Author:

Mark Tottman
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Opening thought

Fashion fades,
style is eternal
Yves St Laurent

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Strategy Toolkit Contents

Introduction
Thinking strategically
Strategic analysis of SuperGroups business
Strategic options for SuperGroup

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Introduction

This presentation reviews the market for fashion retailing and takes you through
the key corporate strategy issues facing SuperGroup PLC, a British clothing and
fashion company based in Cheltenham, England
It is important to remember that, in corporate strategy analysis, there are no
right or wrong answers just problems that need addressing and choices that
have to be made
The views and opinions expressed in this document are just our opinion.
Hopefully you will find them helpful. However, dont forget that you need to
form your own views and be ready to explain and justify them in your Unit 4a
examination paper
Print this presentation out and add your own notes to it as you work through the
case study or download it onto your laptop/smartphone/iPad and annotate it
Above all remember that Unit 4a is about:
Thinking strategically
Thinking big picture
Thinking synoptically i.e. recognising that strategy issues are not just about
marketing or finance or production but about inter-related issues

Note: The presentation is based upon the pre-released Evidence provided by

Edexcel up to 2011. However, there is comment in the presentation which
covers the changing fortunes of SuperGroup over the last 12 months (2011-12)
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SuperGroup and this Toolkit

What We Have Done

Worked carefully through the case study like you should too
Analysed the data, read between the lines and presented the key features
Added some information to bring the case study up to date for 2012
Linked the analysis to the Edexcel specification for Unit 4a
Identified what we believe are the key strategy issues raised by the case study
Outlined the strategic options open to SuperGroup
Evaluated the strategic decisions that could be made

What We Have Not Done

Question-spotted what we think the Unit 4a examiner might ask. Examiners have a habit of
asking tricky questions. In any event, you need to answer the questions actually set, not
the ones you want to be asked
Repeated all the details of the case study (there is no value added in doing this and you
need to read it too!)
Repeated all your textbook, class, VLE and revision notes on corporate strategy (refer back
to these as necessary)
Provided lots of notes on corporate strategy concepts your textbook, VLE and class notes
should cover those fine. You need to get thinking about fashion retailing!
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How to Work Through This Presentation

Step 1

Read the SuperGroup case study

carefully; study the words; look at all
nine pieces of Evidence (A to I); form
your initial views on the business
positive and negative.

Step 2

Read our advice on Thinking

Strategically

Step 3

Step 4

Step 5

Go back to the case study and re-read it.

Try to identify what you think are the key
strategic issues.
Read our sections on the Analysis of
SuperGroups Business and our
thoughts on the Strategic Options for
SuperGroup
Summarise the key points from this
presentation in your own revision notes
(or scribble all over it) so that you are
fully prepared for the Unit 4a paper
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Thinking Strategically

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Thinking strategically means imagining YOU are sitting at

the SuperGroup boardroom table in Cheltenham, England
with Julian Dunkerton, the business founder and CEO

As you sit at the head of the table looking out at all the people walking by,
your role now is to navigate your way through the complex and intensely
competitive world of global fashion retailing to ensure that these people
are choosing to wear SuperGroup clothing ranges
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Directors do not concern themselves with day-today operational details neither should you
Julian Dunkerton is concerned with questions like
What is our
business mission?
What are our goals
and objectives?

How are we doing?

Can we survive
with our current
strategy?

What resources do
we need? How
should we finance
them?

What are our

competitors
doing?

What external
factors influence
our business?

What strengths
and weaknesses
do we have?

How do we exploit
the opportunities
available?

Are the same

actions in the best
interests of all the
stakeholders?

Think about these questions as you work through the case study
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Corporate Strategy involves taking decisions

Decisions often need to be taken
quickly
Decisions involve risk but a
business can never move forward
unless it takes risks

Information is never perfect,

complete or always up-to-date
The Unit 4a evidence needs to be
considered in detail and data must
be interpreted with a critical eye
Think about the decisions that
Julian Dunkerton needs to take.
What information does he need?
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Be careful with your SWOT Analysis dont

believe management hype!
Strengths

Weaknesses

these are ONLY factors where a business

has a real competitive advantage. Just
being good at something is NOT a strength if
your competitors are good at it too! Most
businesses have only a few strengths. Some
dont have any.

in reality, these are the things that really

stop a business from succeeding. Most
businesses have some fundamental
weaknesses but management often ignore
them (and rarely admit them). Your job is to
tell it as you see it.
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All businesses have problems but they are

rarely as bad as they look

Not every problem or issue described

in the SuperGroup case study is really
important. Dont get too bogged down
by what look like numerous issues.
Good management is about sorting
things out
Try to identify the really important
issues, problems or challenges facing
SuperGroup. These are the strategic
challenges that the company must
address

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Strategic Analysis of
SuperGroup

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Fashion market overview

The fashion market is a global industry with notoriously short product life
cycles
It generates over a trillion dollars per annum worldwide

It is a highly fragmented market with numerous players, many of whom

operate with global brands
In Western territories, the market is largely saturated, with players
competing for market share
There are a number of emerging fashion markets which are growing
opportunities for Western brands because these brands are seen as
aspirational and status symbols
Russia, China, India, Singapore, Brazil, South Africa and areas of the
Middle East (especially UAE)

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Fashion in context
Fashion goes beyond simple clothing and accessories. It

expresses identity
creates wellbeing
embraces creativity
connects global communities

There are different ways to segment the fashion market. Market

segmentations can use price, age, lifestyle, gender, quality or
geography as descriptors.
It would be a good class exercise for you to do your own version of the
fashion market segmentation in order to explore the possibilities
On the next slide, we have chosen price and quality as our criteria

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Fashion industry market segmentation:

Multi-layer players have a range of products for
different markets; others operate focus strategies
Multi-layer
players (e.g.)

High Price,
High Quality

Haute Couture
Luxury

Expensive and exclusive, custom made

fashion/performance gear for the worlds
wealthiest individuals/sports people
Not custom made, but high quality and
exclusive fashion for fairly wealthy
people

Gucci
Westwood
Lauren
Armani
Nike
Adidas

Jack Wills
Superdry
Burberry
Abercrombie
Ubiqlo

Affordable
Luxury

Aspirational consumers with some

disposable income, but who cannot
afford luxury brands at luxury prices

Discounters/
Off Price

Out of season luxury brands for

consumers who want (affordable) luxury,
but are not fussed about current fashions

TK Maxx
eBay

Clothing that sacrifices an air of

exclusivity for mass market appeal

Primark, M&S,
H&M, Zara,
BHS

Mass Market

Low Price,
Low Quality

Single layer
players (e.g.)

Supermarkets

Clothes for cost conscious or low income

consumers

Walmart/Asda,
Carrefour,
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Superdrys market position

It is quite difficult to place Superdry into a neat fashion category like
many other High Street labels. To some extent, it spans our categories
because it sells unisex basics, but with design ticks

It is in the same space as Abercrombie and Fitch, Jack Wills, Gap,

Uniqlo and AllSaints, but (probably) beats them all
It also competes with brands like Burton, Dorothy Perkins, Miss
Selfridge, Top Shop, Primark, Matalan and Officers Club
Superdry sells (overtly) branded fashion to the mass market, to people
who like clothes, but who do not care about fashion with a capital F.
We could say that Superdry has taken over from FCUK, the last brand
to capture public opinion in a sloganeering way
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The basics of fashion retailing

There are two core elements to fashion retailing:
1. Design - identifying gaps in the market (about one year in advance)
and designing clothes and accessories which will meet the future
needs of fashion customers. Design decisions are often made a year
in advance of actual retail sales and fashions might change in that
time. There is a careful balance between being responsive to changes
and to predicting/creating the next fashion trends
2. Sales generating sales volumes by establishing the best routes to
market (wholesale, retail, internet) at the right price

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A brief history of SuperGroup PLC

1985

Cult Clothing was established by Julian Dunkerton in Cheltenham

1986

Cult Clothing stores expanded across the UK, mainly in university

towns such as Oxford, Birmingham and Edinburgh

2003

Dunkerton linked up with James Holder (creator of Bench brand) to

form Superdry

2004

First Superdry store opened in Covent Garden, London

2006

SurfCo and 77Breed brands were added to the SuperGroup

2010

SuperGroup floated on the London Stock Exchange with a share

price of 5.00. The share price reached 18.99 in February 2011

2011

acquisition of CNC Collections BVBA, which added 18 shops to the

SuperGroup empire in France and Benelux

portfolio

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SuperGroup PLC Today

In the UK there are 76 standalone Superdry and Cult retail clothing
stores, plus 71 concessions where the products are sold
Overseas there are 145 Superdry outlets (83 of which are franchised)
Superdry is sold in 101 countries across 4 continents (Europe, Asia,
Australia, Americas)
A flagship London store has just been opened in Regent Street
In the last 12 months SuperGroup has issued four profits warnings, the
share price has tumbled to around 4.50, (10% below the launch price
two years ago), and the store opening programme has been under
scrutiny
www.supergroup.co.uk
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SuperGroup Business Model

25 designers at
Cheltenham HQ

Product Design

Global Sourcing

53 suppliers across Turkey,

China, India & Peru

Distribution

Retail Business Sales

Superdry & Cult
own brand shops
in UK and Ireland

Retail
concessions

Wholesale Business Sales

E-Commerce /
internet

Franchises /
Licencees

Independent
retailers (some
via agents)

CNC BVBA
Benelux

Customers
Retail Division
62% of Group revenue in 2011
with a retail margin of 26% (up 5% from 2010)

Wholesale Division
38% of Group revenue in 2011
with a profit margin of 24% (up 3% from 2010)
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SuperGroups Vision and Values

Vision
To continue to be one of the defining global brands of our generation
Values

Pioneering Design

Premium Quality

Continuous Evolution

Accessible Pricing

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SuperGroups objectives are to continue to grow

very fast, at home, internationally and online

In the past 12 months alone, 20 new stores in the UK and 50 franchised

overseas outlets have been opened

Objectives
UK Retail Roll Out
To expand the UK retail estate by up to 150 new standalone stores (at a rate of 20
per annum) which will maximise profit and match the brand demographic
To top up the UK concessions estate (although this has limited growth potential)

European Owned Retail Roll Out

To establish an estate of European owned retail outlets to complement those
acquired with the CNC agreement in Benelux

International Franchises
To expand the international franchise empire by at least 50 stores per annum

Accelerate Internet/E-Commerce roll out

To increase the share of group revenue via internet sales from 8% to 20%

Weve got enormous growth ahead of us. Nationally weve got growth
and internationally weve got exponential growth (Julian Dunkerton)
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SuperGroups ability to compete successfully with other

fashion retailers and to deliver its vision and objectives will
be affected by the companys strengths and weaknesses

Marketing

Operations
Key Strategy Question:

What are SuperGroups

Strengths, Weaknesses
and Issues in its four main
business activities?
Human
Resources

Finance
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MARKETING:
Product making everyday apparel
into vintage classics

SuperGroup is a distinctive branded UK based fashion retailer offering a range

of quality clothing and accessories. It offers premium mens and womens
products in the UK and internationally, targeted at discerning customers who
want stylish clothing that is uniquely designed and well made. The product is
unisex, ubiquitous yet anonymous
sporty, yet not technical
designed, but not designer

The product range includes:

T-shirts & polo shirts

shirts & rugby shirts
jeans
joggers
sweaters
hoodies
jackets
footwear
accessories, bags, sunglasses, jewellery, backpacks/rucksacks
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MARKETING:
SuperGroups branding is unique
in the fashion sector
SuperGroup has three main brands:
77Breed (for the skate market)
SurfCo California (for the surf market)
Superdry (targeted at young people/young at heart)
Superdrys branding
combines vintage American fabrics with pseudo Japanese text (but the
company is based in the quintessentially English Regency town of Cheltenham!)
Kyokudo kanso shinasai: the literal Japanese translation is please dry it or yourself
extremely

has a preppy appeal with elements of street-wear design

portrays bright colours and contemporary designs

Superdrys appeal is
sporty we like the idea of snowboarding, but do not actually go
faux vintage we want to look second hand, but we do not want to rifle through
second hand clothes rails / charity shops
international we are global people, whether or not we travel the world
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MARKETING:
SuperGroups brands are a source of strength

The Superdry brand has gained in recognition and popularity in the UK and
overseas and is at the heart of the business.
80% of sales come from the Superdry brand, which is therefore the cash cow of
the business.
The company has developed multiple logos whereas most fashion competitors
have just one logo.
Therefore if competitors become successful, more and more people will be wearing
the same logo which is ultimately not what most customers really want therefore a
self defeating strategy
With SuperGroup, 20 people could all be in a pub wearing the same brand, but all
with different logos on them a better strategy

The Cult stores represent a good way of testing new brands and concepts
(undercover) without jeopardising the Superdry brand

BUT
Some critics argue that the brand is becoming tired, too heavily logoed and in
need of a re-vamp
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MARKETING:
Prices are kept relatively low...
Superdry seek to price their clothes as low
as they can in order to make a sensible
profit.
This implies elements of a price penetration
strategy with cost plus pricing

They sell high quality products at earnest,

affordable prices
e.g. a similar preppy aesthetic to Abercrombie
and Fitch and to Jack Wills, but Superdry
products retail for 10-15% cheaper

Dunkerton believes that competitors raise

prices to see what they can get away with
which harms their brand loyalty
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MARKETING:
... Promotion is kept relatively low cost
Superdry has no advertisements or
celebrity endorsements. It relies on
word of mouth and celebrity generated
publicity
A Brad leather jacket worn by David
Beckham in 2007 sold 70,000 units over
the next three years, becoming a best
seller for the company
Superdry clothes are also worn by Zach
Efron, Helena Christensen, Jude Law,
Pippa Middleton, Kristen Stewart, Justin
Bieber, Kate Winslett and Ben Stiller, all
of which provides free publicity and
promotion for the brand
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MARKETING:
Place SuperGroup operates a multi channel
approach to market

SuperGroups main channel to market is its large (and growing) retail empire of
103 Superdry and Cult UK and European standalone stores. This includes the
flagship store in Londons Regent Street, a four storey shop (formerly Austin
Reed)
In addition to its owned retail activities, SuperGroup has other physical channels
71 UK retail concessions, (such as Harrods, House of Fraser and Selfridges) and 50
International concessions
130 global franchised and licensed independent stores, including the flagship store
in New Yorks Times Square

There is also a growing virtual presence in the market with two fully
transactional websites boasting over 300,000 customers, plus three local
language sites in France Germany and Belgium
www.superdry.com
www.cult.co.uk

They use internet presence to create awareness in territories ahead of new

store openings
In total, Superdry is sold in 101 countries across four continents
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MARKETING:
Place ... but there are strengths and weaknesses
in this strategy...
65% of group revenue comes from outside the UK (especially Europe,
USA and Australia) a figure which has shifted fast since the early days
when the company used to be a UK centric organisation
Therefore SuperGroup has diversified its income risk and is no longer
heavily dependent upon fluctuations in the UK economy

BUT
With the increase in internet business (which is targeted to continue),
customers have been able to buy T-shirts, polo shirts, dresses etc on
eBay/internet channels at vastly discounted prices against the traditional
retail and concessions channels
Therefore causing considerable channel conflict, especially within the
wholesale business and amongst independent retailers

Fewer concessions are taking Superdry stock because they are being
squeezed by the rising number of Superdry high street stores
Does Superdry need a new brand or range specifically for independents?
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OPERATIONS and PRODUCTION:

Service delivery upgrades are being made, but the supply
chain is challenged to cope with rapid business growth
The recent appointment of Sean Park from Asda as Head of
Procurement is helping to reduce costs
The UK distribution centre has been upgraded to add 77,000 sq feet (=
200,000 sq feet in total), thereby allowing the internet business to
deliver next day despatch to the UK market
A shortage of stock and sizes across UK stores during the
implementation of an IT systems upgrade in its warehouse management
system at the Barnwood warehouse (Gloucestershire) cost 8.8M in lost
sales in 2011
New system did not interface correctly with retail systems and inhibited
stock replenishment capability
Some stores were receiving sizes S and XL, but no M or L
Even so, it has increased capacity and they managed to ship 61,000 items
in one day up 16,000 on the previous year

A move towards larger factories is in place, but the benefits of

economies of scale are not yet evident
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OPERATIONS and PRODUCTION:

SuperGroup uses a global supply chain
Products are designed in-house and manufactured in a
number of overseas factories known for their expertise in
particular product categories
Current sourcing volumes are as follows (% of total from
each country)

Turkey 40%
China 30%
India 20%
Peru and other countries 10%

They are looking to increase the volume from India because

of its manufacturing sophistication and quality

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OPERATIONS and PRODUCTION:

Improvements in the supply chain are showing benefits, but
it is challenging to put the infrastructure in place
Current strategies:
They are using better quality fabrics than two years ago (e.g. chinos)
The number of suppliers worldwide has been increased from 33 (in
2010) to 53 (in 2012) because a broader supplier base:
reduces risk and
helps to meet business growth expectations and
gives better costs deals dual sourcing increases price competition
between suppliers and
Improves quality (e.g.Superweight Nordic style knitwear is now being made
in four different factories rather than one. Diversification of production
across categories gives lots of different textures and hand feels)

But
More sources of production increases the pressure on SuperGroup to
be able to monitor suppliers to comply with labour, employment and
other laws (in order to meet their CSR requirements and avoid adverse
publicity which has been rife in this industry in the past)
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HUMAN RESOURCES:
SuperGroup prides itself on its entrepreneurial spirit

The current corporate headcount is 1,899 people

The Board of Directors is made up of the Chairman, Peter Bamford, and four other nonexecutive directors. In addition, there are five executive directors:

Julian Dunkerton (Chief Executive Officer)

James Holder (Brand and Design Director)
Theo Karpathios (Wholesale and International Chief Executive)
Susanne Given (Chief Operating Officer)
Shaun Wills (Chief Financial Officer)

The design team has recently increased to 25 designers under James Holders
inspirational leadership
Significant recent appointments have also been made in IT, Property, Finance,
Merchandising and Logistics
The main HR challenge for the future is whether the organisation can become more
sophisticated (more like a big company) without losing its entrepreneurial flair...

What weve found is that if you want growth and you bring in entrepreneurs
who have developed those skills, you have a series of entrepreneur spirits
within the company. We have an entrepreneurial culture and I think we will
maintain that (Julian Dunkerton)
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FINANCE:
The historical income statements show a
business that has grown fast
Ms

2012
(preliminary)

2011

2010

2009

Turnover

314

238

139

76

Cost of Sales

135

105

66

40

Gross Profit

179

133

73

36

Overheads and
Other

138

86

50

28

Net Profit

51

47

23

2012
(preliminary)

2011

2010

2009

Gross Profit Margin

57%

56%

53%

47%

Net Profit Margin

16%

20%

17%

11%

Despite significant adverse press speculation and four profit warnings

this year, the preliminary results for 2012 show that SuperGroup has
survived a difficult year relatively unscathed and with a substantial
increase (32%) in its top line revenue
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FINANCE:
Despite some problems in the last 12 months, the
business is financially sound
Despite issuing four profit warnings in 12 months, profitability has risen,
albeit by less than SuperGroup would have liked
They have ridden out the storm created by an accounting error, based
on a simple arithmetical mistake which cost the wholesale business
about 2.5M
They have survived a misjudgement in forecasting demand for goods
which was worth about 2m in adjustments to wholesale sales (lost
sales)
The share price is recovering from a low of 2.70 in June 2012
Business growth has been largely internally funded
There is a sound balance sheet with low gearing and a substantially
positive cash position

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Balance Sheet Extract:

Liquidity ratios - Evidence H
M

2011

2010

Stock

52.3

21.1

Debtors

35.7

16.4

Cash

32.2

29.5

Total Current Assets

120.2

67.0

1.4

Creditors

42.7

22.6

Total Current Liabilities

42.7

24.0

2.8
1.6

2.8
1.9

Borrowings

Current ratio
Quick ratio (Acid test)

This extract shows a healthy set of figures from the balance

sheet whereby SuperGroup has sufficient liquidity to meet its
short term financial commitments
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Summary of SuperGroups Strengths and Weaknesses

Strengths
Marketing

Relatively low prices for their

market segment
Innovative designs

Weaknesses
No advertising
Channel conflict with wholesalers and
independents

Strong brands

Operations

Multiple international locations /

presence

IT and stock control issues

Ability to cope with rapid growth
requirements

Human
Resources

Entrepreneurial culture
Dunkerton and Holder

Finance

Ability to manage transition from small

to large company (processes,
organisation/structures, sophistication)

Rapid profit growth over three years Accounting errors

Healthy short term liquidity position

Depressed share price on the back of

four recent profits warnings
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There are several external

influences outside SuperGroups
control which create
opportunities and threats
PEST (LE)

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Political (and Legal) Influences

SuperGroup is a target for large and small scale counterfeit operations

It needs to protect its intellectual property, designs and copyright (and ensure that it does
not inadvertently infringe upon competitor designs/copyrights)
In January 2011 SuperGroup was pursuing about 100 legal actions for copyright
infringement

e.g. vs Superfly, Silverdry over counterfeit goods

e.g. vs Primark over the Brad leather jacket worn by David Beckham
e.g. Vs Arcadia Group (Burtons) over a trench coat

Opportunities
Developing brands/designs that can be patented worldwide, thereby gaining monopoly
advantages for the company, which enable them to justify the prices attached to the brand
Threats
SuperGroup currently spends up to 1M pa protecting its designs plus
There is the possibility of costly legal proceedings against copyright infringers which can
happen at any time without warning

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Economic Influences:
Global Fashion Economics
Global Economic Effects on the Market
The top end of the market (haute couture) is relatively insulated from a global
economic downturn because the super rich can still afford custom made designs
from Westwood, Armani etc.
During tough economic times, customers tend to switch from luxury branded
products to cheaper brands/no brands and off price discounters to save money
Therefore it is tough to be positioned in the middle of the market spectrum during
an economic downturn
Several High Street stores/retailers are suffering declining sales, lack of consumer
interest and even some insolvencies

Opportunities
Expand into multiple countries to diversify economic risk (e.g. emerging markets)
Expand the product range to appeal to multiple segments
Strategic acquisition of competitors who are struggling
Threats
Being left with last seasons stock
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Economic Influences:
Global Currencies and Commodities
SuperGroup is an international business and is vulnerable to
unfavourable changes in currency exchanges
It pays for and takes title to a large proportion of its goods
It receives substantial revenue in foreign currency

A key factor in SuperGroupss Cost of Sales is the price of cotton (a

major component of clothing), which is determined on the global
commodity markets
The price of cotton has been rising, although it is expected to fall in the next
few months

Opportunities
Take out forward exchange rate contracts to hedge risks
Take out forward contracts on the future price of cotton
Threats
Global markets do not perform as predicted
Cotton prices rise sharply
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Social Influences

The fashion market is notoriously fickle due to changing social trends

Teenagers are a key group of customers, but

Popular can very quickly become un-cool

Fashion brands can very quickly become tired
UK and European youth are struggling to find jobs and do not have very much disposable income
Students are faced with rising tuition fees and therefore less disposable income

There is heavy discounting from rival retailers

Opportunities
Move away from less a less heavily logoed look in the future as the young fashion market
has begun to favour less overt brands
Reduce lead times from product design to product delivery
Threats
Not having enough stock available if some product categories really take off or
Being left with un-cool surplus stock

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Technological Influences

In the past few years, the fashion industry has been affected by new
technologies which have increased efficiency and provided much needed data
analysis and tracking. Instead of relying on people to analyze, project and
improve, fashion brands now have the digital technologies to meet these needs
in a much faster way

Opportunities
Customers could invest in a designer or a brand by pre-ordering the items,
therefore the company allows the designers to produce to order, instead of
pushing quantities that may not sell later. This minimizes the risk and allows
informed planning of the produced quantities.
The way we choose our clothes. 3D body scanners can allow people to try on
clothes in virtual mirrors and on interactive screens, thereby enabling
consumers to personalise their clothes virtually and order them online.
Threats
Fashion being acquired from small, virtual stores with hyper efficient
logistics/supply chains. This could change the rules of the game for traditional
fashion houses and those newer companies who are too slow to adapt
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Environmental Influences

From clothing manufacture to disposal and textile re-cycling, environmental influences are
bound to be important in the future of the fashion market.

Opportunities
Improvements in manufacturing of the fabrics we wear for example

Better disposal strategies

without the use of harmful chemicals/dyes and toxic sprays

using natural fibres with biodegradability
using new high-tech or nano-tech, low-impact fibres
programmable clothing
such that when clothes are finished, they are disassembled, composted, re-cycled, remanufactured or re-used according to design

New environmental products such as

dedicated second hand (internet) libraries/swap shops where consumers can swap clothes (like
eBay/freecycle)
jackets/coats with solar panels which can power a mobile phone/iPad

Threats
Diminishing global supplies of cotton as the century progresses
Losing the battle to convince customers that the company is environmentally friendly and
sustainable
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SWOT Analysis A Summary

Strengths

Weaknesses

Strong Brands

Distribution Channel Conflict

Innovative Designs

Ability for infrastructure to keep

Three Year Profit Growth

Opportunities

pace with top line sales growth

Threats

Emerging markets / international

Fashion trends changing very fast

Online/E-Commerce channels

Gloomy global economic outlook

3D applications & personalisation

Environmental sustainability

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Strategic Analysis:
Michael Porters 5 Forces Model: Fashion Industry
Threats of Substitution (Medium)
Growth of second hand markets (recycling) for
fashion
Internet based clothing library with opportunities
for swap shop with other people

Supplier Power (Low)

Numerous, diluted
suppliers
Suppliers sell
commodities
(cotton/textiles)
Easy for Retailers to
switch suppliers

Rivalry of Industry Competitors

(Medium/High)
Intense competition between brands
Short product life cycles
Saturated markets in many parts of
the world
But reasonably easy to exit the
market

Threat of New Entrants

(Medium/High)
Entry costs are quite low
But it is expensive to build a brand
Solar panels on jackets to power mobile
phones?
Companies who can compete on environmental
sustainability

Customer Power
(Medium)
Easy to switch brands
Not much negotiation
on price
Customers can
determine fashion
trends

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Key Strategy Issue:

To what extent does Superdry

achieve Corporate Social
Responsibility?
(Evidence G)

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Corporate Social Responsibility (CSR) is a big

issue in the fashion industry...
The global fashion industry generates over a trillion dollars a year
worldwide and has an impact on many lives. What we wear and the
ways in which clothes are made and sold can have hugely positive and
negative impacts on our society and environment
In the past, the fashion industry has been tainted by

Factories exploiting workers (wages, conditions, health and safety)

Generating throwaway fashion
Wasting resources
Encouraging unsustainable consumption

Companies such as Primark, Nike and Gap have been in the press for
CSR concerns
As a clothing and footwear manufacturer, SuperGroup impacts upon the
local and global environment and it will forever be in the spotlight, along
with its competitors

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SuperGroup has put a number of initiatives in

place to achieve good CSR including...
Use of newsletters, road shows and training programmes to
communicate CSR practices to their workforce

Telling all suppliers about the ethical and environmental conditions

under which SuperGroup products should be produced
Promoting fair and safe working conditions throughout the supply chain

Joining the Ethical Trading Initiative, a ground breaking alliance of

companies, trade unions and voluntary organisations committed to
improving the lives of workers across the globe
Retrofitting technologies in stores to reduce energy consumption
Reducing carbon at their UK warehouse by 39%, thereby saving 47
tonnes of CO2 each year
Setting up systems at distribution centres to recycle 100% of all
packaging waste from inbound stock
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Key Strategy Issue:

Evaluate the importance of the

new Superdry flagship store in
Regent Street, London
(Evidence I)

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Having a strong presence in London is an important

statement in the world of global fashion
London has 26,000 stores housing 138 of the worlds top 250 retail
brands with retail sales of 6.2billion euro per annum
It is one of the worlds top five locations for retail sales along with Paris,
New York, Tokyo and Milan
With an area of 59,000 sq feet, the new four storey flagship store in
Londons prestigious Regent Street (the former Austin Reed store) gives
Superdry a strong presence and provides an international showcase
The store is adjacent to many of its key rivals such as Hollister,
Burberry, Abercrombie and Fitch, Zara, Mango and Uniqlo who all have
stores nearby, thereby making Superdry an integral part of the major
central London fashion set
It is arguable that this is a cost of doing business and that a global
fashion brand cannot really expect to operate without such a presence
in London
Superdry also has a flagship store in New Yorks Times Square
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Key Strategy Issue:

Is Superdry over-reliant on
Dunkerton and Holder?

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SuperGroup has the challenge of operating as a

PLC without losing its entrepreneurial roots...

Since the foundation of SuperGroup up to the present

day, Dunkerton and Holder have been the prime movers
and shakers in the business.
They are entrepreneurs who have done very well and who
have run the company in what Charles Handy might
describe as a Power culture
Since floating on the stock market in 2010, the Directors
have recognised the need for the organisation to
transition from a small company mentality to being a
much bigger PLC probably more like a Role culture as
described by Handy, where the organisation has clear
structures, processes and hierarchies
To achieve this and to spread the load, Dunkerton and
Holder have added several new senior people to the team
The big challenges for them and for SuperGroup are
whether its people can cope with the huge growth
expectations and
how to enable the company to become more sophisticated
without losing its entrepreneurial flair and roots

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Key Strategy Issue:

Has Superdry grown too fast and

can it meet its growth targets?
(Evidence A, B, D and E)

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Rapid growth brings its opportunities and challenges...

The brand has grown from very little ten years ago to a worldwide fashion brand
in 2012 which receives regular (unpaid) celebrity endorsement
In the same time span, the company has evolved from an entrepreneurial
operation to a PLC listed on the London Stock Exchange
There appear to be no signs that the company is pulling back from its growth
path, therefore we could conclude that they think their growth is manageable
and sustainable
The strategic development model affords flexibility because it is a blend of organic
and acquisition development, franchising and partnering with third parties
It is no bad thing to own a growing retail estate (property empire)

BUT
There is some evidence that they may have grown outside their comfort zone
Integrating people and systems has not been easy and they are yet to convince
analysts that they have managed the transition from small entrepreneurial
organisation to big company that needs systems, processes and organisational
structure
The current stock market price would suggest that they may have over stretched
themselves. There has been considerable share price volatility in the last two years
shareholders tend to prefer steady share price growth
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Key Strategy Issue:

To what extent is Superdry likely

to achieve internet sales @ 20%
of Group revenue?
(Evidence C)

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It is unclear from the evidence when such a target is

expected to be achieved (SMART objectives?), but without
doubt the online sector is increasing

More and more people around the world are shopping online and
There has been a consequent decline in high street retail sales
although fashion stores have been one of the big survivers, along with banks, mobile
phone shops, estate agents and fast food outlets

Buying clothes is not a complex purchase (by comparison with, for example,
buying a car or a house) and therefore lends itself to online sales
SuperGroup already has two transactional websites which drive some sales
Assuming that they can develop web retail technology (in various country
languages), there is substantial scope for them to increase the proportion of
sales via E-channels, for example
use of 3D body scanners can allow people to try on clothes in virtual mirrors and on
interactive screens, thereby enabling consumers to personalise their clothes virtually
and order them online
Allowing customers to pre-order items

The success of online developments and the pace at which this channel will
progress will depend upon SuperGroups ability to fulfil orders rapidly and
accurately through their supply chain management systems
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Key Strategy Issue:

Analyse the options for category

development in the Superdry
range.
(Evidence F)

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Superdry has developed its range from 6 T shirt graphics

in 2003 to 400+ T shirt graphics today, plus a suite of
fashion accessories...
Superdry has followed a classic product development
strategy
launching simple, uncomplicated, single line products at
the start
evolving to product line extensions, line filling and line
stretching over a period of time

The brand is now well established in the high street

and within the fashion world. Assuming that they can
develop a wider sourcing strategy and develop the
supply chain network, there are several category
options open to them, including a range of:

premium fragrances, optics and beauty products

underwear, undergarments and sleepwear
headwear
umbrellas
watches
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Health warning for SuperGroup

There is a limited amount

of evidence in the case
study so it is difficult to
develop a water-tight
corporate strategy. But is
it possible to evaluate
some of the options

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Strategic Options for

SuperGroup

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The work of Michael Porter: SuperGroups strategy needs

to reflect its competitive advantage

Resource advantage firm specific

assets that the competition cannot
easily acquire such as patents, trade
marks, proprietary knowledge, installed
customer base, reputation, brand
identity

SuperGroup has some patents

and branding advantage

Capability advantage skills and

competencies, innovation, creativity and
quality of processes

SuperGroup enjoys the

benefits of excellent design and
creativity, led by James Holder

Cost advantage productivity of

labour/assets and buying power for raw
materials

SuperGroup has no discernible

advantage in this area

Differentiation advantage ability to add

value by offering (unique) product
benefits

SuperGroup has no discernible

advantage in this area

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Porter identified three generic strategies against

which SuperGroup can be evaluated

Generic
Strategy
Cost
Leadership

Differentiation

Focus

What does it mean?

What is required?

Unit costs are lower than competitors

because of economies of scale, good
production processes and efficient
resource allocation
Winning profitable segments of the
market. Unit costs may be higher, market
share is less important, but customers are
prepared to pay a premium for quality and
individualised products
Avoidance of confrontation with
competitors (cost leaders and
differentiators) by developing niche
positions with products for otherwise
unsatisfied customers

Up front investment in
gaining market share
followed by running a very
tight ship
Finding perceived product
characteristics and
uniqueness that add value

Finding markets that large

companies cannot easily
replicate (e.g. super fast
delivery, personal service,
hard-to-imitate products)

No

Maybe

Yes

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Applying Porters Strategy Matrix to SuperGroup indicates

that a Focus strategy is appropriate

Broad
(market-wide)

Cost leadership
strategy

Differentiation
strategy

Competitive
Scope

SuperGroup
Narrow
(market segment)

Focus strategy
(low cost)
Low Cost

Focus strategy
(differentiation)
Differentiated
(product uniqueness)

Competitive Advantage

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Recent Strategy Initiatives at SuperGroup

Good leaders reflect on their strengths and weaknesses, assimilate the
opportunities and threats and respond with a strategy that not only
protects their position, but also carves out new spaces.

Recent strategic initiatives by SuperGroup include:

Organic growth through

rolling out new product ranges

opening new retail stores and concessions outlets
opening flagship stores
licensing new franchise operations overseas
making operational improvements

Corporate integration growth through

the acquisition of CNC BVBA Benelux, an example of horizontal integration

Any future strategic choices need to be assessed within the context of

SuperGroups ongoing plans
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Assessing the Strategic Options available to

SuperGroup
Generic strategies - businesses have three strategic options:
1. Retrenchment: this is not applicable to SuperGroup because they are in a
growth phase of their development
2. Stability: this may have applied to SuperGroup temporarily for the last six
months during their blip, but it is not their current strategy
3. Expansion: this is SuperGroups approach a programme of rapid, global
growth
Strategic tools
There are several tools available to identify strategic options for growth
These centre on the approach the business might take to its products and
markets and whether any growth should be organic or by acquisition
Evaluation
The evaluation of strategic options should take into account SuperGroups

Aims and objectives

Physical, human and financial resources
Management structure and skills
Culture
Key stakeholders and shareholders, their views and interests
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The Ansoff Matrix can be used to help make

decisions about products and markets
Decisions about what products to sell, and in which markets, provide an
important guide to the direction of growth
Ansoff drew up a growth vector matrix that described how a combination
of business activities in existing and new markets, together with existing
and new products, can lead to growth
The four strategies arising from the matrix are:
Market penetration increasing market share
Market development where a business seeks new markets (either new
geographies or new customer segments) for its products and abilities
Product development the launch of new products to existing markets
Diversification when a business decides to offer new products in new
markets

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Ansoff Matrix:
Products and Markets
Existing Markets

New Products

Market
Penetration

Product
Development

New Markets

Existing Products

Market
Development

Diversification

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There are two choices to be made about how a

business should invest in a growth strategy
Organic Growth
Growth by using the existing, internal
resources of the business

Advantages

Acquisitions
Growth by buying other businesses or
assets

Advantages

Makes best use of existing resources

Can overcome barriers to entry

Consistent with the culture and

management style of the business

Helps spread the risk (not all eggs

in the same basket)

May lead to economies of scale

Provides quick access to key

business resources (e.g. brands)

Easier to control = less risk

Disadvantages
Often slow particularly if existing
markets are low growth

Doesnt create barriers to entry

Spare resources (e.g. cash) may be
wasted
Can create a cautious approach

e.g. Open more SuperGroup retail stores

Easier to control = less risk

Disadvantages
Cost price usually too high
Different cultures may clash
Customers may be upset
High failure rate (70% of
acquisitions fail to achieve their
objective)

e.g. buy another clothing retailer

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Ansoffs Matrix can be applied to SuperGroup, giving the

business a number of different strategic options

New Markets

Existing Markets

Existing Products
Market
Penetration
Expand organically by opening
more retail outlets and franchises

Expand by acquisition of a
competitor

Market
Development

Expand overseas (Asia, Middle

East, Brazil, South Africa)

New Products
Product
Development

Develop new fashion categories,

technologies and environmental
products

Diversification

Develop mobile phone, tablet and

technology retail business

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Which ever option is selected, decisions need to be taken

about whether or not the growth markets are related
Option
Horizontal
Integration

Description
Grow activities that are competitive with and
complementary to existing activities

(Related Markets)
Vertical
Integration
(Related Markets)

Diversification
(Unrelated
Markets)

Business becomes its own supplier (backward integration)

or distributor (forward integration)

Advantages: Secure supply; take more profit from the

value chain; create barriers to entry
Disadvantages: More exposed to the same market; does
not necessarily offer economies of scale
Spread risk by operating in markets that are not directly
competitive or complimentary
Advantages: May obtain synergies (e.g. using same
distribution channel)
Disadvantages: Limited experience in separate markets
increases risk of things going wrong; cultural differences
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Strategic Option:

SuperGroup could expand

organically by opening more
retail outlets and franchise
stores

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A Market Penetration Strategy:

Organic Growth?
This option is about increasing market share in
its core markets
SuperGroup would focus on:
Opening up the potential for an additional 130150 retail outlets in high quality locations in the
UK
Further unlocking the potential of the recent CNC
BVBA acquisition in continental Europe, starting
in France and Germany and then rolling into
southern and eastern Europe
Further development of the multi channel
approach to target customers
Progressing the franchise opportunity across its
core markets with a further 50+ franchise outlets
overseas
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Strategic Option:

SuperGroup could expand by

the acquisition of a fashion
retail competitor

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A Market Penetration Strategy:

Growth by Acquisition?
This option is about generating immediate and significant
growth in market share by acquiring a fashion retailer by
way of horizontal integration, similar to the CNC BVBA
acquisition in Benelux
SuperGroup would need to
Conduct appropriate market research to identify a suitable
target company and market
Raise the necessary funding in conjunction with
shareholders and/or the banks
Prepare a plan for corporate integration and the generation
of synergies

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Strategic Option:

SuperGroup could develop

new fashion categories,
technologies and
environmental products
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A Product Development Strategy:

Product category development, technologies
and the environment?

This option is about developing upon the current range of products that have
been developed in response to changing fashion trends

SuperGroup would need to

Develop a wider sourcing strategy and develop its supply chain network
Undertake market research, visits to trade fairs and product research
Introduce new products with iconic Superdry characteristics e.g.
Category development
range of premium fragrances, optics and beauty products
ranges of watches, umbrellas, headwear, underwear
Technologies
3D body scanners to allow customers to try on clothes in virtual mirrors and on
interactive screens, thereby enabling consumers to personalise their clothes virtually
and order them online
pre-ordering items before they are fully designed
Environmental
range of sustainable clothes made from new high-tech, low-impact fibres, nano-tech
fabrics and biodegradable clothing
swap shop product (online and in store)
solar panelled jackets/coats etc. for powering mobile phones
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Strategic Option:

SuperGroup could expand

into new markets (Asia,
Middle East, Brazil, South
Africa)

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A Market Development Strategy:

Further develop the emerging markets
This option involves replicating and extending the successful
SuperGroup business model and Superdry brand into emerging markets
including Russia, China, India, Singapore, Brazil and the Middle East,
which are all seen as growth markets for Western fashion brands which
are often viewed as a status symbol in these territories
SuperGroup would need to:
Conduct market research to understand the specific future requirements
of these emerging markets
Develop relationships, joint ventures and franchise agreements with
local manufacturers, distributors and retailers in the selected countries
Develop a marketing strategy for these markets (ethnocentric or
polycentric?)
Accelerating internet growth through developing multi country, local
language websites and improving delivery performance
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Strategic Option:

SuperGroup could diversify

into a mobile phone, tablet
and technology retail
business

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A Diversification Strategy:
A mobile phone business?
This option involves diversifying to target customers who know
SuperGroup as a High Street retailer and who trust the brand sufficiently
to want to buy associated products in a retail environment

SuperGroup would need to

Research mobile phone and technology markets
Put together deals with leading manufacturers (e.g. Nokia) and service
providers (e.g. O2)
Deploy their retail skills to sell phones and other technology products
This option could be combined with the idea of developing clothing
which contains solar panels for powering small scale technology items

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Evaluating the Options Decision Methods

Cost / benefit analysis

Quantifying costs and benefits in monetary terms
But it is hard to quantify intangibles such as the impact of strategy on culture

Ranking and scoring

Rank strategic options by scoring them against criteria (e.g. return on investment)

Investment appraisal

How to address the problem of risk

All strategies involve uncertainty
Return on investment: several methods
Need to include sensitivity analysis (e.g. what are the potential effects if things go
badly wrong?)

It is important to remember that SuperGroup has a strong, ten year

track record. The brand has flourished in a highly competitive market,
it is seen by several as the darling of the UK fashion industry, and it
has a history of making things work
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Evaluating SuperGroups Strategic Options:

The key tests
The options can be assessed against three key criteria:
Suitability: - does the chosen strategy:

Build on strengths and/or solve weaknesses?

Exploit opportunities and/or respond to potential threats?
Satisfy the goals and objectives of the business?
Fit the culture of the business?

Acceptability:
Depends on the views of the key stakeholders
What level of risk does the business want to take?

Feasibility:
What resources are available to support the strategy? (e.g. finance,
experience; management resources)
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Strategic Option:
Organic Growth
Suitability
Fits well with existing strategy and objective of store roll outs
SuperGroup has considerable experience of this approach
Good fit with the corporate growth objectives

Acceptability
Enables SuperGroup to protect and develop its USP
Low risk because this is core business more of the same
Could be considered as an essential strategy

Feasibility
Probably the most favourable of the five options
Probably possible to finance this option using internal finance (as they
have done up to now)
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Strategic Option:
Growth by Acquisition
Suitability
Fits with previous experience of growth by acquisition (e.g. CNC Benelux)
Logical to expand through horizontal integration in this market

Acceptability
Shareholders should be supportive if the right opportunity arises
Medium to high risk because acquisitions and the anticipated synergies are
hard to deliver and we do not yet know how well the CNC acquisition has gone

Feasibility
Would require an integration strategy
Would require significant capital to purchase the competitor
Could work in South East Asia or another emerging market
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Strategic Option:
Category development, technology and
environmental products
Suitability
Supports the corporate growth objective
Builds upon SuperGroups current strengths at extending their product lines
Would need to be certain that competitors did not have something better, but
it may well become essential in this market in the future to adopt this strategy in
order to survive

Acceptability
Medium risk because this is new territory for SuperGroup

Feasibility
SuperGroup can move into this product space
Some more work required to set up the distribution and delivery networks and
to integrate it within their core global business
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Strategic Option:
South East Asian/Emerging markets
Suitability
There may be gaps in the market in new territories, especially for Western
products
The strategy is a good fit with their growth objective

Acceptability
SuperGroup is very experienced at going into new markets
Low/Medium risk with the prospect of good returns for early success

Feasibility
Financial investment is probably available for a phased expansion into new
territories
Requires significant up front work building joint ventures and local
partnerships /franchises abroad
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Strategic Option:
Mobile Phone Business
Suitability
SuperGroup has no experience of working outside the fashion sector
Could become a reasonable fit with their retailing skills, but the link is a bit
tenuous

Acceptability
Could be acceptable for directors in the longer term, but might mean
taking their eye off the ball in the core fashion market
Medium/high risk, unknown returns this is a 10-20 year play

Feasibility
Need for staff training and customer enlightenment

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Here are some things that you could do before the

examinations in January and June 2013
Primary Research
If your school is within travelling distance of a Superdry store, go and visit and have a
look at their clothes and accessories, their store layout, their point of sale material and
their branding
If possible, talk to one or two of the Superdry staff and ask them what it is like to work for
SuperGroup. Try to gather some good points and some less good points and understand
their views about the future of fashion and Superdrys place within the industry
If you know anyone who has bought some Superdry merchandise, interview them about
their goods and about the customer experience

Why they bought Superdry rather than another brand?

Sales and service experience?
Are they a loyal customer?

Secondary Research
Keep up to date with market developments on a weekly basis by using your search
engine to trawl the web for

information and announcements about SuperGroup (the case study is written a long time in
advance of your examination, so you can expect updated accounts, sales figures and
developments at SuperGroup between now and June 2013)
articles and views about developments in the fashion industry across the world
Web 2.0 information (blogs, twitter, internet discussion forums, customer feedback sites etc.)
rises and falls in the SuperGroup share price on the London Stock Exchange
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Concluding thought

Above all, remember that the most

important thing you can take
anywhere is not a Gucci bag or
French-cut jeans; its an open mind
Gail Rubin Bereny
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