic and social factor. In some countries fashion is highly associated to woman and men’s fashion has different meaning. Based on the company’s existing profile and customer’s requirement it will be possible to launch best products for intended customers. Tendency of global customers to embrace luxury clothes and accessories – Customer tastes and preferences vary wide in domestic markets and one can understand how difficult it would be for online companies to convince customers. Although opportunities exist in some countries which are influenced by western and European fashion, there are other growing economies as well that holds great potential for the company to expand business. Online companies might have to diversify their product portfolio to address the local needs of the customers. 3.2 Technological This is the era of advanced technology and the online retail sector is gradually shifting towards adapting to new and innovative means to reach customers. The concept of e-retailing is has also capturing the luxury goods segment. People are now more interested to buy products online using the internet. This strategy is a win-win situation for both buyer and the seller. The seller gets cost advantage due to less intermediary channels as the seller can send products to customer directly. The buyer has many advantages but most importantly the products gets delivered at home with no or minimum additional expense. Also, the evolution of smart phones and tablets has drastically reshaped the paradigm of entire industry. In the world of 21st century, advanced technologies are used by companies that mainly use the internet and other communication mediums to reach customers. The revolution in smart phone and tablets has provided ample opportunities online companies to expand their customer base. For instance, companies like Net-a-Porter could leverage from the fact that almost every family has mobile phone handsets, smart phone, or tablet. They are a great medium to reach the potential customers at low cost. The internet is also a universal medium for communicating messages. If the companies abstain from using online mediums to advertise and sell new product launches then they could be on the verge of extinction (Nguyen, 2015). Technology is affecting the pricing policies of the fashion industry products. If better technology helps fashion companies produce materials at cheaper rates then such benefits will also be passed on to customers and the customers will be able to buy products at low prices. This will attract more customers that will be willing to purchase luxury products at discounts. In case of Net-a-Porter it appears that the management has already identified the benefits of technology and thus dedicated three portals (which are net-a-porter.com, mrporter.com and theoutnet.com) that sell luxury clothes and accessories at discount. On the basis of above discussion this report recommends Net-a-Porter to invest appropriately in latest technologies that will help the company to attract and retain customer base globally. 3.3 Environmental Environmental factors are very important in contemporary business environment where the government of most of the countries is stressing on corporate governance and accountability. The online retail sector is also surrounded by the environment of operations as it is involved in delivery of goods and services from suppliers to customers (Ranchhod and Marandi, 2007). Factors such as climate, geographic location, agricultural aspects, proper connectivity, urbanization, government investment in promoting business, etc. are all encompassed under environmental analysis. For the online retail companies like Net-a-Porter that specializes in selling luxury goods to customers, geographic locations are very important. If the company is not strategically positioned in a good marketplace where there is high demand then its sales will not grow. The future holds many challenges for the international fashion sector as well. Key issues like shortages of physical and financial resources, changes in climate, seismic shifts, introduction of new technologies, and demographic change in the international economy has the potential to affect customer tastes and preferences (Cheverton, 2005). In fashion business it is very difficult to anticipate structural challenges and prepare for such drastic change at an early stage. There are risk factors in fashion brands that create challenges fashion brands to implement actions to gain a sustainable position in the industry. Issues like pollution from production process, use of animal skins in clothing, luxury accessories that are considered as a taboo in some parts of the world, etc. are most prominent among them (Elsie, 2003). Research shows that the purchasers are hesitant to sacrifice their personal and societal needs in the end. The companies in the fashion business will have to orient their product offerings in such a way that they are integrated to the sustainability values inherent to the business. Since there are limited resources, establishing a sustainable business or fashion brands successfully in modern world is very difficult. Thus, communicating choices that are sustainable for the fashion brands is a very important consideration together with promotion of sustainable offerings. 3.4 Political and Legal The political and legal factors are important considerations for the online retail sector because it determines the extent to which the government can influence trades in this sector. For example, the UK online retail sector is highly regulated and companies need licensing for selling alcohol and tobacco. It covers aspects like food cleanliness, provision for facilities and equipment, registration of premises, food hygiene and temperature control (Chevalier and Mazzalovo, 2012). There are also some strict regulations for selling fresh foods by retailers in the Great Britain under the Food Hygiene Regulations Act 2006. When expanding the business in new global markets where there is sufficient demand for online products, there can be many legal challenges as well. For instance, consumer laws, safety standards, product quality standards and most importantly labour laws. These factors vary from one region to another and should be carefully analyzed before taking any major expansion decisions. The importance of these factors should not be underestimated as any casual approach in legal factors could drag an online retail company into lawsuits or international disputes (Clark, 2009). As discussed earlier in this report, there is strong demand for luxury goods in emerging economies like China and the trend is expected to continue in future. Under these circumstances, Net-a-Porter will be able to minimize the risk of slowdown in domestic market through international expansion. Hence it is advised that if the company considers expansion of luxury products into new emerging economies like China (where there is strong demand), then some important political factors that it should consider are:- Import duties – A high import duty will discourage transfer of goods and services from one country to another. This will be a disadvantage for the companies operating in online retail business. Export policies – If there are no restrictions to export of products from target country to other geographies then the company will be able to open subsidiaries that will boost domestic and international sales. International tax policies (double taxation agreements between two countries) – This is very important factor as cases like Vodafone plc (currently facing double taxation issues) could discourage foreign investment. Government’s fiscal policy – The balance of trade is dependent on government’s fiscal policies and if the budget of surplus (which is the case of China), then it is likely that the government will provide incentives to emerging industries (Choi, 2014). Restriction on local sourcing of goods – The supply chain and logistics management is very important in terms of cost control, timely and effective delivery of services and products to customers. Often it has been observed that local sourcing of goods and services is cost efficient strategy. If opportunities exist for local sourcing then online retailers should tap local human resources and economical labours for effective services. 4. Future direction for the company This report has evaluated the various opportunities and risks that Net-a-Porter faces from external environment. On the basis of the discussions of this report it may be said that the company should adopt coherent strategies for long-term success. It should be proactive to address issues including identifying new sources of revenues, diversification of market, increasing customer base, rebranding specialized products from the main sites. Studies show that if online retailers like Net-a-Porter follow these initiatives it will be able to remain as a big player in this industry. Two responses that the company could take to manage future operations successfully could include competing with rivals by providing luxury apparels and accessories at competitive rates and move towards international expansion in growing economies where the demand of luxury goods are expected to grow in future. References Chevalier, M. and Mazzalovo, G. (2012). Luxury Brand Management: A World of Privilege. New Jersey: John Wiley & Sons. Cheverton, P. (2005). Key marketing skills: strategies, tools and techniques for marketing success. London: Kogan Page Publishers. Choi, T. (2014). Fashion Branding and Consumer Behaviour: Scientific Models. New York: Springer. Clark, H. (2009). Slow Fashion—An Oxymoron or a Promise for the Future?. Fashion Theory 12(4): 427–46. Elsie, M. (2003). Managing Brands in the New Stakeholder Environment. Journal of Business Ethics, 44: 235–46. McCormick, H., Cartwright, J., Perry, P., Barnes, L., Lynch, S. and Ball, G. (2014). Fashion Retailing: Past, Present and Future. Textile Progress, 46(3), pp. 227-321. Nguyen, A. (2015). Net-a-Porter CIO: Luxury retail throws up unique challenges to innovation. Retrieved from http://www.techworld.com/news/e-commerce/net-porter-luxury-retail-throws-up-unique-challenges-innovation-3594301/. Ranchhod, A. and Marandi, E. (2007). Strategic marketing in practice 2007-2008. London: Routledge. Smith, E. (2014). Net-a-Porter: UK internet fashion industry can lead world. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10626165/London-Fashion-Week-Net-a-Porter-founder-says-UK-internet-fashion-industry-can-lead-world.html. Read More