Background
Karen Millen (KM) is an English-born organization, which prides itself on individual design for each of the collection pieces and hand-crafted by Karen Miller designers in their home atelier. This proposition delivers unique customer experience, superior quality and attention to detail. The Brand positions itself as an affordable luxury fashion, present in 65 countries across six continents and operating two of its flagstone in New York and London (KM, 2016).
KM felt the impact of the international economic crisis and its recent demerger from Aurora Group along with the toughening competition in the sector, going through significant financial challenges back in 2009 as well as in its current operation (Cooper, 2015). FT (2015) outlines the increase in financial losses of the company from £2.7 million to £ 6.1 million during 2014 financial year. On the positive side, current strategic approach and investment in physical operations and cost-efficiency reflect improvement in operating profit from £ 2.2 million to £2.8 million during the same period of time (FT, 2015).
Marketing Mix
The 4´P Analysis allows summarizing the strategic approach of the company to business (Keller and Horn, 2003)
Price
KM pricing strategy is moderate, where the organization positions itself as a luxury brand at affordable price. The company charges its client a little premium for hand-crafted materials and unique designs, offering superior quality and Brand signature for all its pieces. This strategy can be identified premium and psychological pricing mix and is adequate to compete on the UK market, given the profile of competition.
Product
KM consumer proposition is not simply a product. The organization attempts to build on the customer loyalty through bringing forward the multifaceted shopping experience, which guarantees unique and high-quality product, personalized approach and specific signature, valued and recognized by high-street shoppers. The product itself is not unique, but the company fosters incremental innovation working with a network of designers, which bring their know-how to the Brand portfolio.
Promotion
KM approach to advertisement and promotion of their products is traditional with a mix of billboard and high-street advertisement campaigns, to special mailing and collection introduction events, held in stores or in partnership with popular personalities in the country. Additionally, the company aims at building the Brand popularity and image through social media, where core attention is given to CSR and new collection launch. The Recent event drew organizational attention to more advanced solutions in marketing area. One of the most important of them is the advertisement campaign, created y David Bailey in 2013 (Campaign, 2013). The company follows seasonal promotional campaigns, which are launched globally. The KM’s advertisement and promotion strategy are aligned with industry in the given market.
Place
KM is a specific product for demanding customer. The company operates both e-commerce platform as well as classic bricks and mortars operations in 65 countries.It is evident that the profile of the customers is women with traditional shopping habits, making physical outlets the major points of sales for the company. The Brand exposes itself in high-street locations with the focus on niche upper-class consumer and short lifecycle of the product (KM, 2016).
PESTLE Analysis
. The fashion industry is the dynamic and volatile arena for the companies. The analysis PESTEL Analysis looks at six areas of external environment, including:
Political Factors
The UK government places a lot of effort to foster local business. One of the important trends in the UK retail industry is the attention to “environmentally-friendly” practices and “green companies”, which outlines the direction of the policies and governmental project. Transparent policies and regulatory base create the favorable environment for the companies.
Economic Factors
The UK is one of the most stable economies, while permitting Foreign Direct Investment (FDI), it takes an active part in promoting local business with specific tax reliefs and zero-interest loans. It is evident that the participation in EU is perceived as positive and, in spite of the recent talks, the Prime Minister confirmed that the country will benefit from EU participation, reducing the uncertainty about the stability of the European operations. The GDP of the country has affected the crisis and continues to be erratic, but the prospects are positive. Moreover, the luxury market segment consumptions signalized positive recovery signs and proved to be less sensitive to the macroeconomic changes, as the UK retail clothing and footwear sales forecast for 2013-2018 is £24,8 billion, outperforming its closest competitor, Germany, by a total of £4.1 billion (ONS, 2015; i2iEventsGroup, 2014).
Sociocultural Factors
The retail sales of women's fashion wear outlines the potential of the market with an average annual growth over the period of 2008-2014 of 2.2%, reaching a total volume of £ 21,223 million for the UK (Statista, 2014). With the focus on the luxury market, it indicates that there is a significant potential for organic growth, based on the social factor. The unemployment rate in the country is the lowest over the past decade, outlining positive forecast for the labour market in the industry.
Growing seasonality in the luxury market segment tend to increase the frequency of purchase and expect faster collection launchings from their preferred brands, the companies have to rapidly adapt to this trend.
Technological Factors
The digital revolution and growing access of the population to smartphones demand organizations even in the niche markets, such as KM to adapt and meet expectations of its clients, by offering technological and fast online shopping solutions. Based on the statistics, while one-third of retail fashion sales is still done through street shops, the online segment grew up to 9% in 2012 (i2iEventsGroup, 2014).
Additionally, technological advancements, such as cloud computing, SAP, and other software, on the upstream of the operations, allow better demand forecasting, closer partnership relationships with partners and effective logistics solutions, resulting in lower upstream costs and offering a variety of opportunities in operational strategy for the company.
Environmental Factors
As it was previously mentioned, the UK government is becoming increasingly concerned about the footprint of local businesses and draws a lot of attention in its PR and marketing strategy to drive sustainable business. The reality shows that this trend has overcome the organizational level as the country is one of the leaders in terms of population awareness and concern with "green production" and environmental practices (Schwartz, 2011).
Legal Factors
Regulated by the United Kingdom Company Law, the companies in the sector should ensure compliance with corporate governance requirements and corporate finance. An additional concern comes from the obligatory regulations with regards to environmental impact and taxation. Under the UK law, the companies can choose between the variety of structures of the business and benefit from incentives for small and medium businesses, contributing to local economy and trade balance, by operating on the domestic market and exporting the products (Dabydeen, 2004) .
Porter´s Five Forces
Porter’s Five Forces Framework is an effective tool to evaluate the position of the company towards its external competitive environment (Porter, 2008).
Rivalry
Fashion market in the UK is an open market competition with a large number of players in luxury and upper-class clothing segment. The competition is based on incremental innovation with a lack of space for breakthrough or radical innovative solutions. With that in mind, product innovation along with price pressures outline the future challenges for the industries. The UK market has become a “magnet” to a number of international market players, thus, medium size competitors find themselves challenged in the race for "space" on high-street locations (i2iEventsGroup, 2015). The rivalry is one of the primary forces for the industry, which can be ranked as 5.
Threat of New Entrants
KM operates in the fast fashion environment, where the complexity of the operations is identified by the variety of different business models, competing for the same target customer group. Costs of entering the market are relatively low. At the same time, the reports outline that marketing and PR strategy represent over 30% of the total operational expenses, building on higher long-term investments for the brand development. This natural selection process limits the threat of new entrants, as established market brands have better borrowing capabilities and internal financing opportunities for growth and sales strategy to effective direct to consumer marketing campaigns. The threat is low and can be given a score of 2.
Threat of Substitutes
KM offers a line of products for women, which ranges from social outfits to cocktail dresses. The current strategy, announced by the Chief Executive Officer (CEO) Mike Shearwood, aims at expanding the product line beyond the dresses and attract the “footballer’s wives” (FT, 2015). This strategy is not competitive in a long-term, but provides stronger position, competing with high-end high-street brands, focused on sport, athlete, and casual clothing. Substitute products include multifunctional use items and innovative patented fabric technology and materials. As such, this market is extremely mature and the threat of substitutes can be evaluated as low, scoring 2.
Bargaining Power of Buyers
Brands in fast fashion industry build their competitive advantage on brand loyalty and recognition to ensure that the volume of sales and the attractiveness of new collection launching are critical for the choice of their clients. While these companies fully depend on the volume of sales and switching costs for individuals are low as the supply of products in the industry is high, the bargaining power of each individual is very low due to low purchasing power. The reality of the industry shows that consumers purchasing behavior in the UK are based upon their perception of style, quality, and uniqueness of the clothing piece. The influence of specific customer groups, such as readers of fashion magazines, popular figures, advertising and promoting the product can make a difference, but it will not build on collective influence from buyers. That said, the force can be scored 3, as a medium.
Bargaining Power of Suppliers
KM, similar to the competition, works with several suppliers across different countries on the basis of new supply chain technology allowing effective stock control and order forecasting with material suppliers (Retail Technology, 2015). While the supplier’s base is wide, KM committed to large purchase lots, building on the brand's purchasing power and, thus leveraging the suppliers' influence. At the same time, the focus on CSR limits the range of suppliers which can comply with environmental and labour standards and work together with the company. The competition is also high and many brands have higher purchasing power, negatively influencing the negotiation position of KM. Taking into consideration the increasing complexity of the industry, it is possible to rank the bargaining power of suppliers as medium-high with a score of 4.
SWOT
Segmentation, Targeting, and Positioning
KM is a traditional UK brand, positioning itself internationally as an exclusive luxury product, priding itself o high quality, hand-crafted pieces, and unique design. The company targets high-income customer, the woman between 25 and 65 years old with the clear preference for a classic high-street shopping experience. KM targets consumers who look for exclusivity as the organization changes the looks of its stores and reduces a quantity of each design, targeting the “Footballers wives”. The promotional and advertisement strategies grounded on direct to consumer advertisement and promotion campaigns, mostly during the collection launch, target fast fashion high-end consumer, seeking for variety and unique attributes of the design pieces.
With the above in mind, KM positions itself as internationally present affordable luxury brand with the signature of the traditional UK quality, top-notch Italian and French fabric and lace and hand-crafted personalized production process.
Consumer Behavior
Consumers’ behavior in the fast fashion industry is based upon several elements, which include in order of importance (Fashion United, 2015):
Trendy image of the Brand;
Price;
Brand Identity;
Quality;
Variety of designs;
Store Environment.
Consumers are generally loyal to the brand and will demonstrate long-term purchasing habits and high level of acceptance to new designs, based on a quality of the products. At the same time, the consumer group is sensitive to international brands, which are available on the UK market through online stores or physically.
Brand Importance of Market Research
Brand Strategy is a dynamic element of organizational behavior. While the long-term strategy should answer the questions Who? How? and When? The success of the organizations depends on the ability to recognize the market trends and build internal flexibility and responsiveness to rapidly changing business environment. Market research, therefore, is essential for the Brand development as it provides the tools and techniques to align the brand ambitions with the external environment and needs. Operating in a fast-fashion industry with the strong dependence on domestic sales volume, Karen Millen should equip the management team with understanding and knowledge of the market to be able to meet the expectations as well as serve the "desires" of their target customer.
Recommendations
Internal and external analysis of the fashion industry environment demonstrates the reaction of the company to the external forces. Several further recommendations, however, could be made at this stage (Felsted, 2015). First of all, financial position and high fixed costs are some of the major weaknesses of the organization. In view of the reduction of profits and costs of a demerger, the brand can lose its attractiveness for external financing. It is critical that KM focuses on improving its debt to equity ratio. Secondly, variety and quality are essential elements of consumer purchasing behavior in the industry. More efforts should be placed in a repositioning of the brand to go beyond the reputation as "dresses and cocktail outfit" brand. Finally, e-commerce and growing international mobility outline the major threat for the Brand. KM should invest in breakthrough innovation strategy to tap into the market, improve its customer information security and promote the popularity of the online purchase experience of KM items.
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