A business analysis of British clothing retailing industry

A business analysis of British clothing retailing industry

From Lili Yan B120715

1. Introduction
Clothing retailing industry is one of the most competitive industries in UK. Besides traditional clothing retailers, supermarkets (such as Tesco) and grocery retailers (such as M&S) also take participate in fighting for market share. Focusing on the general market development first, compared with the outstanding performance in 2010, in 2011, the clothing retailers faced a really tough time. With the end of more than a decade of deflation, the sector sales growth has slowed from 5.4% to 2.9% in the first half of 2011 (Mintel, 2011). And, in the short run, it can be predict the industry will suffer a challenge to maintain growth with the impact from several factors.
The report will analyse the industry from two aspects: the environment analysis based on economic, political, socio-cultural, and technological aspects, and the 5 forces which shape the business strategy of clothing industry. Moreover, to illustrate the competition better, three clothing retailers belonging to high street fashion industry, which are Topshop, H&M and ZARA, will be selected for analysing the competition in the market.
2. External environment analysis (PEST)
2.1 Economic issues
2.1.1 Recession and austerity measure in UK
Nowadays, the economic development of UK is teetering on the edge of recession (Telegraph, 2011). According to the report from Niesr (The National Institute of Economic and Social Research), based on the facts of squeezed households income and tight credit conditions, UK will still entre in recession in the first half of the year (BBC, 2012). Besides, because of the problem of European sovereign debt, UK is hit heavily. For example, due to the collapse of the Greek economy, UK has loosed up to £336 billion (Shipman, 2011).
Due to these issues above, UK suffered a slump in large external and fiscal deficits. In consequence, to avoid the aggravation of financial deficit, Conservative-Liberal Democrat coalition government implemented a series of austerity measures, including the biggest cuts in state, and raise the level of VAT from 17.5% to 20% in 2011 (BBC, 2010).
The impact of the double blow should be analysed from two aspects including the shoppers and the clothing retailers themselves.
2.1.1.1 General shoppers` attitude in the tough time
As the result of recession and austerity measures, the income is hurt in short terms, and the unemployment become higher in long terms; moreover, the rising VAT and relatively high inflation in these years lead to the high commodity prices and living cost.
Thus, considering the shoppers` attitude to clothes in this tough time, there are several significant changes. First, in the latest 3 year (2009,2010,2011), the more adults, which are 22%, 39% and 51% of total number respectively, claim to be spending less than they used to on clothing (Mintel, 2009, 2010, 2011).
Second, more adults become sensitive to price and prefer to buy the discounted or sale items to save money in 2011; actually, the figure of both were respectively 17% and 14% in 2010 (Mintel, 2010,2011).
Third, it has been proved that shoppers become more intended to buy clothes with better quality. Thus, considering the fact that about 12% consumers would like to buy more local-made clothes, introducing ‘Made in the UK’ collections, which represent ‘high quality’, may be attractive for consumers (Mintel, 2011). Meanwhile, cheap clothes are also preferred (Mintel, 2011).
Generally, attacked by these blows, consumer confidence is at low ebb, and this trend could be continued if the UK economy cannot come out from the woods (BBC News, 2012).
2.1.1.2 The tough time especially for young people
The youths are facing the pressure from tuition fee at school and unemployment in society. On the one hand, due to the cutting spending in public sections from austerity measures, the available financial support to universities from government is reduced. To maintain the operation of universities, the tuition fee is increased. ‘In December 2010, MPs has approved to raise tuition fees for undergraduate courses from £3290 a year to £6,000 and £9,000 in exceptional cases from autumn 2012’ (Mintel, 2011). On the other hand, the high unemployment rate and squeezed income also bring an uncertainty of future to young people. The research showed that there are 22% under-25s is currently out of work in 2011 (ibid).In brief, based on the two forces, clothing retailers targeting young people will face a big challenge.
2.1.1.3 The leading retailers in the tough time
As discussed above, because of the limited disposal income, people prefer to buy clothes with good quality or with lowest price. Thus, the value retailers (such as Primark) and the quality-oriented retailers (such as M&S) perform much better than other retailers.
For example, in 2010, the NO.1 retailer M&S is holding up very well with the 8.4% market share despite the recession; and Primark continued to outperform in 2010 although slower growth than previous year (Mintel,2011). Besides, two supermarkets, Asda and Tesco, which sells relatively low price items, are also in top 10 (ibid). Therefore, it can be said that if the UK economy cannot be in recovery in following years, the considerable changes of the position of leading retailers in clothing retailing industry may not happen.
However, compared with the outstanding performance of retailers which can provide cheap or good quality items, considering the difficulties faced by the youth, the retailers catering for the youth, especially those under-25s, may suffer a drop marginally (Mintel, 2011). For example, New Look which target to younger shoppers than Primark and M&S like-for-like sales slide by as much as 7.1% in 2010 (Mintel, 2011).
2.1.1.4 The threat from failure for clothing retailers
Caused by the less spending of consumers and the government regulation, numerous poor performing companies have failed in the disappointed economic climate and entered administration or restructure.
For example, it has been confirmed that the famous fashion clothing retailer Peacocks and the children clothing chain retailer Pumpkin Patch have gone into administration in the January of 2012 (BBC, 2012; The Guardian, 2012). The knock- on effect of these facts is that more people will lose their jobs in the hard time.
In conclusion, the recession cause the fact that if retailers cannot do effective measures to maintain the attractiveness towards consumers to sustain the market share, failure would be not far away from them.
2.1.2 High input of clothing retailing industry
In 2010, although the 17.5% VAT has lead to the low profit per unit, the retailer still tried best to deflate the consumer price in clothing in order to underpin the volume growth (Mintel, 2011). However, in 2011, the average selling prices have risen steadily.
It has been warned that as the result of soaring demand from emerging markets, the price of natural fibres is stubbornly high (Thompson, 2011). Besides, the high transportation cost is also increasing due to the growing petrol price; and with the tension between Iran and the West worsening, the price are unlikely to fall soon (Watkins, 2012). Moreover, the VAT is much higher than before (20% in 2011). All of the reasons contributed to the higher prices as retailers were unable to absorb the high input of clothing industry.
Therefore, in the near future, the price of clothing is in a rising trend.
2.1.3 Weak pounds and high price in inflation
Another economic issues may affect clothing retailing industry is the problem of inflation in UK. Due to inflation, pound becomes less valuable, and the prise is rising (White, 2011). In this case, together with the recession discussed above, consumers are cutting the spending on several aspects including clothing. This is the negative influence for retailers.
However, the pressure of inflation will start to ease---it has dropped to 3.6% in January 2012 (BBC, 2012). Therefore, if the inflation, as well as the recession, can be curtailed successfully in the future, the pound may become stronger and the living costs can be less.
Moreover, in terms of the impact of weak pound, some benefits can be brought to retailers. One of these is the fact that more tourist trade is attracted and retailers` products become more attractive to overseas buyers (Mintel, 2010; White, 2011). For example, the number of overseas students is huge (over 400000 in 2010), and the weak pound for them means that more things can buy with the same pounds (BBC News, 2011). So, clothing retailers should grasp this opportunity which is from abroad.
2.2 Political issues
2.2.1 Government support for textile recycling
Investigation finds that textiles, which are discarded approximately 1 million tonnes per year, have been the fastest-growing household waste nowadays (Defra, 2011). To reduce the wastes of needless clothing, especially those from ‘fast-fashion clothing retailers’, in 2007, the UK government launched the Sustainable Clothing Roadmap with the aim of improving the sustainability of clothing across its lifecycle to help UK meet its recycling and carbon target (ibid).
In this sense, more retailers should be involved with this government plan to make some contribution to the environment; and providing easy-recycled clothes is one thing which can be done by clothing retailers. For example, M&S, Sainsbury`s and Tesco have committed to support more clothing made by organic materials (BBC, 2009).
Besides, relied on the support from government, also, considering the cutting back of spending in the economic downturn, giving vouchers for shoppers by recycling clothes at the store can be a good way to induce consumers to pay a bit more. The Mintel (2011) research shows that there are about 13% adults who are interested in recycling clothes to exchange for vouchers from retailers.
2.3 Social issues
2.3.1 Fast fashion and high fashion
In the UK clothing industry, fast fashion has become a mainstream trend over the last decade. As a concept which was initially applied by a few retailers such as ZARA and H&M, fast fashion has been adopted in more and more clothing retailers in UK market (Baker and Just-Style, in Barnes and Lea-Greenwood, 2010).
In terms of the main customer groups interested in fast fashion clothing, over half of women (55%) like to dress in a fashionable way; and the interest peaks at the age from 16-24 with 73% (Mintel, 2011). Meanwhile, as far as young men is concerned, 62% of them care about dressing fashionably, which is significantly higher than the average of 43% men (Mintel, 2010).
Based on the research, 22% under-25s position buy clothing and footwear as their largest outgoing (Mintel, 2011). Thus, the fashion awareness for under-25s young people drives the performance of the young fashion brands such as H&M, Asos, Superdry, Topshop and Zara (Mintel, 2011). Although income is less in the recession, young people are still shopping.
Therefore, considering the young people`s, especially young women`s, fashion awareness and the trend that they are increasingly interested in the fashion which is more accessible for the masses rather than that only suitable for models in T- runway, more high street retailers collaborate with designers, celebrities and musicians to launch a series of clothing which are affordable and suitable for ordinary people (Mintel, 2011).
2.3.2 Fashion and celebrity
According to Crompton (in Barnes and Lea-Greenwood, 2010), nowadays, ‘celebrity effect’ is phenomenally important at high street level as fashion consumers regard celebrities as clothing styles advisers by reading the weekly magazines or daily TV shows.
For example, ‘Kate effect’ is a phrase can be heard in high frequency in UK clothing industry. British designers say the Duchess of Cambridge is boosting their industry (BBC, 2012). Many clothes selling in British clothing retailers, including the Reiss and the Burberry, were snapped up after Kate was photographed wearing it (Barrett and Enright, 2011).
Therefore, more retailers begin to build up a good relationship with celebrities to set up a kind of ‘fashionable image’ to drive the high levels of consumer demand
2.3.3 Aging populations in UK
According to the research from National Statistics (in Mintel, 2011), Britain is experiencing demographic aging. On the one hand, it was forecasted that the number the 15-24s youths will decline by 5% between 2011 and 2016 (ibid). The young fashion oriented market will be hampered by this population trends as this group buys new clothes most frequently (ibid).
On the other hand, the number of older British are increasing fast. Meanwhile,with the increasing fashion awareness, over-55s fashion market has started to outperform the total market (ibid). Considering this trend, the clothing retailers should seize the opportunity by paying more attention to the needs from the older shoppers.
For instance, more than a quarter over-55 shoppers want more personal advice or service from in-store staff; in addition, older consumers also complain about the atmosphere in clothing stores with loud music (ibid). To tackle with the complaints, it is worthwhile for clothing retailers, especially for those targeting to the older group, to invest more in training staff , even though it would be a big cost; and the music played can be softer in those clothing shops.
2.3.4 The fat alert in UK
According to the survey, about 38% adults show dissatisfaction to the small changing rooms and the limited range of sizes (Mintel, 2011). This is the result of the increasing obesity of the UK population. UK has been the nation with the most fat people, and in the next two decades, the number of obese adults will rise from 15 million to 26 million (Lauruance, 2011).
N. Brown is the retailers which see this blank market and seize this opportunity by introducing the first brand ‘Simply Be’ which specializes plus-size clothing (Mintel, 2011).
Overall, due to the importance of privacy for the overweight consumers, it might be necessary for clothing retailers to provide spacious individual fitting rooms on the high street; and the new brands are welcome to this niche market to provide more choices for the people hard to find favourable and suitable clothes with outsize.
2.3.5 Ethical fashion awareness in UK
Ethical fashion awareness is increasing in UK, and even the whole world. The Ethical Fashion Forum is a British organization made up by a group of designer and businessmen aiming to develop a collaborative movement to address the fashion industry problems (EFF, 2012). EFF aims to address the fashion industry problems such as the environmental damage, the labour exploitation, and animal cruelty (ibid). For example, it had been successfully run the annual Ethical fashion source expo between 2006 and 2011 in London to support and promote sustainable practices and make high ethical standards the norm in fashion industry (WFTO, 2010; EFF, 2012).
In detail, the issues cared by EFF including, besides the environment disruption caused by the unwanted clothes, the child workers exploitation, and animals` fur and leather supply for the fashion industry.
In terms of the animals` rights, more people, from high end fashion and high streets, feel that animals` welfare is an important part of the Ethical Fashion debate. For example, British fashion designer Stella McCartney launched an anti-leather/fur campaign with PETA ahead of London Fashion Week (Mann, 2012); and moreover, the queen and Camilla from British Royal Family were even blamed by the public for the reason that they wore fur hats on Christmas Day (Jones, 2011).
In the children workforce aspect, they can be subjected to violence and abuse in clothing industry. Due to the low cost, many clothing retailers in vertical chain may employ child workforce. However, the retailers will be condemned by social opinion, once they are found using the child labors. For example, Primark located in Oxford Street was denounced by hundreds of people because it has been using child labors (Hopkins, 2008).
The growth ethical fashion awareness warned clothing retailers that if they ignore the public mind, the reputation, which is one of the most important things for a brand, will be lost.
2.4 Technological issues
2.4.1 The growth of online fashion in UK
Compared to the same period in 2010, the online fashion market is estimated to see sales increase 12% to £4.8 billion in 2011---this is contributed by the rise internet penetration (Mintel, 2011). At the end of 2010, there are several high street fashion retailers, such as Gap, Zara, and H&M, have developed their own online channels. This fact brings an opportunity to retailers by providing alternative channels besides physical store, or applying new available technological devices to consumers.
2.4.1.1 Mobile technology development
The increasing usage of smart-phones and tablet computers is triggering the clothing retailers to respond to the possible devices which can be applied timely and actively. To be specific, as the application of technology among consumers, apps will become even more widely used. Many retailers have noticed this trend.
Besides, scanning QR codes in swing tickets, magazines or newspapers by using apps in smartphones is popular. In UK, according to a survey of 1500 British consumers, about 31% people knew what QR codes were, and 19% had scanned one by using their mobiles---these are significant proportions for clothing retailers to care about (Charlton, 2011). The usage of QR code is wide, including accessing a vouchers and receiving more product information.
Generally, the innovative technology applied in mobile devices can help to overcome people’s fears to shopping online and draw more people to the sector. And retailers should notice them and apply them to attract consumers.
2.4.1.2 Social networking sites development
With 2.4 billion visits from internet users, social networks have been the most popular online destination in UK (Barnett, 2011). Fashion retailers increasingly understand the importance of social media as this is an opportunity to increase exposure. Several retailers have introduced facilities in social networks to the websites, and used sites such as Facebook, to interact with customers and share product reviews. The famous E-tailer Asos has launched a transactional shop on Facebook in January 2011 allowing consumers ‘check-out’ for items via the social networking site (Stocker, 2011).
Overall, clothing retailers’ performance is successful in social media. There have been 7 clothing retailers which have more than 250000 Facebook fans (Mintel, 2011). Therefore, reasonable use of social networking site may make contribution to the consumer loyalty, growth of sale and public concern.
2.4.1.3 Multichannel consumers emerge
Because of the widely use of internet, the cross channel shoppers, who prefer to search a lot of information from internet before shopping in stores, emerges.
As a result, firstly, considering the fact that it is much more convenient to access and compare the information and price for shoppers through internet, the retailers need to provide relevant, compelling and transparent information in shops, as well as in websites, to drive customer attraction.
Secondly, the retailers also need to make effort to remove the obstacles of the hassles of returning items through the post and delivery charges; based on the survey, there were respectively about 51% and 43% shoppers complain about these (ibid). Moreover, although the online shopping has become a popular trend, there are still 73% consumers preferring to do shopping in shops (ibid). It is resulted by the main worry (about 60%) that consumers are unable to see and feel a garment in person (ibid). Thus, the retailers should do better to provide personal services of the before and after sale service, including refunding or exchange service for consumers. Additionally, more flexible delivery options, such as weekend delivery and different charges depending on the individual’s requirement, can be provided to meet customers` demand (ibid).
3. Operation environment analysis (5 forces)
The PEST may bring some changes for the operation environment of the industry. Then, the operation environment would lead to the adjustment of the strategies implemented by the competitors.
In this part, based on Porter`s 5 force (the force from potential entrants, suppliers, customers, threat of substitutes, and rivalry within the arena), 3 companies belonging to high street fast-fashion clothing retailers will be selected as examples for analyzing how attractive the operating environment is and how these companies compete in this environment. The companies are H&M, ZARA and Topshop.
3.1 Threat of New Entry
According to Porter (2006), ‘new entrants to an industry may brining new capacity and a desire to gain market share’. Therefore, the pressure of prices, costs, and rate of investment occurs (ibid). In other words, if the threat of entry is high, the industry will be less attractive for potential entrants because of the cap on the profit potential. Usually, the threat of entry in an industry is determined by the height of the present entry barriers and the probable reactions taken from the incumbents (ibid).
3.1.1 Capital requirement and economies of scale
For the high street retailers, the threat from new entrants is small. Because the fixed costs needed is large. Usually, a huge capital invested in an industry refers to large economies of scale; and the larger the scale is, the more cost advantages a firm has in the industry.
Obviously, the high street clothing retailing industry is related to fast fashion concept. Therefore, in order to response to customers, as well as to reduce the time taken to produce product from concept to consumer, as soon as possible, many high street clothing retailers develop vertical integration business model to facilitate rapid response (Hayes and Jones, 2006; Barnes and Lea-Greenwood, 2010). Vertical integrated companies usually do all works including purchasing materials, designing, producing, distribution, and sale.
Therefore, in general, for the companies applied vertical integration strategy, the capital investment is always very large. For example, as many successful retailers are internationalized to achieve reduction of lead-time, more high-tech equipments are applied in production line or supply chain, and a large number of factories are located around the whole world; moreover, to ensure that enough fashionable clothing can be provided to customers around the world, the retailers need to continue producing large volumes of clothing with different style all the time because fashionable clothing are easily become obsolete. In terms of the selling process, due to the large number of high street retailers in UK, the cost spending on operating these stores is huge.
Besides, nowadays, considering the costs spending on developing sustainable clothing, collaborating with celebrities or high-fashion brands to attract more consumers, and the increasing inputs related to clothing industry analysed in the PEST, more fixed costs are needed to develop a successful clothing retailer.
Furthermore, one of the advantages obtained by high street retailers is that the prices of the products are usually lower and more affordable for ordinary people compared with high fashion brands. Thus, for new entrants, they need to sell much more volumes to guarantee the profitability.
In conclusion, the investment and sales volume needed to achieve by a high street brand is huge. In other words, if the new entrants want to entry the industry, they will face a cost or price disadvantages when competing with the existing retailers---it is because that the large economies of scale achieve by the existing retailers is hard to achieve by new entrants.
However, there is a fact that some brands belongs to a certain parent company; in other words, a parent company may operate many brands at the same time. In this sense, the barrier of achieving economies of scale can be removed more easily for those entrants belonging to a parent company which may have rich experiences and resources in the clothing retailing industry.
3.1.2 Expected retaliation from existing
Porter (2006) also pointed that the expectations about the reaction of existing competitors also will influence the threat of entry.
As the environment analysis described in the ‘Introduction’ part, because of the recession, the sales growth of clothing retailing industry has slowed. It leads to the result that the established firms will be more sensitive to entry of new retailers. That is to say, once the new entrants enter the market, the likelihood of retaliation taken from existing firms will be strong. The forms of retaliation can be various, such as pushing down prices.
Therefore, new entrants may have no abilities to compete with them due to the limited financial, material or human resources. In this sense, the potential reactor from the incumbents brings a high entry barrier to entrants.
3.2 Threat from suppliers
The powerful suppliers can capture more of the value for themselves. Therefore, the retailers can be more passive in processes, and the profits of retailers can be limited, as the suppliers have more rights to negotiate (Porter, 2006).
In the clothing market, the competitive strategy of retailers is commonly applied based on price and product differentiation (Hayes and Jones, 2006). Besides, according to the PEST analysis discussed above, the social trend related to the ‘celebrity effect’ in fast-fashion industry is also a considerable factor which may influence the retailers` performance.
Therefore, for high street retailers, in my opinion, the threat of suppliers is mainly from 3 main areas, labours in factories, designers and celebrities, because labours is related to the costs and the price, designers is related to product differentiation, and celebrities is related to the consumers` loyalty.
In terms of the labours in factories, for vertical integrated company, the threat is nonexistent; and for the firms applying outsourcing strategies, the threat exists but not very important, due to the fact that the number of appropriate factories is large and making clothing is not a highly skilled job.
Generally, the main threat of supplier comes from the designer and celebrities. As the result of the importance of products` differentiation, designers are the core of high street clothing retailers. As far as the celebrities, the money earned from clothing retailers is usually not the main part of the stars` revenue; so, to persuade them take participate in collaboration, the price paid by retailers is expensive.
In brief, based on these factors, to achieve competitive advantages by working with suppliers, retailers should know that the designers` and celebrities` barging power is considerable in the industry. Besides, considering the close relationship between labour costs and product price, if it is possible, retailers should select labours which are cheap to cut price through saving costs.
3.3 The threat from Buyers
According to the 5 forces theory, consumers compete with the industry by forcing down prices, demanding better quality or more service (Porter, 1998). They gain benefits from the industry and the expense is the industry`s profitability (ibid).
In the fast-fashion industry, negotiation leverage of buyers, referring to end consumers here, can phenomenally influence the retailers marketing strategies. The reason is that buyers face few switching cost in changing vendor (ibid). In details, the number of high street clothing retailers located in Britain is large. For example, in the Birmingham Bullring Shopping Center, besides Topshop, H&M and ZARA, numerous other clothing retailers with lower price and target consumers, such as Forever 21, River Island, Mango and the like, are located intensively. It means that consumers have a lot of flexibility to selecting retailers to shopping.
Moreover, buyers can be powerful in the fast fashion clothing industry, because, firstly, based on the economic environment analysed in the PEST part, the recession makes people become more sensitive to the price of clothing. Secondly, due to the development of internet, the consumers (regarded as multichannel consumers), are more easily searching for information, including styles or prices, about clothing selling in different retailers.
Therefore, to deal with the powerful bargaining power from consumers, retailers should make more efforts. For example, according to the social trend, they can provide products targeting in a blank niche market (e.g. providing clothing for fat people and old people), provide discounts to target consumers, provide collections with distinct features for consumers with different favours, and provide more attractive information in the internet to catch people`s eyes.
3.4 The threat from substitutes
The substitute is defined as a product which performs the same or a similar function as an industry’s product by a different means (Porter, 2006). In terms of high street clothing, it is not only regarded as clothing, but also related to fashion awareness.
In this sense, the substitutes of high street retailers can be analysed from two aspects. One of the substitutes is the clothing retailers targeting luxury style. The other one is related to the possibility that consumers can use the money to buy cosmetics or accessories which are also can bring fashion taste to instead of consuming high street clothing.
Through analysing the price-performance of the substitutes and the buyers` switching costs, the threat level from the substitutes is moderate in the high street clothing retailing industry in UK. As far as the luxury products, the threat from them is little, because of the considerable variability in prices between clothing selling in high street retailers and luxury clothing. In other words, although the luxury clothing is attractive, high switching cost of buying expensive high-fashion clothing to instead of cheap fast-fashion clothing causes the fact that the most of consumers will not changing their clothing shopping habits.
In relation to the cosmetics or accessories belonging to the other industries, the threat coming from these substitutes is a little bit big. In my opinion, there are two reasons. First, in UK, beauty and accessories industry perform well: besides retailers selling premium brands, such as Dior, Channel and Prada (which involve in cosmetics or accessories business), many retailers, such as Bodyshop, Superdrug and Accessorize, which provide affordable products for ordinary people are also locating in everywhere. It means that consumers can be more flexible to buy the substitutes to show the fashion sense. Second, celebrities’ effect is not only influence the clothing industry, but also influence the beauty or accessories industry: celebrities not only endorse clothing products, but also endorse cosmetics or accessories. It means that there is a possibility that consumers would be more interested in consuming cosmetics and accessories rather than clothing.
Thus, to be outstanding in the industry, although the threat from luxury clothing is little, retailers still can collaborate with high fashion brand to launch collections with both cheap price and high-fashion style to satisfy those consumers who are interested in high-end brands but have no affordability to consuming those expensive clothing. Moreover, cosmetics and accessories can also be provided together with clothing in stores. In this way, they are the complementary goods for clothing rather than substitutes,
3.5 The threat from rivalry among existing competition
According to the analysis about threat from new entry, buyers, suppliers and substitutes, and based on the understanding of nature of the product, I can infer that the competition in the high street clothing retailing industry is fierce. Because:
Competitors existing in the industry are numerous. Thus to gain market share, firms need to fight with each other.
Consumers` switching costs are low. Thus retailers should do more efforts to improve competitive advantages to develop consumers` loyalty.
The industry growth becomes slow in recent years. Thus existing competitors need to fight for the limited profits.
Fixed cost needed in the clothing retailing industry is really high. Thus, increasing the sales volume to achieve large economies of scale is more important.
Based on the nature of fast fashion, clothing selling in high street clothing retailers is perishable. Thus, competition can be fierce as existing firms would try best to achieve the maximum profit in short term.
4. competition among Topshop, H&M and ZARA
Based on the Mintel research from last 4 years (from 2008 to 2011), among these 3 high street fashion retailers (Toshop, H&M, ZARA), Topshop performed best (market share stayed at or above 10%); H&M performed a little bit better than ZARA.
4.1 The success of Topshop
In UK, there are many reasons for Topshop`s success.
4.1.1 The success of Topshop---celebrity effect
Topshop, as a clothing retailer in fast fashion industry, always makes a lot of effort on working with celebrities. In other words, they gain competitive advantages from suppliers.
For example, the collaboration relationship between Topshop and supermodel Kate Moss started from 2007; many famous designers, such as Maarten Van Der Horst, also launched special collection with Topshop ever year; moreover, famous for its high street fashion, Topshop also has many celebrity clients, such as actress Gwyneth Paltrow and signer Beyonce (Topshop, 2012).
Besides, Topshop frequently holds interesting projects with stars. For example, Dress me Up Project, as a charitable project, is held in December 2009 (Sunrainey, 2009). In this event, Topshop rented many stars` skirts to fans at low price. These stars took participate in this project including Kate Moss, Whitney Port, Naomi Campbell, and Olivia Palermo and so on (ibid). In the official website (2012), Topshop even edited a collection named ‘Spotted’ to facilitate shoppers’ selection by collecting the clothes worn by celebrities and displayed in magazines.
In this case, Topshop succeed in attracting a lot of people who are interested in celebrities` clothing styles.
4.1.2 The success of Topshop--- brand identity and consumer-oriented strategy
Topshop, as a brand famous for its clothing mainly prepared for young girls, is also successful in reducing consumers` barging power by providing differentiated products and discounts to its specific target consumers.
Based on the content on official website of Topshop (2012), 7 product lines (COLLECTIONS, MAINLINE, PREMIUM, BOUTIQUE, UNIQUE, DESIGNERS, and EMERGE) with different features are provided to satisfy young girls with different taste. For instance, among these lines, BOUTIQUE focus on designing directional and premium essential clothing; clothing in UNIQUE line designed in-house and more trendy and unique; PREMIUM, a line only can be found in London mainly provides high-end clothing with quality fabrics and limited edition designs (ibid).
Moreover, considering the economic conditions of the main consumers (young students), the Topshop also offers 10% off student discounts all year round both in store and online.
Therefore, according to the unique product differentiation and discount strategy developed based on the specific brand identity, consumers will be less sensitive to price and more loyal to Topshop.
4.1.3 The success of Topshop---product variety
Topshop is also aware of the threat from substitutes such as cosmetics and accessories. To avoid the decline in the number of customers, Topshop also launches own-label accessories and make-up in stores. Nowadays, by providing various bags, belts, jewellery, scarves, sunglasses, lip sticks, eye shadow, nail polish and blusher, Topshop has become a retailer selling almost everything related to fashion.
Thus, it can be said that through selling other products besides clothing which can be selected by consumers to show fashion sense, the substitutes to clothing in store, the threat from substitutes is successfully diminished by Topshop.
4.1.4 The success of Topshop---apply high technology in retailing
Considering the development of technologies, by introducing its own app and mobile site, Topshop is one of the pioneers applying high technology into the retailing process.
For example, in 2011, the popular clothing retailer Topshop has collaborated with a mobile gaming app company SVNGR to attract tech-savvy students into stores for back-to-school shopping (Lynch, 2011). By playing the social gaming app, the consumers can have a chance to win 20% discount or even £500 shopping spree (ibid).
In brief, by applying internet or smartphone app, consumers can receive more comprehensive and attractive information about Topshop everywhere and anytime. In this case, consumers will be more loyal to Topshop because they know Topshop well.
4.1.5 The success of Topshop---benefits from vertical integration
As a successful multinational fast fashion clothing retailer belonging to Arcadia Group, Topshop applies vertical integration business model in operation. Although the investment related to operation is huge, in my opinion, this strategy creates many competitive advantages to Topshop:
With the 6-9 weeks lead time, Topshop can response to the consumers and market more quickly (Gap needs 3-9 months) (Larenaudie, in Hayes and Jones, 2006).
Product quality is guaranteed because the production processes are under the control of the company.
Economies of scale are large due to the high costs.
The above factors not only bring a high entry barrier to new entrant, but also bring advantages to attract consumers` consumption.
4.2 Threat from H&M and ZARA
Although, in UK, the sales performance of H&M and ZARA is slightly inferior to Topshop, these two retailers are still the biggest competitive rivalries.
4.2.1 The advantages and disadvantages of H&M
As far as the strength is concerned, firstly, the most important advantage obtained by H&M is the low price. It can be said different from Toshop and ZARA, H&M outsources all of the production to about 700 suppliers around the world (but the design jobs and retailing process are all implemented by itself) (Capell, 2008). In this case, it has more flexibility to drive down the costs by selecting factories although the bargain power of supplier is exist. In this case, to reduce the capital invested in labor cost, as well as the supplier threat from labors, as much as possible, H&M collaborates with many suppliers, which accounts for two-thirds of production factories, based in low-cost Asian countries (ibid). This is also the reason why H&M can provide cheaper clothing than others, including Topshop and ZARA. Additionally, considering the changing consumers` attitude to shopping in the recession, clothes at lower price might be more attractive to consumers.
The second strength obtained by H&M is the ‘celebrity effect’. Here, what I want to emphasize is that H&M does not only collaborate with individual well-known stars (such as Madonna and Beckham) and designers as Topshop does, but also collaborate with high-fashion brands. For example, H&M have teamed up with Versace to introduce an autumn/winter collection which hits UK, even overseas stores in the end of 2011 (Mirror, 2011). Launching the collaborative series which were produced together with familiar luxury brands in a high-profile way implies that the product differentiation of H&M has become more and more obvious.
Thus, because H&M did well in dealing with the threat from supplier, including the factory labors and celebrities or designers, price and product differentiation advantages can be got to reduce the bargaining power from buyers.
The third strength of H&M, which is also the weakness of Topshop and ZARA, is that besides clothing with different product lines, cosmetics or accessories, H&M also provide kids, men and even plus-size clothing (size 18-28) (H&M, 2012). It indicates that H&M not only targets in men and kid clothing industry, but also considers the social trend of fat alert in UK.
In this case, firstly, H&M can be regarded as a family clothing shopping destination as it sells clothing for men and women, adult and children; secondly, due to the limited oversize clothing selling in high, street retailers, the bargaining power from fat shoppers to H&M can be much smaller.
In terms of the disadvantages of H&M, which might be the reason why it cannot gain more market share than Topshop, compared with the performance of Toshop, it seems to me that product quality and brand identity are two important factors need to be concerned.
Focusing on the clothing quality first, for H&M, outsourcing its production is a double-edge sword. On one hand, it bring low price of products; on the other hand, poor product quality is the consequence because H&M cannot control the producing processes taken in those factories. Therefore, though clothing selling in H&M is cheap, the bad quality may also lead to the loss of consumers in the tough time.
Referring to the brand identity, it is hard to identify the main target consumers for H&M because it offers full range of clothing for men and women, kids and adults. Thus, different from Topshop, it might be difficult for H&M to implement a discount strategy to a certain group of consumers. Besides, the consumers` loyalty might be hard to maintain because shoppers can switch to buy other clothing which more suitable for them easily.
4.2.2 The advantages and disadvantages of ZARA
The first strength of ZARA is the short lead time. ZARA is a brand belonging to one of the world's largest fashion retailers Inditex. Depending on the strong capital base of the parent company, the same as Topshop, ZARA also applies vertical integration strategy in business. Therefore, implementing this business strategy also implies that, in ZARA, the time cost from design to sell is very short, and even shorter than Topshop. According to research, the lead time of ZARA is usually short than 2 weeks (Reda et al., White et al., in Hayes and Jones, 2006). The quick response implies ZARA does much better than most of high street clothing retailers, even better than Topshop, in integrating fast-fashion concepts into business.
Besides, the same as Topshop, quality of products selling in ZARA is also guaranteed due to the timely and effective control of producing processes taken by the company; and the large economies of scale are also an advantage.
Furthermore, the same as H&M, ZARA also offers kids and men clothing which is absent in Topshop stores.
In terms of the particular advantage obtained by ZARA, different from H&M and Topshop, according to the Mintel analysis (2010), the average customer age of ZARA is older than those shopping in H&M and Topshop. In my opinion, it might be the resource of the fact that most design of clothing selling in ZARA is more suitable for mature people. Based on the economic environment analysed above we know that young people may have greater economic pressure than others. Therefore, ZARA`s consumers might be less sensitive to the price of product; in this sense, the consumers` threat may be avoid to some extent.
Referring to the disadvantages, besides the undefined brand identity which is similar as H&M, compared with Topshop and H&M, ZARA is too low-key that it is rarely to see massive media advertising campaigns in public (advertising spending is 0.3% of total revenue); and it rarely works with celebrities to do promotion as well (Hayes and Jones, 2006). In ZARA, most of clothing is designed by more than 300 young designers working in house (Abiven, 2011).
Therefore, even though it has the shortest time to response the market, the limited public concern means, for ZARA, it is not only hard to develop new consumers, but also hard to maintain the existing customer relationship, because the customers have only a few channels to receive the latest information about the clothing selling in stores.
4.3 A brief conclusion of competition among Topshop, H&M and ZARA
In general, compared with the performance of Topshop, although some strategies, such as providing different product lines, offering various products besides clothing, applying technologies in retailing (all of them have app store) and compressing the lead time, are applied in both H&M and ZARA, as things stand, there is still a lot of room for improvement for these two retailers. Therefore, to compete with Topshop, H&M and ZARA need to not only improve the strategies which are well done by Topshop currently, but also develop the strategies which are absent in Topshop.
5. Conclusion
Generally speaking, the external environment may affect the clothing retailing industry. Thus, player in the industry should be aware of the economic trend, governments` policy, technology development and social trend which may influence the industrial development direction.
According to my estimates, in the next few years, the sector sales of clothing industry could be in trouble. With the possibility of slow sale growth in the short future, the retailers in the market will face a more fiercely competition. Therefore, to gain profits, retailers should do some adjustments in dealing with 5 forces to suit changing external circumstances; and among PEST, Social trend will be the most important issue which should be considered by retailers.

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