Context
A classical fashion company, J.Crew faces challenges from various directions, demanding it to keep innovate, offering fashionable models, while maintaining its conservative style and reasonable prices (Strickland & Lindsay 200). With a fierce competition, conducted by reputable brands, J.Crew requires a turnaround strategy for enhancing its competitiveness in a time wherein fast fashion and authentic, luxury clothing are in a paradoxical relationship of contradiction and completion (Joy et al. 274).
PESTEL
The microenvironment plays an important part in J.Crew’s current business performance. The political, economic, social, technological, environmental and legal factors (PESTEL) define the context that influences the company’s operations, and implicitly, its success.
Politically, aspects influencing the firm’s operations refer to trade agreements and labor issues that involve minimum wage fares across its factories. The company is dependent on foreign manufacturing, 98% of the merchandise coming from foreign factories mostly from Asia (J.Crew Group, Inc. 13). Therefore, J.Crew is vulnerable to work safety and minimum wage policies, but also to tariffs and currency transfers that pose higher risks in periods of economic and political instabilities (J.Crew Group, Inc. 13).
Economically, the company’s operations are influenced by the exchange rates that vary, considering that J.Crew has manufacture agreements in various Asian and other foreign countries (J.Crew Group, Inc. 13). Inflation, translated as consumers’ disposable income, also affects the company’s business performances (Dransfield et al., 445). The company operates in U.S., U.K, Canada and Hong Kong, facing different inflation levels that impact its business, but not in a significant manner (J.Crew Group, Inc. 35).
Consumer preferences, employment patterns or buying patterns are significant factors that influence J.Crew’s business (Dransfield et al., 445). Although consumer tastes have evolved to more non-conventional cuttings, J.Crew faces a major challenge to satisfy and maintain its loyal customers, attracted by its conventional designs (Strickland & Lindsay 206). The company diversified with its Crewcuts or Madewell to reach a younger audience with more trendy designs, addressing the customer preferences factor (Strickland & Lindsay 200). In terms of employment patterns, baby boomers have a high purchase power and so do young women in their twenties or thirties, who have equal employment rates with men (Strickland & Lindsay 201).
Technological factors influencing the company include as the most pervasive aspects the online commerce and social media. While online presence can boost the company’s sales directly, social media can indirectly influence the company’s performances through electronic reviews or feedbacks regarding company’s products, customer service and the entire customer experience.
Environmental aspects greatly impact fashion brands, challenged with policies of approaching a sustainable manufacturing, reducing primary resources such as water, decreasing the waste and emerging towards zero pollution standards (Joy et al. 285).
Legally, aspects pertaining to employment legislation and workers’ safety require J.Crew to adjust to different regulations, depending on the location of its manufactures and selling points.
Porter Five Forces
The external environment of J.Crew is also shaped by the industry competitiveness. It is, therefore, required to apply the Porter Five Forces analysis for understanding the major competitive forces in the high fashion industry. This analysis includes the bargaining power of suppliers, the bargaining power of consumers, the threat of substitute products, the threat of new entrants and the existent rivalry (Porter 27).
(Porter 28)
The bargaining power of supplier is high for J.Crew, because the company is dependent on foreign providers of fabrics and manufacturing services, out of which 87% are from Asia, making the company vulnerable to suppliers’ conditions (J.Crew Group, Inc. 6). Nevertheless, as the firm does not have long – term contracts, this force is moderate, as it can change the highly demanding suppliers.
The bargaining power of consumer reflects the different tastes in fashion according to different age categories, but also to different budgets. Customers are pressuring the company to innovate and reduce prices, but the company’s main advantages are its brand reputation, quality, classic designs and its popularity among royal figures such as Prince Williams and Kate Middleton or First Lady Michelle Obama (Strickland & Lindsay 200). Because of these advantages the bargaining power of consumers is moderate.
The threat of substitute products refers to counterfeit products or to fast fashion brands that imitate the high end fashion (Joy et al. 273). Especially the online commerce is susceptible to counterfeit, through websites such as ebay that commercialize fake J.Crew products that damage its image (J.Crew Aficionada, “J.Crew on Ebay”). However, the online shopping is mostly directed across J.Crew’s channel, which makes this force moderate low.
The threat of new entrants is not high. Despite the fact that there are low barriers of entry, the established brands make it difficult for new entrants to attract their market shares (Strickland & Lindsay 207).
The existent rivalry, on the other hand, is fierce, with reputable classic fashion companies such as Ascena Retail Group, Inc., Ann Inc. or Forever 21 and the mainstream H&M threatening J.Crew’s market share (Strickland & Lindsay 207-208).
Internal Analysis
The company’s internal environment provides an overview of its resources and competencies, informing on its current situation and on its capabilities of reaching higher performances.
Value chain analysis
The value chain analysis points that the company bases its inbound logistics on Asian countries for reducing costs, while the outbound logistics is in the developed countries, for optimizing the quality of its products. Other primary activities, such as operations, marketing and sales and service emphasize the superior quality, the classic designs and customer service (J.Crew Group, Inc. 7). As secondary activity, technology development is an important part of J.Crew, which integrates it in its online commerce efforts. Its procurement is focused on the Asian countries, making it vulnerable to the changes in this region. HR management function applies to its 15.600 associates and it reflects its downturn sales, as it laid off 175 employees in 2015 (Wattles para 1). The general administration, combined with the marketing and sales efforts, classic designs exposed in developed countries (outbound logistics) are the main activities creating value for the organization.
Resource – based view
The resource based view highlights the tangible and intangible resources of a firm, wherein the tangible refer to financial or technological assets the intangible refers to brand’s reputation and authentic American clothing, in the case of J.Crew (Johnson, Scholes & Whittington 263; Strickland & Lindsay 205).
VRIN Analysis
The internal analysis highlights that the firm has industry know-how and it possesses resources that could be better emphasized for enhancing its competitiveness. The HR function requires a boost in order to align with the international sales requirements and to increase the organization’s value. The procurement needs a higher diversification, for avoiding Asian dependency.
Integration Analysis – SWOT
Recommendations
In the light of the conducted analysis, there are several observations that will answer the examined case’s questions. The best strategy moving forward for J.Crew is to pursue international expansion through an adapted marketing strategy that will approach market differentiation in the countries with high income and economic stability and a best cost provider strategy for the developing countries. This does not imply major changes, because the company already owns the classical J.Crew line for targeting the differentiation markets, but it also has Medwell line, for targeting the younger audiences, hungry for fast fashion at affordable prices. For the second segment, however, the company would need to create more collections annually, in order to compete with H&M or Zara, which are known for changing their collections every month or sooner (Jay et al. 275). In this case, the company should consider a long – term contract with its suppliers, or even the vertical integration of such supplier for reducing the costs on a long – term and increasing the sustainability, while also minimizing the quality or delivery risks. For implementing the marketing adaptation strategy there would be required a customized marketing communication that will reflect the adapted price offerings across different countries.
References
Dransfield, Rob, Fox, Eddie, Guy, Philip, Needham, Dave & Wilde, Janice. Business for Foundation Degrees and Higher Awards. Oxford: Heinemann Education Publishers. 2004. Print.
J.Crew Aficionada. J.Crew on eBay: Beware of the Fakes. [Online]. 20 October 2010. Available from < http://jcrewaficionada.blogspot.ro/2010/10/jcrew-on-ebay-beware-of-fakes.html >. 19 June 2016.
J.Crew Group, Inc. Annual Report. New York: J.Crew Group, Inc. 2015. Print.
Johnson, Gerry, Scholes, Kevan & Whittington, Richard. Exploring Corporate Strategy. 8th edition. Essex: Pearson Education Limited. 2014. Print.
Joy, Annamma, Sherry, Jr, John, F., Wenkatesh, Alladi, Wang, Jeff & Chan, Ricky. Fast Fashion, Sustainability, and the Ethical Appeal of Luxury Brands. Fashion Theory. 16(3): 273-296. 2012. Print.
Porter, Michael, E. The Five Competitive Forces that Shape Strategy. Harvard Business Review. January 2008: 24-41. 2008. Print.
Strickland, A.J. & Lindsay, Ellen. Case 14. J.Crew in 2014. Will Its Turnaround Strategy Improve Its Competitiveness? Course Material. 2014. Print.
Wattles, Jackie. J.Crew Lays Off 175 Employees, Replaces Lead Designer. [Online]. 10 June 2015. Available from < http://money.cnn.com/2015/06/10/news/companies/jcrew-layoff/ >. 19 June 2016.
