The case “MI TIENDECITA DE MODA: SELLING FASHION THROUGH FACEBOOK IN PERU” is about the development and improvement of an online fashion store called Mi Tiendecita de Moda (MTM). The case report stipulates an analysis and evaluation of the current state of MTM, which is ran by Maria Alva in Lima, Peru. Alva was born in Peru and earned her undergraduate degree from an established university in Peru. (Tietz & Urbina, 2015, pg. 1-2). Alva's motivation to start MTM stemmed from her desire to bring branded apparel from the United States to Peruvian woman (Tietz & Urbina, 2015, pg. 2). Alva noticed that there was a price gap between the United States and Peru, which inspired her to take advantage of the gap and sell the United States clothing on Facebook. (Tietz & Urbina, 2015, pg. 2). In terms of the supply process, Alva took full advantage over different clearance sales events, both in store and online by using an official importing company to make sure her supply chain was operating in a legal manner. (Tietz & Urbina, 2015, pg.4). Alva was also able to capitalize on the reversed seasons between the United States and Peru to provide her customer base with the latest designs with sensible costs. To distinguish her-self from others, Alva provided high quality and personal services in order to enhance loyalty from consumers and to keep her customer base content. (Tietz & Urbina, 2015, pg.4)
Alva decided to collaborate with a venture capitalist named Alonso Martinez, who she met at a business forum. (Tietz & Urbina, 2015, pg. 7). Martinez has experience in the fashion retail industry and has worked as an international venture capitalist, which made him an intriguing prospect to collaborate with. Martinez had a robust offering, in which he offered to collaborate and invest into MTM while providing expertise to grow the business. (Tietz & Urbina, 2015, pg. 7). After receiving a call from Martinez, Alva was required to make a decision immediately, in which she ultimately decide to collaborate. Alva's next stop is to figure out how she could grow her business with Martinez' help.
The protagonist of this case is Maria Alva, who is a young Peruvian professional who founded the company Mi Tiendecita de Moda (MTM). MTM is a small online fashion store that sells North American fashion products through Facebook, personal sales events, and pop-up stores. Alva has been able to grow her business by overcoming supply side issues and building her customer base through positive customer relations by being very personal with her customer base. Alva's philosophy for her company is based on being able to satisfy each customer through a personal approach. The rapid growth of MTM has made it arduous to manage MTM on her own. Alva needs to decide if she can expand her business, while still being able to enjoy a lifestyle that consists of flexibility and independence. By collaborating with Martinez, Alva can potentially share the workload, while looking at the what type of expansion should be done in order to push MTM in a positive direction.
This case is filled with many assumptions that need to be made. The first assumption made is that MTM is a legal business. I believe MTM is a legal business because Alva stated that she was working with an important business in order to be able to “fully legalize and strengthen her access to suppliers” (Tietz & Urbina, 2015, pg. 4). Also, it is important to look at the fact that a well-established Venture capitalist provided Alva with an offer to collaborate. A well-established venture capitalist would be unlikely to have invested in a business that operated in a illegal manner. The final assumption to be made is that we have to trust that Alva has a superb taste in fashion that satisfies the desires of the Peruvian woman.
In order to fully understand the external factors of MTM, a PEST analysis is used. The PEST analysis allows for a synopsis of the different macro environmental factors that Alva needs to be cautious of when deciding her next step for MTM.
The political factors associated with MTM is quite positive because the Peruvian policies will facilitate Alva's future company, which shows that there is a low political risk for MTM in Peru. Since 1990, the Peruvian administrations have vowed to support private investment and abide by Peruvian laws, the GOP occasionally passes measures that some spectators regard as contravention of Peru's open investment laws. The 1993 Constitution grants national treatment for foreign investors and permits foreign investment in almost all economic sectors. (Openness to Restriction on Foreign Investment, 2017). There are many incentives offered by Peru to stimulate foreign investment, mainly in the form of tax and legal stability agreements to investments that qualify. The agreements made guarantee that the regulatory framework is ongoing at the time of investment and will not change up to 15 years. It is also important to note that Peru signed free trade agreements with their most important partners (USA, China, the European Union). There is always a risk that a new president to come in and change the current landscape of Peru, but it is likely that a new president would follow the same policies.
In terms of economic factors, it is important to note that there has been a growth in the Peruvian economy. Over the past decade, Peru has been one of the region's fastest-growing economies that boast an average growth rate of 5.9 percent in a context of low inflation. Peru has a favorable external environment, prudent macroeconomic policies and structural reforms in different areas established such an elevated level of growth and low inflation. The vast growth in employment and income have sharply condensed poverty rates. Modern poverty rates fell from 45.5% in 2015 to 19.3 percent in 2015. The 26.2% decrease in terms of percentage points shows the Peruvian economy is getting much better. (“The World Bank In Peru”, 2017). The case also does a great job highlighting the economy through the use of Case Exhibit 3, In which it is shown that from 2014-2015, there was growth in several areas, including: Real GDP growth, Population growth of 65+, population density for persons per square kilometer, Annual Gross Income, and Annual Disposable Income.
In terms of social factors, many social issues have an effect on customer behaviors. A majority of the population in Peru resides on the coast and in Peru. By looking at Exhibit 4 in the case study, you can see that the socioeconomic distribution in Lima per household is highest at NSE C. (Ipsos, as cited in Tietz & Urbina, 2015, pg.9). Exhibit 10 of the case study also shows that the average monthly income in Peruvian Neuvos Soles (PEN) has increased from 2012-2013 in several sectors, including: total Peru population, total femal population, total Lima population, and total female population in Lima. (Instituto Nacional de Estadistica e Informatica, as cited in Tietz & Urbina, 2015, pg.11).
In terms of Technological factors, the internet and the mobile phone usage levels in Peru are escalating quickly. The case study states valuable information in Exhibit 2 of the case, by showing the current landscape of technology in Peru. The landscape consists of: 99% of the total population has a Facebook account, more than 50% of Facebook users are between 18 and 35 years old, and young students from the socioeconomic level A and B spend an average of seven hours per day. (Ipsos, as cited in Tietz & Urbina, 2015, pg.8). It is interesting to see that 99% of the total population of the 9-70 year olds have a Facebook page because it shows that there is potential to expand the store to men's clothing.
A PEST analysis is very crucial to fully understand the external factors of MTM. I also used a SWOT analysis that can be found in Appendix A.
The case information allows for the ability to calculate the cost of goods sold and the profit margins of each option for Alva. Appendix B shows that there are profit margins growing in the majority of the segments. By looking at the profit margin growth of different options for Alva, I can conclude that MTM seems to be growing at a quicker pace on the side of sales paralleled to cost. If you also look at the profit margins per year, you can also see that no single profit margin exceeds 10 percentage points during the time span of the case. The largest increase of sales was a seven percent increase that came from Facebook online sales, in which the profitability when from 60% in 2012 to 67% in 2014. The lack of growth in terms of high percentage points shows that the magnitude of the forecasts of scalability for this business could potentially be troubling.
I believe that there are several options to look at in terms of expansion for MTM including: expanding the Facebook page, continuing a personal sales approach, selling in provinces, physical store location, expanding to a men's line, and using a combination of strategies. I have provided a table in Appendix C that highlights the pros and cons of each alternative.
I believe that Alva needs to look at what has made her business successful to date. Alva's personality combined with both her background in marketing and her international exposure and friends, was a major component in the success for MTM to date. Alva was able to utilize her understanding of the Peruvian middle class of Woman and the demand for goods that are hard to come by to create a successful business to date. The market trends of online shopping, increased trust in virtual purchases, higher purchasing power in Peru and the difference in seasons in North and South America, are trends that Alva understands very well. These market trends are all showing that there is a large amount of success for Alva in the future, which makes it very logical for her to continue what she is doing through the online Facebook page. The case also highlights many important details about Alva as a person by stating that she has the option to go back to work in an international marketing firm, but that she does not want to work a nine-to-five job. By implementing a bricks-and-mortar location, Alva would be required to take some sort of physical presence filled with long hours, which is not what she wants. Through Alva's collaboration with Martinez, she would need to negotiate that she wants to maintain her personal values. Alva can use the current business model to grow the business by continuing to focus on the female market because it is a market she fully understands. MTM should also maintain the use of their pop-up events because the large amount of profit margins the pop-up shop provides. Pop-up shops are an exciting way to allow consumers to physically see products without a brick-and-mortar location, while being able to cover a broad geographical location to keep consumers interested. The cons highlighted in Appendix C far out-weigh the pros, which has led to focusing my decision to stick with allocating resources for the Facebook page and pop-up shops.
I believe the best course of action would be dependent on the planning. Alva needs to use the investment from Martinez in order to implement the combination strategy successfully. Alva should continue to use the Facebook page to maintain the companies' current standards of providing a personal service. Alva should also continue to use the pop-up shops due to the high profit margins highlighted in Appendix C. Through the potential investment from Martinez, Alva can use the funds to improve online presence on Facebook and improve the pop-up shop locations while implementing more pop-up shops in the future. Both the PEST and SWOT analysis provide valuable feedback that there is future success feasible for MTM if operated correctly.
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