A Future Business Model for Westfield UK - Assignment Example

A future business model for Westfield UK Objective The objective of this paper is to present a business report on a new venture into a new area of merchandise within Westfield UK’s retail outlets. Based on different business models and theories, an attempt is made to carefully examine different strengths and weaknesses of the present set up, strategy and business model of the firm, as well as an evaluation of it’s core competencies. The objectives of expansion into the new area of merchandise include a higher growth in terms of revenues and enhanced profitability, a diversification of production line as well a potential and platform for further expansion. A side objective is to build up the brand value, which the company had not given much priority so far. An overview WestField is in the business of fashion retail trade, with shops and brand name throughout the UK since 1997. It has expanded well in Europe, but is restricted in terms of product categories (fashion garments only), as well as has not entered either US market or China. Although, the company has a mail order system as well as an online catalogue and ordering system. In Europe, it has created a niche for itself by strictly following the consumers requirements in real time. The company responds quickly to customers' wants and desires, and that is their USP. The company draws its strength from its unusual structure and extreme flexibility in responding to ever-changing fashion trends. Catching the fashion trends and converting them expeditiously into a product available in retail is the company’s Mantra. It introduces 3,000 new designs into its stores each year, none of which stay there for more than a month. To substantiate it, the company believes in keeping simple looking outlets, minimal advertisements and continuous re-doing of the product location within the store- thus creating an ‘ever fresh’ impression on the customers. Obviously, the company enjoys a good ‘visit again’ ratio of its customer, although there is no data to authenticate it.1 The operational strategy WestField is a typical value chain company, with certain modifications. It is based on a vertically integrated business model, spanning design, just-in-time production, marketing and sales.2 Company just doesn’t grow cotton or produces yarn, everything else in just in-house. WestField dyes or prints 40 per cent of its own fabric and produces 80 per cent of its merchandise by value in-house. Similarly, the feedback and information flow to the company is also strongly based on the value chain model. WestField is mostly driven by consumer feedback. The store managers are responsible for placing the orders with the production line and the store managers get their information directly from the customers. They decide on the basis of sales over last few days and trends that appear to be emerging. They also discuss with the customers. On the basis of information passed on by the store managers, the firm's commercial sections then ensure with the designers and factories that the production meets the needs of the customers for each store. This internalised information, design and production line is the backbone of the company’s operational strategy. Barring it, everything is too flexible. The strengths and weaknesses The advantages company has accumulated through its operational strategy include- a virtual no inventories. Which prevents not only a smart and slim capital cost of operation, but also allows a greater room for flexibility. Similarly, the company has been very successful in creating the impression of its functioning among its clients- that only the fresh and latest is sold at the WestField’s outlets. This has allowed the company a room to operate without incurring advertisement costs, without the capital cost bearing window shopping and even without the elaborate retail stores.3 This very thing prompts quick sell as well, as it arouses the customers to buy at the moment only and creates a greater velocity of shopping. In the hidden part, the company’s ultramodern factories in mid Wales and sewing factories in Newtown, Llanidloes, Machyllenth, Welshpool, Oswestry, Carno, Caersws, and Shrewsbury etc. have created some social constituency for the company in Europe in general and UK in particular. However the strengths always accompany weaknesses. True, there is no inventory cost by virtue of the internalised value chain system. But, in perspective, the same internalised value chain system has created a huge capital cost to company in the shape of right from dyeing, printing, cutting and sewing facilities. Similarly, as the internalised value chain system provides for more manoeuvrability in terms of design and supply, the same system leaves no chance of any mobility in terms of costs. Thus the company is high vulnerable on cost terms of competition. The rapid fire Chinese products, available in EU market since China’s opening to WTO, can seriously damage the company’s prospects. The irony is, in face of any lull in the sales and hence revenues, the company will have to bear with all the labour and capital costs of its internalised value chain system. The same information, which is backbone to company’s operation now, might sound like boring tales, once the sales are disturbed by any exogenous factor, like prices or general slow down in the economy. In such a situation, the company has no escape route.4 Possible improvements The company can make use of its production capacity. The option can be to sell it directly and operate as a production, design and printing line for other companies in the field and judiciously outsourcing (part of) its own production, design and printing requirements. This way the financial load of maintaining an internalised value chain system can acquire a broader base to lean upon in the eventuality of a lull in demand of company’s own products. After a careful assessment of the demand situation, certain capacity augmentation too can be considered. Second option with the company can be to use the extra space in its shops to retail those fashion products, which are procured outside the internalised production line. This way the company can get some more room for price, product and quality manoeuvrability. In the long run the production and retail sections can function independent of each other. Thus minimising the risk and errors. The options Diversification is the only let out. The company has sought a diversification from a strategic, commercial and operational perspective, into a new area of merchandise within a designated ‘shop within a WestField shop’ for UK-only ‘roll-out’ in 2008. The company intends to re-configure the store layout, with no losses to existing sales. This will be creating a free space, with exterior window opportunities, measuring 40 square metres. This area is equivalent to 10% of typical floor space in a UK Westfield retail outlet. Resources at disposal A shop space worth 40 square metres, at a location primed by the regular customers of the WestField. The WestField brand appended to the new venture. The WestField customers base, who tend to spend £45 on an average for a garment. Possibilities and options Since the primary clientele is women, who are fashion conscious, any add-on venture will have to address the women only, with possible products, other than fashion garments. The possible businesses with women clientele i) Products for women ii) Products for parents, progeny and partners of women Products for women i) Footwear retail, normally mixes well with the multiple clothing retails. The market potential for footwear is almost as much as that of the fashion garments. However, the added advantage is that the footwear products don’t require a highly internalised production line. As the information flow is bound to remain slow, the company can proceed on it hassle free. Secondly, footwear products can easily slip into other catchments, viz. Kids and males and the routine female customers can easily take a decision on them. ii) Fashion and beauty products- again mixes well with the clothing retails with women clientele. However, this option will have serious drawback of its inability to draw new customers, besides procurement and production issues. iii) Gems and jewellery – this is a high end segment, can create good revenue, yet is poor in attracting other than women customers. The possible products for parents, progeny and partners of women can be clothing and garments for men and kids. However, This is a must that the shop or the women customers coming to it should draw the real consumers upto the shop. This condition will involve a lot of marketing and several new aspects. Market requirements and operations resources From the market requirements perspective, in theory the operations strategy should reflect what the organisation is trying to do in its markets.5 In this case, it is obvious that the Westfield is trying to compete primarily on the excellence of their products or services, and on high levels of customising their products to individual customer needs. The performance objectives emanate from different competitive factors. Therefore introduction of any new product group must match to the prime competitive factor of the Westfield i.e. customisation of the products to individual customer needs and choices.6 The first product group is a range of fashion garments for women, which is sold ‘off the shelf’ direct to the customers, virtually on their demand, and actually with the impression of being ‘latest’. Let us assume the second product group to be Footwear retail. It is a wider range of leather products, including leather purses, valets and belts. They too can be sold to the same customers, although for a bit wider constituency of progeny, partners and parents. These leather products often have to be customised to individual customer requirements, trends and to the season. The analysis of the two product groups shows that they have very close competitive factors. Therefore performance objectives may not be required to shack a lot from the manufacturing operation.7 Process of procuring of raw material (leather) is not much different from the fabric. The designing process can integrate and production/ supply can operate in the same channel. These similar competitive needs possibly may not require much different operation – since the objectives are same. Here is the description of the analysis Product group 1 Product group 2 Products Fashion garments Footwear and leather products Customers Women Men/ women Product type Fashion garments, trendy Leather products, matching the apparel Product range Temporary, changing with trend Mixing well with a number of apparel Design changes Frequent Less frequent Delivery On- time, twice a week Fast- from the stocks Quality Trendy Durable Demand Predictable Predictable Volume per product type High Medium to high Profit margins High High to very high From here we go to the other level of analysis Competitive factors Order winners Trend, product and reliability Trend, price, product and reliability Qualifiers Delivery speed, customisation On time delivery, trend and price Less important Product range Turning old, need for brisk sell Internal performance objective Trend and timeliness Product flexibility, durability Thus from the market requirements perspective and an operations resources perspective of operations strategy, the proposition of leather product items sounds good. Let us evaluate the same again by the SOSTAC model. S stands for Situation Analysis - which means where are we now? O stands for Objectives which means where do we want to go? S stands for Strategy which summarises how we are going to get there. T stands for Tactics which are the details of strategy. A is for Action or implementation - putting the plan to work. C is for Control which means measurement, monitoring, reviewing, updating and modifying. Situation - where are we now? The Westfield is happily selling the latest fashion clothing for women and has become acronym for the fresh most trends in the fashion industry. It is a classic model of value chain system with heavy internalised bias. Objectives - where do we want to go? The company wants to achieve strong growth in terms of revenues and enhanced profitability through 2008/09 trading as part of a major 4 year expansion. Strategy - How we are going to get there? The strategy is to open a side-by side leather goods retail, which mixes and fits with the fashionable clothing. Without ruffling the customer profile much, and thereby effecting the prime products business, the same customer will be given a chance to step ahead on the ladder of fashion and will be offered a matching leather commodity from jackets to purse, belt and footwear. Tactics – The details of strategy. The company will make use of it internal procurement, processing, designing and production line. Beginning will be made with standard and advised items with modest inventories and the stock profile will go on changing according to the response of the customers. The same store manager will collect and share the information about the customer response and requirements. The same brand and marketing strategy will work and the leather items will be appended to it. Action - Putting the plan to work The beginning will be made with putting in shops all the standard and latest design, technology and quality commodities already available in the market, but not in usual retail stores. Simultaneously the company will acquire state of art machines for cutting and sewing of leather goods. The leather tanning industries will be scanned and sources of quality and price worthy leather will be identified and selected. The designers will be roped in and the process of synchronising and co-ordinating the leather goods design with the latest garment design will start. That is, as soon as the garment designers sit to work the leather goods designer too will sit with them, create designs for those leather goods, which will ‘suit well’ with the garment design under production. Assuming a typically designed leather belt matches with some specific design of skirt, the belt too will be ordered for production, in a quantity proportionate with the feed back from the store managers. If even one leather item is sold in four dozens of ‘only garment’ sell, the project can be a dot above the break even point. Control - Measurement, monitoring, reviewing, updating and modifying As per the operations model of the Westfield, the control measures will be the same as that of the garment business. The measurement and monitoring will be both in absolute numbers of items sold , in revenue terms and most importantly, in percentage terms. That is to say- how many percent of garments were sold along with a leather item. This percentage or percentile alone will be a perfect marker of the success of the venture. The point to review will be the growth trend in the garments sells. If the leather retail looks like effecting the garment sells, then the strategy will require re-setting. If the leather retail is found flourishing too rapidly and even independently of the garment trade, strategy will have to be modified. In worst scenario, the leather goods trade will have to increasing move towards footwear and depart from the fashion appended leather goods. The 3 M’s Men barring the production line and a few to procure the raw materials, extra men power will not be required for this modest diversion/ expansion. Money the beginning can be made with retailing of outsourced and unbranded material. Not huge investments are required for production and distribution. Minutes the time schedule of the leather goods production and delivery will be parallel to that of garments production and delivery only. There are many stores selling the leather goods, the only point is to sell them in the name of being trendy and latest.8 Operational requirements for the strategy Sourcing and procurement In house New skills/training Yes, for production and pricing Marketing No separate marketing required stock turnover issues No major stock turnover issues involved Returns Good returns are expected, it can be a potentially important business. Storage, distribution & logistics No separate arrangements are required IT data requirements Simple computation and accountings Stock availability, location of operation Meager stocks, location to be close/ same as that of the primary business. Revenues Mostly from ‘existing’ customers, partial opening to ‘new customers’ is possible. The PEST analysis9 A new area of merchandise within Westfield UK’s retail outlets Political ecological/environmental issues related with leather factories current legislation home market future legislation European/international legislation regulatory bodies and processes government policies government term and change trading policies funding, grants and initiatives home market lobbying/pressure groups international pressure groups wars and conflict Economic home economy situation home economy trends the US economy subprime slump general taxation issues the Chinese products seasonality/weather issues market and trade cycles specific industry factors market routes and distribution trends international trade/monetary issues social lifestyle trends demographics consumer attitudes and opinions brand, company, technology image consumer buying patterns fashion and role models major events and influences buying access and trends advertising and publicity ethical issues Technological competing technology development associated/dependent technologies replacement technology/solutions maturity of technology manufacturing maturity and capacity consumer buying mechanisms/technology innovation potential intellectual property issues The implied tasks Based on the typical strengths and location of the company, the following tasks will have to be accomplished :- 1. Ascertaining the economies of scale for production of leather goods. 2. Learning the raw material supply market and supply chain. 3. Capacity utilisation 4. Establishing the Linkages among activities 5. Ascertaining the Interrelationships among business units 6. Geographic location of production, logistic capacity and delivery destinations. 7. Looking at the Institutional factors (regulations, union activity, taxes, etc.) 8. Looking for procurement of those inputs (including skilled labour and designers) that are unique and not widely available to competitors 9. Acquisition of new process technologies for :- 10. Transportation 11. Material handling 12. Material storage 13. Communications 14. Testing 15. Information systems 16. Operations Technologies 17. Process 18. Materials 19. Machine tools 20. Packaging 21. Maintenance 22. Retail design & operation 23. Media relations 24. Negotiations with the raw material suppliers 25. Seeking Legal and other clearances 26. HR operations 27. Placing in the new accounting system 28. Separate manager for the leather segment 29. Understanding competition in the leather segment 30. Setting up separate information handling system for the leather segment. References : Read More