Executive Summary
Burberry Plc is a strong brand in the UK and throughout the world, which sells luxury products. Its range of products includes women, children, and men apparel, as well as cosmetic products and other non-apparel products. Growth in the company has been realised in the recent years mainly due to its international market expansion. Burberry presently operates in emerging economies, including China and India, through its established stores in these locations.
This strategy was of particular importance to the company as it has survived the economic recession scare that began in 2008. Competition is high in the industry as quality is the main basis of winning customer loyalty. Internally, the company has continuously pursued a differentiation strategy, which has seen the market perceive its products as unique.
Burberry invests in information technology, a fact that has seen it introduce the 3D technology in the live stream streaming of its fashion show. Developments have been extended further to the social network front where the company maintains close contacts with its consumers. There is need for the company to maintain its spending on technological investment to give an edge over its competitors.
Introduction
Burberry Plc is a renowned manufacturer of a variety of luxury products that range from apparel, to cosmetics and other non-apparel products. The company is based in the UK though it has a worldwide market presence. Through its worldwide wholesale, retail, and stores network, the firm manages to reach an expansive international market that includes Europe, Asia, the USA, as well as the Americas.
Burberry is an iconic brand within the UK where it has existed for more than 125 years. It manufactured courts that soldiers wore during the First World War. Additionally, the company has twice been feted with Royal Warranties, first by Queen Elizabeth II and by Prince Charles.
This means that the royal family chose on the firm to be their official supplier of apparel. The internationalisation strategy has seen the company its sales volumes in the recent years despite the negative effects of the recession. This report analyses the strategy of Burberry Plc in detail and offers recommendations on the way forward.
Strategic Analysis
Profile of the industry and company
Burberry Plc deals in the fashion industry, where it distributes clothing, a variety of fashion accessories, as well as licensing fragrances. The company sells a variety of products, which include makeup, skincare, fragrances, bath and body, and hair care products. It also deals in men’s products that include cleansers, moisturizers, shaving equipments, and facial treatment (The Telegraph 2011, para 1).
The non-apparel products of the firm that include large leather goods and other men’s non-apparel occupy the most important product position of the firm. In the 2011/12 annual report of the company, the non-apparel products’ revenue totalled £689m, followed by women’s wear revenue of £583m at position two. Men’s wear recorded £410m while children’s wear had the least performance at £66m (Bueberry.com, 2013, para 3).
External environment
PESTEL Analysis
Political factors
Burberry’s operates in international markets, which makes it important to consider the regulations and policies in those countries. The company also sources its materials from different suppliers worldwide, which subjects its operations to varying regulations and policies.
There is need for the firm to consider political stability as this has potential negative impacts on revenues. In the emerging markets where Burberry has set sights, such as China, there exist numerous legal systems whose manipulation can end up being retrospective to business performance of the firm (Moore & Birtwistle 2004, p. 412).
Burberry relies on its risk assurance department in monitoring market developments before making decisions. Thus, the feasibility of a given market is evaluated and its business prospects analysed before the company makes decisions to venture into such a market (Johnson 2008, p. 112).
Economic factors
The United Kingdom’s economy contracted in 2008 following the onset of the global economic crisis. Further slow down at 4.9% ensued in 2009 as the effects of the global economic crisis worsened. The economic slow-down negatively affected job creation in the UK in the subsequent years.
The resulting inflationary rates can potentially weaken the market as most of Europe’s economy continues to experience poor economic results and general performance (Hartwich 2009, p. 36). As the economy remains weak, buyers reduce their spending on luxury goods and consider limiting their spending on basic commodities like food and shelter.
Socio cultural
The Burberry brand is associated more with Britishness, given Burberry’s foundational background. Other features strongly associated with Burberry include innovation and intuition, authentic outwear heritage, democratic luxury positioning, as well as historic icons such as the trench coat and the iconic check Prorsum trademark (Design Council 2012, para 4).
These features make the brand popular, especially among the UK buyers. As Burberry expands its market to include the emerging economies, the social cultural factors of the new markets will affect how the firm conducts business. The generally conservative Indian and Chinese markets, for instance, poses challenges to the brand as buyers in these markets consider other features different from the Britishness associated with Burberry.
Technological factors
With the development and improvement in the information technology front, Burberry has focused its attention on exploiting the benefits of social networks for growth. The company launched a new website, Burberry.com to help online buyers make purchases.
It has also extended its leadership position in the luxury industry by making forays in both Facebook and Twitter, to maintain contacts with the large, mostly young market base. The Burberry brand continues to undergo digitization, having pioneered live streaming, in 3D technology, of a fashion show (Kowitt 2012, p. 68).
Environmental factors
Different countries in which Burberry operates have different laws and policies concerning environmental management. This poses a challenge to the company, as meeting all the environmental regulation laws is also expensive. A renewed focus on environmental management by the company has seen it produce car door insulating material from the recycling of its raw materials and product samples (Burberry, p. 7).
Legal factors
Burberry has encountered the challenge of market imitations of its products. The infringement of the official Burberry trademark has seen the country spend huge sums of money fighting the counterfeits (Burberry Case Study’ 2012, p. 1). To protect the Burberry trademark from further counterfeiting, the company works in collaboration with the law enforcing agencies to keep track of the counterfeits and sue the perpetrators.
Internal Environment
Strength Factors
Global footprint
Burberry has an international outlook, with its products having a presence in numerous countries. Thus, the company caters for a broadened market, which helps it mitigate the associated business risk of a single market. The four major global regions with Burberry’s presence include Europe, Americas, Asia Pacific, as well as the rest of the world.
Specifically, the company operates in the UK, Latin America, the US, China, Eastern Europe, Middle East, Brazil, Russia, and India. Additionally, Burberry has a presence in South Africa and in several South East Asia regions. This strongly diversified global market helps in cushioning the organization against any instances of market volatility in particular countries or regions.
Diversified operations
Because of its wider geographical reach, the firm stands a better chance in reaping added benefits, subsequently leading to improved profit margins. It also enables the company achieve economies of scale advantages in addition to a global recognition (Bussey 2009, p. 1).
The company sells its products through retail, wholesale, licensing distribution, and e-commerce channels. Customers gain access to the company’s products directly through the Burberry retail segment. Established wholesale networks also serve these global market regions to maintain steady supplies. In 2011/12 period, the firm operated 208 concessions in department stores, 192 mainline stores, as well as 44 outlets in its retail sector.
Additionally, Burberry runs digital commerce related activities in 27 different countries. Besides its franchisees, the company renders to speciality stores and department stores its products (Rohwedder 2009, p. 45). Operations in countries such as Japan run through licensed agreements. The diverse nature of business endows Burberry with stronger brand presence, wider customer base, and growth in the emerging markets.
Weakness factors
Trade accounts receivable
The profitability and competitive position of the company is affected by the increasing accounts receivable. In 2012, the accounts receivable grew to £131.90m compared to the 2011 figure of £119.20m. Several factoring agreements between the company and its consumers resulted especially through credit providers.
These increasing doubtful debts, together with the accounts receivable, are indicators of the company’s inefficiency in as far as credit management is concerned. With the increasing economic recession, the likelihood of credit defaulters also increased. This may influence negatively the company’s overall financial position, extending even further to its profits (Ahrendts 2013, p. 39).
Competitive environment
Porter’s five-force analysis
Power of buyers
The power of buyers varies depending on their economic power. The super-rich customers, considered as high net worth, are powerful as they are less affected by economic cycles such as the global economic crisis. Equally, there is some marked growth in the size of this category of buyers, increasing their bargaining power further. On the other hand, middle-market customers, despite having comparatively lesser bargaining power, put a lot of pressure on trends and designs.
The fact that they also belong to the upper-middle class implies that their market has huge potentials as well. In general, therefore, the industry is in a difficult equilibrium because of the two different groups of buyers who, on the other hand, are not automatically compatible. A difficult trade off can result from this scenario because of pressures to either satisfy a huge number of customers who are also highly volatile, or satisfying few customers who are loyal to the brand (Cool 2002, p. 7).
Power of suppliers
Suppliers’ power is highly dependent on the existing market segments. Tendency to raise the bargaining power potentially results in vertical integration and concentration trend within the industry. The reason for this is to lower supplier’s bargaining power. The industry generally has limited instances of concentration among suppliers. However, established players can purchase the small-scale suppliers in a bid to deprive their competitors from supplies (Cool 2002, p. 7).
Level of rivalry
There is relatively high competition in the industry. However, the competition is not price-based owing to perceptions by customers about price and the generally high margins. Image perception and quality form the main basis of the competition. The capability to attract skilled designers also partly forms the basis of the industry’s competition (Cool 2002, p. 8).
Threat of entry
New designers pose the threat of entry into the industry. However, the major, highly established industry players quickly absorb the small scale but successful designers. The companies offer the designers with the infrastructure, which offers them an opportunity for growth.
New entrants, nevertheless, pose a threat especially because they can easily capture volatile customers who are in the middle class (Cool 2002, p. 9). The fact that customers go after brand names, which take a lot of time and effort to develop, leaves the established firms such as Burberry less threatened with new entrants.
Threat of substitution
Real substitutes in the luxury industry literally do not exist. The option open to buyers is failure to purchase the goods, as their necessity is small (Cool 2002, p. 9).
Basis of competition and key success factors
Burberry boasts of unique resources, which include its trademark coat product with the signature check design, and the high brand equity. This particularly results from the fact that firm enjoys a long history since its establishment. The Burberry brand initially focused on serving World War 1 soldiers with adapted warfare coats.
The company has twice been feted by a Royal warrant by both Queen Elizabeth II and Prince Charles. This implies Burberry can publicize itself as the royal family’s suppliers of products (Instyle para 4). This achievement affords the company great competitive advantage over its industry rivals (John 2012, p. 14).
The overall market positioning of Burberry is also unique. The range of products manufactured by the firm are considered ‘continuity products’, meaning their life cycle is short, including only a few years. The company also focuses on ‘fashion products’, which implies they manufacture goods specifically for purposes of meeting the fashion trends over some period. The firm targets its entire market base by using ‘functional luxury’ as its common theme (International Business 2013, para 6).
Strategic Development
Existing strategies
Corporate level strategy
Burberry pursues an international expansion strategy for purposes of widening its market outreach and increase profitability. Because of this strategy, Burberry owns several stores in its international market, including its main stores in London, Barcelona in Spain, and New York, in the US.
The international market expansion has also included Japan in the Asian market (Lee 2012, p. 29). The focus on internationalisation of the market has further seen Burberry enter emerging markets in China, India, the Middle East region, as well as in Russia. According to the official website of the company, new stores have come up in the recent past in Egypt, Israel, Armenia, and Mongolia (Burberry.com).
Business level strategy
Burberry has mainly focused on leveraging the franchise and accelerating the growth of its retail network to pursue the business level strategy. Additionally, the company has also intensified the development of non-apparel products to expand its business in general.
Burberry has also explored development in the information technology front as a way of expanding and improving business performance (WWD: Women’s Wear Daily, 20112, p. 1). Social networks, such as Facebook and Twitter, now enable the company to maintain a close touch with its customer base without having to deal with the challenges of physical location. The word-of-mouth advantage spreads first especially in the social network, which was the firm’s initial target when it launched the strategy (Edgar).
Because of the powerful influence of the social media, Burberry has remained largely unaffected with the negative effects of the recent recession. The company also pioneered the digital strategy where Burberry became the first company in the luxury market and industry to stream live a fashion show that was in 3D technology (Farrar 2011, p. 4).
Organisational strategy
Burberry has persistently sought for operational excellence through the numerous initiatives that it has followed. Elliott (2012, p. 29)points out that Burberry has introduced new information technology systems, including SAP, which has enabled a single SAP-based human resource database to hold information huge numbers of employees in several countries. This new practice replaces the scattered distribution centres, which existed previously and relied on the regional hubs for coordination.
Generation of strategic options
Viewing strategy based on the resources available enables a company to focus more on its internal capabilities and thus enabling it address the aspect of achieving sustainable competitive advantage. Equally, it gives the organisation an opportunity to tackle its competitive advantage.
In other words, a better strategy for any company begins by analysing the internal environment. The current successes recorded at Burberry are sustainable through a resource-based strategy, which also helps in increasing the company’s competitive advantage.
In this regard, therefore, the company should put emphasis on maintaining the iconic luxury brand significance while also building upon the brand equity (Instyle 2012, para 2). With the long history of existence, this including serving the British soldiers during the First World War, and having been feted with two Royal Warrants, the company has a competitive advantage. These factors underline the strong sense of ‘Britishness’ that the brand wishes to continuously associate itself with (Cool 2002, p. 7).
Apart from the brand equity, Burberry’s specialised product line, mainly its ‘trench coat’ trademark plays a more significant competitive role. Additionally, the presence of a marketing communication platform that consists of a unique complimentary social media also makes the Burberry brand more specialised. The introduction of fashion shows by the company is unique in its own ways. It serves as both a sales means as well as a marketing channel.
The brand needs to sustain efforts in promoting its products and continuous innovation. The signature check design, which is a symbol of the firm, coincides well with the luxurious and classic status of the brand. It is important that Burberry hold onto this signature check design, extending its application on other new product lines that it continues to manufacture (Wireless News, 2012, para 2).
Evaluation and ranking of options
The Ansoff Matrix
Market share
Implementation
Burberry Plc should continue with its expansion to other new markets, which it has not covered so far. This is important for the company because it helps in the minimization of risk. The recent economic recessions that remained particularly pronounced in Europe would have severely affected the company if its operations only focused on the European market (Harris, Syrianos & Martin n.d, para 8). However, it is worth noting that Burberry remains as one of the few companies that remained unaffected by the recession.
The company should invest further in technologies, particularly on the on-line front to build consumer relations further. With the information technology capabilities expanding almost on a daily basis, focus on this aspect will provide the firm with the opportunity to cover an even wider geographical location irrespective of physical presence. Investment on in-store marketing should be sustained further to increase on customer service.
Because the UK is Burberry’s home country, the company should consider moving its manufacturing activities into the country. This is because the brand enjoys a strong identity in the country and it is easier building from this strong identity even as the focus remains on internationalisation (Stocks Challenge 2012, para 2).
Conclusion
Burberry Plc is a company that deals in the luxury industry, where it sells a wider variety of products that include women, men, and children apparel. The company also sells cosmetic products, some of which are through franchise agreements. Burberry brand has a strong market appeal, especially in the UK following its long history since formation. Its ‘Britishness’ philosophy ties it to a majority of the local buyers. One of the brands strengths lies in the fact that it has a wider global presence, a fact that helps in mitigating the market risk.
There is a generally low threat of entrant into the market as new entrants are individual small-scale designers. The company should consider increasing its investment on market expansion, including entry into new markets. Pursuing strong innovation in technologies will offer the opportunity for the company to explore new markets via online capabilities. Burberry’s main competitive advantage lies in the fact that the company’s resources are strong as compared to its competitors in the market.
List of References
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