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Fitness Apparel Industry
Porter’s 5 Enforcers: Nahar Chowdhury,
Xuanying (Shirley) He, Rishi Daryanani,
Xi (Lorraine) Chen, Ailin (Eileen) Chen
OverviewAgenda
• Introduction• Industry analysis • Firm analysis • Technology • Resources • Scope • Issues and recommendations
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
1
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Fitness Apparel IndustryClothes specifically sold and marketed to be worn during fitness or wilderness related activities; i.e. playing sports, running, yoga, camping, hiking
Top Industry Firms
Industry Size$153 Billion Global Market Cap1
Industry Trends“…active wear is suddenly chic”2
Fitness clothing is no longer limited to the gym and gym related activates.
Industry Overview
2
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Leader Firm
“ A designer, distributor, and retailer of technical athletic apparel…which create transformational experiences … leading a balanced and fun life ”3
3
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
“As one of the largest outdoor and active lifestyle apparel and footwear companies in the world, our products have earned an international reputation for innovation, quality and performance. ” 4
Client Firm
4
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Industry Profitability– Industry average profitability : average ROS Years 2010-2014– Positive industry influence on profits
Analysis of Financial Performance (Based on Return on Sales)
4.00%
Economic Average
Industry Influence
ClientStrategy Influence
5.88%
Colombia's Profitability
Industry Profitability
17.18%
Lululemon's Profitability
LeaderStrategy Influence
7.99%+3.99%
+9.19%
-2.11%
Analysis of Financial Performance - Industry
5
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Firm Facts
2 Geographic Categories: US & Canada
Profitability: ROS 17.18%
Sales Revenue: 2.06 Billion in 2015
Key Products : Yoga Pants and Mats
Brand Image: Healthy Lifestyle
4 Geographic Categories: US & Canada, Latin America, Asia Pacific, Europe & Middle East
Profitability: ROS 5.88%
Sales Revenue: 2.3 Billion in 2015
Key Products : Skiing and Snowboarding Apparel
Brand Image: Tough & Durable & Affordable
All Facts and Figures are taken form annual reports and 10-K fillings6
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Analysis of Financial Performance - Industry
• Key buyers:• Department stores, consumers
• Low Brand loyalty5 ↑• Low switching cost ↑• High price sensitivity ↑
High Buyer Power
• Key Rivals:• Nike, VF, Adidas, Under Armour, Columbia,
Lululemon,• Concentration C6 = 15.4% ↑• CAGR 5.2% ↓• Brand Recognition ↓• Comparison shopping6↑
Moderate Rivalry
7
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Trends & Dynamics Impact on 5 Forces
• Rivalry ↓
• Substitute ↑• Buyer Power ↓
• Rivalry ↑
Total Impact on Industry P
Trend #1 Fitness clothing to becoming more casual and fashionable7.
• Substitute ↑
• Rivalry ↑
Trend #3Less sports participation in the U.S market8.
Trend #2Companies are developing fitness apps and other wearable technology9.
Advanced 5 Forces Analysis (I) - Industry
8
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Greater buyer power
Lower perceived
value Weaker brand image
Department stores
Buyers value
quality more
Low switching
cost
Advanced 5 Forces Analysis (II)
9
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Cost Leadership Differentiation
Broad Market
Narrow Market
Positioning
10
Average Lululemon Columbia $-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
Industry WTP and Cost
Other R&D Marketing CostsCost of Goods Sold Margin
$68.75
$51.94
$77.75
$46.36
$63.82$61.74
Total Cost
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
WTP & Costs Drivers - Industry
WTP
Quality
Technology
Brand
Trends
Retail Experience
Costs
Marketing & Sales
Production
Distribution Networks
R & D
Patent Expenses
WTP and Cost figures come from the average of the best selling product lines
11
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Strategic Activities
• Building brand image: healthy lifestyle
• Building a community
• Thorough product testing
• Design: • Trademarked fabric • Luon, Swift, Luxtreme10
12
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
WTP & Cost Drivers
WTP
Quality
Community-based
Marketing11
First mover in athleisure12
Free yoga & self defense
classes
Cost
Grassroots ad campaign
Low distribution
Partnership in R&D
Less legal expenses
13
Positioning
Brand loyalty
Charge premium
prices
Sustained profits
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Achieving High Profits
• High disposable income• Niche market
• Grassroots marketing• Consistent design & development
14
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Strategic Activities
• Autonomous design team & R&D spending
• Strictly managed inventory
• Multiple distribution channels
• Lower dependency on cold weather
15
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
WTP & Cost Drivers
WTP
“Tested Tough” ad campaign15
Functionality
Technology13
Cost
Marketing16
R&D
Patent expenses
Distribution14
COGS
16
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Lower Than Average Profitability
Low ROS
Poor marketing
Failing cost leadership
strategyDepend on
cold weather
17
Production TechnologyIndustry Production TechnologyIntro Industry
AnalysisFirm
Analysis Tech Resources Scope Recommendation
Disruptive
Sustaining
Complementary asset
Product Design → Manufacturing → Distribution → Wholesale & Retail → Customers17
Columbia’s Patented Technologies, Process & Design:• Omni-Tech, Outdry, Omni-Wick Evap, Omni-Heat18
Omni-Heat Electric (Columbia): • Traditional vs. Conductive material • + electronic elements• Discontinued in 201319
Fitness tracker/Smartwatch: • Workout accessories
Marketing Channel:• Columbia’s weak brand image
• Hard to capture full value of innovations
Industry is subject to incremental innovation
18
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Valuable Rare Costly to imitate
Capture value
Sustainable competitive advantage
Firm-level Analysis: Resources
• Omni Heat Technology Patent• Global Presence
• Design Patent• Brand Value
19
Horizontal Scope
• Fitness Apparel• Skiing• Snowboarding• Fishing• Adventure travel
• Premium Footwear
• Hiking• Climbing
• Trail Running• Lifestyle Apparel
Horizontal scope – Narrow21Horizontal Scope – Wide20
• Fitness Apparel• Yoga• Run
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
20
1999 2012 2013 2014$0.00
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
Net Sale
Acquired BrandsColumbia
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
COGS/Rev S&G/Rev0%
10%20%30%40%50%60% 55%
32%
54%
35%
Cost/Revenue Ratio
19992015
Better-off Test ✔ No Cost Savings
• Little impact on cost saving
Increase in WTP
• Positive incremental net sales
Wide Horizontal Scope
Ownership Test ✔ Ownership benefits > Contract benefits
• Confident to allocate capital• Costly to enforce contract • Avoid binging up new competitors
21
All Facts and Figures are taken form annual reports and 10-K fillings
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Manufacture
Distribution
Consumers
Better-Off Test✔ Increase WTP• Build brand connection with
customer• Marketing purposes
Vertical Scope
Ownership Test✔ Increase WTP• Control layout• Improve retail experience• More control over customer
service
22
Product Design
Retail
Wholesale
Owned
Contract
Retail
22
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Assessment of Strategic IssuesIndustry-Level Issues
• Be a leader in innovation• More focused acquisitions
New technolog
y
• Partner up with media channels: Discovery & National Geographic
• Emphasis on adventurous lifestyle
Less sports participatio
n23
Assessment of Strategic IssuesFirm-Level Issues
Key Challenges• Higher buyer power • Weather constraint • Weak brand image
Key Horizontal Scope Issues• Acquire professional fitness sporting goods brands
Key Vertical Scope Issue • Stockouts at department stores
How can Columbia respond • All-around professional sporting goods brand • Develop summer sports-related product lines • NEW MARKETING STRATEGY • NEW APPROACH TO MANAGEMENT
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
24
• Retail stores with trained employees• Control customer service
New Marketing Strategy
Marketing
Community
Retail
• Focus on adventurous lifestyle
• Interaction between customers and the firm • Host events or trips to popular skiing/fishing spots
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
25
“We're a family business gone global.”23
• MotherGERT BOYLE24
Chairman of the Board
• SonTIM BOYLE
Chief Executive Officer, Director
• GrandsonJOSEPH P. BOYLE Senior VP Brand Merchandising &
Design
• Snowboarder, surfer
Laurent Potdevin26
Chief executive officer
• Skier, runner, cyclist
Stuart HaseldenChief financial
officer
• Runner, cyclist, iron man triathlon
Duke StumpExecutive VP,
community and brand
“We are passionate about sweating every day and we want the world to know it.”25
Assessment of Strategic IssuesFirm-Level Issues - Management Team
Columbia should hire executives with sports experience
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
26
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
• Strategic position Failing cost leadership strategy Columbia’s quality & innovation does not drive up
WTP • Recommendations
Leader in innovation Marketing with focus on adventurous lifestyle New talents in management
• Columbia is vulnerable to imitation North Face(VF) and Patagonia could imitate
Assessment of Strategic IssuesConclusion
27
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Thank You!!! & Questions?
Assessment of Strategic IssuesConclusion
28
From SI 422 Course Packet
• Internal Analysis: Resources, Capabilities and Activities
• Choosing Corporate and Global Scope
• The Five Forces
1 Statista. “Global Sports Apparel Market from 2015 to 2020.” Accessed March 10, 2016 http://www.statista.com/statistics/412667/global-sports-apparel-market-projected-development/
2 Fortune. “Athletic Apparel: Outperforming the competition in 2014.” Accessed March 10, 2016 http://fortune.com/2014/12/25/athletic-apparel-top-performer/
3 Lululemon. “Annual Report 2015.” Accessed March 10, 2016 http://investor.lululemon.com/secfiling.cfm?filingID=1397187-16-89&CIK=1397187
4 Columbia . “Annual Report 2015.” Accessed March 10, 2016 http://investor.columbia.com/secfiling.cfm?filingID=1050797-16-20
5 Mintel. “Fitness Clothing – Issues & Insights.” Accessed March 10, 2016 http://academic.mintel.com.ezproxy.bu.edu/display/679801/
6 Nike. “Annual Report 2015.” Accessed March 10, 2016 http://s1.q4cdn.com/806093406/files/doc_financials/2015/ar/docs/nike-2015-form-10K.pdf
7 Fortune. “Athletic Apparel: Outperforming the competition in 2014.” Accessed March 10, 2016 http://fortune.com/2014/12/25/athletic-apparel-top-performer/
8 IBISWorld. “Sporting goods stores in the US.” Accessed March 10, 2016 http://clients1.ibisworld.com.ezproxy.bu.edu/reports/us/industry/default.aspx?entid=1079
9 Certona. “Hitting a Home Run in the Athletic Apparel Industry.” Accessed March 10, 2016 http://www.certona.com/hitting-a-home-run-in-the-athletic-apparel-industry
10 Lululemon. “Fabrics and Technologies.” Accessed March 10, 2016 http://www.lululemon.com/education/fabricsandtechnologies
11 Market Realist. “ Lululemon Builds Brands Through Unique Marketing Strategies.” Accessed March 10, 2016 http://marketrealist.com/2014/12/lululemon-builds-brands-unique-marketing-strategies/
12 Business Insider. “Lululemon’s Secrets for Beating all the Competition.” Accessed March 10, 2016 http://www.businessinsider.com/lululemon-and-the-rise-of-athleisure-2015-7
Bibliography
13 Columbia Sportswear Company. “Columbia Sportswear Previews Omni-Freeze ZERO.” Accessed March 10, 2016 http://investor.columbia.com/releasedetail.cfm?ReleaseID=68195514 Youtube. “Columbia Sportswear CEO Timothy Boyle-Mad Money-CNBC.” Accessed March 10, 2016 https://www.youtube.com/watch?v=SYXb14dnunM 15 The Oregonian. “Columbia Sportswear’s Biggest-ever ad Campaign.” Accessed March 10, 2016 http://www.oregonlive.com/playbooks-profits/index.ssf/2015/10/columbia_sportswears_biggest-e.html16 Vault. “Columbia Sportswear Company Overview.” Accessed March 10, 2016 http://www.vault.com/company-profiles/general-consumer-products/columbia-sportswear-company/company-overview.aspx17 Wikinvest. “Columbia Sourcing and Manufacturing.” Accessed April 10, 2016 http://www.wikinvest.com/stock/Columbia_Sportswear_Company_(COLM)/Sourcing_Manufacturing#toc18 Columbia Sportswear Company. “Technologies.” Accessed April 10, 2016 https://www.columbia.com/technology-landing.html 19 Snewsnet. “Columbia Suspends Future Omni Heat Electric Program After Recall.” Accessed April 10, 2016 http://www.snewsnet.com/news/columbia-suspends-future-omni-heat-electric-program-after-recall/20 Columbia Sportswear Company. “Company Profile.” Accessed March 10, 2016. http://investor.columbia.com/index.cfm 21 Lululemon Athletica. “Products.” Accessed March 10, 2016. http://shop.lululemon.com/products/category/women?mnid=mn;Uswomen 22 Slideshare. “Lululemon Strategy Report.” Accessed March 10, 2016. http://www.slideshare.net/azizghani0/lululemon-strategy-report-5142677323 Columbia Sportswear Company. “Columbia History.” Accessed April 10, 2016 http://www.columbia.com/About-Us_History.html24 Columbia Sportswear Company. “Officers and Directors.” Accessed April 10, 2016 http://www.columbia.com/About-Us_Officers-And-Directors.html25 Lululemon. “The Lululemon Manifesto.” Accessed April 10, 2016 http://www.lululemon.com/about/manifesto26 Lululemon. “Management & Board of Directors.” Accessed April 10, 2016 http://investor.lululemon.com/management.cfm27 Encyclopedia. “Columbia Sportswear Company History.” Accessed March 10, 2016 http://www.encyclopedia.com/topic/Columbia_Sportswear_Company.aspx 28 The Oregonian. “Columbia Sportswear Files Omni Heat Patent Infringement Lawsuit.” Accessed March 10, 2016 http://www.oregonlive.com/playbooks-profits/index.ssf/2013/12/columbia_sportswear_files_omni.html29 Fortune. “Smart Apparel.” Accessed April 10, 2016 http://fortune.com/2015/09/11/smart-wearables-fitness/30 Lululemon Athletica. “Strategic Sales.” Accessed March 10, 2016 http://info.lululemon.com/about/stratsales31 Vault. “About Columbia Sportswear Company.” Accessed March 10, 2016http://www.vault.com/company-profiles/general-consumer-products/columbia-sportswear-company/company-overview.aspx
Lululemon, “Annual Reports.” Accessed March 10, 2016 http://investor.lululemon.com/annuals.cfmColumbia Sportswear Company. “Annual Reports.” Accessed March 10, 2016 http://investor.columbia.com/annuals.cfm
Bibliography
Backup Slides
Exhibit 1 ROS Calculation
Exhibit 2 Concentration Calculation
Firm Infrastructure: 3 main executive offices and 4 distribution centers
Human Resources: Strong networking support for Lululemon Brand ambassadors.
Inbound Logistics
Research and Development teams focus on the development of new designs and testing out the fabric and material for quality maintenance.
Operations
Distribution centers in Ohio, Washington, British Columbia and Melbourne transport products to Lululemon retailers and directly to customers through e-commerce sales.
Marketing and Sales
Sales are made in Lululemon retailers. Brand ambassadors promote the brand across the three countries. Grassroots marketing campaign.
Technology Development: Development of e-commerce information systems.
Procurement: Lease of some retail locations and short term contracts with suppliers.
Outbound Logistics Service
Lululemon sends its designs to different suppliers for different products. Manufacturing is outsourced to carefully selected firms. Finished products are shipped Lululemon to distribution centers
Free information sessions on health. Free yoga and self defense classes.
Value Chain Analysis
Intro Industry Analysis Firm Tech Resource
s Scope Recommendation
IndustryRivalrySuppliers Buyers
Potential Entry
SubstitutesPower of Suppliers – Low key Suppliers
• independent manufacturers in Indonesia, China, Vietnam, Mexico, Taiwan, India and Bangladesh and etc.
• Very low supplier concentration ↓ • Low amount by each supplier ↓• Commodity inputs ↓• Firms contracts with numerous
suppliers ↓• Suppliers could forward integrate ↑
Threat of Entry – Moderate Potential entrants:
• Casual apparel companies • Fashion companies • Apparel Manufactures
• Light regulation ↑• Low capital Intensity ↑• Economies of scale & scope ↓• Low technological change ↑• Hard to access department stores ↓
Extent of Rivalry – Moderate key Rivals
• Nike, VF, Adidas, Under Armour, Puma, Colombia, Lululemon
• CAGR 5.2% ↓• Low concentration C3=32% ↑• Brand Recognition ↓• Companies often engage in price wars ↑
Power of Buyers – High
Identify key Buyers• Department stores and
consumers • Low switching costs ↑• Low brand loyalty ↑• Low chance of backward integration ↓• High price sensitivity ↑
Threat of Substitutes – Moderate
Identify key substitutes• Casual apparel
• Low switching cost • Large amount and variety of substitutes • Force costs up• Lower buyer propensity
Analysis of Industry Environment
Valuable • Well-known in yoga fans, first mover in yoga apparel industry, brand loyalty
Rare?
• Hard to imitate the entire brand due to the established reputation in the industry
Costly to imitate
• Brand value is costly to imitate
Capture Value
• Loyal customers allow Lululemon to capture value
Intro Industry Analysis Firm Tech Resources Scope Non-
Market CSR RecommendationIntro Industry
Analysis Firm Tech Resources Scope Non-Market CSR Recomme
ndation
Valuable • Higher WTP
Rare• With patent protection
Costly to imitate
• Other firms have to work around the patent
Capture value
• Long-term contract with Taiwanese supplier and distributor
✔
✔
✔
✔
Sustainable Competitive Advantage
Firm-level Analysis Resource #1 Patented Design
✔
✔
✔
✔
Sustainable Competitive Advantage
Firm-level AnalysisResource #2: Brand Value
Valuable
• Revenue from oversea market constitutes about 40% of the overall revenue
Rare
• Limited sports apparel companies entering markets overseas due to the high capital requirement
Costly to imitate
• Need large amount of resources and coordination
Capture value?
• Distribution and retail network is well structured. • Distribute in over 30 countries27
Valuable
• Water proof, breathable material that increase customers WTP
Rare• With patent protection28
Costly to
imitate
• Other firms have to work around it
Capture value
• Contributed to firms’s growth in net sales
Sustainable Competitive Advantage Sustainable Competitive Advantage
Firm-level Analysis Resource #1 Global Presence
✔
✔
✔
✔
Firm-level Analysis Resource #2 Patent: Omni-Heat Reflective material
✔
✔
✔
✔
Intro Industry Analysis Firm Tech Resources Scope Non-
Market CSR Recommendation
Columbia’s Production Technology
• Role of innovation• Industry is subject to incremental innovation
• Companies constantly develop innovative technologies & products that provide better performance benefits needed by consumers
• Sustaining innovation• Fitness Tracker/Smartwatch29
• Work-out Helper
• Most recent disruptive innovation• Omni-heat Electirc
• Traditional Fabric vs Conductive Fabric + Electronic Elements• Delivering heat on demand
• Columbia should be a leader of new technology• “…To earn an international reputation for innovation, quality and performance…” – Columbia’s
Mission Statement• 2013 Columbia suspended its Omni-Heat Electric program after having to recall its jackets due
to a wiring malfauncing and possible hurn hazard• Risk averse management
• Complementary assets• Marketing Channel
• Columbia’s ineffective marketing campaign• Hard to increase WTP of its innovative products
Save Cost? – No Higher R&D Lower distribution and sales costs
Boost WIP? - Yes Higher increase in Revenue than in
Cost High quality products Strong brand image & brand loyalty
2009 2010 2011 2012 2013 2014 $-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
Net Revenue COGS SG&A
Better-off Test ✔
Ownership > Contract Confident to allocate capital Costly to make contract when acquired
business units become profitable Avoid binging up new competitors
Ownership Test ✔
Intro Industry Analysis Firm Tech Resources Scope Recommenda
tion
Narrow Horizontal Scope – Lululemon
All Facts and Figures are taken form annual reports and 10-K fillings
Intro Industry Analysis
Firm Analysis Tech Resources Scope Recommendation
Manufacturing
Distribution
Consumers
Better-Off Test✔ Increase WTP• Product Design
Key factor in success of products
• Manufacturing Control on product quality
• Retail • Build brand connection
with customers• Marketing
Vertical Scope
Ownership Test✔ Cost Saving• Owned - Design Team
Control innovation
• Contract – manufacturers:CapEx.,Labor Cost
Increase WTP• Owned – Retail Store
• Control layout• Improve retail experience
Product Design
Retail
Wholesale
Owned
Contract
Columbia Sportswear CompanyWholesale > Retail
❖ Primarily sold through wholesale distributors to specialty outdoor and sporting goods stores31
Lululemon Athletica Retail > Wholesale
❖ Primarily sold through Lululemon-owned stores as well as online
❖ Selectively strategic sales (Wholesale Program) through certified partners to offer its products to high-end health club and yoga studio30
Advantage: large degree of control over merchandising
and marketing Brand message is strong and consistent at
all consumer touching pointsDisadvantage: Not too recognized within the mass market
Recommendation:With its wide range of distribution, Columbia can put more effort in its retail stores Creates a stronger adventurous
community feeling
Intro Industry Analysis Firm Tech Resources Scope Non-
Market CSR Recommendation
Difference in Vertical Strategy
Non-Market Strategy
• Be a leader in innovation• More focused acquisitions
New technology
• Partner up with media channels: Discovery & National Geographic
• Emphasis on adventurous lifestyle
Less sports participation
• Other firms such as Adidas & Nike follow consumer preference• Lobby for more PE classes
Fitness clothing going
casual
Changing Trend