STRATEGIC MANAGEMENT

CIA 1 COMPONENT 1

SUBMITTED BY:
HRITHIK AGRAWAL
1720614
5 BBA F
INTRODUCTION TO BURBERRY GROUP PLC

Burberry Group PLC is a luxury British Fashion House, with headquarters in London, England. It is
partially owned by Luxottica, an Italian company. Its fashion house focuses on and distributes trench coats,
fashion accessories, fragrances, ready-to-wear outwear, sunglasses, and cosmetics. Thomas Burberry, 21,
was a former draper’s apprentice when he opened his own store in Basingstoke, Hampshire, England. By
1870, the business had been established by focusing on development of outdoor attire. Burberry introduced
the brand, Gabardine in 1876. The original name was ‘Burberry’, which was later changed to ‘Burberrys’,
when people started calling it “Burberrys of London”. The name was reverted back to Burberrys in 1999.
However, on many older Burberry products, the name, ‘Burberrys of London’ is still visible. Before it was
named trench, it was known as Tielocken, worn by British Offices and featured a belt without buttons,
double breasted and protected the body from the neck to the knees.

PORTER’S FIVE FORCE ANALYSIS

Bargaining Power of Customer (Low -> Moderate)

All the buyers are individual consumers, that weakens the buyer’s power. The Luxury retailers can
differentiate themselves through styles and different designs of the product offerings. Although there are
other possible sources of apparel, the demographic and psychological significance of retail garments, are
highly essential to the consumers, further weakening buyer power. However, the customers have lower
switching costs. Where loyalty of the brand exists, it is more likely to be to designer than retailer. The place
of retailer is at the end of value chain, meaning that they cannot integrate forward and are obligated to offer
the customers what they want. This strengthens the customer power. Fashion is also unpredictable. Products
are determined by designers, creative industries and sub-culture and they are subject to unpredictable and
sharp changes, strengthening the customer power. Therefore, the bargaining power of customers is assessed
as low to moderate.
Threat of Substitutes (Weak)

Substitutes for luxury goods include buying directly from manufacturers, especially with the growth of
online sales. Homemade and couture clothing are also niche alternatives to retail of ready-made clothes.
Counterfeit clothing can also be a significant threat to revenues. However, given the socio-political
environment individuals live in, coupled with the need for individual and group identity, makes luxury
retail clothing essential to consumers. Therefore, overall threat of substitutes to the luxury goods market is
assessed as weak.

Bargaining Power of the Suppliers (Low -> Moderate)

The main suppliers in luxury goods market are the clothing manufacturers and the wholesalers. Retailers
source from foreign manufacturers which increases supplier fragmentation. Luxury apparel manufacturing
is always labour-intensive, due to the difficulty of machine-operated processes, like sewing of garments.
Hence, as international trade liberalizes, the suppliers’ power also reduces through competition from the
manufacturers in the low-wage regions like China.
The Suppliers are further weakened by their lack of diversity, which makes apparel retail industry highly
important to their business. Since, retail industry is very labour-intensive, and existence of a minimum wage
in many countries slightly increases the power of the suppliers of labour. Overall, there is low to moderate
supplier power in the market.

Threat of New Competitors (Strong)

Burberry has shown huge growth in the Asian Market in the recent years. But, the retailers from high value,
developed industries of South Korea, Japan, Australia and Taiwan still dominate the market. Also, the
Indian and the Chinese retailers are making great progress. Entry to the industry does not require large
capital outlay; setting up a single, independent apparel retail store is within the means of many individuals.
However, retaliation by existing players, such as the launch of a price war, is a possibility, especially where
a new entrant moves into a more concentrated segment. Overall the threat of new entrants to the Asia-
Pacific luxury goods industry is assessed as strong.
Intensity of Competitive Rivalry (Moderate)

The luxury goods market is rather fragmented, where there is room for large numbers of smaller players.
Major increases in capacity may be fairly costly to smaller players, if they require the outlay of opening
additional outlets. While some retailers selling apparel are highly diverse, many retain a strong emphasis
on clothing, intensifying rivalry. The modest market performance over the past five years only partly
alleviates rivalry, which is assessed as moderate overall.
(Business of Fashion, n.d.)

(Deloitte, n.d.)

Supplier
power- Low

Threat of Competitive Threat of

New Entry- Rivalry- Substitution-
High Moderate Weak

Buyer
power- Low