Individual Report on Fashion and Leather Goods - Essay Example

Individual Report on Fashion and Leather Goods Table of Contents Overview 3 Company Profile 5 5 Macro Environmental Analysis 6 Political Factors 6 Economical Factors 7 Social Factors 8 Technological Factors 9 Legal Factors 9 Environmental Factors 10 The Industry Trends 11 Strengths 11 11 Weaknesses 12 Opportunities 12 Threats 13 13 The Micro Environmental Analysis 14 Threats 14 Opportunities 14 Weaknesses 15 15 Strengths 15 References 16 Appendices 19 The Pestle Analysis of the Macro-environment of LVMH 19 SWOT Analysis of the Industry 21 TOWS Matrix of the LVMH 21 Overview Business in the modern day perspective is generally termed to be a complex process involving all the activities related to the creation of market demand and augmentation of the market share. With a general point of view, certain primary characteristics of the business concept today are profit oriented motive of the company, trade of goods and services, continuation of dealings, undertaking risks and satisfying the customer demands. Therefore, a business firm not only needs to confirm its internal influencing factors to achieve its ultimate objective, but should also deal with the external factors related to customer perception and other environmental risks. All these influencing factors when summed up are referred to as business environment and are termed to be significant in assisting a firm to gain success. For instance, City Fringe, an area located in the inner part of London comprised of about 189 fashion business firms. Among these almost every firm was recorded to be stagnant or in the struggling stage. In other words, the fashion business firms were somewhat unable to cope with the industry changes resulting in inefficiency in terms of productivity, pro-activeness, and competency. Due to this reason, a better effective investment plan was adapted by the market players in order to achieve their desired goal and reward a feasible amount of sustainability to the business (City Fringe Partnership, 2004). This paper therefore shall concentrate on the significance of micro and macro economic environment of the UK, related to the fashion market. It is basically due to the reason that fashion market trends categorised as luxury goods are highly depended on the issue of customer affordability and preferences. Hence, the influences of fluctuations arise in the micro and the macro environment of a particular business firm, i.e., LVMH. Company Profile LVMH Moët Hennessy Louis Vuitton SA was incorporated in 1987 by merging two leading fashion business groups i.e., the Louis Vuitton and Moet-Hennessy. The group is among the world’s leading groups to trade luxury goods such as perfumes, cosmetics, wine and even designer fashion and leather goods. The company division related to the manufacturing and marketing of designer made fashion and leather goods include few of the world famous brands including Louis Vuitton, Givenchy, Kenzo and Celine. During 1990s the group concentrated on expansion and growth. In this basis, the company expenditure drew up to $3 million for acquisitions. However, by the end of 90s, the company witnessed a downfall in sales that increased competition affecting all divisions of the business activities (Funding Universe, 2000). The company’s performance during the beginning of the 21st century was estimated to be favourable. However, the company was for the second time hit by the global recession affecting its growth seriously. As recorded in the first half of 2010, the company gained a total revenue amount of £9,099 million. While to specifically state the revenue growth of the fashion and leather goods division, the company earned £3,516 million. This was higher than the previous two year performances and simultaneously greater than other divisions marking it to be the strongest among other divisions of the group (LVMH, 2010). Macro Environmental Analysis With the previous references, it can be evidently stated that LVMH is also strongly influenced by the macro-economic environment trends. The company in its recent performances has been successful to sway the potential customers to forget the price factor and consume the luxury brands. But after the global downturn the company has a major challenge sourced from the macro-economic environment with a reduction in customer affordability. It is in this context, that the company management is considering a re-branding strategy to push up the company’s performance (The Economist, 2009). Political Factors The UK economy is referred to be still in the phase of recovery after the recent global recession. And thus the political trends at the current situation are more focused to push the economic growth to its previous position. One of the remarkable trends which can have a direct impact on the customer preferences of the UK is the coalition cuts. According to the treaty, the government is facing a burden of increasing deficit. To reduce this risk, the government has decided to curtail its huge payments made in terms of ministerial salaries and other similar causes (Sparrow, 2010). Apparently, it might seem that the issue does not have any direct affect on the company operations. But, due to the fact that the company’s targeted customers belong to the elite group of the economic class including ministerial lifestyles, this shall create a huge impact on the market demand of the company. Economical Factors Along with the political issues, the economic attributes also have a strong impulse on the fashion and the luxury goods market. The current trends of the UK economy are presently undergoing through a level of uncertainty with highly fluctuating GDP and increased taxation rates. For example, the GDP rate recorded in the second quarter of the fiscal year 2010-2011 was 0.8%, but in the third quarter of the year it was recorded to be reduced to 0.7% (Statistics, 2010). With the fluctuation of the GDP rate, the inflationary rates are also on an increase strengthening the depression of the economy. According to the last record, the inflation rate was 3.2% during October of the current fiscal year, 2010-11, but in November the rate had slightly increased to 3.3%. The records of the economic indicators of the UK depict the fact that the inflationary rates have been constantly rising, which in turn affected the power of consumer spending. On the contrary, prices of luxury items such as footwear and clothing were recorded to rise by 2.0% which in turn affected the market demand negatively. To be precise, the indicators of the UK economy are on a mode to make people rethink about their expenditure (Statistics, 2010). These certain trends of the UK economy depict the challenges of the company which might affect the company’s performance negatively. Moreover, the market which the group deals with is entirely based on the luxury goods, which are in turn highly influenced even by the slight fluctuations of the business environment. Social Factors The European continent precisely the UK economy was recorded to be one of the most elite groups of societies in the past. However, the current social trends are quite different from that of the past. According to the recent trends in the social environment of the economy, the employment rates are at a lowered rate of growth facing the problems of schools skip outs and others. While in the labour market scenario, approximately 16 million male and 13.6 million female candidates were employed according to the recorded statistics of 2008. Furthermore, the total employment figures tend to diminish in almost every sector from the fiscal year 2008-2009 (Statistics, 2010). This shall again hamper the operations of the company indirectly, with a minimised number of eligible workers and a lowered level of customer affordability. Technological Factors Technological aspects in the present perspective are among the most crucial supporting factor in this industry. It is not only used in the promotional activities adapted by the firm but also helps in the production channel as well. Therefore, the company needs to consider both the IT trends and the Manufacturing technology trends. Notably, the manufacturing technologies were recorded to be playing in the bull market which is indeed a favourable sign for the LVMH group. Due to a growing demand it is likely that the sector shall minimise its selling cost which in turn shall assist the company in cutting off the production cost to an extent (Manufacturing Technologies Association, 2010). Legal Factors The corporate law structures affect the performance of a business firm irrespective of its related industries. The current trends of the legal environment of the UK economy affirm a stronger control over the billing aspect. The corporate law is moreover, suggested to be globalised with a leveraged system. With an aim to counsel the costs rather than implementing alternatives and devising the billing hour, the corporate law shall completely buy into the Alternative Fee Arrangements (AFAs) (Klein, 2010). Therefore, with all these new amendments and reformations of the corporate laws and regulations, the economy’s legal environment is also in an unstable stage. This is certainly inappropriate to confirm the operations of the company and shall introduce fluctuations in the internal environment of the company. Environmental Factors Apart from the factors related to the issues of technology, politics and other economic indicators, the environmental issues also have a strong effect on the operations of a company. In this context, the economy comprises of a population of more than 61,792,000 by the mid of 2009. According to the last survey, the population of the UK economy had increased more than 2% within a year. Moreover, the migration status of the economy is also at a rise. On the contrary, the immigration chart shows a downfall rate. Therefore, the population of the economy is at a steep increase (Statistics, 2010). With an overall perspective, the fact might seem to work in favour to increase the market demand of the product produced by LVMH. But analysing the fact thoroughly, it shall be effective to prove that the increasing inflationary rates and government cut-offs coupled with the increase in population will positively bring more challenges to the group. The Industry Trends The UK economy is globally renowned as a fashion trendy economy with a good choice of fashion and luxury items. Hence, it has grown to a strong position in the overall economy. As recorded in the current fiscal year 2010, the fashion industry contributed a huge amount of £21bn approximately to the total income of the economy (Fox, 2010). Strengths Being one of the most alleged industries in the UK economy, the fashion industry possesses certain strengths which prove to be highly beneficial for its members. For example, the marking creativity and enthusiasm among the top end designers is strength to the industry as it is helpful to attract a majority and wider range of potential customers. Even the educational system is strength to the industry. The economy serves few of the best graded fashion institutions in the world. The emergences of new markets as fashion hubs are also helpful to strengthen the industry from its root existence. The huge size of the industry in the UK economy has added to its strength. In the current fiscal year, the industry was recorded to reward the economy with more than £37 billion. Presently the industry employs almost 816,000 people and is recorded to hold the 15th position among the largest employers in the economy (British Fashion Council, 2010). Weaknesses The industry also has certain weaknesses which affect the participant members. First, the industry is still facing a challenge in combining scientific thought with the designing techniques which can reward a stronger structure to the industry. The industry is also weak in creating sufficient balance of skill within the group of retailers and other labour groups. It also suffers from lacuna in generating awareness in terms of market opportunity and competition (British Fashion Council, 2010). Opportunities The fashion industry has undoubtedly changed its outlook from the 19th century. According to the recent trends, the demand for clothing, accessories and leather goods are constantly increasing with a large variety of choice and supply as well. Previously, the UK fashion market was treated to be autocratic and was unable to serve the customers with a variety of products. However, the industry at present has gained the ability to survive with wide ranging products in the apparel and the leather market. It is one of the most significant opportunities that the industry provides to the industry players. Also, the structure of the industry provides great opportunity to its contributors. According to the modern phenomenon, the industry is designed by embracing three main participants of the fashion industry. Led by the Haute Couture houses, the fashion industry serves a magnificent collection of ready to wear apparel and leather products as a designer wear. These fashion houses directly from the Haute Couture houses make a slight difference in the style to provide the product a look which can attend to a wider range of customers with the highest level of affordability. The third stage or category of the industry is the retail units generally noted as Street Fashion houses. The price at this stage is lesser than the first two. This particular level thus can meet the demands of the mass market efficiently with a low cost and huge variety. This simplistic industry structure is also an opportunity for the participant groups (Media Wiley., 2005). Threats Along with the opportunities, the industry also faces certain major challenges or threats which can be quite alarming for the industry members. In this context, one of the most vital and affective threats is the economic growth rate. The economic attribute of the UK is at a recovery stage which provides an unstable outlook that is not reliable. Thus, this can cause a threat to the industry. According to the report published by the British Fashion Council, the industry is also facing certain challenges in terms of substitute products with a rising number of optional fashion weeks and innovations among the retailers (British Fashion Council, 2010). The Micro Environmental Analysis The attributes active in the micro and the macro environment of a company, as was stated earlier is significant to mark the key success factors of a company. In this context, LVMH group is also affected by the influencing factors in the economic and the industry environment. In order to achieve an insight to the issue, a TOWS matrix is being used in this report. Threats The company’s threats in this context are the major challenges and weaknesses faced by the industry and the economy. The industry is facing a threat in terms of economic instability with highly fluctuating rate of GDP. Moreover, the reduction in customer spending power is also a threat to the group. The lacuna in generating a feasible amount of awareness is also a matter of concern for the organisation. Opportunities The opportunities of the LVMH group to be noted are the growing number of customers in the worldwide perspective along with the variety in the available assortment of products. To be precise, by allowing more and more variety of leather and fashion products in the retail outlets the group can attract a wider range of customers. The increasing number of tourism and migrants are a great opportunity in this context (British Fashion Council, 2010). Weaknesses The first and foremost weakness of the group is that it is somewhat unable to cut off its cost at a rate to be feasible for other classes of customers. It is due to the reason of growing manufacturing costs and the reduction in customer affordability. On the other hand, the group was mostly concentrated on the issue of expansion rather than productivity which was again marked as a weak point of the group (The Economist, 2009). Strengths The group is recognised to be one of the supreme organisations to render high quality fashion products to the potential customers. To be included, the company has recorded a remarkable growth in the leather and fashion products both in terms of production and marketing. For instance, the group dealing with fashion and leather products incurred a steep growth of 14% in terms of revenue earnings and almost 28% in terms of operational profits (LVMH, 2010). References British Fashion Council, 2010. Value of Fashion Report. Oxford Economics. [Online] Available at: http://www.britishfashioncouncil.com/uploads/media/62/16356.pdf [Accessed January 01, 2011]. City Fringe Partnership, 2004. Fashion Sector Investment Plan. A City Fringe City Growth Programme. [Online] Available at: http://www.cityfringe.org.uk/pdf/investment_plan_fashion.pdf [Accessed December 31, 2010]. Fox, I., 2010. British Fashion Industry Now Worth Nearly £21bn A Year, Report Reveals. British Fashion Industry Report Business. [Online] Available at: http://www.guardian.co.uk/lifeandstyle/2010/sep/15/british-fashion-industry-report-business [Accessed December 31, 2010]. Funding Universe, 2000. LVMH Moët Hennessy Louis Vuitton SA. The 1987 Merger. [Online] Available at: http://www.fundinguniverse.com/company-histories/LVMH-Moeuml;t-Hennessy-Louis-Vuitton-SA-Company-History.html [Accessed December 31, 2010]. Klein, J., 2010. CT TyMetrix Identifies Key Legal Industry Trends for 2010. Wolters Kluwer. [Online] Available at: http://ct.wolterskluwer.com/news-and-industry-events/press/01-25-2010 [Accessed December 31, 2010]. LVMH, 2010. First Half 2010 Interim Report. LVMH Passionate About Creativity. [Online] Available at: http://www.lvmh.com/comfi/pdf/LVMH_RS1_2010_GBR.pdf [Accessed December 31, 2010]. Manufacturing Technologies Association, 2010. Manufacturing Technologies End 2010 on a High. MTA News. [Online] Available at: http://www.mta.org.uk/news/1153 [Accessed December 31, 2010]. Media Wiley, 2005. Chapter Two. The Fashion Market and the Marketing Environment. [Online] Available at: http://media.wiley.com/product_ancillary/36/14051395/DOWNLOAD/Chapter%202.pdf [Accessed January 01, 2011]. Sparrow, A., 2010. 100 Facts about the Coalitions First 100 Days. Guardian. [Online] Available at: http://www.guardian.co.uk/politics/2010/aug/17/100-facts-about-coalitions-first-100-days [Accessed December 31, 2010]. Statistics, 2010. GDP Growth. Economy Grows by 0.7% in Q3 2010. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=192 [Accessed December 31, 2010]. Statistics, 2010. Social Trends. Correction Notice. [Online] Available at: http://www.statistics.gov.uk/downloads/theme_social/Social-Trends40/ST40_2010_FINAL.pdf [Accessed December 31, 2010]. Statistics, 2010. Inflation. CPI Inflation 3.3%, RPI 4.7%. [Online] Available at: http://www.statistics.gov.uk/CCI/nugget.asp?ID=19 [Accessed December 31, 2010]. The Economist, 2009. LVMH in the Recession. The Substance of Style. [Online] Available at: http://www.economist.com/node/14447276?story_id=14447276 [Accessed December 31, 2010]. Appendices The Pestle Analysis of the Macro-environment of LVMH Influencing Factors Trends of the factors affecting the company operations Political Factors The current political outlook of the UK economy tends to be highly influenced by the recent economic downturn. As an aid to the issue, new amendments and reforms are being considered. One of them is the coalition measure adapted by the political parties in order to minimise the risk of budget deficit. Economical Factors The economical factors of the UK are still at a recovery stage that depicts the instable growth of the economy. Additionally, the increasing rate of inflation and decreasing rate of customer spending power is also affecting the company. Social Factors The social trends are affected by the economic and the political affairs. Recently after the end of the recession period, the social life is experiencing risk of unemployment. This in turn is affecting the lifestyle choices of the majority of the economy. Technological Factors The technological factors of the economy were recorded to be performing in the bull market scenario. Thus, the performance of the technological factors is likely to diminish in a short term perspective. Legal Factors The rules and regulations confirming the operations of corporate are likely to be initiated for a global outlook. This particular attribute of the legal environment implies that the regulations are tending to be leveraged by the government. This in turn shall enhance the instable weather of the economy. Environmental Factors According to the attributes of the environmental factors of the economy, the population is increasing at a rapid pace along with the growing number of migrants. SWOT Analysis of the Industry Strengths Weaknesses The industry possess a huge size contributing approximately £37 billion to the total income of the economy The industry is termed to be in the 15th position as the largest employer of the economy The industry is developing rapidly in serving the potential customers with a large variety of choices The industry possess a weak point in generating sufficient amount of awareness among the retailers It is also weak in relating the scientific approaches to its structure The industry being majorly supervised by the top end designers, creates an entry barrier for the new potentials and talents Opportunities Threats The industry gains an opportunity in terms of its growth and its contribution to the economy The structure also proves to be beneficial for the industry at large The growing demand in the abroad and the increasing number of tourists in the UK market is also a source of demand for the industry The economic attributes highlighting an instable outlook is indeed a cause of threat to the industry The rise of new mass markets in the economy The pressure of inflationary rates on the demand and the supply chain of the industry TOWS Matrix of the LVMH Threats Opportunities The economic downfall in terms of demand for luxury items The growing inflationary rates The increase in competition The developing mode of industry The increasing number of variety products The Increasing number of tourist customers in the UK market Weaknesses Strengths The higher cost of products which are evidently unable to meet the affordability of the customers Major concern on the issue of expansion rather than productivity enhancement Marketing is concentric only on the elite group of customers Increasing amount of revenue earnings Variety of choices to match the customer preference The ability to serve few of the top most designer products Read More