How Luxury Brands Were Affected by Recession Essay
How Luxury Brands Were Affected by Recession
Bovis homes group PLC, a leading UK house builder, had to review its corporate plans as a result of the recession and major cuts in government spending on building projects. Gives the high level of change in economic and political environments, is there any point in corporate planning? Justify your answer with reference to the house building industry and/or other organisations or industries you know that have been affected by such changes. (40 marks) Post 2007, global economy has been reeling under recession.
Recessionary pressure began with United States economy slowing down; however it has spread globally affecting all countries in some way or the other. Income level, employment have been affected badly. Consumption levels have gone down drastically, which affected consumer dependant countries, such as the UK. Traditionally, luxury brands have not been affected by recession so much, since they have been catering to the higher end class, which is not so affected by the economic downturn. However, in recent past, the luxury has been catering to the inspirational customers, whose consumption patterns are affected due to economic recession.
During times like these, companies usually dependant on corporate planning. Some of them in order to grow, others – to survive. Corporate planning is the process of drawing up detailed action plans to achieve an organization’s goals and objectives, taking into account the resources of the organization and the environment within which it operates. Music and books retailer HMV Group became a company that was heavily affected by recession in 2008, as it had to close 60 UK stores in the next 12 months in response to declining sales.
The 60 stores set to close represent roughly 10% of the group’s UK High Street presence, which comprises 285 HMV shops and 312 Waterstone’s outlets. The massive store closure of outlets was an attempt to survive, as they has been hammered by competition from digital downloads as well as supermarkets and online retailers undercutting it on price. As well as the store closures, HMV said it would implement other cost-cutting measures that would save it a further ? 10m per year.
However HMV’s corporate planning hasn’t proved to be successful, as it turns out HMV’s share price has declined steadily throughout 2010, and the latest drop brings its cumulative fall to more than 75% over the last 13 months. Also the firm’s shares dropped 20% even further after it revealed the sales data, and admitted it was having trouble meeting the terms of a bank loan. As it turns out, HMV’s retail analyst didn’t expected music and DVD market falling that fast, despite their attempts to change their sales mix, offering iPods and live music in order to stay in the market.
HMV is repeating Woolworths and Zavvi collapse during the recession. Fox described “extremely difficult” trading conditions with total sales of physical CDs and DVDs down 10% and 8% respectively against the same six-month period last year. Without a new console to fire the imagination the picture was even worse in video games where sales plunged 12%, a fall that was on top of the 30% slump seen in 2009. “It is not that value is moving from physical to the digital sales – it is just that value is being lost,” said Fox. Therefore the HMV is facing severe competition and tough times due to recession.
Their corporate planning proved to be unsuccessful, they are trying to deal with already dead market, which don’t have any prerequisites to grow in the future. Poundland is complitely different business, with different approach and corporate plan, as they grow during the recession periods. They are aimed at consumer who requires value. Some of that is driven by the economy or the economic conditions, some of that is because the people have low disposable incomes and traditionally that’s been the case, and they have needed to seek value. During tough economic conditions, that was always the case.
When US recession just took place, in 2008, poundland started to grow using external growth. At christmas 2008, when Woolworth post-administration 600 stores became available, poundland took 70 of those over three years. Big success from the very beginning was due to , very talented property team, who use a network of agents so they are are constantly searching for new opportunities of expansion. A number of other opportunities have arisen over the years as well and they have been able to convert those quite quickly because they had a new store opening team and a refurbishment programme, which really is about pie-cutting.
So there’s a process. The average around 60 stores a year now, so over one a week, which I think is testament to the quality of the team, the sourcing of the stores and the continual improvement in the performance of the business, which of course helps finance those opportunities. In the recession – or difficult economic periods, all decisions needs to be discussed and implemented using professional team, which will make your business distinguish from arising competition. In the conclusion I would like to say that recession is not true for every business.
As we have seen above, poundland did well during the recession period, as they targeting those on low-incomes and those, who willing to save, however a situation in a luxury industry differs: The wealthy are not much affected by economic downturn and to use luxury goods is a kind of addiction; it isn’t easy to change the lifestyle even if personal income dropped. The Geneva motor show 2013 is happening right now. Rolls Royce is selling better than they did last year, as is Lamborghini.
The Middle East, Russia do not seem to be feeling the crunch for the time being. The general feeling is that desire for the super luxury brands remains high but purchases are being delayed. Lamborghini always under produce and have enough orders to remain keep production going for a long time whilst mass to mid luxury car factories are laying off workers, that is the trend that works in the luxury sector. However, the middle-class luxury brands will be heavily affected due to concept that was stated above with an example of poundland.
Surely some of them could be richer during the trouble times, but most are struggling and haven’t the mind to spend freely money for luxury items as before. The wealthy never stop spending, they just change what they spend their money on. For example companies like Hermes, Alfred Dunhill, Vacheron Constatine, and Botega Veneta are designed to be recession proof. Marc Jacobs and Chanel on the other hand will feel the pain. As stated above its all about client base and how corporate plan was developed and implemented.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 17 February 2017
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