Business Model and Strategy Assessment
Based on Porter’s Five Forces Model, the footwear industry has a high intensity of competitive rivalry. The reason is that in this market, there are a number of wholesalers and retailers, and many of which are well-known and occupy the major market share. In addition, due to the low entry barriers and the affordable capital investments, the force of threat from new entrants is high. Threat from substitutes is low, resulting from the fact that shoes are considered necessities. Customers are more sensitive to price, resulting in all companies reducing price in order to cater and attract consumers. Also, people are fond of chasing fashion and comparing a shoe with all substitutive shoes. Consequently, the bargaining power of buyers is high in this industry. All suppliers produce homogeneous products, leading to a low switching cost to purchasers; thus the bargaining power of suppliers is low. According to dynamic industry analysis, customers, products, and technologies dimensions are growing. The world population will increase about 43% to 10 billion in 2050 compared to 7 billion in 2013 (Exhibit 1). With the growth of world population, the demand of life necessities will increase, so the footwear industry will grow as well. At the same time, as a result of people standards of living becoming higher and higher, the shoe companies should improve the level of technology to meet the new needs of customers. Now, healthy lifestyle is a mainstream idea. However, a majority of incumbent firms pay attention to producing high quality and low cost products, rather than lifestyle products. Therefore, lifestyle brands have a greater competitive advantage to disrupt the current market, helping companies achieve success. In summary, although Porter’s Five Forces Model expresses the footwear industry as unattractive, based on dynamic industry analysis, the footwear industry consistently maintains a huge market that might attract a great deal of potential new entrants. Accordingly, both incumbent and new firms should find some ‘market holes’ to capture market share and enhance profits, such as designing novel shoes that are good for health.
Brown Shoe has adopts an “Unbundled” business model, which includes three fundamental types of businesses: customer relationship, product innovation, and infrastructure. These three entities should be separated to avoid conflicts. This company puts customers first, and it provides a broad-range of products, and operates a variety of e-commerce websites in order to improve customers’ shopping experience. Moreover, Brown Shoe focuses on creating and innovating comfort and high quality shoes. Furthermore, it not only owns some factories in China, but it also has a network of global third-party manufacturers. Customer Segments, Customer Relationship, and Channels: All ages of people can buy products in real stores and the company’s E-commerce website. The company uses both owned and partner channels. Value Propositions: This company’s mission is “to inspire people to feel good and live better…feet first” (Brown Shoe Company, 2012, P.10). Key Activities and Key Partners: This company designs, produces, and delivers footwear for all kinds of people. It has a number of retailer and wholesaler partners. A major portion of its infrastructure is acquired from third-parties. Cost Structure and Revenue Streams: Cost-driven. The objective of this company is generating profits with a wide- range of products. Vera Bradley has adopts the “Long Tail” business model, which pays attention to niche markets. This business model requires a strong platform to innovate and create novelty products, in order to attract customers, leading to high demand and revenue. Customer Segments, Customer Relationship, and Channels: Vera Bradley aims at providing novelty and fashionable products for women. It uses a “Dynamic Multi-Channel Distribution Model” throughout its direct and indirect channels. Moreover, the real and online stores allow people to select and buy products easily. Value Propositions: This brand vision is “accessible luxury that inspires a casual, fun, and family-oriented lifestyle” (Vera Bradley, 2013, P.6). Key Activities and Key Partners: This company designs, makes, and sells complementarily accessory products for women. It has a good relationship with third-party retailers and manufacturers. Cost Structure and Revenue Streams: Value-driven. The company would like to achieve high profit by premium price. Yue Yuen has adopts an “Unbundled” business model as well. The Pou Sheng Company, its subsidiary, is a retailer in China, and is responsible for dealing with customer relationships. Its market research department collects information from customers to help brand partners innovate and improve products. Yue Yuen manufactures branded athletic and casual footwear. Customer Segments, Customer Relationship, and Channels: The main market segment of Yue Yuen is athletic and casual footwear; thus, sports enthusiasts are its core customers. The company mainly depends on direct retail stores to capture market share. Value Propositions: The products quality of the company has resulted in significant consumer trust. “The Group complies to ‘put employees first’ as a promised action” (Yue Yuen Industrial (Holdings) Limited, 2012, P.188). Key Activities and Key Partners: The company makes and sells a broad range of international sport brands footwear. Brand name customers, joint venture companies, and suppliers are its key partners. Cost Structure and Revenue Streams: Cost-driven. This company wants to increase market share by providing a variety of sportswear, resulting in a high sales volume. Similarities and Differences: First, all these companies have same key activities, which include producing and selling footwear and accessories. Additionally, their similar point of value proposition is putting customers and employees fist, but the difference is that Brown Shoe and Yue Yuen are interested in providing high-quality products to customers, and Vera Bradley is effective at creating stylish and premium commodities for customers. What is more, these three companies have totally different customer segments. Brown Shoe targets all age groups; Vera Bradley aims at women, and Yue Yuen keeps a watchful eye on sports fans. Furthermore, in the aspect of channel, both Brown Shoe and Vera Bradley sell goods in real and online store through direct and indirect distribution channels. Yue Yuen mainly uses direct retail store to sell shoes. Finally, Brown Shoe and Yue Yuen are cost-driven and want to improve profits via a broad-range of products. On the contrary, Vera Bradley is value-driven through innovating premium products to achieve high profits.
Brown Shoe utilizes multi-corporate strategies. First, it promotes organic growth through the opening of new facilities. In the next fiscal year, the company expects to open approximately 55 new stores in the US. Then, a global footprint strategy drives the company to open 26 stores in China and plans to open five new retail stores in 2013. In addition, Brown Shoe wants to collaborate with Hongguo International Holdings Limited, a joint venture partner, to add about 22 stores in 2013 (Brown Shoe Company, 2012, P.11-12). Furthermore, this company makes use of the acquisition of related companies to achieve a horizontal diversification structure in order to increase its market share. In 2010, Brown Shoe Company acquired the remaining 50 percent interest of Edelman Shoe Company, which is a leading fashionable footwear designer. In 2011, the company acquired a leading athletic footwear designer and manufacturer–American Sporting Goods Corporation. However, it sold AND 1 in 2011 and Avia and Nevadors in 2013, in order to pay down debt. Vera Bradley mainly expands its retail sale in the United States by opening new stores. The company plans to open roughly 20 new stores annually during each of the next five fiscal years (Vera Bradley, 2013, P.10). To grab global market share, Vera Bradley sells products through 15 department store locations and an E-commerce website in Japan (Vera Bradley, 2013, P.6). Moreover, this company made a strategic alliance with Von Maur in 2012. Beginning on July 10, customers could buy Vera Bradley’s products through Von Maur, a company that provides excellent customer service and creates a more pleasant shopping environment, so this cooperation helped it expand multi-distribution channels. In addition, the company founded the Vera Bradley Foundation for BreastCancer in 1998, and contributed about $1 million to support breast cancer research (Vera Bradley, 2013, P.36). Although philanthropy is different from its primary business, this unrelated service can improve its reputation with an added benefit of increasing sale volumes. Yue Yuen is the world’s largest manufacturer of branded athletic and casual footwear, so its services are all over the word, such as Asia, USA, Europe, Canada, and so on. Moreover, considering retailing activities, the company focuses on China, and has 3,659 directly-operated stores and 2,276 sub distributors (Yue Yuen Industrial (Holdings) Limited, 2012, P.13). In 2003, with the purpose of expanding related horizontal diversification product lines, Yue Yuen acquired Pro Kingtex, a manufacturer and retailer of sportswear, and formed a joint venture with Hua Jian Industrial Holdings Company Limited, a designer and manufacturer of ladies’ shoes. Furthermore, the acquisition of Zhanxin and Pengda sportswear retailers allowed the company to strengthen and consolidate the retail distribution channels in China. What is more, Yue Yuen pays attention to engaging in vertical integration by acquiring some supply chain services companies, for example, Luen Thai and LINE. “The vertical integration and horizontal diversification business model enhances the company’s visibility into customer demand and synchronizes its supply chains to help it control costs to achieve higher margins” (Jia Chu, Paper 1).
Brown Shoe involves three key market segments to service all walks of life: Family, Healthy Living and Contemporary Fashion brands. These markets segments provide a broad offering of products at a variety of price points through Omni-Channel distributions to accomplish a differentiation strategy. Moreover, the company highly invests in advertising so as to boost brand recognition and create brand differentiation. In 2012, the investment of advertising and marketing support was about $21.5 million (Brown Shoe Company, 2012). Furthermore, Brown Shoe built a customer loyalty program, which is its members can earn points toward savings certificates for qualifying purchases at its Famous Footwear stores. This program improves the possibility that customers will choose to purchase goods in Brown Shoe instead of other companies the first time. The data indicated that approximately 66% of net sales in the Famous Footwear stores were made from the reward members in 2012 (Brown Shoe Company, 2012). Unfortunately, the differentiation strategy generated a high variable cost that leads to a low operating margin for this company (Exhibit 2&3). The company’s product lines are too diverse to manage. Based on its 2012 annual report, the wholesale operation’s net sales accounted for about 50% of the net sales generated from retail segments. Additionally, the healthy living market should be intensely attended, because it fills current customer preferences. Therefore, narrowing the scope of business may improve the company’s profitability, such as giving up part of the wholesale businesses. Vera Bradley carries out a niche strategy by providing stylish complementary products for women to make their life distinctive and cheerful. Moreover, Vera Bradley advocated a visual merchandising strategy, which is using homey decorations to create stores that have a friendly feeling of home. This distinctive customer shopping experience encourages customers to visit again and purchase more (Jia Chu, Paper 1). Furthermore, this company positions its brand as a lifestyle brand emphasizing high quality, vibrant styling, and functional design, all of which highly match the contemporary consumer ideal. At the same time, Vera Bradley releases new patterned products and funny advertisings frequently in order to keep the brand fresh. By doing this, it promotes customers to purchase over and over again. In addition, Vera Bradley has both international and domestic manufacturing factories. This strategy helps the company save costs substantially. “Meanwhile, domestic factories help Vera Bradley adapt to the fluctuations in the market demand and consumer preferences quickly. Also, combining in-house manufacturing and outsourcing makes its suppliers’ power lower” (Jia Chu, Paper 1). As a result, a lower cost brings a higher operating margin (Exhibit 3). Yue Yuen exploits a cost leadership strategy by putting forward “a proactive supply chain model, which shifts the company from an essentially domestic manufacturing plant to a global sourcing platform” (Jia Chu, Paper 1). Integrating and acquisition supply chain departments allow it to successfully increase “flexibility and accuracy of inventory management. In fiscal year 2013, inventories accounted for only 18% of total assets”, so this reduce a great deal of cost (Jia Chu, Paper 1). Moreover, “from helping brand name customers design, produce, and sell products, Yue Yuen has the market power to manipulate selling and general administrative expenses” (Jia Chu, Paper 1). Also, the company has minimal advertising costs. Furthermore, this low cost structure allows the company to help its brand name customers offer all kinds of products at a relatively low price, in order to increase sale volumes. As a result, the company will maintain the leadership role in the market, because of the cost-efficient business model.
Brown Shoe Company should adjust its differentiation strategy so as to gain the competitive advantage and improve profit its margin. Vera Bradley achieves success in the niche market by focusing on providing complementary products to accessorize a woman’s life. Yue Yuen benefits from its vertical integration business model that contributes to a low-cost and high-profitability performance. 1
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