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Strategic Management - Burberry

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on 22 May 2013

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Transcript of Strategic Management - Burberry

Strategic Analysis Industry and markets Burberry Insights Financials Value Chain External Environment Burberry Company Mission High Street Fashion Chains
Arcadia Group (Topshop/Burton/Dorothy Perkins/BHS)
New Look
Primark
H&M
Marks & Spencer
Department Stores
John Lewis
Selfridges
Harrods (‘Harrods Own’)
Luxury Goods Retailers
High-end hoteliers
Luxury transportation
High-end electricals Burberry Competitors Direct Luxury Fashion Brands
LVMH Moët Hennessy • Louis Vuitton S.A.
Marc Jacobs
Louis Vuitton
Donna Karan
PPR
Gucci
Yves Saint Laurent
Richemont
Alfred Dunhill Limited
Chloé International
Mulberry
Ralph Lauren Corporation
Prada
Versace Burberry believes that to be a great brand, it must also be a great company.

Commitment to, and investment in its extended global community is at the heart of the Burberry core values to Protect, Explore and Inspire, and the global team is constantly working to evolve business practices in line with these principles.

Investing and engaging in the communities where Burberry employees live and work, while leveraging core business competences and values, remains a key objective. Burberry Company Values Brief history of the brand Burberry’s main mission was to sell Britishness to the world.

Through more coordinated use of brand assets and greater integration of its global organisation, Burberry takes the opportunity to enhance consumer responsiveness and operate more efficiently and effectively. This potential lies in both the front and back-of-house operations. Burberry Competitors Burberry was founded in 1856 when 21-year-old Thomas Burberry, a former draper's apprentice, opened his own store in Basingstoke,
By 1870, the business had established itself by focusing on the development of outdoors attire.
In 1880, Burberry introduced in his brand the gabardine, a hardwearing, water-resistant yet breathable fabric, in which the yarn is waterproofed before weaving.
Burberry was the original name, but then the company soon switched to using the name Burberrys, after many customers from around the world began calling it Burberrys of London.
In 1891, Burberry opened a shop in the Haymarket, London, which still exists and until recently was the site of Burberry’s corporate headquarters. Now the headquarters are at Horseferry House just behind Houses of Parliament, Westminster (London). Current Focus Burberry have currently shifted their focus towards the fragrance market.

Set to open up their own fragrance and beauty division, starting April 2012.

http://www.guardian.co.uk/business/nils-pratley-on-finance/2012/nov/07/burberry-perfume-deal-sweeter Revenues 2011/12
Total: £1,857m 23.7% increase from 2010/11
Retail: £1,270m 32% increase from 2010/11
Wholesale: £478m 8.4 % increase from 2010/11
2010/11:
Total: £1,501m 17.3% increase from 2009/10
Retail: £962m 28.4% increase from 2009/10
Wholesale: £441m 1.6% increase from 2009/10
2009/10:
Total: £1,280m
Retail: £749m
Wholesale: £434m Primary Activities continued… Firm Infrastructure
IT system
Partnered with salesforce.com to create a social enterprise
Global IT infrastructure using SAP

Human Resource Management
Recognises that people are its’ greatest asset
Resourcing centre of excellence
Wellbeing programme
Bonus or incentive plan Support Activities Porter’s Value Chain Technology Development
Centralised business intelligence team
Procurement
Site visits to understand traceability in the fur industry
Tannery assessment project
Does not knowingly use sandblasting in denim products Support Activities continued… Inbound Logistics
All suppliers have to comply with local labour and environmental laws and also the Burberry Ethical Trading Code of Conduct.
Audits (announced and unannounced), training and visits for suppliers.
Operations
Increasing purchase of renewable energy
Manufacturing based in UK but also overseas
Outbound Logistics
Moving stock from air to sea, to reduce the environmental impact
New regional distribution hub in Piacenza, Italy Primary activities Environmental The use of innovative new materials and production techniques (E.g. ‘Wearable’ technology)
Changes in payment methods (NFC)
The use and gathering of ‘Big Data’ to analyse customer trends and preferences (E.g. The ability to track store activity as you would online)
Growth in the proportion of retail activity taking place on the internet Technological Waste disposal and efficient use of raw materials
Environmentally sustainable production facilities
Shipping/distribution methods, minimising pollution Burberry currently sits within the fashion market.

Range between stylish womenswear, menswear, childrenswear, watches and accessories.

Burberry are still heavily focusing on their presence within global markets. Current Products & Markets Political Social trends, fashion constantly changing
Marketplace perception of brands, influenced by media and press
Aging population – Restricted incomes and traditional tastes
Increasing social awareness of product sourcing, fair trade, animal welfare and production methods Socio-Cultural Marketing and Sales
Retail stores across the globe including 192 mainline stores, 208 concessions within department stores and 44 outlets (Correct at 31st March 2012)
Brand licensed to products manufactured by third parties such as fragrance, eyewear and watches and European wholesale children’s wear
Bespoke range where customers can design, share and purchase customised trench coats.
Service
Customers can return items free within 30 days of purchase or shipping if purchased online (apart from Fragrance and Bespoke items). PESTEL National government policy, in particular on corporation tax, employment and welfare payments
European Union trade restrictions on imports and exports to/from certain countries
Policy on interest rates that influence consumer saving and spending
Government policy on the UK’s position within the EU The level of economic activity and corresponding impact on consumer spending
The level of inflation
Nature of industry competition, threat of budget substitutes as a result of economic downturn
Economic instability of many European Union member states, in particular Italy
Exchange rates Economic Employment and competition law
Counterfeit goods and safety implications Legal From its founding in 1856 when Thomas Burberry constructed his first outerwear garments for the sportsmen of Basingstoke, England, Burberry has become a leading luxury brand with a global business. The Burberry brand is defined by its:
• Authentic British heritage
• Principles of quality, function and modern
classic style, rooted in the integrity of its outerwear
• Globally recognised icon portfolio: the trench coat,
trademark check and Prorsum horse logo
Today, the business built upon this brand is distinguished by:
• Multi-category competency: womenswear, menswear,
non-apparel and childrenswear – with innovative
outerwear as the foundation
• Multichannel expertise
• Global reach: operations in markets throughout the
world, with a balance across major geographic regions
• A unified, passionate and seasoned management team Introduction Indirect 2011/12: 25p 25% increase
2010/11: 20p 43% increase
2009/10: 14p dividend per share Comparison Burberry has seen the largest year on year increase over the past two years over Gucci
But only a larger increase over Prada for the most recent year
Larger total revenues than Prada but not Gucci 2011 (31st December 2011)
Total: €3,143m
Converted using €1.1933 to £1: £2,634m
15.3% increase
2010 (31st December 2010)
Total: €2,666m
Converted using €1.1672 to £1: £2,284m
12% increase
2009 (31st December 2009)
Total: €2,266m
Converted using €1.1112 to £1: £2,039m

All figures taken from annual reports found on www.ppr.com Gucci revenue Analysing the external environment Porter's 5 forces Adjusted Operating Profit 2011/12: £376.9m 25% increase
2010/11: £301.1m 37% increase
2009/10: £219.9m 2011/12 (31st January 2012)
Total: €2,031m
Converted using €1.1933 to £1: £1,702m
22.7% increase
2010/11 (31st January 2011)
Total: €1,615m
Converted using €1.1643 to £1: £1,387m
29% increase
2009/10 (31st January 2010)
Total: €1,238m
Converted using €1.1519 to £1: £1,075m

All figures taken from annual reports found on www.pradagroup.com Prada revenue Internal Resources & Capabilities Entry to the industry doesn’t require large capital outlay.

Setting up a single, independent clothing store is within the means of many individuals.

However, existing retailers are likely to retaliate with tactics such as a pricing war.

Overall the threat of new entrants to the luxury goods industry is assessed as strong. Threat of new entrants The luxury goods market is rather fragmented, where there is room for large numbers of smaller players.

Major increases in capacity may be fairly costly to smaller players, if they require the outlay of opening additional outlets.

While some retailers selling apparel are highly diverse, many retain a strong emphasis on clothing, intensifying rivalry.

The modest market performance over the past five years only partly alleviates rivalry, which is assessed as moderate overall. Competitive rivalry Demographic and psychological significance of retail garments, are highly important to consumers, further weakening buyer power.

However, customers have low switching costs. Where brand loyalty exists, it is more likely to be to the designer than the retailer. This strengthens customer power.

Fashion, by its very nature, is also unpredictable. The products are determined by designers, sub-cultures and creative industries, and are subject to sharp and unpredictable changes, strengthening customer power.

Therefore, bargaining power of customers is assessed overall as low to moderate. Bargaining power of buyers Key suppliers in the luxury goods market are clothing manufacturers and wholesalers. Retailers tend to source from foreign manufacturers, increasing supplier fragmentation.

Luxury apparel manufacturing is almost always labour-intensive, due to the difficulty of automating processes, such as the sewing of garments. Hence, as international trade liberalizes, supplier power also is decreased through competition from manufacturers in low-wage regions like China.

Suppliers are further weakened by their lack of diversity.

Overall, there is low to moderate supplier power in this market. Bargaining power of suppliers Substitutes for luxury goods include buying directly from manufacturers, especially with the growth of online sales.

Homemade clothing is also a niche alternative to retail of ready-made clothes. Counterfeit clothing can also be a significant threat to revenues.

However, given the socio-political environment individuals live in, coupled with the need for individual and group identity, makes luxury retail clothing essential to consumers.

Therefore, overall threat of substitutes to the luxury goods market is assessed as weak. Threat of substitutes Product life cycle Diffusion of innovation Internal Environment Sustained competitive advantage VRIS framework SWOT Strategic Options Ansoff Matrix Ansoff’s Matrix VRIO is an acronym for the four question framework asked in regard to a resource or capability to determine its competitive potential: the question of Value, Rarity, Imitability, and the question of Organization (ability to exploit the resource or capability). Question of Value Question of Rarity Rarity is when a firm has a valuable resource or capability that is absolutely unique among a set of current and potential competitors. Burberry has a competitive advantage with its heritage and the core product - the trench. Design and marketing team has put this into the heart of its brand and strategy. The definition of value is whether or not the resource or capability works to exploit an opportunity or mitigate a threat in the marketplace. If it does do one of those two things, it can be considered strength for the company. Burberry adds value by exploiting opportunities of technology with in-store installations, e-commerce and 3D holographic shows, which allow customers to shop before the end of the review Question of Imitability Do the firm have a hard to imitate resource/capability?
Burberry has its brand name, reputation and heritage but it is still harmed by fakes... Question of Organization: Exploiting resources to sustain the competitive advantage Market penetration: This comprises of increasing market share within existing market segments. This is done by selling more products/services to established customers or by acquiring new customers inside existing markets.

Product development: This involves developing new products for existing markets. Product development includes thinking about how new products can meet customer needs better and outclass the products of competitors.

Market development: This strategy consists of finding new markets for existing products. Market research and further segmentation of markets helps to identify new groups of customers.

Diversification: This is the growth strategy where a business markets new products in new markets. It is a much more risky strategy as the business is moving into markets in which it has little or no experience. For a business to adopt a diversification strategy it must have a clear idea about what it expects to gain from the strategy and to have thoroughly identified the risks. If this is done correctly a marketing strategy of diversification can be highly rewarding.
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