fashion retailers essay
A Report for New Look Retailers
Table of Contents
3.0 Changes in the UK Retail Fashion Industry 6
4.0 Changes in the Micro-Environment 8
4.1 SWOT Analysis of New Look 8
4.2 Competitive Analysis (Porter’s Forces) 10
5.0 Strategies and Tactics that New Look can Employ 11
6.0 Recommendations on how New Look can meet Challenges 13
Figure 1.0: The UK GDP trend since 2010 18
Figure 2.0: UK Births, deaths and natural rate changes 18
The fashion retailing industry comprises firms that sell clothing and related items to the consumers. Most of the firms source the products from the manufacturers and wholesalers. However, some manufacturers also sell the clothing directly to the customers (IBISWorld, 2020). In the UK, the industry currently has around 24,000 firms, and it employs approximately 398,000 people (IBISWorld, 2020). Remarkably, changes in the macro- and micro-environments of the firms in the industry have affected their performances in various ways. New look Retailers Ltd., one of the renowned crucial players in the industry, has been performing poorly over the last decade (New Look Retail Group Limited, 2019, p. 1). In this regard, this Report explores New Look and how its performance is affected by the changes in the micro- and macro-environmental changes. Ultimately, the report analyzes the strategies and tactics that the company can adopt to cope with the changes and recommends the most suitable approaches to face the emerging and existing challenges and to maintain a competitive edge.
2.0 New Look
New look commenced its operations in 1969 in Taunton, Somerset, and was pioneered by Tom Singh. The company grew consistently during the rest of the 20th century. The growth of the company was marked by the establishment of numerous retail stores in the UK and other countries. In 2003, the company opened its 500th store. By 2009, the company had over 300 stores in England and Ireland, which increased further to over 500 by 2014 (New Look Retailers Limited, 2020). The total number of the company’s stores reached around 890 by 2017. Other countries apart from the UK where New Look expanded to include Belgium, Poland, Russia, Germany, South Korea, China, Netherland, France, Saudi Arabia, Thailand, Romania, Malta, Bahrain and Bahrain (New Look Retailers Limited, 2020).
New Look was listed on the London Stock Exchange until 2004 when it withdrew from the stock market. Accumulation of debts was one of the main factors that led to the withdrawal from the stock market. Earlier, before the withdrawal, a portion of the company’s shares were sold to private investors, Quillian Investments, Apax Partners and Permira. In 2015, 90 per cent of New Look’s shares were acquired by Brait SA (New Look Retailers Limited, 2020). However, continued poor performance of the company since 2011 prompted for the closure of many of its stores in 2018. The closure mainly concentrated on the stores in foreign countries. In 2011, the company incurred a loss of £38.0 million. The company made losses consistently between 2015 and 2018. During the financial year 2018-2019, the amount of loss incurred by the company was £552.7 million and had a revenue of £1,281 million. By 2019, the company had 519 stores in Ireland and the UK (New Look Retail Group Limited, 2019, p. 1). In 2019, however, the company was ranked number one seller of Womenswear for persons aged between 18 and 34 years in the UK market. Despite the decline in its performance, New Look is still ranked among the top brands in the UK fashion clothing industry, with an overall market share f around 2.4 per cent. New Look started investing in eCommerce in 2018. By 2020, the company has been selling products in over 60 countries online and shipping them (New Look Retailers Limited, 2020).
3.0 Changes in the UK Retail Fashion Industry
3.1 PEST Analysis
3.1.1 Political Changes
A remarkable political aspect that has possible significant impacts on the firms in the UK fashion industry is Brexit. After the European Union (EU), there is uncertainty regarding whether or the extent to which the UK will maintain liberal trade relationships with the other European nations (Tobin, 2019). The move brings about the possibility of establishment of limitations such as Tariffs by some of the European countries on exports from the UK and other trade restrictions. Such have the potential to affect the ability of firms in the fashion industry to sell products beyond the UK market (Eco-Age, 2020). An increase of trade limitations will also influence the firms in the fashion industry to increase their focus on the local market, leading to stiffer competition and reduced returns to the firms.
3.1.2 Economic Changes
The UK has recorded a sharp decline in economic performance in the first half of 2020, as indicated in figure 1.0 on the Appendix. During the first quarter alone, the GDP declined by 2.2 per cent. During the period, consumer spending reduced by 2.9 per cent (Trading Economics, 2020). The main cause of the decline is the spread of the Covid-19 disease that affected the ability for businesses and individuals to operate normally. The impact has been a recession whose impact is expected to be felt for long, with expectations of a decline of GDP by at least 7 per cent (Islam, 2020). The negative impact on the economy will adversely affect the sales, profits and other aspects of performances of firms in the UK, including those in the fashion industry. Brexit is also expected to have an impact on the economy due to the uncertainties involved and the possibility of increasing limitations on trade with European nations ((Eco-Age, 2020).
3.1.3 Sociocultural Changes
Demographic change is one of the remarkable social aspects with an impact on the macro-environment of New Look. The UK has an ageing population due to a reduction in birth rate, as indicated in figure 2.0 in the Appendix. By 2036, for instance, the proportion of people aged above 65 years in the US is expected to increase by 15 per cent (Office for National Statistics, 2017). Thus, firms in the fashion industry will need to respond to the changes and through increasing the sale of products meant for the ageing population. Consumer preferences also have an impact on firms in the fashion industry. With a decrease in income, for instance, more consumers are likely to prefer low priced clothing products (Eco-Age, 2020). Also, they may prefer more durable clothing products.
3.1.4 Technological Changes
The utmost important technological change is the increased in the evolution of the internet, characterized by the emergence of numerous channels for reaching the consumers. Firms can establish online databases where they market products and services to the customers, such as mobile e-commerce websites (Tuman, 2020). Some of the channels, such as social media, provide the opportunity for firms to establish close relationships with potential customers in the local and foreign markets.
4.0 Changes in the Micro-Environment
4.1 SWOT Analysis of New Look
4.2 Competitive Analysis (Porter’s Forces)
4.2.1 Competitive Rivalry
Competitive rivalry in the UK fashion clothing industry poses a dominant threat to the performance of New Look. Currently, New Look faces competition from renowned and well-established firms with physical stores in the UK market such as Primark H&M, Mark and Spencer, George, Arcadia and Next, PLC. In addition, the company faces stiff competition online from firms such as boohoo.com, Debenhams.co.uk, prettylittlething.com and missguided.co.uk (Merry, 2019). The competition is likely to increase if limitations operate in, or export to, other European countries are going to increase.
4.2.2 Buyer’s Bargaining Power
A remarkable thing about the fashion industry is that the buyers wield significant power of bargaining. Most of the clothing products sold by New Look are also offered by many competitors. Thus, customers can choose to move from one retailer to another and get similar products (De Marco, 2017). The issue affects New Look since it can easily lose customers due to factors such as poor services and relatively high prices of products. In 2018, New Look was compelled to cut prices for its products, mainly due to the issue (Hoggan, 2018). Thus, the threat, in this case, is high.
5.0 Strategies and Tactics that New Look can Employ
5.1 Macro-Economic Factors
In the analysis of the macro-environment, Brexit emerges as one of the most influential factors to the performance of New Look and another firm in the industry in the future. As explained, Brexit is likely to lead to a significant increase in competition in the UK fashion retailing industry. The economic theory stipulates that when supply increases more than demand, the prices of the products fall (Esper et al., 2010, p 7). In the UK, an increase in competitiveness has already caused a reduction in prices, and the trend is expected to continue. In this regard, New Look should include continued expansion into the foreign markets as one of its strategies. As explained in the Gravity model, distance is one of the major factors that influence trade between countries (De Benedictis & Taglioni, 2011, p. 56). As such, there is a likelihood that the UK will maintain close trade relationships with its neighbouring countries, characterized by the elimination of limitations. New Look should be keen to note the neighbouring countries that the UK is going to form a close trade relationship with and evaluate the possibility of venturing into those markets. Doing so will give the company another option rather than just focusing on the local market.
The second macro-economic issue identified is the fact that the population of the UK is ageing. Consumer theory states that consumer preferences are one of the factors that influence the demand for products (Hassan & Craft, 2012). Thus, as the population of the UK continues to age, there will be an increase in the preferences for clothing that are fit for older people. Thus, this calls for New Look to apply the segmentation theory critically. Segmentation entails designing or including in the portfolio products that appeal to a particular consumer group (Hassan & Craft, 2012). As noted in the company’s 2019 annual report, it is ranked as leading in the sale of clothing products for persons aged between 18 and 34 years (New Look Retail Group Limited, 2019). Because the population is ageing, New Look should enhance its targeting strategy through increasing its focus on persons aged between 34 and 64 years. The firm should add products targeted to that consumer segment. Doing so will increase the choices for the consumers and hence, improve its performances.
5.2 Micro-Economic Factors
The Analysis of the micro-environment has shown that New Look has taken advantage of the advancement of internet technology through venturing into e-commerce. The marketing concept of the e-commerce theory stipulates that firms focus on three aspects when engaging business online, namely profit orientation, product orientation and customer orientation (Wigand, 2007). The focus to focus on one of them can lead to failure. Although New Look has ventured into e-commerce successfully, customers have complained in the past that its delivery charges are higher than those of the competitors, as noted on its weaknesses. The issue indicates that New Look is not effectively customer-oriented. The company should focus on increasing its presence online, but should address the issues raised, such as the high cost of delivery.
Second, overreliance of New Look on the fashion industry is a major issue that it needs to address. According to the portfolio diversification theory, focusing on one line of products makes a firm vulnerable to failure in case factors emerge affecting the sale of those products (Wan et al., 2012, p. 1336). The overreliance on fashion is one of the reasons why New Look has been experiencing difficulties in addressing its consistent poor performance. Thus, the company should consider adopting the portfolio diversification strategy.
6.0 Recommendations on how New Look can meet Challenges
Based on the analysis, New Look should address its underperformance strategy first through increasing its e-commerce presence and reducing its physical stores. The firm should close the physical stores that have continued to underperform, leading to losses. The reason is that e-commerce involves much fewer costs than operating physical stores (Wigand, 2007). When increasing its online presence, New Look should address issues that can keep away customers and adversely affect its competitiveness, such as including expensive delivery charges. The firm should analyze the charges of the competitors and adjust to ensure that there are no significant variations.
Second, the firm should increase products meant for persons aged between 34 and 64 years. That age group has the highest number of people with adequate disposable income and willing to purchase fashion products. To enhance its appeal to the customers, the firm should ensure that its prices and qualities to meet customers’ desires. In the long-term planning, the firm should focus on venturing in lucrative markets that the UK will form liberal trade relationships with. Expanding its portfolio of products should be a long-term strategy that the company should not ignore since it will help in reducing the risk of failure when the fashion industry is affected.
Overall, New Look is one of the major players in the UK fashion retailing industry. However, its performance during recent years has been poor. A scrutiny of the company’s macro-environment shows that the political and economic factors are not favourable. The technological factors are favourable while the impacts of the social factors will depend on the strategies the firm will take. An analysis of the micro-environment indicates that the company can address a few of its weaknesses and capitalize on its strengths to enhance the ability to utilize the available opportunities. As recommended in the analysis, the firm should utilize the opportunities through enhancing its e-commerce business and reducing the underperforming physical stores, targeting more consumer segments, adding new products to its portfolio and venture into lucrative markets that the UK will form close trade relationships with.
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Figure 1.0: The UK GDP trend since 2010
Figure 2.0: UK Births, deaths and natural rate changes