Br yan Kaetz | 6 October 2020LE AD 701 - From A goras to Digita l Markets: Fundamentals of Business Design

Professor Jeremy Kobus | Fal l 2020

Strategic Analysis Project, Part Two

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Contents

3*clickable topicsclick page numbers throughout document to return to contents

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Pol it ica l

Economic

Socio-Cultura l

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Technologica l

Legal

Environmental

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Polit

ical

political“Brex i t is negat i ve. I t w i l l create prob lems for bus inesses. In our case, our b iggest concern is ta lent . We have a b ig percentage of our team who are f rom the European Union and other count r ies . T hat’ s what makes London such a great c i t y. Brex i t was def in i te l y a move towards more cont ro ls in terms of immigrat ion. T hat w i l l af fect the ab i l i t y to at t ract ta lent .”

BREXITWith great uncer ta int y of future involvement with the EU, UK fashion companies are on unsure footing. Far fetch is a lso headquar tered in London.

EMPLOYMENT POLICIESCountr ies around the wor ld regulate employment in var ied ways . G lobal companies are chal lenged to ensure proper pol icy on a wor ldwide bas is .

E ASE OF DOING BUSINESSimi lar ly, bus iness regulat ions var y great ly f rom countr y-to-countr y.

RISE OF CHINESE LUXURYPaired with a r ise in Chinese consumption of luxur y goods and increased contro l of Hong Kong , Far fetch wi l l be chal lenged to fo l low a l l bus iness guide l ines in China . China ranked 31/191 versus Hong Kong’s 3/191 in Ease of Doing Business .

TA X POLICIESA s witnessed with the US-China trade war, tax & trade pol icy can change in an instant and var ies countr y-to-countr y. This a lso has great ef fects with legal and economic factors .

JOSE NE VESCEO and Chairman, Far fetch

T he major i t y of appare l, tex t i les, and s imi lar manufactur ing bus inesses are included in L ist 3 or L ist 4A to be tar i f fed up to 25% of landed cost s f rom China to the US. On Sept . 15, the Wor ld Trade Organizat ion found the United States breached g loba l t rad ing ru les by imposing mult ib i l l ion-dol lar tar i f f s in Trump’s t rade war w i th China.

DAVID SHEPARDSONReuters

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COVID -19The pandemic s ignif icantly impacted the luxur y fashion industr y - f rom great ly-reduced foot traf f ic in many stores to fewer tour ists , yet a s ignif icant increase in luxur y e-commerce.

LUXURY TRAVEL RE VENUELuxur y revenues from tour ism spending tends to make up a large percentage of these brands’ tota l revenues . With dismal trave l forecasts , th is wi l l continue to decl ine.

COMPETITORSAmazon (amongst others) is gett ing into the luxuxr y e-commerce game with their Luxur y Stores marketplace.

GLOBAL WE ALTHThe number of high net-wor th indiv iduals (HNWIs) across the globe is increas ing. With

Econ

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EconomicCHANGE IN LUXURY CONSUMERS

With more and more luxur y bus iness moving to China, there are many potentia l chal lenges for companies doing bus iness in the countr y.

A s Bei j ing cracks down on the sovere ignt y of Hong Kong , fashion companies have more and more reason to open storefronts in mainland China .

“ In China, we have had a ver y successf u l bus iness for the past t wo year s . We saw, and to be honest JD.com too, the oppor tun i t y to doub le down because qu i te c lear l y we have the propos i t ion for the Chinese customer which works .”

JOSE NE VESCEO and Chairman, Far fetch

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socio-culturalSoci

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alCHINESE CONSUMERSThe Chinese culture wi l l continue to impact global trends , especia l ly for the luxur y goods industr y. A s this culture focuses more on the col lect ive and is ga in ing an increased wealth , luxur y companies need to p ivot their bus iness models to the vast ly d if ferent Chinese market . From Al ibaba’s T-mal l to streaming apps and payment options , luxur y brands must embrace the digita l future not only to mainta in prof itabi l i t y, but in order to sur v ive.

COVID -19The current pandemic has truly changed the face of the global marketplace. This s ituat ion evolves day-to-day with no complete end in s ight .

SOCIAL AT TITUDE OF LUXURYIn t imes of prosper it y, luxur y is f launted, shown of f, and emblazoned with logos . Fol lowing the pandemic , luxur y consumers may want to be quieter about their purchases and opt for more subtle, personal luxur ies .

GROWING OLDER POPUL ATIONA s l i fe expectancy increases global ly, so does the aging populat ion . Older consumers tend to be more conser vat ive in their va lues and spending , but they do have the money to spend and are loyal to brands they know.

POPUL ATION GROW THWhile the aging populat ion is growing , so is the tota l populat ion overa l l . Despite a growing populat ion, the rate of grow th has been steadi ly decl in ing from it s h ighest at over 2% in the 1960s and is projected to stagnate by the end of the centur y.

% of urban households in China, by annual household d isposable income

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technological

FASTER SUPPLY CHAINSTechnolog y and consumer demand are increas ing the speed from production to end consumer - he l lo, 2-day shipping! To mainta in competit iveness , f i rms continue to improve, advance, and speed up.

E- COMMERCEOnline shopping has advanced from physica l only to mult ichannel , omnichannel , and beyond. New technologies develop dai ly to improve e-commerce exper iences . Fol lowing the star t of the pandemic , d igita l markets have grown exponentia l ly and wi l l continue to do so.

AR + VRLuxur y brands , especia l ly those with phys ica l locat ions , ut i l ize advancing technologies such as v ir tual and augmented rea l it ies to improve their customers’ exper iences in-store and onl ine in steadi ly growing formats .

AIAr tif ic ia l inte l l igence and automation are speeding data analy t ics and reducing t ime needed for prev ious ly labor-dr iven jobs . A s ser v ice-focused companies r ise, product-focused companies are continual ly replacing workforce with robotics .

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legallega

lVARIED COUNTRY REGUL ATIONSA f irm l ike Far fetch that does bus iness on a global sca le must ensure to fo l low a l l loca l and nat ional regulat ions , cross ing ever y t and dott ing ever y i .

INTELLEC TUAL PROPERT YThe focus (or scapegoat) of var ious trade wars and repurcuss ions , IP is an impor tant cons iderat ion for companies des ir ing to protect their competit ive advantages .

CONSUMER PROTEC TIONFrom health and safet y to countr y-of-or igin and data pr ivacy, legal ramif icat ions var y. Onl ine-based companies l ike Far fetch must ensure the protect ion of not only their consumers’ phys ica l ly, but a lso any digita l assets they have acquired.

EMPLOYMENT L AWSL abor laws may be str ict in Western, f i r st-wor ld countr ies , but developing areas such as par ts of A sia and the Middle East st i l l have l i t t le labor regulat ion . Companies have to be aware of each and ever y law.

INCLUSION EFFORTSA s the US faces racia l reckoning , g lobal communit ies demand more and more inclus ive ef for ts f rom companies . Legal ramif icat ions var y from countr y-to-countr y.

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environmentalen

viro

nmen

tal CSR + ENVIRONMENTAL PRAC TICESConsumer demand increas ingly suppor ts

greater env ironmental ly-minded ef for ts f rom a company perspective. From waste to emiss ions , luxur y brands especia l ly have to va l idate the ef fects they leave on the wor ld and do what they can to reduce that footpr int , including ef for ts such as:

• CARBON EMISSIONS REDUC TION

• RENEWABLE ENERGY

• ETHICAL L ABOR

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References

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Blaz y te, A . (2020, August 20). Retai l sa les va lue of personal luxur y market in China from 2015 to 2018 with a forecast for 2025. [Digita l image]. Stat ista . Retr ieved October 03, 2020, f rom http://media-publ icat ions .bcg. com/france/2019BCGTencent _ Luxur y_ Digita l _ Playbook .pdf.Buchholz , K . (2019, May 21). Chinese Consumers Dr ive Global Luxur y Market Grow th [Digita l image]. Stat ista . Retr ieved October 05, 2020, f rom https://0-www-stat ista-com. l ibrar y.scad.edu/char t / 18076/chinas-luxur y-market-share- and-market-share-grow th/Ho, J . , Poh, F. , & Z ipser, D. (2019, December 18). China consumer repor t 2020: The many faces of the Chinese consumer. McKinsey & Company. https://www.mckinsey.com/featured-ins ights/china/china-consumer-repor t- 2020-the-many-faces-of-the-chinese-consumer#.Milas , C . (2019, September 5). How Brexit uncer ta int y is hur t ing the UK economy. The Conversat ion . https:// theconversat ion .com/how-brexit-uncer ta int y-is-hur t ing-the-uk-economy-in-four-char ts-122987.Roser, M . (2019, November). Future Populat ion Grow th. Our Wor ld in Data . https://our wor ld indata .org/future- populat ion-grow th.Shepardson, D. (2020, September 25). Some 3 ,500 U. S . Companies Sue O ver Trump-Imposed Chinese Tar if f s . Reuters . h t t p s : //w w w. a g r i c u l t u r e . c o m /m a r ke t s /n e w s w i r e /s o m e-3 5 0 0-u s-c o m p a n i e s-s u e-o v e r-t r u m p-i m p o s e d-c h i n e s e- tar i f f s .The Wor ld Bank Group. (2020). Ease of Doing Business rankings . Doing Business: Measur ing Business Regulat ions . ht tps://www.doingbusiness .org/en/rankings .Tobin , L . (2019, March 13). How wi l l Brexit impact the UK fashion industr y? Evening Standard. https://www.standard. co.uk / l i fest y le/esmagazine/how-wi l l-brexit-impact-the-uk-fashion-industr y-a3931611 .html .Wil l iams-Grut , M . (2017, June 23). Far fetch CEO on Brexit : ‘Our b iggest concern is ta lent .’ Yahoo! News . https:// uk .news .yahoo.com/far fetch-ceo-brexit-apos-biggest-060200091.html .York , E. (2020, September 18). Track ing the Economic Impact of U. S . Tar i f f s and Retal iator y Actions . Tax Foundation. Retr ieved October 1 , 2020 from https://tax foundation.org/tar i f f s-trump-trade-war/#timel ine.