SVKM’s Narsee Monjee Institute of Management Studies,

Hyderabad

Post Graduate Diploma in Management

2019-21
Strategic Management

Fashion Industry

Section - A
Prepared By:

Gagan Makkar – 80303190078

Garima Rai - 80303190106

Siddhant Sethia - 80303190116

Rashi Yadav - 80303190148

 The Scope of Fashion Industry
Although the fashion industry developed first in Europe and America, presently it is an
international and highly globalized industry, with clothing often designed in one
country, manufactured in another and sold worldwide.
Prior to mid 19th century, most clothing was custom made. It was handmade for
individuals, either as home production or on order from dressmakers and tailors.
By the beginning of 20th century-with the rise of new technologies such as sewing
machine, rise of global capitalism and the proliferation of retail outlets such as
department stores- clothing had increasingly come to be mass-produced in standard
sizes ready for sale.
Fashion industry in India also employs people across occupation from skilled labour to
fashion designers, lawyers, copywriters, social media directors & project managers. It is
a highly sophisticated industry involving fashion and market research, brand
licensing/intellectual property rights, design, materials engineering, product
manufacturing, marketing & finally distribution.

Components of Fashion Industry-

Essentially, the fashion industry consists of four components/levels:
1. The production of raw materials, principally fibres, textiles, leathers and fur.
2. The production of fashion goods by designers, manufacturers and contractors.
3. Marketing in the form of advertising and promotion.
4. Wholesale, Retail and e-commerce.

These levels consist of many separate but interdependent sectors. These sectors are
textile design and production, fashion designing & manufacturing, fashion retailing,
marketing and merchandising, fashion shows and media and marketing.

Global Fashion Industry-

The global fashion industry is no longer solely dependent on retail stores for sales due to
increase in opportunities for retail sales through e-commerce, which allows buyers to
purchase online. Marketing and promotion are also expanding with the growth of media
trends such as social networking and use of technologies. Product branding is an
important part of gaining recognition and customer loyalty.
The global fashion industry is dependent on ever-changing trends that keep consumers,
driven by the need to wear the latest. However, this means that goods have a short-shelf
life, requiring manufacturers, designers and retailers to meet tight production schedules
and distribution deadlines. This also gives trendsetters, such as celebrities key roles in
marketing and promotions.
 Stakeholders in the fashion industry
It‘s a myth that the fashion industry‘s growth must be tied with the overuse of labour
and that competition must be based on low wages. The perception has been eroding our
industry‘s image and has caused many in our industry to assume that R&D, innovation,
and social contribution are unaffordable luxuries in a fiercely cost-based competitive
game.
This philosophy has started to take its toll. We are facing increasingly stiffer challenges
in attracting people, persuading governments that we create more value than just
minimum-wage employment, and convincing society that we can bring about positive
changes.
The fashion industry must transform itself to remain relevant. And it has to do so by
adopting completely new strategies — those that are able to integrate the industry‘s
pursuit of growth and profitability with the values and interests of its stakeholders.
The stakeholder-based strategy rests on the following key pillars:

People
The human factor plays a central role in the fashion industry‘s operations, and thus our
business growth must be tied to the growth of our people. We have been deploying
technology, re- engineering, training, and adopting modern IT-enabled management
platforms to help our workers improve their productivity, hence their income. Increasing
income by giving handouts can only be counted as transfers and is unsustainable.
We have positioned ourselves not just as a productivity-driving force but also as an
agent of society by investing in education and health care for our people. Contrary to the
common fear that educated and skilful workers are more difficult to retain, our
experience is that workers‘ attachment to us grows as they absorb and share our values
and passion.

Customers and suppliers

The ultimate goal of our business is not to sell products but to serve customers. By
competing on products, we respond to the market. By competing on serving customers,
we can understand, anticipate, stimulate, and influence market demands. Our customer
base, in a broader sense, includes not only those to whom we sell directly but also the
ones our customers serve: end consumers. A winning strategy is the strategy which
cares about not only direct consumption- linked factors but also societal needs such as
environmental and health concerns.
Suppliers play far more than a supplementary role in our supply chain. We strive to
build a long-time dedicated partnership and to share knowledge and experience with
them. We don‘t see our relationship with the suppliers as a zero-sum game where we
benefit from attempts to lower purchasing costs; Stakeholders in the fashion industry
rather we see it as a win-win game where both sides collaborate and share gains from
higher quality, shorter lead times, and better consistency in delivering our products.

Location
Our industry has been trapped in an outdated approach to positioning our investment
locations. We have been focused on the ―static‖ comparative advantages of a location —
cheap labour — and tried to exploit them to the fullest. Such an approach has neither
created a favourable perception among the stakeholder communities nor established
sustainable competitive edges for the industry.
Instead, we, as businesses, should look at how we could contribute to the location‘s
value propositions. The fashion industry is committed to seeking innovative business
solutions to sustain our operations in high-cost locations like Malaysia and Coastal
China and improving the economy of the locations by creating spill-over effects through
cluster linkages.

Environment
Scarcity of natural resources and degradation of environment are among the most acute
challenges facing us. We place a high priority in our strategy not only on tackling but
more importantly preventing pollution and conserving natural resources. We pride
ourselves on finding ways (through R&D) to use less energy and water in the production
process.

CEOs and Boards

The governance and incentive structure allow it to persistently embrace and pursue the
values described above.
In our view, CEO performance should no longer be assessed purely on financial returns;
long- term values reflecting stakeholders‘ interests should be taken into account, too.
Rather than choosing CEOs purely on the basis of their professional skills, large
companies with diverse cultural and value backgrounds should consider whether
candidates have the right set of values and be able to instil a culture of values —
whether they could ―lead‖ rather than ―manage‖ the team and, more broadly, society.
CEOs nowadays should literally possess a blend of acute business and management
skills, a savvy mastery of political and societal issues, and an ability to engage various
stakeholder groups.
Board of directors should play an active role in working with the CEO to promote and
instill the right culture. The board should step out of its traditional focus on governance
and compliance and be more involved in setting the corporate value system. Much of
our corporate strategy is geared towards the long term, and this is where I believe lies
the strength of private companies. The companies that focus on quarterly results often
have to make trade-offs in the most vulnerable links — the workers and the long-term
environment. Stakeholders in the fashion industry
This is a manifestation of problems in modern capitalism, where return on capital is far
higher than that on labour. ―Cold‖ metrics of monetary return are giving way to ―warm‖
metrics of non-monetary return such as happiness, satisfaction, and influence. Only
when our system is able to recognize and pursue such new value systems can chronic
problems of conflicting interests, immorality, and short-termism be fixed.

PESTEL Framework

Political Factors
This include - government policy, political stability or instability, foreign trade policy,
tax policy, labour law, environmental law, trade restrictions etc. Political factors often
have an impact on ease of doing business. Organizations need to be able to respond to
the current and anticipated future legislation and adjust their marketing policy
accordingly to maximize their profits and carry out their businesses with ease.

Economic Factors
Economic factors impact on how an organization does business and also how profitable
they are. These factors can be further broken down into macro-economical and micro-
economical factors. Macro-economical factors deal with the management of demand in
any given economy. Micro-economic factors are all about the way people spend their
income.
Increasing disposable income of households implies that there is more money available
for consumers to purchase clothes, which may increase the total sales of fashion
companies. On the other hand, the employment rate in many countries has continuously
decreased over the last few years. Thus, there might be less people able to buy fashion
clothes due to the unemployment, but those who are employed can spend more money
on the products due to higher disposable income. Consequently, as an option for higher
profits, fashion firms may increase price by enhancing product quality.
The global economy is expected to strengthen and grow in the next few years. The
fashion industry itself has constantly growing at around 10% while global women‘s
apparel market growth rate is expected to increase by 50% till 2025. As a result, there
are greater opportunities for internationalization of apparel brands.
Raw materials like oil and water are becoming scarce; resulting in rise in manufacturing
cost of apparel. Due to the decline of the manufacturing industry, skilled labour has
decreased and become more expensive, which thus poses a threat to competitiveness in
the apparel industry. As a result, fashion industry tends to outsource the textile
production to low-cost manufacturing countries in order to cut production and labour
costs.
Social Factors
These factors include-population growth, age distribution, health consciousness, career
attitudes etc. The fashion industry is one of those industries that is most affected by the
impact of socio-cultural trends. For instance, it has been witnessed for decades that the
world population is aging which may result in a threat for solely teenage oriented
apparel firms because the competition for their shrinking segment becomes more
intense. However, an opportunity can open up for new or more flexible incumbent
fashion retailers. Another noticeable trend is that customers are more and more
concerned about their health, which can be confirmed by a steady increase in individual
health expenditure which may lead to a greater customer interest in the materials used,
their origin and their processing methods, demanding more transparency and
accountability on behalf of the fashion firms. More and more customers have gone
‗green‘ and support sustainable and ethical activities of companies. Further, fashion
tastes and trends of teenagers and young adults are very diverse and volatile nowadays
and are influenced by celebrities and the media. The media does not only spread trends
to customers but also makes aware of scandals and negative publicity about bad
practices like child labour, sweat shops or inhumane working conditions. As a result,
changes in customer behaviour and attitudes are ensuring a fairer treatment of workers.

Technology Factors
The fashion industry has always been subject to technological changes. It has influenced
the way in which apparel products are produced, supplied and delivered to customers.
Communication technologies have facilitated and accelerated the information flow of
new trends and brands from the customer to the retailer, which enables companies to
respond more quickly to the latest market impulses. These advancements have increased
customer demands since the media continuously updates them about the newest fashion
styles. Low-cost advertisement and marketing options for retailers through social media
platforms or a corporate website are on rise to attract consumers for buying fashion
products. Despite the technological enhancements, the apparel industry remains rather
labour-intensive with limited automation because of frequent design, textile and demand
changes.

Environmental Factors
These factors have come to the forefront by the turn of the century. They have become
important due to the increasing scarcity of raw materials, pollution, health hazards,
carbon footprint targets set by governments to mitigate climate change, doing business
in an ethical and socially responsible way. Consumers are demanding that the products
they buy are sourced ethically and from sustainable source. Climate change and global
warming can harm the growth of cotton and the maintenance of manufacturing facilities.
Fashion industry need to be particularly aware of such environmental risks and create
awareness in production units and among workers for such events. They should reduce
their carbon footprint and incorporate environmental friendly practices alongside their
whole supply chain. Fashion leaves a great environmental footprint along its supply
chain and life cycle. For instance, growing non- organic cotton requires a big amount of
chemicals, water and pesticides, which harm human health and have a significant, long-
lasting impact on the environment. Furthermore, overconsumption in the fast-fashion
world leads to greater amounts of waste creating disposability problems. Textile
production facilities use a lot of energy, water and chemicals generating contaminated
water and toxic volatile emissions. No one wants to eat a meal laced with plastic, but if
something doesn‘t change in our current textile economy, that could soon be a reality.
Plastic microfibers, which are like tiny pieces of plastic lint that come off synthetic
clothing in the washing machine, are now entering the oceans. Once in the water, these
microfibers are ingested by aquatic wildlife and travel up the food chain where they end
up being consumed by humans.

Legal Factors
Legal factors include - health and safety, equal opportunities, advertising standards,
consumer rights and laws, product labelling and product safety. Companies need to
know what is and what is not legal in order to trade successfully. If an organization
trades globally this becomes a very tricky area to get right as each country has its own
set of rules and regulations which may differ from the parent company.
 Strategic Insights of Popular Brands

1. H&M

Ansoff Matrix -

Market penetration:
This strategy is used to increase existing products sales in the current market. This can be
achieved gaining competitors‘ customers and encouraging them to acquire more company‘s
products.

H&M‘s key for market penetration is offering fashionable clothing with cheaper prices than
other competitors like Zara [30] . Doyle (2002) argues that the foundation of a successful brand
is quality. The company is very concerned about that, therefore it has comprehensive quality
control methods which guarantee customer satisfaction.

Thanks to the strong advertising campaigns the company has increased its popularity worldwide
helped by the globalization of fashion trends and lifestyles.

Market development:
Lynch (2003) says it involves targeting new segments of a market, identifying new uses for the
company‘s products or entering new international markets.

H&M internationalization strategy is based on entering one market at a time. Although the
standardization of H&M‘s products, the company introduces slight variations to be adapted to
the new market culture.

According to the new market segments, the company has launched COS (Collection of Style)
with more expensive and smarter clothes than the H&M‘s common one.
Product development:
It can be defined that offering really new and innovative products to the current customers.

H&M develop this strategy, for example, through strategic alliances with famous designers and
fashion icons like Karl Lagerfeld, Madonna or Roberto Cavalli which improve H&M‘s prestige
worldwide.

Furthermore, the company concerns about research and development, for instance, it introduced
environmental friendly materials like organic cotton in its 2008 Spring Collection and then along
its entire range of products.

Also it is important to underline here that H&M has created perfumes, cosmetics and beauty
products. Besides as I have said in the introduction H&M has a home line available on the
internt.

Diversification:
This strategy is the riskiest because it means to develop new products and entering new markets.
H&M has been focusing in fashion items like clothes, jeweler, shoes, bags or accessories so it
has not developed very much this strategy. Only they have performed a diversification strategy,
specifically household items through H&M Home.

The company has also developed curious products such as the stuff pack for the computer game
―The Sims 2‖ called ―Fashion Stuff Pack‖ in June 2007 in collaboration with Maxis game
developers.

BCG Matrix of H&M

The BCG Matrix for H&M will help H&M in implementing the business level strategies for its
business units. The analysis will first identify where the strategic business units of H&M fall
within the BCG Matrix for H&M.

Stars
● The financial services strategic business unit is a star in the BCG matrix of H&M. It
operates in a market that shows potential in the future. H&M earns a significant amount
of its income from this SBU. H&M should vertically integrate by acquiring other firms in
the supply chain. This will help it in earning more profits as this Strategic business unit
has potential.
● The Number 1 brand Strategic business unit is a star in the BCG matrix of H&M, and this
is also the product that generates the greatest sales amongst its product portfolio. The
potential within this market is also high as consumers are demanding this and similar
types of products. H&M should undergo a product development strategy for this SBU,
 where it develops innovative features on this product through research and development.
This will help H&M by attracting more customers and increases its sales.
● The Number 2 brand Strategic business unit is a star in the BCG matrix of H&M as
H&M has a 20% market share in this category. It also the market leader in this category.
The overall category is expected to grow at 5% in the next 5 years, which shows that the
market growth rate is expected to remain high. H&M should use its current products to
penetrate the market. This could be done by improving its distributions that will help in
reaching out to untapped areas. This will help increase the sales of H&M.

Cash Cows
● The supplier management service strategic business unit is a cash cow in the BCG matrix
of H&M. This has been in operation for over decades and has earned H&M a significant
amount in revenue. The market share for H&M is high, but the overall market is
declining as companies manage their supplier themselves rather than outsourcing it. The
recommended strategy for H&M is to stop further investment in this business and keep
operating this strategic business unit as long as its profitable.
● The Number 3 brand strategic business unit is a cash cow in the BCG matrix of H&M.
This is an innovative product that has a market share of 25% in its category. H&M is also
the market leader in this category. The overall category has been declining slowly in the
past few years. H&M has the power to influence the market as well in this category. It
should, therefore, invest in research and development so that the brand could be
innovated. This will help the category grow and will turn this cash cow into a star. The
overall benefit would be an increase in sales of H&M.
● The international food strategic business unit is a cash cow in the BCG matrix for H&M.
This business unit has a high market share of 30% within its category, but people are now
inclined less towards international food. This change in trends has led to a decline in the
growth rate of the market. The recommended strategy for H&M is to invest enough to
keep this strategic business unit under operations. If it no longer remains profitable and
turns into a dog, then H&M should divest this strategic business unit.

Question Marks
● The local foods strategic business unit is a question mark in the BCG matrix for H&M.
The recent trends within the market show that consumers are focusing more towards local
foods. Therefore, this market is showing a high market growth rate. However, H&M has
a low market share in this segment. The recommended strategy for H&M is to invest in
research and development to come up with innovative features. This product
development strategy will ensure that this strategic business unit turns into a cash cow
and brings profits for the company in the future.
● The Number 4 brand strategic business unit is a question mark in the BCG matrix for
H&M. This strategic business unit is a part of a market that is rapidly growing. However,
 this strategic business unit has been incurring losses in the past few years. It has also
failed in the attempts made at innovation by research and development teams. The
recommended strategy for H&M is to divest and prevent any future losses from
occurring.
● The confectionery strategic business unit is a question mark in the BCG matrix for H&M.
The confectionery market is an attractive market that is growing over the years. However,
H&M has a low market share in this attractive market. The low sales are as a result of
low reach and poor distribution of H&M in this segment. The recommended strategy for
H&M is to undergo market penetration, where it pushes to make its product present on
more outlets. This will ensure increased sales for H&M and convert this strategic
business unit into a cash cow.

Dogs
● The plastic bags strategic business unit is a dog in the BCG matrix of H&M. This
strategic business unit has been in the loss for the last 5 years. It also operates in a market
that is declining due to greater environmental concerns. The recommended strategy for
H&M is to divest this strategic business unit and minimise its losses.
● The Number 5 brand strategic business unit is a dog in the BCG matrix for H&M. This is
operating in a market segment that is declining in the past 5 years. The company also has
negative profits for this strategic business unit. However, it is expected that the market
will grow in the future with environmental changes that are occurring. The recommended
strategy for H&M is to invest in the business enough to convert into a cash cow. This will
ensure profits for H&M if the market starts growing again in the future.
● The synthetic fibre products strategic business unit is a dog in the BCG matrix of H&M.
The market for such products has been declining, and as a result of this decline, H&M
has been facing a loss in the past 3 years. The market share for it is also less than 5%. The
recommended strategy for H&M is to divest this strategic business unit to minimise any
further losses.
● The artificially flavoured products strategic business unit is a dog in the BCG matrix for
H&M. These products were launched recently, with the prediction that this segment
would grow. However, with increasing health consciousness, people are now refraining
from consumption of artificial flavours. The market is shrinking, and H&M has no
significant market share. The recommended strategy for H&M is to call back this
product.
PESTEL Analysis

Porter’s 5 Forces
H&M competitive strategies

– Cost leadership
It is a strategy based on scale economies and in the outsourcing of the manufacturing process to
countries with low labour costs. In this way the company can offer low prices without losing
quality and besides being profitable. Thanks to it, the company can self-finance to increase the
number of stores and the sales. H&M mission is ―offering quality at the best price‖.

– Differentiation strategy
This strategy was implementing few years ago. Celebrities and famous designers have created
exclusive collections for H&M. Thanks to these collaborations, the company achieves to
differentiate in the fashion retail market.

This phenomenon is called ―masstige‖, and can be defined as an alliance between a prestigious
brand and a mass consumer brand. Thanks to it, consumer can buy a branded product at an
affordable price. Masstige is formed by two words ―mass market‖ and ―prestige‖

Customers perceive that H&M‘s have an added value in comparison with other competitors and
they are willing to pay a premium price for them. It the short run the company improves its
turnover and in the long term it builds a stronger brand awareness and prestige that it could use
to penetrate in difficult markets.
 2. Nike

About the company

Nike, Inc., formerly (1964–78) Blue Ribbon Sports, American sportswear company
headquartered in Beaverton, Oregon. It was founded in 1964 as Blue Ribbon Sports by Bill
Bowerman, a track-and-field coach at the University of Oregon, and his former student Phil
Knight. They opened their first retail outlet in 1966 and launched the Nike brand shoe in 1972.
The company was renamed Nike, Inc., in 1978 and went public two years later. By the early 21st
century, Nike had retail outlets and distributors in more than 170 countries, and its logo—a
curved check mark called the ―swoosh‖—was recognized throughout the world.

Nike is the largest seller of athletic footwear and athletic apparel in the world.
It has 18000 retail stores in the U.S.
Its top selling products are running, basketball, cross training and women‘s shoes.

Mission: “Do everything possible to expand human potential‖

Vision: ―To bring inspiration and innovation to every athlete in the world‖

BCG Matrix

Cash Cows
These are the product that are the market leader, and bring more of the revenue in the company,
as compare to the cash they consume. These have more market share as compare to market
growth. This provide cash for turning the question mark in cash cow products. Hardware,
equipment and apparels are the cash cow of Nike. The market growth rate of apparel and
hardware are 7.67% and -0.43%, however, market shares are 1.12 and 0.93. Nike endorse many
famous celebrities like Rihanna for the advertisement purpose to expand the women‘s segment,
and bring more designs and products in the women category.
Stars
These products generate highest amount of cash and have highest market growth of the
company, but there is the possibility of these products turning into cash cow for the company, if
the growth strategies are not sustained properly. Footwear are the Nike‘s start item, which has
16.07% of market growth and 1.97% of market share. Nike SHOX has also introduced different
types of footwear and still it continues towards boom. It profit recover, and growing to 30% to
reach around $1.2 billion. Nike‘s footwear are famous across the globe as the most qualitative
item, and many famous athletes use it (Consignado, 2011).

Question Marks
These are the problem child of the company, which have the more market growth as compare to
market share, however, if the effective strategies are made by the company and use efficiently,
then the products can be converted into cash cow. Converse, Jordan and Hurley are considered as
the question mark of the company. These are the brands which are involve in the manufacturing
of the apparel and accessories of the Nike. Converse is almost out of the town, because many
athletes switch to competitors or stop using it. Hurley and Jordan need effective strategies as they
both have the potential to grow and increase the sales (Bhasin, 2018).

Dogs
These are the products which are at breakeven point for the company, as they do not consume
much cash nor they generate enough profit. For Nike Skateboarding (Nike SB) are categorized in
the dog quadrant, as it is not considered as the core skateboarding brand in the skateboarding
community and did not get much support from the people. Still it is operating, as Nike is the
sports brand and Skateboarding is one of the sub category of sports (Adrienne, 2012).
SWOT Analysis

Porter 5 Forces
 3. ZARA

BCG MATRIX OF ZARA

Cash Cows
The products in this category are the major source of the cash inflows in the organization. Such
products are successful in creating the strong market hold and successfully develop the high level
of market demand. Such strong position helped the company in enabling the products for
becoming the major source of revenue for the entity. Trafaluc cloth range, Jeans, shoes and skirts
are the cash cow of the Zara. In the most competitive market, Zara is able to make its own
position by availing the share of 45%. The main competitors are H&M, Gap, Gucci, etc. Many
people in various countries know Zara because of its apparel and accessories (Ketsadayurat,
2012).

Stars
These products help in generating the enough revenues for companies to be known as profitable,
but still have a chance for expanding as having star products. The main reason of the future
growth of star items is the scope of industry growth, and consequently support the high market
share of such products. Fashion denim, Fashion jersey, and unique collection of bags and
accessories of Zara are the star items. Zara TRF and Zara man are also the star items, with the
estimated market share of 24% and 10%. Zara retain this position with the help of effective
marketing strategies like product development, market penetration etc. (Bhasin, 2017).

Question Marks
In product portfolio, there are products that have the low profitability than star products and cash
cow. Along with the weak financial position of such business units, it possess the potential for
future growth, but still the situation is uncertain. If market conditions are stable and favorable,
these products then are able to grab the large market share to become the star item. Pull & Bear,
Bershka and Stradivarius are the question mark for Zara, which has 9.3%, 6.8% and 6% market
share. Zara‘s kid segment is also the cash cow for the company with 21% of market share
(Adam, 2018).
Dogs
The products which are constantly underperforming, and consume more than generating return,
are considered as dog items. For Zara, its maternity wear and underwear are categorized in this
quadrant, as there are many competitors in the industry which are dominating the market, and
Zara is unable to make the space for itself. Zara needs to invest more in this category to make it
cash cow of the company, or should shut down its operations, so that funds could be used
somewhere else.

SWOT Analysis
Porter 5 Forces

Value Chain Analysis

Sources :
www.bstrategyhub.com
https://en.wikipedia.org/
www.google.com/