Emerging Markets: High Fashion Fights Recession
1. Using the five forces framework, how would you characterize the competition in the luxury goods industry?
Threat of Substitutes
There is relatively no threat of substitution in the luxury goods industry. This is mainly because of the quality and price of substitutes, and the cost of switching to the consumer. The price of counterfeit goods that copy the luxury goods causes there to be a positive monetary cost in switching but there is a loss of prestige as luxury goods are characterized as having a persona, paucity, that are accompany by a performance of a quality product with unique design, extraordinary capability and innovation. There is no comparison between luxury goods and the
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The cost of switching for consumer is low; it is more an emotional cost for consumers as they are extremely brand loyal. Therefore there is a high pressure on firms to remain relevant with consumer’s preference and trends. Firms also sell their products in select retail outlets therefore these outlets have some control over the industry as they directly impact sales.
Competitive rivalry within the industry
There is a strong level of rival among few large firms in the luxury industry. The firms have differentiated strategy and some although it is not an industry practice offered reduced prices during the Great Recession to improve their sales, some firms were not able to survive and declared bankruptcy. There is a high exit barrier as it is difficult for firms to recover their investment.
Porter Five Force
Intensity
Threat Of Substitute Products
Low
Threat Of New Entrants
Low – Medium
Bargaining Power Of Suppliers
Low
Bargaining Power Of Customers
Medium
Competitive Rivalry Within The Industry
Medium – High
2. How much bargaining power did consumers as buyers have during the Great Recession?
The fall consumption during the period of the Great Recession 2007-2009, had an adverse impact on the luxury goods industry and meant that firms had to place more emphasis
Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.
This expansion demonstrates how the luxury industry is now run by massive corporations whose focus is only on growth, visibility, brand awareness, advertising, and most importantly, PROFITS! With growth and expansion, has come a decrease in quality and rarity. The luxury garments produced are mostly not handmade but are even outsourced to large factories in places such as China and Turkey. Also, to meet quarterly turnover projections, “designers churn(ed) out increasingly trendy collections of clothes, handbags, and shoes.” (Thomas, Pg. 246) With hundreds of new stores around the globe the surplus of designer labeled merchandise is immense hence, the proliferation of outlet malls.
-Martin Industries just paid an annual dividend of $1.30 a share. The market price of the stock is $36.80 and the growth rate is 6.0 percent. What is the firm's cost of equity?
Life insurance is meant to provide funds to replace a breadwinner's to protect and support dependents. Chad and Haley are dependents, not income providers. Therefore, the purchase of life insurance is unnecessary and not recommended. The Dumonts should use the money they would spend on policies for the children to increase their own coverage.
An increasing economic interdependence of national economies across the world experiences a rapid cross-border movement of goods, service, technology and capital. Luxury goods industry, serve as one of the most competitive industry, emerging and developing rapidly all the time. To a great extent, globalization promotes the development of luxury goods industry significantly in spite of the big shock hit by several times of economic crisis.
We are providing below the assumptions and other calculations we used while computing the WACC and the cash flows.
The following is my five forces analysis of the competitive forces confronting the companies that operate in the industry that Under Amour, Nike and Adidas operate in.
This behavior brings competitive advantages to the European luxury brands. Moreover, customers in different countries have different purchase behaviors. For instance, some countries’ customers are willing to move away from common recognized brand, because they want to purchase more exclusive products. Furthermore, because of the increasing speed of globalization, people are more likely willing to travel between different countries. These travelers will buy luxury good during their trips. In fact, Chinese tourists contributed over one third of sales in Europe. The luxury goods industry should notice to adjust the actual demand between local people and tourists in Europe
Financial Management is a critical aspect of any business in order to achieve a sustainable and efficient cash flow. It is essential in maintaining the link between a business’s future financial goals (profit maximization) and the resources that it has in order to achieve its objectives. Businesses demand certain common goals that increase a bussiness's all around achievement, Some of which involve; growth amongst assests, An increase in efficiency in all areas of the business whether it be management or not. And the ability to meet short term and long term debts. Finacial management undertakes the responsibility to implement and acheive these goals for the business using a range of strategies shaped to meet the needs of the business and
Key managers that can run each business independently but with a group vision are also part of the equation. Additionally the luxury industry is strongly dependent on tourism which is influenced by economy trends. The 9-11 events and the global economy slowdown have had a great impact on the industry. Finally huge investments were done to win strategic position, having an important impact on revenues. Appendix 5 is an example of the proportion of cost and impact on revenues and the stock performance.
The overall sales of luxury goods in the year 2009 is expected to be more than US$150 billion and Asia contributes 10% to it. The concept of luxury is now not confined to only to Europe and US, the Asian subcontinent contributes majorly to it, with India and China as the newly emerging markets. Professor James Twitchell (2002) comments on the democratization of luxury and the changing consumer psychology These new customers for luxury are younger than clients of the old luxe used to be, they are far more numerous, they make their money far sooner, and they are far more flexible in financing and fickle in choice. They do not
The core value unit that luxury retailers designed their businesses around isn't a car anymore - it is seamlessness, convenience, speed and quality of personal service. In both short-run and long-run, the great amount of inputs for luxury-feeling grabs martial, human and time resources from the core of cars industry, technologies development.
One main instance of iconic items consists of the Murakami-designed luxury handbags. These iconic items are certainly real masterworks that can be placed at the extremely top of the foremost dimensions of luxury. The underlying principle of Louis Vuitton behind the design of iconic items is to demonstrate its superiority and to improve images of its products in Hungary as well, which must also increase perceptions of customer about the other goods they provide. Furthermore, the unmatched strategy of pricing marks Louis Vuitton less manageable and induces relations of rarity. Consequently, in case of operations of Louis Vuitton in Hungary, it is cautious not to danger its brand image with money deductions, but they should adapt to the given market situation of the country in order to reach success. Brands like Louis Vuitton can even upsurge “symbolic benefits” with this extravagance strategy of pricing, as revealed by the price inconsistency, which encompass the subsequent trend: “In contrast to mass-market products, a price reduction of luxury products in the long-run usually leads to decreasing and otherwise a price increase to growing demand” (Charlesworth, 2003). Also, Louis Vuitton raises prices incessantly year after year with the intention of increasing requirement. Luxury brands like Louis Vuitton take advantage of the “Veblen
Currently, luxury product can be found everywhere and the demand of them is high (Kapferer and Bastien, 2008: 311). Each company wants its products to be
Luxury is artificial definition and cannot be easily transferred into real life. It is a notion of anything that is useless and superfluous in real life. However, it can be often associated with beauty (art, entertainment, design, décor or trend) and remains one of the driving forces behind society’s spending. It is true that luxury speaks and renown’s itself by big spending and indeed, outlandish expenditure is often associated with it.