Case Study solution of BRANDED LIFESTYLE HOLDINGS LIMITED: STRATEGIC TRANSFORMATION IN CHINA
Case Study Snippet- With a portfolio of brands in hand, Shivkumar felt confident:
For us, Hang Ten is one of our brands, among our portfolio of brands. When you look at brands, when you look at trends, for every brand, there is a life cycle. For every trend, there is a start and finish point. So what we look at is not individual brands, but at which brand to bet more money on a given trend. Instead of swimming against the current, we prefer to swim with the current. If we see a trend over here for a brand, we will expand that brand much faster and just hankering down on other ones.
However, Shivkumar knew he needed to develop a comprehensive strategic plan for China:
I need to see clearly where the Chinese market is heading and to focus on that. In the past, it was easy. You know how to create beautiful stories for your brand and market those stories, how to design good products and to price them, how to set up a shop and train your staff, and you will do well. Today, these are not enough as the market is getting more competitive, customers’ tastes and preference more fluid, and retail channels are constantly evolving. To succeed, it is about who can see clearly the market trend and who can come up with a good strategy and execute that better.
Shivkumar’s challenge was to develop a new strategic plan to transform Branded Lifestyle into a leading apparel retail company, first in China and then in Asia.
PEST Analysis of Chinese Apparel market
Opportunities & Threats for Branded Lifestyle Holdings Ltd
Porter’ five force model analysis of Chinese apparel retail industry
VRIO framework of Branded Lifestyle’s company performance
Porter's value chain analysis of Branded Lifestyle Apparel
Case Questions:
1. Shiv Kumar must carefully evaluate the general consumer trends in China. What are some opportunities and threats facing an apparel retailer such as Branded Lifestyle?
2. Is the Chinese apparel retail industry attractive? What should an apparel retailer do to succeed in this market?
3. Analyse Branded Lifestyle’s company performance through its key resources, capabilities, and weaknesses to compare it to key competitors.
Solutions to Case Questions
1. Shiv Kumar must
carefully evaluate the general consumer trends in China. What are some
opportunities and threats facing an apparel retailer such as Branded Lifestyle?
PEST Analysis of Chinese Apparel market is required to be done to explore opportunities and threats facing an apparel retailer such as Branded Lifestyle -
Political Factor
·
Chinese
government tends to make unsettling changes to policies overnight and this
affects business organisations due to which long term marketing plans is
difficult to make in China.1
·
Strong
presence of communist party poses pressure while designing marketing strategies
and advertisements in China as any product or service are found against the
ideals of the Communist Party, then it is banned. 1
·
China has
diplomatic relationship with other countries. Chinese political framework is
stable which encourage international companies to invest in China.2
Economical factor
·
China is second
largest economy in the world.
·
With rising
spending power, the Chinese apparel retail industry grew at an average annual
growth rate of over 11 per cent between 2003 and 2013 to become a $122 billion
industry in 2013.
·
China’s
governments are investing into developing the education and technology aspect.2
·
In the taxation
part, China has corporate tax chargeability on companies and it has signed
double taxation agreement with 46 countries. Since China is member of ASEAN
hence there is less tariff barriers for member countries in China.2
·
Online garment
sales continued to expand nationwide, with the turnover reporting a
16.5-percent yearly growth and new sales modes such as live video streaming
attracting consumers.3
·
With rising
disposable household income, Chinese consumers represented one of the largest
markets in the world.
·
Cost of retail
operations in China is very high and return is much less than any other Asian
countries.
Rising labour cost in China also increases
the cost of retail operations.
Socio cultural factor
·
Customers aged
between 20 to 30 in China spend most on apparel. They
look for fashionable but reasonably priced products.
·
Customers
vary significantly in China on the basis of geographical locations with an
“affluent East” and a “poor West,” along with differences in cities and other
provinces. China’s most developed Tier 1 cities (Beijing, Shanghai, Guangzhou,
and Shenzhen), located along the east coast, had better infrastructure, a
higher proportion of educated workforce, greater purchasing power, and more
sophisticated consumers than the rest of the country.
·
China is considered as collection of separate countries with varying
purchasing power and consumer preferences across different regions.4
·
Chinese population are divided into four segments - poor, value,
mainstream, and affluent. Majority of
consumers fall in category of value consumers having disposable income of
$6,000–$16,000 (¥37,000–¥98,080)5 which is considered to cover basic
living expenses. 6 % consist of Mainstream consumers, with disposable income of
approximately $16,000– $34,000, and 2 % comes under affluent consumers, whose
income exceeded $34,000. 10 % consumers are in the category of poor with annual
disposable income of less than $6,000.6
·
Largest
market segment relates to casual wear designed for mass population of the
country. Luxury apparel is smallest but fastest growing segment in the country.
More than 6000 apparel brands are available in the market. Some large apparel
brands sell products of their own brand while small manufacturers sell no brand
products online.
·
Online
shopping is predominant in market. Online shoppers came from all over
China, especially in lower-tier cities where traditional retail operations were
less developed. A large proportion of online shoppers (89.5 per cent) were
between 20 and 35 years old, and 70.4 per cent of online purchases ranged
between $5 and $29.7
4. Technological factors
·
Asset light model
is popular in China where companies focus on design and retail and outsource
production from apparel manufacturers mostly located in China.
·
E-commerce has assisted the growth in Chinese population’s
purchasing power. China has the world’s largest online population with 829
million users (CNNIC, 2019)8.
·
Apparel accounted
for more than 25 per cent of online retailing, or around $57 billion in 2014.9
·
All the main
online shopping websites and social media sites have an apparel channel. There
are Online apparel specialty stores too.
·
Online sellers
are offering well designed products at very low rate to consumers.
Opportunities for apparel retailer such as Branded Lifestyle
Political
·
Since Chinese
political system is stable, Companies can execute long term plans for achieving
success in the market.
·
It can use
government assistance and grants for purposes of growing the business,
advancement, exporting, and innovative work.
Economical
·
Higher disposable
income will lead to higher sales for Branded Lifestyle Holdings Limited.
·
Since population
of China is very large, it can work towards building economies of scale.
·
The company can
maintain business costs and controlling the final price of the product.
Social
- Market
segmentation and consumer grouping will help company to understand
psychographics and lifestyles of the consumer more. Use of consumer-centric means of
segmentation, targeting and consumer based marketing will help to
influence consumers.
- Products
should be made more accessible to target consumers at all platforms.
Technological
- Rapid expansion
of online business can be used by the company to communicate and retail
directly to the consumers now, through online sales of its products. It
can use social networks to reach target audience customers and e-commerce
to boost sales.
- Technological
innovation can be utilised in terms of designs of products to build on
competitive advantage in the market.
Threats for apparel retailer such as Branded Lifestyle
Political
·
Commercial
restrictions can impose threat to the company. Trade barriers that China has
with potential trade partners can harm companies in exports.
·
The integrity of
the politicians and their likelihood to take part in acts of corruption may
hamper operations of the business.
Economical
·
Increase in
labour cost, rapid buildup of real estate, physical size and the geographical distance between cities
increased operational costs significantly.
·
Marketing
campaigns are less effective and promotional costs are too high in China posing
serious threat in terms of increase in operational cost and decrease in profit.
Social
·
Consumer
preferences towards garments vary geographically in China and their spending is
also influenced by their level of income. Evaluation of social pattern and Repositioning
of its items to meet the changing desires and needs of consumers is desirable
to succeed in market.
·
Consumers prefer
to buy products which are trending and fit to their budget online. Online customers come from
lower-tier cities where traditional retail operations are less developed.
Technological
·
Less expensive
production, improved access to consumers, improved technological innovation is
the area where company needs to get a competitive advantage in the market.
·
Well designed
local brand Products sold online are very cheap and pose a big threat to
traditional apparel retailers.
·
Copying of
apparel design by local players in the market is also a threat to the company.
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2. Is the Chinese
apparel retail industry attractive? What should an apparel retailer do to
succeed in this market?
Yes, Chinese apparel retail industry is attractive which can be analysed
using Porter’ five force model of shaping strategy.10
Threat of new entrants
- Economies of
scale restrict and weaken entry of new firms in this industry making
production costlier for new entrants and availing cost advantage to those
producing in bulk.
- Product
differentiation is very high where customers prefer to buy casual wear and
luxury apparels. Strong emphasis is placed on advertising and customer
services as well creating hurdles for new entrants in the industry.
- The capital
requirements within the industry are high due to R & D in development
of designs.
- Access to
distribution network is very easy in the industry.
Bargaining Power of Suppliers
- There are
lots of Suppliers in this industry reducing their control on price of
products thus making their bargaining power weak.
- Suppliers
manufacture mostly standardized products and have low switching cost. Also
they are not concentrated at one region thus making companies to witch
suppliers easily and weakening bargaining power of suppliers.
- Threat of
forward integration by suppliers in the industry is less as most of the
companies follow light asset model in which they focused on design and
retail and outsourced production to apparel manufacturers,
Bargaining power of buyers
·
Income level of
majority of consumers is low. They look for fashionable but are sensitive to
price, thus increasing their power in market.
·
More than six
thousand apparel companies are operating in China. Consumer base is also strong
with varied geographical regions leading to moderate level of bargaining power
of customers
·
Switching cost of
customers is also very low making them strong in the market.
·
Customers have less
information on quality of products making them weaker in the market.
Threat of Substitute Products or Services
·
Threat of
substitute products in the industry is very high due to low switching cost,
availability of close substitute in the market without compromising in quality.
Rivalry among Existing Firms
·
Many domestic and
international companies are competing in Chinese apparel market making rivalry
highly prevalent in the market.
·
E commerce in the
industry has impacted traditional stores strongly.
·
Most of the
rivals are focusing on product differentiation through innovation in the
market.
Apparel Company
Such As Branded Lifestyle can apply following strategies to succeed in market-
Threat of new entrants
·
It can take
advantage of economies of scale thus enjoying cost advantage and fighting
against new entrants by selling products at cheaper price in market.
- It can focus on innovative designs to differentiate its
products from that of new entrants.
- It can spend on marketing to build strong brand image in the
market which will help to retain its customers.
Bargaining Power of Suppliers
- It can ensure efficiency in its supply chain by having
multiple suppliers for its different geographical locations.
- It can bargain with its suppliers to avail goods at less price
and switch suppliers in case they do not match with company’s expectation
in terms of quality, timeliness and pricing.
Bargaining power of buyers
- It can increase its customer base by increasing and
diversifying its products base.
- Building customer loyalty by offering innovative products and
excellent customer services will increase switching cost of customers.
Threat of Substitute Products or Services
·
Company can
provide solid reasons to customers in convincing them how their products are
better than others by offering a better experience in terms of design, quality
and high value for money.
·
It can raise
switching costs by increasing customer loyalty through brand promotion.
Rivalry among Existing Firms
·
It needs to focus
on differentiating its products through continuous innovation and localization
of its products to remain competitive in market.
·
It should develop
sound marketing strategy in terms of market segmentation, explore new markets
and bring uniqueness in the product to keep customers loyal and increase new
customers.
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3. Analyse Branded
Lifestyle’s company performance through its key resources, capabilities,
and weaknesses to compare it to key competitors.
Performance of Branded Lifestyle can be
analysed using VRIO framework and value chain analysis:
VRIO Framework
|
Description
|
V
|
R
|
I
|
O
|
Sustainability
|
|
Tangible resources
|
|
1. The company operates five apparel
brands—Hang Ten, H: Connect, Arnold Palmer, LEO, and Roots—in six markets in
Asia: China, Hong Kong, Taiwan, South Korea, Singapore, and Malaysia.
Multinational presence in the market.
|
Yes
|
yes
|
yes
|
yes
|
Long
term competitive advantage
|
|
2.
Strong logistics, distribution and retailing business in Asia Pacific region.
|
yes
|
yes
|
yes
|
No
|
Unused
competitive advantage.
|
|
3. The parent company had an annual
turnover of US$25 billion by 2013
|
yes
|
yes
|
yes
|
yes
|
Long
term competitive advantage
|
|
4. Expansion of company into retail
operations, such as Toys “R” Us Asia Limited—with 181 stores in Greater China
and Southeast Asia markets—a luxury retailing in 2006 with Trinity Limited—
with 441 stores in the Greater China area. By 2011, it operated only 129
company-owned stores in China.
|
Yes
|
No
|
No
|
No
|
Competitive
parity
|
|
5.
The company employed over 28,000 staff worldwide.
|
yes
|
yes
|
No
|
No
|
Temporary
competitive advantage
|
|
Intangible resources
|
|
1.
Strong brand image in terms of designing and marketing products for reputed
companies and serving retailing and e commerce channels in the
Americas, Europe, and Asia.
|
Yes
|
Yes
|
yes
|
yes
|
Long
term competitive advantage
|
|
2.
Unique capability in supply chain management services to clients
|
yes
|
Yes
|
yes
|
yes
|
Long
term competitive advantage
|
|
3.
Intellectual property and patent rights in terms of designs of apparels
|
Yes
|
Yes
|
Yes
|
No
|
Unused
competitive advantage.
|
|
4.
Strong distribution channel
|
Yes
|
yes
|
yes
|
No
|
Unused
competitive advantage.
|
|
5.
Research and development in product development and cost structure
|
No
|
No
|
No
|
No
|
Competitive
disadvantage
|
VRIO Framework analysis:
The company has
long term competitive advantage for multiple brands in its product portfolio,
huge financial resources, unique supply chain capability and strong brand image
in the market. It has unused competitive advantage in terms of not utilizing
its distribution channel, patent rights and Strong logistics, distribution and
retailing business in Asia Pacific region effectively and efficiently in
market. There exists a competitive
parity for employees of the company. . Research and development in product
development and cost structure proves to be competitive disadvantage for the
company.
Porter's Value Chain Analysis
It consists of
primary and secondary activities.
Primary Activity
Inbound Logistics
However company faced
various challenges in product development phases. The company should select
best quality raw materials for in house production as well as for third-party
contractors. Most cost efficient suppliers should be selected for different
designated and appointed locations.
Operations
The company operates
internationally directly or indirectly. The company has owned shops in China
which is less in number. The company should focus on increasing its retail
outlets in China.
Outbound Logistics
Company sells
majority of its products through licensed sellers and owned retail outlets. The
company has agents in different countries to sell its products. It has also
agents in different countries to sell its products.
Marketing and sales
Only producing a
high quality product at affordable costs and distinctive features cannot create
value, until it invests on the marketing and sales activities. Company must use
comprehensive marketing strategies and transform its business from traditional
to online platform to reach at all geographical location of the country.
Service
Company must
invest in customer relationship management to build rapport with customers. It
must invest in gaining and incorporating customer feedback and in solving
customer queries effectively to develop loyalty and maintain strong
relationship with customers.
Secondary activities
Firm infrastructure
The company needs
to bring structural changes in its infrastructure to reduce overall cost of the
company and gain competitive advantage in the market.
Human resource management
The company needs
to recruit local employees at managerial levels who can understand the market
and bring customization in products as per the needs of the customers thus
improving sales and profitability.
Technology development
Integration of various departments through
technological medium to keep track of performance of organisation is utmost
necessary for the company to succeed in the market. Company should focus on
research and development to develop unique designs for its products to remain
competitive in market.
Procurement
Company stands strong in logistics management
and offered comprehensive supply chain management solutions to global customers.
Procurement process must be optimized to meet the needs of inbound, operational
and outbound value chain.
