International Expansion of Corporate Entities – A Case Study of Urban Outfitters
Urban Outfitters is an American clothing manufacturer that is known for some popular brands like Free People and Anthropologie. The clothing company has gained a lot of results in the United States and has grown to become a popular local brand. However, in the past few years, Urban Outfitters has embarked on an internationalization plan. This has led to the expansion of the company and its activities to different regions around the world. The purpose of this paper is to conduct a case study of Urban Outfitters and its internationalization strategy. In order to attain this end, the following objectives will be explored:
An analysis of the external environment within which it expanded globally;
An evaluation of the international expansion strategy.
Internal Analysis
In order to expand internationally, a company must have some internal competencies and abilities that enables it to produce value to consumers in the home markets. This allows the company to grow and expand and achieve optimal results in international markets and also compete locally in the host markets.
Basically, Urban Outfitters is a small company with just 1.15% of the American market share, but specialized in fast fashion. This was the kind of modest beginning the company had and used that as a basis to grow. However, it has held on to the US markets and has continuously built the brand and expanded it in the field of fast fashion.
The company embarked on a rapid expansion in the US between 2010 and 2014 with a 10% increase in sales growth. This led to the expansion of its stores and sales through different outlets and systems including the normal store system. There were also other levels of e-commerce and its activities with the view of promoting and enhancing better sales and the promotion of their market position.
Relative to its competitors, Urban Outfitters has fewer stores in America – they had 530 as of 2015. This is low, however, they sought to create a strong brand image that was based on a strong relationship with the client and an enhanced marketing framework which included various approaches that were mixed in the American market.
Also, Urban Outfitters targeted young urbanite consumers. This included university students and other outdoor outfit oriented consumers. Thus, for a young family and older people, they provided a form of casual-wear that consumers had to use to while away time and enjoy their social and less demanding activities.
The average price of $38 per apparel made their products about 25% higher than market prices. Due to this, Urban Outfitters had a larger profit margin. This is because they were able to get more per product as opposed to their competitors who sought to compete by selling more and trying to get the indulgence of consumers. Urban Outfitters on the other hand positioned themselves as an ostentatious brand that showed some degree of luxury and an upper class of consumers. This therefore makes the brands more popular in suburban and urban communities and amongst high-end consumers as opposed to poor and less privileged consumers.
There was a period of steady growth on a year-by-year basis since 2010 to 2014. This was because the company sought to expand and make the best of its market position and abilities. This led to more sales and expanded interactions on the market due to better strategies and newer mechanisms of sales.
External Environmental Analysis
Every business’ internationalization drive operates within a specific context and this comes with its Political, Economic, Sociological, and Technological variables. These are the dominant variables in the external environment and they signify the main things a company will have to spend time considering because they are important and vital and determine whether an organization will do well or not.
Political
Urban Outfitters expanded by taking advantage of the elements of regional business opportunities. This included deals like the North African Free Trade Agreement (NAFTA) and the European Union. This made the entire expansion process faster and easier. This is because as an American organization, they were able to get some benefits and they could grow and promote their activities through various activities.
Their main hubs were in Toronto and London. Through Toronto, they could expand and grow into Canada. And from London, Urban Outfitters could go into the European Union and gain benefits from Europe. In Asia, Urban Outfitters benefited from the ASEAN arrangement that allowed them to use Hong Kong as a hub to reach China and Japan as core markets.
Economic
The relevant factor that played role in the global economic drive was the global financial crisis of 2008 and 2009. These financial crisis caused Urban Outfitters to be affected by the shortfalls in sales. This is because people had less money to spend on clothes. Therefore, they had to look at other options elsewhere. This is what inspired the expansion into China and Asia where the financial conditions were better.
On the other hand, there was a reduction in the prices of assets. This is because assets fell sharply due to the financial crisis and this made it appropriate for businesses to buy assets in foreign countries at relatively lower prices. Thus, Urban Outfitters found it appropriate to expand and grow into foreign markets.
Sociological
The main sociological variables relevant to North American and Europe has to do with the similarity of culture and economic activities with the United States. Thus, expanding to Canada and the European Union was fairly straightforward.
On the other hand, the southern continents undertook a major transformation. For instance, in China and India, a new urban class grew as income rose sharply. India for instance had rapid income rise coupled with large-scale urbanization between 2000 and 2010 and this changed social tastes and gave room for preferences for expensive apparels and western products. The demand for such products in India increased to over $200 billion per annum by early 2011.
Technology
The main technological variation that was relevant to the international expansion of Urban Outfitters was the growth in the use of e-commerce in retail. This was mainly common in China and India where there was a large boom of online orders and this doubled sales in 2012 to 2015. Thus, with such a background, Urban Outfitters was able to use its expertise in e-commerce which began in the late 1990s in the United States to institute a new system and claim competitive advantage in Asia and foreign nations.
International Expansion Strategy
In order to expand overseas, Urban Outfitters created strategic operational nodes in Toronto, London and Hong Kong. This was done with the vision and ambition of regionalization. This is because these hubs were important areas through which they could start operational core and grow into foreign nations and communities around the world.
After this, Urban Outfitters commenced a rapid expansion into foreign nations. And this included the creation of 7 to 10 stores internationally every quarter. Thus, there was a total of 230 outlets in Canada and Europe by 2008 to 2013
The main element of strategic advantage was the simplicity of the design of stores. This revolutionary approach to defining store layout led to an easy approach through which consumers could enter the stores, check for what they could buy and then make compelling decisions and choices that helped them to acquire products from the store. This therefore made it easier to complete sales and expand demand.
For brand recognition, there was also a simple and common logo that could link up to clients and get their indulgence and attention. Through this, Urban Outfitters was able to promote and enhance its image and attain major results. This promoted better activities and procedures.
Also, to enter an unusual market, there was a wholesale partnership with World Co Ltd in Hong Kong for Asian markets. This led to the ability to rapidly expand into Japan and the entry into rather richer and wealthier parts of the world. This strategic node and connection point helped to promote better results and enhanced the market entry position and procedures.
There was also a high degree of responsiveness to needs of consumers. This is because Urban Outfitters was able to identify and integrate new demands of consumers and ensure that sales were done in ways that guaranteed better results in operations. The procedure led to the creation of better products and consumers also attained a higher degree of satisfaction.
Furthermore, there was the localization of operations and branding. This is because the local needs of consumers were gathered and integrated into expansion and growth. This helped to promote demand and create glocalization which caused them to promote their activities.
Mode of Entry
The main feature of the international expansion was through foreign direct investment. Thus, in the traditional western markets, in Canada and Europe, there was a foreign direct investment that enabled them to directly put capital into the markets and control the stores in strategic locations to maintain the high-end pricing policy.
However, in Asia, they expanded through a joint venture with World Co Ltd. This enabled Urban Outfitters to promote their brands in China, India and Japan in a way that promoted the best of results without having to expose their actions to major risks and problems.
There was also the direct transfer of competency throughout the regions within which they expanded. Through this, there was the expansion and growth of international revenue by 14% in 2014. Also, there was the use of diverse marketing processes that enabled them to gain a competitive advantage over competitors.
Financial Results
The revenue of Urban Outfitters increased by almost $1 billion from $2.47 billion in 2011/12 to $3.45 billion in 2015/16. This shows an average of 20% in increase in revenue over the four-year period. The asset base of the company also expanded by 27% in the period according to the balance sheet of the company. Therefore, the international expansion of Urban Outfitters had a major impact on the income position as well as the asset base.
Conclusion
Urban Outfitters were able to able to promote and enhance their competency locally. This include the ability to produce high quality apparel, grow their capital base and financial competency. They were positioned as high-end urban fast fashion products. This helped Urban Outfitters to take advantage of global systems like regional agreements and the financial crisis as well as the increase in spending abilities of consumers around the world. The growth of technology and e-commerce enabled them to prepare to expand and growth. Thus, Urban Outfitters grew into foreign markets through foreign direct investments and in Asia, through a joint venture that helped them to access unfamiliar markets.
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