Recession And The Uk Clothing Retail Marketing Essay
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 4303 words||✅ Published: 1st Jan 2015|
Massimo Dutti was founded in 1985 as a company whose main activity was the sale of fashionable men’s clothing. Ten years later, the commercial format was bought by the Inditex Group (Industria de Diseño Textil S.A.), one of the world’s largest fashion distributors, who owns brands like Bershka, Pull and Bear and Zara. The Inditex Group as a whole has more than 4,530 stores in 74 countries in Europe, the Americas, Asia and Africa. The group also partially and wholly owns more than a hundred companies related with the different activities in the business of textile and fashion design, manufacture and distribution. Its unique management model, based on innovation and flexibility, and its vision of fashion has resulted in fast international expansion and an excellent performance of all its commercial formats.
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Today, Massimo Dutti has more than 490 stores in 41 countries. The company entered UK in 2003 with its first store in London. The new megastore occupied three floors of a building placed in downtown Regent Street, which had more than 2,000 square meters of business area. Massimo Dutti offers quality international fashion design for men, women and children, with a variety of collections that range from sophisticated urban fashions to casual wear. Its universal design connects with independent urban men and women whose lifestyle portrays an impeccable image. During 2008 Massimo Dutti extended its assortment of complements and accessories to help customers find the small details that mark the difference in style and add the finishing touch to the desired look. Highlights in this product extension are the new line of eye and sunglasses, The Eyewear Collection, with more models for men and women, and the launch of a new women’s perfume, En Esencia. The company also added the children’s line in 2008 which includes collections for boys and girls and was launched in Paris. During the same year, the chain entered six new countries: Poland, Romania, Czech Republic, Slovenia, Guatemala and Israel. It also continued its expansion in the Asian Pacific region, opening its second store in Hong Kong, in Harbour City, one of the city’s main shopping areas. With this establishment, Massimo Dutti now has three stores in China, where it opened its first store in 2007 in Macao. In total they opened 44 new stores in 38 new countries to develop their international presence. (Appendix B.1, B.2, B.3)
This report examines the environment in which the company is situated. The macro environment covers the trends in the changing environment and how they could potentially affect the Massimo Dutti supply chain. It also suggests various opportunities and threats that the company may have to face. The second section of the report analyses the various stakeholders i.e. the suppliers, consumers, competitors etc in under the micro environmental analysis. The third section of the report analyses the internal environment and includes the supply chain analysis, the marketing resources, financial resources and the human resources employed within the organisation. The report concludes by suggesting a strategic direction the company should take in order to reach its full potential.
Source: – Inditex
Macro Environment Analysis
Massimo Dutti being a global organisation is affected by a number of macro environmental factors. These factors are the basis on which a company develops its understanding of the markets, business position and the strategic direction for its operations.
In recent years the macro environment has been increasingly being put into consideration because of higher marker volatility, the global slowdown and the economic recession. These factors not only pose a great threat to businesses but can also create many opportunities which a company can identify and take advantage of. For instance, if a business is able to assess its current environment and predict potential changes, it will be better placed in its marketplace than its competitors to respond to changes in the environment. Thus understanding and operating with the macro environment i.e. the external environment in which the business operates, is increasingly becoming the key to organisational success as it can help to maximise opportunities and minimise threats which the organisation faces. In other words a macro environment scanning can help us to identify various opportunities and threats in the organisation.
There are a number of macro environmental factors which affect the UK clothing retail market. These factors are known as the PEST factors or the political, economic, social and technological factors which help the scanning of the environment. (Appendix A.1)
The Political Environment
The clothing retail sector in the UK has seen a number of changes in their political environment in recent years. The first change is the recent expansion of the EU territory which has facilitated import and export amongst various countries within the EU. As a result of this trade between these countries legal agreements and setting up new operations and stores has become more attractive than ever. For Massimo Dutti it translates to wider markets and a wider consumer base both within and outside the UK. This type of an impact is visible in a long term with a positive and increasing impact to the company.
The second change is the change in interest rates and government taxation which is the result of the global economic recession. The government has implemented a range of measures to stabilise the financial markets and stimulate the economy including part-nationalisation of some banks, VAT cuts, and suspending public sector borrowing rules. Also In March 2009, the Bank of England cut interest rates to a record low of just 0.5% where they remain at the time of writing. The government also gave the go-ahead for the more drastic policy of quantitative easing in an effort to kick-start the economy. (Appendix A.2) The impact of this government policy has resulted in a higher degree of disposable income in the hands of the consumer and has thus facilitated the retail sector. On the other hand when interest rates eventually start to rise they could do so quite suddenly and sharply thereby increasing the risk of less spending on mid-market luxury retailers like Massimo Dutti. (Appendix A.3)
The Economic Environment- Recession & the UK Clothing Retail
There have been numerous amounts of economic changes since 2007 which are the result of the global economic slowdown and the recession. Until recently the British economy was enjoying the longest period of growth and had outpaced most of the rest of Western Europe. But the global economic downturn, tight credit and falling house prices brought the UK into the recession in the back half of 2008. This economic downturn resulted in a change in the economic factors that affected the UK retail sector as a whole. The fashion industry in particular has been more vulnerable to such a downturn than other retail settings.
Due to the recession the economy has shown frequent fluctuations in the currency rates. This change has affected the retailers as they have absorbed these fluctuations. This is because they are situated in a price-led market i.e. have to provide competitive prices in the market to survive further putting more pressure on their profit margins.
Also due to the decrease in the disposable income of the consumers only the cheap fashion / fast-fashion sector has benefited. Companies like Penny’s, Primark and TK max have recorded highest sales due to the recession. The implications of such a trend are that less money is spent on designer clothes as well as accessorises. Consumers may stop spending on high end luxury brand and accessories and go in for fast-fashion clothing thereby posing a risk to Massimo Dutti. It can also be noted that spending on clothing has reduced than compared to other spending sectors. The global economic slowdown has impacted heavily on clothing retailers as it has hit consumer’s willingness and ability to spend on discretionary items. Thus companies like Massimo Dutti may face a slowdown in sales volumes.
Unemployment has climbed consistently since mid-2008, reaching 7.8% by Q2 2009 and it could rise to over 10% in 2010. Youth unemployment (18-24-year-olds) exceeded 17% by the second quarter of 2009 and in the short term will continue trending upwards. This impacts heavily the purchasing power of those concerned and hence reducing an important market segment for mid-market luxury retailers. (Appendix A.2, A.4)
The Social Environment- The Changing Demographics
The social environment relates to consumer attitudes and opinions towards different product types and brands in the marketplace. It also relates to changes in consumer behaviour and their demographics i.e. age, sex, gender, family size etc. Changes in the social environment can affect the demand for a firm’s products. Thus it is very important for the firm to identify these factors and translate them into opportunities and get rid of all potential threats.
A large number of consumers have changed the way they shop for clothes and in the main those changes involve cutting back in some way – by spending less, by mostly buying discounted lines, or by buying from value retailers or less expensive shops. According to a research by Mintel over one in four people have not changed their shopping habits for clothes since the recession started but many consumers have, and the most significant changes are all savings-related i.e. spending less, shopping around more, not buying at full price, buying more from value or less expensive retailers. (Appendix A.5) This cutting back on expenditure by the consumer means that they wish to spend more on value retailers rather than mid-market luxury retailers.
According to Mintel the mid-market segment has also squeezed as a result of a price-led consumer market. For instance mid-market players like like-for-like and Dorothy Perkins have gone down in sales. Like-for-like traded down 2.4% in the Q1 of year 2009-10 and Dorothy Perkins was still heavy with summer markdowns when rivals were relatively clean with new autumn ranges. Gap’s international quarterly sales to August 2009 dropped by 5% which is an important competitor for Massimo Dutti. Other mid-market players like H&M and M&S have traded up as they are price-led retailers. (Appendix A.6) On the other hand high-end designer buyers tend to buy more from the mid-market than from the upmarket high street retailers as a result of the ongoing recession. This is because of lack of particular brand loyalty, financial inability to buy everything from designer brands and the tendency of buying basics (i.e. T-shirts, jeans etc) from the mid-market retailers. (Appendix A.9)
Another trend in change is that the 25-54s have traded down the most amongst all other consumer age groups. This age band has been among the worst hit by the recession because of their larger financial commitments. This age group is the main target market for Massimo Dutti and hence affect the company sales the most. (Appendix A.7) Because of a combination of various above discussed factors customers are much more likely to now buy more from familiar brands/shops they trust. (Appendix A.8)
The Technological Environment
The technological environment consists of changes in technology related to the manufacture, sourcing, distribution or sales of a various components of products in that industry. A change in technology for various processes in the industry sometimes creates barriers to entry and also leads to innovation. Thus it is very important for firms to adapt to the changing trends of technology.
Online fashion has become significantly more popular as choices have improved. These days many consumers prefer to shop online as it not only saves time but also offers a full view of the collection at a single click. Fashion sites are also engaging more effectively with the customers through; better product imagery, establishing online communities; utilising user generated content, introducing virtual changing room’s etc. These types of innovations help the consumers to establish a better three dimensional understanding of the products they want to buy and hence provide a better opportunity for the marketers to capture the consumer. (Appendix A.10)
Another trend is M-commerce. It is a potential source of growth for the future, particularly among the young – a key demographic for fashion. But it will depend on more retailers launching mobile applications and on consumer ownership of smart phones. (Appendix A.10)
There are some other factors other than political, social, economic and technological factors that affect the UK clothing retail market. One of them is the environmental concerns facing the fashion industry today. Many environmentalists have raised objections against fast-fashion goods as they not only end up in landfills faster than usual but also because of the time, effort and resources utilized in their production. According to a research it shows that on average in the UK 30kg’s of clothes per person are dumped into landfills as a result of the fast-fashion. It accounts for about 1,000kg of CO2 a year – roughly half that emitted by a small diesel car. Each year the average person in the UK spends about £650 on 50 or so items of clothing and accounts for a large part of our carbon footprint. When they are manufactured, when they are transported, when they are washed and even when they are thrown away, clothes are responsible for significant greenhouse gas emissions. 90% of the clothes people buy in the UK are transported from abroad, mainly from China, India and Bangladesh and it only adds to the environmental impact of clothing. Also, working in the textiles industry often means long hours, low pay, poor safety records and the use of child labour. This it raises environmental and ethical concerns (Appendix A.11). It raises concerns for the Inditex group as a whole as their prime focus recently has been the introduction of fast-fashion products into the markets through their various brands.
Massimo Dutti Opportunities
With the help of the macro environmental analysis opportunities of the company can be identified. These opportunities can be maximised so the company can be placed ahead of its competitors in the market. These opportunities are: –
As a result of the EU territory expansion Massimo Dutti is able to reach wider markets both within and outside the UK increasing the scope of operations in the company. It also means that it is easier to source materials from the partner countries, which is an important aspect of Massimo Dutti’s business strategy.
The stimuli provided by the government in 2009 as a result of the economic recession have helped the people to overcome the problems of disposable income and hence has boosted the retail sector. However the impact is very long term and takes time to show signs of recovery.
Shoppers of high-end designer clothes tend to buy more from the mid-market than from the upmarket high street retailers as a result of the ongoing recession. This has helped retailers like Massimo Dutti to capture new demographics.
As a result of the rising concerns over the recession people have started spending lesser and lesser on clothes but have started to spend more on accessories which help them to look different with the same amount of clothes. Massimo Dutti thus has a competitive advantage because of their recent launch of men and women accessories as an addition to its prior range.
Online shopping is one of the recent emerging trends in the fashion industry. This opens up markets for consumers who previously were unable to shop at specific stores. This also reduces the need for a physical location of its stores. This provides a huge opportunity for mid-market retailers whose sales can be boosted in the presence of online sales.
M-commerce is another technological factor affecting the industry. It can tap the key demographic i.e. 25-50 year olds and therefore has a great potential for companies like Massimo Dutti whose main target market is this demographic.
Massimo Dutti Threats
Due to the Economic recession and currency rate fluctuation it has been difficult for retailers to keep up with a price-led market. This impacts the already low profit margins thereby posing a threat to the retailers.
As a result of the decreasing disposable income mid-market brands have suffered because people have shifted from them to fast-fashion cheap retailers who provide fashion clothes at a cheaper price.
Another trend in change that has impacted Massimo Dutti is that the 25-54s have traded down the most amongst all other consumer age groups. Being the key demographic of the company it has affected sales and may continue to do so in the future.
As many environmentalists have raised objections against fast-fashion it poses a threat for companies like Inditex (Massimo Dutti) as their core business model revolves around the concept of fast-fashion goods.
Micro Environmental Analysis
The micro environmental factors are those which are related with the firm’s immediate area of operation that affects the performance and decision making in that organisation. These factors also affect the overall costs of the organisation; the quality of products supplied and directly contributes to organisational success. There are 3 major stakeholder groups which affect these factors. These are the suppliers, consumers and the competitors.
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There are a number of ways in which the suppliers affect the performance of a firm. These may be related to the quality the supplier provides, the quantities that can be sourced from the suppliers, lead-time demands of the market or the ethical and environmental concerns followed by the suppliers. All these factors are responsible for having the right product at the right time to satisfy the demands of a firm’s consumer. Based on these factors firms must decide on issues such as who to source from, responsibility it takes for these suppliers and on the terms and conditions it adopts.
Inditex has over 1,186 suppliers around the globe making it vulnerable to many factors. One of the most important trends in change is the adaptive process of suppliers to operate in low cost regions. This is because the textile industry inherently is a labour intensive industry and hence was the first to move to low labour cost regions. Five years ago, China was the only source for low cost products but now countries like Vietnam are also competing against China and parts of India and Bangladesh for that same position. This is because of the increased internationalisation of the clothing companies in Europe in the past decade. As buyers are forced to spread their volumes across different regions, these regions or countries enter into competition with one another. This led to the creation of special economic zones in many countries, mostly with cheap labour. Besides cheap labour and resources these zones have no other connections to the local economy. On the other hand they are directly influenced by the high degree of fluctuations caused due to favourable or unfavourable conditions in foreign markets. China is one of the key suppliers to the European apparel industry but is less competitive than eastern European countries because of added logistics costs. (Appendix B.4, B.5)
Another factor that has affected the suppliers is the requirement of buyers for environmental compliance and labour standards. Recently the government has launched a campaign to tackle the environmental and social impact of the fast fashion culture. As a result of this many retailers have introduced changes in their supplier regulations. For example Marks and Spencer, Tesco and Sainsbury’s have pledged to increase their ranges of Fair-trade and organic clothing, and support fabrics which can be recycled more easily. Also Tesco is banning cotton from countries known to use child labour. All these changes in the buying behaviour of the retailers have forced suppliers to follow stricter guidelines on environmental and ethical issues. (Appendix B.6)
The customers are a key to sales of all retail formats. An organisation must monitor its consumers and the trends in change that affect the consumers. By gathering data on shopping patterns of the consumers the retailers can identify possible changes required to the marketing strategy. It can be in the form of a changed target market, the change in distribution channels or by responding to the new product or pricing needs of the consumers.
The target market for Massimo Dutti is women of 25-45 years old and men of 25-50 years old catering to the upper middle and upper socio economic class and upper middle cultural interests. The customer plays an active role in the Inditex business model. At Inditex production activity begins once customers demand reactions have been analysed. Unlike the traditional fashion company business model which started at the designer’s drawing table, Inditex activities starts by assessing the customer’s demands and continues to the store.
The economic downturn is helping to boost sales of value clothing retailers. Consumers have been forced to cut back on other categories of spending like holidays abroad and restaurant meals. But consumer research shows that clothing is to be the most vulnerable area of spend amongst adults who have been forced to cut back their expenditure due to the recession, although value clothing appears to be one area of clothing expenditure that is responding positively to the trend. In response to economic worries, consumers are saving more and they appear to be trading down on clothing as a consequence. Specialist fashion discounters or value clothing retailers (led by Primark, TK Maxx and Matalan) are the main beneficiaries of the strong growth in value clothing sales, and have seen their sales rise by 7% to £5 billion in 2009. (Appendix B.7, B.8)
The GfK NOP consumer confidence index, published on 31st March 2010, showed that overall UK consumer confidence fell to -15 in March, from -14 in February. The 2,000 adults interviewed by GfK NOP also took a more negative view of the overall economic situation over next 12 months. The index also indicated that consumers are becoming more cautious about of their own personal financial situation. (Appendix B.9)
Another important factor which affects the micro-environment of an organisation is its competitors. The success and behaviour of any industry depends on the amount of competition that it faces in its market. In the case of fashion retail market the competition is intense because of a large number of players in the market. This puts a downward pressure on the price of the product offerings. Thus it is very important for a organisation to identify and monitor its competitors in order to obtain a competitive advantage.
The major competitors to Massimo Dutti as a brand are Gap, Banana Republic, Mango and H&M (Hennes & Mauritz).
Gap & Banana Republic (Gap Inc.)
Gap Inc. is a clothing retailer from the US that has expanded into Europe via operations in the UK, France and Ireland. ‘Clean, classic, American designs’ are the words on which the brand was founded and the current offer continues to reflect these values. The commercial formats at Gap Inc. include Gap, Gap Kids, baby Gap, Gap Maternity and Gap body under the brand name Gap. Other brands which do not include the brand name Gap are Banana Republic and Old navy. Gap and Banana Republic have 140 stores in the UK. As a result of the tough trading conditions in all its markets, Gap saw the sales decline by 12% in 2008. However, Gap maintains a mid-market stance and as a result has looked to more muted colours in the current recessionary climate as consumers seek items that will last longer. In August 2009 the company also ventured into the UK e-commerce arena, announcing the availability of Gap branded items on the ASOS website. (Appendix B.10, B.11)
Mango is one of Spain largest clothing specialists and has also built up a sizeable international business in Europe, Asia and the Americas. Mango predominantly targets women aged 18 to 30 with a fashionable and sophisticated offer. Mango designs, manufactures and markets women’s and men’s clothing and accessories. Mango currently has a total of 1,220 stores in 91 countries worldwide. In the UK it operates 42 outlets which are mostly franchised. Mango follows the same multi-brand strategy as of Inditex. Mango has admitted that the global recession has led to a decline in the sales volume in early 2009 in markets such as Spain, Ireland, the UK and Russia. Consumers have been cutting back on their spending, particularly on discretionary items such as clothing. In reaction Mango has launched ‘Think Up’, an affordable sub-range for the weaker consumer climate. Recently, the group has expanded into menswear and has also hinted that it may launch a chain that targets younger shoppers. (Appendix B.12, B.13)
H&M (Hennes & Mauritz)
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