Impact of External Environment Factors Have on a Fashion Business
Net-A-Porter is a site launched in June 2000, offering over 800 of the world’s most well-known luxury fashion online (Net-A-Porter, 2018). Net-A-Porter not only delivers high-quality products through multi-channel seamless shopping experience, but also champions unprecedented customer service, with global express shipping to more than 170 countries (Net-A-Porter, 2018).
The prosperity of luxury market undoubtedly enhances the success for Net-A-Porter, especially in recent years. According to Luxury daily (2018), based on global survey, the Luxury Institute predicts that more than 28% of affluent consumers will spend more on luxuries in the following years. However, luxury market can be easily affected by economic downturns. In the research of McKinsey (2009), it is shown that noticeable decline in sales of global luxury market always exist in years of economic downturns compare to the other years. Danziger (2007) also pointed out that in general, consumers become reluctant to purchase luxury products and more sensitive to prices in the economic downturns, especially those in the mature markets.
Apart from economic downturns, Net-A-Porter also faces some other external challenges. The luxury institution (2018) pointed out that the political turmoil both at home and abroad can result in macro-economic shifts. Political turmoil threatens the world order and the economies both at home and abroad. Political instability can affect how investments are made and in turn affect the disposable income on which retail relies, especially for luxury retailers, which need confident affluent consumers to grow business. However, the political and economic uncertainty leads to less confident affluent consumers feeling insecure in their wealth (The insider view, 2018). In addition, the growing cultural awareness of income inequality also lead wealthy people retreat and keep away from luxury indulgences (The insider view 2018). The insider view (2018) also revealed that some luxury companies are not willing to changes according to customers’ needs, as a result, they may get more challenging to convince customers why they should buy a luxury product versus mass market.
Despite of the challenges from external market, Net-A-Porter still gain undoubtedly success in online luxury retail market. According to Lazauskas (2015), apart from target customers, who are international high-net-worth woman, Net-A-Porter also appeals to broad age-range of customers. Barton (2018) mentioned that since Net-A-Porter launched in 2000, it has attracted 2.5 million hits per month from viewers and consumers, especially female. It has expanded into the US and Asia in 2009 to extend brand reach.
Net-A-Porter have integrated social web elements suitable for both e-communications and e-commerce like blogs, videos, discussion forums and other interactive platforms in their e-Boutiques to enable interaction and exchanges in the shopping environment. These have been done in the form of editorial e-retail that provides rich content, entertainment, interactivity as well as commerce. This level of participation promotes a sense of belonging and enhances affinity between the shoppers and the website while increasing purchase probability Okonkwo (2010).
2. Current Structure of the Company
In October 2015, Yoox Net-A-Porter Group was created after the merger between Yoox Group and The Net-A-Porter Group. Currently, Yoox Net-A-Porter Group has offices and operations in the United States, Europe, Middle East, Japan, China and Hong Kong and delivers to more than 180 countries around the world. It has 8 distribution centres, 7 digital production facilities, 10 local offices, and 11 customer care centres, 11 operational languages and more than 5,200 pick-up and drop-off points in Continental Europe. Yoox Net-A-Porter Group offers online flagship stores and multi brand online store, offering their latest collection on the Internet and a wide range of services, as well as high-precision global customer logistics and international web marketing (Yoox Net-A-Porter, 2018). This structure helps this group succeed in attracting a broad range of customers worldwide.
Innovation and customer-friendly environment lead Net-A-Porter to the premier luxury online fashion site, and it is still attracting customers worldwide through its unique business model combining both content and commerce. Net-A-Porter spread its influence by releasing magazine such as the Edit and Porter magazine, to inspire customers read on various devices and shop while on the go (Net-A-Porter, 2018). Apart from magazine, Net-A-Porter has its own main shopping platform. Through the survey, it can be seen that customers shopped in Net-A-Porter are most women, with board-age range, average age of whom is 38. The average incomes of its customers are 119 thousand pounds and 25% have a household income of more than 300 thousand pound per year, which means Net-A-Porter has a relatively solid customer base. It is proven by the survey that 82% of its customer visit Net-A-Porter at least once a week and make a purchase every 10 days on average, with their average spend on fashion is 6,800 pounds per year. In general, the customers of Net-A-Porter are classic, sophisticated, contemporary and elegant women (Net-A-Porter, 2018).
3. External Environment Analysis
Fashion retailers are easily affected by forces beyond the control of the company because they all operate in a macro-environment. In this section, PESTEL analysis will be carried out to discuss what are likely to have an impact upon Net-A-Porter over the next 5 years. It is vital for Net-A-Porter to analyse the external environment regularly, no matter how difficult it is to anticipate change through these unpredictable elements (McCormick et al., 2014).
3.1 Political factor
Since many fashion retailers operate globally, it is essential for them to understand the impact of political factor within the countries (Kotler et al., 2010). Khan (2013) also agreed that the supply chain of retailers can be indirectly impacted by political issues. Sternquist (1998) revealed that since political frameworks vary significantly in different countries, retail operations, consumer demand and exit costs need to be decided according to different political factors in those countries.
Bajpai and Adhikari (2018) believe that government regulation is often regarded as the most significant factor influencing retailer entry methods to a market, such as limit expansion for retailers from government restrictions in many developing and emerging markets, as well as restrictions about foreign direct investment. Recently, the government has put great force not only on the economy but also on the consumer in the UK. In addition, increasing strict operating has been implemented on many fashion retailers because of the current austerity measures which are in an effort to reduce debt (McCormick et al., 2014). However, according to Brown (2017), the UK has become one of the cheapest luxury markets in the world after Brexit, leading to a shift in tourist spending power to the country, which brings immediate benefit to the luxury market.
3.2 Economic factor
The economic issues such as the size of economy, GDP, disposable income, classification of economy and other elements can play an essential role in influencing fashion retailing, for example, the structure of the retail market in terms of retail formats and more crucially, the purchasing power of consumers in that market (McCormick et al., 2014).In turn, this is likely to affect the type of fashion product customers will be stimulated to buy.
David (2018) revealed that based on the data that collected from people in households earning £100,000 or more a year from YouGov’s Affluent Perspective study, affluent households in the UK have increased their purchasing of luxury items at a 13 percentage point jump, growing from 56% in 2017 to 69% this year. This increase outpaces many other countries in the study, which is good news for Net-A-Porter.
However, according to David (2018), YouGov’s research also suggests a decline of 3 percentage points on 2017, that only 13% of affluent households in the United Kingdom are confident in the global economy and the UK economy. For Net-A-Porter, a relatively high confidence in economy is a better benchmark of market.
3.3 Societal factor
Newman and Foxall (2003) revealed that retailers may need to make an adaption about their ranges to attract various customers and changing needs, because the impacts of societal elements are crucial to success. However, Solomon (2009) mentioned that it is a complex area that is difficult to manage because the behaviours of consumers are changing every day. The following factors are currently important in influencing consumer behaviour in fashion retail.
3.3.1 Fashion awareness and celebrity models:
Recently, retailers need to rise to meet the rapidly-changing need of consumers who become more aware of fashion trends and to sell more products to customers by becoming more cost-effectively. This phenomenon would be attributed to increased obsession about celebrity as social media grows at the same time (Doyle et al., 2006).
The impact following this societal trend has led to the demand for replacing the slow supply chains driven by manufacturer into increasingly-faster supply chains and has ultimately offered customers more power (Christopher et al., 2004). A great deal effort has been put by retailers to improve supply-chain relationships, with some retailers owning their own supply, which enabled them to use this as competitive advantage (McCormick et al., 2014).
3.3.2 Changes in shopping habits:
After the economic downturn in 2008, UK consumers have changed from being high income with less time to low income with less time, which is one of the reason that fashion retail shift towards supermarket fashion. In addition, online fashion retailing has opened a new way for shopping, which has been made easier than ever for the consumer (McCormick et al., 2014).
In general, half of the total social media users follow the brands they like on social media (De Vries et al., 2012). Consequently, brands are spending billions of money for global marketing on social networking sites (De Vries et al., 2012). This phenomenon has boosted competition between brands on social media and has further lead customer to generate, own and even co-direct brandings (Heil, Lehmann, & Stremersch, 2010). Certainly, in company’s level, under the changing global economy, advances in technology and digital communications can get a competitive advantage (Dhaoui, 2014).
3.4 Technological factor
It is clearly that new forms of technology has already changed the shopping way of consumers and many customers enjoy using websites and mobile commerce as part of their shopping habits (Chocarro et al., 2013). Tsai and Men (2013) also agree on this idea, pointing out that social media has changed not only the way brand content is created, but also how product being distributed and consumed. This trend has lead customers replaced the right of marketers to manage brand image. According to Mintel (2014), 41% of all Internet users had used a smartphone and 35% a tablet to purchase goods online in the last year. This has led to demand for retailer websites that are enabled for smartphone and Apple or iPads, and additionally for the creation of retailer applications.
However, Tsai and Men (2013) also revealed that many consumers now want retailers to have quick reaction, which leads many fashion retailers to concern about the difficulty of reacting strategically to customers need with the rapidity of developments in technology.
3.5 Environmental factor
According to Lo and Ha-Brookshire (2018), more and more consumers demand for sustainable supply chain and luxury products. In fact, luxury brands were criticized for their unsustainable way to select and use raw materials. Luxury brand’ images are even more negatively affected by consumers’ boycotting toward them (Davies, Lee, & Ahonkhai, 2011). Following these events, some luxury brands committed to become more sustainability and environmental-friendly, such as using efficient energy resources, adopting recycling practices and fur-free (Guercini & Ranfagni, 2013; Vij, 2016). These situations show that sustainability has become the biggest focus goal in the process of rebuilding luxury brands’ reputations and values, as a result, luxury retailers must also pay attention to sustainability and create sustainable supply chain to meet the demands of today’s consumers (Tutty, 2016).
3.6 Legal factor
It could be a barrier that all retailers have to adhere to the laws in terms of business legislation of the country where they operate. It is shown that the biggest legal issue in the fashion-retail industry has been the issue of copyright of designs and counterfeit goods, which is caused by the lack of regulation in China. However, although this continues to be a difficult problem worldwide for fashion retailers to manage, China has introduced new legislation to help solve this severe problem and it has improved the situation in some way (McCormick et al., 2014).
Retail strategies such as flagship store development may be impacted and hindered by the strict planning legislation in the UK (McCormick et al., 2014).
4. Future direction for the company
4.1. Develop Website Design and Social Media Communication
As mentioned in the PESTEL analysis, it is of great importance for online fashion retailers to develop their websites, because more and more consumers are turning to online retailers. According to Rowley (2009), the awareness of the significance of a well-designed online website has appeared over the last few years. Siddiqui et al. (2003) suggested that web page design, interactivity, information of fashion trends and consistency across the websites are concerned by consumers. Merrilees and Miller (2005) also agreed on this view in the context of an online department store. They conclude that apart from web atmospherics and navigability, users also need emotional brand associations, such as excitement or authenticity. Net-A-Porter has done perfect job on functional assistance on website and was the pioneer to take the path of inline retail, it should focus more on such emotional brand associations to improve its future performance. Okonkwo (2010) suggested that in order to build emotional brand associations, online fashion retailers must understand how to represent a luxury brand’s core essence online from its own website. In other words, it is about how to bring about the effective translation of the brand’s fundamental identity, personality and image on its website.
Another suggestion for Net-A-Porter is to enhance its social media. Net-A-Porter has already created the universe of the brand at every touch-point, such as influencing the representation of the brand on the social web including blogs, social networks, and magazines. However, Lo and Ha-Brookshire (2018) mentioned that customer engagement can cause negative effect when consumers share negative opinions that could change the way others think of the brands. Einwiller and Steilen (2015) also agreed with that when consumers are more motivated to complain about the experience directly on social media when they are not satisfied. According to Okonkwo (2010) concluded that it is time for luxury retailers to make a critical assessment of the new opportunities brought about by the social web and how they may be applied to the luxury business. Therefore, it can build positive reputations through responding negative information from customers in order to reduce the possibility of involving in reputation risk (Kim, Ferrin, & Rao, 2008). In conclusion, Net-A-Porter must pay attention not only to positive but also negative consumer feedback as this information could be shared by thousands or even millions over a very short time period.
Earlier this year, Net-a-Porter launched The Net Set, a Facebook-style social network based on style preferences focused on trending fashion. Net-A-Porter should develop more user to user communities, enhance their marketing program and understand strengthen relations with clients.
4.2 Meet the Customers’ Needs of Sustainability
As the focus on sustainability from customers mentioned in the last section, Net-A-Porter should align with shifting customer values of sustainability. Responsible customers now expect sustainability from luxury fashion brands and retailers, and thus these companies need to respond to inquiries of corporate sustainability (Bendell & Kleanthous, 2007). Lo and Ha-Brookshire (2018) also believe that luxury retailers definitely need to reduce long-term business risks by investing in incorporating sustainability goals strategically. Unsustainable business practices could be detrimental to luxury fashion brands because a tremendous amount of people worldwide would know there scandals and their customers normally have high social status (Janssen et al., 2014; Kleanthous, 2011). Therefore, Net-A-Porter must prioritize corporate sustainability in coming years because such negative reports could greatly harm its reputation.
In conclusion, as the literature suggested, corporate sustainability communication must also be considered by Net-A-Porter, and because of the uniquely difference between luxury fashion retailers and mass fashion retailers, the behaviour of followers of luxury and mass fashion brands may differ and thus vary their responses to corporate sustainability communication presented on various kinds of platforms.
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