Michael Kors PEST and SWOT Analysis

2481 words (10 pages) Essay in Business

14/05/19 Business Reference this

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A brief Overview of Michael Kors

Michael Kors Holdings Limited has been regarded as one of the leading brand in the luxury fashion industry of America. The company was established by designer Michael Kors in 1981 and the product mix includes the hand bags, watches, footwear, apparel, jewelley, leather goods and other accessories. Michael Kors is operating more than 550 stores and over 1500 in-store boutiques in different countries across the world (Michael Kors, 2018).

Although the Michael Kors started its operations in 1981 but they opened their first retail store in 2006. The main competitors of the Michal Kors include Louis Vuitton, Kate Spade and Coach. The hand bags and accessories are most popular among teenaged girls all over the world as per the survey of 2016. The company has focused more on sustainability and corporate social responsibility since the last year and announced that the company will no longer use animal skin and fur in the manufacturing and production of any of their products.

The existing markets of Michael Kors include United States, North America, Asia Pacific, Europe, Germany, Italy, France, Middle East countries including Dubai, Bahrain and some Asia Pacific Countries. Besides that, Michael Kors has online presence in many countries where they don’t have any physical stores. The largest geographical market of Michael Kors is North America and then Europe and Asia Pacific.

In 2017, in order to increase their market share, the company acquire the business of Jimmy Choo PLC and they have also plans to expand their business in some other regions of the world. Moreover, they opened a store in Waterloo in 2018 in order to expand their presence in the international market.

The Emerging Market for Entering

For the luxury fashion and retail industry, Asia Pacific is considered as the most attracting region that provides numerous opportunities to the fashion retailers. Similarly, Michael Kors has witnessed remarkable increase in the retail value sales by implementing their expansion strategy in this region. In the year 2017, the retail value sales of Michael Kors Holdings Ltd were 9% of the total sales of the company. By keeping this thing mind, the company expanded its international business operations by using different mergers and acquisitions strategies. For instance, in Greater China regions such as Taiwan, Macau, Hong Kong and China, they expand through acquisition of its geographic licensees. Besides that, they have recently acquired some businesses in North Korea (Almor, 2013).

On other hand, the company is facing some serious challenges in the North America as their sales was less than their previous fiscal year. These challenges make it difficult for the Michael Kors to acquire or expand more business in the region because it requires a lot of efforts for the company to rebuild their brand reputation and sustain long term growth in the United States.

By doing through analysis of the markets in which Michael Kors is operating, the assignment suggests that India would be the best region for Michael Kors for expanding their business as people are becoming more aware of the brands and they are agreed to pay higher prices for luxury fashion brands as well. Therefore, the report chooses India for expanding the business of Michael Kors as it is an emerging market in the retail fashion industry and there is a need to expand business of the company in this region (Barney, 2014).

In order to check the feasibility of expanding business in India, an analysis of the macro and micro environment will be conducted and the best strategies will be recommended on the basis of that. Under the macro environment analysis, the effect of some factors like Political, Economic, Social and Technological will be analyses whereas the micro environment analysis includes the impact of consumers, suppliers, distributors etc. on the growth of the business.

Macro Environment (PEST)

When expanding internationally, firms usually face new political, legal, social and cultural environments. Consequently, foreign operations have many characteristics that are distinct from domestic operations. Facing a new environment in a foreign country, a firm may feel an uncertainty that may negatively affect its operations in that country, and, to reduce the uncertainty that stems from its foreign operations, may act cautiously in its international expansion process. As noted above, the incremental model also argues that firms develop their international operations gradually over time because firms lack sufficient knowledge about foreign market conditions, and international expansion may require a time-consuming accumulation of foreign market knowledge.

  • Political Factors

India is a democratic country and the political environment of the country is greatly influenced by the government’s rules and regulations, policies and different ideologies. Government has imposed different types of taxes such as the income tax, sales tax and service tax and it can be said that the India has a well-developed taxation system. The government encouraged the international companies to start their business in the country.

  • Economic Factors

India has a stable economy and its GDP is increasing with each passing year due to different policies of industrial reforms. India’s economic environment has achieved tremendous growth since past few years due to various factors such as liberalization and business reforms. A constant improvement has been witnessed in the past few years.

  • Social Factors

Social factors play an important role in the fashion and retail industry; however, the social factors of India are suitable for the business operations of Michael Kors. There is a flexibility and adaptability in the attitudes, behavior and culture of the people in India. Moreover, the disposable income of people is also increasing due to which they are attracting towards luxury fashion brands.

  • Technological Factors

Technology highly impacts the product development and manufacturing processes of an organization. Besides that, it also enables the companies to introduce latest cost cutting processes (Barney, 2014). India has high level of technological advancement as it possesses one of the strongest IT sectors in the world. The country promotes developments within IT sector, software updates and other technological advancements that enables the international companies to start their business easily.

Micro Environment (SWOT)

The micro environment of a company is affected by different factors such as suppliers, employees, customers and some others. In order to assess the micro environment, SWOT analysis (strengths, weaknesses, threats and opportunities) is conducted to identify the current situation of the luxury fashion industry in India.

The luxury fashion industry of India is booming rapidly as different fashion brands including Kate Spade, Calvin Klein, louis Vuitton, Hermes and Gucci have opened their stores in big cities of the country and people are inclines towards buying luxury fashion products. The retail industry of India is growing at the rate of 40% every year and its estimated worth is $200 million. Besides that, it has been estimated in a marketing report that the Indian luxury fashion goods market was worth around $3.4 billion in 2016 (Quartz India, 2018).

The threat in the Indian luxury fashion industry is not very high because very few international brands have opened their stores in the country. However, it is good opportunity for Michael Kors to open their stores at different cities of the country and also make their digital presence strong because the trend of online shopping is also increasing among consumers in India. Moreover, some of the considerable threats and challenges that may face by some international brands for market entry includes growing market of counterfeits, rental costs, high tax rates and lack of suitable infrastructure in the country (Economic Times, 2018).

Target Audience of Michael Kors in India

Basically, the target market of Michael Kors is both men and women under the age of 25-54 years with annual income above $50, 000 (Business Wire, 2013). However, the teenage girls and boys also use the luxury products of Michael Kors; the handbags and shoes are widely popular among young girls all over the world. For the long term growth and marketing strategy, Michael Kors target young customers who overlooked by luxury brands and having affluent demographics (Almor (2013). Similarly, they can target the same segment of the market for their products as the youth population of India is highly energetic, working and spend more on luxury goods market.

Most Appropriate Entry Mode

For entering into a new market, Michael Kors always uses the innovative approach for which it is also termed as an omni-channel retail (Nasdaq, 2018). For expanding its business in India, purchasing Liscece has suggested as the most appropriate approach. The licensee may find that the cost of the agreement is less than if the development were accomplished internally. From the licensor’s point of view, the use of a licensing agreement might be a feasible option because risks associated with operating facilities and holding inventories can be reduced. However, the licensor may face fundamental problems and certain risks. By transferring rights to the licensee, the licensor undoubtedly loses a measure of control over the asset. The licensor also risks developing a future competitor after the licensing agreement expires (Hoffman et al., 2016). Even before an agreement is terminated, the licensor may have to compete with the licensee because the licensee has made improvements on the licensed technology that make the original patents obsolete.

In the process of international expansion, firms usually begin with exporting and then come to directly manage foreign operations through FDI. Investigating international expansion within a specific operational form only, both the export development models and the FDI development models fail to view export or FDI as part of a firm’s overall choices among diverse operational forms. Given the limitations of the export development models and the FDI development models, attention must be paid to the whole process of internationalization that a firm may implement over time, and in particular to the incremental model (Autio et al., 2011).       

A substantial amount of research investigating firm internationalization has focused on the exporting activity of firms. The exporting development models explain how firms change their exporting operations over time. When engaged in exporting, firms may face uncertainty due to lack of information on foreign markets and operations. Such uncertainty is greater for firms at initial export stages when firms usually have limited knowledge about not only exporting itself but also foreign market characteristics (Frasquet et al., 2018).

Firms at initial export stages thus enter li foreign markets via indirect export methods, such as export merchants, trading companies, resident buyers, or export agents. As firms gain more experience and knowledge, their level of uncertainty about the export market gradually diminishes (Al‐Aali & Teece, (2014). Firms at advanced stages thus come to use direct export methods, such as agents, distributors, and sales branches. The models identify major facilitators and inhibitors in the export development process. The pattern of firm behaviors in the export development process depends largely on the type and amount of organizational resources available for export expansion (Aversa et al., 2018). Firms in more advanced stages need to commit more organizational resources to their expansion efforts. Organizational resources thus either facilitate or inhibit export expansion. Foreign market experience also facilitates or inhibits foreign expansion because it determines the level of uncertainty firms face.

The effect of foreign market uncertainty on incremental expansion is expected to vary from firm to firm, moderated by variables at the firm, industry, and host country levels. The amount of resources available to a firm may affect its international expansion process. They also argue that firms strive to minimize the risks. As other researchers maintain, variations in international expansion can be explained, to a significant extent, by organizational and management characteristics. Thus, variation in firm resources and risk-taking orientation may affect a firm’s propensity to undertake incremental international expansion (Vicari, 2016).

The Product Mix

The product mix of the Michael Kors includes hand bags, shoes, accessories, jewelry, watches and other accessories for men and women both. The company do not need to change its product mix while entering into India because people in India are trendy and acceptancy is higher among them. Moreover, hand bags of Michael Kors are more popular among teen age girls all over the world so they can also same product mix to people in India with some affordable prices (Ritala et al., 2014). The response of young people in India is fast and quick towards changing fashion habits and retail trends.

References

  • Al‐Aali, A., & Teece, D. J. (2014). International entrepreneurship and the theory of the (long‐lived) international firm: A capabilities perspective. Entrepreneurship Theory and Practice, 38(1), 95-116. doi:10.1111/etap.12077
  • Almor, T. (2013). Conceptualizing paths of growth for technology-based born-global firms originating in a small-population advanced economy. International Studies of Management & Organization, 43(2), 56-78. doi:10.1108/03090561211202602
  • Autio, E., George, G., & Alexy, O. (2011). International entrepreneurship and capability development: Qualitative evidence and future research directions. Entrepreneurship: Theory and Practice, 35(1), 11-37. doi:10.1111/j.15406520.2010.00421.x
  • Autio, E., Pathak, S., & Wennberg, K. (2013). Consequences of cultural practices for entrepreneurial behaviors. Journal of International Business Studies, 44(4), 334-362. doi:10.1057/jibs.2013.15
  • Aversa, P., Haefliger, S. and Reza, D.G., 2017. Building a winning business model portfolio. MIT Sloan Management Review, 58(4), p.49.
  • Barney, J. B. (2014). How marketing scholars might help address issues in resource based theory. Journal of the Academy of Marketing Science, 42(1), 24-26. doi:10.1007/s11747-013-0351-8
  • Fernfort University (2018). Michael Kors Holdings Limited PESTEL & Environment Analysis. Retrieved from http://fernfortuniversity.com/term-papers/pestel/nyse4/713-michael-kors-holdings-limited.php
  • Frasquet, M., Dawson, J., Calderón, H. and Fayos, T., 2018. Integrating embeddedness with dynamic capabilities in the internationalisation of fashion retailers. International Business Review.
  • Hoffman, R.C., Munemo, J. and Watson, S., 2016. International franchise expansion: the role of institutions and transaction costs. Journal of International Management, 22(2), pp.101-114.
  • Quartz (2018). “If you’re looking for affordable luxury, India is the ultimate shopping destination”. Retrieved from https://qz.com/1030728/indias-luxury-market-stands-apart-from-the-rest-of-the-world-because-its-actually-affordable/
  • The Economic Times (2018). “India’s luxury market to cross $30 bn by year-end: Assocham”. Retrieved from https://economictimes.indiatimes.com/industry/cons-products/fashion-/-cosmetics-/-jewellery/indias-luxury-market-to-cross-30-bn-by-year-end-assocham/articleshow/63110503.cms
  • Ritala, P., Golnam, A. and Wegmann, A., 2014. Competition-based business models: The case of Amazon. com. Industrial Marketing Management, 43(2), pp.236-249.
  • Vicari, A., 2016. The international expansion of fashion retailers through franchising networks: goldenpoint case study (Bachelor’s thesis, Università Ca’Foscari Venezia).
  • Nasdaq (2018). What are Michael Kors’ Strategies for Long-Term Growth? Retrieved from https://www.nasdaq.com/article/what-are-michael-kors-strategies-for-long-term-growth-cm911528

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