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Details supporting my findings and recommendations are detailed in the main report. A summary of the main points are as follows:-FindingsClarks brand is recognised as one of quality with a strong market share of children’s footwear and the “the more mature” customer.
The company has a strong distribution network which could be used as a platform to launch new products at minimal incremental cost.
There is a significant threat from new competitors such as the major supermarkets as well as high fashion retailers extending their product range to footwear.
Footwear is growing in importance as a “fashion” item and evidence supports an increase in “impulse” buying particularly by women.
Consumers in the age range 30 to 49 years olds spend the most on footwear, on average £322 per annum.
There is increased political threat on “cheap” imports e.g. tariffs on imported goods from China and Vietnam. The EU commission is also monitoring anti – competitive behavior closely. This could escalate in the future.
Social trends are impacting Clarks’ market. There is a move towards “cheaper” more fashionable boots and shoes made of synthetic materials which can easily be disposed of after a relatively short period of time.
The UK economy is showing signs of slowing down which will have an adverse impact on demand in 2008 as consumers spend less on “fashion” and focus on essentials.
KEY RECOMMENDATIONSSHORT TERM – diversify into selling clothing accessories which would be sold alongside Clarks’ shoes and boots.
MEDIUM TERM -Investment in marketing, brand image and innovative design
LONG TERM – Focus on the teenager/young adult market
1.1I have been requested by C & J Clark Limited (Clarks) to prepare a market analysis of the UK footwear industry and present a set of recommendations1.2 I have included in this report recommendations over the short term (1 – 3 years), the medium term (3 -5 years) and the long term (5 + years)1.3 I have used various sources to gather information for my market analysis. The Internet has been a very useful source of information on the footwear industry. Clarks’ website has also proved to be extremely helpful in providing detail on the range of products, as well as providing a brief history of the business.
Mintel is an online resource which has up to date information on different industries and this has been used in my research. I have also made use of ‘key notes market review 2006’ and ‘key notes financial survey report’ which I accessed in the British Library.
To support my strategic recommendations I have researched articles from the ‘Times Online’ and the ‘BBC website’ to determine which direction the market is taking1.4 Section 3 comprises of a market analysis of the footwear industry including macro and micro factors which can impact Clarks1.5 Section 6 outlines my strategic recommendations for the short, medium and long term.
2. COMPANY HISTORY AND PROFILE
2.1 C&J Clark Ltd (Clarks) is one of the largest private companies in the UK and is amongst the largest distributors of general footwear. The company produces more than 40 million pairs of shoes and boots a year with turnover for the year to 31st January 2007 of £973 million, 5.6% higher than prior year.
2.2 From the early 1980s until the mid 1990s, two companies dominated the British footwear market – Clarks and the British Shoe Corporation (BSC). The break up and the demise of BSC altered the dynamics of the UK footwear industry leaving Clarks as the largest vertically integrated UK shoe company. (Source: Clarks Web Site)2.3 The shoe market in the UK is dominated by imports, which mirrors the clothing industry. Manufacturing abroad has become the norm with almost all UK shoe companies.
This is driven by lower costs, including labour, materials and general manufacturing costs. Clarks recently closed down its last factory in the UK (Ilminster, Somerset), with all manufacturing now being undertaken in Portugal and other low cost countries. (Source: Key Note Report)2.4 Clarks is recognised for making comfortable, durable and well fitting shoes. The product is not regarded as a fashion item. Clarks’ target its products at infants/young children through to 15 year olds and adults in the age range 45 – 50. The company offers a wide range of products such as sports, smart, and casual shoes and boots.
Over the years Clarks has introduced many innovative designs such as Dessert Boots, ‘Wallabees’, ‘Softees’, ‘Springers’ (with air filled soles) and a CICA range of sports shoes, which has consolidated the Clarks brand as one of quality and innovation.
2.5 Clarks also owns K Shoes which has over 500 stores in the UK, and sells through 2,000 + outlets, making them the largest retailer of shoes in the country.
1.MARKET ANALYSISA. MICRO ENVIROMENT
3.1 The Footwear market is inextricably linked to the clothing market. Analysts usually group both industries. Together the market is worth just over £44 billion. The footwear industry accounts for 13.7% (£6bn). (Source: Footnote 2006)The footwear industry is split up into 3 main categories:-Children’s footwear which accounts for 23% (£1.4 billion pair) of the total marketMen’s footwear has a higher market share at 31.1% (1.9 billion pairs) andWomen’s total market share which is at 45.9% (2.9 billion pairs)(Source – Office of National Statistics)3.2 Clarks has four main competitors. The largest competitor is Stylo PLC. which has 650 stores, trading mainly as Barratts, Bacons, Priceless and Shelly’s.
Other significant competitors areR Griggs Group, famous for its Doc Martins Boots. Griggs is privately owned and sells throughout the UK in many major outletsStead & Simpson Ltd., which has over 400 outlets. They trade under the names of Peter Briggs, Stead & Simpson, Shoe Express and Lilley & Skinner andShoe Zone, which has 370 locations in the UK.
(Source: footnote 2006)More recently new competitors have emerged particularly some of the major Supermarket chains such as Asda, who have their own clothing and shoe range. Other fashion outlets have also recently diversified into the footwear industry, e.g. ‘Arcadia’ which now sell its “own brand” shoes as well as known brands. ‘Oasis’, ‘Next’ and ‘New Look’ are also taking the same direction.
The Internet has also increased competition from other parts of the world although this is not at present material.
3.3 From my research, it has become evident that fashion in the footwear industry is becoming important and consumers are becoming more fashion conscious when it comes to their feet. However trends change rapidly and it is difficult to forecast where the market is going. Predicting the trend correctly is the difference between success and failure.
The majority of footwear sales in the UK are through retailers. A third of women admit to buying shoes and accessories on impulse (source -Mintel). Only a small number of people buy over the Internet.
Parents tend to take their children to recognised retailers to have their feet properly measured (source: Mintel). Parents insist on buying the right shoe for their children. On the other hand teenagers will tend to go purchase from the fashion stores.
In 2005 the average person spent around £4.60 per week on shoes (source: Family spending). Thirty to forty nine year olds were spending on average £6.20 (£322 per annum) a week on shoes because they were buying for their children.
B. MACRO ENVIROMENT
3.4 There are a number of political factors which impact Clarks’ business.
The EU has voted to impose a two year regime of tariffs on imported goods from China and Vietnam. Duties of 16.5% and 10% respectively will now be applied to shipments (Source: Independent 05/10/06). This will mean higher importing cost for Clarks which could put up prices.
The European Commission also imposes rules re price fixing and protecting small suppliers against anti competitive behavior from the large operators. (Source: Principles and Practices of Marketing)3.5 Social factors have affected the footwear marketplace such as dress codes. The 21st century is a period of fast changing fashion; for example under 35 year olds choose to replace their shoes with the newest and most fashionable pairs, rather than repairing their shoes or buying shoes that will last for years.. This is partly due to the fall in price of shoes recently enabling young people to be more fashionable. Such has been the interest in fashion amongst young and middle aged people that inadvertently, it has created enthusiasm in shoes (source: Mintel Report 2007).
3.6 There have been a number of technological changes which have affected the market. There is now the ability to mass produce shoes from a combination of natural and synthetic materials at low cost and to relatively high quality standards.
3.7 The use of the Internet has meant that customers have a wider choice of where to buy their shoes from. There is evidence to support growth buying “on line” as it fits in with people’s busy lifestyle.
3.8 Current Economic factors are beginning to have an impact on the footwear market. Whilst interest rates are now beginning to reduce in the UK after two years of increases, there is concern that the economy will move into recession. The Bank of England reduced the base rate by a quarter of a point in December 2007 (Source: Mintel).
Families are finding that there is a greater pressure on their budgets, so they are tending to buy fewer luxuries such as shoes. The “credit crunch” i.e. availability of debt and at what price, has also slowed down consumer spending, and will do so further in 2008. Sterling has also reached a record low against the €uro, which will impact the cost of imports from EU countries. The Bank of England confirmed that households are being hit as the effect of the global credit crunch spills over into the real economy (source: times online 03/01/08) There is a tightening of both consumer and business spending, and it is expected to deteriorate over the next few months.
4. CLARKS SWOT ANALYSIS4.15. IDENTIFICATIONS OF STRATEGIC ALTERNATIVES
5.1 There have been a number of factors which Clarks need to focus on as outlined in section 3.2.
The emergence of fashionable and “cheap” shoe retailers such as Arcadia and New Look has meant people are moving away from Clarks reliable and comfy shoes. Even though this is a threat to Clarks, there is considerable opportunity as well for the company to move into the fashionable shoe market. Clarks has an in depth understanding of the shoe market and already have a well established manufacturing and distribution network not only in the UK but also internationally and in North America. Using scale and the capability of a strong marketing campaign could make this into a success.
The challenge is to overcome the Clarks brand image with clever and innovative marketing and advertising – expensive but worth the investment as this part of the market is growing significantly as market research has demonstrated. The consumer has become more fashion conscious and caring about what they wear and will pay a premium for leading edge shoes with a strong brand image.
5.2 Consumers in the 30 – 49 year old age band tend to spend most on shoes; the reason for this is because they are buying not only for themselves but also for their children. On average they spend around £322 a year compared to other age groups which spend around £239. Clarks has a great children’s range as outlined in S2.4. Making the stores more child friendly would attract more parents into the shops. This would hopefully make shopping for adults less stressful. At the moment Clarks’ strength is in their children’s shoes and “older” adult shoes. Therefore improving the fabric and design of their shops should attract additional sales and increase profitability.
5.3 Another opportunity which the company needs to address is utilising different methods of selling their products. For example they could sell on the internet or in catalogues. Selling on the internet could be a positive way forward for Clarks. It already has a well established website. It is very easy to use and access, and contains all the latest shoes for men, women and children. A wider audience could be reached at a relatively low cost.. With the World Wide Web becoming a much more popular place to shop, this could be a positive move.
There are some issues to be addressed when selling footwear over the internet. People tend to want to try on shoes before they buy them. As Clarks has a strong reputation for well fitting shoes tailored for the customer, this could be seen as an advantage over its competitors.
5.4 Clarks should also consider diversifying into new sectors of the footwear and clothing market, such as clothing accessories, handbags, and scarves. It would be a good idea having shoes and accessories together as most women buy both of these on impulse, as research confirmed. Clarks should target their range of accessories initially at children and the “older” generation, its two strongest markets. It would be too difficult at this stage to target teenagers and young adults because of the considerable competition from the well established high fashion chains such as Topshop and Next who are seen by teenagers as trendy, the opposite of Clarks image at the present time.
Clarks has the resources to make the “accessories” concept work. They own shops around the UK, almost one in every town, so they already have distribution capability; and Clarks has the finance to advertise their new products. More importantly they have the in depth knowledge and understanding of the clothing and footwear market.
5.5 Clarks could consider lowering the price of selected ranges shoes in order for them to increase market share by competing effectively against supermarkets, large retailers and other large shoe retailers. Clarks is a very profitable business (£81 million operating profit for the year to 31st January 2007) with low production costs due to manufacturing abroad. The company could lower their prices on certain ranges with minimal impact on bottom line profitability. They could also build in “special deals” such as buy one pair of shoes and get the second half price.
5.6 Clarks should consider modernizing its brand image, and make people more aware of the high quality, good looking shoes it supplies. With its marketing budget being the largest in the footwear industry, it should be possible to alter people’s perceptions of Clarks as a brand. Even giving their shops a face lift to make them more modern is an easy way of attracting people in and hopefully making impulse buys.
6. RECOMMENDATIONS6.1 SHORT TERM (1-3 YEARS)
Diversify into AccessoriesAs discussed in 5.4 increasing the product range is a good way of increasing revenue and profitability. People may come to Clarks for more than just shoes. I have noticed that some of the competition are starting to introduce different product into their shoe shops. Clarks will want to be the market leader and be the first to properly diversify into a different market. First mover initiative will consolidate the company’s market dominance. I strongly recommend that Clarks moves quickly to implement this strategy.
6.2 MEDUIM TERM (3-5 YEARS)
Targeting 30-49 year olds30-49 year olds are the highest spenders on shoes as discussed in S5.2 Targeting this market would be a wise direction to take. The upside of being successful in this market would be significant to Clarks in terms of profitability, market share and brand awareness.