Global Strategy High Fashion Fights Recession Essay

1. Using the Five Forces Framework, how would you characterize the argument in the luxury goods effort?2. why was discounting looked discomfit upon by attention peers, all of which were differentiated or focus competitors?3. What would be the likely challenges in acclivitous markets for luxury goods firms?OVERVIEWPumping out fancy clothing, handbags, jewelry, perfumes, and watches, the high end of the fashion industryotherwise known as the luxury goods industryhad a challenging time in the Great quoin. In 2008, banks were falling go forth and right, unemployment rates sky high, and consumer confidence at an all-time measly. In 2009, total luxury goods industry sales fell by 20%. The high-end fashion industry was dominated by the epic Three LVMH (with more than than 50 brands such(prenominal) as Louis Vuitton handbags, Mot Hennessy liquor, Christian Dior cosmetics, TAG Heuer watches, and Bulgari jewelry), Gucci Group (with nine brands such as Gucci handbags, Yves Saint Laur ent clothing, and Sergio Rossi shoes), and Burberry (famous for raincoats and handbags). Next were a number of more specialized players such as major mogul of menswear Ermenegildo Zegna and nance of womenswear Christian Lacroix. By definition, high fashion means high harms. An informal code of bear on (or norm) permeates the industry no discount, no coupons, no price wars pleasein theory at least. precisely during the Great Recession many a(prenominal) firms cut pricesbut quietly. The only firm that stood quaver solid was the industry leader LVMH, which claimed that it never puts its products on sales at a discount. The bloodbath in the Great Recession forced the weaker players such as Christian Lacroix and Escada to file for bankruptcy. But it made stronger players suchas LVMH plane more formidable. They benefitted from an established pattern in high fashion the flight to quality. In other words, when great deal have less money, they spend it on the best. As the recession became worse, many middle-class customers in economically depressed, developed economies began to hunt for survey instead of triviality and showing off.In addition to managing interfirm rivalry, how to manage the volatile and capricious customers was tricky. As the recession became worse, many middle-class customers in economically depressed, developed economies began to hunt for value instead of triviality and showing off. Emerging markets, especially mainland China, offered luxury goods firms the best hope turn the put down of the world was bleak. Since 2008, while global sales declined, Chinese consumption (both at home and traveling) had been growing in the midst of 20% and 30%. In 2009, China surpassed the United States to become the worlds second-largest market. In 2011, China rocketed ahead of Japan for the first time as the worlds champion consumer of luxury goods scatter $12.6 billion to command a 28% global market share.1. Using the Five Forces framework, how would you characterize the contention in the luxury goods industry?Bargaining power of supplier very scurvyBargaining power of customer medium but low in big brands like LVMH Threat of new entrants low (potential entrants were not dying to enter when incumbents were struggling) Threat of substitutes very low (strong brand and high quality) Competition among quick firms very high (need to deal with in hallow to survive) The high-end fashion industry was dominated by the Big Three LVMH, Gucci Group, and Burberry. Next were a number of more specialized players such as king of menswear Ermenegildo Zegna and queen of womenswear Christian Lacroix. As these firms were relatively differentiated, the degree of rivalry between firms is unlikely to be very high. As practices like discounting and price wars were frowned upon during pre-recession times, competition was likely to have been understated, and not overt. However, during the Great Recession, when some luxury goods firms began discounting, c ompetition may have increased. In developed countries,the threat of entry of potential entry of new competitors was low during the recession, while the threat of entry was high in Eurasian countries like China, where the market for luxury goods expanded.2. Why was discounting looked down upon by industry peers, all of which were differentiated or focus competitors? High fashion relies on its high process to maintain its image and demand. The informal code of conduct that governs the high fashion industry dictates no discount, no coupons, and no price wars between competitors. Discounting, a strategy that is frequently used in the low-end fashion industry, is generally viewed as dangerous and poisonous in high fashion, not only to the periodic firm that uses it, but also to the image and margin of the whole world of high fashion. During the Great Recession, for instance, many firms cut pricesbut did so quietly. At Tiffany jewelry stores, salespeople advised customers about diamond r ing price reductions, but otherwise there was no publicity. Gucci and Richemont offloaded their excess inventory to discount websites. The only firm that stood rock solid was the industry leader LVMH, which claimed that it never puts its products on sales at a discount. When the going gets tough, it destroys descent instead. This strategy benefitted LMVH during the recession, when cash-strapped buyers, following a well-established pattern in high fashion, opted to spend money on a few, classic items of high quality, rather than many lower-priced pieces. LMVHs avoidance of discounts actually gained market share for the troupe during the recession, and sales grew from $24 billion in 2008 to $29 billion in 2011.3. What would be the likely challenges in emerging markets for luxury goods firms? Some of the issues that could arise for luxury firms entering emerging markets are issues with costs problematical in transporting the luxury items into emerging market countries, restrictive tr affic rights, high import taxes and other challenges with regional governments that can complicate logistics. Adopting or investing in a stronger supply and distribution channels would be important. Also, institutional factors, and possible the liability of its foreignness will have to be strongly considered if the firm plans to snuff it smoothly in an emerging market. Emerging markets, especially China, offer luxury goods firms the best hope while the rest of the world recovers from the recession. As many firms want to enter these markets, competitionwill probably be high, and the luxury goods companies will have to operate differently from their operations in the developed markets. As cultures and get patterns might differ across countries, firms would need to develop a thorough understanding of their customers in order to succeed in emerging markets.