Burberry Analysis of the Competitive Environment

The aim of this essay is to provide brief and structured analysis of the competitive environment of a Burberry. In the first part I will briefly present luxury goods sector, trends, and in the second part of this essay I will analyse Burberry using Porter’s Five Forces analysis. 2. Luxury Goods

Luxury goods are products and services that are not considered to be essential and are associated with affluence1. Some luxury products are considered to be a Veblen goods named after economist Thorstein Vebler in 18992. Demand for Veblen goods decreases as their price decreases and opposite. Classic luxury goods include haute couture clothing, accessories and luggage, automobile, wines, bottled water, tea, watches, jewellery, some services. 3. Latest trends in luxury goods sector

According to Altagamma and Bain Study on luxury goods worldwide luxury goods sector recorded a constant growth since 1995. South East Asia has around 600M inhabitants. Consumers are setting younger and more educated. Preferences for branded products are growing. Online availability of products is important. Central Eurasia is next interesting geographic area. Turkey will play an important role as a hub for the area. South Africa as one of the leading global sources of platinum, gold, diamonds and ostrich leather is showing growing demands for luxury goods. South Africa has 71K millionaires. By 2020 420.000 households will have over 100K$ of disposable income. According to these study Chinese customers weights for over 20%, Asians customers weights for more than 50%. Asia has younger customer base versus Europe, US and Japan with ageing customers base. Emerging markets account around 30% of luxury market. Latest trend is clearly showing unstoppable rise of independent woman, feminisation of men and overall casualisation of luxury. Absolute luxury is required (elitism, icon, heritage, uniqueness)3. 4. History of Burberry

Burberry was founded in 1856 by Thomas Burberry in Basingstoke, Hampshire, England. Burberry brand is defined by its Britishness, authentic outerwear heritage and is globally recognised by the iconic trench coat, trademark check and Prorsum horse logo. The 156-yearold company has undergone quite a transformation since Ahrendts joined in 2006, to replace Rose Marie Bravo in the role. Bravo had taken Burberry from a stale raincoat maker to a far more fashionable brand. Ahrendts continued a process of buying out Burberry’s powerful franchisees and closing its licensees around the world, an unfortunate corporate structure that had given Burberry little control over its image and ranges. She transformed Burberry’s backstage IT and supply chain, a job which she admits was “not very glamorous”. In a masterstroke, she relocated Burberry’s catwalk shoes from Milan to London, making the “Defining luxury: the conundrum of perspectives“, Beta.luxurysociety.com Veblen, T.B. (1899), „The theory oft he Leisure Class. An economic Study of Institutions“ 3 „Luxury Goods Worldwide Market Study,2011, 10th Edition“, Bain and Company, Fondazione Altagamma

Professional MBA Business Core 2012-2014 Competitive Analysis and Strategy Business Core Class 3 Burberry show the highlight of London Fashion Week. Ahrendts has pioneered the use of social networking sites, webcasts and in-store technology to build the brand. Its London fashion shows are beamed live from the catwalk to stores around the world, and its Beijing party was streamed live on the internet. The company’s Art of the Trench social networking site has had millions of hits. 4. 5. Burberry – strategy

Burberry strategy has five key strategic themes: leverage the franchise, intensify non-apparel, accelerate retail-led growth, invest in under-penetrated markets, and pursue operational excellence. These five themes underpin the connected culture, brand momentum and consistent performance5. 6. Michael Porter’s Five Forces Model

Bargaining Power of Customers: Buying power is low due to the fact that all customers are individual consumers. Customers can switch easy form one product to another due to the low switching costs but the products are determined by designers, sub-cultures, brands which limit switches. Bargaining Power of Suppliers: Key suppliers in the luxury goods market are clothing manufacturers and wholesalers. As international trade liberalizes, supplier power also is decreased through competition from manufacturers in low-wage regions like China. There is low to moderate supplier power in this market. Threat of Entry of New Competitors: The Asia-Pacific luxury goods market has shown strong rates of growth in recent years which increases the industries attractiveness to new entrants. Entry to the industry does not require large capital investments, setting up a single, independent apparel retail store are within the means of many individuals. The threat of new entrants to the Asia-Pacific luxury goods industry is assessed as strong.

Threat of Substitutes: “We’ve stopped making stuff and we’ve created a pure brand. That is the essence. Burberry is selling British attitude across the world. Burberry is the only one big British brand of scale6”. Luxury goods are connected with elitism, heritage, uniqueness and this is what makes luxury retail goods essential to consumers. Therefore, overall threat of substitutes to the luxury goods market is assessed as weak. Intensity of Competitive Rivalry: The luxury goods market is rather fragmented, where there is room for large numbers of smaller players. Burberry is the only large UK luxury clothing brand out there. The Burberry’s European rivals are LVMHs (Louis Vuitton Moet Hennessey), Pradas, PPR (Gucci Group, YSL, Sergio Rossi, Brioni,etc), Richemont. All of these companies are offering different brands, heritage and experience to their customer which makes intensity of competitive rivalry modest.

References:

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8455646/Burberry-chief-AngelaAhrendts-wants-to-sell-the-British-attitude-across-the-world.html 5 Burberry’s official web site,
http://www.burberryplc.com/about_burberry/our_strategy 6 http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8455646/Burberry-chief-AngelaAhrendts-wants-to-sell-the-British-attitude-across-the-world.html