Executive summary Barneys is planning to extend the target market by embracing budget fashionistas as well as current target customers who are fashion connoisseurs with a high disposable income and cutting-edge taste. It is because, according to Spending Pulse, Sales of luxury goods fell 27. 6% in December 2009 compared with December 2008 including credit cards and cash.
The pullback in luxury spending due to the deteriorating economy brought about a sharp slowdown and a torrent of extraordinary markdowns last year. The competitors including Bergdorf Goodman, Saks Fifth Avenue, and Neiman Marcus have been saddled with excess inventories and double-digit sales decrease. In order to do extend target market, Barneys will increase the amount of contemporary, accessory and Co-op merchandise up to 60% of whole inventory in two years, which can draw fashion-oriented customers with limited budget.The primary marketing objective is to accomplish sales increase by 3% compared with sales of $780 million for 2008 keeping profit margins of 50% or more, and a 8% increase in sales compared with sales of 2009, maintaining profit margins of 60% or more in the second year. The economic downturn has been bankrupting some firms, toppling longstanding agreements on pricing and distribution. Also, deep markdowns have been destroying the exclusivity that designers are trying to do.Customers are continuing to turn to the internet for clothing shopping because the online stores offers fashion trends and styling tips as well, and shoppers can quickly search the items by various categories, which makes shopping experience more efficient and not physically demanding.
The leading online retailers of designer brands including Net-A-Porter. com and Bluefly. com have performed well showing revenue increase except for the fourth quarter 2008. ?Macroenvironment: The shrinking economy, stock market declines, investment erosion, housing crisis, higher food and gas prices have curbed consumers’ craving for hopping.
In the recession, the number of fashion-conscious shoppers with money and credit has decreased. —Trends: Marketing massages are getting real, simpler, and straight forward in order to draw skeptical consumers in the recession. Brands fostering more open communication with their customers via two-way medium of the Internet have become more important in customers’ everyday lives. In an harsh retail climate, accessories are faring better than apparel because they are relatively inexpensive wardrobe updates. The items that can be worked into what customers already have in their wardrobes are selling. -1. Performance review ?Distribution: Barneys has 9 Flagships(New York City, Beverly Hills, San Francisco, Chicago, Boston, Chestnut Hill, Las Vegas, Dallas, and Seattle), 18 Co-op stores and 13 outlets in the U.
S. The Madison Avenue and Beverly Hills units are healthy and profitable having deep customer base and more known in their markets, but the Las Vegas, San Francisco, Dallas and Boston units have been slow since they opened. Barneys is going for aggressive expansion; four flagships were built in past three years, and it is also looking for store locations in Europe, the Middle East and the Far East.
Product and Service: Barneys is high-end department store offering an upscale and original assortment of apparel, accessories, jewelry, beauty and decorative home products, and also assorts two private labels, Barneys New York and Co-op. Additional services include a bridal and gift registry, concierge service, studio service and spa, but most of them are only provided at Madison Avenue and Beverly Hills flagship store except personal shopping service. In 2008 September, a men’s Made-to-Measure Clothing service was launched at the Madison Avenue flagship store. ?Promotion:The previous key promotions were to introduce the Kate Moss line for Topshop and the Rogan line for Target GO international, which was intended to increase customer traffic. Seasonal warehouse sale is done to reduce inventory. The renowned original window displays in unique themes are helpful to draw customers’ attention and create a buzz. The recent promotion was offering merchandise at a 75% discount last year. S.
W. O. T. analysis ?Strengths: Hip image of providing unique mix of established designers and new costumers Private labels allowing full control and high markupsCo-op offering chances to draw budget fashionistas with its young, experimental, downtown feel merchandise Good store locations appealing to both tourists and locals ?Weaknesses: Aggressive expansion strategy derived from the new owner’s desire to recoup the investment: this has greatly increased expenses for opening stores.
Lack of leadership: The former president and chief executive, Howard Socol, resigned in 2008 July and hasn’t yet to be replaced. Taste level which is not widely accepted: with its cutting-edge image, Barneys has a narrower appeal and customer base than other luxury department stores. Opportunities: Growing trends towards contemporary apparel and accessories: customers started to look for practical and wearable items in everyday life rather than expensive statement outfits. Continuing strong growth in online sales: according to the report from the Census Bureau of the US Department of Commerce, online purchases amount has increased by more than 9% to $34. 61 billion in the second quarter of 2009 compared with the amount during the same period of 2008, and online sales of apparel has generated $26. 6 billion. ?Threats:Sharp declines in luxury spending due to the weak economy Luxury brands’ losing the image of exclusivity: In a January survey of rich shoppers by the Luxury Institute, roughly half of high-net-worth consumers said luxury brands are becoming commoditized. 64% said they were overpriced.
Dangerous extreme discounting of luxury goods: this erodes fat profit margins of 50% of more, and makes customers unwilling to pay full price. Moody’s downgrading Barneys’ debt to “very high credit risk” rating because of negative operating performanceTemporarily disapproved shipments for the 09’ spring orders by some factors including Hilldun Corp. and Rosenthal & Rosenthal Inc. as a result of uncertainties over the liquidity and future strategy Dubai economy facing serious pressure; Istithmar, and investment firm controlled by the government of Dubai, purchased Barneys from Jones Apparel Group Inc. for $942. 3 million in 2007 September. Objectives ?First-year objectives: During 2010, Barneys is aiming for sales increase by 3% compared with sales of $780 million for 2009 keeping profit margins of 50% or more. ?Second-year objectives:The objectives of Barneys during 2011 is to achieve 8% increase in sales compared with sales of 2010 maintaining profit margins of 60% or more.
Marketing strategy ?Barneys’ marketing strategy is based on broadening target market by making some changes in merchandise assortment. The primary target customer is upscale discerning fashionistas. This segment, however, is demographically small, and thus in order to enlarge the size of target market, Barneys needs to draw additional secondary target customers who are budget fashionistas Action plans ?The target market to be pursued:In addition to the current target customer who has over $175,000 annual household income and fashion-forward taste, the secondary target customer is budget fashionistas who seeks out new and directional labels, but are slightly price-sensitive.
?The specific actions in terms of 4Ps: Product and Service – Barneys will increase the portion of contemporary, accessories and Co-op up to 60% of the whole inventory. Also Barneys will show more looks styling with high-low mixed brands via mannequins in the stores, direct mailing catalogs and look-books online in order to offer tyling tips and provoke more cross-selling. Price – Barneys will lower the average price point by raising the amount of accessible price items, and will restrict markdown over 30% which can devalue the brand except for the outlets. Promotion – Barneys will focus on providing customers with non financial incentives such as trunk shows, opportunities to attend art or culture related events, gift certificates for the restaurant or spa in the flagships, and exclusive promotions collaborating with vendors.Place – Barneys will put a hold on the expansion strategy, and instead, will improve the online store more customer-friendly so it can offer effective and enjoyable shopping experience, and attract more online shoppers. ?Responsibilities for marketing actions: The actions related to the Product – Merchandising, Design and Sourcing for Co-op, Allocation teams The actions related to the Price – Planning and Merchandising teamsThe actions related to the Promotion – Planning and Marketing teams The actions related to the Place – Planning and Technology teams ?Timing for marketing actions: 11’ April – Barneys will research up-and-coming designers internationally, and start negotiating for winter orders with selected designers who can meet the standards in terms of design, price and delivery time. At the same time, Barneys will start redesigning the online store, and market research for Co-op 12’ spring lines.
1’ August – The online store renovation will be finished, and the merchandise from new designers will be introduced in flagships and on the web site. The integrated promotions via the stores and web site will be performed in order to draw customer’s attention. The Co-op 12’ spring lines with extended SKUs will start being produced. ?Timing for marketing actions(continued): 11’ November – If the influx of new contemporary and accessory brands gets positive customer responses and increases sales volume, Barneys will prepare for introducing more of those lines. 2’ February – The Co-op spring line and new rising designers will be shown in the stores and online.
The special party for Co-op customers with the dress code “Anything from Co-op” will be held at the Madison Avenue and Beverly Hills flagships. 12’ October – The overall performance will be thoroughly analyzed and the results will be compared with the objectives. Based on the sales volume and profit, the decision to maintain the new portion of merchandise assortment will be made.