Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
6
Burberry PLC
In this report I will explain and analyse the effects of the internal and external business environment on Burberry. Introduction to Burberry Burberry Group PLC is a British luxury fashion house headquarter is London. It was founded in 1856 in Basingstoke, UK by Thomas Burberry. Thomas Burberry, at just 21 years old founded on the principle that that clothing should be designed
to protect people from the british weather. The company mainly focus on outdoor attire at the onset before moving on to the high fashion market. Burberry has more than 500 stores spread out over 50 different countries. They fall into the fashion industry and their products are aimed at wealthy upper class individuals with some of their goods retailing at almost £5,000.
External environment – Political
One political factor that can have a large effect on a large company like Burberry is the government. As a global luxury retailer and manufacturer operating in over 400 retail locations worldwide, they take their corporate, social and environmental responsibilities very seriously. Burberry operate throughout the world and the countries that they operate in require the organisation to abide by their domestic rules. This means that Burberry have ensure that they follow and respect the legislations in the countries that they supply their goods in. For example; some countries impose high tax rates on foreigners so they can promote domestic production, the higher the tax rate the more the operating cost increases. In september 2010, Burberry bought its first chinese franchise partner for £70 million deal. Burberry have 57 stores in 30 different cities across China. Due to Burberry having such a large control over their presence in China the difference in VAT rates has a large impact. The standard VAT rate in China is 16% whereas in the UK it is 20% but is 0% for childrens clothes as they are deemed as a necessity. The lower the VAT the better as itt means Burberrys profit amounts to more.
Burberry is one of the UK’s highest-profile exporters and claims that a non-deal Brexit could lead to ‘tens of millions of pounds a year in extra costs’ for its business. The tariff costs of trading would hit the company’s earnings before interest and tax. Brexit will also disrupt Burberry’s design process and its UK manufacturing in Yorkshire. Due to them importing and exporting significant amounts of raw materials, samples and finished goods between the UK and EU there would be large amounts of logistical delays. This would not only impact their design process but product development and customer fulfilment. The increase in costs of exportation and importation will increase excessively and with Burberry only having a 1% rise in comparable store sales they are not making the profit to deal with the potential increase. In order for Burberry to continue trading with countries in the EU they would need to conform a new trade deal which will be very consuming.
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
[source: https://en.wikipedia.org/wiki/List_of_countries_by_tax_rateshttps://daxueconsulting.com/china-market-research-on-burberry/https://www.ft.com/content/073cc80a-1edb-11e9-b126-46fc3ad87c65 ]
– EconomicOne economic factor that affects Burberry is a cut in prices. On July 14 2018 Burberry lowered their retail prices in mainland China. From July 1 2018, the Ministry of Finance lowered import duties for an average of 21 percent of a collection of customer goods. The aim of this was to drive more luxury consumption at home rather than abroad. On July 11 2018, Burberry reported a three-percent growth in retail sales to £479 million in the first quarter of FY 2018, citing strong demand from the American and Chinese markets. However, the ongoing pound’s rally against the Chinese yuan casts a shadow on Burberry’s ability to further profit from affluent traveling Chinese consumers. The exchange rate currently stands at 1 Pound sterling equals to 8.75 Yuan. The ‘Heritage Trench’ in China is ¥16,900.00 which converts to £1937.52 whereas in the UK the ‘Heritage Trench’ only costs £1450.00. Luxury fashion house said that higher exchange rates for pound and euro are deterring Chinese tourists. Chinese consumers account for 40% of Burberry’s sales and have the tendency to travel and shop in countries that offer the most favourable exchange rates.
Linking to the previous point, another economic factor that affects Burberry is stronger currencies.In July 2018 Burberry told press that they blame their fall in sales in the UK and Europe on stronger currencies. In 2018, the luxury fashion house posted revenues of £479 million in the 13 weeks to June 30th compared with £478 million the year before. As well as this, same-store sales only rose by 3% where as the previous year they had risen by 4% the reason for this ‘low single-digit percentage rate’ is because of weaker tourism demand in the UK and Europe. Over the years, sterling has strengthened making the UK a less desirable place to shop.
Another economic factor is the rising GDP. The UK’s gross domestic product was estimated to have increased by 0.5% in the first quarter of 2019. In 2018 the fashion industry contributed £32.3 billion to the UK GDP which is a 5.4% increase from the previous year. If the GDP per capita increases then Burberry goods will become more affordable therefore there target market will increase. This is useful for Burberry considering there profits have fallen in recent years, if the GDP keeps increasing they have more of a chance of becoming a competitor again.
[source: https://www.theguardian.com/business/2018/jul/11/burberry-blames-falling-uk-sales-on-stronger-pound https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/januarytomarch2019 ]
– Social One social factor is that as the market changes, Burberry's target audience and market positioning will also. Burberry have a variety of segments in the general population with a single theme standing out – functional luxury. Burberry uses social media platforms such as Twitter, Facebook and Instagram to engage with customers and to collect information on customer experience with Burberry products. Burberry's target audience is designed for both sexeshwoever it is dominated by females whom have a high disposable income. Their
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
childwear is also very popular but still appeals to parents who are likely to be from a wealthy background. In 2016, Burberry declared that they would aim their newer products at millennials, instead of the usual, older trench coat wearer that hd accounted for a large part of their sales. Millennials are the main influencers in the fashion market today, they have an increasing level of disposable income and are seen to be increasingly brand loyal.
Over recent years, there has been a growth in the affordable luxury and value sectors. This may due to the increasing customer uncertainty, luxury goods can be deemed as an emotional buy and if the market is fearful or unsure it will reduce spending on the more expensive luxury items. Therefore, affordable luxury has had a large rise whilst other luxury segments have fallen. Target customers of Burberry have different cultures and lifestyles as affirms. For example, consumer dress codes vary. Different communities will prefer different products. Some people prefer reserved dressing, and others prefer skimpy clothes, and therefore Burberry has to put this into consideration when distributing goods. When first established, Burberry was only worn and purchased by the upper class or at least those with a wealthy income. However as time progressed and average wages rose Burberry lost the luxury aspect and went through a period of time being deemed as a statement brand for the more common people. Though their status changed this increased sales and Burberry have no adopted the title of affordable luxury. Burberry's target audience is designed for both sexes however it is dominated by females who have a high disposable income. Their childwear is also very popular but still appeals to parents who are likely to be from a wealthy background.
[source: https://burberry2017.wordpress.com/blog/ ]
– Technological
One technological factor that has benefited Burberry is the development and improvement in the information technology front. The company has be become a lot more effective in terms of its publishing and its selling, this is due to crucial changes to latest technological tendencies in advertisement. In 2017, Burberry used technology to drive its digital strategy (aims and objectives). Burberry uses the latest form of technology in advertising to reach out to its targeted end users. For example, Burberry live streaming allowed many consumers to purchase products online and get them delivered. Online shopping creates efficiency since every consumer in any part of the world can access products online without travelling. Additionally, Burberry's fast delivery is considered by some customers luxurious, which gives the organisation a competitive advantage.
Another technological factor that has impacted Burberry is the increase in popularity of social media. Burberry started using snapchat to deliver exclusive content – their main products promoted via snapchat is its fragrances and collections. The brand provides users with a snapcode that they can use to unlock exclusive content. This content includes Mr. Burberry fragrance and behind the scenes events of its campaigns. In 2015/16 Burberry decided to debut their spring/summer collection, a day before its release. By doing this, Christopher Bailey has expanded his target market and increased sales by 6% just from advertising on snapchat.
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
[source: https://jamilareddy.com/evaluation-of-business-and-strategy-analysis-burberry-group-marketing-essay/2924/ https://www.referralcandy.com/blog/burberry-marketing-strategy/ ]
– Legal
In order to retain its success, Burberry must abide by legal laws of the countries within which it operates. The main legal regulations that influence activities of Burberry are labour laws and employment laws. Burberry must also patent its products to maintain the exclusive rights to produce and sell Burberry products. Patenting rights does not solve the problem of imitations but minimises their volumes.
Labour laws is the law relating to the rights and responsibilities of workers. The basic subject matter of labour law can be considered under nine broad heads: employment; individual employment relationships; wages and remuneration; conditions of work; health, safety, and welfare; social security; trade unions and industrial relations; the administration of labour law; and special provisions for particular occupational or other groups. In other words, the labour law is commonly known as the employment law – this regulates the the relationship between employers and employees.It governs what employers can expect from employees, what employers can ask employees to do and employees’ rights at work.
This law dictates, to a certain extent, how Burberry treat their employees. The employment law regulates generic things such as; data protection, holiday entitlement and pay, working time, health and safety and maternity and parental rights. These elements mean that Burberry have set rules of each of these categories. For example; in the UK the minimum statutory requirement for paid holiday each year from a full time employee is 28 days, 5.6 weeks. Therefore Burberry must offer this to all of there full time employees, though this may be a hindrance as it means there can be at least one employee not in work a week they must comply as it is a legal matter. It also means that Burberry must conform with the regulations of sex, age, disability, race/religion and sexual orientation discrimination, equal pay, bullying/harassment and redundancy. This affects Burberry when recruiting new employees as it means that they have to accept everyone no matter what they’re like relating to the listed factors.
[source: https://www.britannica.com/topic/labour-law#ref21752 https://www.cipd.co.uk/knowledge/fundamentals/emp-law ]
– Ethical and Environmental
One ethical prospect that has impacted Burberry is its burning of goods scandal. In 2018, Burberry was discovered to be burning their unsold goods to prevent them from being stolen or sold cheaply. Throughout of 2017, Burberry destroyed £28.6m of clothing and cosmetics as part of efforts to protect its upmarket brand and guard against counterfeiting. They incinerated the equivalent of 81,000 of its signature plaid scarves, according to its latest annual accounts, in a practice said to be rife among fashion houses. Many of Burberrys customers disagree with the burning of the products as they believe that it can only be justified if the products were going to waste. A lot of people believed that this was not the
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
case, rather that the products were surplus which makes them perfectly useable. This lead to Burberry getting a lot of bad press and being deemed as a wasteful company. Being a clothing line of their hierarchy, customers did not expect this.
The managed to destroy £28.6m of unsold clothes, accessories and perfume in 2017 to protect its brand. It takes the total value of goods it has destroyed over the past five years to more than £90m. The reason fashion firms including Burberry destroy unwanted items is to prevent them being stolen or sold cheaply. Burberry say that the energy generated from burning its products was captured, making it environmentally friendly. In their own words Burberry “has careful processes in place to minimise the amount of excess stock we produce. On the occasions when disposal of products is necessary, we do so in a responsible manner and we continue to seek ways to reduce and revalue our waste," (a spokesperson for the company said).
[source: https://businessteacher.org.uk/pestel/burberry.php http://fernfortuniversity.com/term-papers/pestel/nyse4/6609-burberry-group-plc.php https://www.bbc.co.uk/news/business-44885983 https://www.independent.co.uk/news/business/news/burberry-burns-stock-designer-clothing-fashion-industry-environment-a8454671.html ]
How the external environment impacts Burberry
The most important short term factor from the PESTLE analysis that affects Burberry would be the ethical factor about the burning and destruction of their products. This is because as it stands one of the biggest issues that the world faces is climate change, therefore Burberrys act of burning and destroying goods has given them a bad brand reputation a lot of consumers are becoming more drawn to brands that are sustainable with both their production and disposal. Burning clothes release carbon dioxide and other harmful greenhouse gases. It is actions like this exacerbates global warming and thus climate change. Furthermore, burning clothes that are made from synthetic fibres may release plastic microfibers into the air. Therefore, I believe this is the most important factor due to the fact that Burberry will continue receiving bad press unless they change their actions purely because of how much climate change issues are in the media.Consequently, if they were to carry on receiving bad press their profits and share prices are likely to drop exceedingly more than they already have. Despite this, this factor is all dependent on the views and emotions of their existing customers as well as potential new ones – if the customers are not too bothered and would rather the brand name over the sustainability of the products supplied than this factor is not likely to impact Burberry massively. On the other hand the most important long term factor that will affect Burberry is one that is in the political sector – Brexit. Though Brexit hasn't happened yet it is inevitable that sometime in the near future this will be an issue that Burberry faces. Reason being is that importation prices will increase, oil prices will increase thus increasing transportation costs. These increasing prices means Burberrys liabilities will be increasing and with their profits decreasing this is not a good thing.
[source: https://www.bbcearth.com/blog/?article=will-fashion-firms-stop-burning-clothes]
Internal Environment – Corporate Culture
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
As a company Burberry describe their culture as ‘steeped in innovation, craftsmanship and a distinctly British style’. They claim that they make Burberry by ‘focusing on what matters most’. When talking about their culture Burberry state that there are four things that really matter to them. These are; putting their customers first, being bold and open to new ideas, working as one team and being accountable and responsible for all they do.
In order to put their customers first they work together to ‘delight and excite’ their customers with products, communications and experiences. There aim to be bold and open to new ideas is attained by having the courage to find new possibilities and solutions, creating opportunity and ‘magic’. Burberry describe this aspect of their culture as ‘open and transparent’. Burberry are also collaborative for the benefit of their customers. They aim to build great relationships, trust and appreciation towards others. Burberry ‘grow together and are committed to everyone's success’. To finalise how Burberry view their culture, the state that they are ‘focused on performance and determined to deliver [their] best. [They are] agile, deliver on [their] promises and celebrate [their] progress.
After analysing external sources I have found out that the culture comes across as very unorganised and it is hard for employers to progress in the business and gain promotions. On the other hand, employers also describe the corporate culture as rewarding and a great brand to work for. Alot of employer review say that it is a ‘great brand to work for to receive discounts’ and due to it being a leading fashion brand employers ‘learn luxury CRM sales’. Burberry seem to lack staff empathy therefore making it hard to progress in the business. A large majority of previous employees claim that there is ‘no career progression’ and that there is ‘a lot of hierarchy between departments’. This highlights that Burberry does not encourage their staff morale using promotion and employers clearly view this a major let down to the company's culture.
In 2017, Christopher Bailey announced that he would be standing down from being president and chief creative officer of Burberry as of March 2018. Christopher Bailey joined the company in 2001 and is responsible for transforming the fortunes of the once indisposed company, which turned a profit of £462 million in 2017. Bailey was awarded an MBE for his services to fashion in 2009 and made history being the first ever openly gay chief executive of a FTSE 100 company when he was made CEO in 2014. His role as CEO was latter taken over by Marco Gobetti who said in an interview with vogue; "Burberry has undergone an incredible transformation since 2001 and Christopher has been instrumental to the company’s success in that period. While I am sad not to have the opportunity to partner with him for longer, the legacy he leaves and the exceptional talent we have at Burberry give me enormous confidence in our future. We have a clear vision for the next chapter to accelerate the growth and success of the Burberry brand and I am excited about the opportunity ahead for our teams, our partners and our shareholders." With Burberry losing Christopher Bailey they have lost a lot of internal talent however it could be viewed as an opportunity for the company. The departure of Bailey means a new CCO has the opportunity to refresh the brand and move Burberry into a new direction.
Furthermore, in February 2015 Burberry had a lot of news stories written about there unfair wages. There was a scandal that exclaims Burberry was failing to pay cleaning staff the correct living wage. Burberry dismissed the low pay protests and stated that they planned to
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
implement the higher rate by April 2015. Despite this blip in the media, they were later accredited as living wage employers. The Daily Mail's article says that “leading companies are recognising that the living wage is good for business and increasingly what customers expect”.
[source: https://burberrycareers.com/content/Our-Culture/?locale=en_GB https://www.glassdoor.co.uk/Job/london-digital-designer-jobs-SRCH_IL.0,6_IC2671300_KO7,23 htm?rdserp=true&jl=3126643594&jaguid=&src=GD_JOB_AD&srs=EI_JOBS&s=21&ao=215489 https://www.glassdoor.co.uk/Job/london-communications-coordinator-jobs-SRCH_IL.0,6_IC2671300_KO7,33.htm?rdserp=true&jl=3094394036&jaguid=&src=GD_JOB_AD&srs=EI_JOBS&s=21&ao=215489 https://www.drapersonline.com/news/burberry-dismisses-low-pay-protest/5071852.article https://www.dailymail.co.uk/wires/pa/article-3055864/Burberry-GSK-pay-Living-Wage.html https://www.vogue.co.uk/article/christopher-bailey-to-leave-burberry https://www.gq-magazine.co.uk/article/christopher-bailey-a-life-at-burberry ]
Corporate social responsibilityIn 2008, Burberry Group plc set up The Burberry Foundation. The charity was founded for general charitable purposes and grant-making. The foundation board consists of two Burberry representatives and one independent trustee. The board meets four times a year and is responsible for upholding the foundation’s vision and ensuring delivery of its charitable purpose. The foundation is dedicated to using ‘the power of creativity’ to drive positive change into the community and build a more sustainable future through innovation. The main factors that The Burberry Foundation are try to tackle is; educational inequality, reducing waste and supporting social and economic development.
Burberry believe the success of their business in the long term will depend on the social and environmental sustainability of their operations, their resilience to supply change and their capabilities to adapt and manage any climate change impacts. They have set themselves two goals for 2022; one is to become carbon neutral and the other is to revalue waste. They have separated their goals into three different sectors; product, company and communities.
In terms of their product aspirations Burberry wants to;
– Progress to having 36% of their products with more than one positive attribute. Therefore their goal is “to have 100% of product with more than one positive attribute by 2022, where positive attributes relate to social and/or environmental improvements achieved at either raw material sourcing or product manufacturing stage.”
– Progress to 68% of cotton procured through the Better Cotton Initiative (BCI) meaning their goal is “to source 100% of cotton through the BCI, a not-for profit organisation focused on making global cotton production better for the people who produce it, better for the environment it grows in and better for the sector’s future.”
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
– Progress to 49% of their leather being sourced from tanneries with environmental, traceability and social certifications. In order to so this their goal is “to source 100% of leather from certified tanneries by 2022. The significant increase from 1% in FY 2017/18 was achieved by working closely with key tanneries in Italy to improve particularly the traceability of leather.”
In terms of their company aspirations Burberry wants to;
– Progress to a 43% reduction in market-based emissions since base year FY 2016/17. In order to achieve this their goal is to achieve a zero-carbon footprint in our own operational energy use by reducing absolute emissions, improving energy efficiency and switching to renewable energy sources, before offsetting any remaining emissions.
– Progress to 68% of electricity procured from renewable sources. To do so Burberry have set the goal of as part of their RE100 membership, Burberry have committed to 100% renewable electricity by 2022 and are driving this through close collaboration with their procurement and retail teams and engagement with landlords.
– The have ended the practice of destroying unsaleable finished products and their goal is to reduce and revalue waste. They are already reusing, repairing, donating or recycling unsaleable products and they will continue to expand these efforts.
In terms of their community aspirations Burberry wants to;
– They have progressed to 125,000 people being positively impacted in their communities since base year FY 2016/17. The goal is that they are aiming to positively impact 1 million people by 2022. Progress during FY 2018/19 includes:
• 65,000 students and teachers engaged in Yorkshire, UK, through school workshops, teacher training, guest speaker sessions and work experience at Burberry.
• 18,000 people in Tuscany, Italy, benefitting from enhanced multi-cultural spaces and events, new youth mentoring programmes and better access to community support services.
• 7,000 people in Afghanistan benefitting from training on more sustainable livestock management and participation in community-owned collective action organisations.
[source: https://www.burberryplc.com/content/burberry/corporate/en/responsibility/policies-and-commitments/communities/the-burberry-foundation.html https://www.burberryplc.com/en/responsibility/responsibility-strategy/company.html https://www.burberryplc.com/en/responsibility/creating-tomorrow-s-heritage.html ]
Competitive Environment
Burberry has a very strong international presence with their 500 stores across several countries. Its strongest presence lies in the UK, US, Japan and China. This puts them at an advantage compared to their competition. They also have a very strong brand identity. This is important as it means they are well established and recognisable. Consumers are more likely to purchase from a company that are known for their brand quality and label. As well
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
as this, Burberry's target market are high income individuals which means they are likely to purchase from a wide range of well identified brands meaning that if Burberry did not have a strong brand identity they would not succeed.
The importance of Burberry maintaining and establishing a competitive advantage is very high especially for a big brand like Burberry. A competitive advantage is what establishes one company from its competitors. A competitive advantage is a contributing factor to higher prices, more customers, and brand loyalty. Establishing such an advantage is one of the most important goals of any company.
In order to stay ahead of the competition Burberry have been trying to rebrand themselves since 2017. Their idea is to convey themselves as a “super luxury British brand”. WHen Burberry had a new boss step into power they announced their plan to raise the premium and put the fashion label on par with the likes of Dior and Gucci after receiving better than expected results. In order to continue gaining their competitive advantage Gobbetti ambition is to turn Burberry into a super-luxe brand, like Gucci and Dior, which have higher prices and profit margins. In order to so Burberry will spend millions of pounds turning its stores into temples of luxury and stop selling its trench coats and handbags through some department stores, denting sales in the short-term.
[source: https://www.theguardian.com/business/2017/nov/09/burberry-to-reinvent-itself-as-a-super-luxury-british-brand]
Situational Analysis
Strengths- Digital capabilities – Global presence – Innovative – Strong social media
presence/engagement with the community
– Royal warrant
Opportunity – Increasing demand of premium
products – Expansion of existing market
segments- Menswear – Online sales opportunity
Weakness – Fall in shares – Costs – Reputation amongst certain
segments- Limited product range
Threat – Brexit- Consumers expect more for less – Counterfeit
Strengths
● Digital capabilities = Burberry was the first company to go fully digital and were the leaders in social media advertising for a long time. They were also one of the first clothing companies to integrate RFID tags into their clothing and software that makes buying suggestions based on purchase history. RFID tags are a type of tracking
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
system that use smart barcodes to identify products. This increased Burberrys security and efficiency with in store purchases.
● Global presence = Burberry has more than 500 stores located in 50 different countries. They sell their products to customers through both retail and wholesalers. As well as this Burberry have licensing agreements in several different countries and in 2017 Burberry Beauty partnered with Coty in a global licensing agreement. They then signed another partnership in 2018 for the entire Burberry company with Farfetch in order to technological reach over 150 countries.
● Innovative = Burberry hold a very strong reputation for being ahead of their competition especially in term of their digital capabilities and digital innovation. The were the first luxury brand to; livestream shows (2009), featured in-tweet purchases (2014), combined men and women’s wear in a single show (2016) and they launched the see-now-buy-now off the runway strategy (2017). This is beneficial to Burberry because it increases their likelihood of maintaining their success and setting themselves apart from their competition.
● Strong social presence and engagement with the community = In terms of their social media presence, Burberry are large market leaders with a very large presence and following. In 2014 Burberry had 14,241,285 likes on Facebook, 1,403,981 followers on twitter and 47,061 subscribers on their youtube channel with their most viewed video being 17,769,628. This has increased massively in the past 4 years and as it stands they now have 17 million likes on Facebook, 8 million followers on twitter and over 300 thousand subscribers on their youtube channel. From this we can see that their social media presence has increased by just over 20% in 4 years, that's a 5% increase every year.
● Royal warrant = Burberry has received two royal warrants one from Queen Elizabeth II and the other from Prince Charles. This means they can promote and publicise themselves as suppliers of products to the royal family – these historic accomplishment have added great value to the business.
Weaknesses
● Fall in shares due to Chinese market = Burberry are currently experiencing their worst drop in shares since 2012. Their shares have dropped by (-) 9% and it seems to be due to their chinese consumers are losing their lust for luxury goods. This is a large issue for Burberry as they sell 40% of its products to Chinese nationals. However, this fall in shares coincides with the announcement of Christopher Baileys departure.
● Costs = The premium price range of Burberrys products may be deemed as a weakness. Despite pricing suggesting quality and desirability, it has become an issue for burberry as it means customers are becoming lesser and lesser with products only being reachable to a minority. With their target market dropping in age their high priced products are out of reach. This could perhaps lead to Burberry going out of fashion and be an explanation to their declining sales revenue.
● Reputation among certain segments = In the early 2000’s Burberry’s brand was “tarnished” by low-income social groups which caused a sharp decline in UK sales. In 2004, Burberry took the biggest hit with retailers who stocked their products stating that there was growing negative association with the brand obsession with “chav
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
culture” flourished. Some of Burberry's biggest retailers claimed that the sales of products dropped as much as 40%. This poor reputation still remains from the early 2000’s both online and in certain demographics such as well of business women over the age of 45. Burberrys sales have been declining at a slow rate over recent years and even though the reputation was demolished this could still be a factor.
● Limited product range = Burberrys product line consists of apparel, beauty products and accessories which is why it is distinguished as a luxury company however it is very limited. A lot of its competition has extended their range to home decor, furniture etc… Their limited range of products compared to their competitors since their removal of sub-brand in 2015 has caused their already niche market to narrow further.
Opportunities
● Increasing demand of premium products = Due to Burberry operating in an extensive amount of countries their market is ever growing. In India alone the growth rate of demand for premium products is 33%. From this data it can be interpreted that the expanding market size of the high range products in developing nations can be deemed as a future opportunity.
● Expansion of existing market segments = Recent political events have increased the luxury tourism market in the UK. Although this is likely to be short-term, Burberry have an opportunity to capitalise on this trend by producing more direct communications to this segment through promotional methods. Burberry can use brand collaborations in order to expand their markets. They have an incredible social media presence and obtain a lot of popularity with millennials, allowing them to convert their large network of followers into increased sales.
● Menswear = In 2017 the UK men’s clothing market grew by 3.5% making its worth £15 billion. Currently, men are proven to be the biggest spenders with 53% of men claiming to spend over £50 on an average shopping trip. As well as this, studies have shown that men are more likely than women to spend more money on quality clothes. The male market is growing faster than the womenswear. Male millennials are now the majority buyers of designer fashion wear, compromising 57% of the market. As well as this, with men online shopping rising this is increasing affluence and ‘quality’ being men’s most key priority, Burberry has the resources in place to take full advantage of this segment.
● Online sales = Since the global luxury market is growing there is going to be more demand for premium products through online sales. In 2017 online sales were forecast to increase by 23.2% which will account for 1/10 of retail sales. This gives opportunity for Burberry to use their online presence to boost sales as in store sales decline.
Threats
● Brexit = Currently, in 2019, Brexit can be viewed as the biggest change in political history and it is a scenario that will have a very large impact on stores such as Burberry. With Britain leaving the EU it means that Burberry’s manufacturing costs
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
will rise which could threaten their need to cut costs. As well as this, higher staff costs may also impact their expenditure.
● Consumers expect more for less = Due to Burberry being an expensive priced brand it means that demand for substitute products is high. Substitute products from high street stores are becoming consistently more popular and lead the design world. High street stores offer a lot lower prices than Burberry and target different market segments. Burberry should bare this in mind as they are currently operating in a complex selling environment
● Counterfeits = Similarly to the point made above, fake versions of burberrys clothes are becoming a major threat to the brand. In the summer of 2017, a lot of counterfeit products were seized and Burberry fakes were among them. The ongoing threat from fake goods could lead to potentially further damaging the reputation and their profits.
[source: https://www.marketing91.com/swot-analysis-of-burberry/ https://www.smartinsights.com/tag/online-retail-growth-statistics/ https://www.mintel.com/press-centre/fashion/dressed-for-success-mintel-unveils-10-menswear-fashion-facts-for-london-fashion-week-mens https://www.telegraph.co.uk/finance/2900572/Burberry-brand-tarnished-by-chavs.html http://www.cityam.com/265297/shares-burberry-fall-chinese-appetite-luxury-goods-slows https://www.royalwarrant.org/company/burberry-limited https://fashionunited.uk/news/business/burberry-beauty-enters-licensing-agreement-with-coty/2017040324090 https://www.yorkshirepost.co.uk/news/burberry-extends-its-reach-to-150-countries-1-9017619 https://www.marketing91.com/swot-analysis-of-burberry/ http://www.marketingbabble.co.uk/2018/04/example-swot-analysis-of-burberry.html]
How the internal environment impacts Burberry
Currently, one of Burberry's most important strengths would be their social media presence and engagement with the community. This is because currently social media is the most frequently used app on every single phone worldwide. A business who frequently updates their social media is likely to entice more customers than ones who do not. Recent statistics show that adults aged 18-24 are most likely to follow a brand via social networking and 71% of consumers who have a good social media service experience with a brand are likely to recommend it to others. Though it may seem that only young people use social media the percentage of active social media users across the entire world is 42% and all users of mobile devices spend approximately 69% of their screen time on social media. Therefore proving that even their high income consumers are likely to be using social media. This highlights that Burberry's social media presence is essential to them maintaining success.
On the other hand, the most important weakness that Burberry should focus on is their tarnished brand within certain segments. In the early 2000s Burberry became a brand that was known to be worn by low income individuals rather than the high income targeted consumers. Though it was not genuine Burberry that these lower class consumers were wearing the brand become tarnished by counterfeit products that were easy to get a hold of. Though this happened somewhat of 10 years ago the brand is still suffering from this issue. The situation got so bad that they had to completely get rid of the Burberry check to try and decrease the amount of counterfeit products being produced. It was only in 2017 that they they decided to rebrand completely in order to try and bury the reputation for good. Though
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
this may have worked in the short term it is still known for being a clothing brand that low social status individuals wear.
[source: https://www.dreamgrow.com/21-social-media-marketing-statistics/]
Porter's five forces
– Threats of new entrants
New entrants into Burberry's market will bring innovation, new ways of doing things and put pressure on Burberry. This pressure will be executed through actions such as lower pricing strategy, reducing costs, and providing new value propositions to the customers. Burberry has to manage all these challenges and build effective barriers to safeguard its competitive edge. In the past 3 years a lot of small clothing lines have entered the industry which are of course not a threat however there are a few newly emerging luxury brands that may impose a threat. These new brands may be bringing in more original ideas and appealing to a range of younger and older demographics this imposes a threat to Burberry as their target market are only those who are earning a high income which is usually people over the age of 35.
– Bargaining power of suppliers
All most all the companies in the luxury goods industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins Burberry can earn in the market. Powerful suppliers in this sector may use their negotiating power to extract higher prices from the firms in this field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of the luxury goods themselves. As of 2018 Burberry have began to supply all of their raw materials in the UK apart from cotton in which they are receiving from Italy as part of an agreed partnership. This means they are paying less for their raw materials so therefore may be in a better financial situation than their competitors
– Threats of substitute products or services
When a new product or service meets a similar customer needs in different ways, industry profitability suffers. This could be alternative products that are cheaper but look the same or are the dmae quality. An example of this is when counterfeit Burberry products went into circulation causing their sales to decrease. Another thing that may happen is Burberry eb overtaken by another luxury company whose prices are cheaper but clothes are similar and are just of good quality.
– Rivalry among the existing competitors
If the rivalry among the existing brands in an industry is intense then it will drive down prices and decrease the overall profitability of the industry. Burberry Group Plc operates in a very competitive Personal & Household Goods industry. This competition does take a toll on the overall long term profitability of the organisation.
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
[source: http://fernfortuniversity.com/term-papers/porter5/lse/206-burberry-group-plc.php ]
Examining the business market Burberry operates in a oligopoly market structure with imperfect competition. Within an oligopoly there is a large selection of businesses which dominate the market all of which are different sizes. Though it may be argued that the clothing industry so large that stores within this industry cannot be classified as oligopolies. However, Burberry operates in the luxury goods market making it an oligopoly. In an oligopoly each seller has a large market share, Burberry competes against the likes of Coach, Gucci, Prada, Louis Vuitton, Michael Kors and Christian Dior, all of which are brands that dominant the market.
There is approximately 10 similar sized companies in the industry two of which own around 40% of the entire market share. Though all of the brands that operate in this market are classified as large luxury brands the have minimalistic share of the market. For example; Dior had a total market share of 2.06% in 2016 and only 1.4% in 2018 but still known as a high profit luxury brand. On figure one as shown above ‘other luxury brands’ own 4.2% of the market share but are evidently not as well known as the ones stated.
A barrier into entry in this market is majorly dictated by the success of brand identities and their advertising capabilities. Burberry demonstrate this with its well known ‘britishness’ and its well known classic camel check design. Until 2018 Burberry had obtained the same logo and it was then changed to being written in a slightly different font. Burberry remains quintessentially British but has over the years built a global reputation for innovative product design, digital marketing initiatives and dynamic retail strategies. Burberry is known for its strong advertisement strategies and being the first company to go fully digital. All of its advertising is positioned to highlight how the brand carries the rich heritage of British culture and creativity.
Due to burberry operating in the luxury clothing market it is hard for smaller less well known brands to compete in the market. In 2017, Burberry turned over a revenue of $2.8 billion whilst other competitors in their market had revenues of almost $5 billion. This means gaining access into this market is extremely hard without being a pre existing company that already has a strong brand awareness. Burberrys market value also accounted for $9.6 billion which may sound high but compare to competitors in their market such as Louis Vuitton whos market value is $33.6 billion it is not much. This still proves that unless a brand is already in the market it's hard to get into it.
[source: https://www.underconsideration.com/brandnew/archives/new_logo_for_burberry_by_peter_saville.phphttps://www.vogue.co.ukhttps:// www.marketing91.com/marketing-strategy-of-burberry//gallery/thomas-burberry-iconic-check ]
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
Demand
One key factor that affects the demand of Burberry’s products is their competition. Due to Burberry operating in the luxury goods market it means competition is high – consumers of their products are a minority. The brand whom is currently dominating the luxury goods market is Ralph Lauren which stands as a newly emerging company. Though Ralph Lauren was established in 1967 in America they have only recently in the last 10 years become a competitor in this market. Though Burberry is known for its britishness and its royal warrants Ralph Lauren is known for polo. Polo is a sport that is very popular with the morer wealthy category of people, therefore both brands have the same target market. Though this may be a threat to Burberry and of course hinder their demand Burberry has very strong branding and is known for their advertising campaigns whereas Ralph Lauren does not have much to its name.
When Burberry rebranded in 2017 it took the digital market by storm – they capitalised on their history to rebrand as a fashion forward, upscale and glamorous brand that epitomised contemporary britain. In 2001 when Burberry hired Christopher Bailey they decided to take their conservative branding in a new direction and use sex appeal to attract new customers. It was then that Kate Moss was made the face of Burberry and from then on Burberry kept climbing with sales soaring. From 2006 – 2014 Burberry started to lose control of their intellectual property and therefore needed to change their branding in order to re attract customers. However, despite the drop in UK consumers their customers were becoming increasingly based overseas, with exploding demand in China.
Burberry were the first clothing brand to take to China. In September 2010, they bought out their first Chinese franchise partner in a £70 million deal, giving them greater control over their presence in the country. Burberry started the FY 2018 with 4% increase in like for like sales with sales in China increasing in the mid-teen demographic. Burberry took over 57 stores and spread them across 30 cities in the mainland, including nine in Beijing and four in Shanghai.
Another factor that has been affecting Burberrys demand is the needs and aspiration of consumers. Due to Burberry operating in the luxury clothing market their products are clarified as aspirational goods. This means that people do not need to buy Burberrys products, it is not an essential thing. Though clothes are deemed to be an absolute necessity, Burberry does not supply standard clothes they supply high end luxury goods which includes outdoor wear and accessories.
[source: https://www.echostories.com/rebranding-burberry-case-study/ https://www.bbc.co.uk/news/business-40579776 https://daxueconsulting.com/china-market-research-on-burberry/ ]
Supply
One factor that affects the supply of Burberrys products is the cost of raw materials. The three key raw materials that Burberry use are cotton cashmere and leather. These materials represent 30% of the total greenhouse gas emissions the company. If we began with cotton,
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
the demand for it has increased a lot in the last 5 years this means that prices for it have increased and are currently at the highest they have ever been increasing by 22% in the last quarter of 2017 and have not fluctuated since. Though this may be because of the increase in demand Burberry have stated that “Cotton production and global demand have significantly changed since [they] first manufactured gabardine. Today, conventional cotton farming can have significant environmental and social impacts arising from the amount of water, fertilisers and pesticides used in cultivation, as well as the energy-intensive processes of spinning, weaving and dyeing cotton – thus affecting the supply. As well as cotton prices on the rise, the input costs of leather has also increased. Burberry use leather in a lot of their products from their classic signature handbags and wallets, to runway inspired seasonal updates of prints and colours, leather is an important raw material used across their accessories, apparel and shoes, therefore the price of leather increasing has a major impact on the supply of the business. A contributing factor to the price increase is the impacts of leather production. They can be significant and stretch right along its value chain, from methane emissions and conversion of natural ecosystems to pastureland, to the chemicals, water and energy used in the processing and tanning of leather – with leather accessories accounting for more than 10% of Burberrys total greenhouse gas emissions. Finally cashmere, which has also continued to increase in price. This price increase is down to the fact that there has been a fall in China's production intake. Due to climate change and increased global demand for cashmere a lot of challenges pose for the fragile ecosystems of the Mongolian Steppe, a major production centre of global cashmere supply.
Another factor that may affect the supply of burberry is exchange rates. Currently the sound is very weak due to brexit meaning that value in the UK is little compare to where they are selling and importing their products. This will affect their supply as a lot of the materials used to make their products will be imported from other countries and due to the pound being weak they will struggle to make a profit. How this happens is because more GBP will be needed to buy the same amount of raw materials meaning Burberrys finances will have to be evaluated every time the exchange rate fluctuate. Furthermore, this may affect Burberry more than expected as there profits are currently still decreasing as are their share prices.
As well as this, oil prices fluctuate all the time therefore changing transportation costs. This will affect Burberry is a few different sectors. One factor that it will affect is the transportation of materials to the UK for manufacture. Since Burberry manufacture all their goods in the UK they have no option other than to import the majority of their materials. Another time that Burberrys transportation will be affected by cost is when they distribute their products to their different stores. If the oil prices increases transportation prices cost a lot more whereas if the oil prices are low than transportation costs less. Since fuel is essential for all types of transportation there is nothing that Burberry can do.
A further factor that may affect the supply of Burberry is import taxes. Import taxes are to be paid on imports outside of the eurozone. However, Burberry only use three main materials; cashmere, cotton and leather. In 2018, Burberry entered into an agreement to acquire luxury leather goods from its Italian partner CF&P – Italy is within the eurozone therefore Burberry are not paying import tax for their leather. In terms of their supply of cotton, they weave their own as Burberry has a Mill in Yorkshire, UK, however, they have began to help cotton farms in Peru to prevent overgrazing and the contribution to climate change. Finally, Burberry get their cashmere from Scotland however this is a new investment. Before this it was imported
Olivia Poole – Unit 1 Assignment 2The effects of the environment on a business
from Afghanistan however they now manufacture their cashmere scarfs in the Scottish countryside. Despite a lot of their materials coming from inside the eurozone once brexit happens they will have to pay import taxes on these also. This is possibly why they started manufacturing and collecting cashmere in Scotland as import taxes will not apply.
[source: https://www.burberryplc.com/en/responsibility/responsibility-strategy/product.html http://spendmatters.com/2018/01/15/us-cotton-prices-shoot-following-rise-demand/ https://www.just-style.com/analysis/price-hikes-continue-to-loom-over-leather-industry_id121245.aspx http://cottonconnect.org/portfolio-posts/burberry-sustainable-cotton/ ]
Price elasticity of demand
Price elasticity of demand measures the responsiveness of quantity demanded for a product to a change in price. Burberry products are luxury goods so their price is inelastic. This means that their demand may not be influenced by price increase that much due to them being a strong brand. As well as this their target market are people who have high income therefore a price increase will not matter to them as they are likely to still purchase the products – their economic state is not restricted. In contrary to this, price decreases may not stimulate demand. Depending in how much the decrease is the goods may still be too expensive for middle/low income consumers.
[source: https://www.tutor2u.net/business/reference/price-elasticity-of-demand ]
Burberrys response to market change
Burberry tried to become a company the global manufactures in late 2014 early 2015. They did this to save import costs as their products will be manufactured where the raw materials are found. For example; they wanted to start producing some clothing in Italy where they source their cotton from. Many large companies use global manufacturing as a tactic to save money some of these include; Dyson and Apple. However, many of Burberrys consumers complained about their move abroad and their sales began to decrease. After listening to their target market Burberry decided to move back to the UK and continue manufacturing their products at home. Consumers claim that this is what proved that Burberry is still to be the quintessential British brand it used to be. This therefore proves that Burberry put their customers needs and wants as a priority over saving money and making more of a profit.
Their response to market change may be altered once Brexit happens. In the short term they may attempt to bare the costs of transportation and importation themselves. This is probably their best option short term as it means whilst more important products are adjusting to the impact of Brexit such as food goods. However, longer term they may wholly rely on their consumers to pay for all of the extra taxes or they will divide the pay between themselves and their consumers. WHat this means is that their prices will increase by certain percent to cover the extra costs. Currently,no one is entirely sure as to how much Burberry will need to increase their prices as tax rates are not set yet however it is unlikely that this will affect their sales that much due to their target market being high income individuals.