Introduction
Country Road Limited has been one of the premium wholesalers and retailers of apparel and clothing in Australia. The company is also engaged in the designing of homewares and related accessories (Australian Stock Exchange, 2009). Starting as a small manufacturer of apparel, the company grew into a leading retailer of apparel and homewares in the Australian market through its expansion and diversification strategies. The success of the company over the years drove the company to adopt an expansionary strategy into the highly competitive but large apparel market of the United States and also into Asian markets. The company followed alternative strategies for its entry into Asian markets against its aggressive strategy of expanding into the US market. The strategies for the US market included strategic alliances and franchising agreements. Even though Country Road was successful at the initial stages of its expansion into the US market, because of its exceptionally higher quality products and diversification into homewares, the company had to retreat from the US markets at a later stage during 2000-01. This was mainly because of a lack of focus on the part of the company to identify the specific needs of the customers in the vast US market. The company changed its business strategies over the period and made a turnaround in the year 2004 when the company started following the business strategy of high volume sales and lower product prices. This paper presents an analytical report on the industry and strategic choices of Country Road Limited.
Country Road Limited – an Overview
Country Road Limited started as a supplier of niche women’s shirting in the year 1974. The company became the first lifestyle brand in Australia with its stylish and high-quality apparel. The company started dealing in accessories and homewares. During the 1980s and 1990s, the company expanded rapidly both within Australia and internationally into the US and Asian markets. Country Road is the first retailer to launch an apparel superstore concept in Australia offering women’s wear, menswear, accessories, and homewares in one shopping facility. The 1990s saw a decline in the profitability of the company with the failure of the US business, and in Australia, the brand became uncompetitive (CountryRoad.com, 2009).
In the year 1998, Woolworth Holdings Limited South Africa secured a controlling interest in the company which made the company reenter the Australian market with different business strategies. The company exited from the United States and Asian markets. In the Australian market, the company reduced prices and started offering more fashionable apparel. The company made a turnaround in the year 2004 and entered childrenswear and babywear which completed the lifestyle range (CountryRoad.com, 2009).
Presently the company has 60 retail stores, 80 concessional outlets, and 2000 employees in Australia and New Zealand and has regained its market leader position in the apparel and clothing industry in Australia. With a turnover of $ 343.1 m which is an 18.4% rise over the previous year (Silobreaker, 2009), the company has posted a net profit of $ 15.6 million for the fiscal year ended 30th June 2009 which is a 60.4% jump over the previous year profit of $ 9.8 million (Business Spectator, 2009).
Apparel and Clothing Industry in Australia
Australia is to be considered as a matured market in so far as the consumption patterns of apparel and clothing are concerned. The country is a medium-ranked manufacturer which is placed in the 28th place globally by Business Monitor International in terms of textile and manufacturing value addition. The industry volume in monetary terms is about the US $ 2.98 billion during the year 2008. The industry is characterized by small and medium scaled players. With the lifting of protective tariffs, the Australian manufacturers have lost their market share to imports, particularly from China which competes with its low-priced products. During the year Australia has imported apparel and clothing worth the US $ 5.75 billion as against the export value of US $ 539 million. Business Monitor International predicts a further decline in the sales and output for the industry during 2009 and 2010 because of the current global economic downturn (Infoshop, 2009).
Estimates about the overall Australian textiles and clothing manufacturing value-added report a decline of 4.9% in 2007 which went down further by 6.7% in 2008. A further contraction of about 11.3% is expected in the year 2009 which may recover to a 7.6% drop in 2010. The contraction is predicted to be in the region of 7.0% in 2011. Business Monitor expects the exports in the textile and clothing market to shrink by 26.8% in 2009, which in real terms will be equivalent to the US $ 359 million. The imports during the year 2009 are expected to be in the region of US $ 4.94 billion which is a decline of 17.1% (Just-style, 2009).
Competition in the Industry
Apparel designers in Australia can produce top-quality fashion at competitive prices. With their skill, they can compete successfully with other international labels being marketed in the country. Local designers are well informed about the latest brands being developed in the US and European markets and they are also up-to-date with designs unique to the Australian market. Italy, being the traditional supplier in the high-end designer-wear, is the major competitor for designer imports, whereas China is the major source of garments being offered at the lower to mid-end of the market (Ahern, 2004).
Business Strategy Analysis
The Australian apparel market at the time Country Road entered was characterized by high-cost low-quality products. Designer apparel was mostly imported from Italy selling at very high prices leaving the average customer limited choice in the low to mid-end apparel. Country Road visualized an opportunity in this niche sector of retailing. The company started selling high-quality women’s cotton shirts which proved to be a great success for the company. The chambray shirt was one of the most successful products for the company that reflected the Australian way of life. This product characterized the essence of the company, fuelling further growth of the business. The company diversified into other women’s wear, menswear, accessories, and homewares.
Strengthened by the runaway success in the domestic Australian market the company adopted an expansionary strategy to enter into the vast US market characterized by high volume low-cost products. Simultaneously the company adopted expansion plans to enter into other geographical locations like New Zealand and Asian markets. However, because of a lack of knowledge on the product offering that should be made to these new markets, the company had to exit from these markets. Country Road could manage to post a spectacular performance in terms of revenue and profits by posting a growth of 18.4% and 60.4% respectively during fiscal 2009 as compared to the previous year while the economic downturn has severely hit the apparel retail sector throwing several prominent companies out of gear. Country Road adopted several growth strategies to accomplish this. The opening of 72 stores within the Myer and David Jones department stores proved a major step in its rehabilitation (Heraldsun, 2007). Country Road also tied up with Myer Grace Bros for setting up Concept shops (MyerGraceBros, 2003). These arrangements made the company sustain its growth over the period and Concession stores recorded increased sales even during the economic recession (Smart Company Articles, 2008)
Key Success Factors
Country Road had been working hard to reposition its brand and product offering well before the downturn and there are certain key success factors worth mentioning.
Lower Prices
According to the then Chief Executive Ian Moir, Country Road adopted the strategy of lower prices by dropping the prices by almost 30-40% across its various product lines. It does not mean that the company compromised on the product quality and sold poor quality products at a discounted price. While the state of the Australian dollar helped the company, the company could achieve price cuts through improved product sourcing. With the reduced number of suppliers, the company remained committed to the suppliers which could help the company get better prices. The company adopted the strategy of passing the savings to the customers in a downturn which proved as an advantage to Country Road (Lindsay, 2009) (CountryRoad.com, 2009).
Knowing the Customers
The company’s close contact with its large customer base of 850,000 people helps the company to keep its market position strong. For any new product introduction, the company gets a response rate of 14% – 50% from its loyal customers. Maintaining a database of the customers of this large size pays the company off in terms of increased sales (Thomson, 2009).
Repositioning the Brand
Market research conducted by Country Road three years ago revealed the fact that while the company enjoyed a reputation for its quality, it was seen by many of the customers as too conservative. The company took efforts immediately to make the brand younger by introducing more fashionable garments and apparel which increased the customer base and resulted in sales growth. The company has plans to launch a new brand catering to customers over the age of 40.
Pessimistic Outlook
The company could predict a decline in the overall retail sales and displayed extreme discipline in stock management. Based on this principle the company kept its inventory levels low which helped Country Road reduce costs, improve working capital, and eliminate the need for adopting the practice of clearance sales (Thomson, 2009).
Key Risk Factors
The declining trend in the Australian apparel industry as indicated by the Business Monitor is the major risk factor for Country Road. Even though the company has adopted several business strategies to meet the challenges posed by the economic downturn, there is the potential risk of the retail sales in apparel going down in the year to come. This may affect the performance of the company. A high level of competition from China undertaken to capture a major market share is another risk that the company has to face to retain its market position. Creating innovative product designs and maintaining the quality and price level is the biggest challenge the company has to continue to face in the coming period to sustain the growth in sales.
Sustainability of Profits
Certain distinct features of Country Road keep the company sustaining its growth and profitability. These are strong cash flows, lean inventory levels, significant capital expansion, and planned expansion in terms of new store opening and concession retail outlets. The revenue growth and growth in net income for the five-year period are represented in the following graphs.
There has been a consistent growth in the revenue of the company as shown by the financial figures for the past five years (Reuters, 2009). The company’s strategy of keeping a lean stock level in tune with the bleak economic outlook has enabled the company to reduce its borrowing costs. The company maintains a cautious outlook about the domestic retail market and strives to deliver quality merchandise at lower prices which adds value to its customers (Wotnews, 2009). This would enable the company to retain its strength to fight against the economic slowdown. Strong financial position exhibited by operating cash flows has enabled the company to renegotiate the financial arrangements of the company on an unsecured basis which enabled the company to alter the composition of credit facilities to reduce borrowing costs during 2008 (Woolworth Holdings, 2008). The operating cash flows for the five-year period up to fiscal 2008 are shown in the following table.
Table: Generation of Operating Cash Flows/Total Assets
The cash flows have been clean adding wealth to the shareholders. The growth in the total assets has been consistent enough to ensure that Country Road can sustain the growth in sales as well as profitability in the years to come, despite the economic downturn. A comparison of the current assets with the current liabilities indicates that the company’s short-term liquidity position is strong enough to meet its current obligations which also ensures the sustainability of revenue and profits for Country Road.
Conclusion
In the retail apparel market of Australia which consists of knowledgeable, discriminating, and selective consumers, maintaining market leadership is a real challenge for the players, which calls for extraordinary planning and business strategies. With its resounding success in the early years, Country Road adopted inconsistent strategies of international expansion that proved a mistake. The company with its strategic initiatives could easily turn around and regain the lost market position. With the strategic intents of lower prices, exceptional quality, knowledge about customers, and pessimistic outlook to meet the challenges of the economic downturn, the company could sail through the tough periods, sustaining its growth both in terms of revenue and profitability. With strict inventory policies and sustained relationships with the suppliers, the company could reap significant cost advantages which ultimately were passed on to the consumers to gain their confidence and loyalty. This has proved a winning strategy for Country Road and made it possible for the company to withstand the storm of economic turbulence while many other major retailers had difficult times sustain in the domestic apparel market of Australia.
References
Ahern, A., 2004. Apparel in Australia. Web.
AustralianStockExchange, 2009. Country Road Limited (CTY). Web.
BusinessSpectator, 2009. Country Road Full-Year Profit Jumps 60%. Web.
CountryRoad.com, 2009. Our History.
Heraldsun, 2007. Getting Back on Track. Web.
Infoshop, 2009. Australia Textiles and Clothing Report Q3 2009. Web.
Just-style, 2009. Australia Textiles and Clothing Report Q3 2009 (Download). Web.
Lindsay, N., 2009. Ian Moir on the Road to Greater Things. Web.
MyerGraceBros, 2003. Myer Grace Bros and Country Road Strengthen Ties. Web.
Reuters, 2009. Country Road Ltd – Financial Statements. Web.
Silobreaker, 2009. Country Road Limited. Web.
SmartCompanyArticles, 2008. Country Road Goes Against the Fashion as Sales Roar.
Thomson, J., 2009. What can You Learn from Country Road’s Downturn-beating Growth Strategies. Web.
WoolworthHoldings, 2008. Annual Report 2008 – Country Road. Web.
Wotnews, 2009. Country Road Company Reports – Half Yearly. Web.