Company background Burberry
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Company background Burberry

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Through all of its operations, Burberry designs, sources, markets, licenses and distributes apparel, accessories and other lifestyle products for women, men and children . ...

Through all of its operations, Burberry designs, sources, markets, licenses and distributes apparel, accessories and other lifestyle products for women, men and children .
The story of Burberry is a perfect illustration of a brand which has successfully restructured itself by meeting efficiently requirements due to the complex set of changes in the world especially in Europe which have had huge power on Firm’s business. After a review of the eventful history of Burberry, its range of products and its international strategy during the last decades the question is to know how do luxury firms and in particular Burberry manage their operation businesses and their strategy in the context of enlargement of the EU? How should it meet the new changing European business environment to survive and grow?

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Company background Burberry Company background Burberry Document Transcript

  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe INTERNATIONAL BUSINESS EUROPE COURSEWORK : BURBERRY Friday 3rd April 2009 1 2008-2009
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 TABLE OF CONTENTS INTRODUCTION.................................................................................................................................................. 3 I) HISTORY OF BRITISH LUXURY BRAND INTERNALIZATION ......................................................................... 3 A) B) C) D) II) INNOVATIVE BEGINNINGS ............................................................................................................................. 3 WAS A GROWING TOO FAST? ........................................................................................................................ 4 SUCCEEDED REPOSITIONING .......................................................................................................................... 5 COMPLETE PRODUCT RANGE ......................................................................................................................... 5 NEW CHALLENGES FOR FIRMS WITHIN A NEW EUROPE ........................................................................... 6 A) B) C) D) E) F) THE “MADE-IN-BULGARIA” SYMPTOM ............................................................................................................. 6 RISING OF GDP/ GAP BETWEEN MEMBER COUNTRIES ......................................................................................... 7 CEES LIBERALIZATION AND LUXURY VIEWS ........................................................................................................ 8 CORRUPTION AND COUNTERFEITING................................................................................................................ 9 FREE TRADE OF PERSONS .............................................................................................................................. 9 EU UNDER PRESSURE FROM NON-GOVERNMENTAL ORGANIZATIONS ..................................................................... 10 CONCLUSION AND RECOMMENDATIONS ........................................................................................................ 10 APPENDIX ........................................................................................................................................................ 12 I) II) III) REVENUE BY PRODUCT CATEGORY ................................................................................................................ 12 PYRAMID OF BURBERRY PRODUCTS RANGE ..................................................................................................... 12 ORIGINS OF COUNTERFEITS SEIZED BY EU CUSTOMS SERVICES .............................................................................. 13 2
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 Introduction Through all of its operations, Burberry designs, sources, markets, licenses and distributes apparel, accessories and other lifestyle products for women, men and children 1. The story of Burberry is a perfect illustration of a brand which has successfully restructured itself by meeting efficiently requirements due to the complex set of changes in the world especially in Europe which have had huge power on Firm’s business. After a review of the eventful history of Burberry, its range of products and its international strategy during the last decades the question is to know how do luxury firms and in particular Burberry manage their operation businesses and their strategy in the context of enlargement of the EU? How should it meet the new changing European business environment to survive and grow? I) History of British luxury brand internalization A) Innovative beginnings Thomas Burberry, who was a 21 year old draper’s apprentice, established his first shop Burberry in 1856 in Basingstoke (Hampshire, England). This originally Men's outfitter grew quickly and opened an emporium in Haymarket in London few years later. Further to the success of Gabardine, a breathable and weatherproof fabric introduced in 1980, the company registered the "Equestrian Knight" trademark in 1901 with the word “Prorsum” which means “forwards”. Forward an international way. The first real step of internalization was the establishing of its first foreign outlet in the most fashion capital Paris in 1910 although Burberry had soon established retails abroad in South America and in the United States. Indeed in the early 1900s, Thomas Burberry began to supply retail foreign stockists in those markets. It also exported its first shipment of raincoats to Japan in 1915 2 and entered into wholesale agreements with Japanese retailers five years later in order to be present on each Triad countries. However, the brand obtained a worldwide fame only further to the World War I, when the British War Office has commissioned Burberry to modify the coat of officer of army that is why it was called “Trench coat”. The company developed its now distinctive Burberry “nova” 1 2 See graph 1 about sales by product category in 2008. (3-30-09) http://www.answers.com/topic/burberrys-ltd, seen on March 15th 2009 3
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 check as a lining for the product and the easily recognizable brand moved definitely toward an international way by keeping nevertheless its authentic British heritage. In terms of communication, in its early age, Burberry promoted its image by outfitting several famous adventurers or sportsmen. The campaign "designed by sportsmen for sportsmen" drew customers to different Burberry's outlets. These consecutive feats allow Burberry to shoulder a sportive image, what it will have consequences on future portfolio of Burberry especially on Thomas Burberry and Burberry sport products. With a wealth of success, Great Universal Stores (GUS), a strong British conglomerate, acquired Burberry in 19553, losing thus its independence while getting more resources to pursue its international expansion. In Europe, Burberry is well implanted in the most developed country like France, Italia, Spain and obviously in the UK by way of contrast of eastern and less developed countries where Burberry has often opened only one store in the capital (Ukraine, Czech Republic). Nowadays, Burberry is focusing on Middle East market and Asian market, for example it has acquired 59% interest in Jashanmal JV Company (joint venture carried out in 2008) and opened outlets in Kuwait City and in Al Khobar, Saudi Arabia and Jakarta in Indonesia in 2008. B) Was a growing too fast? From then on its acquisition in 1955, expansion of Burberry worldwide was extremely quick, Burberry ranked among Great Britain's leading clothing exporter from 1980s to the 1990s4. Huge new findings from GUS allow Burberry to develop the outlets network in USA and in the UK by adopting a licensing strategy abroad, mainly in Japan but it is a double-edge strategy. Burberry had settled it in order to increase its incomes but in the same time, it lost control over its operation businesses. Burberry focused a large part of its activities on the Asian market during the 1980s and 1990s (it had more than one-fourth of exports headed to Japan 5), so after the collapse of Japan economy in the mid-1990s, Burberry dropped in a disastrous situation. The worst financial year for Burberry was in the ending 1998 where its annual profits felt from £62m to £25m6 and the brand 3 http://www.independent.co.uk/news/business/analysis-and-features/gus-to-cash-in-on-burberryturnaround-with-pound2bn-float-623789.html. seen on March 16th 2009 4 http://www.fundinguniverse.com/company-histories/Burberry-Ltd-Company-History.html. seen on March 18th 2009 5 http://www.fundinguniverse.com/company-histories/Burberry-Ltd-Company-History.html, seen on March 16th 2009 6 http://www.highbeam.com/doc/1G1-79067894.html.article from the mirror (London, England) seen on March 21st 2009 4
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 was considered by leading financial analysts as “an outdated business with a fashion cachet of almost zero”.7 C) Succeeded Repositioning The team recognized its inability to control over design, manufacturing, distribution operations due to an excess of licensing abroad and uncontrolled distribution agreements. For example, Burberry was available is the most of different stores in London, it but was not stocked by the capital's most prestigious retailers such as Selfridges, Harvey Nichols or Harrods.8 Therefore in 1997 a new management team was settled under Rose Mary Bravo impetus as new Burberry‘s CEO in order to revitalize the brand by changing marketing mix of Burberry with new products, new advertising campaign and new distribution network9. Name of the brand changed from Burberry's to Burberry, They hired Kate Moss and reputable fashion photographers to promote worldwide the brand. For product sourcing, Burberry reduced its reliance upon licensees for product design and manufacture. Consequently, they acquired their Spanish licensee in June 2000 10 to keep a better control over operations. Consequently, Burberry reached a turnover about £995.40 million in the financial year 2008 compared to its catastrophic financial situation in 1997-1998. D) Complete Product range After its repositioning, Burberry adopted a multi-brand positioning what have already adopted by the most of its competitors like Gucci, Ralph Lauren and Prada. Product portfolio can be illustrated as a pyramid11, with on the top, Prorsum line as the couture range that serves as brand’s essence focusing only for fashion shows and editorial coverage and for reaching maximum market coverage and broad customer appeal. With a low distributing and staking on a combination of tradition and modernity, it is above all what image does Burberry want to spread worldwide (it is what the stars are wearing). 7 http://www.cind.uu.se/CIND%20Research%20Paper%20Series/CIND2006-3.pdf, seen on http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Art icles/0890320806.html seen on March 21st 2009 9 Fletcher, R. (2003), "Brava, bravo!", The Sunday Telegraph, 5 October, Seen on March 10th 2009 10 International Journal of Retail & Distribution Management, Volume 32, Issue 8 (2006-09-19) http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Arti cles/0890320806.html, seen on March, 10th 2009 11 See Pyramid of Burberry products range in appendix II 8 5
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 On the center of the pyramid, the more easily reached and sportive line Burberry London to meet a ready to wear demand. Abroad, it is a declension of Burberry London present in its historical market (Spain and Japan) named respectively Burberry blue and Burberry black in Japan fitted in accordance with seasonality and requirements of Japanese consumers and also establishing of Thomas Burberry in Spain since 1997, where mainly strong elements for trendy 15-25 years old are sold. Thomas Burberry, with a tailored original logo, is henceforth available in several countries. These national-brands provide flexibility and a good market responsiveness releasing liquidities for Burberry. Furthermore, The company also launched a new line called Burberry Sport designed in accordance with Burberry communication (quoted above I) A)) and design accessories, cufflinks, scarves, mufflers, shoes shawls, ties and some lifestyle items like (licensed) fragrance, eyewear, timepieces, jewelry, belts men's accessories, luggage handbags, small leather goods, umbrellas and also some children swear. All of it allowed customers to buy items through all brand of Burberry, from the most luxury to the most basic line. From then on Burberry became largest luxury accessories market in world12 product are sold through 71 third-party operated retail locations and a network of wholesale customers and a network of 260 directly operated stores and concessions everywhere in the world. II) New challenges for firms within a new Europe Further to the enlargement of the EU during the last years, several changes are taking place within members countries and overall within the EU. Most of them have a critically impact on firms operations and they have to respond to these changes to continue to growth. Changes explained below are characteristic of luxury market and the firm Burberry has to find a way to deal with them. The opening up of CEEs market increases the potential costumer number (around 500m people live now in EU), allowing firms to take benefit of cheaper labor, costs reduction and economies of scale. They can also extend their product life cycle where host luxury brand on market is almost nonexistent. A) The “made-in-Bulgaria” symptom 12 http://www.moodiereport.com/document.php?c_id=30&doc_id=19195. Seen on March 10th March, 2009 6
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 First of all, the enlargement of the EU is a new opportunity for luxury brands to enter in CEE market. Either to export their products and extend their businesses with free trade or moving manufactures in countries with cheaper workforce. However in the case of Luxury market, a “made in Bulgaria” rather than a “made in England” product has a negative impact on the brand image. A production in a lower cost country doesn’t justify high product prices anymore. The product quality is called into question. That is why Burberry should move only its accessories and less value products production abroad and keeping its high value product design in London or other reputed place. Outsourcing might kill Burberry authenticity and believability. It is important to maintain British manufacture, and a website www.keepburberrybritish.com was created to protest against the closing of a Burberry factory in wales to move in China (300 jobs were lost in 2006). Burberry should combine need of competitiveness and its British heritage and reputation, by outsourcing some of its operations abroad while ensuring high standards of corporate and social responsibility from suppliers, more often third party, with regular expert third party audits to ensure continued compliance. B) Rising of GDP/ Gap between member countries The increasing of purchase power in the new member countries due to the improvement of economy wealth in these counties thanks to the EU policy (subsidies for new members) led firms and specially Burberry to focus on and target these underexploited market. People can henceforth buy luxury product, nowadays it is not a privilege of the richest. However, most of people don’t take the liberty of buying a trench coat of Burberry for example. The price for a trench of the last Burberry Prorsum collection AW 2008 was around 900£13 whereas the average wage account for 2008 in Poland accounted for 3,144.41 zlotys 14 (around 650£) and 425£ in Romania the same year.15 In spite of the fact that Burberry target an upper middle class in each countries, it subsist an huge gap between UK and the CEE countries concerning GDP per capita. Accessible luxury is a new way within Burberry has to find which positioning it shall adopt. It is becoming a primordial asset. To deal with that, Burberry should diversify its range of products, and purpose affordable accessories, not only most expensive items like trench coat, what Mary Bravo began to do last years. Another way is to launch new lines adapted on market specificities as it did 13 http://uk.burberry.com/fcp/categorylist/dept/mens_outerwear seen on March 16th 2009 http://polandeconomy.blogspot.com/2008/04/poland-gross-wages-february-2008.html seen on March 17th 2009 15 http://en.wikipedia.org/wiki/Romania seen on March 17th 2009 14 7
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 for Spain (Thomas Burberry) and (Burberry black label and blue label in Japan), if structure costs are sufficient and if there is point doing it most profitable countries. It can also open stores (wholesale, flagship, retail) with prices adapted to the market. The future in these markets will be addressed both through direct retailing16 and franchise structures. C) CEEs liberalization and luxury views Liberalization of the CEE’s economy and the opening up of their market created opportunities for luxury brand. During communism people thought that purchasing luxury products were an aristocracy privilege, they were morally and financially reluctant. Purchasing a luxury item was inconceivable for the most part of the population in these countries before the collapse of Communism Bloc in the 1990s.Obviously, “shock therapy” in Poland or in Czech Republic didn’t change radically the mentalities but changed the way of thinking about luxury. They can reach a social status they had never expected before. People don’t buy luxury product anymore, they buy dreams. Owning products that makes them feel in a more rewarding world is more important than the product itself. The term “luxury” is an overused word it is above all what can people expected better for a given product. High value rather than High prices. For example people in CEEs attach more importance to luxury image than a product fitted or the quality of fabric used. People want an acknowledged brand, a flashy, gaudy check. That is why, Gucci, one of the direct competitors of Burberry, famous thanks to its big logo on accessories, is the most desirable brand in Eastern Europe. 17 Burberry should tailor its product in accordance with the aspirations of Eastern costumers by keeping logo and its check which have made its fame in the past. By way of contrast, in Western Europe, gaudy check and logo are more and more disliked both designers and customers. In the case of Burberry, in the 90’s for a time, nightclub bouncers in Britain refused entry to people wearing Burberry products especially cheap caps, which was a gathering emblem of Chavs "members of a sub-culture prone to drinking and anti-social behaviour."18 It is far away from luxury and glamour image. Burberry should reduce logo on its products what is has already done by Christopher Bailey who was brought in as designer in 2001 by deemphasizing plaid and incorporate others brand’s icon on products like knight and horse. The nightmare scenario for a 16 Moore, C., Fernie, J. (2004), "Retailing within an international context", in Bruce, M., Moore, C., Birtwistle, G. (Eds),International Retail Marketing; A Case Study Approach, Elsevier Butterworth-Heinemann, Oxford, pp.337. 17 http://www.forbes.com/2008/03/25/brand-luxury-desirable-forbeslife-cx_nr_0325style.html, seen on March 20th, 2009 18 http://www.urbandictionary.com/define.php?term=chav&r=f seen on March 20th, 2009 8
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 luxury brand is when it suddenly becomes banal or vulgar what Gucci knew in 1980 before its succeeded repositioning as well or that product are such high demanded that it is counterfeited. D) Counterfeiting The point quoted above lead inevitably to one of the main issue that luxury brands have to face. How can they maintain their current prestige customer’s base when a forgeries network is settled more easily in Eastern Countries than in Western countries and where free trade allow free flows of goods? For example Poland and Czech Republic have a very high counterfeiting rate. Turkey, if it enters in the UE also will have a high rate 19. Another example is when 150 000 Counterfeit Burberry product were found in Roma airport20."It was mostly counterfeit, and Britain accounts for less than 10% of our sales anyway” according to Stacey Cartwright, the CEO of Burberry 21. E) Free trade of persons Within the EU, free trade of persons is possible and as a significant proportion of Burberry’s sales carried out is generated by customers who purchase products while travelling either overseas or domestically22, brands should take benefit of this fundamental change. It is important to Burberry to open stores in the most touristic areas in Europe, where well off people gather, in capital city, what they did when they opened only stores in Capital city or in touristic city (Cannes). However it can be a problem if GBP currency is strong, people will travel to Euro zone or other countries to take advantage of currency fluctuation and buying firm’s products at a least cost. Firms especially from UK are facing a big deal with currency fluctuations; the numbers of currency has increase with enlargement, and charges of currency changes should be fixing. The best way is to use licensing or other strategy such as opening whole sale stores to avoid charges linked with currency changing. 19 See appendix III) on origins of counterfeits seized by eu customs services. http://fr.fashionmag.com/news/search.php?id_word=203 seen on March 17th 2009 21 King, Ian (2005-01-12). "Burberry not chavin' it". The Sun. http://news.agendainc.com/mtagenda/content/archives/2005/01/british_tabloid.html. seen on March 17th 2009 22 http://www.burberryplc.com/bbry/corporateprofile/markris/ seen on March 19th 2009 20 9
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 F) Firms and EU under pressure from non-governmental organizations Some powerful nongovernmental organizations take benefit of EU governmental system to make pressure on countries and firms which don’t respect what they defend. Thus they push EU to adopt laws like Greenpeace23, amnesty and in the case of Burberry, PETA, a company dedicated to establishing and protecting the rights of all animals.24 Burberry continues to use fur in its designs unlike its competitors like Vivienne Westwood. EU has already enforced laws on banning cat and dog fur from China where Burberry had only stopped using fur a few seasons ago further to different pressures on March 2006. Burberry is constantly under pressure, and it has negative effects on both its businesses and Image. Nobody claims it is a good thing seeing skinned but alive animals on video that PETA spread worldwide (during the bloody Burberry campaign25). Burberry should meet these requirements to avoid such annoyances by improving quality in its supply chain (reach EU norms like ISO 900 and 900126) and should be informed about the deepening of EU laws and regulations. Conclusion and recommendations Eastern Europe cannot be treated as a single, uniform market as different countries are at different stages of development. However, as technology progresses it is likely those decades of change in the West will be encapsulated in a much shorter time period in the East. This rapid change means getting investment decisions and product ranges right now. Identifying and understanding the needs of the consumer will be more, not less important than it is in the mature markets of the West. Firms should protect their classic core market, innovate to stimulate sales and attract more and more new customers to them. For a long time, Burberry was and is still not fully integrated company. Based previously as too licensed brand, Burberry suffered of being in the power of distributors. With brand repositioning, Burberry plan to be a Global brand, operating across countries and manage its supply chain efficiently. Burberry has to keep in mind it should offer a unique set of values, with a unique and clearly defined positioning to deviate from competitors strategy. All the strategy should be coherent to reach a defined goal. And it has to use different channel distribution 23 http://www.greenpeace.org/eu-unit/press-centre/press-releases2/pesticides-law-13-01-09, seen on March 17th 2009 24 http://www.peta.org.uk/about/default.asp, seen on 18th March 2009 25 http://www.peta.org.uk/feat/burberry.asp, seen on 18th March 2009 26 http://en.wikipedia.org/wiki/ISO_9000#Contents_of_ISO_9001, seen on 22th March 2009 10
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe 2008-2009 and maintain a co-ordinated distribution strategy to assure maximum market coverage to face the most of issues that Burberry can met. Thus, Burberry has to pursue its strategy based on accessories, and develop others adjacent products itself or via licensing agreements. Licensing agreements will allow the brand to delegate marketing activities to the management team in the foreign market in order to concentrate on others primordial operations businesses like maintaining a credible luxury fashion brand reputation. 11
  • Adrien BOURZAT : 08010616 Edinburgh Napier University BA Business and Management International Business Europe Appendix I) REVENUE BY PRODUCT CATEGORY II) PYRAMID OF BURBERRY PRODUCTS RANGE 12 2008-2009
  • Adrien BOURZAT : 08010616 III) Edinburgh Napier University BA Business and Management International Business Europe ORIGINS OF COUNTERFEITS SEIZED BY EU CUSTOMS SERVICES 13 2008-2009