Esprit plans international expansion as UK sales suffer
UK Espirit’s like for like stores had a massive fall in their yearly profits in 2009. This was caused by losses incurred across its retail and wholesale divisions in the last six months proceeding to December 31st. Espirit’s like-for like retail sales at company owned stores fell by 4.6% globally while in UK total sales together with wholesale departments fell by a whopping 28.9%. This was a huge blow for the young fashion chain.
Reasons for the fall in sales in the UK stores
Most of 2009 was perhaps the most economically turbulent year for Europe since the cold war ended. The whole world was hit by economic recession which was a huge blow for many industries. This increased the level of debt in the country and affected consumer spending as people were not able to spend as much as they wanted to. This crisis affected all companies though some to a greater level than others. Espirit’s UK based stores were definitely not left out. The clothing division in this fashion group was most badly hit. Most customers were left unable to indulge in clothes shopping as there were more urgent needs like trying to stay financially afloat during the financial crisis. Many people become jobless during this time and opted to shop in cheaper stores as the commodities offered in Espirit were far to expensive. This caused a great loss for Espirit and some stores were even forced to close down due to the sharp drop in performance.
Over-reliance on wholesale operations
Unlike its main competitors, H&M and Inditex, Espirit puts a lot of its emphasis on its wholesale operations. In 2009 this turned out to be a wrong investment choice for the UK based stores due to the global recession. Wholesale operations were predominantly badly hit by the recession due to their inhibited nature hence a sharp decline in demand. Total wholesale operations fell by a larger percentage than the retail operations. Overall, this led to a drop in revenue for the UK based stores.
Narrow geographic presence
Poor geographic presence especially in the European Union was also a leading cause of major losses for the fashion group in 2009. This is due to deteriorating demand which lead to over exposure of the group to major losses. If Espirit had established better geographic presence in Europe then it would have been less susceptible to losses in 2009.
Espirit which offers commodities by different designers for sale is considered by a great number of people to be one of the highly priced shops. This may have been a cause of the sharp drop in profits in during the year.
The world’s No. 7 fashion group Espirit sought to expand its operations in 2010 so as to be able to recover for the losses made in their UK like-to-like stores in 2009.The European based stores, such as the ones in the UK lacked consumer confidence hence the urgent need to expand in China. This would mean a lot of analyzing and major strategizing for the stores’ directors. The market in China had great potential for further expansion. Espirit therefore saw to expanding their retail operations in China by increasing its operations from 150 cities to a whooping 450cities and onwards. Mainland China Espirit stores are set to increase by leaps and bounds by 83% to 1700 stores in the next five years to come
Segmentation, Targeting and Positioning Strategy for Espirit
Segmentation, targeting and positioning involve a three stage process for expansion. It begins when one determines what kinds of customers exist. This is then followed by determining which customers one wants to serve so as to maximize ones goal. The final step is to put in force the segmentation by optimizing our products and services for that particular sector and making it known to others of our choice.
Strategic positioning for Espirit would play an important role in differentiating its competitors and giving Espirit a competitive advantage. Strategic positioning requires a complete change in Espirit’s organization culture so as to be able to turn it into a profit making machine in China.
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The first thing that comes into mind is the 4ps (product, price, promotion and place).Segmentation would involve for Espirit to find out the nature of consumers existing in the various cities they plan to expand to. This would include finding out the kind of consumers and their different needs.
There are three different approaches to marketing which Espirit China may take, these are undifferentiated, differentiated and concentrated marketing. In undifferentiated marketing, all consumers are treated as the same and no effort is made to produce different commodities. This would mean that spirit would be forced to offer similar commodities for sale in all their stores notwithstanding whether it is in Shanghai or Beijing. In the concentrated strategy Espirit would have to only take up one market segment and leave the rest for its competitors. Finally in the differentiated approach, Espirit would offer different commodities for different consumers and at different prices. The most convenient approach for Espirit would have to be the latter. This is because in the differentiated strategy Espirit is able to deal with all sorts of consumers of different ages, sizes, income brackets and culture. Espirit would stock different clothes depending on the city where they plan to expand to. This would give them a competitive advantage to their competitors Gap and Bloomberg.
Segmentation calls for tough choices to be made by the company directors concerned in expansion. There are a large number of variables which may be used in differentiation of consumers in China. An example of variables which may be used by Espirit are (1) preference for high end designer clothes to normal everyday fashion, (2) price sensitivity- consumers in China’s willingness to pay for brand names, (3) fashion conscious vs. fashion averse consumers. These variables are then put together to come up with the ultimate combinations for Spirit’s segmentation strategy.
- Demographic variables. These refer to individual data such as income gender, culture and location (Rural cities vs. urban cities, high GDP vs. low GDP).
- Some consumers prefer to move with current trends while others prefer to come up with their own personal style
- Another basis for segmentation for Espirit would be consumer behavior. This is due to the presence of consumers who are brand loyal while others go with the current and upbeat trends.
- Segmentation can also be carried out on the basis of benefits sought. In some cities fashion is not important and people do not keep up with current trends. This is not necessarily the way it is in other cities where they keep up with current trends as what you wear determines your social class.
The cities finally picked by Espirit should all have the following characteristics.
- Durable- the city must be relatively stable in terms of weather and income to minimize the cost of frequent changes.
- Diverse- the city should have a population consisting of people with different fashion needs. There should be people of different income groups, people of different ages and people of varying fashion identities.
- Sizable- the city should be large enough to justify the resources Espirit uses to target it.
The choice of segmenting picked by Espirit should be one that will finally lead to ultimate profits being established from the market in China. The next step is to target the segment chosen. This is done by evaluating how well China’s cities are served by Espirit’s competitors. It would be very difficult for Espirit to appeal to a city whose clothing needs are already well served by other stores. Secondly the directors should consider how large is the cities’ and how fast do they expect demand to grow. The downside to rapidly growing demand in the city is that it will attract major competitors who are seeking to also gain from the demand. Thirdly is what the strengths of Espirit are and whether Espirit appeals to the consumers in China.
Target marketing for Espirit in China would involve selecting those cities that fit in Espirit’s needs and then concentrating all marketing efforts on these cities. The beauty of target marketing is that it makes the advertising, pricing and circulation of the products easier and more cost-effective. Target marketing is different from mass marketing which involves dealing with all markets in the samme way. Target marketing in China for Espirit would involve dealing with each city as an individual market with individual needs. This is due to the different financial capabilities’ if the cities; inhabitants and the different demographics of those cities.
The process of choosing a target market is almost similar to that of market segmentation. Market segmentation is the tool used for market targeting. Market segmentation and targeting should therefore not be considered to be similar processes.
Two important factors when selecting the target in China need to be considered. Firstly is the attractiveness of the market and secondly is the fit of the said target market with Espirit’s objectives, capabilities and resources. Espirit may decide to adopt any of the following methods to determine its target market in China’s cities:
- Single market strategy- this approach is not recommended for Espirit as it involves serving only one market and concentrating all resources on that particular market. This method does not fit well for Espirit as it has the necessary resources to deal with different market segments.
- Selective specialization- this method would be best suited for Espirit as it involves dealing with different cities according to their various needs and preferences.
- Product specialization- this approach involves crafting each product so as to fit the expectations of the target market.
Espirit which is seeking to expand its Chinese market should first target the most attractive segment such as youthful trends since the youth are most fashion attentive as compared to their older counterparts. Once the fashion group gains a foothold in China’s market, then it can try its hand at market specialization.
Market targeting decisions are influenced by:
- Market maturity- this is how much the market has developed and how welcoming the consumers are to different trends.
- Diversity of the residents clothing needs and preferences.
- Strength of Espirit’s competition in that particular city.
- The amount of sales required so as to record a profit.
- Brand loyalty of existing Espirit customers.
- The required market share required for Espirit to break even.
- The reasonable market share for Espirit given promotional finances and competitors expenditures.
Espirits competitors include local fashion stores and international fashion groups which have set up shop in China.
Wrong target marketing finally leads to inadequate product offers, wrong marketing appeals, incorrect pricing and over emphasis on Espirit as a brand name. For example no firm can offer a single product to fit all groups. This is because one product can only target one group and the rest of the segments are left un-catered for. Market targeting is an important decision and Espirit should pay utmost attention to it in decision making. Wrong targeting will eventually lead to losses and finally closure.
This involves implementing our target. For Espirit it involves setting up shop in our chosen market so as to fulfill the needs of our market target. At this point in time, Espirit is trying to reposition itself from the losses experienced in 2009. This process is hard as it involves the use of large sums of money in trying to change the people of China’s perception of Espirit.
Positioning is consumer market oriented and involves setting up real contact with the intended consumer. Espirit will require competitive positioning for effective marketing in China. Positioning involves how the products offered by Espirit are perceived in the minds of those in the target market. Espirit requires carrying out a lot of product promotion so as to create or maintain a relatively optimistic view of the fashion group’s products.
For effective exploitation of the market in the cities in China Espirit should adopt the following strategy. The market should be segmented into cities with the possibility of high returns. These are the cities whose growth is expected and whose inhabitants are of both high and average income returns. Espirit should adopt selective specialization for each city and treat each city as an identity on its own so as to maximize the profit potential of each city and make use of he differences in culture and demographics in individual cities so as to maximize on profits.