Running Head: ASSIGNMENT 1

Strategy Analysis of Michael Kors

[Name of the Student]

[Name of the University]

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Executive Summary

Michael Kors is a luxury brand in the fashion industry which operates worldwide. This brand is

continuously growing while maintaining its track record of success. This paper performs a

complete analysis of the external as well as the internal environment of the company. some of

the important conclusions that are drawn on the basis of the analysis conducted in this brief

report include the increase in social media presence and expanding on various geographical

locations. There are few objectives that are also set by the company in their strategic goals which

include the protection of their brand value, becoming a top luxury brand and increasing their

total revenue over the coming years. For this purpose, there are multiple strategies which are

made in the place. At first, this company need to work on introducing new product ranges in the

market especially in children wear. It is also necessary to explore the developments in the online

world with the help of e – commerce to generate more traffic in stores. MK should further work

on maintaining their level of exclusivity for controlling their supply and demand to achieve

success. This report offers a complete plan to improve the status of MK as a recognized luxury

brand. It can achieve global sustainability and growth in all types of circumstances to increase its

profitability level.
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Table of Contents

Executive Summary.........................................................................................................................2

Introduction......................................................................................................................................5

Description of the industry – Major Players....................................................................................6

General Environments.....................................................................................................................8

Porters Five Forces Model – Industry Analysis............................................................................11

Threat of new entrants................................................................................................................11

Bargaining power of the suppliers.............................................................................................12

Bargaining power of buyers.......................................................................................................13

Threat of substitutes...................................................................................................................14

Competitive rivalry....................................................................................................................14

Company Background...................................................................................................................15

SWOT Analysis.............................................................................................................................17

Strengths.....................................................................................................................................17

Weaknesses................................................................................................................................19

Opportunities..............................................................................................................................21

Threats........................................................................................................................................22

Business level Strategy..................................................................................................................23

Core Competencies........................................................................................................................26

Value Chain...................................................................................................................................28
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International Strategy.....................................................................................................................30

Financial Analysis.........................................................................................................................34

Corporate Governance...................................................................................................................36

Conclusion.....................................................................................................................................38

Recommendations..........................................................................................................................39
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Strategy Analysis of Michael Kors

Introduction

For people who are fashion fanatics, the name is everything. In the apparel industry, there

are many big brand names like Tiffany, Christian Louboutin, Coach Dolce & Gabbana which

have their tags speaking for them. similarly, Michael Kors is one of those companies which has

performed exceptionally well in the past few decades. This is the brand which is made for the

elites of this world which have their fame from the red carpet to White House. There are many

investors who have been in love with the products and accessories of this company from the very

first day. This is the reason behind having a tremendous increase in their sales pattern and strong

margin in the competition.

Michael Kors is a firm which deals in fashion designing which is named after the name of

its founder. This company became public by the end of the year 2011. It has experienced massive

growth because of its luxury designs and this is the benefit which gives massive strength to this

company. the comprehensive design of their market power includes pricing power, appeal and

availability. The revenue of this company is derived from three important channels which

include the wholesale to the retailers, company’s own outlets and through licensing. The high

demand for their products has also stimulated the brand to work through joint ventures. This

company has taken multiple bold decision such as taking large debts in comparison to their

capital to fulfil the demand in the market.

This paper is a strategic analysis of this company in which there will be two important

parts. In the first part, there will be a complete industry analysis conducted about the

environment in which this company operates. All the external factors in the environment are
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analyzed which can have any kind of effect on their operations and management process. The

important steps here include a description of the industry, general environment prevailing,

porters five forces model and background of this company. in the second section, the analysis of

the company’s own environment is conducted. This includes the strategic assessment of their

actions and how they deal with their capabilities and resources (Moore & Craig, 2008). Some

important components of this analysis include value chain, core competencies, business level

strategy, international strategy, corporate governance, financial analysis and any possible

recommendations that must be followed by them in light of this analysis. Following sections will

present in – depth information about all these elements.

Description of the industry – Major Players

Apparel and luxury brand industry is a competitive industry in which there is a number of

competitors in the market to give tough competition to one another. Similarly, MK also faces a

lot of competition in the market with the presence of multiple high - end brands producing luxury

items for celebrities and other people looking for limited edition products (Thornley, 2014). MK

is a huge multinational designer fashion brand which deals in watches, clothes, shoes, handbags

along with other types of accessories. It was formed in 1981 and it’s a public limited company. it

has a presence in even more than 100 countries with over 233 outlet stores and one thousand

retail stores. The company is headquartered in the US with around 14,846 total employees who

increase with 8 per cent annual rate.

One significant competitor of Michael Kors is Tony Burch which is another brand of

American Lifestyle. This can be called as the personal embodiment of the style of their CEO

Tony Burch. This is a private limited company which deals in accessories, lifestyle, fashion, and

wearable products. It has headquarters in the US which controls all the operations in different
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territories. Burberry is a competitive brand in this industry which is a wholesaler, manufacturer,

and retailer in the industry of luxury items. This is also a public limited company like Michael

Kors and it deals in clothing, fashion, accessories, cosmetics and other retail items. This is

headquartered in London with over 10,135 employees in total. This brand has a presence in 47

countries with 205 retail outlets and 57 outlet stores. The total number of stores it has is 449 and

their stores in Asia are 204 in number.

Kate Spade is the competitor of MK as it deals with innovative ideas including graphic

prints, crisp colour and other types of playful sophistication while making hallmarks in New

York. This is not an independent company while it operates as a subsidiary. The main items of

dealing include consumer goods, clothing, and fashion. It is headquartered in New York, US.

Another important competitor of this brand is LVMH which operates as a company of luxury

products with Wines and Spirits, Perfumes and Cosmetics, Leather and Fashion Items, Jewelry

and watches, and other types of selective retailing. This company was started in 1987 and is

headquartered in Paris. There are 128,637 employees which are now decreasing in number. This

company has a presence in 70 countries with 4.4 K stores and 1.6 K stores in the Asia Pacific

which makes it the biggest brand in comparison to MK.

The biggest rival company of MK is Coach which was founded in 1941. This company

operates in the items which are nondurable households. Coach makes 2.5 billion dollars more in

comparison to MK. It has around 20,80 employees with revenue of 6 billion dollars. From the

beginning, it has always been the biggest player in the luxury market of the US while holding

even more than 36% of the market share. This company reaches out to a customer base of much

larger demographics while giving tough competition to all the other brands including Michael
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Kors, Gucci, Louis Vuitton, Cole Haan and Prada etc. A huge focus of this company is in high

fashion and high - income demographics.

There is a lot of competition in this industry and some of the main competitors including

Cole Haan and Donney & Bourke have almost similar product categories. The primary

competitors that come in the list of Michael Kors include Coach and Kate Spade. When the

market of Singapore is considered, Kate Spade is well – established on this place and Michael

Kors is new here. Although MK is gaining fast growth in this new market and people are

becoming increasingly aware of their offerings, it is not possible to compete with the established

brand in this market.

The price range of these three brands MK, coach, and Kate Spade is also same and they

offer complete American image. There are some of the basic brand values possessed by these

brands. Coach focus on having an authentic, value drives, quality oriented and distinctive style

which has aspirations from American society. Kate Spade has more focus on graphics paintings,

playful look and crisp colour with an element of sophistication. Michael Kors has more emphasis

on the aesthetics in their designing which helps in combining the sporty attitude and touch of

elegance in their style. There are various points of differentiation and points of parity in their

designing and these points are further used in the international market by these brands for

creating their place and establish better competition to get bigger market share.

General Environments

Michael Kors operates in the business of the fashion industry and there are a lot of

different companies that are in the competition. With the increased competition, there is also a

large number of factors which have an influence on the fashion industry of the world. These
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environmental factors have less control of the government and operate independently. So, it is

necessary for the company to make changes in its system according to these factors so that it can

achieve success. In the general environment, there are various political factors such as labour

laws which can influence the business decisions. Also, the changes in the trade policies, as well

as the laws of export, can have an influence on the fashion companies.

In the general environment, there are various economic factors as well which have an

influence on making it a successful business. With the boom in economies of developed

countries in which Michael Kors is operating, the purchasing power of people is increasing day

by day and this gives out more power to people. So, the inclination of customers to buy fashion -

oriented products is increasing. However, as the economic environment experience recession, the

buying power decreases ultimately reducing the sales of companies in the fashion industry.

Society plays a significant role in shaping the environment of the fashion industry. There

are various social factors which include the demographics, cultures and lifestyles of people.

There are various items created by fashion companies which create appeal for the target market.

In comparison, the demographics are also influenced by the behaviour of consumers such as the

birth rate in society has a direct effect on the demand for baby clothes. If the birth rate is slow in

society, this means that the baby clothes will be demanded less. Similarly, as technology

changes, the company has to change its ways of manufacturing, operating and marketing the

products (Jones, 2015).

In the general environment, there are few other factors as well which can be controlled by

the management of the company. some of those factors include the communication about the

offerings of the company’s products. Most of the users of this company have access to social
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media and other components and these channels should be utilized properly by the company so

that customers can get exact information about their operations (Lindsey-Mullikin & Borin,

2017; Manikonda et al., 2015). Similarly, in the areas where the tourism industry is actively

increasingly, the company can also focus on targeting the tourists so that the profitability can be

improved. This is the way in which this company can work in corporate development.

With the increased disposable income in the hands of the young generation, the business

for luxury brands is improving. The urbanization is increasing in various parts of the world and

this has a huge impact on how the money is being spent among the population. The distribution

channels for all the companies operating in this sector is more or less the same. Most of the big

brand names have their suppliers and manufacturing units in China and other Asian countries. If

this import of goods is reduced and companies work on having local distribution, the cost

associated with the distribution channels will be much less.

However, there are some of the other important components in the general environment

including the commitment of these companies for providing high - quality products to the

consumers at fewer prices. This can only be achieved when the products are being manufactured

in places like China where the manufacturing cost is much less than the developed countries.

There is still a lot of competition in the apparel companies operating in China. There are multiple

companies who entered in this competition to take part in the expansion and exploit the available

opportunity.

There are a lot of changes that take place in the business environment of the apparel

industry. The economy has changed from a planned economy to the mixed and then open market

in the previous few years. The control of the government over the international companies is not
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strict anymore and the markets have now changed to attract foreign companies (Quan & Shen,

2017) There are various contractual terms which are now introduced for the penalties, warranties

and guarantees which are done similarly in all the countries. Further, the citizens of most of the

countries now prefer to purchase luxury clothing and the status of Michael Kors is not

transformed from just a celebrity brand because now they are also doing mass production.

Porters Five Forces Model – Industry Analysis

This is a comprehensive framework which is used for taking any strategic action by

analyzing the competition and other important factors in the market. The focus of the five forces

model discussed in this report is to offer a justifiable competitive advantage in the industry of

textile. This analysis can be used by the management of Michael Kors so that a competitive

position can be built in the market. This can further help in giving out some profitable

opportunities in the sector of consumer goods. The very first force in five forces model is the

threat of new entrants which is presented below along with all the other forces.

The threat of new entrants

When companies move into apparel business, they bring in new and innovative products

with them. they have new methods of doing things which puts pressure on the companies which

are already existing in the industry. The new companies can have different types of strategies

such as offering a new type of value proposition, reducing the cost of their products, making new

and low - price strategies. Michael Kors has to manage all these tasks that come with the new

companies so that effective type of barriers can be built for protecting the competitive advantage

of the company. there are various steps that Michael Kors takes to overcome these threats. The

most important step is offering innovation in the form of new services and products. With new
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products, new customers are also brought to the company which helps in retaining the old

customers as well.

The company also focus on building economies of scale so that the fixed cost can be

reduced per unit. However, the threat of having new entrant is medium in the apparel industry

because a high - level investment is required to operate a new business with the same level. Also,

it is not an easy task for the new brands in the apparel industry to compete with the main players

and gain the same level of fame. Michael Kors also use their technology in building out new

capabilities and spending their money in the form of research and development. It is less likely

of the new entrants to start their work in a dynamic industry like apparels and give competition

to an established player like Michael Kors. This is the company which defines regular standards

and it will require a new company to invest a large amount of money to make a large system and

infrastructure. Michael Kors reduces any chances of high profits to the new entrants while

discouraging them with their great system. It makes the position of this company strong in the

industry.

Bargaining power of the suppliers

The bargaining power of the suppliers is high in the apparel industry. Michael Kors

manufacture their productions in China with the brand which also offer products to its

competitors including Prada, Coach and Fossils. This adds up to the power of suppliers and gives

more decision - making capability to them. if the company has more than one supplier, the

decision can be based on the price availability, however, in case of having a single supplier, there

is very little power of negotiation left with the company. in this case, the supplier has more

power fo changing the prices of products.

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The suppliers of this company are powerful, and they can use their strong position for

getting high prices from the firms. This can have a negative effect on the overall profitability of

the company. there are various ways that can be used by Michael Kors to tackle this high

bargaining power of their suppliers. They can build efficiencies in the supply chain while using

some other powerful suppliers in the industry so that competition can be increased leading to a

reduction in price. They can also experience on making different types of products designs while

using a variety of products so that when the prices of one raw material increase, they can have an

alternative to use while remaining in their budget (Forster, 2017). This company can also

develop dedicated suppliers who solely depend on this firm. This is doing something similar to

Nike and Wal – Mart so that the sole dependency of suppliers on one firm can give them better

bargaining power.

Bargaining power of buyers

The bargaining power of buyers is very less in the apparel industry. Consumers only buy

one or two products at a time unless there is a sale. There are a lot of small buyers of this

company which gives them very less power to bargain. In comparison, when the buyers are less,

there is more power to the buyers. As Michael Kors is a brand which offers luxury products, and

the prices of these luxury items are commonly fixed in the outlets. Although buyers always try to

get hold of the items at low prices which can put pressure on the profitability of the company.

customers try to seek more offers and discounts from the company.

Michael Kors has to do little effort for maintaining this little power of buyers. This is

helpful in multiple ways because it keeps less power for the buyers and gives a better opportunity

to the firm so that they can streamline their production and sales process. The company also

work on bringing new innovations to their products. In this way, the customers only have a say
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in demanding discounts on the old products but when the company keep on coming up with

innovative products, the bargaining power of the buyers is limited. These new products will also

help in reducing the defection of the customers which already exist with the company and they

will not move to the competitors.

Threat of substitutes

As the number of new firms and competition increase in the industry, the threats of

substitutes increase. All the competitors of this company offer similar quality products, and these

are the factors which depend on individual preferences. Michael Kors is considered to be a

luxury products brand of a mid – range as their products are cheap as compared to the brands like

Chanel and Hermes which come in the category of high - end luxury products. When the

customers are price sensitive, they can easily switch among the brands who offer products in a

similar price range. Still, the trend of imitating the products having a threat to the brand image is

increasing.

All these things indicate a high threat of substitutes in the apparels industry in which the

value proposition is completely different from other types of brands. For avoiding all these

issues, Michael Kors is trying to make their company more service oriented rather than just

focusing on the products. Further, they now have more focus on satisfying the core needs of the

consumers while shifting sole focus from what customers are purchasing. The company is also

making strategies for increasing the switching cost of the consumers so that they will not

purchase imitated products from competitors.

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Competitive rivalry

The competitive rivalry in the apparel industry is high. There are various major players in

this industry which give tough competition to Michael Kors. Such big brands include Kate

Spade, Ralph Lauren and Coach in which similar designs are available with almost similar types

of prices. There is a high dependence of industry rivalry on the replicas as well as the base cost

that is incurred on the product and making products completely unique (Wilson et al., 2015). The

selling price of this company is also high which makes customer switch whenever they see any

other brand offering a similar product at less price. The number of replicas is also increasing in

the industry day after day making a brand less unique. So, Michael Kors should now focus on

differentiating their products to increase customer loyalty.

Michael Kors operates in the textile industry mainly where there is a competitive

environment this has an effect on the profitability for the long term. To reduce this rivalry among

the competitors, the company can take steps for making sustainable differentiation in their

products. The company can also build a scale so that the competition can take a positive turn and

company can experience less loss. The best way of implementing these things is to make

collaboration with the competitors so that the market size can be increased, and less effort is

placed on the small markets.

Company Background

Michael Kors is an American company which works in the business of fashion designing.

They deal in clothing, watches, fragrances, foot wear, accessories, jewellery and ready to wear

clothing of both men and women. This brand has a global presence where it is managed by the

world - class management teams and designers who are awarded winners. This brand has always

offered distinctive designs, craftsmanship and materials. There is a complete comprehensive

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combination of aesthetics which makes a combination of sporty attitude and stylish elegance.

The vision of this company has taken it to great heights from the very beginning and now it is

known as a luxury sportswear brand in America with a presence in more than 100 countries.

There is a total of three areas in which this business is operated. One is licensing, second is

retailing and at last, they also deal in wholesale.

In order to manage all these types of businesses, Michael Kors has a distribution network

which is controlled on a global level in which main focus is on the leading departmental stores,

retail stores owned and operated by the company, speciality stores, selection of licensing partners

and leading department stores. Even with the change in the global economy, this business has

also its e – commerce networks operating in Canada and the US.

With the global level developments, there are a lot of new changes taking place in the

industry of luxury goods and this is the industry which has always remained resilient even in the

times of economic distress. Even if this industry has slowed in the past few years, there is still

continuous growth analyzed in the luxury goods accessories and industry. There is a slow

performance in the wholesale channels, but retail channels still grow in the form of opening new

channels and growth of e – commerce business. Accessories are the leading item in the business

of Micheal Kors and Jewelry category is also continuously growing. However, regardless of all

these differences, this business is making continuous innovation to increase its product offerings

in the market to offer more variety to the consumers.

This company has a clear goal of creating more value for the shareholders so that the

profits and revenue can be increased while increasing the comparable sales on their respective

stores and making this brand strong on a global level (Fonseca, 2015). There are few prominent
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strategic initiatives which are taken by this company as part of their strategic plan. The most

important plan is to offer innovative products offerings in a trend - setting manner. This is a key

to increase the revenue and market share of the company by offering a large variety of new

products in every season so that a new lifestyle portfolio can be created. This thing makes it

possible for the company to make its position as market leader strong and continuously

increasing their business growth.

Another important part of their strategic plan is to have a focus on global diversity in its

product planning strategy. The company continuously expand their luxury items in the product

category so that the success can be strengthened in the overall product portfolio. This thing can

be ensured by the introduction of product categories which are innovative and licensed as well.

These items include wearable technologies and new fragrances. This company also hold runway

shows on semi – annual basis so that the design status of their high – fashion image in the market

can be endorsed. They have press coverage of multimedia press on a global level.

The company focus on creating a personalized shopping experience for customers all

over the world as they get hold of the preferences of their customers. They introduce limited

edition products in an exclusive manner on some of the premium locations. The company now

focuses on having an international presence in the form of e – commerce and making their

position strong in Asia. As the behaviour of the consumer is shifted, they are now giving out

digital experience in the form of mobile devices so that the new expectations of consumers can

be satisfied with the services.

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SWOT Analysis

Strengths

Strengths refer to the best strategies adopted by any company which provides an

upper hand on the competitors of the company. There are many strengths of Michael Kors. This

company has a large variety of products. Multiple categories in casual wear clothing are present.

Jewellery, clothes, handbags, watches. shoes etc. for men and women are included in their range.

Jackets are also very popular. Moreover, they have a very successful record of product

innovation. Many celebrities wore their dresses on the red carpet many times.

This brand is also very famous due to its activity on social media. Twitter and Facebook

have about 18 million followers and these followers are increasing day by day. This is done with

the help of ramp shows and live streaming done of the events in which their products are used.

This brand uses many channels for distribution of their products. Online shopping is available in

addition to retailers and shopping centres.

They have a strong seller community. The dealers and distributors are treated well for the

distribution. They are well trained so that they can interact with the customer in a good manner.

These dealers not only sell the products but also explain the benefits of the product to the

customers. The scaling up and scaling down of the products depends upon the needs of the

customer (Halme & Rissanen, 2015). This brand has a very strong brand collection. As this

portfolio is very important for the expansion of the new products.

Management of criticism is also one of the main strengths of this organization. Many

celebrities are also their clients. Majority of their celebrity clients regularly use these products in

their events. Emma Robert, Natalie Portman, Jennifer Lopez are some of their regular customers.
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They also maintain positioning in their trends. They have all the newest designs available that are

fit for all those urban women who are fashion conscious. Due to this. MK company is able to get

a huge market share.

They maintain the newest products. product innovation is one of its strengths. due to

these strengths, this organization has succeeded in the market. not only their market share is

protected but also helping it to penetrate into the new markets. Due to these expansions in the

new markets, their economic cycle is diversified. On the basis of demands, the process of scaling

up and down of their products is controlled by the activity’s automation.

One of their greatest strength is the execution of their new projects in a very different

way so that the good returns. The expenditure is retrieved very easily by the formation of the

new business revenues. In a nutshell, activeness on social media, distribution strategies,

positioning, automation, the strength of dealer community, free cash flow and product innovation

are some of their main strengths. Due to these strengths, they are able to make a good name in

the market.

Weaknesses

Weaknesses refer to those areas in any organization where more improvement is needed.

Michael Kors also has some weaknesses which are explained here. Michael Kors is present in

America, Russia, Canada and other developed countries. Its poor presence in Asia is one of its

biggest weakness. India and China are highly populated countries. These countries offer great

potential for the future for the luxury range. Other competitors of Michael Kors have launched

their products in Asia so long ago. The future potential in the region of Asia is supposed to be

more than 100 billion in the coming decade.

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An entertaining Niche market is also one of their biggest weakness. As it is a luxury

brand. customers with high income are usually attracted towards this brand. So the personalized

products are prepared for the customers. The main difficulty experienced by them is the targeting

of volumes. They usually do not cut down their prizes due to this reason. They have faced a lot

of criticism in their management process.

Repetition of colours, fabric, and designs are the main reasons for the criticism faced by

them. Negative publicity due to the criticism done on social media is also faced by them. The

expansion is limited in the other product segments due to its organizational structure. This kind

of structure is useful only for the present model of their business not for the future. This

company is investing less in development and research. In terms of innovation, it is not able to

meet up the level of their competitors.

Training of the employs is one of their most necessary tasks. This needs the expenditure

of a large amount. Their attrition rate is really higher as compared to their competitors. Their

ratio of profitability is very low. The net contribution per cent of this organization is below

average. Their selling style is not really unique. So, the method of marketing is not that

appealing. Their competitors again take advantage of this. Although their product sale is

successful, this segment of this organization can be attacked by their entrants

The compatibility for the integrated firm in this organization is not well known. This

organization can perform very well in the integration of the small companies but that for larger

companies is not very successful. Weakness is supposed to be resolved and reduced. Any

organization is supposed to improve these weaknesses for the improvement of its strategic

situation. Their financial planning is also at fault. The ratio of their current assets to their liquid
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assets also suggests that this organization can make the use of cash in a more efficient manner.

Another weakness of Michael Kors is its organizational structure. Although this structure of the

organization is compatible with their business at the present time, it limits the expansion in the

other segments of products.

The high rate of attrition, improper financial planning, faults in the structure of the

organization, absence in Asia, and niche market are some of their weaknesses that are supposed

to be reduced.

Opportunities

Opportunities are those boulevards which can be used by any organization which can

raise its returns. The weaknesses are also the opportunities as one can overcome his weaknesses

and make his strengths. As Michael Kors is present only in a few countries and in Asia it is not

very common. This organization must look at the emerging markets. As Asia is a highly

populated continent and the future potential here is supposed to be 100 billion at least in the

coming decade, so for the attainment of higher volume and enhancing their business, they must

take this step.

Another main opportunity for them is to develop the category of the designer kids wear.

This brand is very popular for its men and women’s designer wear. For this purpose, they don’t

have to develop new strategies of selling the products, as they can use the same channel which

they are using for men and women’s wear. They can enhance the capturing of new customers. As

it is an expensive designer brand. so, for increasing the market share organization have to

increase the customer count. Another main opportunity is the low rate of inflation. If there is a

low inflation rate, the disposable income of a person increases, so they can afford this luxury
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brand. Moreover, the new taxation policy has proven to significantly increase the product sale

and thus increasing their market share. By decreasing the rate of shipping, they can also increase

their customers. The decrease in their rate of transportation, their market shares as well as

profitability can be increased.

Advancement in new technology also provides an opportunity for the Michael Kors

organization. This can help them to practice new price strategies in the market and increase their

product sale. This causes the improvement in the service of the regular customers and new

customers can also be attracted towards this organization. By developing their distribution,

designing and marketing strategies the core competencies can be enhanced. These strategies

attract the customers and the rate of product sale also increases. The government agreement has

allowed opening new markets. The free trade policies and new standards of technology have

provided them with the opportunities to enter the new developing markets. The development of a

new organizational structure can also help them to improve their market value, as more diversity

attracts more customers.

Procurement of products from the state and other central government has been possible

due to the green drive of government. In short, the low rate of inflation, economic uptick, core

competencies, new technology, and emerging markets are really good opportunities for the

Michael Kors organization that can pave their paths for the better future.

Threats

Threats in an organization refer to any event or thing that can cause any damage to the

sale value. One of the most dangerous threat is the limitation in the stocks. The other competitors

offer a wider range of cuts and styles while they have a limited range of their product designs.
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Moreover, similar kind of products with low prices are available on other brands, which reduces

the switching cost. Another threat is the fluctuation in the currency of different countries in

which the organization is operating at the same time specifically due to the different political

environment of different countries.

The threat to the physical infrastructure and supply chain model is due to the changing

buying behaviour of the customers. Usually, the profitable products are seasonal, and their values

are on the peak during the season and an unlikely event during that season can become a threat to

the sale value of the products. Moreover, as this organization is operating in different countries

and it can face different lawsuits due to certain reasons i.e. in terms of quality of the standard

product. Those global markets where there is a shortage of expert workforce offer the threat of

sturdy growth of profits for the organization of Michael Kor in those markets.

In America, the trend of isolationism is increasing day by day, which offers a great threat

to Michael Kor. This organization function greatly in China, if the same trend is adopted

internationally it will cause a negative impact on the sales on an international level. Last but not

least, the Paris agreement on new environmental regulations has also become a threat to the

product categories existing at the present time. In short isolationism, scarcity of skilled

workforce, competition, Paris agreement, and lawsuits in different countries are the main threats

faced by Michael Kor.

Business Level Strategy

Michael Kors is a global brand which is rapidly growing while operating in the luxury

category of the fashion industry. There is world – class management that runs this brand as a

team and makes it a famous brand of designing. The shareholder value is created by increasing
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the strength and revenue on a global level. There are various strategies used by this brand for

achieving goals. For this purpose, some of the business level strategies are as follows.

The most prominent strategy they have is innovation in the production process. Some of

the main products of this brand include footwear, apparels and accessories. Company introduce

many innovative products for setting the trend so that the features of unique designing can be

made. this is important for satisfying the needs of the target market and attracting more

consumers. This type of product expansion is helpful to increase the product categories in the

wearable technologies and children line.

This brand is continuously doing efforts to increase their stores in the global market

particularly in the European and Asian markets. MK is creating brand awareness while

increasing its market share in these emerging markets. The accessibility of this brand has

increased globally by taking these steps. The business strategy also includes the step of closing

down the stores which underperform and do not general enough revenue to cover up the cost.

This can help in decreasing the operational expenses and improving the overall profitability of

the company.

Now, e – commerce is considered as a worthy investment by this company and people

these days choose more options like online shopping. This factor makes their online presence

more important. There are various promotional videos used by Michael Kors on the online media

so that they can exhibit the upcoming lines of their business. This is a part of their digital

strategy of marketing. One typical example of their online campaign includes the promotions

using “Monkey around” that took place on WeChat which is a social networking software

operating in China.
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For improving the level of customer engagement, the company is continuously making

efforts to spend in their technological initiatives. There is an initiative taken by them as omni-

channel strategy which can be developed to provide a better experience for the customers. These

are some of the specific ways which increase the satisfaction level in consumers while using a

brand. Another important way used as a business strategy of MK is the implementation of

personalized shopping. This is the experience which makes it easy to entertain celebrities and

makes it a luxury brand. There are various new programs in the form of customer loyalty and the

introduction of new mobile technologies which improve the awareness in the market about their

products.

The stores of this brand are operated either directly or by using the licensed partners that

are present in some of the prestigious localities of the world. The market strategy includes

segmentation with the differentiation in the consumption capacity and market size. The company

makes a set of reachable logistics according to the expected growth. This brand is popular among

celebrities because of all the famous products and customized offerings. The positioning of this

brand is done as a luxury brand which offers high - end products for the consumers. This has

more appeal to the customers because of its marketing mix.

The company has a strategy of going with the fashion trends while making collaboration

with the project runways and reality shows on TV. There is a large variety of the audience that

comes in the category of this brand and this is only because stores are present in the fashion

capitals of the brands. There are various capabilities and resources present with this brand

because of their use of massive technology. It has various products in its category including the

women ready – to – wear and foot wear for men. The watches of this company accumulate for

5% of their total revenue and their watches are very famous because of their unique designs.
ASSIGNMENT 26

They are called as the cash cows of their portfolio and the trend of smartwatches has even made

it famous in the international market. The company is bringing on new technology while

innovating new designs of smart watches and other types of wearable technologies so that they

can keep up with the competition and prevent the company from bearing any more losses.

In the business strategy, this company has a global network of distribution in which it has

a presence in over 100 countries in the form of retail stores and leading departmental stores. All

the products of the company are readily available on these stores the shipment is tracked down

by the help of their online tracking system. This shows that this brand has a good presence on the

online channels along with the robust capabilities for delivering the products on different portals

working online.

Even the brand name of this company gives them high coverage over the competition in

the form of financial and competitive benefits. There is a point of differentiation created with the

brand name that comes with the products of MK. This brand has a high level of endorsement

from celebrities and this thing has made it aspirational for attracting more customers on a global

level. The capabilities and resources of this brand are shaped in a way that it goes on with fast

fashion and allow it to be on the upper end which increases its consumer base.

Core Competencies

There are unique products offered by Michael Kors and this is the representation of their

distinctive core competencies which work behind making this brand successful. This is a strong

brand name which has loyal customers in 100 countries of this world. The prices of this brand

are affordable while also targeting celebrities for their customized products so that the customer

base can be increased worldwide. The core competencies set by this brand include their
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exclusive raw material and excellent distribution system to deliver completely customized

products to their consumers. These competencies help this brand to set higher prices in the

market because more value is given to this brand in the market. This value can be estimated by

the increase in their total revenue by 52%.

The only weakness that exists in the area of their core competencies is in their lack of

diversification. The company is performing great in the international market and they have also

surpassed their biggest competitor Coach. So, in order to stay relevant with the help of their core

competencies, this brand also joins some of the reality contests so that the project runway can be

utilized while being a judge. This thing has improved the exposure of this brand to this line and

this company has expanded its business to entertain a large portion of the audience in the market.

This is the opportunity given to this brand for the opening of multiple new stores.

Another core competency present with this brand is that they are doing efforts on making

a partnership with the local retail stores including Sak’s, Macy’s and Nordstrom. With all these

strengths, the market also has various threats in store for this brand. It is very difficult to handle

the market of accessories as well as handbags because this market requires a lot of innovation in

offering new products every few days. There are various competitors in the international market

which have the advantage of giving MK a hard fight in this scenario. The most important task

that they are dealing with right now is in the form of price wars. The change in customer

preferences and taste should be handled while also looking out for the substitutes in the market.

When there are very fewer changes made in the products, then it will not be considered as a

luxury brand in the market by the users. The company has a focus on both everyday consumers

and the ones who focus on luxury products. So, the company has to create a balance while

competing hard in the international market with all the high and brands.
ASSIGNMENT 28

The best thing that works the core competencies of this brand is that it has a niche of

entertaining celebrities in the international market which makes it a brand of luxury products.

This company is an award - winning and they have a complete team of designers who work for

making its products successful in the market. With this type of competitive advantage, this

company can expand its operations in the global market easily. When celebrities wear its

products, everyone on the media channels has an eye on their products and thus increase the

exposure of their products on the market. This is the strategy which works best to market their

products in the international market. The audience has to pay attention to the singers and

actresses wearing their products. The market of today wants this company to be more innovative

so that they can adapt to the change in the situation. So, this company is performing quite well in

the global market because of its distinguished core competencies.

Value Chain

The value chain analysis of Michael Kors offers analysis of all the activities which are

conducted by the company to get a competitive edge and more value for the shareholders. The

value chain is a general model which focus on multiple activities to be differentiated in the form

of primary as well as secondary activities. there is multiple sub – components of these activities

which are presented as follows.

 Inbound logistics of Michael Kors has most of its products being manufactured in

the Asian region and the storage takes place in the Virgin Island of British. This

can help the company to save taxes and cost. The manufactured material storage

in the region of British Virgin Island can make it easily accessible to all the major

markets of the world.

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 Operations activity is the process in which the inputs are transformed in the form

of finished goods. There are robust operations of this company. as this is a leading

company in the industry so they have focused on having machinery which is

technically advanced as well as the workers are skilled for transforming the

provided input into finished goods along with the services offered by the

company.

 When it comes to outbound logistics, there are primarily three channels used by

Michael Kors for having their product distribution in the form of wholesale

outlets, licensing format, and retail outlets. The company has no participation in

other types of distribution channels such as joint ventures and franchising for

capturing the international market. They are still focusing on a limited market

which mainly consists of the USA and Europe.

 Sales and marketing are other functions of the value chain in which the company

has gained substantial success in recent years in the markets of the US and

Europe. This is only because of using attractive and extensive methods of

marketing. The company has a special focus on the marketing strategy so that

they can also target the affluent class and upper – middle class in the market.

These were some of the secondary activities of the value chain of Michael Kors. Some of

the primary activities operating in the value chain of Michael Kors are discussed below.

 The infrastructure of the firm is the most important primary activity and as

Michael Kors is a leading company in the industry, it has a very structured

infrastructure. even the control system of the company is state – of – the – art and

well – structured.
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 Technology is another important component and the company has implemented

technology in all the parts so that the support and efficiency can be improved for

creating value in their activities.

 Human resource management in Michael Kors has carried out in a way that it

provides a competitive edge to the company. the best practices followed by them

include the training and recruitment of their employees in a well – structured

manner so that the best talent in the overall industry can be acquired by them.

there is a lot of emphasis on the development, training and retention of employees

so that the productivity in the company can be improved.

 Procurement is the last function of their supply chain and the company has

worked for years to look into it and establish a robust system in the supply chain

for including different components of supply, equipment and purchase of new

materials in high quality and low prices.

International Strategy

In the international strategy, Michael Kors focus on making the market into different

segments so that the customers with similar needs can be identified. This makes it easier for the

company to develop ideas on the basis of differences in the wants of individuals. This is

necessary to make different segments of the market on an international strategic level so that

effective and efficient services can be provided according to the requirements of the consumers.

Michael Kors is continuously doing expansion from the North American region to the other

geographical areas of the world. These areas include Asia and Europe. There is a strong presence

of Michael Kors in North America because the geographical market in this region is largest. This

company is going through slow expansion in other markets as well. Among the priorities, the top
ASSIGNMENT 31

most favourable market for this company in China because of the growth potential in this market.

This is done so that the company can achieve international brand awareness and increase its sales

volume.

There is a large variety of demographic segments which are attracted towards Michael

Kors and the primary target of this company has always been women from the start who make up

a total of 82%. The primary reason for this focus on women is that women, in general, spend

more on clothing as compared to men. The age range of Michael Kors customers is from 25 to

54 years of customers.

Furthermore, on an international level, this company has two different types of

collections for different consumers. One is Michael Kors while the other one is by the name of

MICHAEL. There is a difference in the pricing patterns of Michael Kors so it has a target on the

individuals who have large income range. This is based on the assumption that the willingness of

a person to spend on income matters more than his income. The growth potential in young

consumers is more as they have different types of demographic trends. In comparison, the line in

MICHAEL contains products for people who belong to middle - class income. This mainly

operated in the accessories, footwear and women clothing. This is the brand which has a high

customer base of the young generation which has high growth potential and continuously

increases its revenue.

There are few important components of the international strategy of Michael Kors and

among them, the most prominent is to focus on expanding the company operations to the

international market especially China and other Asian countries where the chances of getting

success are more. Other than this, some specific international business strategic goals include an
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increase in the total revenue. The company is also focusing on adding up the line of children so

that the spending of existing customers can be increased. The company wants to achieve market

penetration in the global market by expanding on the geographical areas and opening new

channels for increasing their revenue.

To implement this international strategy, it is necessary for the company to do proper

research on the needs and wants f the consumer's demands as they change with the geographical

regions. It is also important to set the location of these stores in a way that maximum benefit can

be achieved. In this way, the marketing efforts can also be tailored to the specific regions on the

international level. The company also focus on appointing celebrities for marketing their

products and brand endorsement. The celebrities are chosen according to their relevance with the

brand in terms of their lifestyle so that the brand can get approval in the respective market.

Another important international factor for their business strategy is their lack of effective

strategy in e – commerce. Customers are only able to purchase their products online in the USA

and Canada. MK is now focusing on developing new distribution channels so that they can

transfer their traffic from real channels to online business as well. This is a profitable strategy for

their marketing campaign and distribution channels. The online traffic can further be transferred

in the real - life stats in terms of profit and sales.

In the digital campaign strategy of MK, having a digital marketing plan is very important.

This is the biggest platform for social media including YouTube, Facebook, Twitter, Instagram

and Pinterest. Although the company is doing well in comparison to its competitors in the online

world, they need to continue their efforts more precisely and practically to execute the critical

factors of search engine optimization so that more online traffic can be captured. These are the
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social media campaigns which highlight the important components of engaging followers, brand

differentiation, acceptance of brand and further looking into converting their customer base in

faithful fanatics. The main objective here is to increase overall awareness in the market about

their products and improving the impact of the online campaign.

An important part of this company’s global strategy is to protect their brand value. As it

is mentioned before that for doing this they have segregated their offerings in two different

brands. Michael Kors and MICKAEL have different price ranges and even target consumers

because they need to prevent their status of a luxury and premium brand in the market with the

help of controlling price. It is necessary that all the products of MK should be sold under fixed

prices and adjustments should be made in the prices according to the rate of inflation in the

global market. Further, the retail spaces of this brand in the existing departmental stores should

not offer any kind of discounts. In this market position, having price discounts can make their

position disadvantageous. This is mainly because it can have a negative effect on their brand

value and market image of an aspirational brand.

The customers on a global level have the willingness to paying high prices for their

products. Also, if the prices will not remain stable for a long time, customers will switch from

the brand. Another necessary point of consideration here is that if everyone in the market will

have this product, it would become difficult for them to remain a premium brand in the market.

So, the best way of protecting the brand value of MK is to continue being exclusive for all the

consumers. The quantity of the product offered in the market should be planned carefully

according to the appropriate supply and demand functions. So, MK does not offer mass

production to reduce the exclusivity of the products specially made for celebrities. It is necessary

for the image of the brand to make these people feel special about their products and honoured.
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The exclusivity can be further used to protect and increase the brand value of MK. So, based on

all these strategies of international level, MK can make a proper action plan which can help in

implementing these strategies to maintain a better market position.

Financial Analysis

Michael Kors is a company which has the investors who have a reliable and strong belief

on the investment they make in this company. when this company conduct global business, it has

a diversified stream of revenues and giving out attractive returns on capitals. These investments

are made reliable so that the risk can be reduced in the portfolio. The key to getting success in

this business is to have better financial health of the company. this analysis will provide a

financial analysis of MK so that the position of this company can be made clear to get an

advantage in the form of potential acquisitions and enduring the downturns in future

comfortably.

Whenever the financial condition of a company is analyzed, the most important question

is about whether the company is capable of producing enough cash in relation to the debt. Over

the period of last year, the debt level of MK has increased from 155.8 Million dollars to 821.1

million dollars. This is the collection of it both short term and long - term debt. The debt of this

company is continuously increasing, and this has an effect on the short - term investments and

current cash levels which conclude to be 169.9 million dollars. The company generates its cash

through their operations amounting to 1.07 billion dollars in this time period which gives out the

operational cash to debt ratio to be 131%. This means that the company has enough operating

cash to cover its debts. This is the ratio which also indicates that the company has enough

amount of cash for entertaining its debt. This is the sign that the company is operationally
ASSIGNMENT 35

efficient which gives out an alternative for sufficient return on the assets. This company is

capable of generating 1.31 times more cash as compared to its debt.

Another important indicator of the financial condition of this company is its ability to pay

short term liabilities. Currently, the liabilities of this company collectively make a total of 945.7

million dollars. It is true that the company is capable of satisfying all the liabilities that are under

the company. the asset - liability ratio of this company is 1.37 × with 1.29 billion of assets. This

is a reasonable ratio for a luxury brand because it enables it to create enough cash buffer with

holding less capital on the investments which offer low returns.

The debt to equity ratio of this company is 40.2% which is above average as compared to

the company that has above average leverage in its financial system. This is not an uncommon

situation for such a big company as the interest payment that is incurred on the debt are also tax

deductible. This shows that the debt can be achieved on cheaper rates as compared to the

investment in capital. When the financing is available on cheap rates, this is best for large

companies as compared to the small companies. The earning generated by the company after

deducting taxes and interest payments is three times more than net of the interest payments that

they have to make. This shows that the company is financially stable. The investment made by

these large – caps companies is said to be a safe investment as their ability can improve the

ability to earn in multiple times of the interest payments.

Although the debt of this company is on a higher end, the cash flow coverage of this

company is still adequate, and it can meet the obligations while efficiently utilizing all the

available resources. This shows that all the debt taken is utilized sufficiently and is giving out the

high return on the leverage taken by them. as all the obligations are being met, there is no need to
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have concerns about the liquidity needs. The capital structure of this company is optimal

according to the situation, however in future, if the company do not generate enough cash flows,

it will be difficult for them to satisfy the interest payments.

The liquidity ratio of MK is high which indicate that this company has high working

capital which is engaged in their debtors and inventories. Among the profitability ratios, the

profitability of MK grows by 1.49% in previous years. The gross profit margin is witnessed to be

decreasing in the previous years, but it was not on a drastic level. The net profitability of this

company increased along with a 2.68% increase in their return on capital employed.

The solvency ratios of this company are also high which show that they have high

liquidity and it is not difficult to get the cash out of their operations. All these financial ratios and

analysis indicate that MK is doing well on an exceptional level for fulfilling the high demand for

accessories in the growing market. All the ratios of this company are regarded as high and this s

mainly because of tying up their capital in debtors and inventories. In comparison, the ratios of

Coach were lower as compared to MK showing that it has better liquidity status.

The return on capital in MK is more as it has increased to 2.68% in comparison of Coach

which decreased in the previous year. The solvency of MK is weak as compared to the solvency

rate of Coach. So, all these things show that investors should make an investment in MK so that

they can get better returns on their investment. This company is performing exceptionally well in

comparison to its competitors giving it a strong competitive position in the global market.

Corporate Governance

The board of directors in Michael Kors has a size of 5 to 12 members. Majority of the

directors in the board are set according to the standards set by the New York Stock Exchange.
ASSIGNMENT 37

All the independent directors in their board should make notification to the board in case of any

conflict in interest among the company and director. There are proper criteria selected for taking

board membership. The people who have a diverse professional, as well as personal background,

are selected for this position and they create a spectrum of expertise while having a reputation of

integrity. The director must have enough attention and time to be devoted to the company to

fulfil all the obligations given to him.

The directors must be able to understand and read the fundamentals stated in the financial

statements so that he can be aware of the decisions taken from the financial ratios as well as the

information required to access the financial performance of any particular company. in MK, the

directors have complete knowledge and experience in the corporate governance to understand the

duties and issues of the directors and all the shareholders involved. Some of the important

characteristics required in the board members should be accountability, responsibility, integrity,

high - performance standards, courage, responsibility and judgement. These are certain

expectations from all the directors appointed in this company because they must be dedicated to

the rules and offer compliance with their duties. There is a set Code of Business Conduct and

Ethics presented in the company which must be followed in the formulation of all types of

conflicts and policies.

This is the complete code for business conduct which is set by the company in which it is

also expected of the chairman and other board members to notify before leaving their position.

These board members are given appropriate opportunity for reviewing their decision and

becoming a member of the board under any circumstances. This board is selected for providing

strategic guidance to the shareholders. So, it is their strategic responsibility to access the business

situation using their power of judgement for acting reasonably. Even in the board meetings, the
ASSIGNMENT 38

agenda is already set in the form of executive sessions. All the board staff must conduct 4

meetings in a year according to the standard set by Michael Kors corporate governance policy.

All the information provided to these board members is expected to be confidential and

should only be used for the business of the company. there are three committees in the board

including a compensation committee, nomination and governance committee and audit

committee. The agendas of these committees are set by giving them substantive inputs and

approving their agendas before conducting these meetings. CEO compensation and succession

planning are also part of their corporate governance policy. The key management positions

should be used in succession planning.

Conclusion

MK is a famous luxury brand which is also known to be the power house of fashion in

the modern world. With the multiple new strategies of making expansion in the international

market, this company is surpassing its competitors on a massive level. This company has a

competitive advantage which must be sustained for the long run sustainability of the business.

The marketing and strategic plan of this company put forward the idea of putting forward efforts

on digital marketing, increasing their revenue, as well as protecting the value of the brand by

using multiple strategies. Some of the important strategies highlighted in this project include

having a global presence on key geographical locations and increasing their products offerings.

There is a need to increase the awareness on a global level so that the point of differentiation can

be made clear while maintaining a status of a luxury brand and overall controlling the supply and

demand patterns on the exclusive level. This is the plan which does not only help with increasing

the sustainability of this brand but also makes a resilient system against the uncertainties coming

in the way of the economic process.

ASSIGNMENT 39

Recommendations

Based on the analysis conducted in this detailed report, there are few important

recommendations which must be followed by Michael Kors to increase their business standing in

the market. This is a luxury fashion brand which has a presence in all the key markets of the

world but still, there are various areas in which this brand does not exist. So, the very first

recommendation for this brand is to do geographical expansion especially in Asian countries

including China and India. These are big international markets with a lot of potentials. Also, the

economic status of the people living in these countries is increasing day after day which makes a

lot of potential consumers in these countries.

The second important recommendation made here is to expand its product lines.

Currently, this company is focusing on women primarily while offering a lot of product

categories. This is mainly because a large number of target consumers are women as they spend

a large proportion of their earning on accessories. However, this company should also focus on

making children products so that a bigger portion can be grabbed out of the pocket of consumers.

The third recommendation is to increase public awareness about this brand. As this is a

luxury brand mostly it created customized products for the celebrities on demand which makes it

distinguished. However, it is also important for the general public to know about this brand so

that the people who can afford their products can switch from famous competitors like Coach to

this brand. For this purpose, the most important step that can be taken by them is to do celebrity

endorsement because everyone wants to wear the products which are used by famous celebrities.

So, while finding out the celebrities whose personality matches with the image of this brand,

they can easily make a presence in the global market while increasing their customer base.
ASSIGNMENT 40

The fourth important recommendation is to create a strategic alliance with other

companies in the industry. The best step that they can take is to make an alliance with Nike

which is a famous brand. MK has a reputation of selling sporty products and if they make an

alliance with Nike it will be in the best interest of both companies. In the end, the company

should also focus on creating better in - store experience for the consumers. According to the

online surveys, there are 84% of people who visit their online stores, among which only 53%

make visits to the stores to make the ultimate decision and 76% people only visit to have in –

store experience. The trend of online shopping is also increasing day after day and this company

should also focus on improving their e – commerce experience so that their market share can be

increased.

All these recommendations show that they are logical steps that must be taken by MK to

improve their business in the market and to build a global presence as a recognized brand.

Overall, it is a big brand which needs expansion in some of the Asian countries as well so that

awareness in people can be increased.

ASSIGNMENT 41

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