Fast Fashion in Asia Pacific
Discuss about the Industrial Organization and Economic Factors.
Billabong international Ltd is a leading stake wear and Surwear Company, and one of Australia’s iconic brands. From humble beginnings on the Gold coast in 1973, it has advanced through international diversification, expansion and acquisition to become a leading international surf wear grown its commitment to the international board sports industry through athlete sponsorship, and management and support of industry bodies (Deresky 2010, pp. 45).
Fast fashion brand are well-known for quick reaction to shifts in trends and managing product life cycles that are frequently measured in only weeks. The fashion market in japan is shrinking, but China’s is rising. There is an intense on the competition in china; however, the country is close to japan. The potential of the fashion market in china is huge, with more affluent users willing to spend up on the Australian fashions. However, the china market is more sophisticated than many anticipate. In the current year’s big names such as H&M and Zara were reported to have mislabeled their merchandise or failed to meet required colour-brightness standards. Hong Kong, however, expects fast fashion will continue to be a fast-growing market on the mainland for a long time in spite the prospect that more users, particular in the first-tier cities, may turn to other alternatives for better exclusivity and quality (Bartle 2011, pp. 17).
Through company’s processes, there was acquisition of new brands and retail outlets so as to move beyond the wholesale business. The company acquired the von zipper, an eyewear brand and hard good brand element in 2001 (Lasserre 2017, pp.134). In 2004, the company acquired kustom surf shoe brand. The following year the company acquired Nixon Inc. which was a brand of watch and accessories in the board sports market (Galla 2015, pp.163).
Billabong Company decided to use direct operations in international operations in order to improve marketing and promotion of their products (Millward 1995, pp.7). Direct operation also helped the company to gain higher margin income instead of royalty payments the company was getting before. Billabong facilitated an efficient market expansion in diversification of its product line. The company facilitated this through management information system, quality control, financial oversight and economies of scale through product sourcing (McHenry and Welch 2018, pp.95). The company improved its working staff, employed account managers and in-store merchandisers to oversee in-store presentation and commissioned sales persons were made direct employees of billabong with regular pay with sales incentives (Beverland 2018, pp.149).
Company Processes and Acquisitions
In 2013, the firm was in series trouble. After a couple of years of poor results, Billabong international lost $859.5 million last financial year (Beverland 2018, pp.148). It stock price had tumbled from once high of about $18 to a mere 40%. Billabong risked going bankrupt before a bail out by an American investment group Oak tree, providing a $386 million debt and equity rescue package last September.
The following are the situation of the billabong in the Asia pacific; eComm undeveloped, rapid decline in Australia dollar impacting profit margins, Japan soft due to the warm winter. One of the actions of the billabong is that it moved it multiband team to Burleigh Heads headquarters for better integration with brands and installed novel leadership. The other action was investigating to drive RVCA growth. Also, it continued rationalisation of store fleet and aggressive procedure to improve margins. The other action was it continued to drive yield and cost efficiencies and finally creating the organisation for Omni-channel execution. The main progression of the company growth of the big three brand sales comprised: 47.6% for RVCA, 4.2% for billabong and 2.8% for Element (Schipper 2017, pp.104).
The following are billabong global brand initiatives supported by global platforms such as Omni channel, global sourcing, distribution and logistics and finally the concept of the user. With the regard to the Omni channel implementation, the following is what the company has accomplished to date; built DTC technology team, repatriated all 13 websites, launched billabong surf report App, selected and invested in a global Omni-platform and finally selected vendor for Omni-planning and allocation.
The targets benefits of the Omni channel implementation was direct to consumer to 30% of mono-brands sales, margin expansion, four time inventory turn, comp store sales lift and eComm revenue from $25M to $100m annually.
The company was able to use the global sourcing implementation as one of the turnaround around on the Asian market (Bartle 2011, pp. 19). The following is what the company has accomplished up to date: established novel global sourcing organization and BV social compliance audit. The company has been able to restructure the Asia office and revised the Quality assurance annual. It has also moved more production outside the china and updated the vendor profiles for all the preferred factories. Billabong has been able to narrow preferred vendor by more than 50% and also executed novel vendor seminars, and transitioned vendors to new strategic planning procedure. Finally, the company has been able to complete standard operating procedures for production in Asia.
Direct Operations for International Expansion
The target benefits of the global sourcing was to lower COGs to advance margin, increase consistency, quality and compliance through strong vendor partnerships, and advanced on-time deliveries and speed to market.
Another strategy is distribution and logistics implementation which comprises the following; global redesign of distribution and logistics network, vendor workshops completed in Hong Kong. Company aligned on global standard for warehouse management systems and health check for regional DC completed. The company selected third party logistics provider APL logistics and opened first consolidation center based out of china. The above strategy had the following targeted benefits such as increased speed to the market, improved inventory turns and visibility, and $10m in distribution and logistics annualized savings at maturity.
The polycentric company is host-country focused. Top management of such firm assumes that host-nation cultures are much different and the foreigners are hard to comprehend and local individuals know what is best for them. The polycentric predisposed that parent firm permits its overseas subsidiaries to operates on its own.
Billabong, as a multinational corporation can also be thought as regiocentrism as the firm is less focused on a specific nations than any other parts globally, across which it attempt to capitalise on the cultural, regulatory, economic and regulatory similarities. A regiocentrism firm can focus on one or more regions internationally (Deresky 2010, pp. 51). Regional centres are warranted in the parts which are subject to economic integration such as ASEAN due to integrated parts will exhibit market regulations in addition to probable homogenisation of user preferences.
The geocentric phase, the firms design its functions on a global basis. It views the complete world as probable market and attempt to reduce the prominence of national limits. Marketing and the other operatives are conjoined and coordinated across the national markets. Promotions campaigns are developed globally to a project uniform to an appearance of the firm and its products.
Increasing demand for the product and immediate success of the product made them to name the company and added labels in the shorts in 1974 (Millward 1995, pp.9). The company had developed a device logo to create a recognizable representation of the firm. The company started sponsoring the world final surfing contest in 1984. By then the company was expanding into international markets. The company started exporting products to japan, New Zealand and United States (Millward 1995, pp.7).
The company had a popular growth of brand and product line expansion. This required new product facilities since the existing one had been expanded severally. Billabong constructed a 45000 square-foot factory and showroom with a special design. At this point new products attracted crossover board sport enthusiasts in snowboarding and skateboarding (Segabinazzi, Schau, Nique and Akaka 2016, pp.99).
Challenges and Turnaround Initiatives
Through direct international operations the company improved its marketing and promoted its products (Deresky 2010, pp. 55). This led to higher incomes instead of royalty payments it was receiving before. With management information systems, quality control, financial oversight and economies of scale through central product sourcing the company expanded its market and diversified its product line. The company also improved its work force by employing in-store merchandisers, qualified account managers and commissioned sales persons. The company paid the employees well with regular pay and offered the some sales incentives (Bogdanova and Horbel, 2015, pp79). Most of the company’s licensee sourcing originated with it, in order to reduce cost, insure timely delivery, steady quality and to make it flexible with the changes of the market conditions. There was establishment of direct distribution facilities in New South Wales and victoria, Australia (Bogdanova and Horbel, 2015, pp79).
The next move of the billabong company was to extend its international operations to japan which was the fourth largest market for surf wear (Cavusgil, Knight, Riesenberger, Rammal and Rose 2014, pp. 130). The company was planning to capture a larger part of the Japanese market than there was in licensee operations. In 2001, the company started its operations in japan with their headquarters in Osaka and set their sales in Tokyo (Nakane, Otsuji and Armour 2015 pp.66).
The company bought two apparel and accessories companies, element and von zipper in USA. Von zipper established itself as an upcoming brand and specialized in sunglasses. Element was one of the leading brands of skateboarding apparel and accessories in the world. These new acquisitions of the company contributed to an increase in the share price to over A$5.50.
The sales of the company increased to A$ 380.2 million in 2001. This was 68% higher than the previous year and 15% higher than the expected. The company’s net profit increased to A$ 42.1 million, which was 12.6% higher than the expected. This was as a result of greater impact of direct operations of the company on the revenue. There was an increased in the sales of Australia and Asia at the rate of 26% to A$ 118.8 million, in north America there was an increase of 50% of sales to A$ 82.1 million. The company expected the sales growth rate of 15% in Asia/ Australia and 25% in Europe and North America in 2002. The company also expected to double the number of sales in USA during that year as a result of increased demand for beachwear and pacific sun wear clothing.
Global Brand Initiatives Supported by Global Platforms
The company maintained its commitment to surfing by sponsoring events and athletes. The company introduced a new surfing event in 2001, known as the billabong odyssey (Cooley 2014, pp.171). This event challenged surfers to a three-year search for the major waves worldwide, especially, for the never-before surfed 100-foot wave (Ormrod 2015, pp.282). The aim of this project was to extend the project Neptune, an expedition to a surf break 100 miles off the coast of San Diego. The international renowned surfers were invited to participate in the event and planned eight expeditions of four to six surfers. The surfer who rode biggest each year was offered a prize of A$1000 per foot of face eight. Any surfer who could ride a 100-foot wave was given a prize of A$ 500000 (Ormrod 2015, pp.282).
The success or the failure of the business is determined by the market mix. When the business is making a marketing plan, a market mix is a very important element. Billabong international company mostly used marketing mix in their marketing plan. The company diversified their products, whereby there positioning strategy was high price, high quality, and fashionable products. When the company offered quality products, it gained the satisfaction of their customers. The company was internationally known for its wave logo and sponsorship of international events and professional surfing (Lasserre 2017, pp.132).
Taking this step has made the company to gain international markets and become a prestige and status symbol for its target market (Deresky 2010, pp. 57). The use of positioning of the products was the element in its marketing mixes which contributed to its survival and continued high sales for a long period (Ormrod 2015, pp.282). The company has a well-known and trusted brand, meeting customer demand and positioning itself has contributed to increased sales.
The promotion mix in the company is very strong which has reinforced and highlighted the product and the image of the company. The company used a combination of promotional magazines, flyers, interactive website, personal in store selling and creation more public relation activities like sponsorship of supporting events and athlete using their product (IMAGE 2015, pp.24). This created a big strong brand images among its industry and also helped to promote their brands in the international market.
The company was using a method called competition-based pricing where it sets its prices at the same level to that of its competitors to make sure that their customers does not wish to buy the cheaper products. In order to avoid creating image of less prestigious products, the company rarely uses prices which are below market value (Karim 2014, pp.66).
Company Strategies for Growth and Expansion
There are various methods used by the company to ensure that their product reaches the market place. The company used wholesalers in their 100 countries to ensure that their products reach retailers. The company assumed selected distribution network where the product is only available in field surf shops (Tan 2017).
The Nixon watch company and cult skate brand element caused dire consequences for the parent firm. This step pushed the company to peak valuation of $US3.45 billion in 2007 (Paugam, André, Philippe, and Harfouche 2016, pp.89). This caused serious problems in the acquisition strategy. The company later sold off Nixonin order to fight for its life. The one-time market mammoth led to closures of stores, growth of debts and staff layoffs.
Among the stores of the company, 158 of them which are 75% of their suppliers and 15% of its European staff have gone (Galla 2015, pp.163). This caused a 386 million refinancing deal with Oaktree capital management LP and center bridge partners LP. This was the hardest time in the company’s history. There was also a downturn in the surf wear market in quicksilver. This resulted to a loss of $ 32 million. A surf wear retailer, pacific sun wear in California was hit equally hard (Highton 2014, pp.55).
The company heavily invested in their own retail stores which positively affected the operations of the company. It combined retail and real estate which made them an interesting offer for capital investors (Tan 2017, pp.117). Through retail the company was able to control their product and present them in stores and give them strong geographical reach. But their brand equity weakened and left them horribly exposing them to inconsistent nature of fashion.
The surfers have gradually deserted the fashion offerings of billabong, quicksilver and rip curl. Incentives have become less in non-surfing consumers than it has ever happened. They have assumed the traditional surf aesthetic on offer. It appears that the surfing big companies are suffering from a generation strain. This means that the customers that were buying this product 0 years ago are still buying and they are now parent of children who does not want to look exactly like their parents. The company had not yet also addressed the issue of big people where they had no cloth to fit their size (Karim 2014, pp.66).
This led to a decline in sales by 13.5%and an annual loss of $773m, which was three times the size of its market capitalization of $229m (Laderman 2014, pp.132). It got worse and their once-ubiquitous surf wear brand became worthless. This caused crisis in the company. The core business of billabong deteriorated for years, which was followed by massive challenges. It became even worse when it was hard to see a youth wearing a product from billabong. These problems resulted from customer indifference and a long-term shift away from surf inspirec fashions. There are also other problems resulted from over-price acquisitions. Some of the companies have failed to adapt to the changes of consumer demands and more classy and fashion forward customers (Payne 2014, pp.46).
Billabong as a Multinational Corporation
Professional surfing also caused a lot of trouble in the company. It mostly relied on their corporate backing. Scaled back sponsorship deals and the implications have become the cause of disappearance of billabong (Kühr 2011, pp.89). The company has heavily invested on the sport and the whole profession circuit would just die if they pulled out. There was other homegrown companies label like mambo, which originally garnered a cult demand with a series of iconic t-shirt designs that attracted the Australian taste.
More companies have come up with the same or even more improved products than the existing. There is a wave of smaller and fashion-forward independent surf brands have surfaced (Payne 2014, pp.46). Online retailers and department stores which targets youth like Zara, H&M and Topshop have created a lot of competition in the industry.
Conclusion
Billabong Company started as a small family business and has grown to an international company. The business started growing and they opened many branches worldwide and their annual sales started increasing. The company stopped renewing their license to produce and sell their apparel. In the surf wear industry billabong was rated among the top brands in many surf shops. The company used direct operations in their market expansion in order to improve marketing and promotion of their products, which helped them gain higher margin income instead of royalty payments they were receiving before. The company directly controlled their businesses in other countries where licenses were operating previously.
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