Laura Ashley | Analysis

Laura Ashley | Analysis Laura Ashley, one of todays most recognizable fashion and home furnishings brands was founded by Laura and her husband Bernard Ashley. Their initiative enjoyed huge success on and by 1970 when sales had reached  £300,000 and a large number of shops were opening. Licensing operations brought about the opening of department store concessions in Australia, Canada and Japan in 1971, while further shops opened in Paris and San Francisco in 1974, and UK shop openings continued with a vengeance. The Company was listed to the Alternative Investment Market of London Stock Exchange on 5 December 1985. (Laura Ashley Official Website, 2009) 1.2 Business Summary Laura Ashley Holdings plc is engaged in the design, manufacture, sourcing, distribution and sale of clothing, accessories and home furnishings. The Company has four divisions: Home Accessories (30%), Furniture (28%), Decorating (23%) and Fashion (19%). (Laura Ashley Osiris Financials, 2009) It operates through retail and non-retail operations. Retail operations include Laura Ashleys managed stores, mail order and E-commerce, while non -retail operations include licensing, franchising and manufacturing. As of January 26, 2008, the Companys property portfolio in the United Kingdom included 208 stores, with three principal store types: mixed product stores (selling all product categories); home stores (selling the full range of home products), and 31 home concession stores. (Laura Ashley Annual Report, 2009) 2 PESTEL ANALYSIS 2.1 Political Factors The Political situation of a country emphasizes on: Role of government Its impact in a company or firm The UK government makes sure that the market is open to fair and healthy competition thus appointing regulating bodies such as ASA, Competitions Appeal Tribunal, Competition Commission, Department for Business, Enterprise Regulatory Reform and many others to monitor the actions and policies of companies. At the same time, they are willing for people to invest in the current economy to climb out of the economic depression and hence provide incentives such as VAT relaxation, transport subsidies and high investment returns to make businesses more profitable1. The rapid development of the UK markets and the tightening of trade barriers in many European countries have created an opportunity for local companies. The maturity and the slow growth in the UK clothes retail sectors for female population and furniture and home decor have made Laura Ashley look for new investment ventures. Recent reports suggest that many household brands are planning to shift their focus on Mens Fashion markets where consumers, with growing disposable incomes, are keen to spend. Even though the political conditions are favourable, there still might be some legal barriers left for expansion to be profitable. Even though countries like UK and France have tightened trade barriers they are still cautious that foreign players will provide tough competition to become a market leader. Furthermore, it is expected that UK will tighten foreign investment laws, thus creating problems for international brands who seek expansion here. (Fuller Arnold, 2007) 2.2 Economical Factors The economys current state of recession is placing a heavy toll on all businesses. According to recent reports Laura Ashley store sales fell 6.2 per cent in the 53-week period despite total UK store sales jumping 10.8 per cent and internet sales rocketing 65.4 per cent. Laura Ashley said that since December, gross margins had come under pressure due to the continued deterioration of the UK economy, its impact on the retail sector and consumer confidence, the weakness of sterling and increased promotional activity (Harrison, 2009). Despite the volatile economy, Laura Ashley is in a strong position because their products have very high perceived value from their customers. Their highly differentiated merchandise and the loyalty of their customers can sustain them even in the economic recession. When the economy falters, consumers simply buy less and may move a greater share of their wallet to less-stylish and lower-cost offerings from deep discounters like ASDA or Tesco. Laura Ashley i s particularly susceptible to these conditions because their products are mainly in the upper price range. Expansion in the targeted market will provide the firm with more sustainability if they may endure down turns in any other product. (Laura Ashley Annual Report, 2009) 2.3 Socio Cultural The UK market for clothes is changing. The focus on design is growing, and as a consequence there is a trend for customers to express themselves with the look of what they are wearing. In addition, figures point that this particular demographic is growing (Datamonitor, 2008c). Laura Ashleys textile products are specifically tailored to cater for this demographic and their understanding of the buying patterns of UK customers, both for clothes retail products and furniture products bringing sustained benefits to the company. Trend exist in the UK market that young people between 20-40 patronize UK a lot and prefer to buy products which carry a local label rather than opting for a foreign brand. In addition, to their good grasp of the demographics of the UK market, Laura Ashley try to follow the success of franchises such as Topshop, Esprit and Zara by switching their focus from traditional wear and introducing more fashionable clothing. To what extent they succeed is debatable, as Laura Ashleys products are moderately priced, unlike the low price offered by the likes of Topshop, Espirt and Zara. (Beatty, 2003) 2.4 Technological Technological changes over the last few years have made a significant impact on the way firms do business and on the products and services as well. (Barney Hesterly, 2008) As with other retail business operators, the Internet, and more precisely, online shopping creates opportunity for Laura Ashley to expand their market share. According to recent financial reports, Laura Ashleys good online shopping service has brought them significant financial benefits even in the period of global recession. Customers have become more and more accustomed to shopping from home, and this is especially true for the companys fashion products Keeping in mind that the targeted market is mostly students and working professionals who dont get time from their activities so very often, it provides an efficient and profitable way to market their portfolio to these people. Sales at Laura Ashley jumped 8.4 per cent since the beginning of 2009, mainly due to an 11% increase in online and mail orders. (Retail W eek, 2009) 2.5 Environmental UK is seen as a leading player in combating the issue of adverse climate changes all over the globe. And to maintain reputation and address the issues there are numerous measures it has taken over the years to make operations in the country eco-friendly. Companies such as Laura Ashley are no exception. The carbon emissions from their manufacturing plants as well as the transportation system are closely monitored, as is the case with every other company. The same mindset is found in the people specially the generation which is coming up as they are witnessing the drastic changes and getting affected by it. Laura Ashley is respected as one of the most responsible Fashion manufacturer. Laura Ashley is one of the pioneers in going green. In fall 2007, the firms CEO unveiled an environmental strategy that includes the use of renewable energy systems at logistics centres including the introduction of biodiesel for the firms trucking fleet. It gives a lot of attention to sustainable managem ent of all its operations. This factor serves as an added value factor for the company to attract more consumers as well as maintain the loyalty of the customers. 2.6 Legal The legal system of UK is very consumer friendly. It provides little or no assistance when we talk about retailers. As per the legal system, a customer can return the purchased goods within a specific time period which is offered by every retailer as a mandatory requirement (Office of Fair Trading, 2009). So many retailers see a lot of returns coming back, hence reducing the sale margins. The staff that is employed has to be paid a National minimum wage as per the legal system and there are complex contractual legislations in place which give an upper hand to the employees. As an employer and as a business, there should be proper health and safety rules in place to protect the workers as well as the customers, failure of which can lead to legal lawsuits which is becoming a common trend nowadays. But since the origins of the company are Welsh, it doesnt find it difficult to cope with these legal issues in place and have showed extreme employee satisfaction, both, in terms of job as well as working conditions. The large base of loyal customers speaks for itself about the treatment they have given to their customers over decades. 3 SUPPLY CHAIN MANAGEMENT 3.1 Criteria for Selecting New Suppliers Quality: Quality is one of the major issues that would be kept in mind while selecting potential suppliers. To generate more profits, Laura Ashley need to provide more value for money and this could be done by improving the quality of their products. It is so often said that people and organizations alike are measured by what they create and what they do and this is no different in this case. This also enables to compete with high value brands and men might opt for Laura Ashley if the difference in quality is not that significant. It is not only limited to the quality of the product but also includes the services which they provide to Laura Ashley and making sure that standards are met in accordingly. Speed: This is important to meet customers demands on time. In busy periods like Christmas and Easter, there might be a surge in volumes expected and the supplier should possess the ability to meet those demands Dependability: Dependability is taken to be a more important attribute than performance. And arguably the most important criteria when selecting a potential supplier. Suppliers should be have Availability: The ability of the system to deliver as and when services requested e.g. surge in volumes Reliability: The ability of the system to deliver services as specified e.g. in a particular region Safety: The ability of the system to operate without catastrophic failure e.g. through bad economic conditions Security: The ability of the system to protect against accidental or deliberate intrusions e.g. factory fire Flexibility: As said in old times, flexibility comes with time. In this business, it is meaningless because your first impression is the last impression. The potential supplier should be flexible enough to provide Product service: Ensuring that they cater all the service requests put forth by Laura Ashley Product Mix: Ensuring that they have enough variance and diversity in the materials that they supply e.g. to cater different age groups Volume: Can cope with times when demand is high and can hold thought he periods when the demand is low e.g. economic recession Delivery: Ensuring that delivery is done when and wherever required. There might be outlets in cities where they dont have a distribution centre. So the supplier should have enough resources to deliver to those areas. Cost: As said before, the supplier should be cost effective. There should be if not favourable then perfect balance between the cost and the quality of the supplies. If the supplier has high costs, then automatically the profits margins go down. Having said that, it is also not expected that there should be a big compromise on quality to bring down the cost. Location: Since Laura Ashley is a global brand, it has its processing outlets in various locations. Suppliers should be able to cater all locations and if not, then should have other contractors who meet the same standards to serve those locations. Transportation: The supplier should make sure that it has sizable fleet to transport the supplies. Reliance on private services is not secure as there might be events which could lead to disruption in supply e.g. recent air strikes by BA, volcanic eruption causing air traffic to a halt. The potential supplier is expected to see through these and other kinds of threats that might lead to cut supplies to Laura Ashley. JIT: This is another vital factor in choosing a supplier. JIT refers to Just in time which means that processing centres are supplied whenever there is a need. The main aim of this selection criterion is to reduce the amount of money that is being spent to buy raw materials. This allows Laura Ashley to invest whenever there is a change in trend or if they want to invest in some other business venture. Expenses are cut further down by having less storage space, less staff wages and more importantly less losses that occur to stored raw materials. Diversity: The supplier should be able to realize the fact that UK is a very diverse country and people from many countries from all over the world come here to work, study and visit. Every country has their own fashion trend which in many cases is related to what they wear e.g. in Russia people prefer to wear warm clothes as they experience a very harsh and long winter whereas people from Pakistan may like lighter and more relaxed clothing as the temperature is very pleasant. So there is a diverse mix of fabrics that can be required and the supplier should be able to provide this. 3.2 Supply Chain Diagram Internet Fashion tips. Display ideas, Young Enthusiastic Staff, Refunds and Exchanges Orders delivered on time. Central Distribution centre designed around product delivery Control, Coordination, Accessories Outsourced, Pre cut Fabric Packs, Quick Response, Low Cost, Quality Control Low Level Stock Holding. Forecasting can be done easily Replenishment Fabric Acquired in different colours and types Customer Services Management Value Delivery: Distribution Manufacturing Order Assembly and inventory management Procurement Product Specialisation Design 3.3 Suggestions for type of supply chain management A 5% reduction in costs can have the same effect on the bottom line as a 25% increase in turnover (Chris Hicks, 2009) External Supply chain management (ESCM) which involves relationship with other companies: relationship with customers through market sales and relationship with suppliers through procurement. Internal supply chain management (ISCM) which involves different businesses, manufacturing units and departments within one company. For a company like Laura Ashley, it is beneficial to adopt an external supply chain management system. The advantages of adopting this outweigh the disadvantages significantly. The first and foremost advantage is that of cost. Operating in ESCM, Laura Ashley doesnt have to employ permanent or contracted staff in the same capacity as it would do in ISCM. There would be less tax payable and operating cost would be reduced considerably. Secondly, selecting potential suppliers according to the factors previously discussed, the business would benefit from flexibility, dependability and would be more diversified. Lastly, the company can go on to have healthy relationships with other industry partners and future alliances are a viable option. On the other hand, ISCM has its own advantages. It would provide Laura Ashley with more independence. Dependability on suppliers would be reduced. Everything done in-house would also reduce the cost but not to the levels ESCM would do. Also, reliance on external sources would decrease. But keeping in mind the fact the current economic conditions, there are few companies who can afford to take the burden of operating in ICSM. Employee wages, benefits, operating costs, taxes and increasing competition in market has made it difficult to sustain as one big unit. (Douglas Lambertz, 2005) 4 PORTERS FIVE FORCE ANALYSIS 4.1 Threat of Entry The clothing and furniture market in the UK is very competitive, with low entry and exist costs. Even though growth is on a decline, the clothing and furniture market in the UK is very lucrative for new entrants due to the low entry costs and the lack of significant investment required. (Datamonitor, 2008c) Even though the threat of entry is generally high, Laura Ashleys differentiated products create a barrier of entry for new consumers. The product differentiation of Laura Ashleys merchandise, especially with regard to their furniture, is valued very highly by their customers. This type of product differentiation is often quite hard to imitate by new entrants and thus the threat of entry for Laura Ashley is substantially lower than for other players who sell less differentiated product. (Barney Hesterly, 2008) In addition, Laura Ashley was founded in 1953, and for most of their existence they have been among top market performers. In those 6 decades they were able to gain the approval of multitude of repeat customers this creating excellent brand reputation and customer loyalty. This represents an additional barrier of entry for new players in the market. (Laura Ashley Annual Report, 2009) 4.2 Threat of Rivalry The UK market is highly fragmented with a generally slow industry growth. That leads to extremely fierce competition, as many companies are battling over market share. The industry is characterized by frequent price cutting by firms, intense advertising campaigns and rapid competitive actions and reactions in the industry. (Laura Ashley Annual Report, 2009) Laura Ashleys ability to differentiate their products enables them to demand a higher price of their products and not be caught in the price war. As long as they can maintain the high value perception of their products and continue to be lead differentiators in the furniture market the threat of rivalry will be relatively low, considering the turbulent market. (Barney Hesterly, 2008) In the clothing market Laura Ashley attempts to diversify its products by including more fashionable clothes, suited for the younger demographic. However, this strategy may be construed as risky because it endangers the customer perception of the brand. (Beatty, 2003) 4.3 Threat of Substitutes Laura Ashley is relatively safe from substitute products because their products are already different in the perception of their customers. It is hard to substitute a highly differentiated product. (Barney Hesterly, 2008) 4.4 Threat of Suppliers Laura Ashley is a very big customer for its suppliers therefore they can enjoy a very safe position with regard to the threat of suppliers. Whereas, for suppliers Laura Ashley is a big an important customer, for the company itself it is quite easy to switch their supplier. That enables them to demand better prices and quality from their supplier. (Datamonitor, 2008c) 4.5 Threat of Buyers The threat of buyers in the market is very high, and even though Laura Ashley is in a better position than less differentiated competitors, there is still a lot of rivalry even in the high value high price market niche. In addition there is no added cost in the industry for the customers to change their supplier. (Datamonitor, 2008c) 5 BUSINESS RISK ANALYSIS The technique to identify risk and assess factors jeopardizing the success of the project or obstacles in achieving goals is known as Business Risk Analysis. This also helps in the identification of measures to diminish the probability of the occurrence of these factors and recognize countermeasures to deal with these constraints effectively. In case of Laura Ashley, the following risks have been identified that the market will face with the desired strategies to overcome them. Competition: Competition from rival brands is the biggest threat that Laura Ashley has. Brands such as Primark and Madhouse have outsourced their production to cheaper countries like China and Bangladesh. This has enabled men to buy cheap clothes and be fashionable at the same time. This can only be eliminated by competing with them on cost effectiveness and providing more value for money. Some part of the production line can be outsourced by Laura Ashley to compete in this regard but the question remains if that would stand up to the quality standards of Laura Ashley and would it continue to have the same brand value. Lack of skills: The UK market currently has a shortage of technical expertise. The times ahead see UK as dependable on foreign expertise influentially from Asia. This poses a risk as Laura Ashley might have to pay high salaries and benefits to attract engineers, designers and workers from abroad. Training people and nurturing talent is a sensible way to cater the future demand of experts in this field Loss of assets: Assets might be lost to any unseen circumstances. Companies such as BP have suffered huge losses in past five years due to fire and inadequate measures to control them. This is the reason that the red tape industry in UK emphasizes so much on Health and Safety and hence precautions have to been taken which are costly and reduce the efficiency. With proper SHE analysis, this can be reduced and there should be enough packaged finished product in stores to meet the demands. Suppliers: Suppliers can be a benefit to Laura Ashley as well as a threat. With better quotes from rival firms they can bring about changes into the supply chain leading to a fall in retailing. Examples of this includes Next and Marks and Spencer who experienced this in 2007 (Datamonitor, 2007) and saw a steep fall in sales. The risk can be reduced by having more than one supplier at a time, making them compete for orders and ensuring supply as well. Production delivery failure: Failure to produce the volumes in time would see customer dissatisfaction which could end up in lower turnover. Contractors can be arranged to ensure that whatever is produced is delivered on time and there are no delays from the production line to the outlet shelves. High maintenance cost: Maintenance of retail outlets, production facility, and delivery fleet and storage houses is very important. If not properly maintained, this can incur heavy losses. Yearly or half yearly checks should be carried out to ensure the assets are running in good condition. Financial instability: The economic downturn has seen many retail outlets close e.g. Woolworths. In this period of financial depression, people might stop spending and hence affect the revenues generated. By keeping varied fashion items targeting different sections of age groups, sales can be increased e.g. providing fashionable clothing for 25-30 year olds, Formal suiting and shirts for 30-40 year old and a more sober and decent wardrobe for 35-45 can attract more customers. Also introducing accessories to complement clothes such as scarves, ties, cufflinks and under garments can increase sales. Outsourcing: Many rivals have outsourced their entire production line. This has led to very competitive market conditions. Retailers such as BHS and Primark rely heavily on this. They make use of cheap labour in foreign countries and so can sell at better rates than Laura Ashley. To overcome this problem, It is suggested that Laura Ashley may outsource some of its production line in order to compete on level terms with other retailers. Changing Fashion Trends: Fast changing trends has made people spend considerably less at any given time. Considering the fact that it is 25-45 age group that Laura Ashley is targeting, fashion changes very quickly in this particular and people falling in this category are more conscious about this fact. It is not deemed a good practice to stock up shelves with a monotonous style of clothing. Introducing fashionable clothing at regular intervals would serve as an attractive factor for customers. Environmental: Weather plays an indirect role as a threat. Extreme wintry conditions see less people buy less fashionable clothes and inclination increases towards over coats and jackets. As mentioned before, keeping a variation of retail products in outlets can nullify this risk. Introduction of seasonal collection earlier than other retailers can lead to a strong selling trend and at the same time build a strong customer base. There are several other risks involved which dont affect the market directly but they do have an effect. Sliding value of the Sterling Pound, rising inflation, higher bank interest rates and non-availability of finance in the market also disturb the economic balance and lessening the buying power of the customers. These risks are arguably common to the market rather than to a particular retailer and hence have a lesser effect than the rest. 6 STAKEHOLDERS The primary secondary and tertiary stakeholders of Laura Ashley are identified as: 6.1. Primary Stakeholders Owners and shareholders Managers Employees and staff 6.2. Secondary Stakeholders Customers Suppliers Distributors 6.3. Tertiary Stakeholders Government (national and local) Local community Suppliers of suppliers Stock market Competitors 6.4. Expectations of Primary Stakeholders: Owners and shareholders of Laura Ashley have a distinctive financial interest in the companys performance and growth. They have their money invested in the company and foresee its growth and expect good returns on their investments. Shareholders expect returns in terms of the higher resale value of the shares and expect substantial dividends. Whereas, the owners expect their company to grow and perform well against the competition and increase its market shares. Managers, as internal stakeholders, want higher incomes, more powers and freedom in terms of decision making, planning and control of operations. In other words they demand higher degrees of responsibilities as they have and additional duty of sustaining the health of the organization by meeting the demands of shareholders and employees. Employees and staff are one of the prime stakeholders of any organization. They look up to the organization for better incomes, job security, promotions and growth prospects, good working environment, fringe benefits, opportunities personal growth and training. 6.5. Expectations of Secondary Stakeholders: Customers of Laura Ashley expect quality products and services. They demand value for their money, certain supply of goods, variety of products and designs, truthful and comprehensible information about the products, services and customer policies. Also, they expect Laura Ashley to be an innovator in the market. They look for brand prestige and brand value. They expect Laura Ashley to be a brand with high brand image. Suppliers of Laura Ashley demand regular and consistent business at good profit margins. In other words they look for a long term business relationship which such a prestigious brand. They look for increase in the volumes of the order they receive. They expect quick payments for their productions. Being the suppliers of a leading brand they expect Laura Ashley to offer them fair prices. They want the brand to prosper as it will lead to more orders. Distributors look forward to the growth of business and expansion in the geographical areas they operate. 6.6. Expectations of Tertiary Stakeholders: The government wants all kinds of taxes (both central and local) flowing in to its reserves from the businesses; which include VAT (Value Added Tax), Corporate Tax, Import duties, Business Rates etc. The government demands Laura Ashley to adhere to the corporate laws and abide by the legislations aimed at consumer protection, welfare of employees and the local community. The government also expect the company to comply with the laws aimed at environment protection and efficient use of resources. The government wants Laura Ashley to prosper as it will help in creating more employment opportunities. Also, the growth of Laura Ashley would contribute to the national economy. The local community look forward to the company for significant number of jobs for the local residents. They look forward to Laura Ashley to be an ethically sound company. They expect the company to safeguard the environment and avoid creating pollution (noise and land). They expect the company to work for the development of the society and show a social responsible behaviour. The community also wants a thriving business from Laura Ashley, as it would give a push to the local businesses. The suppliers of suppliers can be pointed out as the stakeholders as they want consistent business. The rise and fall of stock market depends on the performance of the companies. Therefore people in the stock market want big companies to perform well as it will have a positive impact on the whole market. Competitors are corporate stakeholders with a claim to fair treatment (Green, 1994). In markets with saturated customer base, business expansion may seem to be possible only at the expense of competitors success (Spence et al., 2002). Thus, competitors impact the way a business is run. 6.7. Vision Statement Our goal is to add value to the lives of: Our employees by providing equal opportunities of growth, Our shareholders and business partners through lucrative growth and innovation, Our customers, by providing them value for their money, quality products and excellent service, Our suppliers and sub-suppliers through fair and ethical trade, The people around the world by striving for a cleaner, healthier and greener environment and a better world to live in with equal opportunities for all, 6.8. Mission Statement Our aim is to deliver a sensational shopping experience offering the finest range of menswear, highest standard of service and top quality products. 6.9. Social Compliance Policy There should be a clear and distinctive Social Compliance policy of any company as it helps to reinforce the trust of stakeholders in the company. For the suppliers to be qualified as the business partners with the company, they should make sure that they implement ethical practices within their manufacturing facilities. They should not employ child labour. They should provide their workforce fair wages, hygienic, clean and safe working conditions. Also, they should ensure that they are not damaging the environment in any way. The suppliers should ensure that their sub-suppliers are following the same ethical and environmental practices. 6.10. Conclusion Laura Ashley Holdings has faced the difficulties of the current economic conditions, resulting from the all-so-famous credit crunch. The company was particularly hit by the decreased consumer spending and the fluctuations of the Pound sterling. Still, it managed to stay flexible and competitive thanks to its healthy financials, mainly in terms of the fact that no assets are financed by debt, and the successful strategy of differentiation, store utilizati