TMA 2
TMA 02: BRANDED LIFESTYLE HOLDINGS LIMITED: STRATEGIC TRANSFORMATION IN CHINA
Learning Objectives
The primary purpose of this case is to teach students about the key strategic planning frameworks used in strategic management, including those used in external analysis (industry, suppliers, customers, and competitors) and internal analysis (resources, capabilities, and firm value chain). This case outlines the strategic planning process in order to enhance students’ ability to develop appropriate business strategies from Units 3 and 4. After working through the case and assignment question, students should be able to:
- Discuss the major activities in the strategic management process.
- Conduct strategic analysis using various analytical frameworks for external analysis (political, economic, socio-cultural, and technological analysis and Porter’s Five Forces) and internal analysis (resource-based view analysis, firm value chain, and core competence analysis).
- Develop a comprehensive business-level strategy based on sound strategic analysis.
Instructions
Word limit: 2500 words.
This assignment is based on the case study Branded Lifestyle Holdings Limited: Strategic Transformation in China. This TMA will contribute towards the achievement of BB835 Learning Outcomes 7A2, 5, 6; 7B2; 7C2; 7D3. There are two tasks that you must perform to complete this assignment. The tasks involved in this TMA have been designed to provide you with practice in answering the types of questions you will face in the BB835 examination.
Task One: General Environment and Industry (1750 words, 60 marks)
- Shivkumar must carefully evaluate the general consumer trends in China. What are some opportunities and threats facing an apparel retailer such as Branded Lifestyle Holdings Limited?
- Is the Chinese apparel retail industry attractive? What should an apparel retailer do to succeed in this market?
Task 2: Creating and Sustaining Competitive Advantage (750 words, 30 marks)
- What are Branded Lifestyle’s key resources, capabilities, and weaknesses? Analyse the company’s performance, and compare it to key competitors.
Notes on answering TMA 02
Your assignment should be prepared in a report format.
This assignment builds upon skills you have developed from the activities in the units of BB835 that you have studied so far. As you prepare your answers for this assignment, ensure that you make use of the concepts you have read about and used, as well as the insights you have gained, during your BB835 studies up to this point. All of the units that you have read so far are relevant. However, in this assignment you should demonstrate a particular understanding of Units 3 and 4, which focuses on the internal analysis of an organisation and all aspects of resources and capabilities of the organisation and their relevance to strategy is discussed.
This TMA specifically tests strategic thinking skills and the ability to apply module concepts to understand the situation facing the case organisation, developing insights in the process and then using those insights to offer your perspective on what the case organisation should do and why. This aspect of the TMA task, offering your own view on how the case organisation should act, is an important measure of your ability to think strategically and construct a supported argument.
You are required to draw explicitly on relevant BB835 models, concepts and theories to support your analysis, conclusions and recommendations. In answering the tasks, it is important that you draw upon all of the information provided in the case study, including appendices and any statistical and financial data that is relevant to the assignment.
Your assignment should not exceed 2500 words in total. The 2500 words exclude appendices, which should not be excessive; your application of frameworks should not be presented in appendices.
Paper
Case study Branded Lifestyle Holdings Limited: Strategic Transformation in China
Table of Contents
General Environment and Industry. 3
General consumer trends in China. 3
Young Chinese consumers are the drivers of the economy. 4
Many Chinese consumers are astute, savvy, and careful about their spending. 4
The presence of an unwavering health-conscious movement 5
Many Chinese consumers are becoming cultured travellers. 5
A rise in appealing high-end Chinese consumer brands. 5
Opportunities and threats facing an apparel retailer 6
Is the Chinese apparel retail industry attractive?. 9
Bargaining power of suppliers. 10
Bargaining power of buyers. 10
What should an apparel retailer do to succeed in this market?. 11
Creating and Sustaining Competitive Advantage. 11
An analysis of Branded Lifestyle’s performance. 11
General Environment and Industry
General consumer trends in China
China’s slow-growing GDP, as well as the constant disputes with the US, has created a cloud of improbability in the Chinese economy. Some financial experts, according to a report by McKinsey & Company (2019a), are projecting that these developments will end up spelling terrible news for the Chinese consumer, who is presently the driver of the economic growth of China. However, according to McKinsey & Company (2019a), there is possibly no cause for alarm.
Even though the traditional drivers of the Chinese economy, which include investors, exporters, and manufacturers, are under pressure, Chinese consumers remain assertive. Even after plummeting in the second half of the year 2018, McKinsey & Company (2019a), as cited in the National Bureau of Statistics, the Consumer Confidence Index (CCI) shot a 10-year high in the first months of the year 2020 as shown in figure 1 below:
Figure 1: Source: (McKinsey & Company 2019a).
The Chinese consumer continues to expand their spending significantly. According to Zhang, Leeflang, and van Doorn (2012), the Chinese consumers are still eager to pay for products and services with a solid offer. According to the Chinese consumer trends report by McKinsey & Company (2019a), the following are the latest consumer trends:
· Young Chinese consumers are the drivers of the economy.
People born in the 1990s, amount to 15% of the Chinese population, whilst people born in the 2000s are likely to create about 21% of the population by the year 2027 (Morrison and Library of Congress 2018). According to Ho, Poh, Zhou, and Zipser (2019), the young demographic is bound to consume even more products and services, now and in the future, as shown in figure 2 of appendix 1.
They are less price-conscious and further prefer immediate satisfaction. However, they are still less brand-loyal, meaning that brands have to continue diversifying to maintain them as returning consumers (Bai, Wahl and McCluskey 2008). On the same note, this younger generation has a high preference for higher product standards, especially when it comes to quality and diverse products, which is exemplified by the rise in high-end consumers in tier two cities, as shown in figure 3 of appendix 2 (Ho et al. 2019). Therefore, brands must continue to offer personalised and premium-rate products and services to continue addressing the needs of this younger demographic.
· Many Chinese consumers are astute, savvy, and careful about their spending.
The middle-income earners in China are about 400 million. Despite this rise in their numbers, they are more astute, savvy, and careful with their spending. Even if they are rich, they are cautious about how to spend as they worry about what their future holds, as shown in figure 4 of appendix 3 (Ho et al. 2019). However, according to McKinsey & Company (2019a), optimistic researchers claim that this group of consumers is likely to lift the country’s economy.
· The presence of an unwavering health-conscious movement
Many Chinese families are opting for healthier lifestyles for their well-being, which is tagged along with their living conditions and work demands, as shown in figure 5 of appendix 4. According to Giudice, Gianni, Grunert, and Krystallis (2016), many Chinese consumers prefer more balanced and healthy product solutions and technologies that promote this product category. Therefore, brands must go out of their way to offer more tailored products surrounding food items, health, and fitness, leisure, and sports. According to Giudice et al. (2016), about 45% of Chinese consumers claim that a healthy lifestyle is their number one priority, whilst 49% believe that health supplements made from food items foster positive health effects.
· Many Chinese consumers are becoming cultured travellers.
Many Chinese consumers are becoming sophisticated travellers who are eager to spend in both inbound and domestic Chinese tourism and shopping markets, as shown in figure 6 of appendix 5. According to Bai et al. (2008), the rising number of Chinese travellers has increased the number of online shopping as compared to the traditional shopping experience. This will call for more innovative and digitalised shopping approaches, such as e-stores, from organisations to tap into this rising traveling consumers.
There is a rising trend of Chinese consumers going for premium products that are more appealing and flashy than the rest. According to Ho et al. (2019), many Chinese consumers are conscious of products that come with status and class, as shown in figure 7 of appendix 6. Therefore, brands must be keen on the way they communicate messages to their audience as well as the kind of marketing channels they place their products, such as mobile-based apps and online marketing platforms.
Opportunities and threats facing an apparel retailer
An apparel retailer faces a lot of opportunities and threats that can determine its success in this competitive industry. According to Galea and Cooper (2015), the PESTEL analysis framework is the best tool that can be used to analyse and monitor the external settings of a business, in this regard, the opportunities and threats surrounding an apparel retail brand, such as Branded Lifestyle.
Opportunities
· P –Political:
There is political stability in China, which makes business investments in this country promising as well as increased consumption. Equally, according to Bai et al. (2008), the Chinese government is promising to give out contracts to many local retail manufacturers, dubbed Green government drive, thus granting Branded Lifestyle a significant business opportunity. Moreover, according to Deloitte (2018), trade barriers on imports policy has led to the lowering of the number of imported goods, allowing the company to thrive in the market, both locally and overseas.
· E –Economic:
Many Chinese consumers are willing to spend highly in apparel with high Chinese household disposable income a rise in consumers’ purchasing power. On the other hand, Branded Lifestyle’s strategic transformation in China is expected to grow based on the consistent growth of the country’s GDP (McKinsey & Company 2019a). Also, there is a high unemployment rate in China, which means that Branded Lifestyle can easily tap on the demand for jobs and offer lower wages. Branded Lifestyle can acquire most of its skilled workforce locally and abroad with less need to invest in additional training (Bai et al. 2008). Learning institutions in China have improved the quality of their education, meaning more skilled workers are churned out regularly. Furthermore, the tourism industry is bound to give the company a lot of revenues from rising travel consumers (Morrison and Library of Congress 2018). Most of all, the Chinese government has reduced its tax rate, which is beneficial for the company as low amounts are directed to taxes.
· S –Social:
The company will attract many consumers by selling health conscious products for the betterment of their wellbeing. This is especially touching on e-stores. Moreover, Branded Lifestyle must engage consumers actively on social media to attract them to buying their products. Equally, according to Branded Lifestyle Holdings Limited (2013), China is large and populous country, which means a high opportunity for people who will be interested in buying Branded Lifestyle products.
· T –Technological:
Automation and innovative digitalised systems will help the company to reduce costs and leverage on understanding consumer behaviour for increased sales (McKinsey & Company 2019a). Particularly, e-commerce is bound to grow due to constant change in consumer behaviour, that entail adopting new shopping trends and social media use (Deloitte 2018). And with improved transportation system, Branded Lifestyle can move its products fast and efficiently to consumers due to improved transport and communication systems in China.
Threats
· P –Political:
Branded Lifestyle can have its performance hindered due to political uncertainty that could lead to unnecessary costs. On the same note, the regulatory frameworks and the onset of more strict regulations pose a significant challenge of compliance to Branded Lifestyle’s transformation in China (McKinsey & Company 2019b). Branded Lifestyle can end up in many law suits in this regard. Equally, political tensions between China and other countries, such as the US and Japan can easily affect the working relationship with partners or investors from China.
· E –Economic:
The fuel prices in China keep changing, further leaving the company investing highly in the line of production. This also includes the exchange rate that keeps changing, which could affect the sales of the company on a global scale. Furthermore, according to Bai et al. (2008), competition is growing by the day, meaning that the company is under pressure to lower prices, which could lead to reduced revenues or loss of market share. On the same note, operational costs have increased in China, including labor, real estate and distribution, meaning Branded Lifestyle will incur a lot of costs to run operations in China, such as high rental costs, training of employees and supplying of products to retail stores.
· S –Social:
Most of the company’s consumers are young and less brand loyal. And with the rising new entrants, the consumers are bound to substitute the company’s products with other products retailed by competitors. On the other hand, according to Deloitte (2018), the majority of the Chinese consumers of apparels go by new trends and changing consumer needs/shopping experience (changing consumer behaviours and tastes) that put pressure on the company’s level innovativeness.
· T –Technological:
Protecting intellectual property rights in view of advancing technology in designing of apparel is becoming difficult as apparel products and reengineered fast and sold off as clones. On the same note, according to a report by Branded Lifestyle Holdings Limited (2013), Branded Lifestyle is facing a lot of competition from companies that invest in new and innovative technologies, thus posing a significant threat to its performance.
Is the Chinese apparel retail industry attractive?
The Chinese apparel retail industry is attractive as showcased by a number of factors that can be unravelled best by use of the Porter’s Five Forces. This is a framework that helps to make accurate analysis to identify the competitiveness of a given industry and give a definite answer regarding whether it is attractive or not. In this regard, the apparel retail industry is known to attract hundred billions of dollars. The Porter’s Five Forces will help to analyse whether the apparel retail industry is attractive entirely.
Threat of new entrants
The apparel retail industry may not have much to introduce, except for promoting products through innovative technologies, such as the use of social media and interactive web-based platforms, but the threat is low. According to Ho et al. (2019), the apparel retail industry is quite risky, but the high reward for new entrants is to reengineer other brand products, but copyright issues will certainly lock them out.
Rivalry among competitors
The apparel retail industry is characterised by a large number of brands, for example, PHV Apparel Group, RDM, and Gap, Inc., which are offering somewhat similar products, which means similar products are saturated in the Chinese market with little innovation. According to Deloitte (2018), entering into this industry is like a race to the bottom.
Bargaining power of suppliers
The supplier power is comparatively low in the apparel retail industry as well as insignificant force. Most established apparel brands source most of their products from third-world manufacturers at low prices; therefore, according to McKinsey & Company (2019a), suppliers are dispensable and can be replaced easily.
Bargaining power of buyers
The buyer power in the apparel retail industry is quite high and a comparatively high force. The Chinese consumers are quick to switch retailers to suite their changing consumer needs. According to Morrison and Library of Congress (2018), brands with a wide portfolio of products, such as Branded Lifestyle and plenty of alternative products will have indirect bargaining power.
Threat of substitution
The apparel industry has low or negligible substitution levels save for only rising competition (McKinsey & Company 2019b).
Conclusively, it is evident that the apparel retail industry is not practically attractive, notably for new entrants. The Five Forces analysis shows that as there are minimal threats and negligible supplier bargaining power, it is regrettable that the market is approaching saturation (Ye, Lau, and Teo 2018). According to Deloitte (2018), consumers are enjoying high levels of indirect bargaining power, such as having plenty of brands to choose from, and many competitors are making it difficult for new entrants to find a profitable niche in the market.
What should an apparel retailer do to succeed in this market?
For an apparel retailer to succeed in this market, they must strive to build and maintain a strong brand that will cut across existing and new competition. There is a need to manufacture high-quality products and utilising innovative technologies to meet the changing consumer needs (Ye et al. 2018). This entails capitalising on new consumer trends and further investing in digital shopping that is becoming the new norm, with the advent of smartphones (McKinsey Greater China’s Apparel, Fashion and Luxury Group 2019). In this regard, the company must invest in research and development to acquire recent innovations and technologies and implement them for the success of the company.
An apparel retailer will only succeed if they have a well-functioning and interactive website as well as engaging social media platforms. This includes having a robust financial structure to keep the company afloat even with tough times. Equally, according to McKinsey & Company (2019b), with an extensive portfolio of products, the company is bound to meet all the consumer needs of consumers and further prevent them from going for alternative products. Most of all, with strong relations with dealers, suppliers, stakeholders, retailers, and consumers, the company can dominate the industry.
Creating and Sustaining Competitive Advantage
An analysis of Branded Lifestyle’s performance
Branded Lifestyle is a leader in its apparel retail industry and has retained its position since the year 2011. Some of its key resources and capabilities have been employing strategic decisions that have helped the company to transform the apparel retail industry in the Asian market, regardless of some weaknesses, as depicted in VRIO analysis framework in table 1 below. This framework also portrays an outlook of the company’s performance against its competitors.
Table 1: VRIO Analysis Framework
Key Resources/Capabilities | V | R | I | 0 | Sustainability |
Tangible resources |
YES |
— |
— |
— |
SUSTAINABLE COMPETITIVE ADVANTAGE |
1. Financial | |||||
2. Assets | YES | YES | YES | — | SUSTAINABLE COMPETITIVE ADVANTAGE |
3. Technological | YES | NO | — | — | COMPETITIVE PARITY |
4. Physical Buildings (Rent) | NO | YES | YES | — | TEMPORARY COMPETITIVE ADVANTAGE |
5. Inventory | NO | — | YES | — | COMPETITIVE PARITY |
Intangible resources |
YES |
YES |
YES |
YES |
SUSTAINABLE COMPETITIVE ADVANTAGE |
1. Reputation/Renowned brand | |||||
2. Propensity for innovation | YES | NO | NO | YES | |
3. Relations | YES | YES | YES | YES | SUSTAINABLE COMPETITIVE ADVANTAGE |
4. Research & development | NO | — | — | — | COMPETITIVE DISADVANTAGE |
5. Corporate leadership & vision | NO | — | — | — | COMPETITIVE DISADVANTAGE |
Branded Lifestyle is an Asian apparel retailer owned and managed by Fung Retailing Company. It runs five brands of apparel: Hang Ten, H: CONNECT, Arnold Palmer, and Roots that are all controlling one of the largest apparel brands, operating in over 1,000 retail outlets in China, Taiwan, Korea, Hong Kong, Macau, Southeast Asia, and the Middle East. The company has had a strong performance of its brand products and has expanded to other viable international markets beyond the Asian market.
Branded Lifestyle has a reliable distribution network that makes it easy for consumers to access products fast. It has also been in the industry since 2011, with a strong social media following of millions of followers, which makes its brand strong and known to the public.
Branded Lifestyle has a robust financial structure and a large asset base, at least for the past five years, and a large asset base that helps keep the company afloat even for future financial expenditures as well as better solvency. It has been successful when it comes to entering into new markets.
Branded Lifestyle has a well-functioning and interactive website that attracts high internet traffic and sales from consumers who use smartphones. This is tagged along with stable social media platforms that have millions of followers both on Facebook, Twitter, and Instagram. The company has managed to attract a high number of social media users owing to the onset of smartphones when it comes to online shopping.
Branded Lifestyle has an extensive product portfolio, which entails a broad category of quality products (apparel brands) that its competitors cannot access, further making the brand matchless in the industry. Equally, the Company owns a couple of trademarks, patents, and copyrights, which prevents competitor companies from copying or reusing (reverse engineering) its products.
Some of its major competitors are Giordano (headquartered in Hong Kong) and Uniqlo (headquartered in Japan) that focus on the Asian market. Other new emerging competitors of Branded Lifestyle are PHV Apparel Group, RDM, and Gap, Inc. However, Giordano and Uniqlo pose a significant competitive challenge to Branded Lifestyle as compared to the new entrants.
Moreover, Branded Lifestyle has managed to create strong relations and partnerships both in China and overseas, with dealers, stakeholders, and retailers, which helps to access supplies efficiently. The dealers also promote the brand’s products.
Despite its key competencies and capabilities, Branded Lifestyle is still marred by some weaknesses that cannot be overlooked. It makes inadequate investments in research and development that limits its performance, expansion and innovation as compared to other successful competitor companies. The Company relies on out-dated market research data that is risky, especially with the constant changes in consumer behaviour and needs with time.
The Company has the highest employee turnover rates in the industry, meaning it has to invest a lot in the training of new employees as it loses unique talents. Furthermore, the company is sometimes forced to work with a few employees who strain to perform, leading to a lack of morale that leads to poor performance.
Most of the company’s decision-making is centralised, and decisions are made by senior employees, further leading to inefficiency in operations that leads to time wastage and reduced product innovation. This is also tagged along with poor financial planning, which brings about unnecessary borrowing. Equally, Branded Lifestyle may lack performance efficiency as a result of poor inventory management approaches. On the same note, a large part of the company’s branches is rented, meaning that the company has to incur a lot of rental costs.
Regardless of the presented weaknesses, Branded Lifestyle earns about 60% of its total sales in the Asian markets (Branded Lifestyle Holdings Limited 2013), whilst Giordano earns about 70% of its total sales overseas (Woo and Jin 2014). This clearly shows that Branded Lifestyle has a stable ground in the Asian market as compared to Giordano, which has also gained traction in the apparel retail industry after 25 years of slow performance in business. Equally, Uniqlo continues to enjoy high sales overseas, as compared to that of the Asian market. Uniqlo continues to open many more stores abroad to capitalise on the rising demand for its products. Most of all, for Branded Lifestyle to remain robust in the apparel industry and counter the increasing competition, it should make even more innovative investments in the global market as well as in the Asian market.
Reference list
Bai, J., Wahl, T. I., & McCluskey, J. J. (2008). Consumer choice of retail food store formats in Qingdao, China. Journal of International Food & Agribusiness Marketing, 20(2), pp.89–109.
Branded Lifestyle Holdings Limited (2013). About Branded Lifestyle. [online]. Branded Lifestyle. Available at: http://www.brandedlifestyle.com/about1.php [Accessed 9 May. 2020].
Deloitte (2018). Global Powers of Retailing 2018: Transformative change, reinvigorated commerce. [online]. Deloitte. Available at: https://www2.deloitte.com/content/dam/Deloitte/at/Documents/about-deloitte/global-powers-of-retailing-2018.pdf [Accessed 9 May. 2020].
Galea, D., & Cooper, C. L. (2015). PEST analysis. Hoboken, New Jersey: John Wiley & Sons, Ltd.
Giudice, T. D., Gianni, C., Grunert, K. G., & Krystallis, A. K. (2016). New trends in the Chinese diet: Cultural influences on consumer behavior. Italian Journal of Food Safety, 5(2), pp. 1-8.
Ho, J., Poh, F., Zhou, J., & Zipser, D. (2019). China consumer report 2020: The many faces of the Chinese consumer. [online]. McKinsey & Company. Available at: https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20consumer%20report%202020%20the%20many%20faces%20of%20the%20chinese%20consumer/china-consumer-report-2020-vf.ashx [Accessed 9 May. 2020].
McKinsey & Company (2019a). China consumer report 2020: The many faces of the Chinese consumer. [online] Available at: https://www.mckinsey.com/featured-insights/china/china-consumer-report-2020-the-many-faces-of-the-chinese-consumer [Accessed 9 May. 2020].
McKinsey & Company (2019b). The State of Fashion 2019. [online]. McKinsey & Company. Available at: https://www.mckinsey.com/~/media/McKinsey/Industries/Retail/Our%20Insights/The%20influence%20of%20woke%20consumers%20on%20fashion/The-State-of-Fashion-2019.ashx [Accessed 9 May. 2020].
McKinsey Greater China’s Apparel, Fashion, and Luxury Group (2019). China Luxury Report 2019: How young Chinese consumers are reshaping global luxury. [online]. McKinsey & Company. Available at: https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/how%20young%20chinese%20consumers%20are%20reshaping%20global%20luxury/mckinsey-china-luxury-report-2019-how-young-chinese-consumers-are-reshaping-global-luxury.ashx [Accessed 9 May. 2020].
Morrison, W. M., & Library of Congress (2018). China’s economic rise: History, trends, challenges, and implications for the United States. [online]. Washington, D.C.: Congressional Research Service. Available at: https://fas.org/sgp/crs/row/RL33534.pdf [Accessed 9 May. 2020].
Woo, H., & Jin, B. (2014). Asian apparel brands’ Internationalization: the application of theories to the cases of Giordano and Uniqlo. Fashion and Textiles: International Journal of Interdisciplinary Research, 1(1), pp. 1-14.
Ye, Y., Lau, K. H., & Teo, L. K. Y. (2018). Drivers and barriers of omni-channel retailing in China: A case study of the fashion and apparel industry. International Journal of Retail & Distribution Management, 46(7), pp. 657-689.
Zhang, S., Leeflang, P. S. H., & van Doorn, J. (2012). Changing consumer markets and marketing in China. International Journal of Business and Emerging Markets, 4(4), pp. 328 – 351.
Appendices
Appendix 1
Figure 2: Source: (Ho et al. 2019).
Appendix 2
Figure 3: Source: (Ho et al. 2019).
Appendix 3
Figure 4: Source: (Ho et al. 2019).
Appendix 4
Figure 5: Source: (Ho et al. 2019).
Appendix 5
Figure 6: Source: (Ho et al. 2019).
Appendix 6
Figure 7: Source: (Ho et al. 2019).
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