Burberry PLC and UK's Fashion Industry. External Analysis

Table of Contents

Executive Summary

Introduction

Analysis of Burberry and M&S’s environment
Analysis of the UK Fashion Industry
Critical analysis of the economic environment of Burberry and M&S

Conclusion

References

Executive Summary

This report is a focused strategic analysis of Burberry and M&S and the UK industry as a whole. The report focused on the economic environment of the two companies as a result of the ongoing Brexit politics and how withdrawal of UK from the EU could affect fashion industry. Based on an article that appeared in Yahoo News (2019) where the editor highlighted the cloud of Brexit surrounding UK fashion industry. The author highlighted the economic uncertainty facing various UK fashion industry stakeholders as Brexit discussions continue. The author also expressed concerns that a no-deal Brexit could have adverse economic effects on the industry and could even lead the industry to shrink. The Yahoo News article was essential for this study as it did not only highlight the contributions of the fashion industry but also provided an important insight into the British fashion industry and how specific firms i.e. Burberry and M&S could be impacted by Brexit.

From the analysis, the researcher found that Burberry and M&S operate in the high-end segment of the UK market. Though M&S depends on diversification to gain its competitive edge in the market, Burberry relies on continuous innovation and the creation of new, unique and high-quality fashion products to sustain a competitive edge. Efficiency in production and consumption are also critical success factors for the companies. As a result of Brexit, the two companies would face even bigger barriers in their attempt to attract talents from the EU countries or access the EU market.

Introduction

The British fashion industry is currently facing uncertainty due to the planned Brexit at the end of the month of October. British large fashion retailers, Burberry and Marks and Spencer Group PLC are some of the companies that can be significantly hurt. Burberry Group PLC is the largest British luxury fashion house. The company is headquartered in London, England. Burberry focuses on the distribution of trench coats, ready-to-wear outerwear, fashion accessories, sunglasses, cosmetics and fragrances among other fashion products (Burberry, 2018). Burberry has stores in 51 countries around the world with most of these stores located within the European Union (EU).

Like Burberry PLC, Marks and Spencer Group PLC (M&S) is a major British fashion retailer listed on the London Stock Exchange (Fashion United, 2019). However, M&S is more of a generalised store with many of its stores selling home and food products. In this case, it does not solely rely on the fashion market to succeed. For instance, 615 out of its 959 stores in the UK sell food products only. In fact, in recent years, the company has witnessed falling clothing sales while its food sales have increased significantly (Eley, 2019). In 2018, the company confirmed that it will be closing 100 of its stores so as to focus on a few profitable stores. Since both Burberry and M&S have significantly benefitted from the EU talents and favorable market conditions, Brexit could result in loss of market and employees (Eley, 2019. To understand the potential impact of Brexit on Burberry and M&S, the author assessed the current economic environment of the two companies to determine potential opportunities and threats that may arise as a result of Brexit. The author used the Porter five forces model and PESTEL analysis for an in-depth examination of the two companies’ economic environment and the fashion industry in the UK.

According to Yahoo News article, Britain may end up with a no-deal Brexit. This would lead to tariff and non-tariff barriers which could make the country unattractive to new talents (Yahoo News, 2019). In addition, hard borders could negatively affect trade with other European markets. Elsewhere, the British Fashion Council chair Stephanie Phair indicated that the biggest risks for the fashion industry due to Brexit would be trade barriers, hard borders, and talent attraction. These risks will be even more apparent in the case of no-deal Brexit (Marfil, 2019). From this article, the author acknowledges the potential losses to the UK economy as a result of Brexit. The article predicts that the Fashion industry will be devastated especially when the UK leaves the UK without a deal. Based on these article arguments, I examined how the two British high-end fashion giants, Burberry and M&S’s current market and its potential after Britain leaves EU. In addition, the report evaluated the competitiveness of the UK fashion industry in the midst of Brexit concerns.

Analysis of Burberry and M&S’s environment

Analysis of the economic environment of these two companies was conducted from two different perspectives. First, I analysed the entire fashion industry that the two companies belong and use Porter five forces model to determine how competitive the fashion industry in the UK. Second, I used PESTEL analysis framework to discuss the opportunities and threats in the economic environment of Burberry and M&S.

Analysis of the UK Fashion Industry

Fashion retail is one of the main subsectors in the fashion industry. The industry employs 555000 people in the UK. Most of these jobs are found in the fashion retail sector with more than 410000 employed in the retail sale of clothing while more than 60000 are in the retail sale of footwear and leather goods (Fashion United, 2019). Fashion retailers in the UK can be categorised into specialized retailers that only engage in apparel, accessories, and cosmetics, such as Burberry PLC and general stores that sell fashion products alongside other goods, such as M&S. Other major fashion companies in the UK include Next PLC and ASOS, among others. The UK also hosts other popular fashion brands from foreign countries, such as USA, France, Italy, and Japan. In recent years, the nation’s main fashion retailers have shifted from home-based manufacturing units to sourcing products from foreign retailers (Godbold, 2019). This new trend is attributed to the high cost of labour and raw materials within the UK. As a result, companies like Burberry outsource their production units to nations, such as China that still offer low wages and a huge pool of talents and raw materials.

Between 2009 and 2016, the UK’s fashion industry witnessed significant growth in consumer spending on fashion apparels. Burberry’s annual sales growth was estimated to be above 15 percent. Large consumer spending locally fueled this growth. With this high growth, the fashion industry has contributed massively to the post-financial crisis growth of the UK economy. Directly, the industry is said to account for more than 1 percent of the UK GDP, which translates to around 20 billion pounds (The Times, 2015). The industry also contributed indirectly to the economy by creating new employment opportunities. Currently, the fashion industry is the fourth largest employer in the UK after travel and tourism, telecommunications and real estate (Ahmed, 2014). The fashion industry has also been one of the most competitive industries in the post-financial crisis UK. Porter’s five forces model is hereby used to help in understanding the competitiveness of this industry in the current environment amidst the Brexit debate and help in evaluating the current market potential of Burberry PLC and M&S.

Porter’s Five Forces Model is a competitive framework that can help an organisation understand its market potential and generate a sustainable competitive advantage. This framework is analysed using five forces namely, bargaining power of suppliers, bargaining power of consumers, competition from existing players, the threat of new entrants and threat of substitutes (Johnson et al., 2014).

i. Bargaining power of suppliers

Raw materials are scarce in the UK meaning the number of suppliers is limited. In this case, Burberry and M&S rely on vendors who supply apparel raw materials and finished products from other countries, such as China and the rest of Europe. Due to this, the cost of raw materials is already high and the suppliers have a high bargaining power (Phau, Teah & Chuah, 2015). Experts indicate that Brexit would raise the cost of raw materials and other fashion products to the UK thus making the industry unattractive.

ii. Bargaining power of consumers

Burberry and M&S benefit from a large market in the UK. M&S market reach is even wider due to having a larger product line. However, these retailers face stiff competition from other specialized and general retailers. Due to competition, consumers have numerous choices in the market. In this regard, it is much difficult to have a competitive edge in M&S’s general market compared to the Burberry’s high-end market segment.

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