Burberry Group Report
1. Summary
1.1 Background
This report conducts an environmental analysis of Burberry, the British luxury fashion brand. The company website states that, “Founded in 1856, Burberry is a global luxury brand with a distinctive British identity” (Burberry, 2017, n. p.). The company emphasises its heritage, noting that the origins of the company are rooted in its founder, Thomas Burberry, who invented a weatherproof cotton fabric, helping boost sales. Following this, the company has developed a clear luxury offering, with core products including its iconic trench coat and the distinctive checked pattern it uses to brand much of its bags, clothing and footwear (MarketLine, 2017).
1.2 Key findings
The main findings of the analysis are that Burberry has a strong brand with a distinctive British heritage and iconic products, but a brand, which has been tarnished by previous branding failures. This leaves the company vulnerable to competition and the impact of a challenging economic environment. However, Burberry does have significant opportunities in digital technology and emerging economies, which the company is well positioned to take advantage of.
1.3 Main Recommendations
There are four main recommendations for Burberry. The first is to focus on using social media and digital technology to target customers. The second is to continue to focus its brand on its core British heritage. The third is to focus on growing in emerging markets where the economic environment is more positive. The fourth is to consider using RFID (Radio Frequency Identification) technology to protect against counterfeiting in the supply chain.
2. The Macro External Environment Analysis
The macro external environment is used by organisations to help influence decision-making, and helps plan future strategies and boost performance. The factors used for macro external environment scanning are political aspects, economical aspects, technological aspects, environmental aspects and lastly social aspects (PESTEL).
Politically, as the company notes, it owes much of its brand strength to its position as an iconic British brand. This in turn links to the concept of political and economic geography, with Pike (2013) noting that geographical associations can provide power to brands, provided the association is supportive. In this regard, the brand is dependent on the political actions of the UK government and their impact on the value of the British culture within the global market, potentially creating issues around the upcoming UK exit from, the EU. Another important political issue is the counterfeit trade. Whilst this is not political in origin, it depends on political agreements between countries to stem the flow of counterfeit goods, many of which are produced in countries with limited thought in property laws and protections (Kirkwood and Tanner, 2017). This is therefore a major threat to Burberry’s ability to remain profitable and maintain its luxury profit margins.
Economically, Burberry’s position as a luxury brand does help to protect it somewhat against economic downturns, as it targets the richest members of society. However, as challenging economic conditions persist in many markets where Burberry operates, particularly in Europe, so the company has been challenged to improve its levels of efficiency in order to maintain margins in the face of variable demand (Carmiagnani and Zammori, 2015). In addition, luxury goods are seasonal in some areas and are associated with gross domestic product, often exaggerating fluctuations. In boom times, consumer demand tends to be faster than the economy (measured by the GDP). At the same time, the economic growth in many emerging markets, including China, is creating new demand for luxury fashion products, including those with a rich and distinctive heritage such UK luxury brands (Henninger, Alevizou, Tan, Huang and Ryding, 2017). This creates a strong opportunity for Burberry to expand its market through targeting emerging economies.
Socially, the luxury fashion market is highly ambitious in nature. As such, it is fuelled by a demand for high quality and high cost products, which allow people to differentiate themselves and obtain a unique self-image. This in turn requires luxury brands to avoid the mass market and maintain exclusivity in order to meet these social expectations that they have set, with brand dilution and ubiquity being a potential threat to luxury firms (Tokali, 2012). The other main social trend is the growing role of social media in influencing “the perception and intention of consumers to purchase luxury fashion brands” (Phan, 2011, p. 81). Social media thus provides companies with an opportunity to promote their distinctive brand, heritage and luxury offerings to their markets in a more effective and targeted manner.
Technologically, as part of the fashion industry, luxury fashion is influenced by the technological developments in fashion supply chains. This includes the transportation and communication technologies, which facilitate the productions, distribution and marketing of products to a global market. It is also the associated coordination of branding activities, as well as supporting technologies such as Radio Frequency Identification (RFID) (Guercini and Milanesi, 2017). At the same time, digital technology is helping to support the social opportunities offered by social media. In particular, digital technological progress has allowed more people to access the internet, and thus creates a growing opportunity to reach customers around the world, including those who may not have been previously exposed to luxury brand marketing (Escobar, 2016).
Environmentally, Burberry are keen on supporting the commitment to reducing negative environmental impacts in the world and in doing so, have partnered with CottonConnect in Peru, where the company helps train and encourage Peru’s farmers to adopt more sustainable farming techniques when creating organic cotton. Over the past two years after this initiative was introduced, farmers reported using 26% less fertilisers and 68% less pesticides whilst improving their yield by 15% in addition to their farms becoming more water efficient, resulting in substantial benefits for the environment not only through a reduction in pesticides but also water waste
(CottonConnect, 2017).
Legally, to ensure its success, Burberry must abide by legal laws of the countries within which it operates. Favourable legal laws have positive effects on the performance of Burberry, where unfavourable regulations can compromise the firm's profitability. As Gasparini (2017) notes, 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. They have the legal entity and it means that related terms, an association, corporation, partnership, proprietorship, trust or individual that has legal standing in the eyes of law. A legal entity has legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts, sue and be sued in its own right, and to be held responsible for its actions.
3. The Micro External Environment Analysis
The micro external environment analysis looks at the suppliers, stakeholders, intermediaries, competitors and lastly the customers. It also analyses the factors that have a direct impact on the business operations and success.
Customers are arguably the most important factor in the micro external environment. In general, “in the luxury fashion retailing industry, consumers can be categorized into the groups of fashion leader and fashion follower. These two groups influence one another and create social influences in the market” (Shen, Qian and Choi, 2017, p. 89). As a result of this, it is important for luxury fashion brands to target the fashion leaders, including celebrities and other vocal brand advocates, who will in turn influence other customers and create a strong and valuable brand. Another opportunity in the microenvironment comes from the brand value co-creation process. In the luxury fashion context, this refers to the ability of companies to work with consumers to define luxury in their products and thus be more effective at meeting customer demands in this area (Choi, Ko and Kim, 2016). In theory, this allows companies to develop products that are specifically targeted at customer needs, such as greedy and desired needs, thus giving them a strong basis of loyalty and consistency from the customers.
Another important factor in the luxury fashion market is the suppliers. These consist of the companies who provide materials, intermediate products and labour as part of global supply chains. In the case of the fashion industry, the development of global supply chains has seen many manufacturing activities take place in low cost economies around the world to enhance margins and price competition (Guercini and Milanesi, 2017). However, new retail concepts have also emerged focusing on local production, in line with fashion company’s critical success factors (Brun, 2017). In the case of luxury fashion chains, this provides an opportunity to enhance the brand through the use of targeted local supply chains, which exploit local expertise and thus help enhance the overall reputation of the business. For example, Burberry could look to reinforce and strengthen its claim to being truly British by eschewing the traditional global model of supply and instead basing most of its activities in the UK.
4. Internal Environment Analysis
When considering the internal environment of Burberry, the company’s management has been in a state of change over the past few years. This was triggered by a poor decision in the early 2000s to attempt to expand the reach of the brand to the wider market, something which caused the brand to lose its exclusivity and thus much of its brand value (Solca, 2015). This creates a significant weakness for the brand, with the company’s products, and particularly its unique tartan design, being adopted by, and thus associated with, undesirable groups such as football hooligans and 'chavs' (Tokali, 2012). As a result of this, the company’s growth rate fell to below 2% per annum, and the company lost control of its global brand due to the failure to maintain a strong luxury focus (Ahrendts, 2013). This created an initial weakness which has become somewhat persistent in light of the role of image and impression management in the luxury market, despite the company’s recent efforts to overcome it.
As a result of these issues, Burberry’s management has looked to move away from a mass market approach, and towards a more effective branding and marketing strategy. This has involved the widespread adoption of digital marketing as a core of the company’s strategy, using social media and digital marketing to attempt to build a distinctive brand image (Straker and Wrigley, 2016). The company has also looked to emphasise its roots, including celebrating its 160th anniversary and focusing on Thomas Burberry's life and the history of the brand (Marketing Week, 2016). This brand focus is a major strength of the company, enabling it to regain some market power.
The company’s financial resources are quite strong. Whilst the company’s revenues have fluctuated in recent years, with profits declining by 10% in 2016 before rising by a similar amount in 2017, the company has a strong cash balance of over £600m (MarketLine, 2017). This provides significant resources to invest in marketing and brand management. The company has used this financial strength to enhance its marketing and devote more money and resources to its product launches, thus supporting the brand and the communication of the products to the target market (Vizard, 2017).
Burberry has also developed its human resources into a strength of the company. In particular, employees are encouraged to give feedback on the company’s strategy and image, and how they believe they can be improved (Smedley, 2009). This hence helps the company read the market more effectively and respond to challenges. At the same time the company has invested in its UK workforce, including launching a new manufacturing and weaving facility in Leeds, with an associated investment in training and development of the workforce (Works Management, 2015). This hence helps the company boost the quality of its products, whilst emphasising its links to the UK and breaking with the mainstream global sourcing chains.
Finally, the company has developed its technical capabilities in recent years, with a particularly focus on social media. This includes partnerships with the technology firm Apple and the communication service WeChat, allowing the company access to data and insight around customer preferences (Marketing, 2016). These capabilities have been used to launch and support the company’s ‘Art of the Trench’ campaign which emphasises the company’s trench coat as a core focus of branding and promotional activities, whilst also expanding the reach of this product to younger customers, thus supporting the business’ brand strength (Grieve et al, 2013).
5. Conclusions
The analysis presented in this work indicates that Burberry operates in quite a challenging market, with key threats from competition, counterfeiting, and a challenging economic environment. At the same time, there are opportunities in emerging economies, digital technology and co creation. Against this external environment, Burberry suffers with a persistent weakness due to its previous mass market expansions which have devalued the brand in the eyes of some consumers, thus leaving the company more open to competition and losing customers in more challenging economies. However, the company does have the potential to leverage its strengths in social media and its unique brand heritage to appeal to consumers, particularly in emerging economies and individuals who value co creation in luxury fashion. As such, whilst Burberry needs to attend to its core weakness in the face of ongoing threats, the company does have significant potential to enhance its performance in other areas.
6. Recommendations
The core recommendation for Burberry is to continue to focus its efforts on the use of social media and digital technology as methods of targeting customers. This is particularly relevant amongst younger consumers and those in emerging markets, who may be less aware of the issues the Burberry brand has experience with devaluation in the past. At the same time, the company will need to maintain and expand its efforts to refocus its brand on its core British heritage, and products such as the trench coat which were not damaged as badly by the previous management and branding failures. The company should also look to increase its focus on emerging markets where the economic environment is more positive, and the social environment views British brands as desirable. However, the company may be vulnerable in this area to damage to the British brand due to issues such as Brexit, and thus should develop contingency plans in case this becomes a problem. Finally, the company should look to address counterfeiting through the use of RFID technology, which can help track products through the supply chain and thus provide verification for consumers around genuine Burberry products (Kirkwood and Tanner, 2017).
7. Bibliography
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Choi, E. Ko, E. and Kim, A. (2016) Explaining and predicting purchase intentions following luxury-fashion brand value co-creation encounters. Journal of Business Research. 69(12) p5827-5832
CottonConnect (2017) http://cottonconnect.org/portfolio-posts/burberry- sustainable-cotton/ Accessed 8th November 2017
Escobar, A. (2016) The Impact Of The Digital Revolution In The Development Of Market And Communication Strategies For The Luxury Sector (Fashion Luxury). Central European Business Review. 5(2) p17-36
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Smedley, T. (2009) 'We allow staff to give feedback — and they most certainly give it.'. People Management. 15(22) p18-21
Solca, L. (2015) LVMH vs Kering: Which Player is Best Positioned for Growth? http://www.businessoffashion.com/2015/02/lvmh-vs-kering.html Accessed 14th September 2016
Straker, K. and Wrigley, C. (2016) Emotionally engaging customers in the digital age: the case study of “Burberry love”. Journal of Fashion Marketing & Management. 20(3) p276-299
Tokali, N. (2012) Old firms, new tricks and the quest for profits: Burberry’s journey from success to failure and back to success again. Journal of Economic Geography. 12(1) p55-77
Vizard, S. (2017) Burberry rethinks how it markets product launches. Marketing Week. 5/18/2017, p1
Works Management (2015) Did you miss it? Works Management. 68(10) p6-8