STRATEGY: ARCADIA GROUP

Transcription

1 STRATEGY: ARCADIA GROUP Executive Summary This report critically evaluates the strategy position of Arcadia Group Plc. and also its strategic direction. At the end of this report a few recommendation is given to board of directors of the group. The present report is a compilation of the details of the internal as well as external environments of Arcadia Group plc, which is one of the well established and reputed stores of fashion brands. The analysis of these internal and external environments enables the understanding of their roles in influencing the current and future strategies of the company. In order to carry out the external analysis of the company the tools such as PEST analysis and Porters five forces were used. Whereas, the tools like SWOT analysis, value chain analysis and VRIN analysis was used for internal analysis. As mentioned above this report critically analysed the strategic direction of Arcadia Group, by identifying the methods followed by the group. In order to analyse the strategic direction of Arcadia group, the model of Ansoff matrix, BCG matrix and strategic clock were used. Furthermore this report critically carried out strategic evaluation of the Group using SAFS framework such as suitability, accessibility, feasibility and sustainability. Using the BCG matrix strategy it has been found that the Arcadia group is positioned under the differentiation strategy. Whereas the Ansoff matrix illustrated that the group has operation in 3 quadrants including except new product development. After evaluation of the straetey it seem that the market penetration strategy is the most suitable strategy for the group. In order to measure the feasibility, and accessibility the group financial report were used. At the end of the report the board of directors of the group were given adequate recommendation for the future. Table of content

2 Executive Summary... 1 Table of content Introduction External analysis PEST analysis Porters Five forces analysis Internal analysis SWOT analysis Value Chain analysis VRIN analysis Strategic direction Ansoff Matrix analysis Portfolio analysis Critical evaluation Conclusion Recommendation References APPENDIX Introduction Head quartered in the United Kingdom, this store is considered to be the largest privately owned clothing retailer in UK. This firm has more than 2500 outlets. Around seven of the high street s best known fashion brands are owned by Arcadia Group plc.

3 This company has a largest collection of seven famous brands including Burton, Evans, Topman, Wallis, Dorothy Perkins, Miss Selfridge, Topshop etc. The business processes of the firm extends over 30 countries across Europe, Middle East, the Far East and the total number of stores comes around 500 in these 30 countries (Arcadia group, 2012). 2. External analysis According to the opinions of Babette etl.al (2012), the analysis of external environments of any company (including retail firm) plays an important role in the identification of key elements that aid for the success of the firm as well as the factors that pose threats for the concerned firm. For this report, external environmental audit is carried out using PEST analysis and Porters Five forces analysis. 2.1 PEST analysis Figure:1 PEST Framework

4 Sources: (Arcadia, 2011; Arcadia, 2012; Guardian 2011) In analysing the PEST factors it is found that there are various factors that affect the operation of the company in various countries. Government policies such as tax policy, monetary policy affect the company. In addition, the completion policy implemented by the EU greatly affects the operation in the EU zone. In the UK, the raising, unemployment and declining consumer income affect on consumer spending and thereby the company as well. Considering the social factor the green clothing is an issue in the UK fashion industry. Moreover, innovation and technology is integral in the growth of fashion retailing.

5 2.2 Porters Five forces analysis Bargaining Power of Customer LOW Figure 2: Porter five forces. Large number of customers. Differentiated products High switching costs. Threat of forward integration by Arcadia Bargaining power of Supplier LOW. Large number of suppliers in the fashion retailing industry. Switching cost is low, so that Arcadia can easily switch to other suppliers.. Arcadia makes the threat of backward Competitive Rivalry HIGH. Low switching costs. Increasing number of competitors. Diversified products of competitors. Building loyalty is very difficult with pricing strategy.. Decreasing margin to increase the market share Threat of New Entrants HIGH. Increasing number of fashion retailer entering to the market. Buyers have the access to other channel like online shopping.. Increasing number of online clothing stores.. Low switching cost of buyers Potential Substitutes LOW With reference to the figure 2 it is observed that the. Customers cannot substitute threat of new entrants clothing with other products. is very high and there is an increasing number of. There is no relative quality of new entrants every year, for substitute example STING. The bargain power of customers is rated as low as there is large number of customers and the company offer differentiated products. Moreover the competitive rivalry is rated high as there are several competitors like Gap, Next, H&M etc. while the bargaining power of suppliers and threat of substitutes was rated as low (Just Style, 2011). 3. Internal analysis Lawrence (2010) states that the internal analysis helps in the augmentation of the positive factors which enables the success of the firm and the implementation of the measures that may help in the reduction of the threats which are directed towards the

6 concerned firm. For this report internal analysis done using, SWOT analysis, VRIN analysis and value chain analysis. 3.1 SWOT analysis Figure:3 SWOT analysis Strength Workforce Improved brands Outstanding customer service Location Size range plus clothing Store networks Effectual supply chains Opportunity Growth prospects of E- commerce business New business initiatives Sophisticated supply chain network Weakness Less improved communication area Trading environment Lack of manufacturing facilities Threat Increasing competition in fashion retailing Legislation threats Increasing counterfeit products 3.2 Value Chain analysis Figure: 4 Value chain analysis

7 It is observed in the value chain analysis that the company has one of the best value chain in comparison with its retailers. Arcadia offer 225m units of products distributed from 55 counties across the world. The firms has at present 2500 stores in UK and 500 stores internationally in addition to the online store for marketing and sales of the products. The groups itself provides customers services for all of its brands (Arcadia, 2012). 3.3 VRIN analysis With reference to the Appendix - 1 Arcadia Group has established strong brand under different name such as Debenhams, Selfridges, Evans, Topman, Topshot, Dorothy Perkinns, Burton and BHS. The Brands like Topman, Topshop, Evans, and Dorothy Perkins offers products to customers with affordable prices. The British giant has established its significance in UK but also in the international market. In analysing VRIN it is found that brand name is the significant resources and competencies of Arcadia Group. Considering the distribution network, ARCADI brings 225milloin units of products from around 55 countries and it is hardly imitable. Over the years Arcadia Group has established great distribution network with its suppliers (Arcadia, 2012). This outstanding distribution network facilitates Arcadia Group capitalize the opportunities and cope the threats in the environment of online selling. The rarity of Arcadia s distribution network is that millions of products are sold to the customers through its stores and online stores. In addition to its stores the online stores also has been very crucial for the success of all of its brands. Customers all through the world get the luxurious products to their door by shopping in the websites of Arcadia s brands. To

8 simply put, online stores of different brands of Arcadia Group enables the group to penetrate the huge fashion industry and gain significant market share. Stores are the outstanding resources found in VRIN analysis of Arcadia Group. All the stores of Arcadia brands are built in a unique design through which customers get great shopping experience (Corporate Register, 2011). This resource is considered as the great strength of Arcadia Group. Meanwhile the brands of Arcadia focus on customer service too that gives significant core competency for the company. This resource also gives competitive advantage for the company. 4. Strategic direction 4.1 Strategic clock Figure: 5 strategic clock Arcadia Group has been positioned with differentiation strategies under different brand name such as clothing through Topman, Topshop, Dorothy Perkins, and Evans and luxurious fashionable products through Debenhams, Selfridges, Miss Selfridges, and House of Frazer. The stores like Topman, Topshop, and Dorothy Perkins offers products for reasonable prices. It is apparent that Arcadia Group does not focus on lower pricing as it affect the perceived value of the products offered. Unlike other company, the value of chain of Arcadia is extremely different. The products of Arcadia

9 are brought from several countries that in fact required effectual supply chain management and distribution network. Arcadia is significantly focus on offering differentiated products through its diverse brand name. 4.2 Ansoff Matrix analysis Figure:6 Ansoff Matrix Existing A. Market Penetration Retail outlets and online stores New B. New products and services Nordstrom stores NEW Existing C. Market Development Hong Kong, China D. Diversification Arcadia groups penetrates the market with 2500 stores in the UK and 500 international stores across 35 markets under the brand name of Topman, Topshop, Evans, Dorothy Perkins, Burton, BHS, Miss Selfridges, and Outfit. In addition, Arcadia Group has increased the market share with e- commerce business. Nonetheless, there is an increasing numbers of competitors as the barriers to entry is low. As the result of this market penetration Arcadia continued strong cash generation of 330.4m during the period of and it is 30m more than last financial year. Moreover it has been observed that the online store business has grown by +22% in this period. This shows the integral penetration of Arcadia (Arcadia Group, 2012). The brand Topman and Topman have now penetrated the new market of Hong Kong and China as well (Arcadia, 2012). The brand Topman and Topshop launched Nordstrom stores across United States for selling broad ranges of the British fashion brands in store as well as online. The department at Nordstrom have mannequins, visual merchandising and store fixturing

10 supplied from the United Kingdom and high profile locations. Indeed the Nordstrom offers exceptional and different signature fashion authority (Arcadia, 2012) As mentioned above the brands Topman, Topshop have expanded to new markets in 2012 such as Hong Kong and China as part of market development. The store opened in Hong Kong one of the biggest store of Top Shop in Asia as it has 12,000 square feet (Arcadia, 2012). It can be concluded that, all though Arcadia has given significant focus on market penetration, product development, and market development, the company has not yet gone for diversification. However, it has been observed that Arcadia Group has significantly gained market share by penetrating the market and expanding into new market. 4.3 Portfolio analysis Figure: 7 BCG Matrix With reference to the BCG matrix figure of Arcadia group, it is apparent that Topman and Topshop are the Stars as it comprised high market growth as well as high market share. The both brands have shown significant performance in both in UK market and international market. The newly opened store in Melbourne, Australia has shown 15m and in Vancouver, Canada 22m record sales (Arcadia, 2012). Nevertheless, Dorothy Perkins is the Cash Cowas it has shown lower market growth. However, it seems that they have high market share in the United in the female fashion apparel. The newly introduced store Nordstrom is the question market and it has low market all though there is high market growth for this. Meanwhile, the brand Evans seems as dog as it shows low market growth and low market share.

11 It is imperative for Arcadia to conduct a research to identify whether the cash cow such as Nordstrom store can indeed become star in the market of United States with the British products. Moreover, the groups must be focusing on opening new outlets for Nordstrom in addition to the 14 stores opened so far (Arcadia, 2012). Therefore Arcadia can significantly increase market share thorough this stores. The group need to remain the star position of Topshop and Topman by implementing various marketing campaign, especially viral marketing. As the Evans does not generate market share and show the market growth, it is vital to stop running this brand. 5. Critical evaluation of strategy Suitability Based on the environmental analysis it has been observed that market penetration strategy is that suitable strategy for Arcadia Group. Because this is most common growth strategy by which Arcadia can focus on what do they best by giving emphasis to existing products in the existing products. Moreover it is apparent this strategy extremely fit with current economic climate across the world wherever they operate, and also it fits within the competitive environment in the fashion retaining industry. As the company already offers differentiated products its is simple to pursue this strategy. Acadia need to offer products for value added pricing using market penetration strategy. This strategy also will be very effective in recently entered countries like Hong Kong, Australia, Canada, and China. As Arcadia is already well established this strategy will be much easier for them and risk of opting the market is not that vital barrier. Accessibility Using market penetration strategy, Arcadia Group obviously can target the customers of competitors and it is also likely a retention strategy. Arcadia Group need to enhance the products quality and also the level of service supported by promotions. Arcadia can increase the market share by implementing penetration pricing. By using this strategy, Arcadia need to fulfil the expectation of the customers. Therefore, as a result, the revenue can reach to 400m in UK from 330m by increasing market share. Feasibility The feasibility of this strategy is that, as Arcadia is still growing significantly, this strategy can be implemented successfully. The funding of this strategy is much feasible as the profit of the Group achieved to 330m. At present the brands under Arcadia group offer various differentiated products and hence is possible that if they offer the products for value added price they will be more than capable to increase the market

12 share. Moreover it is possible that the group can cope up with the rivals in significant manner. Sustainability The fashion industry has got significant impact on the environmental, social and governance issues. The Arcadia group has developed a plan to work with manufactures in order for softening the apparel industry impact on the water and industry consumption. The group work with industry peers and suppy chain partners to achieve the total possible life cycle transparency for clothing (Guardian, 2012) 6. Conclusion The Arcadia group has been very successful in the United Kingdom market as well as international market. At present the group has 2500 stores in UK and 500 stores across the world. Considering the distribution network, ARCADI brings 225milloin units of products from around 55 countries and it is hardly imitable (Arcadia, 2012). Over the years Arcadia Group has established great distribution network with its suppliers. It has been mentioned in the analysis that there is an increasing intensive competition in this industry as there is a low barrier to entry. Presently the group offers differentiated products by using differentiation strategy. However, it seems that in the present situation market penetration strategy is more suitable for the group as there is increasing competition and economic recession. 7. Recommendation Arcadia group need to focus on market penetration strategy along with their existing differentiation strategies to cope up with current economic climate and intensive competition. All though the group is recommended to implement market penetration strategy, it is imperative for the group to give an emphasis to the quality of the products as well. At present the Arcadia group 80% products are under clothing ranges, and merely 20% only accessories, and footwear. However, Arcadia is now recommended that they need to include more differentiated non- clothing products in their products lines, so that they can increase the market share easily in non clothing products like accessories, bags, footwear etc. The Arcadia group need be enthusiastic on seizing market share not only in the home market but also in the international market as well. The newly entered market such as Canada, Australia, China and Hong Kong must be given more significance and implemented market penetration pricing strategy as these are emerging markets. Moreover, the group can introduce loyalty programmes by which customers can

13 purchase and earn points in any of its brands such as Topshop, Topman, Dorothy Perkins, Outfit, Miss Selfridges and Burton, thus the group can get loyal customers towards the group. 8. References 1. Arcadia Group (2011): The fashion footprint report accessed on 22nd December Arcadia (2012) About us accessed on 21 st December Arcadia (2012) Financial results available on relations/press- releases- 1/arcadia- financial- results accessed on 18th December Arcadia (2012) report accessed on 20th December Arcadia (2012) Group operation, available at us/group- operations, accessed on 22 nd December Arcadia (2012) Press Releases available at relations/press- releases- 1/topshop- to- open- store- in- hong- kong accessed on 20th December Arcadia (2012) Press Releases available at relations/press- releases- 1/topshop- topman- to- launch- at- nordstrom accessed on 23rd December Arcadia (2012) Topshop wins high street awards on relations/press- releases- 1/topshop- wins- high- st- fashion- award accessed on 21st December Babette E. Bensoussan, Craig S. Fleisher Dr Craig S Fleisher (2010), Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions, FT Press. 7. Corporate Register (2011) accessed on 12 th December Financial Times (2011) 167c- 11e1- bc1d feabdc0.html#axzz2GOehInH4 accessed on 23 rd December Guardian (2012) Sustainable business in clothing industry business/clothing- industry- supply- chain- coalition accessed on 23rd December Just Style (2011) Report on Arcadia group style.com/companies/arcadia- group_id262 accessed on 19th December Lawrence G. Fine (2010), The SWOT Analysis: Using Your Strength to Overcome Weaknesses, Using Opportunities to Overcome Threats, CreateSpace.

14 12. Michael A. Hitt R. Duane Ireland R. Duane Ireland, Michael A. Hitt, Robert E. Hoskisson (2011), Strategic Management: Concepts and Cases, Cengage Learning. 13. Markus Slamming (2012), PEST Analysis Hungary: Country Evaluation and Selection of Hungary, GRIN Verlag. 14. Richard Dealtry (2012), Dynamic Swot Analysis: Developer's Guide, Intellectual Partnerships. 9. APPENDIX Appendix - 1 VRIN analysis