Introduction:

Topshop is a British multinational retailer which specializes in fashion clothing, shoes, make-up and accessories. Topshop is estimated to have around 440 shops in 33 countries and currently operating online shopping systems in some of its markets. Topshop belongs to the Arcadia Group alongside with the other retail outlets which consist of Burton, Dorothy Perkins and Miss Selfridge. The whole business under Sit Philip Green’s management and Topshop is currently focusing on expansion to new dynamic markets, with its strength of variety in products and the reasonable prices. (wiki) In 1964, Topshop was founded as its original brand Peter Robinson’s Top Shop with the first store opened in 1974. This fashion brand focusing on youth sector was first located within the Sheffield branch of Peter Robinson, a now-defunct department store chain.

With the strong and stable base varied across the world, Topshop obtains potential opportunities in an expansion plan into new emerging economy. The business plan below will provide SWOT analysis of potential markets and Topshop’s business and reasonable explanation of expansion strategies.

Company analysis:

Currently, Topshop owns more than 300 stores in the UK including the iconic London flagship store in

more than 100 locations in the world. The expansion to United States and South Africa is the proof of

Topshop‘s objective, which is to make a global recognition of the brand and a mark on the international

fashion style. In late of 2012, Philip Green has made an agreement to sell 25% of Topshop’s stake to

United States-based private equity group Leonard Green and Partners for US $ 805 million. ( guardian)

Since 2002, Topshop made the sponsorship with the internationally recognized NEWGEN scheme in

order to find out British design talent. This bolsters the careers of fashion’s favorites, who are

Christopher Kane, Jonathan Saunders and Marios Schwab. Moreover, It is also interesting to mention

that Topshop is the first high street brand of which their designed clothes were presented on the cover

of Vogue magazine with the image of Kate Moss supermodel

According to the Arcadia group financial results 2010-2011, the amount of total cash generated is

£297.4m with total revenues of £2,682.5m, including e-commerce sales growing by 27%. Total group

operating profit before goodwill is £190.4m and total group pre-tax profit is £133.1m. The continued

capital investment is recorded at £112.8m. (http://www.arcadiagroup.co.uk/).

Acquiring such stable financial strength and the base of products focusing on trendy womenswear and

menswear, it is reasonable to use this category of clothing in the expansion business plan.

Industry analysis and trends:

According to www.datamonitor.com, the clothing retailing industry, after being affected by the recession in 2009, has gained back its growth rate although the market is not believed to reach its full potential. Total sales revenue of the whole industry has been increasing from $1,180.5 billion to $1,316 billion during the period 2009-2011.

As can be seen from the chart, except for the downturn in 2009, the industry is continuously increasing its sales revenues. Moreover, as consumers made less purchase during the recession, retailers assume that customers are having a product surplus. Thus, promotions campaign were started in order to encourage spending and gain back customers.

Sales revenues in clothing industry are highly dependent on consumer density. For example, in 2008, volume sales of clothing and footwear in Asia Pacific are recorded as the highest in the

world, which accounted for more than 50% of overall global volume sales. In-depth statistics show what 71% of the region’s total revenues came from China, which once again confirms the fact mentioned. Thus, investors would be more interested in Asia if they want to invest in clothing industry.

Sales of womenswear were equivalent to 51.8% of the market’s total value, which is recorded at $534.4 billion in 2009. In comparison, sales of menswear reached $335.6 billion, which accounts for 32.5% of the industry’s revenues. The difference in sales revenues between genders has been a fact due to the nature reason. According to MarketLine report, the global women’s clothing industry is expected to exceed $621 billion in 201. Obviously, all clothing brand would focus more on womenswear in order to generate more sales.

Figure 2: Global apparel retail industry segmentation I:% share, by Source: Datamonitor

 

SWOT:

Strength:

1.Product line

- Topshop’s variety of collections with hit-the-trend styles

- Customers can make their choices at multiple price points for different styles and qualities

2.Accessibility

- The store coverage all over the country

- The internet website that attracts both domestic and international customers

3.Innovative services:

-Style Advisor guides customers to suitable products

-Topshop Café, Topshop Nail benefits customers with leisure

-Topshop To Go, Topshop Express as delivery services

4.Celebrities collaboration

- Partnership with iconic names as Kate Moss establishes brand image and gain reputation

Weakness:

1.Management.

-Numerous lines of products, large store space and a high number of staff which result in high cost

management

-Quality of customer service is not fully ensured due to high quantity of customers and transactions.

2. High level of diversity in products

-this causes over-whelming effect, which negatively affects traditional customers.

3. Website hard to navigate-the Topshop website does not offer cleardistinctions in sizes and categories. The websiterepresents the brand image to a new consumer.

Opportunities:

1.Target group:

Topshop targets young consumers, who are very fashion-cautious and are more willing to spend on

fashion more regularly.

2.Economic situation:

As the global economy is improving after the recession, consumer spending will be consequently

increasing.

Threats:

1. Strong established competition:

- High street leaders as H&M or Zara who already have a huge consumer base and significant

market share

2. Differences in fashion and brand beliefs

- overseas customers have different beliefs in brands and fashion, which requires Topshop to customize

products and consider proper promotion strategies

According to facts and analysis above, an expansion plan into one of Asian countries is feasible. In terms of population density, China and India are the two countries with highest population. The unique demography of this region is an opportunity that many investors would recognize.By the end of 2008, it is estimated that there are approximately 314 million children below the age of 14 in China. As the number of children in China increases day by day, level of consumption is believed to grow, especially in childrenswear. Moreover, demand from smaller cities in China is expected to increase with consumption rate even more than rates in large urban areas. (Clothing and Footwear:Trends, Developments and Prospects, October 2009 (www.euromonitor.com)

However, the culture of India is totally different from East Asia countries, which has effect on their clothing styles as well. Moreover, in East Asia region, customers are more adaptive to new trend and western-oriented in clothing. Therefore, the set of selected markets is narrowed within East Asia. Recent years recorded a poor sales performance of the Japanese clothing sector (euro), manufacturers are expected to emphasize more on diversified products and look for partnership between local and international designers in order to generate more sales. Thus, Japan is one of a suggested location for expansion. However, the consumption rate of Chinese is estimated to still increase and that by 2015, Chinese consumers will spend two and half times more than Japanese on clothing. As a result, China seems to be a more profitable country though it is one of the toughest markets to compete in.Another urban location which is considered as the capital of fashion in Asia is Hong Kong. The unique location and culture of development make Hong Kong become a commercial trading centre, which establishes most of brands in the world. In addition, as

Hong Kong is one of the most visited places in the world, there will be a large amount expected customers which vary from different countries.

In terms of economy, Asia obtains a competitive advantage which is a low price production hub for the whole clothing industry. China is considered as a manufacturer of all products in the world due to low-cost in production. However, though China still dominates the business, more businesses, including some Chinese brands, have switched their orders to lower-wage economies such as Cambodia and Vietnam, where garment factories are mushrooming. In fact, Vietnam has become the second-largest supplier of apparel to America(economist).

Technology plays an important role in clothing manufacturing. Asia owns another unique advantage, which is the emerging apparel sourcing. Recently, Asia has innovated new uses for bamboo in clothing and low energy techniques for manufacturing. (just-style).

Government policies with new adopted “living wages” regulations in all Asia countries have improved working conditions. This will increase customers’ awareness of a baseline of fair labor standards, which helps developing the reputation of brands. Though, there still exist areas of “grey economy” low-cost production that pay less attention to labor standards. (just-style)

H&M

The first H&M store was set up in Hong Kong in 2007. The parent company offers affordable fashion items, such as women’s and men’s clothing, childrenswear and accessories. The most significant activity of H&M in recent years is the collaboration plan with Versace brand and recently the partnership with David Beckham. H&M‘s most used advertising methods are outdoor banners, printed media. For instance, the big outdoor poster in Tik Lok Lane

In 2011, there were 11 H&M stores in Hong Kong, located in major shopping areas such as New Territories, Hong Kong Island and Kowloon.

H&M accounts for just 1% of apparel value sales, ranking sixth in the market with the major contributor being women’s outerwear. H&M enjoyed a 2% value share in clothing accessories, 3% in childrenswear and 3% in women’s outerwear during 2011 with its share continuously rising in the review period. Positioned as a high quality brand with its major strength of low and affordable price, H&M expects customers to make quick decisions when purchasing, which creates the scene of a low end market. In addition, H&M typically offer mid or end of season sales to clear remaining stock and to attract customers.

H&M is not introducing the internet retailing and concentrates on expanding its stores island-wide. Moreover, H&M focused on enhancing its product mix to include color cosmetics and handbags, which provides convenience and one-stop shopping place for customers.

NIKE Hong Kong Ltd

Nike Inc is headquartered near Beaverton, Oregon and owns the entire interest in Nike Hong Kong Ltd. The main strength of Nike is innovative thinking in product development, which mainly targets sportswear and casual wear.

Most of Nike’s factories are located in Asia, including such countries with low-cost in manufacturing as China, Taiwan, Vietnam, Thailand. However, due to the increase in production cost in China, Nike is planning to shift to other locations. Nike is also ranked top three companies of climate-friendly companies.

In 2011, men and women’s outerwear is recored at 0.6 % of its value share and a significant high 7.7% in children’s footwear. Nike Hong Kong Ltd consists of Nike, Converse, Umbro and Cole Haan. Each brand offers different types of products that are suitable for different customers. Nike and Umbro are focusing on professional sports, Converse targets youth and teenagers, Cole Hann is for leisure or casual wear of which products are regarded as high end type.

Mid or end of season sales are rarely offered in Nike’s stores. Most of their promotional activities are on TV, magazine and banners. Moreover, collaborating with international sports statue is one of their most globally recognized activity.

PEST Analysis:

Political:

Since Individual Travelling Scheme was passed in July 2003, which issues visa to people from 40 specific Mainland cities to stay in Hong Kong for a maximum of 7 days per visit, apparel retail sector in Hong Kong has enjoyed a big leap in sales. In 2011, the Tourism Board of Hong Kong reported an influx of 28 million mainland customers - a 24% increase from 2010 statistic with per capita spending on apparel recorded at HK$4000.

Shopping in Hong Kong remains appealing to Mainland consumers for three reasons: convenient travelling, better product quality, the appreciation of RMB over HK$ that makes Hong Kong’s goods relatively cheaper than Mainland’s, and the heavy import taxes imposed on international brands in Mainland.

Therefore, more brands have planned to launch high-end collections in Hong Kong especially Tin ShuiWai area, the favorite destination of Mainland shoppers due to its easy accessibility from Mainland; H&M, for example, opened its first store in Tin ShuiWaiin 2012.

As a result of the demand increase, apparel price level in Hong Kong will inevitably rise. Design will be tailored more to Mainlanders’ preference; simplified Chinese will be used more on marketing collages and in-store signage.

Economy:

Inflation:

Inflation is serious in Hong Kong and mainland China in 2011, with the inflation rate standing at 5.8% in Hong Kong during 2011. Inflation in mainland China and Hong Kong pushed up the production and operating costs of manufacturers. Therefore, it increased the average unit price of apparel.

A lot of brands locate their manufacturing factories in mainland China and distributing products in stores located in Hong Kong. This is due to the low labour cost and living standards in China. However, nowadays, inflation in both China and Hong Kong has

been seriously rising. Thus, many brands like H&M or Zara have shifted their production department to South East Asia countries like Thailand, Cambodia and Vietnam.

China‘s inflation rate is expected to drop down to 2.2% in 2013 (pwc). Inflation rate in Hong Kong is predicted to rise up to 3.75% in 2013 but the country’s economic growth would help slowing the rate down. (scmp) In terms of business, those figures have figured out clearer opportunities for investors. Nonetheless, the operating and production environments are still expected to be unfavorable and South East Asia countries would be a preferred option for Topshop.

Rental:Due to the geographical element of Hong Kong, businesses cannot require too large space for their stores and rental cost here, obviously, is significantly high. Moreover, prior to entering Hong Kong market, one important factor that any retailing business must pay attention to is that high street retail rentals are dependent on the consumption of foreign visitors, particularly people coming from mainland China. Consequently, any changes in tax regime in China would make significant effect on the local market in Hong Kong because it influences the number of visitors to Hong Kong while most people travel to Hong Kong for shopping purpose. However, the average retail rent in the traditional shopping area is expected to increase by 12% over the next 12 months. (gmid)

Social:

Ageing population:

Ageing Population Extended Elderly Apparel Markets

In June 2011, 13.2% of the total population in Hong Kong was over 65. The cencus department of Hong Kong estimated this figure to increase to 28% by 2039. Some brands have exploited this point, for example, Adidas has introduced a new apparel line which is specifically for 50s or above. The demand for elderly would rise up, nevertheless, promotions campaigns need to be diversified in order to gain their attention.

It is notable that most of those elderly only finish their primary education, which means they do not have much savings and highly-relied on government support. This leads to the increase in social burden, which negatively affects purchasing power of adults because social resources will be unequally

distributed. By 2039, it is predicted that 1,000 adults will have to take responsibility for 179 elderly.

Youth trend:

In recent years, more and more Mainland celebrities have been chosen to be the spokespersons of Hong Kong-based brands. Besides, with the massive effect of Korean media industry, Korean fashion is playing an important role in Hong Kong, which results in more teenagers and those in 20s or 30s would like to copy their icons’ styles.

Technology:

Online shopping has become a new trend for Hong Kong‘s clothing industry, including China. According to China Internet Network Information Center (CINNIC), the amount of online shopping transactions exceeded RMB $750

billion in 2011 involving 173 million online shoppers, which accounts for 64% of shoppers. Moreover, the emergence of two well-known shopping websites Taobao.com and G-market.com, which obtain low are threats to online shopping retailers. Therefore, competition will be keener in the near future with more brands entering the market and more different distribution

channels. Topshop is suggested to emphasize on developing online shopping technologies such as virtual fitting, video shopping in order to gain market share in this sector.

(Hongkong economy)

Business Strategies:

Mode of entry:

According to research data and market analysis above, the suggested entry strategy is franchising. This is

due to the unique market that Topshop is aiming, a central hub of Asia which does not provide much

natural resources. Moreover, all competitors in the same line of industry also applied this model. The

manufacturing factories should be located in South East Asia countries where Topshop can benefit from

low-cost labor and new rich apparel sourcing of the world.

Franchising is a marketing concept which should involve with one vital element. The mentioned factor

here is that major franchisers are required to acquire the ability to adapt their business to suit local taste

(, Héctor). The local service personnel are a vital differentiating factor when considering expansion plan.

At this point, it is notable that Hong Kong used to belong to Britain, which means the system of finance,

regulations and the business environment, to some extent, should be similar to Britain’s. As a Britain

business, this would be an advantage for Topshop’s expansion plan. Furthermore, Hong Kong employees

are adaptive people and there are a high number of employees working in this industry as commercial

trading is one of the key financial source for this island. This means Hong Kong employees have enough

experience and the supply of human resource is ensured, in terms of both quantity and quality.

Marketing strategies

Positioning:

Topshop’s products are a variety of collections with hit-the-trend styles. Thus, customers have

numerous choices in product lines, which appeal to a broader range of customers, including current and

potential customers. Moreover, customers can make their choices at multiple price points for different

styles and qualities. Thus, the possibility that a customer could choose an appropriate product for

themselves is extremely high. Topshop can be positioned as good-quality and affordable price products.

H&M and Zara are the two competitors of which positioned products are similar to Topshop.

Promotion:

In recent years, by utilizing the brand combining media culture and celebrities, Topshop has established

their brand image globally and stabilize their market position. As the very first business doing designer

collaborations, Topshop decided to do partnership with some of clothing industry‘s most iconic names

including Gwyneth Paltrow, Madonna and Beyonce. Thus, the effect of such activity should have had

positive effect on customers’ awareness of the brand. Still focusing on signing partnership with

celebrities who have significant influence on Hong Kong consumers is suggested for Topshop in order to

raise awareness and popularity of the brand in the region.

Furthermore, as youth is a majority of their target market, the permanent student discount also attracts

an important and potential segment of market. To attract this potential sector of customers, promotion

activities on local media should be taken into consideration.

Pricing:

In order to gain market share and awareness of customers, the appropriate pricing strategy is

suggested to be penetration pricing. This involves setting the prices of products relatively low

compared to other competitors.

Due to the high level of competition in Hong Kong retailing business, gaining market share is a

critical objective if Topshop wants to lead in the market. By applying penetration pricing,

Topshop might discourage the competition because of its low profit. Researching pricing

strategies of rivals would help figuring the penetration price.

Moreover, penetration pricing discourages competition because of its low profit. Besides, large-

scale production and effective marketing will produce substantial reductions in total costs. (ref)

Distribution:

In UK market, it is the accessibility Topshop provides that keeps customers close to them. Contributions

to the accessibility are the store coverage all over the country and the internet website which makes

shopping accessible to anyone including international customers. On the website, customers can

purchase key garments for the season and update the latest trends. In addition, Topshop offers podcasts

of new collection and behind the scene events, thus keeping up with the new technology and creating

good PR. This strength element is supposed to be enhanced when expanding in to Hong Kong due to the

emerging industry trend, which is e-shopping. In terms of internet retailing, one of the key factors that

contributes to Topshop’s success is believed to be innovative services, which are vital to the shopping

experience. Customers with different styles are geared with the Style Advisor service so that customers

could find their perfect fit. In order to improve convenience in shopping, Topshop introduced services

such as Topshop To Go (home delivery service) and Topshop Express (online services ensuring within

three-hour delivery).

Due to the mode of entry, which is franchising, a large store located in main shopping area of the island

is the most suitable option. Therefore, combining shopping activities with leisure by offering the service

as Topshop Nail and Topshop Café is highly recommended. The purpose of this mixture is to increase

customer satisfaction to the highest level.

Recommendations:

In this expansion campaign, it is suggested that marketing capabilities, which consists of strategic management and marketing literatures are the key factor to lead Topshop to positive performance. (Hunt and Morgan, 1996).

The business plan focuses on marketing strategies which are relevant to the fashion retailing sector. In practice, these elements are ideally combined in order to add value for end consumers. There are four contexts of marketing capability which should be individually examined:

(1) Customer service capability: involves with deliver quality service, quality of products and ability in handling customer complaints

(2) Store image differentiation: refers to the degree that a retailer's external store image and its merchandising image are unique

(3) External (market level) knowledge: the extent of understanding current/potential customers, competitors and industry trends.

(4) Promotional capability: defined as the level of effectiveness in differentiating store through promotions and advertising

Each of these areas of capability has been acknowledged as important to success in either general retailing (e.g. Dabholkar et aL, 1996; Sharma et aL, 2000; Wileman and Jary, 1997) and/or in fashion retailing (e.g. Deeter-Schmelz et aL, 2000). If Topshop could manage to develop its marketing capabilities, the potential expansion plan into clothing market of Hong Kong would become more feasible than ever.

Conclusion:

In conclusion, according to the analysis of Topshop clothing brand and the emerging economy of Hong Kong, which specifies in clothing market, expansion strategies come up with high probability of success though a competitive landscape for the business is upon Topshop.

However, due to unique advantages that the hub of Asia owns, the targeted market reveals its potential elements for Topshop to invest in. The political policies, economic factors, industry trend and social principles are believed to fit to Topshop’s strengths and objectives. As a leading fashion brand in UK, Topshop acquires potential factors to compete with giant rivals in Hong Kong and holds opportunities to expand into South East Asia, which is a more promising region.

References:

Clothing and Footwear:Trends, Developments and Prospects, October 2009 (www.euromonitor.com)

Global Clothing & Footwear: Unlocking Opportunity in a Challenging Operating Climate November 2010 (www.euromonitor.com)

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Rising costs in China are sending more buyers to South-East Asia Jun 2nd 2011 | BANGKOK, http://www.economist.com/node/18775499?zid=293&ah=e50f636873b42369614615ba3c16df4a

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