Post on 16-Dec-2015
description
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Author:
Mark Tottman
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Opening thought
Fashion fades, style is eternal
Yves St Laurent
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Strategy Toolkit Contents
Introduction
Thinking strategically
Strategic analysis of SuperGroups business
Strategic options for SuperGroup
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Introduction
This presentation reviews the market for fashion retailing and takes you through the key corporate strategy issues facing SuperGroup PLC, a British clothing and fashion company based in Cheltenham, England
It is important to remember that, in corporate strategy analysis, there are no right or wrong answers just problems that need addressing and choices that have to be made
The views and opinions expressed in this document are just our opinion. Hopefully you will find them helpful. However, dont forget that you need to form your own views and be ready to explain and justify them in your Unit 4a examination paper
Print this presentation out and add your own notes to it as you work through the case study or download it onto your laptop/smartphone/iPad and annotate it
Above all remember that Unit 4a is about: Thinking strategically
Thinking big picture
Thinking synoptically i.e. recognising that strategy issues are not just about marketing or finance or production but about inter-related issues
Note: The presentation is based upon the pre-released Evidence provided by Edexcel up to 2011. However, there is comment in the presentation which covers the changing fortunes of SuperGroup over the last 12 months (2011-12)
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SuperGroup and this Toolkit
Worked carefully through the case study like you should too Analysed the data, read between the lines and presented the key features Added some information to bring the case study up to date for 2012 Linked the analysis to the Edexcel specification for Unit 4a Identified what we believe are the key strategy issues raised by the case study Outlined the strategic options open to SuperGroup Evaluated the strategic decisions that could be made
What We Have Done
What We Have Not Done
Question-spotted what we think the Unit 4a examiner might ask. Examiners have a habit of asking tricky questions. In any event, you need to answer the questions actually set, not
the ones you want to be asked
Repeated all the details of the case study (there is no value added in doing this and you need to read it too!)
Repeated all your textbook, class, VLE and revision notes on corporate strategy (refer back to these as necessary)
Provided lots of notes on corporate strategy concepts your textbook, VLE and class notes should cover those fine. You need to get thinking about fashion retailing!
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How to Work Through This Presentation
Step 1
Read the SuperGroup case study
carefully; study the words; look at all
nine pieces of Evidence (A to I); form
your initial views on the business positive and negative.
Step 2 Read our advice on Thinking Strategically
Step 3
Go back to the case study and re-read it.
Try to identify what you think are the key
strategic issues.
Step 4
Step 5
Read our sections on the Analysis of
SuperGroups Business and our thoughts on the Strategic Options for
SuperGroup
Summarise the key points from this
presentation in your own revision notes
(or scribble all over it) so that you are
fully prepared for the Unit 4a paper
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Thinking Strategically
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Thinking strategically means imagining YOU are sitting at
the SuperGroup boardroom table in Cheltenham, England
with Julian Dunkerton, the business founder and CEO
As you sit at the head of the table looking out at all the people walking by,
your role now is to navigate your way through the complex and intensely
competitive world of global fashion retailing to ensure that these people
are choosing to wear SuperGroup clothing ranges
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Directors do not concern themselves with day-to-
day operational details neither should you
Are the same
actions in the best
interests of all the
stakeholders?
What external
factors influence
our business?
How are we doing?
Can we survive
with our current
strategy?
What is our
business mission?
What are our goals
and objectives?
What strengths
and weaknesses
do we have?
What resources do
we need? How
should we finance
them?
What are our
competitors
doing?
How do we exploit
the opportunities
available?
Julian Dunkerton is concerned with questions like
Think about these questions as you work through the case study
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Corporate Strategy involves taking decisions
Decisions often need to be taken quickly
Decisions involve risk but a business can never move forward unless it takes risks
Information is never perfect, complete or always up-to-date
The Unit 4a evidence needs to be considered in detail and data must be interpreted with a critical eye
Think about the decisions that Julian Dunkerton needs to take. What information does he need?
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Be careful with your SWOT Analysis dont believe management hype!
Strengths these are ONLY factors where a business has a real competitive advantage. Just
being good at something is NOT a strength if
your competitors are good at it too! Most
businesses have only a few strengths. Some
dont have any.
Weaknesses in reality, these are the things that really stop a business from succeeding. Most
businesses have some fundamental
weaknesses but management often ignore them (and rarely admit them). Your job is to
tell it as you see it.
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All businesses have problems but they are rarely as bad as they look
Not every problem or issue described
in the SuperGroup case study is really
important. Dont get too bogged down by what look like numerous issues.
Good management is about sorting
things out
Try to identify the really important
issues, problems or challenges facing
SuperGroup. These are the strategic
challenges that the company must
address
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Strategic Analysis of
SuperGroup
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Fashion market overview
The fashion market is a global industry with notoriously short product life cycles
It generates over a trillion dollars per annum worldwide
It is a highly fragmented market with numerous players, many of whom operate with global brands
In Western territories, the market is largely saturated, with players competing for market share
There are a number of emerging fashion markets which are growing opportunities for Western brands because these brands are seen as
aspirational and status symbols
Russia, China, India, Singapore, Brazil, South Africa and areas of the Middle East (especially UAE)
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Fashion in context
Fashion goes beyond simple clothing and accessories. It
expresses identity
creates wellbeing
embraces creativity
connects global communities
There are different ways to segment the fashion market. Market segmentations can use price, age, lifestyle, gender, quality or
geography as descriptors.
It would be a good class exercise for you to do your own version of the fashion market segmentation in order to explore the possibilities
On the next slide, we have chosen price and quality as our criteria
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Fashion industry market segmentation:
Multi-layer players have a range of products for
different markets; others operate focus strategies Multi-layer
players (e.g.)
Single layer
players (e.g.)
Haute Couture
Luxury
Affordable
Luxury
Discounters/
Off Price
Mass Market
Supermarkets
High Price,
High Quality
Low Price,
Low Quality
Expensive and exclusive, custom made
fashion/performance gear for the worlds wealthiest individuals/sports people
Not custom made, but high quality and
exclusive fashion for fairly wealthy
people
Aspirational consumers with some
disposable income, but who cannot
afford luxury brands at luxury prices
Clothing that sacrifices an air of
exclusivity for mass market appeal
Clothes for cost conscious or low income
consumers
Out of season luxury brands for
consumers who want (affordable) luxury,
but are not fussed about current fashions
Gucci
Westwood
Lauren
Armani
Nike
Adidas
Jack Wills
Superdry
Burberry
Abercrombie
Ubiqlo
TK Maxx
eBay
Primark, M&S,
H&M, Zara,
BHS
Walmart/Asda,
Carrefour,
Tesco
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Superdrys market position
It is quite difficult to place Superdry into a neat fashion category like many other High Street labels. To some extent, it spans our categories
because it sells unisex basics, but with design ticks
It is in the same space as Abercrombie and Fitch, Jack Wills, Gap, Uniqlo and AllSaints, but (probably) beats them all
It also competes with brands like Burton, Dorothy Perkins, Miss Selfridge, Top Shop, Primark, Matalan and Officers Club
Superdry sells (overtly) branded fashion to the mass market, to people who like clothes, but who do not care about fashion with a capital F.
We could say that Superdry has taken over from FCUK, the last brand to capture public opinion in a sloganeering way
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The basics of fashion retailing
There are two core elements to fashion retailing:
1. Design - identifying gaps in the market (about one year in advance)
and designing clothes and accessories which will meet the future
needs of fashion customers. Design decisions are often made a year
in advance of actual retail sales and fashions might change in that
time. There is a careful balance between being responsive to changes
and to predicting/creating the next fashion trends
2. Sales generating sales volumes by establishing the best routes to market (wholesale, retail, internet) at the right price
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A brief history of SuperGroup PLC
1985 Cult Clothing was established by Julian Dunkerton in Cheltenham
1986 Cult Clothing stores expanded across the UK, mainly in university
towns such as Oxford, Birmingham and Edinburgh
2003 Dunkerton linked up with James Holder (creator of Bench brand) to
form Superdry
2004 First Superdry store opened in Covent Garden, London
2006 SurfCo and 77Breed brands were added to the SuperGroup portfolio
2010 SuperGroup floated on the London Stock Exchange with a share
price of 5.00. The share price reached 18.99 in February 2011
2011 acquisition of CNC Collections BVBA, which added 18 shops to the
SuperGroup empire in France and Benelux
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SuperGroup PLC Today
In the UK there are 76 standalone Superdry and Cult retail clothing stores, plus 71 concessions where the products are sold
Overseas there are 145 Superdry outlets (83 of which are franchised)
Superdry is sold in 101 countries across 4 continents (Europe, Asia, Australia, Americas)
A flagship London store has just been opened in Regent Street
In the last 12 months SuperGroup has issued four profits warnings, the share price has tumbled to around 4.50, (10% below the launch price
two years ago), and the store opening programme has been under
scrutiny
www.supergroup.co.uk
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SuperGroup Business Model
Retail Division
62% of Group revenue in 2011
with a retail margin of 26% (up 5% from 2010)
Product Design Global Sourcing
Distribution
Retail Business Sales Wholesale Business Sales
25 designers at
Cheltenham HQ
53 suppliers across Turkey,
China, India & Peru
Superdry & Cult
own brand shops
in UK and Ireland
Retail
concessions
E-Commerce /
internet Franchises /
Licencees
Independent
retailers (some
via agents)
CNC BVBA
Benelux
Wholesale Division
38% of Group revenue in 2011
with a profit margin of 24% (up 3% from 2010)
Customers
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SuperGroups Vision and Values
Vision
To continue to be one of the defining global brands of our generation
Values
Premium Quality Accessible Pricing
Pioneering Design Continuous Evolution
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SuperGroups objectives are to continue to grow very fast, at home, internationally and online
In the past 12 months alone, 20 new stores in the UK and 50 franchised overseas outlets have been opened
Objectives
UK Retail Roll Out
To expand the UK retail estate by up to 150 new standalone stores (at a rate of 20 per annum) which will maximise profit and match the brand demographic
To top up the UK concessions estate (although this has limited growth potential)
European Owned Retail Roll Out
To establish an estate of European owned retail outlets to complement those acquired with the CNC agreement in Benelux
International Franchises
To expand the international franchise empire by at least 50 stores per annum
Accelerate Internet/E-Commerce roll out
To increase the share of group revenue via internet sales from 8% to 20%
Weve got enormous growth ahead of us. Nationally weve got growth and internationally weve got exponential growth (Julian Dunkerton)
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Key Strategy Question:
What are SuperGroups Strengths, Weaknesses
and Issues in its four main
business activities?
Marketing
Human
Resources
Operations
Finance
SuperGroups ability to compete successfully with other fashion retailers and to deliver its vision and objectives will
be affected by the companys strengths and weaknesses
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MARKETING:
Product making everyday apparel into vintage classics
SuperGroup is a distinctive branded UK based fashion retailer offering a range of quality clothing and accessories. It offers premium mens and womens products in the UK and internationally, targeted at discerning customers who
want stylish clothing that is uniquely designed and well made. The product is
unisex, ubiquitous yet anonymous
sporty, yet not technical
designed, but not designer
The product range includes:
T-shirts & polo shirts
shirts & rugby shirts
jeans
joggers
sweaters
hoodies
jackets
footwear
accessories, bags, sunglasses, jewellery, backpacks/rucksacks
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MARKETING:
SuperGroups branding is unique in the fashion sector
SuperGroup has three main brands:
77Breed (for the skate market)
SurfCo California (for the surf market)
Superdry (targeted at young people/young at heart)
Superdrys branding
combines vintage American fabrics with pseudo Japanese text (but the company is based in the quintessentially English Regency town of Cheltenham!)
Kyokudo kanso shinasai: the literal Japanese translation is please dry it or yourself extremely
has a preppy appeal with elements of street-wear design
portrays bright colours and contemporary designs
Superdrys appeal is
sporty we like the idea of snowboarding, but do not actually go
faux vintage we want to look second hand, but we do not want to rifle through second hand clothes rails / charity shops
international we are global people, whether or not we travel the world
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MARKETING:
SuperGroups brands are a source of strength
The Superdry brand has gained in recognition and popularity in the UK and overseas and is at the heart of the business.
80% of sales come from the Superdry brand, which is therefore the cash cow of the business.
The company has developed multiple logos whereas most fashion competitors have just one logo.
Therefore if competitors become successful, more and more people will be wearing the same logo which is ultimately not what most customers really want therefore a self defeating strategy
With SuperGroup, 20 people could all be in a pub wearing the same brand, but all with different logos on them a better strategy
The Cult stores represent a good way of testing new brands and concepts (undercover) without jeopardising the Superdry brand
BUT
Some critics argue that the brand is becoming tired, too heavily logoed and in need of a re-vamp
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MARKETING:
Prices are kept relatively low...
Superdry seek to price their clothes as low as they can in order to make a sensible
profit.
This implies elements of a price penetration strategy with cost plus pricing
They sell high quality products at earnest, affordable prices
e.g. a similar preppy aesthetic to Abercrombie and Fitch and to Jack Wills, but Superdry
products retail for 10-15% cheaper
Dunkerton believes that competitors raise prices to see what they can get away with
which harms their brand loyalty
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MARKETING:
... Promotion is kept relatively low cost
Superdry has no advertisements or celebrity endorsements. It relies on
word of mouth and celebrity generated
publicity
A Brad leather jacket worn by David Beckham in 2007 sold 70,000 units over
the next three years, becoming a best
seller for the company
Superdry clothes are also worn by Zach Efron, Helena Christensen, Jude Law,
Pippa Middleton, Kristen Stewart, Justin
Bieber, Kate Winslett and Ben Stiller, all
of which provides free publicity and
promotion for the brand
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MARKETING:
Place SuperGroup operates a multi channel approach to market
SuperGroups main channel to market is its large (and growing) retail empire of 103 Superdry and Cult UK and European standalone stores. This includes the
flagship store in Londons Regent Street, a four storey shop (formerly Austin Reed)
In addition to its owned retail activities, SuperGroup has other physical channels
71 UK retail concessions, (such as Harrods, House of Fraser and Selfridges) and 50 International concessions
130 global franchised and licensed independent stores, including the flagship store in New Yorks Times Square
There is also a growing virtual presence in the market with two fully transactional websites boasting over 300,000 customers, plus three local
language sites in France Germany and Belgium
www.superdry.com
www.cult.co.uk
They use internet presence to create awareness in territories ahead of new store openings
In total, Superdry is sold in 101 countries across four continents
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MARKETING:
Place ... but there are strengths and weaknesses in this strategy...
65% of group revenue comes from outside the UK (especially Europe, USA and Australia) a figure which has shifted fast since the early days when the company used to be a UK centric organisation
Therefore SuperGroup has diversified its income risk and is no longer heavily dependent upon fluctuations in the UK economy
BUT
With the increase in internet business (which is targeted to continue), customers have been able to buy T-shirts, polo shirts, dresses etc on
eBay/internet channels at vastly discounted prices against the traditional
retail and concessions channels
Therefore causing considerable channel conflict, especially within the wholesale business and amongst independent retailers
Fewer concessions are taking Superdry stock because they are being squeezed by the rising number of Superdry high street stores
Does Superdry need a new brand or range specifically for independents?
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OPERATIONS and PRODUCTION:
Service delivery upgrades are being made, but the supply
chain is challenged to cope with rapid business growth
The recent appointment of Sean Park from Asda as Head of Procurement is helping to reduce costs
The UK distribution centre has been upgraded to add 77,000 sq feet (= 200,000 sq feet in total), thereby allowing the internet business to
deliver next day despatch to the UK market
A shortage of stock and sizes across UK stores during the implementation of an IT systems upgrade in its warehouse management
system at the Barnwood warehouse (Gloucestershire) cost 8.8M in lost
sales in 2011
New system did not interface correctly with retail systems and inhibited stock replenishment capability
Some stores were receiving sizes S and XL, but no M or L
Even so, it has increased capacity and they managed to ship 61,000 items in one day up 16,000 on the previous year
A move towards larger factories is in place, but the benefits of economies of scale are not yet evident
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OPERATIONS and PRODUCTION:
SuperGroup uses a global supply chain
Products are designed in-house and manufactured in a number of overseas factories known for their expertise in
particular product categories
Current sourcing volumes are as follows (% of total from each country)
Turkey 40%
China 30%
India 20%
Peru and other countries 10%
They are looking to increase the volume from India because of its manufacturing sophistication and quality
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OPERATIONS and PRODUCTION:
Improvements in the supply chain are showing benefits, but
it is challenging to put the infrastructure in place
Current strategies:
They are using better quality fabrics than two years ago (e.g. chinos)
The number of suppliers worldwide has been increased from 33 (in 2010) to 53 (in 2012) because a broader supplier base:
reduces risk and
helps to meet business growth expectations and
gives better costs deals dual sourcing increases price competition between suppliers and
Improves quality (e.g.Superweight Nordic style knitwear is now being made in four different factories rather than one. Diversification of production
across categories gives lots of different textures and hand feels)
But
More sources of production increases the pressure on SuperGroup to be able to monitor suppliers to comply with labour, employment and
other laws (in order to meet their CSR requirements and avoid adverse
publicity which has been rife in this industry in the past)
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HUMAN RESOURCES:
SuperGroup prides itself on its entrepreneurial spirit
The current corporate headcount is 1,899 people
The Board of Directors is made up of the Chairman, Peter Bamford, and four other non-executive directors. In addition, there are five executive directors:
Julian Dunkerton (Chief Executive Officer)
James Holder (Brand and Design Director)
Theo Karpathios (Wholesale and International Chief Executive)
Susanne Given (Chief Operating Officer)
Shaun Wills (Chief Financial Officer)
The design team has recently increased to 25 designers under James Holders inspirational leadership
Significant recent appointments have also been made in IT, Property, Finance, Merchandising and Logistics
The main HR challenge for the future is whether the organisation can become more sophisticated (more like a big company) without losing its entrepreneurial flair...
What weve found is that if you want growth and you bring in entrepreneurs who have developed those skills, you have a series of entrepreneur spirits
within the company. We have an entrepreneurial culture and I think we will
maintain that (Julian Dunkerton)
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FINANCE:
The historical income statements show a
business that has grown fast
Ms 2012
(preliminary)
2011 2010 2009
Turnover 314 238 139 76
Cost of Sales 135 105 66 40
Gross Profit 179 133 73 36
Overheads and
Other
138 86 50 28
Net Profit 51 47 23 8
2012
(preliminary)
2011 2010 2009
Gross Profit Margin 57% 56% 53% 47%
Net Profit Margin 16% 20% 17% 11%
Despite significant adverse press speculation and four profit warnings this year, the preliminary results for 2012 show that SuperGroup has
survived a difficult year relatively unscathed and with a substantial
increase (32%) in its top line revenue
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FINANCE:
Despite some problems in the last 12 months, the
business is financially sound
Despite issuing four profit warnings in 12 months, profitability has risen, albeit by less than SuperGroup would have liked
They have ridden out the storm created by an accounting error, based on a simple arithmetical mistake which cost the wholesale business about 2.5M
They have survived a misjudgement in forecasting demand for goods which was worth about 2m in adjustments to wholesale sales (lost
sales)
The share price is recovering from a low of 2.70 in June 2012
Business growth has been largely internally funded
There is a sound balance sheet with low gearing and a substantially positive cash position
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Balance Sheet Extract:
Liquidity ratios - Evidence H
M 2011 2010
Stock 52.3 21.1
Debtors 35.7 16.4
Cash 32.2 29.5
Total Current Assets 120.2 67.0
Borrowings 0 1.4
Creditors 42.7 22.6
Total Current Liabilities 42.7 24.0
Current ratio 2.8 2.8
Quick ratio (Acid test) 1.6 1.9
This extract shows a healthy set of figures from the balance sheet whereby SuperGroup has sufficient liquidity to meet its
short term financial commitments
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Summary of SuperGroups Strengths and Weaknesses
Strengths Weaknesses
Marketing Relatively low prices for their
market segment
Innovative designs
Strong brands
No advertising
Channel conflict with wholesalers and
independents
Operations Multiple international locations /
presence
IT and stock control issues
Ability to cope with rapid growth
requirements
Human
Resources
Entrepreneurial culture
Dunkerton and Holder
Ability to manage transition from small to large company (processes, organisation/structures, sophistication)
Finance Rapid profit growth over three years
Healthy short term liquidity position
Accounting errors
Depressed share price on the back of
four recent profits warnings
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There are several external
influences outside SuperGroups control which create
opportunities and threats
PEST (LE)
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Political (and Legal) Influences
SuperGroup is a target for large and small scale counterfeit operations
It needs to protect its intellectual property, designs and copyright (and ensure that it does not inadvertently infringe upon competitor designs/copyrights)
In January 2011 SuperGroup was pursuing about 100 legal actions for copyright infringement
e.g. vs Superfly, Silverdry over counterfeit goods
e.g. vs Primark over the Brad leather jacket worn by David Beckham
e.g. Vs Arcadia Group (Burtons) over a trench coat
Opportunities
Developing brands/designs that can be patented worldwide, thereby gaining monopoly advantages for the company, which enable them to justify the prices attached to the brand
Threats
SuperGroup currently spends up to 1M pa protecting its designs plus
There is the possibility of costly legal proceedings against copyright infringers which can happen at any time without warning
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Economic Influences:
Global Fashion Economics
Global Economic Effects on the Market
The top end of the market (haute couture) is relatively insulated from a global economic downturn because the super rich can still afford custom made designs
from Westwood, Armani etc.
During tough economic times, customers tend to switch from luxury branded products to cheaper brands/no brands and off price discounters to save money
Therefore it is tough to be positioned in the middle of the market spectrum during an economic downturn
Several High Street stores/retailers are suffering declining sales, lack of consumer interest and even some insolvencies
Opportunities
Expand into multiple countries to diversify economic risk (e.g. emerging markets)
Expand the product range to appeal to multiple segments
Strategic acquisition of competitors who are struggling
Threats
Being left with last seasons stock
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Economic Influences:
Global Currencies and Commodities
SuperGroup is an international business and is vulnerable to unfavourable changes in currency exchanges
It pays for and takes title to a large proportion of its goods
It receives substantial revenue in foreign currency
A key factor in SuperGroupss Cost of Sales is the price of cotton (a major component of clothing), which is determined on the global
commodity markets
The price of cotton has been rising, although it is expected to fall in the next few months
Opportunities
Take out forward exchange rate contracts to hedge risks
Take out forward contracts on the future price of cotton
Threats
Global markets do not perform as predicted
Cotton prices rise sharply
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Social Influences
The fashion market is notoriously fickle due to changing social trends
Popular can very quickly become un-cool
Fashion brands can very quickly become tired
Teenagers are a key group of customers, but
UK and European youth are struggling to find jobs and do not have very much disposable income
Students are faced with rising tuition fees and therefore less disposable income
There is heavy discounting from rival retailers
Opportunities
Move away from less a less heavily logoed look in the future as the young fashion market has begun to favour less overt brands
Reduce lead times from product design to product delivery
Threats
Not having enough stock available if some product categories really take off or
Being left with un-cool surplus stock
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Technological Influences
In the past few years, the fashion industry has been affected by new technologies which have increased efficiency and provided much needed data
analysis and tracking. Instead of relying on people to analyze, project and
improve, fashion brands now have the digital technologies to meet these needs
in a much faster way
Opportunities
Customers could invest in a designer or a brand by pre-ordering the items, therefore the company allows the designers to produce to order, instead of
pushing quantities that may not sell later. This minimizes the risk and allows
informed planning of the produced quantities.
The way we choose our clothes. 3D body scanners can allow people to try on clothes in virtual mirrors and on interactive screens, thereby enabling
consumers to personalise their clothes virtually and order them online.
Threats
Fashion being acquired from small, virtual stores with hyper efficient logistics/supply chains. This could change the rules of the game for traditional
fashion houses and those newer companies who are too slow to adapt
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Environmental Influences
From clothing manufacture to disposal and textile re-cycling, environmental influences are bound to be important in the future of the fashion market.
Opportunities
Improvements in manufacturing of the fabrics we wear for example
without the use of harmful chemicals/dyes and toxic sprays
using natural fibres with biodegradability
using new high-tech or nano-tech, low-impact fibres
programmable clothing
Better disposal strategies
such that when clothes are finished, they are disassembled, composted, re-cycled, re-manufactured or re-used according to design
New environmental products such as
dedicated second hand (internet) libraries/swap shops where consumers can swap clothes (like eBay/freecycle)
jackets/coats with solar panels which can power a mobile phone/iPad
Threats
Diminishing global supplies of cotton as the century progresses
Losing the battle to convince customers that the company is environmentally friendly and sustainable
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SWOT Analysis A Summary
Strengths Weaknesses
Threats Opportunities
Strong Brands
Innovative Designs
Three Year Profit Growth
Distribution Channel Conflict
Ability for infrastructure to keep
pace with top line sales growth
Emerging markets / international
Online/E-Commerce channels
3D applications & personalisation
Fashion trends changing very fast
Gloomy global economic outlook
Environmental sustainability
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Strategic Analysis:
Michael Porters 5 Forces Model: Fashion Industry
Rivalry of Industry Competitors
(Medium/High)
Intense competition between brands
Short product life cycles
Saturated markets in many parts of the world
But reasonably easy to exit the market
Threats of Substitution (Medium)
Growth of second hand markets (recycling) for fashion
Internet based clothing library with opportunities for swap shop with other people
Threat of New Entrants
(Medium/High)
Entry costs are quite low
But it is expensive to build a brand
Solar panels on jackets to power mobile phones?
Companies who can compete on environmental sustainability
Customer Power
(Medium)
Easy to switch brands
Not much negotiation on price
Customers can determine fashion
trends
Supplier Power (Low)
Numerous, diluted suppliers
Suppliers sell commodities
(cotton/textiles)
Easy for Retailers to switch suppliers
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Key Strategy Issue:
To what extent does Superdry
achieve Corporate Social
Responsibility?
(Evidence G)
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Corporate Social Responsibility (CSR) is a big
issue in the fashion industry...
The global fashion industry generates over a trillion dollars a year worldwide and has an impact on many lives. What we wear and the
ways in which clothes are made and sold can have hugely positive and
negative impacts on our society and environment
In the past, the fashion industry has been tainted by
Factories exploiting workers (wages, conditions, health and safety)
Generating throwaway fashion
Wasting resources
Encouraging unsustainable consumption
Companies such as Primark, Nike and Gap have been in the press for CSR concerns
As a clothing and footwear manufacturer, SuperGroup impacts upon the local and global environment and it will forever be in the spotlight, along
with its competitors
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SuperGroup has put a number of initiatives in
place to achieve good CSR including...
Use of newsletters, road shows and training programmes to communicate CSR practices to their workforce
Telling all suppliers about the ethical and environmental conditions under which SuperGroup products should be produced
Promoting fair and safe working conditions throughout the supply chain
Joining the Ethical Trading Initiative, a ground breaking alliance of companies, trade unions and voluntary organisations committed to
improving the lives of workers across the globe
Retrofitting technologies in stores to reduce energy consumption
Reducing carbon at their UK warehouse by 39%, thereby saving 47 tonnes of CO2 each year
Setting up systems at distribution centres to recycle 100% of all packaging waste from inbound stock
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Key Strategy Issue:
Evaluate the importance of the
new Superdry flagship store in
Regent Street, London
(Evidence I)
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Having a strong presence in London is an important
statement in the world of global fashion
London has 26,000 stores housing 138 of the worlds top 250 retail brands with retail sales of 6.2billion euro per annum
It is one of the worlds top five locations for retail sales along with Paris, New York, Tokyo and Milan
With an area of 59,000 sq feet, the new four storey flagship store in Londons prestigious Regent Street (the former Austin Reed store) gives Superdry a strong presence and provides an international showcase
The store is adjacent to many of its key rivals such as Hollister, Burberry, Abercrombie and Fitch, Zara, Mango and Uniqlo who all have
stores nearby, thereby making Superdry an integral part of the major
central London fashion set
It is arguable that this is a cost of doing business and that a global fashion brand cannot really expect to operate without such a presence
in London
Superdry also has a flagship store in New Yorks Times Square
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Key Strategy Issue:
Is Superdry over-reliant on
Dunkerton and Holder?
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SuperGroup has the challenge of operating as a
PLC without losing its entrepreneurial roots...
Since the foundation of SuperGroup up to the present day, Dunkerton and Holder have been the prime movers
and shakers in the business.
They are entrepreneurs who have done very well and who have run the company in what Charles Handy might
describe as a Power culture
Since floating on the stock market in 2010, the Directors have recognised the need for the organisation to
transition from a small company mentality to being a
much bigger PLC probably more like a Role culture as described by Handy, where the organisation has clear
structures, processes and hierarchies
To achieve this and to spread the load, Dunkerton and Holder have added several new senior people to the team
The big challenges for them and for SuperGroup are
whether its people can cope with the huge growth expectations and
how to enable the company to become more sophisticated without losing its entrepreneurial flair and roots
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Key Strategy Issue:
Has Superdry grown too fast and
can it meet its growth targets?
(Evidence A, B, D and E)
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Rapid growth brings its opportunities and challenges...
The brand has grown from very little ten years ago to a worldwide fashion brand in 2012 which receives regular (unpaid) celebrity endorsement
In the same time span, the company has evolved from an entrepreneurial operation to a PLC listed on the London Stock Exchange
There appear to be no signs that the company is pulling back from its growth path, therefore we could conclude that they think their growth is manageable
and sustainable
The strategic development model affords flexibility because it is a blend of organic and acquisition development, franchising and partnering with third parties
It is no bad thing to own a growing retail estate (property empire)
BUT
There is some evidence that they may have grown outside their comfort zone
Integrating people and systems has not been easy and they are yet to convince analysts that they have managed the transition from small entrepreneurial
organisation to big company that needs systems, processes and organisational
structure
The current stock market price would suggest that they may have over stretched themselves. There has been considerable share price volatility in the last two years shareholders tend to prefer steady share price growth
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Key Strategy Issue:
To what extent is Superdry likely
to achieve internet sales @ 20%
of Group revenue?
(Evidence C)
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It is unclear from the evidence when such a target is
expected to be achieved (SMART objectives?), but without
doubt the online sector is increasing
More and more people around the world are shopping online and
There has been a consequent decline in high street retail sales
although fashion stores have been one of the big survivers, along with banks, mobile phone shops, estate agents and fast food outlets
Buying clothes is not a complex purchase (by comparison with, for example, buying a car or a house) and therefore lends itself to online sales
SuperGroup already has two transactional websites which drive some sales
Assuming that they can develop web retail technology (in various country languages), there is substantial scope for them to increase the proportion of
sales via E-channels, for example
use of 3D body scanners can allow people to try on clothes in virtual mirrors and on interactive screens, thereby enabling consumers to personalise their clothes virtually
and order them online
Allowing customers to pre-order items
The success of online developments and the pace at which this channel will progress will depend upon SuperGroups ability to fulfil orders rapidly and accurately through their supply chain management systems
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Key Strategy Issue:
Analyse the options for category
development in the Superdry
range.
(Evidence F)
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Superdry has developed its range from 6 T shirt graphics
in 2003 to 400+ T shirt graphics today, plus a suite of
fashion accessories...
Superdry has followed a classic product development strategy
launching simple, uncomplicated, single line products at the start
evolving to product line extensions, line filling and line stretching over a period of time
The brand is now well established in the high street and within the fashion world. Assuming that they can
develop a wider sourcing strategy and develop the
supply chain network, there are several category
options open to them, including a range of:
premium fragrances, optics and beauty products
underwear, undergarments and sleepwear
headwear
umbrellas
watches
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Health warning for SuperGroup
There is a limited amount
of evidence in the case
study so it is difficult to
develop a water-tight
corporate strategy. But is
it possible to evaluate
some of the options
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Strategic Options for
SuperGroup
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The work of Michael Porter: SuperGroups strategy needs to reflect its competitive advantage
Resource advantage firm specific assets that the competition cannot easily acquire such as patents, trade marks, proprietary knowledge, installed customer base, reputation, brand identity
Capability advantage skills and competencies, innovation, creativity and quality of processes
Cost advantage productivity of labour/assets and buying power for raw materials
Differentiation advantage ability to add value by offering (unique) product benefits
SuperGroup has some patents
and branding advantage
SuperGroup enjoys the
benefits of excellent design and
creativity, led by James Holder
SuperGroup has no discernible
advantage in this area
SuperGroup has no discernible
advantage in this area
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Porter identified three generic strategies against
which SuperGroup can be evaluated
Generic
Strategy
What does it mean? What is required?
Cost
Leadership
Unit costs are lower than competitors
because of economies of scale, good
production processes and efficient
resource allocation
Up front investment in
gaining market share
followed by running a very
tight ship
Differentiation Winning profitable segments of the
market. Unit costs may be higher, market
share is less important, but customers are
prepared to pay a premium for quality and
individualised products
Finding perceived product
characteristics and
uniqueness that add value
Focus Avoidance of confrontation with
competitors (cost leaders and
differentiators) by developing niche
positions with products for otherwise
unsatisfied customers
Finding markets that large
companies cannot easily
replicate (e.g. super fast
delivery, personal service,
hard-to-imitate products)
Yes
No
Maybe
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Low Cost Differentiated
(product uniqueness)
Competitive Advantage
Competitive
Scope
Broad
(market-wide)
Narrow
(market segment)
Cost leadership
strategy
Focus strategy
(low cost)
Differentiation
strategy
Focus strategy
(differentiation)
Applying Porters Strategy Matrix to SuperGroup indicates that a Focus strategy is appropriate
SuperGroup
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Recent Strategy Initiatives at SuperGroup
Good leaders reflect on their strengths and weaknesses, assimilate the opportunities and threats and respond with a strategy that not only
protects their position, but also carves out new spaces.
Recent strategic initiatives by SuperGroup include:
Organic growth through
rolling out new product ranges
opening new retail stores and concessions outlets
opening flagship stores
licensing new franchise operations overseas
making operational improvements
Corporate integration growth through
the acquisition of CNC BVBA Benelux, an example of horizontal integration
Any future strategic choices need to be assessed within the context of SuperGroups ongoing plans
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Assessing the Strategic Options available to
SuperGroup
Generic strategies - businesses have three strategic options:
1. Retrenchment: this is not applicable to SuperGroup because they are in a growth phase of their development
2. Stability: this may have applied to SuperGroup temporarily for the last six months during their blip, but it is not their current strategy
3. Expansion: this is SuperGroups approach a programme of rapid, global growth
Strategic tools
There are several tools available to identify strategic options for growth These centre on the approach the business might take to its products and
markets and whether any growth should be organic or by acquisition
Evaluation
The evaluation of strategic options should take into account SuperGroups Aims and objectives Physical, human and financial resources Management structure and skills Culture Key stakeholders and shareholders, their views and interests
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The Ansoff Matrix can be used to help make
decisions about products and markets
Decisions about what products to sell, and in which markets, provide an important guide to the direction of growth
Ansoff drew up a growth vector matrix that described how a combination of business activities in existing and new markets, together with existing
and new products, can lead to growth
The four strategies arising from the matrix are:
Market penetration increasing market share
Market development where a business seeks new markets (either new geographies or new customer segments) for its products and abilities
Product development the launch of new products to existing markets
Diversification when a business decides to offer new products in new markets
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Ansoff Matrix:
Products and Markets
Existing Products New Products
Exis
tin
g M
ark
ets
N
ew
Mark
ets
Market
Penetration
Product
Development
Market
Development Diversification
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There are two choices to be made about how a
business should invest in a growth strategy
Organic Growth
Growth by using the existing, internal
resources of the business
Advantages
Disadvantages
Makes best use of existing resources
Consistent with the culture and management style of the business
May lead to economies of scale
Easier to control = less risk
Often slow particularly if existing markets are low growth
Doesnt create barriers to entry
Spare resources (e.g. cash) may be wasted
Can create a cautious approach
Acquisitions
Growth by buying other businesses or
assets
Advantages
Disadvantages
Can overcome barriers to entry
Helps spread the risk (not all eggs in the same basket)
Provides quick access to key business resources (e.g. brands)
Easier to control = less risk
Cost price usually too high
Different cultures may clash
Customers may be upset
High failure rate (70% of acquisitions fail to achieve their
objective)
e.g. Open more SuperGroup retail stores e.g. buy another clothing retailer
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Ansoffs Matrix can be applied to SuperGroup, giving the business a number of different strategic options
Existing Products New Products
Exis
tin
g M
ark
ets
N
ew
Mark
ets
Market
Penetration
Product
Development
Market
Development Diversification
Expand organically by opening
more retail outlets and franchises
Expand overseas (Asia, Middle
East, Brazil, South Africa)
Develop new fashion categories,
technologies and environmental
products
Develop mobile phone, tablet and
technology retail business
Expand by acquisition of a
competitor
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Which ever option is selected, decisions need to be taken
about whether or not the growth markets are related
Option
Horizontal
Integration
(Related Markets)
Description
Grow activities that are competitive with and
complementary to existing activities
Vertical
Integration
(Related Markets)
Business becomes its own supplier (backward integration)
or distributor (forward integration)
Advantages: Secure supply; take more profit from the
value chain; create barriers to entry
Disadvantages: More exposed to the same market; does
not necessarily offer economies of scale
Diversification
(Unrelated
Markets)
Spread risk by operating in markets that are not directly
competitive or complimentary
Advantages: May obtain synergies (e.g. using same
distribution channel)
Disadvantages: Limited experience in separate markets
increases risk of things going wrong; cultural differences
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Strategic Option:
SuperGroup could expand
organically by opening more
retail outlets and franchise
stores
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A Market Penetration Strategy:
Organic Growth?
This option is about increasing market share in its core markets
SuperGroup would focus on:
Opening up the potential for an additional 130-150 retail outlets in high quality locations in the
UK
Further unlocking the potential of the recent CNC BVBA acquisition in continental Europe, starting
in France and Germany and then rolling into
southern and eastern Europe
Further development of the multi channel approach to target customers
Progressing the franchise opportunity across its core markets with a further 50+ franchise outlets
overseas
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Strategic Option:
SuperGroup could expand by
the acquisition of a fashion
retail competitor
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A Market Penetration Strategy:
Growth by Acquisition?
This option is about generating immediate and significant growth in market share by acquiring a fashion retailer by way of horizontal integration, similar to the CNC BVBA acquisition in Benelux
SuperGroup would need to
Conduct appropriate market research to identify a suitable target company and market
Raise the necessary funding in conjunction with shareholders and/or the banks
Prepare a plan for corporate integration and the generation of synergies
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Strategic Option:
SuperGroup could develop
new fashion categories,
technologies and
environmental products
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A Product Development Strategy:
Product category development, technologies
and the environment?
This option is about developing upon the current range of products that have been developed in response to changing fashion trends
SuperGroup would need to
Develop a wider sourcing strategy and develop its supply chain network
Undertake market research, visits to trade fairs and product research
Introduce new products with iconic Superdry characteristics e.g. Category development
range of premium fragrances, optics and beauty products
ranges of watches, umbrellas, headwear, underwear
Technologies
3D body scanners to allow customers to try on clothes in virtual mirrors and on interactive screens, thereby enabling consumers to personalise their clothes virtually and order them online
pre-ordering items before they are fully designed
Environmental
range of sustainable clothes made from new high-tech, low-impact fibres, nano-tech fabrics and biodegradable clothing
swap shop product (online and in store)
solar panelled jackets/coats etc. for powering mobile phones
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Strategic Option:
SuperGroup could expand
into new markets (Asia,
Middle East, Brazil, South
Africa)
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A Market Development Strategy:
Further develop the emerging markets
This option involves replicating and extending the successful SuperGroup business model and Superdry brand into emerging markets
including Russia, China, India, Singapore, Brazil and the Middle East,
which are all seen as growth markets for Western fashion brands which
are often viewed as a status symbol in these territories
SuperGroup would need to:
Conduct market research to understand the specific future requirements of these emerging markets
Develop relationships, joint ventures and franchise agreements with local manufacturers, distributors and retailers in the selected countries
Develop a marketing strategy for these markets (ethnocentric or polycentric?)
Accelerating internet growth through developing multi country, local language websites and improving delivery performance
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Strategic Option:
SuperGroup could diversify
into a mobile phone, tablet
and technology retail
business
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A Diversification Strategy:
A mobile phone business?
This option involves diversifying to target customers who know SuperGroup as a High Street retailer and who trust the brand sufficiently
to want to buy associated products in a retail environment
SuperGroup would need to
Research mobile phone and technology markets
Put together deals with leading manufacturers (e.g. Nokia) and service providers (e.g. O2)
Deploy their retail skills to sell phones and other technology products
This option could be combined with the idea of developing clothing which contains solar panels for powering small scale technology items
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Evaluating the Options Decision Methods
Cost / benefit analysis
Quantifying costs and benefits in monetary terms
But it is hard to quantify intangibles such as the impact of strategy on culture
Ranking and scoring
Rank strategic options by scoring them against criteria (e.g. return on investment)
Investment appraisal
How to address the problem of risk
All strategies involve uncertainty
Return on investment: several methods
Need to include sensitivity analysis (e.g. what are the potential effects if things go badly wrong?)
It is important to remember that SuperGroup has a strong, ten year
track record. The brand has flourished in a highly competitive market,
it is seen by several as the darling of the UK fashion industry, and it
has a history of making things work
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Evaluating SuperGroups Strategic Options: The key tests
The options can be assessed against three key criteria:
Suitability: - does the chosen strategy:
Build on strengths and/or solve weaknesses?
Exploit opportunities and/or respond to potential threats?
Satisfy the goals and objectives of the business?
Fit the culture of the business?
Acceptability:
Depends on the views of the key stakeholders
What level of risk does the business want to take?
Feasibility:
What resources are available to support the strategy? (e.g. finance, experience; management resources)
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Strategic Option:
Organic Growth
Suitability
Acceptability
Feasibility
Fits well with existing strategy and objective of store roll outs
SuperGroup has considerable experience of this approach
Good fit with the corporate growth objectives
Enables SuperGroup to protect and develop its USP
Low risk because this is core business more of the same
Could be considered as an essential strategy
Probably the most favourable of the five options
Probably possible to finance this option using internal finance (as they have done up to now)
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Strategic Option:
Growth by Acquisition
Suitability
Acceptability
Feasibility
Fits with previous experience of growth by acquisition (e.g. CNC Benelux)
Logical to expand through horizontal integration in this market
Would require an integration strategy
Would require significant capital to purchase the competitor
Could work in South East Asia or another emerging market
Shareholders should be supportive if the right opportunity arises
Medium to high risk because acquisitions and the anticipated synergies are hard to deliver and we do not yet know how well the CNC acquisition has gone
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Strategic Option:
Category development, technology and
environmental products
Suitability
Acceptability
Feasibility
Supports the corporate growth objective
Builds upon SuperGroups current strengths at extending their product lines
Would need to be certain that competitors did not have something better, but it may well become essential in this market in the future to adopt this strategy in
order to survive
Medium risk because this is new territory for SuperGroup
SuperGroup can move into this product space
Some more work required to set up the distribution and delivery networks and to integrate it within their core global business
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Strategic Option:
South East Asian/Emerging markets
Suitability
Acceptability
Feasibility
There may be gaps in the market in new territories, especially for Western products
The strategy is a good fit with their growth objective
SuperGroup is very experienced at going into new markets
Low/Medium risk with the prospect of good returns for early success
Financial investment is probably available for a phased expansion into new territories
Requires significant up front work building joint ventures and local partnerships /franchises abroad
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Strategic Option:
Mobile Phone Business
Suitability
Acceptability
Feasibility
SuperGroup has no experience of working outside the fashion sector
Could become a reasonable fit with their retailing skills, but the link is a bit tenuous
Could be acceptable for directors in the longer term, but might mean taking their eye off the ball in the core fashion market
Medium/high risk, unknown returns this is a 10-20 year play
Need for staff training and customer enlightenment
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Here are some things that you could do before the
examinations in January and June 2013
Primary Research
If your school is within travelling distance of a Superdry store, go and visit and have a look at their clothes and accessories, their store layout, their point of sale material and their branding
If possible, talk to one or two of the Superdry staff and ask them what it is like to work for SuperGroup. Try to gather some good points and some less good points and understand their views about the future of fashion and Superdrys place within the industry
If you know anyone who has bought some Superdry merchandise, interview them about their goods and about the customer experience
Why they bought Superdry rather than another brand?
Sales and service experience?
Are they a loyal customer?
Secondary Research
Keep up to date with market developments on a weekly basis by using your search engine to trawl the web for
information and announcements about SuperGroup (the case study is written a long time in advance of your examination, so you can expect updated accounts, sales figures and developments at SuperGroup between now and June 2013)
articles and views about developments in the fashion industry across the world
Web 2.0 information (blogs, twitter, internet discussion forums, customer feedback sites etc.)
rises and falls in the SuperGroup share price on the London Stock Exchange
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Concluding thought
Above all, remember that the most important thing you can take
anywhere is not a Gucci bag or
French-cut jeans; its an open mind
Gail Rubin Bereny