Introduction
Globalization of economies and the strengthening of political and economic relationships in the European Union have had the significant influence on the development of retail industry in the country. The fashion industry is highly dependent on the social and economic trends. With increased mobility of individuals and the digitalization of the markets, companies are obliged to look or ways to further enhance their brand and become more responsive to increasingly dynamic fashion market and consumers, who are more demanding with regards to the short lifecycle of the products today, than ten and even five years ago. Moreover, competition on the UK market is extremely strong due to the fact that a number of international players entered the market through bricks and mortars operations as well as through e-commerce platforms. Karen Millen is a traditional English brand, which faces severe competition on the domestic market, outlining the challenges and opportunities in a contemporary market (Aaker, 2012). The purpose of this report is to analyze the current and future strategic options of the organization, based on the comprehensive internal and external analysis.
Background
Karen Millen is a traditional English brand, whose marketing strategy is based on the individuality and personalized approach to each of the designs that the company introduces to the market. The organization works with numerous designers, bringing unique signature and handcrafted products to their line, differentiating it from other competitors in the fast-fashion market (Karen Millen, 2016; Felsted, 2015). Recent years brought a number of challenges to the organization. In 2014 alone, the organization suffered a total loss of £ 6.1 million, expanding this number from £2.7 million in 2009. Growing competition and European economic crisis have had the significant impact on the organizational bottom line (FT, 2015). Strong recovery pace and improved profitability of the company in 2014-2015 financial years, however, signalize efficient management and appropriate choice of strategic alternatives (Cooper, 2015).
Importance of Marketing for the Brand
The fashion industry is characterized by dynamic and constantly changing external environment The trend and customer expectations are set early by the local brands and fashion in general and the "imported" values and designs. The access of individuals to e-commerce and possibility to buy brands, which are not even present in the country, makes them increasingly demanding with regards to the customer experience and uniqueness of the brand of their choice. With that in mind, long-term sustainability and profitability of the brand grounds on the organizational marketing capacity and its ability to respond to the changing customer need, desires and expectations in a timely manner. In the age of social media, marketing strategy is becoming even more complex, as at the same time companies have an opportunity to make wider and more cost-effective campaigns through social media tools, and have to address the challenges of reduced control over the media and marketing message, sent to the clients (Holt, 2016).
Marketing Mix
The analysis of the external environment and its strategic fit with the internal capabilities of Karen Millen is based upon a traditional 7’P model (Keller and Horn, 2008)
Price
Karen Millen competes on the moderate pricing in an upper-class segment, where the organization built a brand, which should be seen by consumers as affordable high-street design, which they can afford purchasing on a regular basis, based on the market trends and the lifecycle of the fast-fashion industry products.
Product
Karen Millen has chosen to expand its brand options and go beyond the traditional "classy" outfit for women. This strategy aims at increasing the sales volume through offer bigger variety of designs for various situations. By doing so, the company aims to further finalize their customers and increases the bond with the Brand. Karen Millen product does not offer radical innovation, as there is little space for differentiation of the product in the industry. The company, however, attempts to build on the “brand signature” through offering unique designs and low quantity of the pieces, including the hand-crafted models.
Promotion
Karen Millen promotional strategy is very direct. The organization communicates its seasons and collections directly to the client through three main channels: billboards and street advertisement, strategic partnerships with famous and popular individuals, using the brand and fashion events, outlining the launching of the collections.
Place
Karen Millen is focused on bricks and mortars operations, where the stores are located in high-street locations with the focus on high-end customers. The brand utilizes customer experience strategy as opposed to sales of the product, which demands space and ambiance planning for each of the outlets. While the Karen Millen follows the market trend to enter e-commerce market, the online sales share continues to be marginal relative to the physical outlet revenue (Karen Millen, 2016).
People
Karen Millen is a "personalized brand", which proud itself on relationships with the clients as well as partners. The company fosters innovation through delegating the decisions and designs to individuals and small design groups. At the same time, the scale of operations is relatively small, comparing to some of the competitive brands in the market, which allows the organization to build on a "family-like" working environment and human resource management strategy (Karen Millen, 2016).
Process
Karen Millen is a traditional brand with strong customer focus. It is evident, however, that the organization lacks the technology strategy. Some of the recent technological upgrades, such as supply system implementation and Suppliers Code of Conduct position Karen Millen as the late adopter of technology, utilizing "ready solutions" as opposed to individual development (Retail Technology, 2015). On the Research & Development (R&D) side, the organization works with individual innovation, where talent and unique signature of designers prevail over the technology advancements.
Physical Evidence
The brand values the direct relationships and contact with the client. Experience, expertise and knowledge of the employees on all levels are the key to the sales and marketing strategy. Karen Millen brings experience and competence in the fashion industry and the knowledge of the domestic market as the core of the customer proposition. At the same time, the brand is also present online, signaling that the company aligns its strategy with external market trends.
PESTLE Analysis
. This report will utilize the PESTEL Framework to analyze the current position of the organization in the external environment.
Political Factors
The political situation in the United Kingdom provides companies with the sense of stability and allows for longer-term planning due to confidence and consistency of the decision-making process in the industry. Some of the latest concerns, related to the potential exit of the UK from the European Union did not have the significant influence on the brand (Dabedyn, 2004).
Economic Factors
The fast fashion industry in the UK is characterized by a high number of players, which are well-known internationally as well as on the local market. The UK consumer is not only the individual, living in the country but a tourist, which generally has high purchasing capacity. After the economic crisis, the country ‘s retail clothing and footwear segment is forecasted to outperform Germany, which traditionally was the major competitor. According to the Office of National Statistics, the sales volume in the industry will grow to £24,8 billion by 2018 (ONS, 2015)
Sociocultural Factors
The UK is considered as one of the trendiest societies when it comes to women fashion. The research of the UK fashion industry outline that the UK consumer is looking for innovation and newness in the industry, which makes it one of the most competitive marketplaces in the world (Inside Retail, 2015). The UK population is 64.5 million with the forecasted growth to 67.1 by 2017 with the 3rd largest GDP in Europe. Consumer spending in luxury and casual fashion market outlines steady growth of 28%, indicating the tendency to impulse as well as planned shopping among the UK customers.
Technological Factors
Contemporary business environment, especially in dynamic industries, such as the fashion market is driven by technology. This trend should be seen from both perspectives, meeting the customer needs and addressing the growing popularity of digital technology and e-commerce, as well as the necessity to compete with supply chain and HRM technologies on the market (Stephens, 2003). It is expected that the retail sector companies in the UK will have to allocate on average 20% of their investment volume to technology innovation to adequately respond to the market trend (Inside Retailer, 2015).
Environmental Factors
The UK government and community are becoming increasingly concerned with regards to the impact of the private sector on the environment and social justice. With that in mind, the industry trend is to further increase the innovation in "green products" and focus on developing Corporate Social Responsibility Strategies to comply with the christening regulations (Schwartz, 2011).
Legal Factors
The United Kingdom Company Law is the major regulatory tool for the retail fashion industry in the country. National and regional policies with regards to the fashion business and industry regulations is transparent and builds on a positive environment for local business development as well as Foreign Direct Investment in the sector (Dabydeen, 2004) .
Porter´s Five Forces
Porter’s Five Forces Framework is developed by Porter (2008) and offers a comprehensive tool for external market analysis.
Rivalry
Competition in the fast fashion industry in the UK is tough. The market is characterized by a large number of players, coming from local as well as the international environment. This means that the Karen Millen competes with other strong brands and the sustainable competitive advantage is built upon marketing and brand strategies, rather than product differentiation. With that in mind, competitive force is the strongest influence on the market.
Bargaining Power of Suppliers
The industry is characterized by a large number of suppliers and international and global supply chains, critical for competitiveness and profitability of the organizations. Large international and even local brands seek for cost-effective solutions for material sourcing and manufacturing in Europe, China, and other low-cost countries. The reality shows that the volume of the companies and high supply of the outsourcing services gives significant bargaining power to the Brands. One of the challenges, related to global sourcing, however, is the control over quality and compliance with international labor right standards. These elements limit the range of potential partners, who can deliver the required standards, but leaves the power of negotiation in hands of large brands, who own a big share of suppliers profits.
Bargaining Power of Buyers
Similarly to the relationships built by the brands with their suppliers, customers in the industry benefit from increasing supply and choice of products especially in this era of digital technology and social media, which enable easy knowledge transfer and overseas purchases. While individual buyers do not ave strong bargaining position with the brand as the volume of sales is small, the collective power of buyers is significant as the brand loyalty is vulnerable due to little space for product differentiation. With that in mind, the bargaining power of buyers can be classified as moderate to high.
Threat of New Entrants
As it was previously mentioned, the fashion industry is an open market competition with a large number of niche and international brands. Entry barriers to the market are not high as the companies can start operation with relatively low investment and start-up capital. The challenge for the companies, however, is to maintain consistent sales volume and create brand recognition to sustain the competition. This demands significant investment in marketing and brand strategies, which builds on "natural selection" process in the industry, reducing the threat of new entrants.
Threat of Substitutes
Karen Millen operates in the industry with low product differentiation. Clothing and footwear are very specific products, which are hard to substitute. One of the potential threats comes from new technologies and patented materials, where companies can invent clothing offering more multifunctional use for the clients. The possibilities of such substitutes, however, are significantly limited and the threat of substitutes is insignificant.
SWOT
Segmentation, Targeting, and Positioning
Karen Millen positions itself as the women fashion brand with tradition, the unique signature of the products and exclusivity due to hand-crafted products and low quantity of designs in each collection. The brand targets high-end high-street customers with significant purchasing capabilities. While planned sales are the key for the organization, the brand tries to tap into the “young” market with impulsive sales behavior. Given the designs and marketing strategy, it is possible to argue that the age group of Karen Millen client is between 25 and 65 years old.
Consumer Behavior
Fashion United (2015) analysis of consumer behavior in the UK along with Inside Retailer (2015) allow building on a specific profile of women fashion industry client in the country. The values and purchasing behavior of these clients are based upon the following elements: innovation and newness convenient and trendy location of the stores; strong brand identity; variety and exclusivity of pieces; quality; price of the products
Brand loyalty in the market is built with time and by recognition of quality. Customers expect the brands to continue innovating and meeting their "desires" rather than just the needs. Women are particularly demanding to the exclusivity of the product in terms of a number of pieces on the market and the unique signature of the brand (Inside Retailer, 2015).
Recommendations
Based on the analysis, it is evident that the major challenge for the brand in the market is the competition and increasing costs or technology and innovation of the products. Marketing will continue playing a paramount role in building and sustaining the reputation of the company. The following recommendations can be made. First of all, expand and grow the share of e-commerce sales, as it will bring higher recognition on international marketing, building on tourist sales and income from overseas operations. Secondly, continue investing in local marketing and building on strategic partnerships with famous individuals to strengthen the trendy, exclusive and high-end image of Karen Millen. Thirdly, it is recommended that the organization looks for diversification of material suppliers in emerging markets in order to reduce the upstream costs and improve profit margins, freeing internal capital for reinvestment in innovation and technology. Finally, there is a clear potential for developing "green" and sport clothing markets. Given the fact Karn Millen already looks at expanding the product line, it should consider entering the above two segments in the middle term future.
Conclusion
Karen Millen is a strong and traditional brand, where marketing and brand strategy are the key for sustainable competitive advantage. Past years demonstrated the way in which competition and economic volatility can affect the brand and outlined the need for strategic diversification and change management. While the brand identity of Karen Millen is based upon "traditionalism", "exclusivity"and "quality", the company should consider investing in building an innovative culture to become more responsive to the shortening lifecycle of the products and diversifying the brand.
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