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River Island Business analysis essay example
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River Island Business analysis

Introduction

River Island was founded in 1948 by Bernard Lewis and brothers. Originally they were doing fruit and vegetable business. But 77 years later, they have achieved revenue of Ā£925.8 million in 2015. With the affordable price and its quick respond to fashion trends, River Island became the 21st best Big companies to work for in the UK. Nowadays, there are approximately 10,000 people working in the company and River Island is considered one of the most successful clothing retailers in the UK. River Island started internationalization from 1993. After almost 25 years of internationalization, now River Island has over 350 stores in the UK and other countries like United Arab Emirates, South Africa, and Sweden. Due to the success of their performance and internationalization, River Island has great potential to expand their market to other countries as well. In this report I will identify the potential opportunities and threats in domestic market Also there will be discussions and analysis about the how and where should be the target country for River Island to invest their retail chain. Future domestic growth potential and reasons why River Island should keep internationalizing

Social

From social perspective, there will be more opportunities for River Island to expand their market share in the UK. Based on the chart below, we can estimated that or the next 20 years around 30% of British population will be from 16-35 young adult age group, which are the main target customers of River Island. In the year of 2046, there will be approximately 23 million people that fit River Islandā€™s customer profile. The population growth brings great opportunities for River Island to get more customers.

However, there will be problems and challenges come along with the population growth and urbanization. Based on the data from ā€˜The statistics Portalā€™(2018), the degree of urbanization is increasing approximately 0.25% every year. Which means there will be a tremendous amount of young adults living in the city. But the problem is, the living cost in urban areas never goes down. Which means for River Island there will be a challenge in certain regions like London, people do not want to work for retail industry because of the low wage and high living costs.

Technological

From my personal perspective, technology plays a very role that will affect River Island in the future. With the development of different technologies, fast fashion is becoming ā€˜fasterā€™. Nowadays, machines that automate parts of the clothes making process. Companies like H&M and ZARA is introducing robot for knitting clothes already in 2018. In the future most of garment factories from fast fashion companies would most likely use machines and robots. Which means, River Island will be able to produce faster and cheaper. So they can put their latest products in both retail stores and online store faster.

When we talk about online store, there are rooms to improve to reach more customers. The E-commerce of River Island is underdeveloped comparing with their retail chain. Their online store now available in 5 languages and 5 currencies. Which means it is very difficult for them to reach customers from Asian countries like Japan and China, where majority cannot understand English properly. On the other hand, according to Neil Campbell (2017) ā€˜Cyber Security Is A Business Risk, Not Just An IT Problemā€™. Globally millions are spent because of global security of data breaches. River Island will most likely face the similar problem when it comes to dealing with hacking attack. Any kind of information disclosure will cause dramatic problems to both River Island and its customers. Investing cyber security will benefit both data protection and operational stability in the long run.

Envirnmental

Fashion consumers are more environmentally conscious than before especially in developed countries like the UK. People are expecting fast fashion industry to make a move, because companies like River Island their profits are mainly from high volume sales and low prices. In many countries, politicians are requiring companies to produce more environmental-friendly products, for example stop using certain harmful dyestuffs. However, unfortunately, at this moment in 2018 only a small amount of customers are willing to pay extra for the ā€˜greener products. Another fashion retailer Yoox now is publishing their sustainability reports to show their commitment to sustainability. Although in River Islandā€™s home page there are sections of social responsibility, there is not solid and up-to-date data to support their statement.

The other challenge is consumers are tend to buy a product that is made by ethical sources. This pushes prices going up, however, as long as River Island focus on CRM(Customer Relationship management), this will not effect the company as much as other bigger issues.

Economical

The market value of the UKā€™s fashion industry is 66 billion pounds. Base on the statistics, the fashion industry is huge and it will keep growing because of the income and population growth. In the year of 2018, the inflation rate of clothing and footwear is below zero (-1.1%), base on the data from ā€˜Trading Economicsā€™. Deflation (negative inflation rate) causes temporary decrease in demand, which results in higher unemployment rate (William, 1958).

In 2016, the turnover of exporting clothes was 9.2 billion USD and 34.4 billion USD was spent for importing. And a very big part of exporting and importing was from other European countries. However, Brexit will cause 11% of tariffs, which equivalent to Ā£1 billion more each year. As for River Island, it will be affected mainly by exporting their products to other EU countries, and importing the clothing from the country where it was manufactured.

Exchange rate and Economic growth plays a very important role for River Islandā€™s future growth. Since River Island has 285 suppliers in 2017, volatile exchange rate plays a serious role on operating profit. River Island must understand their operating exposures, and make quick reactions based on currency fluctuations and demand.

Political

Even though the decision of Brexit has made, but most of the new trade restrictions are still awaiting. However, there is a new report written by Grace(2017) saying that ā€œRestrictingĀ free movement will prevent access to top-tier talent and could slow overall UK economy, according to a study released by the Creative Industries Federation.ā€ Hence, the big part of fashion industry is creativity. And the UK government intends to reduce immigration to the UK within the European countries. Stopping free movement would cause serious problems for those ā€˜creative industriesā€™, which reply on ideas from different culture and background.

On the other hand, there will be some opportunities for River Island. It is for sure that the UK government will introduce tariffs to other EU countries. Which will cause big fast fashion companies have less competitive advantages, and there is a survey shows some companies will leave the UK, if the government cannot provide favorable political terms for them. Brexit will reduce competition for River Island, which provide them a easier path to expand their market share.

Legal

A business is always influenced by laws and regulations. Due to the large amount of employees working for River Island. One small changes in labour laws or common laws will have a huge impact on their business. National minimum wage rate is increasing every year. Because of that River Island has to spend a considerable amount of extra money for their 10,000 employees. Also there are other laws that are related to international trade and tariffs, which are required to compliance.

Ethical

From River Islandā€™s home page, they have a clear ethical policy. As their CEO Ben said they must strive to comply to the latest regulations in every country they trade in. They are also supporting electronic product recycling. However, vast majority of fast fashion companies are showing their passion of social and environmental responsibilities. And the biggest problem is water waste and pollution. The World Bank estimates around 20% of industrial water pollution was contributed by the treatment and dyeing textiles. River Island will be challenged by this issue because they represent high volume of production in fashion industry.

Porterā€™s Five Forces:

Bargaining power of suppliers MEDIUM

  • Large number of suppliers from many different countries
  • Suppliers cannot find themselves have a bargaining power, because the materials for clothing are the commodity available in most of countries
  • Most of suppliers prefer a long-term relationship with their buyer(s), which makes every party trying to maintain prices.

Bargaining power of buyers LOW

  • River Island has a big market share in the UK, so it is unlikely for them to compromise for individuals by accepting bargaining
  • River Islandā€™s products are generally cheap, and there are sales campaign at least once a month
  • From the consumerā€™s perspective it is extremely uncommon to bargain for fast fashion products

Rivalry among competitors MEDIUM

  • There are many bigger fast fashion companies in the UK market.
  • Industry is growing slowly
  • High brand image
  • Large amount of loyal customers
  • Better reputation for example comparing to H&M

Threat of substitutes. HIGH

  • Fast fashion products do not have much functions but the trendy design. It could be easily replaced by anther new trend.
  • Since most of fast fashion products are similar from different companies, many customers will choose the cheapest option.
  • When the weather is bad, there are more chances for customers to choose other products like winter jackets or raincoats

Threat of new entry. LOW

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  • Apprael retail industry has been growing modestly in the past decade, which reduces its attractiveness to new entrepreneurs
  • For new startup companies especially the ones do not have enough investment in the beginning. Fast fashion retail chains suffer from higher expenses because of new trading laws, demand of ethical business and competitive market.
  • River Island has much more experince than any of new entrants, which makes River Land having higher productivity
  • The whole supply chain of fast fashion industry is very hard to build and it takes years to make it running smoothly

A potential country for River Island to enter and why

The decline in barriers to the flow of good, products, capital and services drive companies to Internationalize. And technological development especially communication, transportation and information technologies also makes companies to go aboard more easily.
Base on the data I have collected and personal experience of myself living in the country for over 19 years, I would suggest River Island go enter Chinese market as their next target market. I will give a full argument about why should River Island choose China

Social-cultural

China is one of the largest country in the world, which has the biggest population in the world. All those factors lead to an unique business environment in China.

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