tutor2u

Author:

Mark Tottman

tutor2u

Opening thought

Fashion fades, style is eternal

Yves St Laurent

tutor2u

Strategy Toolkit Contents

Introduction

Thinking strategically

Strategic analysis of SuperGroups business

Strategic options for SuperGroup

tutor2u

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)

tutor2u

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!

tutor2u

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

tutor2u

Thinking Strategically

tutor2u

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

tutor2u

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

tutor2u

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?

tutor2u

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.

tutor2u

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

tutor2u

Strategic Analysis of

SuperGroup

tutor2u

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)

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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)

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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?

tutor2u

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

tutor2u

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

tutor2u

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)

tutor2u

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)

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

There are several external

influences outside SuperGroups control which create

opportunities and threats

PEST (LE)

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

Key Strategy Issue:

To what extent does Superdry

achieve Corporate Social

Responsibility?

(Evidence G)

tutor2u

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

tutor2u

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

tutor2u

Key Strategy Issue:

Evaluate the importance of the

new Superdry flagship store in

Regent Street, London

(Evidence I)

tutor2u

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

tutor2u

Key Strategy Issue:

Is Superdry over-reliant on

Dunkerton and Holder?

tutor2u

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

tutor2u

Key Strategy Issue:

Has Superdry grown too fast and

can it meet its growth targets?

(Evidence A, B, D and E)

tutor2u

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

tutor2u

Key Strategy Issue:

To what extent is Superdry likely

to achieve internet sales @ 20%

of Group revenue?

(Evidence C)

tutor2u

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

tutor2u

Key Strategy Issue:

Analyse the options for category

development in the Superdry

range.

(Evidence F)

tutor2u

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

tutor2u

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

tutor2u

Strategic Options for

SuperGroup

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

Strategic Option:

SuperGroup could expand

organically by opening more

retail outlets and franchise

stores

tutor2u

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

tutor2u

Strategic Option:

SuperGroup could expand by

the acquisition of a fashion

retail competitor

tutor2u

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

tutor2u

Strategic Option:

SuperGroup could develop

new fashion categories,

technologies and

environmental products

tutor2u

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

tutor2u

Strategic Option:

SuperGroup could expand

into new markets (Asia,

Middle East, Brazil, South

Africa)

tutor2u

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

tutor2u

Strategic Option:

SuperGroup could diversify

into a mobile phone, tablet

and technology retail

business

tutor2u

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

tutor2u

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

tutor2u

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)

tutor2u

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)

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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

tutor2u

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