As the expansion strategy of Esprit has lowdown in the recent years, the company is adapting a pause/proceed-with-caution strategy. As a result, Esprit has an opportunity to rest before continuing a growth or retrenchment strategy. 2. Current Performance Results Operating Results The turnover of Esprit has been decreased since 2012. The turnover has been dropped by 11% In 2012 and 14% In 2013. Moreover, the company Is facing an operating loss of $4170 million at 2013(see appendix 1). It shows that the company performance is declining since 2011.
Number of store and employee The number of store and employee also dropped since 2012. The number of direct managed store has decreased by 7% in 2012 and 4% in 2013. The number of employee also has a decreasing trend. Esprit has cut 3460 employees between 2011 and 2013, which is about 24% of the total employee in 2011(see appendix 2). It shows a decline in company performance. Environmental Scanning In the part environmental scanning, I would form a SOOT analysis by identifying the external opportunities and threats of Esprit, and also the Internal strengths and weaknesses of the company.
This would help to form a TOWS matrix in strategy formulation. 1. External Opportunities and Threats Esprit has located in more than 40 countries with different climate which can help Esprit to gain opportunity in product diversification as the demand in different climate zone will be different. As Esprit is located worldwide, it can gain physical resources worldwide, especially the countries which are rich in raw materials of textile industry such as fiber. Societal Environment Economic Forces The world economy is in economic recovery.
The world gross domestic product (GAP) and consumer price index (ICP) has an increasing trend in recent years (see appendix 3 and 4). The economic recovery gives an opportunity to Esprit to increase its sales as people would consume more in economic recovery. Technological Forces The introduction and the widely use of APS, smart phone and digital tools allow customers to search and update information, compare price and understand the brand. It also gives an opportunity to Esprit to review users’ comments and give a notice of special offers.
The technological advance would lead to information superhighway, less and less loyal to specific outlets and smaller quality differences which may give an opportunity to the company to adapt into fast retailing. Political Forces The import quota of textile and apparel trading in Europe has been eliminated in 2005 (Au & Wong, 2008). It gives an opportunity to Esprit to trade the textile from the lower cost areas to Europe. Coloratura Forces The consumer behavior has a trend of day by day buying nowadays (Bianca & Bristled, 2012).
It gives an opportunity to Esprit to adapt to the consumer behavior as it is a fast retailing industry. Task Environment I would use the Michael Porter’s 5 Forces in scanning the task environment. The stronger/higher each of the five forces, the less ability companies can raise prices ND thus earn greater profit (Wheeled & Hunger, 2012). Threat of New Entrants There is no entry barrier in apparel and retail industry in the world. As a result, new entrants are easy to get into the market that brings threat to Esprit.
Rivalry among Existing Firms There is keen competition in apparel and retrial industry. Main competitors such as Ezra, H&M and GAP have strong performance compared with Esprit. The industry growth rate is also high. Therefore, the rivalry among existing firms is high with brings threat to the company. Threat of Substitute Products As there are no unique features of Esprit’s products, the threat of substitute products of Esprit is high. When the price of products gets higher, customers may switch to buy the products of competitors.
Bargaining Power of Buyers The bargaining power of customers is high as there are many alternative suppliers and it has low cost to switch to buy competitors’ products. Bargaining Power of The bargaining power of suppliers is low as there are many suppliers all over the world and the switching cost is low. 2. Internal Strengths and Weaknesses Strengths Esprit can enjoy core competency as it has its own R&D, manufacturing plants, milliamp subcontractors, and marketing department which integrate to produce new quality products.
Esprit is a well-known apparel and retail brand which is famous for its quality products. Esprit is famous in comfortable clothing with high quality. Esprit has well established supply chain with its own manufacturing plants. Weaknesses Esprit has functional structure which leads to a slow adoption to environment. Although Esprit has developed 40 countries where have direct managed stores into three managing regions, it still cannot adapt to the changing fashion trend of the world. Different countries would have different culture and its own fashion trend.
Regional adoption may not be suitable for every country in that region. As a result, this may affect the sales of the company. Moreover, regional management may not have fast response to changes of environment in particular country. It would slowdown the process of fast retailing. Esprit has slow adoption to environment. Esprit uses a longer time in manufacturing process compared with its competitors. Esprit usually uses six to nine months in the process of design to deliver (SCAMP, 2013). However, its competitors, Ezra and H&M, usually use six weeks in the process f design to deliver (Wee and Chou, 2011).
The slow manufacturing lead to a failure in fast retailing as the products may be outdated when products are delivered to retail shops. Because of the slow adoption to the environment, there is large amount of outdated inventory storage. The inventory is over $3200 million which is half of the net current asset. The inventory turnover period is increased since 2011 (see appendix 5). Strategy Formulation 1 . Corporate Strategy Retrenchment strategies – Turnaround Strategy As Esprit has a weak competitive position in some of its product lines from poor reference, the sales are dropped and profits becoming losses in 2013.
As a result, I would use the turnaround strategy to emphasize on the improvement of operational efficiency. Contraction Cutting cost is one of the fastest methods to “stop the breeding”. In order to improve the operating performance, Esprit would cut the marketing and advertising cost. The overhead cost and the manpower cost will be also cut. Consolidation The management would improve the operational efficiency by reducing unnecessary overhead and make functional activities cost-justified. The company would lay off necessary staff and retain and employ talent staff.
Esprit would be better- organized and become more competitive for the expansion of the business once again. 2. Strategic Alternatives After identifying the internal and external environment in environmental scanning, I The TOWS matrix illustrates how the external opportunities and threats facing a particular corporation can be matched with that company’s internal strengths and weaknesses to result in four sets of possible strategic alternatives (Wheeled & Hunger, 2012). -rows Manta Strengths (S) I. Core competency: department integration for new product it.
Quality products iii. Well-known brand ‘v. Well establishes supply chain Weakness (W) I. Functional structure it. Slow adoption iii. Large amount of inventory Opportunities (O) I. Economic recovery it. APS, smart phone iii. Information superhighway ‘v. Day by day shopping v. Import quota Cancel v’. Suppliers low bargaining power so 1. Adapt into fast retailing 2. Open up new market or expand potential market woo 1 . Set up SUB to adapt to changing cloths 2. Invest in Smart phone app selling Threats (T) I. Keen competition lie. Strong competitors SST 1 .
Speed up the production process 1 . Discount sales of outdated inventory SO Strategies in Fast Retailing Esprit has its own core competency with well-established supply chain. Departments in Esprit are integrated for new products. It allows Esprit to have fast response after receiving market information with Information superhighway. R&D can design for new products within a short period. The well-established supply chain all over the world allows Esprit to produce large amount of quality products at a lower cost near the retail store as the suppliers have low bargaining power.
It shortens the process from design to deliver which can adapt into keen competition of fast retailing. Open Up New Market and Expand the Existing Market Esprit is a world well-known brand with quality product. With the economic recovery and the buyer behavior of day by day buying, it has the potential to open up new markets to enlarge the market share. Also, Esprit is regarded as a premium brand in China with good reputation (Delano; ABA; Www; Human; L’, 2004), expansion of China market can be practiced. SST Strategies SST strategies use strengths to avoid threats.
Improve the Competitive Position by Speed Up the Production Process There is keen competition of apparel retail industry. The main competitors of Esprit, Ezra and H, as adapted to fast retailing very well. For example, Ezra uses six weeks from design to deliver and two weeks for a new version of retail shop. In order to compete with them, Esprit can speed up the production process to improve the competitive position of Esprit. WOO Strategies WOO strategies take advantage of opportunities by overcoming weaknesses. Set Up Subs All Over the World The fashion trend changes within a short period.
Usually, with a long distance between retail stores and headquarters, functional structure management may not be able to make quick decision making. With Information superhighway, Esprit can et up Subs in each country so that it can adapt to the changing environment and give fast response. As a result, buyers can buy what they want within short period of time. Investment in Smartened APS As there is large amount of inventory kept in the warehouse, Esprit can introduce a smartened app for selling the products including the outdated inventory.
Recently, online selling and transaction within APS is very popular. With the advance technology, Esprit can increase the distribution channel by investing in smartened APS. More distribution channel would help to promote sales and the updated information of the brand. WET Strategies WET strategies minimize weaknesses and avoid threats. Discount Sales on Outdated Inventory The inventory level of Esprit is very high. As many inventories in the warehouse are the outdated inventory, it is difficult to sell it out.
