Late-2000s recession free essay sample

Within the period of 2007 to 2009, two major retail companies emerged in China: PPG Apparel (Shanghai) Co. , Ltd. and VANCL Technology (Beijing) Co. , Ltd. Though both had similar business models, VANCL was able to excel and profit in places where PPG Apparel suffered tremendously. These included creating a successful supply chain with effective quality control, adopting a variety of improvement measures to ensure a positive customer experience, and shifting most of VANCL’s advertising dollars towards internet marketing. Though successful when first established, PPG eventually collapsed in late 2009 due to their inefficiencies in such areas. Owner of VANCL, Chen Nian stated that VANCL has passed its most risky period and is now within a steady phase. However, though the road ahead may seem safe there are many risks to take into factor. With the future of online apparel in China constantly shifting, VANCL needs to consider whether or not their currently business model will continue to be successful or should evolve with customer needs. Specifically, they need to decide on which ways they can continue to grow as a company while still reigning in profits. Alternatives As a well-respected and established retailer in China, VANCL’s alternatives for growth can be narrowed down into three specific directions. The first is to continue their current business model while penetrating new market segments. This involves using their current forms of marketing to attract an audience they did not previously reach. The second alternative is to create a new retail format directed towards their current market segment. Such an alternative would allow for VANCL to embrace a new marketing strategy towards existing customers to keep them interested in VANCL’s products. Finally, VANCL has the opportunity to create a new retail format directed specifically at a new target market. This alternative might even include launching their product line globally. Solution Having attained such high market share with their product line in China, VANCL has proven that their business model is not one to be tampered with. In this case, VANCL would have the most success taking their current business model into new markets. In most foreign markets they still remain unknown. As an already established online retailer, taking their product line globally will remain generally inexpensive. Launching a campaign towards global markets will allow VANCL to grow as a company and establish global brand recognition. Rationale Shopper Analysis: Referring to the article, VANCL had established its logistic company Rufengda where they received most of their business to ensure speedy delivery. These locations included Beijing, Shanghai, and Guangzhou. Referring to Figure 1 in the appendix you can see that these cities are located in North, East, and South China respectively. When compared to the rest of China’s regions, these areas are more economically developed and have more wealthy customers. They are highly urbanized, densely populated regions with innovative consumers who often set the fashion trends for the rest of China to follow. Being a part of these first and second-tier regions seek greater reliability, consistency, and integrity while purchasing consumer products. From this we can incur that VANCL’s â€Å"fast fashion† is attractive to explicitly 18-30 year old male and females from generation Y that are either college students or young professionals. They contain moderate purchasing power and have an applicable amount of internet skills. Psychographics for this market segments reveal that they are fashion conscious, but also seek convenience while deciding on retailers to shop at. Being millennials, they are notoriously fickle while choosing fashion trends to pursue. They have an aversion to the status-quo and want to create an identity for themselves. With there still being skepticism in online shopping, expanding globally to a larger target market allows for substantial and guaranteed growth. Reaching out to a global target market of young professionals who have no qualms with internet shopping will help establish brand recognition and bring in positive reviews for the apparel company. Market Analysis: VANCL is a leading Chinese internet-based apparel retailer that has successfully established dominance in the e-tailing world. Their approach to elevating the customer experience includes improvement measures such as online commenting threads and try-on activities. VANCL’s services have helped them diminish any skepticisms the Chinese market had in regards to shopping online. Known for its â€Å"fast fashion†, they have expanded their market range to include most kinds of men’s and women’s apparel, specifically casual-wear such as canvas shoes and graphic tees. In China alone they have captured over 25% of market share in the apparel market and are the 6th largest B2C company in China in terms of revenue. VANCL’s channels of distribution are exclusively their online website as well as their small call-center. Because they are only an online retailer, VANCL uses their own logistics company, Rufengda, and other third party companies to ensure speedy delivery of their products. Their apparel is made from top fabric manufacturers such as Luthai Textile and go through countless quality checks to ensure the best apparel for their customers. In China alone the market for apparel including clothing, shoes, hats, and textiles has grown by a staggering 18. 8% in 2009 according to the National Bureau of Statistics of China (NBS). Urban and rural Chinese households spent 10. 5% of their total annual expenditure for 2009 on clothing. Over 5. 8% of China’s total apparel sales were made online in 2009 and are expected to continually grow in such a digitally focused age. Globally apparel retail industry value grew over 2. 0% in 2009, or over $1,031. 5 billion in USD. Taking their apparel line globally could allow them to be a part of this growth and take a share of the pie in revenue. Competition: VANCL’s competition can be separated into two different categories: local competition and foreign. Online retailers in China that have managed to capture a significant amount of market share includes M1 8, Menglu, Masa Maso, and Fashion Revolution. Referring to Figure 2 in the appendix, market share in the apparel industry for these companies in China is 16%, 7%, 5%, and 4% respectively. All four of these companies reach the same target market of 18-30 year olds, offering relatively inexpensive clothing through online services. However, these local companies pale in comparison to the threat foreign competitors impose on VANCL. One of the greatest foreign competitors to VANCL is HM Hennes Mauritz AB, a Swedish multinational retail-clothing company that offers fast fashion of the same moderate build quality to men and women. HM positions their product in the same target market, reaching out to young professionals seeking convenience and fashion-forward apparel. Unlike VANCL, their main channel of distribution is their retail stores located in over 43 countries. However, they also offer online buying of apparel through their website www. hm. com. Their online platform is almost identical to that VANCL offers, as seen in Figure 3 of the appendix. If VANCL were to launch their business model globally they would be in direct competition with HM. One of the disadvantages to competing with HM is their already-established brand recognition in the market place. Until VANCL can establish its name in foreign markets HM will continue to be the dominant competitor in its target market. However unlike HM, VANCL does not have any retail stores which they sell through, allowing them to keep prices on apparel lines low. Price is a key factor young professionals consider when determining where to spend their disposable income. If VANCL can establish brand recognition in foreign markets they will easily be able to steal away market share from HM. Company: Founded in 2007, VANCL was started by Chinese businessman Chen Nian after selling his previously cofounded company Joyo. com. By launching VANCL he aimed at becoming one of the leading men’s apparel company in China. The company entered the market with a focus on menswear, but later expanded onto ladies wear and have recently moved into more highly concentrated clothing segments. Their excellent supply chain, dedication to customer service, and promise of quick deliveries has set VANCL apart from its competitors with a market share of 28. 4% as of 2009. A SWOT analysis of VANCL can be found in Appendix, Figure 4. At the time of its establishment, major competitor PPG Apparel (Shanghai) Co. was the leading apparel company in China. Chen even credited PPG’s business model for providing him with clear direction for VANCL. However, after focusing too heavily on advertising without clear direction, PPG was launched into a series of lawsuits with advertising agencies they had debt with. The company was disgraced publicly and lost most of its senior management just as VANCL was coming into play. Learning from PPG’s mistakes allowed for founder Chen to take VANCL down a more successful road. From the beginning VANCL focused most of their advertising budget towards online marketing, leading to excellent performance with low costs. The total publication price of VANCL’s advertising was estimated at RMB1. 896 billion in 2009 when the company had only spent slightly more than RMB200 million. Other ways they reach their target market is through celebrity endorsements that share the brand’s core values: authenticity, youth, accessibility, energy, and individuality. Chen has stated that VANCL has passed its most risky period and was now within a steadier phase, having experienced great success with their current business model. However, having accomplished reaching their target market in China may lead to staggering sales in the future. Taking their successful business model to a global market could lay the framework for establishing a powerful brand recognition. Taking their advertising strategy globally could be a moderately inexpensive way to expand sales and slowly grow into a dominant e-tail apparel retailer. Environment: Economically speaking, the world recession of 2008-2009 has had a great impact on industries across the globe. Though China’s real GDP growth rate was greater than 10% in 2009, other countries experienced recession throughout late 2008 and 2009. The United States alone experienced a decline in real GDP growth rate of almost -2%, while other major countries such as Canada, Mexico, and parts of Europe were anywhere in the range from -2-8%. Unemployment within the U. S. rose from 5% in 2008 pre-recession to 10% by late 2009. In Europe, unemployment rates in Spain, Greece, Ireland, Portugal, and the UK increased. Looking closer at the global apparel industry, many retailers have been forced to close unprofitable stores throughout 2008 and 2009. Within the US over 6,000 retail stores were closer in 2009 with 2,000 of them being apparel retailers. U. S. clothing imports worldwide dropped about 13% in 2009 as consumers slowed their purchases in reaction to the recession. However, one of the few categories of apparel that have shown success throughout the recession are â€Å"fast fashion† retailers. Competitor HM recorded revenues of $15,490 million in the fiscal year ending November 2009, an increase of 14. 1% as of November 2008. Consumers experiencing a drop in income look to these fast fashion retailers in recession as a cheap alternative to some of the pricier department stores such as Macy’s, Nordstrom, etc. Should VANCL choose to go global, they must study the factors of potential global retail markets. Such factors include market size, political stability, corruption, and growth potential. Though many countries are experiencing global recession, VANCL still has much opportunity as a fast fashion retailer to come out profitable. Appendix Figure 1 Figure 2 Figure 3 Figure 4 SWOT Analysis for VANCL Technology (Beijing) Co. , Ltd. Strengths Optimal supplier selection of top fabric manufacturers such as Far Eastern New Century and Fountain Set An excellent quality control team that ensures all product delivered by VANCL are fully inspected before shipment. Efficient measure of customer experience/satisfaction including a commenting thread on their website try on activities, etc. Effective logistics team separated into first-party owned Rufengda and third party delivery companies such as ZJS Express Weaknesses No brand recognition in major global markets. Foreign competitors hold almost 40% of the apparel market within China. VANCL’s channels of distribution are narrow in comparison to competitors, with only a website and a call center to sell their product through. Chinese manufacturing has a stigma, especially within the US, of being low-quality. Opportunities Create a new business model to keep up with the evolving market segment they position their apparel in. Use their current business model to establish brand recognition globally. Use their current business model to attract new market segments within China. Threats Economic recession has hit nearly all countries throughout 2008-2009. Foreign competition has already established brand recognition in multiple markets, creating barriers to entry. Apparel retailers with store outlets have the advantage of gaining sales with customers skeptic to buying products online.