Business Strategy Analysis
One characteristic attribute of the fashion industry is its predisposition to change; therefore, an innovative product may become irrelevant and lose market share within a short period. Consequently, this element necessitates for continuous product development coupled with market research to maintain a competitive advantage. In some industries, having a R&D department is a competitive edge, but in the fashion sector, it is a survival tool. These rapid changes in the industry are not limited to products only, as marketing tactics and other business strategies need to be constantly reviewed. The emphasis on customer engagement is increasing in this sector as competitive rivalry intensifies and clients are exposed to more products and substitutes.
The increased use of social media globally has also affected the fashion industry; the emergence of brand influencers on these networks is one example of the influence they have on the sector. Additionally, social media has exposed clients to opinions about a brand from a global audience, which has consequently increased the significance of word of mouth in marketing fashion products. The emergence of pictorial social networks, such as Instagram, means average customers can follow celebrities and other high society members to see their fashion choices; subsequently, through acculturation, the average consumer gets to try to imitate these notable individuals through using similar fashion products and brands.
Ideally, increased exposure should be beneficial to a brand, but fashion products, especially luxurious ones, are Veblen goods and thus their demand is based on them being a status symbol and not being readily available to various social classes. Perhaps as a need to copy fashion trends without having to pay the associated high prices, this industry is significantly affected by an influx in counterfeit products. There is a large section of the populace that is more concerned with owning a commodity from a particular brand that they would knowingly purchase a knockoff as long as it is perceived by others as original. On the other hand, there is a section of the market influenced majorly by price; hence, it pays minimal attention to whether a commodity is genuine.
According to Kim (2013), supply chains for companies in the fashion industry are influenced by each firm's preferred target market. In addition, the rapid change characteristic of this industry necessitates the use of agile supply chains, which are responsive and flexible to alterations in demand. Supply chain responsiveness is considered a competitive advantage in this industry, as it ensures scalability of operations and offers reduce time-to-market (Christopher, Lowson & Peck, 2004).
According to Ko, Kim, E., Taylor, Kim, H., and Kang (2007), individual segment targeting is not recommendable for fashion brands in the global market. The authors argue that cross-national market strategies are more advantageous in international markets, and are also cost-efficient. Nonetheless, a market analysis in this sector should not ignore cross-cultural issues, as there are specific attributes in each market that need to be incorporated to endear a brand to individual segments. The increase in available marketing channels has also benefitted fashion brands; one such emergent platform is the internet, which allows these companies to reach global markets with a single advertisement. Nonetheless, this tactic could be counterproductive in that individual markets have specific needs that may not be captured in a single advertisement. The fashion industry has been faced with criticism over its reliance on cheap labor from countries in the East. One such firm, Nike, was accused of contracting its production to companies that used sweatshops. The criticism from consumers on this specific incident highlighted the market's focus on humane and sustainable business operations; consequently, fashion companies are required to prove their respect for the environment and human resources.
Corporate Social Responsibility in the Fashion Industry
Green consumerism and customers increased desire to engage with firms that use sustainable and employee-friendly systems has necessitated the emphasis on corporate social responsibility (CSR) among firms in this industry. In December 2013, the Teresa Moda garment factory located in Florence burnt to the ground resulting in the death of seven Chinese migrant workers. In as much as the market appreciated Teresa Moda's low-cost products and thus its need for cheap labor, customers were outraged by it operating factories that did not meet basic welfare and safety parameters. The ripple effect of this scandal affected other players in the industry such as Prada, which was associated with similar unethical practices. This incident in Florence highlighted consumers' disinterest in price-friendly fashion products that were produced using exploitative labor practices. Because of the Florence incident, brands such as Prada, Car Shoe and Miu Miu, established an ethical code that included a condition that partners would not sub-contract production operations without these companies' approval. To get such an approval, the fashion company would hire a third-party inspection firm to work alongside its investigators; this group would make regular audits of the partner's factories to ensure that there was compliance with the stipulated code.
Consumers are increasingly keen on CSR activities undertaken by brands they engage with, which is another reason firms in the fashion industry are keen on these programs. To indicate their adherence to sustainability and ethical practices, brands such as Prada have set up independent websites detailing their CSR activities. The firm's CEO argues that CSR is not a separate element of business operations, but an integrated aspect that has to be adhered to for a company's success. Kozlowski (2012) stipulates that the growth of CSR stem from an increasing demand for stakeholder engagement by organizations across industries. This demand emanates from recognition that profitability and sustenance of a firm extends beyond the control of shareholders and is significantly dependent on stakeholders. Stakeholders in the fashion industry include labor organizations, academics, workers, environmental groups, industry associations, and trade groups. As per the European Commission, CSR is a concept involving firms integrating environmental and social concerns in their operations and voluntary interaction with stakeholders (European Commission, 2010).
Among Michael Kors' main competitors are Coach, Kate Spade, Ralph Lauren, PVH, and Guess. Nonetheless, Michael Kors' unique selling point has earned it a market leadership position in the category of handbags within the luxury fashion sector. In the apparel sector, Ralph Lauren, Gucci and Louis Vuitton account for the larger segment of the market share. Although Michael Kors has a substantial market share in the apparel sub-sector, Ralph Lauren's rich brand history gives the latter a higher showing as a direct competitor. A major drawback to Michael Kor's brand equity and growth has been its expansion strategy, which made its products 'too available' to average consumers, yet its brand strength lay in the opposite. As previously mentioned, the firm's products are classifiable as Veblen products and thus being common stops them from acting as status symbols, which consequently results in reduced demand. Additionally, Michael Kors' dual strategy of expanding wholesale and retail stores impeded on its growth; despite this strategy giving the firm an opportunity to broaden its market reach while reducing early risk, it led to an unavoidable competition between its wholesale distribution and retail stores. Furtherance, the implementation of the dual strategy required distinct staff and skills, which translates to additional overheads.
Organizational Analysis of Michael Kors
Overview
This section will analyze Michael Kors’ microenvironment and internal environment using SWOT and Porter's Five Force; these models are expected to give an accurate and detailed strategic position of the company.
SWOT Analysis
Strengths
Among the firm's strengths are its notable celebrity endorsements, with celebrities such as Jenifer Lopez and Cameron Diaz having been photographed wearing the brand. This strength helps through the process of acculturation, where individuals tend to imitate the behavior and trends of those they perceive as being of a higher social status such as celebrities. Another of the brand's strength is in its multi-channel distribution platform. The company has close relationships with premier wholesale clients such as Harrods and Nordstrom, who enable it to access large segments of the markets using specific targeted campaigns. In addition, the firm targets a larger section of the market through its multi-retail platform, which includes Outlet Stores, E-commerce, Lifestyle Stores, and Collection Stores. Furtherance, the brand has received several accolades such as the Geoffrey Been Lifetime Achievement Award that have helped increase its brand equity and market attractiveness. Michael Kors has managed to maintain a broad price range without compromising on the quality and luxurious-nature of its products; consequently, this gives the company a broad client base.
Weaknesses
One of the organization's weakness is its limited geographic coverage, as it only has 106 stores outside the US. Furtherance, the firm lacks a multiplicity of distribution facilities, which in turn affects its ability to reach an extensive market. Michael Kors' offers luxury products and thus its reliance on discretionary spending significantly exposes it to economic downturns in the US.
Opportunities
A major opportunity for the company presents itself in the brands popularity in the US and other cities in developed countries. The company also can tap from consumers' positive affirmation and high brand saliency it has in the domestic market and neighboring regions. The Digital Revolution poses a great opportunity for Michael Kors as some of the media involved is relative cheaper to advertise in, and is driven by quality and not simply brand influence. Using multimedia advertising, Michael Kors can target markets it previously had lower market share by differentiating its products.
Threats
Fluctuations in consumer spending patterns pose a significant threat to the company, as it relies on availability of disposable income among its clients. The high competitiveness in the market also poses a threat to the firm; this attribute requires it to invest more in marketing and innovation for it to maintain a competitive advantage.
Porter’s Five Force Analysis
The threat of new entrants in the luxury fashion industry can be placed at moderate to high; this is mainly because brand loyalty is relatively low, there are average capital requirements, and new entrants have to build their own distribution network.
Threat of substitutes is also moderate to high, as clients can choose to forego luxury apparel whenever there is an economic downturn.
Consumer bargaining power is ranked as moderate mainly because there are many clients, and each only buys a small amount in comparison to the volumes produced.
Suppliers have low bargaining power, as there are numerous sources of raw materials and labor in the industry; however, switching from one contractor to another may consume considerable time and financial resources.
The luxury fashion sector has high competitive intensity, which impedes on the market growth of firms. One of the factors for this is that it is relatively hard to attract new clients, as advertising is expensive and creating captivating adverts is not easy.
Michael Kors’ Strategic Direction
Michael Kors, the founder of this brand represents the American Dream in that he managed to build his firm from a small enterprise to a multinational corporation. This aspect of the firm's history should be incorporated in its strategic marketing plan; subsequently, members of its target market High-Earners-Not-Reach-Yet (HENRY) would relate to this part of history as they too wish to achieve their American Dream. Another strategic recommendation would involve extensive market research and forecasting before implementation of any new tactical plans; this is vital to avoid counter-productive activity such as the competition among the firm's wholesale distributors and retail stores. Similarly, the corporation should initiate a marketing and public relations campaign to regain the brands allure, which has been diminished by making it 'too available'. This marketing campaign can involve celebrity endorsements and product placement in venues or media associated with the high society.
Arguably, the effects of the increased availability of the brand to different social groups may not be reversible; however, this can be translated to a positive to the firm, by creating a notion that this attribute gives wearers of the brand a connection with society by acknowledging that 'We Are One'. One of the brand's undoing was its ambitious expansion plan, which did not focus on sustainability. Michael Kors can focus on rolling back some of its expansion to first attain stability in its domestic and neighboring markets. In markets that the firm had already established a customer base, a feasibility study should be conducted to determine if it is sustainable to continue operating or to collaborate with local distributors. In previous discussions, the significance of CSR in the fashion industry was identified, and thus Michael Kors needs to establish an all-inclusive CSR program, which should be communicated to all stakeholders to ensure their participation and support. As part of the new strategy, Michael Kors should consider a new product line that innovatively targets high-spenders, which is the section of the market it had begun to lose. This strategy would ensure that this market segment feels that it is receiving a differentiated product line from the firm, and thus one that can be used as a mark of social status.
The current weakness of Michael Kors’ strategy is that it did not incorporate the views of various stakeholders in regards to expansion; hence, some market analysts pointed out as soon as it was rolled out that the strategy was not sustainable, while customers begun opting for other brands. The firm should invest in conducting focus groups to ascertain the implications of any decision beforehand; additionally, it should contract third-party analysts to audit the feasibility of any future strategies.
References
Christoper, M., Lowson, R. & Peck, H. (2004). "Creating agile supply chains in the fashion industry." International Journal of Retail & Distribution Management, Vol. 32 Iss: 8, pp.367 – 376
Kim, B. (2013). "Competitive priorities and supply chain strategy in the fashion industry." Qualitative Market Research: An International Journal, Vol. 16 Iss: 2, pp.214 - 242
Ko, E., Kim, E., Taylor, C., Kim, K., & Kang, I. (2007). "Cross‐national market segmentation in the fashion industry: A study of European, Korean, and US consumers." International Marketing Review, Vol. 24 Iss: 5, pp.629 – 651
