Business Strategy

Polo Ralph Lauren (PRL). Illustrate your essay with specific examples.

Introduction

The garment and the wider lifestyle goods industry has long been one of the most complex and globally dispersed industries of the world. Added to that, the complicacies of lifestyle goods retailing makes the business of lifestyle retailing an intricate skill (Tanabe, M. et. al, 2003). Companies exist at various levels of the lifestyle goods supply chain, performing one or more functions. Retails element sits at the outer most end of the supply chain and it is here that marketing and elements of marketing such as branding and the famous 4 Ps of marketing – product, price, place and promotion have to be carefully designed (A.T.Kearney, 2002). Consequently, the strategy has to be extended all the way down the supply chain to adequately support the company’s retail strategy. PRL is today recognised as one of the premium lifestyle brands not only in the US but also in various other key consumer nations such as Japan and the European countries (Birchall, J., 2008). This article aims to highlight the business environment within which PRL exists, analyse its strengths and weaknesses and assess its business strategy.

Porter’s five forces model

Supplier Power: Suppliers for the range of products labeled as lifestyle products are sourced from different countries of the world such as China and India (Tanabe, M. et. al., 2003). This widespread of manufacturing skill base across the world reduces the supplier power and enhances buyer power. Increased mechanisation has also led to considerable reduction in supplier power because mechanisation leads to standardisation and inability to differentiate products of one supplier from other. The lifestyle retail industry, therefore, currently has very less supplier power.
Buyer power: The Bargaining leverage does contribute to higher buyer power within the industry. The retail industry is very dispersed in terms of the nature of buyers. In almost all the segments of the industry including the higher value or premium segment, there are a number of buyers; and in terms of the actual volume of purchase, it is often not great enough for them to be able to exert a great amount of power over the suppliers (Datamonitor, 2007). Premium retailers such as PRL, Louis Vuitton, Coach, Tommy Hilfiger, etc. sell their products at very high margins and such successful retailers are often cash rich (Foster, L, 2005). PRL, for example, is now a business with a turnover of $4.6 bn (PRL Annual Report, 2008). With buyers of that size in the industry, the threat of backward integration always remains, operational complications in the actual supply process notwithstanding. Buyers within the industry enjoy considerable power over the suppliers.
Threat of substitutes: Garments, home furnishings, accessories, fragrances and other kinds of lifestyle products have been known to change forms over the years rather than actually being displaced by something entirely different (Datamonitor, 2007). The garment industry, for example might see a shift in general consumer preference from one fabric to another, however, in the context of industry analysis, there is no clear substitute for lifestyle products. This means that demand for such products will always exist.
Barriers to entry: Premium clothing is a brand driven industry and it takes a while to build brand reputation. For customers in this market, the products are a reflection of their personality and character and they often opt for a brand that best reflects that. Such customer behaviour is in stark contrast to the mass garment market where garments and other apparels and accessories are purchased as necessities or where style and brand value do not hold that much sway over customers’ buying decision. On that account, barriers to entry in this segment is significantly high. Nevertheless, the initial capital expenditure requirements are often modest as compared to other industries (Datamonitor, 2007). This means that the “pulling out” option is always there if the strategy does not reap dividends. Companies can enter different segments of the supply chain and have different distribution channels- franchisee option, licensing arrangements, self retailing or even e-retailing (Fleisher, Craig S. & Bensoussan, Babette E., 2003). With a number of options available to potential market entrants, in conclusion, it can be said that the barriers to entry are modest.
Rivalry: Rivalry within brands is intense and that is reflected in the ever burgeoning spending in brand promotions. The recent lawsuit filed by PRL against the American Polo Association for use of logos similar to its polo logo is a case in point. Speed, agility and dynamism are also factors that differentiate one company from the other in this industry where consumer preferences can change very quickly. Successful companies manage to bring design changes in their products to suit consumer preferences. The industry is marked by intense rivalry between premium brands such as Tommy Hilfiger, Louis Vuitton, Coach and PRL (Foster, L, 2005).
Analysis of macro business environment surrounding Polo PRL Corporation (PESTEL analysis)

Political

1. Most of the developed economies face huge budget deficits leading to decreased consumer confidence

Economic

1. Current economic condition might affect consumer’s discretionary spending leading to tougher retail climate, especially for high-end fashion retailers like PRL.
2. Price inflation due to rise in the cost of manufacturing can lead to reduced profitability.
3. Decreased demand from both developed countries as consumers tighten their belt.
4. Strength in the value of the dollar to affect PRL favourably in terms of import from other countries which supply/manufacture goods for it.

Socio-Cultural

1. US, UK and other PRL markets are high fashion awareness and brand conscious cultures.
2. Demographics changing as ‘baby boomers’ get near retirement age. More than 35 percent people in Britain are likely to be above 50 by the end of 2011 (Web 2). This can mean a change in fashion trends.
3. Changing consumer attitudes in high fashion cultures. Consumers are embracing price and value over buying experience.

Technology

1. Increased use of online shopping (low in clothing retail as compared to other retail segments) presents an opportunity to step up online advertising activity.
2. Polo.com well positioned to take advantage of online shoppers
3. Internet, when used as a medium to compare prices between rival brands, can lead to more price sensitivity even in the luxury retail segment

Environmental

1. Changing consumer attitudes towards eco-friendly products. Government has done a good job in educating the public on environmental concerns.
2. Likelihood of increased taxes on factory emissions. This can lead to rise in operating cost thereby reducing margins.

Legal

1. With most retailers relying on exports and manufacturers from India and China, legal issues surrounding poor working conditions (‘sweat shops’) in those countries can affect the brand.

Analysis of Polo PRL’s Strengths and Weaknesses (SWOT Analysis)

Strengths

1. Brand Equity – PRL brands enjoy high brand equity in the niche market segments in which it operates. It has consistently featured in the world’s top 100 trusted brand (Karimzadeh, M., 2005).
2. Product Portfolio – Business expands across various product portfolios including cosmetics, home furnishings and other accessories. PRL looks well settled to make use of its luxury brand to diversify into jewelry and watches segment.
3. Loyalty and Repeat Purchase – Has a loyal customer base enjoying high repeat purchase from existing customers. Experience of being in the clothing business for over thirty years adds to the trust and emotional bonding it has with its customers.
4. Low Price Sensitivity because of high brand equity/awareness and customer loyalty.
5. Relatively Strong Financial Position – PRL is financially strong with low debt to capital as well as high return on equity relative to other major competitors in the industry (Polo Ralph Lauren Annual Report, 2008).
6. Multiple Distribution Channels – PRL’s strength also lies in its multiple distributions in the form of domestic department stores through its wholesale network, full price retail stores, outlet stores and its polo.com website. The company’s multiple distribution channels allow it to optimise its distribution network, cut down costs and increase margins (Datamonitor, 2007).

Weaknesses

1. Supplier Reliance -Still reliant on external suppliers as they don’t have their own manufacturing capability.
2. Reliance on developed economies of US and Europe for most of the revenue generation.

Threats

1. Current economic climate – The effects of the credit crunch coupled with high inflation and unemployment has led consumers to cut down on their discretionary spending. Demand for luxury clothing, accessories and cosmetics may reduce as recession looms large on the world’s biggest economies where PRL generates most of its revenues (Bove, Jessie, 2008).
2. Consumer’s reluctance to purchase clothing and cosmetics online – This makes PRL dependent on its in store sale which has an adverse effect on its operating costs, e.g. The cost of acquisition from a typical PRL full priced retail store is more than three times its online cost of acquisition (Etgar, M., Rachman-Moore & Dalia, 2007).
3. Increased competition – The rise in economic strength of developing countries like India and China has meant that more people can afford to spend more on clothing and cosmetic luxuries. This has not given an opportunity for new entrants to enter the market place but also for existing players to expand and diversify their operations to make the most of their brand equity. PRL faces stiff competition from apparel brands like Tommy Hilfiger, Calvin Klein, YSL and Giorgio Armani; all of which enjoy high brand equity (Wang, Charles X., Webster, Scott, 2007).
4. Consumer Demand – Experience can lead to complacency at times. The rise of new entrants is a major threat for PRL because new entrants will always enter the market place with more up to date fashion clothing which will be more in line with fashion trends. A typical example of this is the rise of ‘Next’ in the UK which is quickly taking over Marks and Spencer’s market share because of its more up to date fashion clothing (Aaker, David A., 2007).
5. hreat of substitutes in the form of counterfeited goods can seriously damage the company’s long established brand image for quality and style.

Opportunities

1. Has room to maneuver with its pricing because of its high margins (Polo Ralph Lauren Annual Report, 2008). Economic downturn might present PRL with an opportunity to look into its pricing to make its revenue – profit apportionment more suited to the customer demand during the downturn.
2. Developing countries – US, UK and most parts of Europe are developed and mature markets. Opportunity lies in Asian markets like India and China. Major part of PRL’s revenue generation is still from US and Europe which makes it reliant on the west (Polo Ralph Lauren Annual Report, 2008).
3. Expected rise in online sales with the rise in fuel costs. Polo.com is well positioned to make the most of this trend with its distinctive website experience which allows prospective customers to design their own clothes online.

Porter’s Value Chain Analysis of Polo PRL Corporation

Porter’s Value chain framework can be used to analyse specific activities through which firms can create value and competitive advantage.
PRL is a company known for specialising in the design, marketing and distribution of lifestyle products. It is a very design driven organization. It was the unique designing and style of its range of ties in 1967 that catapulted the organization to great fame (Web 1). It is the unique design and styling of PRL range of products that differentiates it from its competitors and gives it a competitive advantage.
The other primary activity within the business where Ralph Lauren is particularly strong is in marketing and retail, which includes promotion of its brands. Polo PRL Corporation’s brand names include Polo by PRL, PRL Purple Label, PRL Collection, Black Label, Blue Label, Lauren by PRL, RRL, RLX, Rugby, PRL Childrenswear, Chaps, Club Monaco and American Living, among others (Haxthausen, O., 2008). All these brands have a very strong brand equity and the company is substantial a considerable amount of its net revenue on promotional activities which is in line with its corporate strategy.
As far as the other primary activities of manufacturing, distribution and retail are concerned, PRL Corporation can be seen as following the industry trend. It sources its products from 160 manufacturing bases spread across the globe (Web 1). It distributes its products through different ways of distribution- wholesale, retail and licensee agreements. Electronic or online retail has also received attention and emphasis from the company management and it also forms part of the company’s growth strategy (Polo Ralph Lauren Annual Report, 2008). These activities, however, are not areas which give PRL Corporation, a competitive edge. Its competitors are also doing similar things to varying degrees of effectiveness.

Conclusion and Analysis

The analysis suggests that while PRL is well placed to weather the storm of recession in developed markets, the going will be really tough as its revenue depends on mature markets. One of the reasons for this has been the lack of foresight on the part of its management who has underestimated demand in certain economies; e.g. PRL was reluctant to enter Russia because they considered Russia’s traffic-clogged epicenter of conspicuous consumption and rabid new-wealth oligarchs, unready for understated American take on style (Petromilli, M. & Morrison, D., 2002). PRL has to capture the newness and the fashion trends of more developing markets if it is to maintain its competitive edge. The competition and the economic downturn means that PRL has to distinguish itself from other established rivals by giving customers a quality product and a good retail experience which distinguishes itself from other specialty stores.
The key elements of PRL’s business strategy are as follows-
Focus on design and ‘Brand Stretching’ to different product lines- Brand extension through diversification into related products such as fragrances, accessories, footwear and home collections and through internal brand differentiation (development of different sub-brands for different target groups, e.g. Polo Sport, PRL/Purple Label Collection, Polo Golf, RALP/PRL, etc.). The company has recently launched a “super premium” perfume for GBP 2,000 (Hader, Suzanne, 2008). Such brand extensions, although they make good strategic sense, entails the risk of increased competition from specialist product manufacturers. In the fragrance section for example, the likes of Burberry and Christian Dior are likely to pose stiff competition to PRL. The company, therefore, needs to make an in depth evaluation as to whether it should concentrate on its core strengths (garments and apparel) or extend its brand to other products.
Expand international presence and tap new markets- The company is planning for continued expansion of its business in Europe, Asia and other international areas (Polo Ralph Lauren Annual Report, 2008). It has recently set itself a strategic target of doubling its sales in both Europe and Asia through new store openings in order to partly offset the falling consumer demand in its core US market. As part of its Japanese expansion plan, the company has recently bought the remaining 50% interest from PRL Japan, whereas in Europe, the company plans to open two stores in Paris, including a new flagship store on Boulevard St Germain in Paris. However, this international expansion strategy does come with its own inherent risks. In the past, companies have had incredible difficulties matching its retailing style to a totally different culture (HBR case). Further, in any expansion management, customising the entire supply chain is a big challenge (Polo Ralph Lauren Annual Report, 2008). The company itself admits that it may have difficulty integrating acquired businesses into its operations, hiring and retaining qualified key employees, or otherwise successfully managing expansion. The current economic downturn and reducing consumer demand is set to severely affect consumer spending on premium products.