Subject: Evaluation of French Connection Group by Applying SWOT Method
This report refers to our recent discussion regarding the feasibility analysis on taking over French Connection Group to expand your retail and franchise stores and to accelerate roll-out of your e-commerce platform. As requested, we have prepared a memorandum regarding the evaluation of French Connection Group and the feasibility assessment of the combination for your reference.
Evaluation of French Connection Group from Market Aspects
Since your company undertook a successful flotation on the London Stock Exchange in March 2010, SuperGroup has achieved rapid growth in business and strong financial performance. However, there are some weaknesses and potential threads worth your attention. First, as your managers have realized that your company’s products and designs show so much attention to one specific customer group that it is difficult for your company to scatter the operation risks and to broaden your future profits in other customer groups. Second, it is difficult for your company to support too fast growth and expansion by using current existing infrastructure including IT system, merchandising, sourcing and supply chain processes, and so on. Also, too fast expansion would bring the management problems in business effective running and products’ quality assurance. Third, there are so many operating models, like franchisee, license, distributor, and agent that it is hard to manage and control these suppliers. For example, it is hard to guarantee their marketing strategy following to your company’s international marketing strategy. It is difficult to ensure the quality of your clothing and to banish the counterfeit from all the stores. Forth, your managers may not be able to monitor effectively the risks of the law complications for your suppliers are scattered in so many countries.
With an aim to manager these risks and to implement your future business development, combination with another company would be a practical way. The target company we recommend is French Connection Group PLC, referred as “French Connection” for short. French Connection is a famous wholesaler and retailer of its own in-house clothing and accessories designs. It has two strong brands: one is the youth-oriented FCUK and the other is high-end Nicole Farhi brand with targeting a richer and older, yet still fashion-conscious market, and the two brands are both supported by the company’s international retail networks and franchise and concessions networks. In order to present a comparatively completed and clear assessment of French Connection, we would try to analyze French Connection from its operating market aspect and itself own running aspect by applying SWOT analysis method.
The main products of French Connection are clothing and accessories, and from the aspects of clothing and accessories market, there are some strengths, weaknesses, opportunities and threads worth your attention.
Strengths: For clothing market, first, it is easier to distinguish the customer group one from another than other markets and industries, like IT, food, cars, and etc. The easy distinctions would help companies to settle their product positions and to achieve their business success, because a clear product position would lead a company to focus main attention on its customers and to do the specific marketing activities to attract these customers’ attention, which would help to raise the sales. At the same time, it can cultivate its own customers and build their loyalty by its beliefs in a long-term period, which would contribute to the profits, too. Second, clothing and accessories are easier for transportation for its does not require severe conditions for storage like food or special conveyances with large volume or weapons like energy and machines. Sometimes, clothing and accessories does not even need transportation at all for the designs can be transmitted to the manufactures and the products can be produced on the other side of the world. These would help the company to bring its products to the whole world effectively at a lower cost with less time and to bring more profits back.
Weaknesses: These are some important weaknesses in clothing and accessories market which cannot be neglected. The first one is the seasonal characteristics. This weakness would increase the company’s operating risks with overstock and occupying too much working capital, which would increase the company’s cost and weaken its profitability. The second one is the counterfeit problem. Since one of the most valuable assets for clothing and accessories is the designs, and the more famous the brand, the more possible the designs being imitated. These imitations would weaken the appearance of the brand and increase the difficulties in quality assurances, which would undermine the sales and the future development in the end. The third weakness is the dependence on infrastructure. For example, the success of retail stores are closely connected with the allocation of the stores, and the more convenient the traffic, the more successful the store would be. Other relevant aspects include but not restricted to the decorations of emporiums, the surrounding environment of the emporiums like hotels, restaurants and so on, the development of local economy and even the safety and the crime rate.
Opportunities: In spite of all these weaknesses mentioned above, there are some opportunities we are pleased to refer to. One is the more comfortable and friendly material for clothing. Since the financial crisis in 2008, it is calling for a more sustainable and greener way to develop the world. In clothing industry, it is calling for the more comfortable and friendly material for clothing. The research and development of the material is as important as the designs, and a clearer and more energy-saving production process is also expected. The success of either of them would inspire the clothing industry into a new era. Another opportunity is the operating model. With the development of the economy and management, it is provided increasingly more operating models for the development of clothing market, from the traditional self-owned retail stores model to distributors, from franchisees to license. By these operating models, it can help clothing industry to broaden its market and enhance its influence with less costs or working capitals.
Threads: The most possible potential threads for the clothing industry are management and legality risks, and increasing costs. Management risks are mainly from the application of too many operating models, because some suppliers under some operating models are not fully controlled by parent companies, and sometimes they would not fully implement the policies or quality assurance as required by the parent companies, which would bring the risks and undermine the interests of the parent companies. Legality risks are mainly from international operating strategy. Since parent companies set many supplier and manufactures abroad, it is different for the parent companies to effectively control and monitor their operation and business transactions to completely comply with the local laws and regulations. For increasing costs thread, since the financial crisis happened in 2008, the costs of clothing industry have been increasing, and with continuous effects from financial crisis, the material costs would be expected to keep increasing. Increasing costs would reduce the sales and decrease the profits of the clothing industry.
As a specific clothing and accessories company, French Connection gets its own particular characteristics, of which the analysis has been prepared below from its own operation aspects.
Strengths: There are three strengths worthy being mentioned: clear customer groups, specific marketing strategy and international suppliers. For clear customer groups, French Connection has two brands as FCUK and Farhi, and each brand is for particular customer group, like FCUK is for the youth and Farhi is designed for the affluent older. As mentioned above, the clear separation in customer groups would contribute to the success of the company a lot. For specific marketing strategy, French Connection draws people’s attention by the critical advertisements, like “FCUK ME”, and it turns out that the strategy is very successful. French Connection also has broad international suppliers with totaling about 100 stores in the United Kingdom, Canada and the United States and managers a wider franchise and concessions network spreading its fashions into more than 1500 areas worldwide. All of these would be the strengths for French Connection to compete with its components.
Weaknesses: Compared with its components, French Connection just finished its losing period and began to make profits this year, and it does not have enough money to support its quick international expansion. At the same time, its e-commerce platform and information system needs to be improved so as to provide customers a more convenient way to shop and managers a more effective way to run the international business. All of these are need to be improved to build its core competitiveness.
Opportunities: By using the existing broad international suppliers, French Connection could build and expand its reputation with its well-designed clothing and accessories with unique personalities in the near future. It can enhance the market share and position in the existing market at first. When the influence has been widely spread and the reputation has been largely recognized, it can continue its international expansion with lower costs and fewer risks.
Threads: The most severe potential threads French Connection should pay attention to in the near future are the management and legality risks in the existing international suppliers. Since French Connection has built very large retail networks and franchise and concessions networks, it has to make sure that all these retailers and concessions is running according to its beholding beliefs and principles, because the beliefs and principles are its souls and core competitiveness. At the same time, French Connection has to monitor its legality risks for the laws and regulations in different countries and areas are different, and the violation of these laws and regulations would make the company pay a lot.