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Apparel Industry Growth Strategies
Transcript of Apparel Industry Growth Strategies
How do they go about doing that?
Growth industry or mature industry?
A bigger piece of the pie or . . .?
Three growth strategies
High in price (to pay for R and D)
Higher profit margins
Technology may be protected
Large portion of the population without
Ample or over-supply
More challenging to provide newness
Rely on differential advantage to maintain or increase market share
Unique product features (function and/or aesthetics)
Speed to market
Level of capital investment
Vertical Integration-A company buys
a company that performs another function within the supply chain in order
to achieve improved efficiencies.
Li & FUNG
Full Package-A contractor that is able to provide design, textile sourcing, patternmaking, production, and product testing.
Horizontal Integration-A company buys another company in the same business in order to increase market share.
Talbots to buy J Jill for $517m (Feb. 2006)
Talbots agrees to sale of J Jill for $75m (June 2009)
"Jones Apparel Group Inc. is continuing to expand its portfolio in the contemporary category. After buying a 50% stake in Rachel Roy in 2008, the apparel conglomerate has acquired Moda Nicola International LLC, which owns the Robert Rodriguez Collection."
economy of scale
Supply chain efficiencies
Supply chain control
Eliminate profit centers
Diversification-A company buys another company that makes a different product category.
Facilitates brand extensions
Protects a company from ebb and flow of fashion and seasonal fluctuations
Ex. Jones Apparel Group owns numerous jewelry, accessory, and shoe companies
Nicole Miller Could
Consider IPO (2009)
Kellwood's Vince Files for IPO (2013)
Mergers and Acquisitions:
Why Brand Value Still Matters
"Tommy Hilfiger turned out to be a good long-term prospect. PVH posted a handsome growth in profits in its 3rd quarter spurred mainly by Tommy's international sales.
HEALTH OF MATURE INDUSTRIES
Phillips-Van Heusen Corp. (PVH) completes Hilfiger Acquisition from Apax Partners (May 7, 2010)
Kellwood acquired Vince, Adam (2010), and Rebecca Taylor between 2005 and 2011, all in the contemporary market
Hudson's Bay Co. acquires Saks Fifth Ave.
What can go wrong?
Lose direct control
Pressure to expand at a faster pace
Have to answer to new owners
No longer in charge of one's destiny
Could lose one's name and label
Deverticalization - Companies sell off business functions when conditions change and they can no longer do them competitively.
Divestment-Companies that focused on horizontal integration and diversification, change course and begin selling off brands that are no longer profitable or that aren't living up to growth expectations.
Liz Claiborne Brands 2001
Kate Spade & Company
Why horizontal integration???
Venture Capital Group
Mergers and Acquisitions
When growth doesn't work!
What are Private Equity Investors Looking For?
Strong growth prospects
Sustainable Point of View
Sustainable gross margins/profits
Strong customer relationships
Strong sourcing partnerships
Desirability of product
What are merger and acquisition targets looking for?
Cash out of a family business
Additional capital to finance growth
A match that is committed to the mission and heritage of the brand
Management cash out
Risks of M&A
Insufficient turnaround time
Not committed to brand DNA
Lack of experience in category or price point
Unexpected disruptions in the business climate