Analysis Regarding To Urban Outfitters Planning

Published Date: 02 Nov 2017

Contents 2

Introduction 3

Company Overview 3

International Market Overview 3

2.1 Brazil – São Paulo

Marketing and Operations Strategic Considerations 4

PESTLE analysis 4

Political 4

Economic 5

Social 5

Techonology 5

Legal 6

Environmental 6

The 4p’s market mix analysis 7

Products 7

Place 7

Price 7

Promotion 8

Operation Management 8

Suppliers and distribution channels 8

4vs model 9

Competitor 9

Market mode entry recommendation 10

Non-controlling interest 10

Internal Expansion 10-11

Merger or takeover 11

Franchise-type agreements 11-12

Joint venture 12-13

Wholesaling 13-14

The Wholesales Operations Urban Outfitters 14

SWOT analysis 15

Conclusions 16

References 5

Appendix 5

Appendix 1

Appendix 2

Appendix 3

Appendix 4

Appendix 5

Introduction

This report will provide an overview and analysis regarding to Urban Outfitters planning to expand and start business in a particular foreign market. The foreign country that chose in this report is São Paulo, Brazil. The reason chose this region is because it has large opportunity and potential especially for new fashion retailers. This report will also provide marketing and operations market entry recommendation and the critical issue that might occur during the process through some theories. This report will now begin by overview the Urban Outfitters company background.

(Keywords: Urban Outfitters, Brazil, São Paulo, market entry recommendation)

1. Company Overview

Urban Outfitters, Inc, run over 4000 retail locations across five retail brands, there are Free People, Terrain, Urban Outfitters, Anthropologie, and BHLDN brands which operated wholesale segment by Free People brand (URBAN OUTFITTERS, 2009 #14). Company now headquarters is in Philadelphia Navy Yard. Urban Outfitters founded in 1972 in Philadelphia, Pennsylvania by Richard Hayne and is originated as Free People. Products that the company sells in a typical urban outfitter store cover anything from many different funky vintage fashions from clothing to home furniture. The product line range developed from hipster, bohemian, retro, humorous, furniture, vintage, and incorporate high class brands with various designer partnerships. The Urban Outfitters brand focus on young adults aged around 18 to 30 with a selection of choices such as footwear, accessories, men and women fashion apparel along with gifts and apartment wares (URBAN OUTFITTERS, 2009 #14). The retail Free People brand is more focus on merchandise including gifts, apparel and accessories targeted ladies aged 25 to 30. The Anthropologie brand, is focus on aged 30 to 45 women, offers a range of product collection such as home furniture, decorative items, accessories and apparel. BHLDN brand is target on party dresses, wedding gowns, footwear and assorted jewelry.

2. International Market Overview

2.1 Brazil – São Paulo

São Paulo, is the largest city in Brazil and is also the world eighth largest city by population according to United Nations. The city culturally diversity and large size, and it seemed as being the gateway city for chains seeking to gain traction from the Brazilian apparels markets (International, 2013 #27). With the 22 million people, according to Euromonitor International, it is one of the richest with annual disposable income of US$239 billion (R$467 billion) and expected to be one of the largest consumer markets and leading the global economy by the year 2020. According to figure 1, the GDP in Brazil is worth 2476.65 billion US dollars in 2011 represent 3.99 percent on the world economy (Economics, 2012 #29). As a result of the increase, this gives consumers additional disposable income which allowing them to invest in luxury items like apparels and accessories.

C:\Users\user\Desktop\brazil-gdp.png

Figure 1

(Source: http://www.tradingeconomics.com/brazil/gdp | the world bank group)

3. Marketing and Operations Strategic Considerations

3.1 PESTLE analysis

PESTLE analysis which normally referred as Political, Economic, Social, Technology, Legal, and Environment. Using this theory, a PESTLE analysis will provide more detailed, consideration, issue and recommendations on doing business and different infrastructure on Brazil as following.

3.1.1 Political

According to Euromonitor (2013), since the President Lula da Silva came to power in 2003, the brazil GDP has risen steadily, with an decrease of inflation to 4.5 %, increase of 5.4% in the second quarter 200 and since September 2007 and also the unemployment rate has significantly dropped (International, 2013 #27). It is one of the growing economic powers, together with India, China, South Africa, and Russia (BBC, 2013 #19). Previously, the Brazilian government has generally modified taxation, fiscal, monetary and other policies to impact the path of Brazil’s economy (BBC, 2013 #19). The Brazilian economy grew at an average annual rate of 2.2% during the year on 2001 to 2005 as well as the post-election administration might encounter domestic stress to modify present economic policies to attain a greater growth rates (BBC, 2013 #19). Thus, the clothing industry wouldn’t be affected by political factors in 2013 unless the inflation or next general elections occurred. 1

3.1.2 Economic

According to the World Bank and International Monetary Fund, Brazil has the biggest national economy in Latin America, the ninth largest in ‘purchasing power parity (PPP) and tenth biggest economy at market exchange rates (International, 2013 #27).

Compared to European Nations, living costs are much lower in Brazil, it is only 20% of the amount that spending in UK (International, 2013 #27).

In addition, Brazil is also one of the country that leading on exporting services and products, particularly ‘industrial exporter’. Brazil is also building up its economic plan and improving ‘public-private partnership model’ of doing business that allures people that wish to invest in Brazil around the world (URBAN OUTFITTERS, 2009 #14).

3.1.3 Social

Religious is quite sensitive in Brazil. Some of the product and clothing range of Urban Outfitters might contain some religious symbols and thus, while establishing business in Brazil, this need to be conscious of it (URBAN OUTFITTERS, 2013 #18). Moreover, moral principle in different work is a major problem in Brazil and might impact the firm operation. In this case, this will result in two different ways according to research. One is employees will not care and aware of the time and this will result postpone of the production of work (International, 2013 #27). On the other hands, employees will work efficiently on making clothing product, this will result a positive economy growth and increase the flows of the product.

In addition, some of the Brazilian would put their family and friends on the highest position compare to work. In other words, friends and family are quite significant to Brazilians (International, 2013 #27). Thus, because of the family and friends tie strength are very important in Brazil, this will result effectiveness and objectiveness of the work on their hand will be interrupted by this value.

3.1.4 Technology

Customer may also shop through the web shop by logging Urban Outfitters web page. This will let buyers to browse, overview, spend less time on choosing clothing’s items and order the product directly via their website. According to Ball (2012), Brazil youth has the highest rate of mobile internet usage, and hence, this created by two-tiered social networking structure, where people can access regional and worldwide network (Ball, 2012 #23). Furthermore, according to Euromonitor (2013), internet users in Brazil seem growing rapidly, with a 7.9 million household online in 2005. This result has led to quick growth in e-commerce prospects and will still continue to growth in this few years (International, 2013 #27).

3.1.5 Legal

Trade restrictions on importing and exporting are quite strict in Brazil, thus, the trade restrictions will affect the products and goods that importing to Brazil. If Urban Outfitters would like to do business in Brazil, it will face the expensive imports fees as the Brazil now having a high tariff (International, 2013 #27). However, the Brazil government has a system to monitors and controls the imports. Hence, this will lead to some factor as following.

Firstly, one of the main major problems when doing business in Brazil is their current tax system. This will result a restraint on consumer intake as the high taxes enforced on products and goods, force them become more expensive, and also, this might lead to another problems, goods inflation. Also, the larger scale of the company, the more high taxes they need to paid. In this case, this will force the business reduce to employ staff, as the more employees the company have, the more spending will cost to the company (International, 2013 #27).

However, the government is now planning to establish "market-orientated economy" according to Euromonitor report (International, 2013 #27). The main target of this is to reduce the import barriers and simplify the current tax systems. As a result, this will end up with benefit for people that who would like to start their business in Brazil. Therefore, it is quite suitable for urban Outfitters to start up business in Brazil as it only needs to pay in low tax and also will lead to encourage the Brazil increase in FDI as Urban Outfitters entry will generating a brand new markets.

3.1.6 Environmental

According to Urban Outfitters, the retail store decoration can be different and creative, but the overall atmosphere should need to be similar, as the company want to create a specific environment which determines an emotional connection with the customer (URBAN OUTFITTERS, 2013 #18). Online shopping and E-commerce are now more far popular to consumers. According to research, using the technology can help reduce third less energy than traditional and environmental impact of shopping.

Furthermore, summer and winter seasons are stream at the same time in Brazil. It will make more challenging for the western clothing company such as Urban Outfitters since the seasons is different and Brazilian more lines on southern hemisphere seasons design (Knowmore.org, 2008 #21)

3.2 The 4p’s market mix analysis

3.2.1 Products

Competitive advantage strategy

The Urban Outfitters Store provides a range of unique style miscellaneous and furnishings products such as hipflasks and vintage, the product differentiation prop up the retailer primary competitive advantage strategy. Moreover, new and classic style clothes and daily household appliances (eg old fashion curtains and cocktails modulator) will sometimes sell together at the same time; this is because would like to gives some specific customer found a long-awaited surprise (URBAN OUTFITTERS, 2009 #14).

Celebrity Administration

According a research by GMID database, the Brazil consumers are recently affected by celebrity enforcement. This could lead to a brand new market and target some particular customer. The study also shows that the consumers in Brazil affected by celebrities such as Lady gaga, twilight saga, and impressive some of the young teenagers to follow along with the gothic chic trend (International, 2013 #27). Moreover, the trend of Lady Gaga’s quirky fashion style has caught a lot of teenage girls heart in Brazil. With regards to this situation, Urban Outfitters can offer a fantastic wide range of celebrities or individualistic styles of clothing, and this can target the market both men and women around 16 to 30 years old style and fashion requirement.

3.2.2 Place

Steering clear of becoming a "common" retailer

To avoid becoming a "common" retailer, it is crucial that one company or retailer not to open too many stores or retailer in one particular region market. In other words, if Urban Outfitters wish to open a store in shopping malls at Sao Paulo, it is suggested that open in well-known shopping mall such as Shopping Aricanduva (the largest shopping mall in Latin America) to reveal the standard of the clothing product and by not opening too many stores to inhibits the brands of Urban Outfitters turning into "common". But another argument is that if a brand has become "common", it will result of the customer more familiar and recognition on this brand image and people might consider buying the product through their psychology impact.

3.2.3 Price

Although the price of Urban Outfitters products is much higher cost than other competitor such as GAP or H&M, but it is undeniable that Urban Outfitters always keep their product uniqueness and quality to support their pricing strategy. However, if compared with competitor such as Zara and Topshop, the pricing of Urban Outfitters share quite similar level with them and as a result, Urban Outfitters cost has showed the standard and specialty of their product, just like the competitor above, is not "one of kind" products that can be seen in small shops.

3.2.4 Promotion

According to GMID report, if Urban Outfitters would like advertise their brand image in São Paulo, it is suggested that "put the message on surface" (International, 2013 #27). In other words, advertising like in busses, building banners, newspaper, taxis.

If would like make the result more clearly and increase the recognition of publicity, it is recommended that put the promotion via digital media such as TV shows and social networking website. According to research, Brazil has gradually increasing the range of users using social media networking website, such as Twitter and facebook (Hollensen, 2011 #2). In this case, the company could directly target the market on 15 to 45 years old consumers.

As a result, it is also recommended that advertise the brand around the winter season to get the best result as the Brazil customer could spend their money on Christmas season.

4. Operation Management

4.1 Suppliers and distribution channels

Urban Outfitters buys goods and product from a various domestic and distributors (URBAN OUTFITTERS, 2009 #14). Furthermore, Urban Outfitters currently focus on establishing a unique operating system, for some new store, the company will spend 3% of total sales profits to elect a group with a mix of 20 procurement officers and fashion designer to travel around the world together (URBAN OUTFITTERS, 2009 #14). Both will travel down to the street, attraction or even small pubs to get new idea regarding to current fashion trends and also decide which kind of materials or product should import or purchase for Urban Outfitters in the future. The purpose of this strategy is to always keep up to date to customer needs and wants, fashion idea, and obtain customer feedback.

Currently, Urban Outfitters is using an operations system called "direct-to-customer". It also introduced a new warehouse management project which can enhance their distribution process (URBAN OUTFITTERS, 2009 #14). Moreover, using the pack-and-ship system, it helps the multi-channel retailer more efficiently to forward and organise the product to the stores. Since 2009, Urban Outfitters has transaction with over 6,000 of vendors (Retailer, 2003 #13).

4.2 4vs model

Figure 2

According to figure 2, Urban Outfitters may develop high volume of product, regarding to company size. Also, their products are not all similar, as they generally import product from around 35,000 to 40,000 various items from their stores (URBAN OUTFITTERS, 2013 #18). However, limited variety will occur as it only target young female and male customer markets. The brand currently is in good expectancy and also the demand of customer in market is still increasing, and hence, the variation can be seen quite high.

Although the market in Brazil is not familiar to Urban Outfitters, however, the company having a high variation score should make them more flexible and adaptable to the market and enough to deal with new customer demands.

Lastly, visibility is a bit low with regards to customer contact, nevertheless, Urban Outfitters is aim for current fashion products , hence, the company need to keep the insulate between need and want of customer and production as tiny as possible.

4.3 Competitor

The currently competitor for Urban Outfitters if establish business in São Paulo are Topshop, Zara, Mango & H&M as they are not only well-known in popularity and also set up in Brazil for years. According Euromonitor International (2013), the style of Urban Outfitters are more westernised compared to Zara style clothing (International, 2013 #27). This makes Urban Outfitters more competitive edge as it need to fit Brazilian fashion trend and customer needs and wants in São Paulo.

5. Market mode entry recommendation

The following option will give suggestions and recommendation for Urban Outfitters when establishing fashion business in a foreign market.

5.1 Non-controlling interest

Necessitates the company buying what's usually a few share within an overseas store (Bruce, 2004 #22).

Advantages:

It enables the company to acquire marketplace intelligence activity at minimum threat.

It enables people who know the market such as the current management team to carry on handle the particular foreign operation sector.

Disadvantage:

It will make the company basically situate in an unaggressive situation.

Remarks:

Accordingly, this investment is generally produced with no capability to impact the actions of the new investment (Hollensen, 2011 #2).

5.2 Internal expansion

This type of method requires the store that would like to start business in the foreign market utilizing the same method that is use in home country (Bruce, 2004 #22). The main objective of this method is to growth the company financed utilizing internal resources (Bruce, 2004 #22).

Advantage:

It could be utilised by any kind of large or small company and experimental openings can be achieved with minimal threat and also at the same times in a comparatively low cost (Burton, 1999 #25).

With enable adaption according to various market conditions and knowledge experience and also a fully control over their operations for some particular internalising retailer (Bruce, 2004 #22).

Disadvantages:

It could take far more time just before a considerable overseas existence can be performed as this growth plan ought to be funded (Bruce, 2004 #22).

Is not an advantage for local expertise and management knowledge to take account of this method. Similarly, this strategy needs a full research of locational assessment before a firm decided to invest to the particular region or country (Bruce, 2004 #22).

The long distance between the host market and home market may lead to problems regards to control and co-ordination (Ball, 2012 #23).

5.3 Merger or takeover

This method usually characterised through the acquisition of control over an existing abroad retail company (Bruce, 2004 #22).

Advantage:

Enable management team already in a particular foreign market; substantial market existence can achieved rapidly, and thus the immediate of cash flow.

Provide an opportunity to increase the transfer of technology through this method or the knowledge or experience through the foreign to the home market.

Location can be attaining faster for transformation to a selected structure.

Disadvantage:

It cost expensive if a firm make a mistake and would like to exist from the market. On many occasions, it make difficult for takeover target of the procedure for analysing company position and perhaps, there is no time for competitive bidding to afford a full evaluation.

Additionally, the appropriate acquisition firms might not be readily accessible.

Remarks:

It is not a suggestion for prepared retailers with international aspirations (Hollensen, 2012 #1).

5.4 Franchise-type agreements

Franchising allows the franchisee to offer services or products within a highly published company and well-proven group of techniques using a carefully controlled and developed marketing strategy (Ball, 2012 #23).

Advantage:

Low risk, low cost and increase international expansion to the franchiser.

The knowledge and experience is incorporates by franchising and thus, it can offers for the development of locally competitive marketing policy and foreign management.

In closed markets, franchise agreements will overcome entry of barriers to foreign markets (Bruce, 2004 #22).

Disadvantage:

It could end up with difficult for the internationalising store to hire appropriate franchisees with the specific financial resources background and expertise.

The complexities of international franchise legal agreements could make hard for the business to untangle themselves from intricate legal contracts and Franchisers may lock in a poor partnership (Bruce, 2004 #22).

Remarks:

It is probably the most preferred methods to market entry among internalising retailers.

5.5 Joint venture

Joint venture is a development contract between two entrant firms in a host country or an contract between an indigenous retailer and entering firms (Bruce, 2004 #22). This has many different types of forms, such as in-store concessions, concerning the letting of store area by set up retailer in the host country to a foreign retailer (Ball, 2012 #23).

Advantage:

The advantages of a joint venture agreement are generally offers a link with a company that are currently available in the market and this could offer a whole new market to entrant with necessary details regarding foreign trading environment (Bruce, 2004 #22).

This method also offers a system on which a company to determine whether or not to exit at a later point or to completely access the particular overseas market.

Disadvantage:

This method is merely achievable when appropriate trading partners are available. Furthermore, joint venture agreement benefits have to be equally shares when one joint venture is successful in the markets (Hollensen, 2012 #1).

The success of one partner might be diluted by the awkwardness of the other partner in relationship. Both parties on the company acumen would rely on the achievement of the joint venture (Bruce, 2004 #22).

Remarks:

This kind of method is particularly used in competitive, substantial markets where there might have additional forms of obstacles that need co-operation with local company or where it is not easy to obtain property to create retail stores (Bruce, 2004 #22).

B

A

Joint Venture 3

Parent Firm 2

Parent Firm 1

*Joint Venture

Contracts

*Strategic alliance (= non-equity joint venture)

Figure 3

(Source: Adapt from Essential of Global Marketing p. 253)

5.6 Wholesaling

Wholesaling is using another firm to exporting products and goods. It requires one particular business deliver a variety of branded products to a third-party store warehouse in return for payment (Bruce, 2004 #22).

Usually, the particular worldwide wholesale store department will employ an agent stand for as their representative in a foreign market (Hollensen, 2012 #1). The agent is accountable for taking orders from customer and bringing in targeted customers promote the retailers and also making sure that these are prepared and received by the wholesaler (Hollensen, 2012 #1).

Typically, the role associated with the agent is to determine and prepare display room which can be then showed the particular stock to promoting stockist (Bruce, 2004 #22).

The agent does not responsible for taking payment from stockist, elevate an invoice for transaction of goods or agree to authorize claim with regard to the goods.

Agents will be paid by the international wholesaler as a commission but however transaction will not made till the store stockist has assist the international wholesaler completely.

Advantage:

Wholesaling offer a minimal-risk way of screening the market response to a product range and brand, as well as helps within the validation of the client before the validation of the retailer system in a overseas market (Ball, 2012 #23).

Wholesaling remains an essential distribution method when they have set up stores on a overseas country such as Brazil. As well as being a low-price choice, wholesaling can offer a considerable market insurance coverage at fairly low hazard (Burton, 1999 #25).

Disadvantage:

Although some vendors may possibly establish strict standards for the analysis associated with some retailers, it is still exist the hazard that the stockist might weaken the popularity of the trademark through poor graphic display, poor customer services provision or unauthorised price reduction (Bruce, 2004 #22).

5.6.1 The Wholesales Operations in current Urban Outfitters

In 1984, the free people wholesale division was developed (URBAN OUTFITTERS, 2009 #14). Young ladies casual wear with the private label apparel lines can be sold at attractive rates in Urban Outfitters stores. Free people currently offers its products under their own free people and others labels. There are approximately 1,400 specialty stores and departments, such as Nordstrom, Belk, Lord & Taylor and Bloomingdale’s were sold Free people with a choice of sweaters, bottoms, dresses, and tops during the fiscal 2012 (URBAN OUTFITTERS, 2009 #14). In addition, Free People deliver a range of products in particular stores utilizing a shop-within-shop sales model. This model will allows a greater freedom in distinguishing the display of free people products and building up brand image in future (URBAN OUTFITTERS, 2013 #18). In order to fulfil retail customer satisfactions and requirement, Urban Outfitters always learned and keep track of the products and styles that are favoured by customer.

Free people hired its own creative management and senior staff, yet give business help and support the products and services using the retail segments (URBAN OUTFITTERS, 2009 #14). This makes the wholesale shares production sourcing in store segments.

Remarks:

In reaction to these difficulties, several international wholesalers expect their agents also keep track of the degree to which stockist abide by brand performance standards and guidelines (Bruce, 2004 #22). This is nevertheless an incredibly cost expensive.

6. SWOT Analysis

This method will evaluate the issues that may occur of Urban Outfitters if start business at São Paulo.

Strength

Brazil with the approximately 185 million of people in the country, São Paulo where is one of the most popular city in the world, by analysing the market, it is undeniable that there are still have higher demand and customer needs in this market.

Jobs and competition in Brazil will increase since the Bank of America has announced to start investing in Brazil (America, 2012 #12).

The potential of the Brazil market is still booming. As a result, there is still having opportunity to start up successful business in this region.

Weakness

One of the main major negative impacts to the economy in many countries is income inequality. Income inequality will lead to social economic become not flexible, this will result people not put afford on their work, and also will make hard decision from one social economic status to another.

Tax is also one of the major problems in Brazil. Inefficient tax system cause people find hard to pay the tax according to the World Bank’s most recent study.

Opportunity

In 2014, Brazil will hold the football Word Cup Championship. And after 2 years, which is 2016, Brazil will hold the Olympic Games. As a result the market in Brazil is still in good prospective and suitable for Urban Outfitter to build up an image to this region.

Furthermore, Urban Outfitter will fit well in the manufacturing since the Brazil currently has a space in manufacturing and fashion sector.

Threats

Market Competitive fierce in São Paulo. Since the Topshop has opened their store in 2012 in São Paulo, following Zara and Mango and more rival competitors are waiting for new apparel firms to face.

Customer loyalty. Customer loyalty is one of the major threats for new business entry to the market.

Exports issues. Although export is good for Brazil economy, but it also easily to modify the path and slow down Brazil economy.

Currency. Currency can influence and affect to a firm income and profit from foreign market. It will impact and cause by many factors. Currently, the real currency is too strong in Brazil, if it gets stronger; the Real may affect the Brazilian exports.

7. Conclusion

As a result, the whole of South America is still a "budding opportunity", as it stills a big market for firm to explore (Ball, 2012 #23). This report has identified the critical issues that might occur using the SWOT analysis, and other forms of analysis. From the six recommended method that mentioned above, it is suggested that wholesaling is the best way of market entry for fashion retailer to start business in São Paulo, Brazil. It is because wholesaling delivers a vital profits stream for international fashion retailer (Bruce, 2004 #22). For instance, wholesaling has bring Raph Lauren’s fashion retailer turnover with a $.1.18 billion total profit during financial year 2002/2003 (Bruce, 2004 #22). Furthermore, in future, with the increasing of middle class in Brazil, people can afford to buy clothing from Urban Outfitters (Press, 2012 #4). Also, the coming Football Word Cup and Olympic Games will definitely increase the Brazil economy dramatically and hence, bringing a big fortune for Urban Outfitters and also a good chance to increase the brand image. Moreover, the northeast of the country is also developing quickly, and according to Euromonitor International, Brazil apparel market will predict generate almost $3 billion of incremental retail sales in following year (International, 2013 #27).

References List

9. Appendix

9.1 Appendix 1

https://www.portal.euromonitor.com/Portal/charts/PortalChart_000120.jpeg?a3cf5598-c715-4b12-a49a-d1c9706b9908

Clothing Accessories Market Sizes

(Source: Euromonitor International 2013)

9.2 Appendix 2https://www.portal.euromonitor.com/Portal/charts/PortalChart_000049.jpeg?de3c5dc5-4a9e-4230-967c-6c33c5b28471

Consumer Expenditure on Clothing and clothing Accessories

(Source: Euromonitor International 2013)

9.3 Appendix 3https://reportgraphics.euromonitor.com/reportgraphics/IMIS-SB/Brazil/image1.gif

(Source: Euromonitor International 2013)

*Remarks: With a sales of US$32.9 billion in 2007, footwear and clothing was become the largest best profitable sectors under review, due to textile prices declining (International, 2013 #27).

9.4 Appendix 4

Online Buyers in Brazil from 2010 to 2015

(Source: Adapt from Emarketer.com 2013)