Table of Contents
- Executive Summary
- Situational Analysis
- PEST Analysis
- SWOT Analysis
- Summary of key issues and challenges
- Market Attractiveness
- Strategic Options
- Strategic Options & Recommendations
- Strategic recommendations for market selection and market entry
- Market Selection: Tokyo, Japan
- Market Entry Strategy: Flagship store
- Marketing Mix
- PEST Analysis
- SWOT Analysis
Harvey Nichols establishment in Knightsbridge in 1831 formed the basis for the formation of an international fashion business that has thrived over the years. The recent announcement of the eighth international store planned for opening in Doha, Qatar shows the extent of growth and success of the company. The report offers an in-depth internal and external analysis of Harvey Nichols forming the background of developing a situation analysis of the business. The situation analysis provides a framework for recommendation of internationalization strategies for the business, proposal of a location for the 9th Harvey Nichols store and the marketing mix relevant for the proposed market segment and area.
Harvey Nichols is a chain of shops offering apparel lines for men and women, makeup items, alcohol, snacks and fashion accessories (Harvey Nichols, 2015). Harvey Nichols was founded in Knightsbridge, London, in 1831, where the first shop opened. Because of increased demand and popularity in the regional and foreign markets, the performance of the organisation was tremendous. The expansion has seen the launch of four major supermarkets in London, Edinburgh, Leeds, and Manchester in the UK and Ireland, three small stores in Bristol, Dublin, and Birmingham, and a Beauty Bazaar in Liverpool (Harvey Nichols, 2015).
Harvey Nichols now has seven foreign outlets, with the launch of the 8th store in Doha in 2017 expected. The goal of the study is to examine Harvey Nichols’ internal and external climate, which will shape the foundation for the creation of strategic alternatives for foreign strategies, the preference of the 9th store sector and the determination of the messaging that Harvey Nichols will be willing to use.
The main markets that have been established, according to a study released by Deloitte on the Global Forces of Luxury Products, are those that may be the fastest rising, current and developing. In addition, these economies may be listed as Asia, the Eurozone and developing markets. China and Japan have emerged as the world’s fastest-growing luxury goods markets, whereas euro-area countries such as Italy, France, Germany and Spain have been listed as having a strong established customer base. As potential growth sectors, India, Russia and Brazil were listed as (Deloitte, 2014). The study will include an overview of the expansion, competition, and segmentation, targeting, and positioning within the international strategy that will suit Harvey Nichols’ needs.
Harvey Nichols success has been anchored on understanding social changes that have allowed the business to be successful despite social factors. Increased incomes and reduced interest rates have made it possible for luxury business including Harvey to have more customers, increase revenue, and expand internationally. Harvey Nichols has an opportunity of leveraging on technological advancements in terms of the use of the internet in marketing and e-commerce, social media, and use of visual displays in stores for success in the digital age. Outsourcing of manufacturing operations has to be made in consideration of labour laws and ethical issues to avoid a negative impact on Harvey Nichols. Adhering to legal regulations has a strong impact on the success of Harvey Nichols especially in the international market.
Based on the PEST analysis (see Appendix 1) carried out to critically evaluate the key factors required for critical business decisions including investment and market entry strategies, it was observed that the Eurozone seems to be still recovering from the economic downturn. The countries in the Eurozone are observed to be still politically unstable which in turn is affecting its investment policies and economy as a whole. Furthermore the austerity measures introduced has caused further dent in the growth plan of the countries involved.
The Asian countries seemed to be much more stable both politically as well as economically. Moreover the technological development which promises a highly sophisticated and state of the art infrastructure coupled with favourable foreign policies are likely to offer a viable alternative for investment. Lastly the socio-cultural norms which motivates the Asian consumers to purchase high end luxury goods could be exploited by Harvey Nichols ensuring greater profitability and stronger growth curve.
The emerging countries too were observed to be a good investment option if only the economic development was to be taken into consideration. Russia seemed to be politically unstable but offers lucrative policies for FDI while India and Brazil were observed to be politically and economically stable with good infrastructure to back the investment.
SWOT analysis entails the evaluation of strengths, weaknesses, opportunities, and strengths of a business in an effort to understand the ability of the firm to use its strengths and harness opportunities to overcome threats and weaknesses (Lussier, 2011, 131). Based on the SWOT Analysis carried out on Harvey Nichols (See Appendix 2) it can be observed that the key strengths of Harvey Nichols include strong pricing, a well-established distribution and sales network, financial leverage achieved due to goodwill and established brand name, considerable assets, economies of scale over its competitors along with a strong management that has led to the immense success of Harvey Nichols brand both domestically as well as internationally. The Brand however suffers from relatively low presence in international markets as compared to its adversaries who have a well-established chain of stores in some of the most prominent markets worldwide. It is hence highly imperative for Harvey Nichols to plan a strategic entry into a new market and widen its consumer outreach through expansion policies by capitalizing on its strong brand name and presence in the UK. The analysis also highlighted the various opportunities available at the disposal of the brand in the form of new and emerging markets with lucrative foreign direct investment policies such as Japan and Russia, or with a highly motivated and dedicated luxury shoppers in China, Japan, Russia and India. Furthermore the brand is also benefited greatly from the range of technological developments that have taken place over the years making especially with regard to the rise of the social media which has made it possible for companies to establish close bonds with its customers and gauge their responses in a cost-effective manner prior to making a decision. Harvey Nichols can effectively utilise its strengths to enter into competitive markets and capitalise on the high growth rate afforded by various existing and emerging markets to improve its profitability.
Summary of Key Issues and Challenges
Analysis of the Porter’s five forces shows an attractiveness of the market fashion industry for established brands and not startups. The assertion comes out of the high barriers to entry reducing new competition for established brands, low supplier bargaining power, and lack of real substitutes for quality luxury goods that is the specialization for Harvey Nichols. High competition on price owing to the presence of rivalry and high consumer bargaining power is compensated by the provision of exceptional customer care, quality, and payment of low prices to the suppliers.
There are three strategic options that will form the best opportunities for Harvey Nichols in international growth. The choice of the three strategies involved the use of the TWOS matrix allowing for the analysis of the strengths, weaknesses, opportunities, and threats facing the company.
Market expansion strategy forms the best strategy among the growth strategies available to the company. Market expansion strategy involves the sale of existing products to a new market. Since the SWOT analysis of Harvey Nichols in the appendix shows strengths in the provision of quality luxury brands and a high customer satisfaction rate, providing the same products to a new market will be the best strategy., The strategy will present Harvey Nichols a chance of taking on opportunities accessed in the SWOT analysis in the appendix including access to global markets and increasing income levels.
Focus strategy is the best competitive strategy chosen for implementation by Harvey Nichols for international growth. The choice stems from the fact that it allows for a choice of a narrow target market consisting of high-end consumers able to purchase the quality luxurious products offered by Harvey Nichols. Since the products offered by Harvey Nichols will be unique for the target market and will aim at taking advantage of the company’s quality attention, excellent customer service, and human resources for excellence in the international market.
Segmentation, Targeting, Positioning
Segmentation, targeting, and position according to demographic and behavioural characteristics will be most appropriate for Harvey Nichols to lead to a choice of high-end users’ strategy. Positioning the brand as high quality, high price, and luxurious product will appeal to high-end users in the Tokyo market. The demographic characteristics of the target market segment will include high-income levels in the community that has been spurred by increased economic growth and access to high levels of income in the most populous city in Japan. There are many high-income earners in Tokyo who is willing to spend on quality and fashionable items regardless of price making it the best choice for Harvey Nichols’ 9th international store. The behavioural characteristics of the target market include willingness to go for the latest fashion and spend their income on the best, which are the main characteristics of the products offered at Harvey Nichols according to the internal analysis in the appendix.
Strategic Options & Recommendations
The strategic choice for Harvey Nichols international expansion is focus competitive strategy since it allows Harvey Nichols to choice a specific market segment for its products. The market segment that has traditionally been served by Harvey Nichols as demonstrated by the SWOT analysis is the high-end user market segment. A focus strategy will allow Harvey Nichols to tap into excellent skill and talent at its disposal (see resource based view in appendix) in providing quality luxury products and excellent customer service.
Strategic Recommendations for Market Selection and Market Entry
Market Selection: Tokyo, Japan
Based on the internal and external analysis carried out in this study, it was observed that Japan is likely to be a highly lucrative market for expansion and investment. The country boasts of a highly stable political environment, which has recently undergone a series of reforms under the Abe government. Research indicates that Japan is the world’s second largest and fastest growing luxury goods markets in the world. It ranked second only to United States during the year 2014 with a whopping 18.1 billion euros, sales of personal luxury goods within a year (Statista, 2014).
The surge in luxury goods continue to grow stronger as is evident in Japan, which is followed by the rise in stock market wealth, which rose to 85 trillion during 2014. Such rise in the Japanese stock market has resulted in a simultaneous rise in household wealth, which increased the financial net worth of assets held by household to more than 1 million. Thus although the Japanese Yen has constituently grown weaker over the years the spending capacity of the consumers has increased drastically (Iwamoto, 2015).
Although the homegrown luxury brands have been springing up every now and then, they are, still, no match for the high end luxury brands from Europe which still holds the dominant position in the minds of the luxury shopper. Thus Harvey Nichols stands to benefit from the already motivated and driven consumer base who have a strong affinity for European luxury products and are not only willing but able to spend significant amount for their favourite products. Furthermore the existing international brands such as Louis Vuitton for instance, have in their own words ‘lost their charm’ by now since the brand had entered into the Asian markets right during the peak of the luxury brand craze among the Asian consumers. Thus the consumers who rushed to purchase and own the highly coveted product from the brand they admire, it has now become highly common with even ‘lowly secretaries’ carrying them for casual office purposes. Given the scenario and backed by a highly developed technological infrastructure and a strong legal framework, Japan is the right market for a brand like Harvey Nichols.
Market Entry Strategy: Flagship Store
Flagship stores can be described as company owned stores that help them in showcasing their brands and popularising their brand by familiarising the target consumers through targeted marketing tactics. This method helps in organic growth of the brand /company and help them create a long-term and strong association with the consumers. Such stores are mostly located in some of the most affluent areas in a given city, and are highly effective in enhancing the brand image and spreading the word among the consumers who may not be familiar with the brand. Flagship stores are highly crucial in the internationalisation process for international brands who are entering for the first time in foreign markets. The store location also plays key role in improving the brand image and recall value among the consumers and replicate its success in the international markets (Vrontis & Thrassou, 2013: p. 298). By opening a flagship store in Tokyo, Harvey Nichols can take its very first step into the highly saturated yet still growing Asian markets and attract and build a strong loyal consumer base.
The marketing mix that is most suitable for the Tokyo market that should be followed by Harvey Nichols to meet its international growth needs is analyzed in this section of the report.
The product has to deliver a superior experience both at product and experimental level. At product level, functional and utilitarian characteristics have to be satisfied to meet the needs of the high-end Tokyo clients (Whalley, 2010, 111).
Quality displays, excellent product information delivery to the consumer on performance and pricing, and communication of product quality reaching the targeted market in a clear manner allows for success in the international market (Solomon et al., 2013, 291).
The price has to be set at par with the willingness and ability to pay by the consumer for the specific brand where premium pricing has to reflect the substance of the product offered by Harvey Nichols. Maintaining higher perceived value of the product allows for correct pricing of luxury goods in the international market for Harvey Nichols.
The choice of the location/store has to be in a position of heightening consumer’s experience of the brand and aura. Immaculate detailing of the place allows for engagement of all consumer senses. Distributing the product at the right place and time makes for a successful international expansion in the Tokyo market.
Exceptional physical evidence in terms of furnishings, brochures, paperwork, packaging, excellent web pages, clean and prestigious premises/retail outlets will be important for success in the international market for luxury goods by Harvey Nichols.
Provision of services in terms of the process through greeting and welcoming clients as they get in the stores, helpful informed personnel in the store, easy booking system, excellent information display including price and discounts, no waiting time, and easy payment process are required.
Having a task force that will provide the ultimate experience to the consumer with good attitude, excellent skill, awesome appearance, and the best customer service will also be paramount in ensuring Harvey Nichols meets the needs of a high-end Tokyo customer base.
The external and internal analysis of Harvey Nichols reveals extensive abilities of the company in successfully expanding and providing luxury fashion products and accessories. There are growth strategies present for choice by the firm for international expansion with the best strategy for the firm arrived at basing on the main characteristics of the firm is focus competitive strategy that is poised to deliver more benefits to the company. The 9th international store for Harvey Nichols can be established in Tokyo as it fits the main characteristics of the company in terms of products offered, choice of market segment, and access to growth opportunity.
- Ari, B., (2014). Political instability affecting Russia’s investment climate [Online] Available at <http://asia.rbth.com/opinion/2014/04/08/political_instability_affecting_russias_investment_climate_35745.html> [Accessed: April 30, 2015]
- BINKLEY, C. (January 24, 2013). Why some Labels will sidestep Fashion Week. The Wall Street Journal. Retrieved on November 25, 2014 from http://online.wsj.com/news/articles/SB10001424127887324624404578258473406332016 ?mod=wsj_share_tweet&mg=reno64wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424127887324624404578258473406332016.html%3Fmod%3Dwsj_share_tweet
- Harvey Nichols. 2015, About Harvey Nichols, Retrieved on March 19, 2014, from http://www.harveynichols.com/about/the-company/
- Iwamoto, M., (2015). Japan’s luxury sales are booming, even in a weak economy [Online] Available at: <http://www.bloomberg.com/news/articles/2015-02-20/luxury-goods-fly-off-shelves-in-japan-as-economy-struggles> [Accessed: April 30, 2015]
- Lussier, R. 2011, Management Fundamentals: Concepts, Applications, Skill Development, Cincinnati, Ohio: South Western College.
- Michael, B., (2014). S&P Upgrades India Outlook to ‘Stable’ From ‘Negative’ on Better Politics; Market Cheers Move [Online] Available at: <http://www.ibtimes.co.uk/sp-upgrades-india-outlook-stable-negative-better-politics-market-cheers-move-1467354> [Accessed: April 30, 2015]
- MURRAY-WEBSTER, R. 2010, Management of risk guidance for practitioners, London, The Stationary Office.
- Porter, M. E. (2008), On competition, Cambridge, Massachusetts: Harvard University Press.
- Solomon, M., Marshall, G., & Stuart, E., 2006, Marketing: real people, real choices, Upper Saddle River, N.J., Pearson Prentice Hall.
- Statista (2014). Value of the leading personal luxury goods markets in 2014, by country [Online] Available at: <http://www.statista.com/statistics/245645/leading-personal-luxury-goods-markets-by-country/> [Accessed: April 30, 2015]
- Vrontis, D., Thrassou, A., (2013). Innovative business practices: Prevailing a turbulent era. London: Cambridge Scholars Publishing.
- Whalley, A. 2010, Strategic Marketing, Copenhagen, Bookboon
Asian Markets – China, Japan
|Factors||Description||Implications on Harvey Nichols|
|Political||The Japanese stock market has risen more than 60 per cent over a year ever since Prime Minister Shinzo Abe’s progressive reform policies which include the hyper easy monetary policy and fiscal spending. Japan’s $5 trillion economy has also seen a stable and rapid growth of about 3.5 per cent annually and continues to grow steadily. The new political policies which range from doing away with stringent business regulations and liberalisation of the labour markets, to increasing workforce diversity and lowering corporate taxes is likely to provide a further boost to the existing consumer base for luxury goods.||Considering the political development, reforms and stability in in the country, it could prove to be a highly successful investment option for Harvey Nichols|
|Economic||China and Japan have been and still continue to be the fastest growing luxury goods market in the world. According to statistics, Japan was ranked second while China was ranked fifth as the world’s largest luxury goods market during the year 2014 (See figure 1).
After a continuous and unprecedented growth spurt displayed by the Chinese economy, which grew at the rate of 10 per cent annually, has slowed down ever since the global recession. However the growth rate is still relatively robust, at 6 – 7 per cent annually, thus ensuring a stable and growing market for luxury goods.
Statistics indicate that the sale of luxury goods in Japan continue to outpace sale of everyday commodities (See fig. 2).
|This indicates that the Asian markets are still highly lucrative for luxury brands. For a luxury brand as established as Harvey Nichols, the Chinese and Japanese markets could prove to be highly profitable considering the already large and existing consumer base.
The steadily growing market and the high desirability rate among the Asian consumers for luxury brands are likely to offer a strong and stable market entry for Harvey Nichols.
|Social||The social systems in Asian countries, particularly China and Japan enable the consumers to have greater disposable income, which they prefer to spend on luxury goods. The consumers in Asian countries follow Confucian values and often live with their parents, which make it easier for them to afford luxury brands since they do not have to spend on rent or other amenities.
Half of Louis Vuitton luxury goods were sold to Japanese consumers and the case of the Chinese luxury traveller is quite well known as well. These factors indicate that there is no relationship between economic well-being and affordability /ability to buy luxury goods.
Luxury goods such as Louis Vuitton have become so common to Japanese consumers that it is now associated with “lowly staff” such as office secretaries.
Lastly, the custom of ‘gift giving’ as a form of bribe, appreciation or reciprocal relationships is a prominent custom in Asian countries.
|Harvey Nichols can use this social custom /trend to market their products to the target consumers and expand their customer base.
Harvey Nichols can increase the prices of domestic products and either lower the prices of the products sold overseas or retain the price structure, to prevent the ‘luxury travellers’ from going abroad to shop for luxury products and offer them their own products under the ‘affordable luxury’ category.
|Technological||Japan is a world leader in technology, while China is not far behind.
China is in the middle of an e-commerce boom and boasts of the world’s largest B2C sales which is estimated to be growing at the rate of 25 per cent per year. Online shopping is likely to grow further in the coming years and it is estimated that by 2018, half of all sales would be made online. Similarly e-commerce sales in Japan too have grown exponentially over the years. Statistics suggest that the total amount of online sales in Japan is likely to exceed $96.87 billion by 2017 (see figure 3).
Social media presence in the two countries is also increasing rapidly. Backed by efficient technological infrastructure and high speed internet services the number of “netizens” is increasing over the years. Mobile commerce is also on the rise.
|Harvey Nichols can exploit the technological advancement offered by the country to set up robust supply chain networks which could help them in potentially increasing their profitability and service delivery.
Harvey Nichols can fully exploit this opportunity by offering their products online to the already existing and rapidly expanding luxury goods consumers based in the two countries.
Online reputation and presence is highly crucial for establishing and expanding customer base. Harvey Nichols can use the opportunity to cater to the vast online consumers through cost-effective marketing and advertising strategies.
Eurozone: Italy, France, Germany, Spain
|Factors||Description||Implications on Harvey Nichols|
|Political||The Eurozone has been gripped by a severe spate of political turmoil headed by Italy at the forefront. Italy’s weak technocratic policies has affected development, increased political instability, and stagnated reforms.
The Eurozone has also been engulfed in financial crises ever since the global economic meltdown, which has resulted in severe steps initiated by the government under the austerity measures in Northern Europe as well as in Spain.
|The highly unstable political system could prove to be detrimental to growth for Harvey Nichols stores in the country.
Such politically unstable environment is likely to negatively affect the growth and development of the brand in the country.
|Economic||Latest reports suggest that the Eurozone economy, which saw an anaemic growth during December 2014, has further slowed down and suffered its worst quarter for over a year. The Purchasing Managers Index (PMI) fell to 51.7 and continues on its trend of an eighteen month long weak growth (BBC, 2015).
According to reports the Eurozone consumer prices were observed to have stopped falling in April 2015. Europe may well be out of a crisis situation as of now, but the recovery still continues to be sluggish. The steep fall in oil prices and other energy costs continues to push the prices into a negative territory (NY Times, 2015).
|Both the political and economic environment look highly unstable for investment and expansion activities, especially for a brand competing in the luxury goods segment.
Harvey Nichols must hence avoid the Eurozone as a possible destination for market expansion.
The Eurozone has been in and out of inflation and deflation over the years. This is only likely to push the countries into a deflationary spiral where the consumers push off spending in expectations of a further drop in prices of goods. Such volatility and economic instability is not favourable for investment in those markets.
|Social||The countries in Eurozone share cultural and social similarities as well as similar lifestyles, as observed in consumers in the UK.
The Human Development Index for Italy during 2013 was 0.872 with an HDI ranking of 6, Fance – 0.884 with an HDI ranking of 20, Germany: 0.911 and a ranking of 6 and Spain: 0.869 and a ranking of 27 (Country Economy, 2013).
|As compared to the rest of the world, countries in the Eurozone share various similarities amidst stark differences, with the UK. The consumer profile is more or less similar; hence the products offered by Harvey Nichols are likely to find a strong customer base in the Eurozone as well.|
|Technological||Germany is the largest economy in Europe and the world leader in technological innovation. It is also credited to be the world’s most active and diversified markets for science and technology research with over half of the country’s industrial production being R&D intensive industries (The Canadian Trade Commissioner, 2015).
France is the fashion capital of the world and the country has abundant skilled resources on hand in the form of knowhow as well as talented workforce, which has led the country to be known as the fashion frontier of the world since decades.
|Harvey Nichols can benefit from the highly developed market with state of the art infrastructure needed to boost its business.
This market would prove to be easiest to target considering the already existing and knowledgeable customer base who have both – the affinity for fashion and luxury goods and the highly developed taste to identify the true value of a luxury brand.
Emerging Markets: Russia, India, Brazil
|Factors||Description||Implications on Harvey Nichols|
|Political||The Russian political environment has been experience serious political instability.|
|Economic||According to a study carried out by Euromonitor, India was observed to be one of the most dynamic luxury markets during the period 2008 to 2013. It is further expected to grow by 86 per followed by China at 72 per cent. India is touted to be one of the major contributors in the long run in terms of luxury goods sales.
There is significant growth for ‘affordable luxury’ goods in the emerging markets. Statistics suggest that luxury sales are likely to exceed $318 billion worldwide most of which would be driven by emerging markets.
In 2014 Russia attracted Foreign Direct Investment (FDI) to the tune of $94 billion dollars, making it the third largest recipient of FDI in the world (Aris, 2014). Comparatively India is relatively stable on both – political as well as economic front. According to the Standard & Poors (S&P) rating services the country has efficiently shifted from negative to stable economy. It is now much more conducive to investment and growth (Michael, 2014).
The Brazilian economy is also highly stable with a steady economic growth
|Harvey Nichols can benefit largely from these newly developing markets with immense spending power and favourable environment for investment.
Harvey Nichols can offer a segment of its products under the affordable luxury category and garner attention for its products, which can in turn be used to boost the sales of its higher end luxury products.
Harvey Nichols can benefit from the relaxed norms that allow foreign investors to set shop in the country.
Harvey Nichols can plan long-term investment in the Brazilian markets owing to its political and economic stability, which offer a highly conducive environment for business expansion and growth.
|Social||The business environment in Brazil is relatively more familiar for foreign investors than any other country in the BRIC group. However almost all countries in this group suffer from high level of corruption, complicated tax rules /structures and lack lustre legal framework.
The human development index 2013 suggests that Brazil is the leader in the BRIC group with HDI of 0.744, and ranking of 79, followed by Russia with an HDI of 0.778, and ranking of 57, and lastly India with an HDI of 0.586, ranking 135
|The social environment is ridden with antiquated attitudes, which further boosts corruption. Such environment may not be favourable for a high-end luxury brand such as Harvey Nichols.
Based on the HDI index alone, Brazil seems to be the most lucrative destination for investment for Harvey Nichols.
|Technological||All four BRIC countries have shown immense promise and potential for development within the technology sector.||Russia’s recent technology boom supported by a fairly relaxed approach to foreign investment makes it a safe investment destination for Harvey Nichols.|
· Strong pricing power
· Well laid out distribution and sales network
· Financial leverage
· Asset leverage
· Economies of scale over new competitors
· Strong supply chain
· Innovative culture at Harvey Nichols
· Strong management
· Market entry barriers
· Success in the domestic market
· High tax payment
· High loan rates
· Low investment in research and development
· Presence of future competition from global markets and retailers
· Increasing income levels
· Presence of new acquisitions
· E-commerce and marketing opportunities
· Expansion to other global locations
· Global economic development increasing income levels and promoting demand for luxury brands
· External business risks including recession and price fluctuation
· Increased raw material costs
· Global economic problems
Figure 1: Sales of luxury goods industry worldwide: 2014
Figure 2: Rates of change for retail and luxury sales in Japan
Figure 3: E-commerce sales in Japan
Booming Stock Market Wealth in Japan