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Strategy: Fitness Apparel Industry Analysis & Recommendation
- 1. Fitness Apparel Industry Porter’s 5 Enforcers: Nahar Chowdhury, Xuanying (Shirley) He, Rishi Daryanani, Xi (Lorraine) Chen, Ailin (Eileen) Chen
- 2. OverviewAgenda • Introduction • Industry analysis • Firm analysis • Technology • Resources • Scope • Issues and recommendations Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation 1
- 3. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Fitness Apparel Industry Clothes specifically sold and marketed to be worn during fitness or wilderness related activities; i.e. playing sports, running, yoga, camping, hiking Top Industry Firms Industry Size $153 Billion Global Market Cap1 Industry Trends “…active wear is suddenly chic”2 Fitness clothing is no longer limited to the gym and gym related activates. Industry Overview 2
- 4. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Leader Firm “ A designer, distributor, and retailer of technical athletic apparel…which create transformational experiences … leading a balanced and fun life ”3 3
- 5. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation “As one of the largest outdoor and active lifestyle apparel and footwear companies in the world, our products have earned an international reputation for innovation, quality and performance. ” 4 Client Firm 4
- 6. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Industry Profitability – Industry average profitability : average ROS Years 2010-2014 – Positive industry influence on profits Analysis of Financial Performance (Based on Return on Sales) 4.00% Economic Average Industry Influence Client Strategy Influence 5.88% Colombia's Profitability Industry Profitability 17.18% Lululemon's Profitability Leader Strategy Influence 7.99% +3.99% +9.19% -2.11% Analysis of Financial Performance - Industry 5
- 7. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Firm Facts 2 Geographic Categories: US & Canada Profitability: ROS 17.18% Sales Revenue: 2.06 Billion in 2015 Key Products : Yoga Pants and Mats Brand Image: Healthy Lifestyle 4 Geographic Categories: US & Canada, Latin America, Asia Pacific, Europe & Middle East Profitability: ROS 5.88% Sales Revenue: 2.3 Billion in 2015 Key Products : Skiing and Snowboarding Apparel Brand Image: Tough & Durable & Affordable All Facts and Figures are taken form annual reports and 10-K fillings 6
- 8. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Analysis of Financial Performance - Industry • Key buyers: •Department stores, consumers • Low Brand loyalty5 ↑ • Low switching cost ↑ • High price sensitivity ↑ High Buyer Power • Key Rivals: •Nike, VF, Adidas, Under Armour, Columbia, Lululemon, • Concentration C6 = 15.4% ↑ • CAGR 5.2% ↓ • Brand Recognition ↓ • Comparison shopping6↑ Moderate Rivalry 7
- 9. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Trends & Dynamics Impact on 5 Forces • Rivalry ↓ • Substitute ↑ • Buyer Power ↓ • Rivalry ↑ Total Impact on Industry P Trend #1 Fitness clothing to becoming more casual and fashionable7. • Substitute ↑ • Rivalry ↑ Trend #3 Less sports participation in the U.S market8. Trend #2 Companies are developing fitness apps and other wearable technology9. Advanced 5 Forces Analysis (I) - Industry 8
- 10. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Greater buyer power Lower perceived value Weaker brand image Department stores Buyers value quality more Low switching cost Advanced 5 Forces Analysis (II) 9
- 11. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Cost Leadership Differentiation Broad Market Narrow Market Positioning 10
- 12. $- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 Average Lululemon Columbia Industry WTP and Cost Other R&D Marketing Costs Cost of Goods Sold Margin $68.75 $51.94 $77.75 $46.36 $63.82 $61.74 Total Cost Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation WTP & Costs Drivers - Industry WTP Quality Technology Brand Trends Retail Experience Costs Marketing & Sales Production Distribution Networks R & D Patent Expenses WTP and Cost figures come from the average of the best selling product lines 11
- 13. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Strategic Activities • Building brand image: healthy lifestyle • Building a community • Thorough product testing • Design: • Trademarked fabric • Luon, Swift, Luxtreme10 12
- 14. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation WTP & Cost Drivers WTP Quality Community- based Marketing11 First mover in athleisure12 Free yoga & self defense classes Cost Grassroots ad campaign Low distribution Partnership in R&D Less legal expenses 13
- 15. Positioning Brand loyalty Charge premium prices Sustained profits Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Achieving High Profits • High disposable income • Niche market • Grassroots marketing • Consistent design & development 14
- 16. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Strategic Activities • Autonomous design team & R&D spending • Strictly managed inventory • Multiple distribution channels • Lower dependency on cold weather 15
- 17. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation WTP & Cost Drivers WTP “Tested Tough” ad campaign15 Functionality Technology13 Cost Marketing16 R&D Patent expenses Distribution14 COGS 16
- 18. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Lower Than Average Profitability Low ROS Poor marketing Failing cost leadership strategy Depend on cold weather 17
- 19. Production TechnologyIndustry Production Technology Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Disruptive Sustaining Complementary asset Product Design → Manufacturing → Distribution → Wholesale & Retail → Customers17 Columbia’s Patented Technologies, Process & Design: • Omni-Tech, Outdry, Omni-Wick Evap, Omni-Heat18 Omni-Heat Electric (Columbia): • Traditional vs. Conductive material • + electronic elements • Discontinued in 201319 Fitness tracker/Smartwatch: • Workout accessories Marketing Channel: • Columbia’s weak brand image • Hard to capture full value of innovations Industry is subject to incremental innovation 18
- 20. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Valuable Rare Costly to imitate Capture value Sustainable competitive advantage Firm-level Analysis: Resources • Omni Heat Technology Patent • Global Presence • Design Patent • Brand Value 19
- 21. Horizontal Scope • Fitness Apparel • Skiing • Snowboarding • Fishing • Adventure travel • Premium Footwear • Hiking • Climbing • Trail Running • Lifestyle Apparel Horizontal scope – Narrow21 Horizontal Scope – Wide20 • Fitness Apparel • Yoga • Run Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation 20
- 22. $0.00 $500.00 $1,000.00 $1,500.00 $2,000.00 $2,500.00 1999 2012 2013 2014 Net Sale Acquired Brands Columbia Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation 55% 32% 54% 35% 0% 20% 40% 60% COGS/Rev S&G/Rev Cost/Revenue Ratio 1999 2015 Better-off Test ✔ No Cost Savings • Little impact on cost saving Increase in WTP • Positive incremental net sales Wide Horizontal Scope Ownership Test ✔ Ownership benefits > Contract benefits • Confident to allocate capital • Costly to enforce contract • Avoid binging up new competitors 21 All Facts and Figures are taken form annual reports and 10-K fillings
- 23. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Manufacture Distribution Consumers Better-Off Test✔ Increase WTP • Build brand connection with customer • Marketing purposes Vertical Scope Ownership Test✔ Increase WTP • Control layout • Improve retail experience • More control over customer service 22 Product Design Retail Wholesale Owned Contract Retail 22
- 24. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Assessment of Strategic Issues Industry-Level Issues • Be a leader in innovation • More focused acquisitions New technology • Partner up with media channels: Discovery & National Geographic • Emphasis on adventurous lifestyle Less sports participation 23
- 25. Assessment of Strategic Issues Firm-Level Issues Key Challenges • Higher buyer power • Weather constraint • Weak brand image Key Horizontal Scope Issues • Acquire professional fitness sporting goods brands Key Vertical Scope Issue • Stockouts at department stores How can Columbia respond • All-around professional sporting goods brand • Develop summer sports-related product lines • NEW MARKETING STRATEGY • NEW APPROACH TO MANAGEMENT Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation 24
- 26. • Retail stores with trained employees • Control customer service New Marketing Strategy Marketing Community Retail • Focus on adventurous lifestyle • Interaction between customers and the firm • Host events or trips to popular skiing/fishing spots Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation 25
- 27. “We're a family business gone global.”23 • Mother GERT BOYLE24 Chairman of the Board • Son TIM BOYLE Chief Executive Officer, Director • Grandson JOSEPH P. BOYLE Senior VP Brand Merchandising & Design • Snowboarder, surfer Laurent Potdevin26 Chief executive officer • Skier, runner, cyclist Stuart Haselden Chief financial officer • Runner, cyclist, iron man triathlon Duke Stump Executive VP, community and brand “We are passionate about sweating every day and we want the world to know it.”25 Assessment of Strategic Issues Firm-Level Issues - Management Team Columbia should hire executives with sports experience Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation 26
- 28. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation • Strategic position Failing cost leadership strategy Columbia’s quality & innovation does not drive up WTP • Recommendations Leader in innovation Marketing with focus on adventurous lifestyle New talents in management • Columbia is vulnerable to imitation North Face(VF) and Patagonia could imitate Assessment of Strategic Issues Conclusion 27
- 29. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Thank You!!! & Questions? Assessment of Strategic Issues Conclusion 28
- 30. From SI 422 Course Packet • Internal Analysis: Resources, Capabilities and Activities • Choosing Corporate and Global Scope • The Five Forces 1 Statista. “Global Sports Apparel Market from 2015 to 2020.” Accessed March 10, 2016 http://www.statista.com/statistics/412667/global-sports-apparel- market-projected-development/ 2 Fortune. “Athletic Apparel: Outperforming the competition in 2014.” Accessed March 10, 2016 http://fortune.com/2014/12/25/athletic-apparel-top- performer/ 3 Lululemon. “Annual Report 2015.” Accessed March 10, 2016 http://investor.lululemon.com/secfiling.cfm?filingID=1397187-16-89&CIK=1397187 4 Columbia . “Annual Report 2015.” Accessed March 10, 2016 http://investor.columbia.com/secfiling.cfm?filingID=1050797-16-20 5 Mintel. “Fitness Clothing – Issues & Insights.” Accessed March 10, 2016 http://academic.mintel.com.ezproxy.bu.edu/display/679801/ 6 Nike. “Annual Report 2015.” Accessed March 10, 2016 http://s1.q4cdn.com/806093406/files/doc_financials/2015/ar/docs/nike-2015-form-10K.pdf 7 Fortune. “Athletic Apparel: Outperforming the competition in 2014.” Accessed March 10, 2016 http://fortune.com/2014/12/25/athletic-apparel-top- performer/ 8 IBISWorld. “Sporting goods stores in the US.” Accessed March 10, 2016 http://clients1.ibisworld.com.ezproxy.bu.edu/reports/us/industry/default.aspx?entid=1079 9 Certona. “Hitting a Home Run in the Athletic Apparel Industry.” Accessed March 10, 2016 http://www.certona.com/hitting-a-home-run-in-the-athletic- apparel-industry 10 Lululemon. “Fabrics and Technologies.” Accessed March 10, 2016 http://www.lululemon.com/education/fabricsandtechnologies 11 Market Realist. “ Lululemon Builds Brands Through Unique Marketing Strategies.” Accessed March 10, 2016 http://marketrealist.com/2014/12/lululemon- builds-brands-unique-marketing-strategies/ 12 Business Insider. “Lululemon’s Secrets for Beating all the Competition.” Accessed March 10, 2016 http://www.businessinsider.com/lululemon-and-the-rise- of-athleisure-2015-7 Bibliography
- 31. 13 Columbia Sportswear Company. “Columbia Sportswear Previews Omni-Freeze ZERO.” Accessed March 10, 2016 http://investor.columbia.com/releasedetail.cfm?ReleaseID=681955 14 Youtube. “Columbia Sportswear CEO Timothy Boyle-Mad Money-CNBC.” Accessed March 10, 2016 https://www.youtube.com/watch?v=SYXb14dnunM 15 The Oregonian. “Columbia Sportswear’s Biggest-ever ad Campaign.” Accessed March 10, 2016 http://www.oregonlive.com/playbooks- profits/index.ssf/2015/10/columbia_sportswears_biggest-e.html 16 Vault. “Columbia Sportswear Company Overview.” Accessed March 10, 2016 http://www.vault.com/company-profiles/general-consumer- products/columbia-sportswear-company/company-overview.aspx 17 Wikinvest. “Columbia Sourcing and Manufacturing.” Accessed April 10, 2016 http://www.wikinvest.com/stock/Columbia_Sportswear_Company_(COLM)/Sourcing_Manufacturing#toc 18 Columbia Sportswear Company. “Technologies.” Accessed April 10, 2016 https://www.columbia.com/technology-landing.html 19 Snewsnet. “Columbia Suspends Future Omni Heat Electric Program After Recall.” Accessed April 10, 2016 http://www.snewsnet.com/news/columbia- suspends-future-omni-heat-electric-program-after-recall/ 20 Columbia Sportswear Company. “Company Profile.” Accessed March 10, 2016. http://investor.columbia.com/index.cfm 21 Lululemon Athletica. “Products.” Accessed March 10, 2016. http://shop.lululemon.com/products/category/women?mnid=mn;Uswomen 22 Slideshare. “Lululemon Strategy Report.” Accessed March 10, 2016. http://www.slideshare.net/azizghani0/lululemon-strategy-report-51426773 23 Columbia Sportswear Company. “Columbia History.” Accessed April 10, 2016 http://www.columbia.com/About-Us_History.html 24 Columbia Sportswear Company. “Officers and Directors.” Accessed April 10, 2016 http://www.columbia.com/About-Us_Officers-And-Directors.html 25 Lululemon. “The Lululemon Manifesto.” Accessed April 10, 2016 http://www.lululemon.com/about/manifesto 26 Lululemon. “Management & Board of Directors.” Accessed April 10, 2016 http://investor.lululemon.com/management.cfm 27 Encyclopedia. “Columbia Sportswear Company History.” Accessed March 10, 2016 http://www.encyclopedia.com/topic/Columbia_Sportswear_Company.aspx 28 The Oregonian. “Columbia Sportswear Files Omni Heat Patent Infringement Lawsuit.” Accessed March 10, 2016 http://www.oregonlive.com/playbooks- profits/index.ssf/2013/12/columbia_sportswear_files_omni.html 29 Fortune. “Smart Apparel.” Accessed April 10, 2016 http://fortune.com/2015/09/11/smart-wearables-fitness/ 30 Lululemon Athletica. “Strategic Sales.” Accessed March 10, 2016 http://info.lululemon.com/about/stratsales 31 Vault. “About Columbia Sportswear Company.” Accessed March 10, 2016http://www.vault.com/company-profiles/general-consumer-products/columbia- sportswear-company/company-overview.aspx Lululemon, “Annual Reports.” Accessed March 10, 2016 http://investor.lululemon.com/annuals.cfm Columbia Sportswear Company. “Annual Reports.” Accessed March 10, 2016 http://investor.columbia.com/annuals.cfm Bibliography
- 32. Backup Slides
- 33. Exhibit 1 ROS Calculation
- 34. Exhibit 2 Concentration Calculation
- 35. Firm Infrastructure: 3 main executive offices and 4 distribution centers Human Resources: Strong networking support for Lululemon Brand ambassadors. Inbound Logistics Research and Development teams focus on the development of new designs and testing out the fabric and material for quality maintenance. Operations Distribution centers in Ohio, Washington, British Columbia and Melbourne transport products to Lululemon retailers and directly to customers through e- commerce sales. Marketing and Sales Sales are made in Lululemon retailers. Brand ambassadors promote the brand across the three countries. Grassroots marketing campaign. Technology Development: Development of e-commerce information systems. Procurement: Lease of some retail locations and short term contracts with suppliers. Outbound Logistics Service Lululemon sends its designs to different suppliers for different products. Manufacturing is outsourced to carefully selected firms. Finished products are shipped Lululemon to distribution centers Free information sessions on health. Free yoga and self defense classes. Value Chain Analysis
- 36. Intro Industry Analysis Firm Tech Resources Scope Recommend ation Industry Rivalry Suppliers Buyers Potential Entry Substitutes Power of Suppliers – Low key Suppliers • independent manufacturers in Indonesia, China, Vietnam, Mexico, Taiwan, India and Bangladesh and etc. • Very low supplier concentration ↓ • Low amount by each supplier ↓ • Commodity inputs ↓ • Firms contracts with numerous suppliers ↓ • Suppliers could forward integrate ↑ Threat of Entry – Moderate Potential entrants: • Casual apparel companies • Fashion companies • Apparel Manufactures • Light regulation ↑ • Low capital Intensity ↑ • Economies of scale & scope ↓ • Low technological change ↑ • Hard to access department stores ↓ Extent of Rivalry – Moderate key Rivals • Nike, VF, Adidas, Under Armour, Puma, Colombia, Lululemon • CAGR 5.2% ↓ • Low concentration C3=32% ↑ • Brand Recognition ↓ • Companies often engage in price wars ↑ Power of Buyers – High Identify key Buyers • Department stores and consumers • Low switching costs ↑ • Low brand loyalty ↑ • Low chance of backward integration ↓ • High price sensitivity ↑ Threat of Substitutes – Moderate Identify key substitutes • Casual apparel • Low switching cost • Large amount and variety of substitutes • Force costs up • Lower buyer propensity Analysis of Industry Environment
- 37. Valuable •Well-known in yoga fans, first mover in yoga apparel industry, brand loyalty Rare? •Hard to imitate the entire brand due to the established reputation in the industry Costly to imitate •Brand value is costly to imitate Capture Value •Loyal customers allow Lululemon to capture value Intro Industry Analysis Firm Tech Resources Scope Non- Market CSR Recomme ndationIntro Industry Analysis Firm Tech Resources Scope Non- Market CSR Recomme ndation Valuable • Higher WTP Rare • With patent protection Costly to imitate • Other firms have to work around the patent Capture value • Long-term contract with Taiwanese supplier and distributor ✔ ✔ ✔ ✔ Sustainable Competitive Advantage Firm-level Analysis Resource #1 Patented Design ✔ ✔ ✔ ✔ Sustainable Competitive Advantage Firm-level Analysis Resource #2: Brand Value
- 38. Valuable • Revenue from oversea market constitutes about 40% of the overall revenue Rare • Limited sports apparel companies entering markets overseas due to the high capital requirement Costly to imitate • Need large amount of resources and coordination Capture value? • Distribution and retail network is well structured. • Distribute in over 30 countries27 Valuable • Water proof, breathable material that increase customers WTP Rare • With patent protection28 Costly to imitate • Other firms have to work around it Capture value • Contributed to firms’s growth in net sales Sustainable Competitive AdvantageSustainable Competitive Advantage Firm-level Analysis Resource #1 Global Presence ✔ ✔ ✔ ✔ Firm-level Analysis Resource #2 Patent: Omni-Heat Reflective material ✔ ✔ ✔ ✔ Intro Industry Analysis Firm Tech Resources Scope Non- Market CSR Recomme ndation
- 39. Columbia’s Production Technology • Role of innovation • Industry is subject to incremental innovation • Companies constantly develop innovative technologies & products that provide better performance benefits needed by consumers • Sustaining innovation • Fitness Tracker/Smartwatch29 • Work-out Helper • Most recent disruptive innovation • Omni-heat Electirc • Traditional Fabric vs Conductive Fabric + Electronic Elements • Delivering heat on demand • Columbia should be a leader of new technology • “…To earn an international reputation for innovation, quality and performance…” – Columbia’s Mission Statement • 2013 Columbia suspended its Omni-Heat Electric program after having to recall its jackets due to a wiring malfauncing and possible hurn hazard • Risk averse management • Complementary assets • Marketing Channel • Columbia’s ineffective marketing campaign • Hard to increase WTP of its innovative products
- 40. Save Cost? – No Higher R&D Lower distribution and sales costs Boost WIP? - Yes Higher increase in Revenue than in Cost High quality products Strong brand image & brand loyalty $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 2009 2010 2011 2012 2013 2014 Net Revenue COGS SG&A Better-off Test ✔ Ownership > Contract Confident to allocate capital Costly to make contract when acquired business units become profitable Avoid binging up new competitors Ownership Test ✔ Intro Industry Analysis Firm Tech Resources Scope Recommenda tion Narrow Horizontal Scope – Lululemon All Facts and Figures are taken form annual reports and 10-K fillings
- 41. Intro Industry Analysis Firm Analysis Tech Resources Scope Recommendation Manufacturing Distribution Consumers Better-Off Test✔ Increase WTP • Product Design Key factor in success of products • Manufacturing Control on product quality • Retail • Build brand connection with customers • Marketing Vertical Scope Ownership Test✔ Cost Saving • Owned - Design Team Control innovation • Contract – manufacturers: CapEx.,Labor Cost Increase WTP • Owned – Retail Store • Control layout • Improve retail experience Product Design Retail Wholesale Owned Contract
- 42. Columbia Sportswear Company Wholesale > Retail ❖Primarily sold through wholesale distributors to specialty outdoor and sporting goods stores31 Lululemon Athletica Retail > Wholesale ❖Primarily sold through Lululemon-owned stores as well as online ❖Selectively strategic sales (Wholesale Program) through certified partners to offer its products to high-end health club and yoga studio30 Advantage: large degree of control over merchandising and marketing Brand message is strong and consistent at all consumer touching points Disadvantage: Not too recognized within the mass market Recommendation: With its wide range of distribution, Columbia can put more effort in its retail stores Creates a stronger adventurous community feeling Intro Industry Analysis Firm Tech Resources Scope Non- Market CSR Recomm endation Difference in Vertical Strategy
- 44. • Be a leader in innovation • More focused acquisitions New technology • Partner up with media channels: Discovery & National Geographic • Emphasis on adventurous lifestyle Less sports participation • Other firms such as Adidas & Nike follow consumer preference • Lobby for more PE classes Fitness clothing going casual Changing Trend