A strategic Analysis – The Burberry Company (Burberry Group plc); Women’s Wear Strategic Business Unit.


A strategic Analysis – The Burberry Company (Burberry Group plc); Women’s Wear Strategic Business Unit.

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Executive summary

This paper offers a strategic outlook of the Burberry group plc (Burberry) company, a major manufacturer and distributor in the UK dealing with luxury clothing and other fashion accessories. The analysis unmasks the strategy behind the company being a pacesetter in the fashion industry especially since commencing online distribution in the UK in 2006. To achieve this, the paper applies the strategic analysis through; PESTEL analysis, SWOT analysis, value chain analysis, Porter’s three generic strategies and five forces of the market. The company has for centuries cemented its activities and most recently it took direct control of distribution of its products by offering licenses to distributors. On analysis of the UK’s fashion industry, various factors emerge as propagating the success of the company. Majorly the success is pinched on; a stable political environment in the United Kingdom, a fresh pool of design talents available to recruit from and favorable government policies regarding the domestic industries. However there are factors such as fierce competition from within the economy, government tax policies on retailers and loss of designer talents to other countries due to fiscal policies that threat to cripple the fashion industry. Additionally, despite the firm being among the trend setter in women’s wear, the women’s fashion industry is unpredictable and dynamic and consequently creating an uncertainty of the future regarding sales and market share. The firm has a focus-strategy approach to the industry; however few adjustments to this such as embracing cost leadership and vertical integration can be instrumental in improving performance for the Burberry Company.

1. Introduction

Burberry is a public holding company, dealing with luxury clothing and accessory design and distribution in the UK and worldwide. Its target market is the niche that loves luxurious and functional products. The group was founded in 1856 by Thomas Burberry and has over the years expanded and diversified its focus. Currently it deals with women’s wear, men’s wear, children’s wear, beauty products and accessories (Burberryplc, 2014). The firm also operates in a rather dynamic and resilient fashion industry in the United Kingdom.

 In 2008 the UK fashion industry was approximated to be worth 22 billion pounds in retail sales value and employed more than 200,000 people. In the years following the industry has been marked by a constant growth of approximately 1.5% per annum and increased employment of over 600,000 people. Additionally, despite the plummeting of the economy less than a decade ago, the fashion industry has rose to be the third largest employer in the UK. (Easey, 2009, p. 3). However this does not rule out the stiff competition in the industry. Burberry faces stiff competition in its women’s wear strategic business unit from rival firms such as Louis Vuitton, Armani, Prada, Polo, Ralph Lauren amongst others. This strategic business unit nets in more than half of the company’s profit (Burberryplc, 2014). To this extent, this paper seeks to analyze the strategic position of the Burberry’s group women’s wear strategic business unit by applying strategic analysis models and consequently give recommendations towards its improvement.

2. Environmental Analysis

Business environment plays a fundamental role in the strategic direction of a company because it has a direct influence on its operations. In the environment are variables that the company can exercise reasonable control over and others that are beyond its control; internal and external environments (Bowhill, 2008, p. 331).

The following is an analysis of external factors affecting Burberry Company specifically the Women’s fashion wear using PESTEL and Porter’s five market forces.

2.1. PESTEL Analysis

PESTEL is a framework used by organizations in strategic analysis to comprehensively demystify the influences of the macro environment – Political, economic, socio-cultural, technological, environmental and legal factors – on their businesses (Bowhill, 2008, p. 332). Therefore, PESTEL is an invaluable tool for strategic planning.

2.1.1. Political factors

The United Kingdom’s system of government is unique; the military has no involvement in government decisions. Consequently the political environment is stable. The government also regulates the fashion industry though British Fashion Council and promotes incentives directly and indirectly, for example, Vince cable’s 16 million pound funding to the creative industries (, 2014). Additionally the United Kingdom is ranked as a CRT – 1 country; it has minimal risk across the political, economic and financial facets. Crowning this also, are its good relations with EU nations. The aforementioned factors offer a stable environment for businesses to invest and run. Businesses are conscious of certainty which is a function of political stability (Craig & Campbell, 2012).

2.1.2. Economic factors

An analysis of the UK’s economy showed a 3.2% growth in second quarter of 2014. Such a growth presents more opportunities for investments. There was also, a surge to 59 billion Euros in clothing and footwear expenditures. The UK economy is also marked with an increase in the number of women employed in the formal sector. Consequently, women have gained more disposable income (Twigg, 2009, p. 123). The UK also, boasts of an increase on foreign exchange flexibility over the years and a strong currency. The result is an enabling economic environment for the textile and clothing industry (Industrial Systems Research, 2011, p. 67). A major challenge is the rising cost of labor which is more than the rate of inflation. Firms are forced to operate on squeezed profits or lay off workers (BBC News, 2014).

Economic growth of the UK

Figure 1 – A graph showing the economic growth of the UK economy over the years (ONS, 2014).

2.1.3. Social factors

The women’s fashion industry is dynamic. Women are more aware of current trends in their clothing and footwear. Mostly young women are well versed with the fashionable trends in the market; which is a general trend in the modern society (Droeber, 2005, p. 274). Also as opposed to men, women are driven to spend not based on the longevity of the products but by their desire to look good and attractive (Hopkins, 2011). An analysis of the UK’s market for designer wear by the Office of National Statistics showed that the number of women in employment positions is steadily increasing and so is the income distribution among them. The result is financial stability and need for smart professional clothing. The study also revealed that women spend more on clothing than men (Ranchhod, 2005, p. 195).

2.1.4. Technological factors

The internet has revolutionalised the fashion and textile industry. People are now exposed to information about fashion trends and firms find it easy to advertise their products. Technology has advanced advertisement and furthered the e-commerce platform. Online stores are taking over because people lack time to shop physically. Increasing use of computers and smart phones enables fashion apps to be used in locating stores. Another paramount technological consideration is the emergence of market for smart clothes such as those that change color according to body heat, cloths with tags that are Bluetooth activated such that they can automatically configure the washing machines et cetera (Ranchhod, 2005). The emerging technological trends are in favor of the industry.

2.1.5. Environmental factors

A factor that the UK’s government has stern regulations on is environmental protection. There has always been a gamble between allowing the fashion and retail sector to continue using carbon intensive technologies that lead to growth or focus on clean energy production and sacrifice the sustainability of the sector (Walley, 2011, p. 173). The government besides checking on the carbon emission levels in factories, monitors waste and disposal management. The result is that firms are forced to invest in modern waste disposal systems. This is a strain on the industry.

2.1.6. Legal factors

The production firms that are based in the UK such as Burberry probably have the toughest employment policies given that the minimum wage rates, and employment policies are stern in the UK compared to the US and other European Union nations (Sterlaccie & Arbuckle, 2009, p. 169). Apart from employment policies are consumer protection laws that are very strict on minimum standards. Consequently, as firms strive to achieve the standards, production costs rise and so do prices. This can be considered an advantage to the industry because the quality of products is enviable. However, product counterfeiting still stands as an issue.

2.2. Porter’s five forces

Michael Porter developed a framework that can be used in industry analysis. The five forces of the market, as he named them, shape competition within an industry. He argued that the stronger each of the forces is, the harder it is to compete against rivals (Hill & Jones, 2012, p. 42).

Porter’s five forces model

Figure 2 – Porter’s five forces model (Hill &Jones, 2012, p. 42)

2.2.1. Bargaining power of buyers

The UK women’s wear industry is characterized by presence of stiff competition due to many retail outlets and manufacturers such as Gucci, Armani and Ralph Lauren. The general consumers have a wide selection to choose from and they, therefore, incur minimal switching costs between brands. Though this, the bargaining power of consumers is moderate given there is brand loyalty to Burberry due to its strong brand image (Wilson, 2014).

2.2.2. Bargaining power of suppliers

The bargaining power of supplier is low. One major reason to this is that no single supplier can dominate the supplier of materials – such as cotton and cloth – for the apparel industry. Second, the UK is home to many suppliers in the manufacturing industry and thus switching costs to different suppliers are low. However, due to the labor-intensive nature of the industry sometimes the supplier of labor get the upper hand due to employment policies (Institute of Manufacturing, 2006).

2.2.3. Threat of new entrants

In the women’s fashion industry, the threat of new entrants is low. The major reason is that the current players survive due to economies of scale. The costs in production, that is; labor, marketing and distribution, are low because they are spread over large production units. Small players, for starters, face the problem of a huge initial capital outlay necessary to set up production units. Operating in small scale means that small scale players cannot be able to compete effectively (Celli, 2013).

2.2.4. Threat of substitutes

UK’s women’s fashion industry, there is a lot of competition. Consequently the threat of substitution is high. Sources of substitute products range from similar luxury clothing retailers, franchised retailers and departmental stores. Additionally, the switching costs from one brand to another are low because a consumer can obtain substitutes with similar quality and price as Burberry offers (Graham, 2005,  p. 155). Some of the customers are also drawn to purchase of counterfeit versions of the Burberry brand due to prices. A study revealed that despite the  firms efforts to fight it, the counterfeit issue still exists (Howie, 2010).

2.2.5. Competitive Rivalry

The fashion apparel industry is characterised by intense competition. Burberry competes against luxury fashion retailers such as Prada, Zara, Louis Vuitton, Mulberry, and Ralph Lauren. According to the Guardian, Burberry has competed effectively against local firms such as Mulberry. Sales have grown desirably (Robert, 2014). There are some firms that offer premium clothes at slightly less prices and are still considered as luxury brands; such as Ledbury. This has made competition even greater.

2.3. Value Chain Analysis

Michel Porter describes a value chain as “a linked set of value-creating activities moving to a series of value-added activities involved in producing and marketing a product” (Sekhar, 2009, p. 115). The activities are categorized into primary and support activities. He proposed that the purpose of chain analysis is to ascertain the value added by each activity on the chain or the impact on the firm’s competitiveness.

Value Chain Analysis Model

Figure 3: Porter’s Value Chain Analysis Model (Sekhar, 2009, p. 115).

2.3.1. Primary activities

Primary activities are directly linked to production and delivery processes. They include: inbound logistics, marketing, operations, services and out bound logistics. Burberry has a strict policy in trading with suppliers. Its suppliers comply with the local labor and environmental laws and the Burberry Ethical Trading Code of Conduct. The firm also, ensures employment of renewable energy to minimize the impact on the environment. In terms of marketing and sales, Burberry’s women wear is distributed to the consumer through retail stores (physical and online), wholesale channels and licensed stores. Retails stores are its stronghold accounting for more than 70% of the total revenue. Customers at Burberry are allowed to return shipments free within 30 days of purchase. This strengthens Burberry image in terms of customer service. Distribution however is always faced by the issue of counterfeit products.

2.3.2. Support activities

Burberry has a strong and dedicated management team and being a labor-intensive firm employs skilled designers. However this creates high-cost structure for the firm. On technology, the firm has embraced online stores and targets the online shoppers’ niche – especially young and middle aged women – that want the convenience on online shopping. Customers have a new shopping experience given that physical stores in London were redesigned to resemble the company’s website. (Cartner-Morley, 2012). Although this is appealing, it has led to low stocking and selection at physical stores and denied the customer the freedom of interacting with cloths as in a normal store.  They have also, invested in technology and infrastructure as a way of speeding up processes, for example, use of high-speed lifts to reduce online customer waiting time. Finally, Burberry’s failure to integrate vertically has proven disadvantageous because: it cannot effectively control prices, shifts in demand are hard to deal with in the short term and employing new technology is difficult.

2.4. Burberry’s SWOT Analysis

2.4.1. Strengths

Burberry is a well-known distinctive British brand that has built customer loyalty over the years. It has employed a team of dedicated manager and applies the central business intelligence model. Moreover, the human resource team has invested in skilled designers that are abreast with the dynamic women wear world. The firm also, has embraced technology by utilizing the internet as a marketing tool, and for sales through online stores.

2.4.2. Weaknesses

The firm employs a labor-intensive approach in production and labor is expensive in the UK. By refusing to outsource cheap labor, the firm has a high-cost operating structure. The result are squeezed profits as much of the cost goes to maintaining the structure of the firm. Also, Burberry has not focused on vertical integration and thus does not have total control of the supply chain. This is as opposed to other firms such as Zara. Burberry’s main source of profit is the apparel industry which is dynamic and unpredictable. Fashion trends keep changing around the world and even the monitoring bodies cannot predict the future precisely (Kim, Fiore & Kim, 2013, p. 76).

2.4.3. Opportunities

The wholesale distribution network is not fully exploited. It nets less than 30% of the profit. Burberry can increase the wholesale distribution channels. Burberry is faced by tough competition; acquisitions and merger strategies could be handy in eliminating this. Vertical integration may also help the firm in controlling the supply chain fully. Finally the firm needs to expand the product portfolio better service the women buyers. As study shows people buy counterfeits due to the unaffordable original brands. Burberry can net in the revenue that goes to counterfeits by diversifying into cheaper clothes.

2.4.4. Threats

The major threats for Burberry are substitute products and intense competition. The firm operates amongst other equally-strong luxury product manufacturers and distributors who offer stiff competition. Additionally, Burberry has for long struggled with counterfeits of its products. It has filed lawsuits and won but the issue is still unsolved (Elliot, 2011). A major attribution to this is the fact that people cannot afford the original products but still want to spot the brand. The firm looses millions in revenue that goes to fake products.

3. Porter’s Generic Model

Porter identified three generic strategies that are essential in creating a competitive advantage. The three are categorized, according to Sehgal, as: cost leadership, focus strategy and differentiation strategy (2011, p. 34). The cost strategy is founded on the capability of a firm to offer products while charging the lowest costs in the market. As a way of ensuring low costs the firm needs to embrace cost saving techniques in the value chain. The differentiation strategy is about offering products or services that are not available from any other supplier and are valuable to the customer. Lastly, the focus strategy is about identifying a certain market niche and making it a target market. A firm thus tailors products to meet such a market (Sehgal, 2011, p. 37).

Burberry applies the focus strategy in the delivery of its products and services. It manufactures and distributes luxury clothing and accessories for different categories of people including women. The target market is therefore the women that shop for luxurious and functional clothing and accessory items. The firm’s bespoke program is one way through which it develops products that suit its target market. Recent success of Burberry has been pinched on brand reinvention (LeStage, 2014).

Burberry, despite opting for a focus strategy, needs to consider cost leadership as it diversifies its range of products. Currently, the UK market for women’s clothes and accessories is very competitive with so many retail outlets opening. To compete effectively, Burberry may consider diversifying into low cost products for women that, as aforementioned, solely focus on looking good rather than shopping based on longevity of clothes and accessories (Hopkins, 2011).

4. Conclusion

It is enviable that Burberry has remained relevant over the years as a luxurious fashion apparel manufacturer and distributor. In fact, the firm has maintained a brand image for distinctive British brands and quality products. The women’s wear strategic business unit has been instrumental in netting in profits by being the second best revenue earner (netting in 618 million pounds) after accessories. The main concern of the firm needs to be the sustainability if the strategic business unit in terms of revenues and market share. Burberry has recently excelled through reinventing itself. However, the firm even faces greater opportunities of maintaining leadership in the competitive apparel industry. More women are getting into formal jobs and the general economic trends in the UK are favorable. More so, the government is table and offers an ample trading environment. This leaves the firm with few issues to counter. The firm can stand in a better platform to compete by embracing new opportunities such as cost leadership and improving on the current focus strategy.

5. Recommendations

By employing focus strategy, the firm has limited itself to a certain niche that, despite its growth, is not large enough to exploit the Burberry brand’s strength. Additionally, counterfeits have proven to be problematic and there is a segment of people that go for the counterfeit because they cannot afford the original clothes. A study conducted on fake brands in the EU market revealed that, the company brands get promoted through fake clothes though the proceeds go to different stakeholders (Howie, 2010). It is therefore imperative that Burberry cashes in on such revenue by offering low cost products for such a market.

Burberry also needs to focus on sustainability by embracing vertical integration. Gaining complete control of the supply chain can be beneficial. A study on supply chain control over businesses shows that integrating backwards offers betters control over costs, flexibility towards new technological developments and flexibility in adjusting to shifts in demand (Choi & Linton, 2011, p. 112).

6. List of references

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Kim, E., Fiore, A. and Kim, H. (n.d.). Fashion trends.

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