Part 1: Macro environment of an industry in which McKinsey & Company operates
Mc Kinsey &Company is a global management consulting company. They are trusted advisors and counsellors to many influential businesses, both private and public. One of the industries they work within is the fashion industry. The macro-environment of the fashion industry is influenced by many factors such as technological, legal, sociological, economic, ethical, political, and environmental. Sociological factors involve changes in lifestyle or demographics. The fashion industry was highly affected by the lifestyle change caused by the covid-19 pandemic. As the industry recorded low economic profit during the pandemic period, the business leaders are seeking to innovate a new way to recover from the losses and assess a range of possible responses.
The fashion industry plays a critical role in making the country’s economy. Based on the changes in market capitalizations over time in the fashion industry, it’s suggested that the industry’s economic profit fell in 2020 compared to the previous year, given the disruption in the financial year 2019 (McKinsey, 2021). In 2021 from a demographic perspective, China recorded a good performance since its economy stabilized faster than those of other countries. Economically several trends can reshape the industry, such as the rise in urban centres, fashions response to intense volatility, and continued challenges in China.
The fashion industry is affected by technology and shifts among consumers. New channels are evolving during the past year, shifting market, revenue opportunities, and radical innovation. Companies must therefore become more strategic, make better decisions, and cater to their customer demands. They should be able to work with the best technology and adopt the changes in technology. With the pandemic, the market shifted online, and many fashion industries adopted the change and are doing great. The industry should also cater to local tastes across their markets and cultures.
Customers’ attention shift to new channels has highly affected the fashion industry (McKinsey, 2021). The digital world calls for different services, and from the online business operation, the fashion industry has achieved an ever faster and speedy market whereby people can see their products online with clear details. They can order and pay for the products online. Consumers have also become less loyal to brands and can easily sway from one brand to another, making it tough for companies to maintain their customers due to high competition. Fashion also keep changing; therefore, the companies have to ensure they make a maximum sale before the products go out of fashion.
Economic growth is slower while competition is increasing at a high rate in the fashion industry. The fashion industry is highly competitive since many and more keep entering the market; thus, the companies should embrace changes and new opportunities even when they might seem risky. Consumers expect high quality, convenience, good prices, and values orientation to stick to a brand. High competition contributes to high-quality products and services as companies seek to stay competitive and relevant in the fashion industry.
Part 2: Structure of competition and the competitive forces within the industry
2.1 industry Data
Retail sale of the global apparel and footwear market 2017-2019 with 2030 forecast
The size of the global apparel and footwear market has grown from 1.7 trillion in 2017 to 1.9 trillion in 2019 as the industry continues to grow; research forecast that the industry will have grown to 3.3 trillion by 2030. Further research indicates that the global apparel market can be valued at 1.52 trillion in 2020, with the largest demand share coming from Asia (Statista, 2017). In 2018 the U.S registered the highest revenue from the industry market, followed by China, India, and Japan. The demand for clothing and shoes has been increasing over the years worldwide, and the demand share is expected to rise. The four main products categorized as apparel and footwear include men’s wear, women wear, sportswear, and children’s wear. Women wear the most selling apparel category while sportswear record the highest level of growth over the years. Sportswear is among the major apparel markets globally, and it’s valued at 265 billion in 2019. The market has been doing well over the years, and it’s predicted that by 2025the market will have increased by around 80 percent. Sportswear, unlike other clothes, should be made from materials that improve agility and are comfortably designed to enhance performance during physical activities. In 2019 Nike was the leading sportswear company globally with sales generation of around 39 billion dollars (Statista, 2017).
2.2 Market Shares
Global market share of the leading apparel brands in 2017
Market share is the percentage of the total sales completed by a company within an industry during a particular period, and in most cases, it’s measured annually. It shows the size of the company in the specific industry. Learning the company’s market share is important since it helps them understand the kind of competition that the company and the industry are facing. As of 2017, Nike was the leading apparel brand for the apparel and footwear market with a 2.8 percent share. It’s one of the largest and most recognized brands globally. The apparel and footwear market is uneven due to its highly competitive and saturation nature. The market had retail sales of about 1.7 trillion dollars in 2017, which means that even the small parts of this profitable market are significant. Nike is the most recognized and valuable apparel brand valued at 32.4 billion dollars as of 2019. Adidas, H&M, AND Zara are other valuable apparel brands. When it comes to retail sales, it’s quite the opposite since the biggest brands in the apparel market are design and manufacturing companies. TJX Companies, H&M, and Inditex were considered the leading apparel retailers as of 2017. JTX led in apparel retailing with a sale of 35.9 billion dollars during that year.
The impact of a pandemic on the British textile industry
Unlike most other industries, which did not do well during the covid-19 pandemic, the textile industry in Britain got an unexpected boost from it. Through the 1990s, the British textile companies lost a lot of their businesses to china as the clothing retailers and brands in the UK, and they considered other cheaper production (Beard, 2020). The pandemic disruption in china has made some retailers reconsider having a long supply chain and turn back to British manufacturers. The need for the spread of risk for the retailers and brands has led to the British industry getting many inquiries. The security of supply has become a more important factor than cost, and although the factories are not open, they are expected to open soon as corona subsides. They are expected to step up the market by 20-30 percent.
Ways Covid-19 will change the fashion industry.
With the Covid-19 pandemic, people will buy less and take more care of their clothes. Many people intend to change their fashion consumption habits by purchasing fewer better quality clothing in future, purchasing second-hand clothes, and mending the ones they already own. The pandemic has also changed the fashion industry by emphasizing the need for fair change for garment workers. The pandemic has highlighted the concern about the treatment of workers in the clothing industry. The concern is not new since the workers’ pay and security of a job is low, and people could like the industry to create better pay job security and retain their employees even when their jobs are under threat. Putting the community and the environment at the heart of the business has been clearly shown during the pandemic during the lockdown. Fashion businesses should do whatever it takes to ensure they are environmentally sustainable by ensuring that the cloth lasts longer and is repairable. Last but not least, the significant change is the growing support for brands by generation Z (Warden, 2020). Most youths intend to modify their consumption habits and support brands with strong ethical and environmental policies.
2.4 Customer Shifts
Even before covid-19 disrupted the financial markets, the fashion industry leaders were not optimistic about 2020 due to raised supply chains and the suppressed customer demands across the global markets. Before the pandemic, the customers started to get woke, there was radical transparency and sustainability, and their mindsets were changing. The industry got to a critical condition, but the executives expressed pessimism about the prices at the report (AMED et al., 2020). Months later, the fashion industry had become immensely desolate due to the humanitarian and financial crises not foreseen. Once the dust settles, the fashion industry will experience a dramatic recessionary transformation. Some areas will possibly change, and the recovery period will be characterized by continued smooth spending and decreased demand across the channels. Some of the shifts witnessed after the pandemic are digital changes, reasonless design, wholesale decline and in-season retail.
2.5 Can fast fashions $2.5trillion supply chain be stitched back together
Covid-19 pandemic has affected global value chains with no exemption of the global apparel industry. The uneven distribution of profit in the apparel value chain has become prevalent due to the unequal distribution of losses led by the pandemic. The impact of the pandemic on global production is analyzed in terms of supply contagion, demand disruption, and supply disruptions. Demand disruption is caused by macroeconomics drop in demand, delayed purchases by the consumers and delayed investment by firms. Supply chain contagion amplifies the direct supply shock since the manufacturing sectors are less affected, and it becomes hard to access the imported inputs from much-affected countries. Supply disruption is directly affected by the pandemic since the disease focuses on the world’s manufacturing countries and is spreading worldwide.
Part 3: The company’s resources and capabilities and how they might obtain a sustainable competitive advantage.
3.1 Overview of financial performance, long-term strategic plans and recent development
Superdry group’s annual revenue for the years ended 2016 was around 415.9 million for the retail division globally. This was an improvement from the previous years and the performance increased up until 2018. As of 2019, the performance started to decrease and decreased until 2021. For the year ended 2020, Superdry groups generated a revenue of 438.8 million pounds through the retail sector, down from 536.7 in the previous year. Superdry Group is a fashion retailer that operates both locally and internationally (Superdry, 2022). The financial performance might have been highly influenced by the pandemic whereby the business closed for a while, and businesses had to adapt to online platforms.
Superdry has grown internationally through its various channels, including its retail stores, franchise stores, eCommerce, partner sites, and multi-brand locations in more than 50 countries. The company has been able to deliver incredible increase revenues over the years, and many investors consider them as the most appropriate business to invest in. their sales have increased by 16 percent, the revenue increased by 22.1 percent, eCommerce sales growth by 25.8 percent, and wholesale growth of 29.6 percent (Superdry, 2019). Superdry groups are focusing on maintaining their competitive advantage. Although their environment remains challenging, they are confident that their quality reputation, investment in the business, design details and value for money makes them relevant in the current and future market. Superdry launched a strategic plan to see them through the global markets utilize technology and its influence on the market to deliver continued growth through their different channels.
During the financial year, 2020 Superdry began a process to reset their business against an increasingly difficult global trading condition that they were experiencing. They started by replacing the board of executives and reexamining their short term strategies, objectives, and other factors that would make the business work more effectively. The new board reviewed the long-term strategies to ensure the business continues to be relevant in the current and future markets. The other areas that required change include the IT system and improving the control environment. In conjunction with the leadership team, the board also thinks it was necessary to change prices, focus on brand and design stance, reexamine the strategy and operation of their competitors, renegotiate terms in the retail store,s and cut operation costs for them to recover and regain their competitive advantage.
3.2 Resources and capabilities supporting channels to market
Superdry is highly skilled and produces unmatched quality products. The main resources and capabilities include their innovation and quality, authentic, credible premium aesthetics, and stand out a sense of style (Superdry d, 2020). Superdry makes a collection that is inspired by sports styles. Each style is designed to go beyond their personal best and win differently. The sports collection is created to engage the customers while featuring athletic aesthetic designs. They are keen on details, and their products have a great look and feel as they deliver iconic styles, which has made the brand globally known and established. The brand attracts individuals who are more interested in style with colourful and comfortable designs. Superdry is an incredible brand with great performance, fueling imagination to go beyond the usual. Their products are authentic and innovative, making them outstanding and generating good revenue compared to their competitive companies. Customers are impressed by the quality of their products, enabling them to retain their customers.
3.3 The path to the top design talent at Superdry
The head of womenswear design at Superdry, Siri MacDonald success story shows the path to top design at Superdry. She is a visual person with love for art, and she is inspired by anything and everything around her (Graduate Fashion Foundation, 2018). She was lucky to win the River Island Graduate Fashion Week wards in 2005, where her design was used on carrier bags in the stores, and she was offered an opportunity to attend her internship at River Island and start her career there. Superdry later approached her, and she never looked back. She likes it at Superdry since she can be herself, express her creativity, and challenge the status quo. The culture at the company is incredible, and the products and innovation align with everything they do. She likes to work in an environment where she feels challenged and inspired by the products and people. As the industry is undergoing some changes like sustainability diversity and more responsibilities, Siri thinks that it’s the right direction and important. She says that fashion companies need to focus on the sources of their clothing and maintain good quality products. Working at Superdry is her defining moment from when she joined the company until her current position, which is the head of design womenswear (Graduate Fashion Foundation, 2018). Her main focus is innovation and quality, and the creative journey has been amazing and inspiring. Siri is among the successful women wear designers who work at Superdry, and her path is inspiring to any students hoping to join the career or participate in the showcases.
3.4 Supply chain and global networks
Superdry works with apparel footwear suppliers in East India, EMEA, and Sri Lanka. Their suppliers use subcontractors whereby the specialist components are needed for the services needed. The suppliers also source branded labels through nominated and sourced suppliers. They also work with raw material suppliers globally, sourcing pure organic cotton or fibres into their supply chain. Most of their suppliers come from India and make the supplies through traceable routes. The company also has a global network that provides their daily activities, such as warehousing, transport, and storage services. Superdry operates some sourcing offices in their key source countries (SUPERDRY, 2022). These offices support their suppliers in manufacturing apparel and footwear, following their quality standards and complying with their ethical standards. The company is committed to human rights and cautious about modern slavery. They ensure that all their businesses do not involve any form of slavery or human trafficking. Modern slavery acts such as child labour, human trafficking, compulsory labour, or similar violations are highly discouraged in their companies and suppliers. The company ensures they follow ethical practices to deliver quality products to their customers, ensuring they obtain a competitive advantage.
100% organic cotton
The highest percentage of Superdry raw material is cotton, and to maintain sustainability, they seek to use organic cotton by 2025. Their cotton garments will contain pure organic cotton to ensure quality products for the customers and the production of environmentally friendly products. They have already converted a few of their products and are hoping to achieve their goal by 2025 (Superdry h, 2021). They also intend to use cotton during conversion and recycled cotton through their ranges.
Recycle and sustainable materials
Superdry Recycled cotton has from their supply chain been recovered, sorted and recycled to make new fabrics. Recycled cotton makes a soft and natural feel against the skin. It is also environmentally friendly and consumes less water and energy to make compared to new cotton (Superdry i, 2021). Recycling is an important step toward the target of changing to organic cotton.
Animal welfare and vegan
Superdry firms consider it unfair for animals to suffer for fashion and cosmetics purposes. They imply that all the materials used for fashion from the animals should come from sources that respect animals. They have an animal welfare policy that guides them on what products to utilize if the materials benefit their products (Superdry j, 2021). Where they can recycle the materials such as fibre, they consider it a better option as an alternative for new fibre.
3.6 Superdry reviews its strategy
In 2020 Superdry company experienced a tough year, and they sought new strategies to protect the country from the global trading condition. They started by filling up the board and executive team and restructuring the short term strategies that would put the employees and customers health and safety among their top agendas (Superdry d, 2020). Through the pandemic period, the organization acted fast to the crisis by reducing the short-term cash flow pressure and other costs whenever possible and using government help available to them. Some employees continued to work through the hard times, and by the end of June majority of their stores were open with appropriate Covid-19 measures. After a meeting with the shareholders, they decided to recruit a new board. The new board started to review the long-term strategies to ensure that the company remains in its position and relevant in the global market.
Chief Executive Officer Review
Although the company’s revenue was highly affected by the pandemic, the CEO thought they could take the opportunity to change and rebrand their business to emerge stronger. He suggested they focus on eCommerce and increase their engagement on social media to advertise and sell their products properly. He also suggested that they build a strong brand that will improve their customer’s experience. He thought it was wise to reduce promotion and return to full-price during the period since they will use that as their turnaround plan.
Before the covid-19 pandemic, the company had started to work on strategic goals to help the company get back to business (Superdry d, 2020). It’s yet to be known when the pandemic will be over and how the changes in a retail business, but the company must adhere to the strategic initiatives they have set. More importantly, the set strategies will help Superdry return to the business to sustainable and profitable growth.
Chief Financial Officers review
Superdry retain division entail of their owned stores and eCommerce channels of marketing. Their owned stores reduced by 22.7%, and the eCommerce reduced by 8.0%, which influenced the decline in retained division revenue. The decline in a retail stores was caused by space decline and unprofitable stores across the UK and USA (Superdry d, 2020). Owned sites reduced Ecommerce as they traded their products on fewer promotional sites.
Superdry wholesale division entails franchise and license stores in the catchment and developing markets, physical and online stores, and multi-brand independents and distributors. The wholesale revenue declined by 20.7%. The company is rebuilding their relationship with their wholesale partners and restructuring its delivery timelines. Wholesale partners lie the retail partners also suffered a loss due to the closure of stores.
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Superdry (2019) financial results &strategy
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