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.
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 -
· 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
· 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.
· 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
· 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
· 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.
· 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.
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.
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
· 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.
· 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.
· 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.
· 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
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.
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,
· 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.
· 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-
· 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.
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.
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.
· 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:
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.
It consists of primary and secondary activities.
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.
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.
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.
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.
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.
The company needs to bring structural changes in its infrastructure to reduce overall cost of the company and gain competitive advantage in the market.
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.
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.
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.