Essay on Global Strategy High Fashion Fights Recession

1107 Words Oct 26th, 2014 5 Pages
Seminar Activity
Meeting 4 – Global Strategy

Case Study 4.1 – High Fashion Fights Recession

Consider the following question:

1. Using the Five Forces Framework, how would you characterize the competition in the luxury goods industry?
2. Why was discounting looked down upon by industry peers, all of which were differentiated or focus competitors?
3. What would be the likely challenges in emerging markets for luxury goods firms?

OVERVIEW
Pumping out fancy clothing, handbags, jewelry, perfumes, and watches, the high end of the fashion industry—otherwise known as the luxury goods industry—had a challenging time in the Great Recession. In 2008, banks were falling left and right, unemployment rates sky high, and
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As these firms were relatively differentiated, the degree of rivalry between firms is unlikely to be very high. As practices like discounting and price wars were frowned upon during pre-recession times, competition was likely to have been understated, and not overt. However, during the Great Recession, when some luxury goods firms began discounting, competition may have increased. In developed countries, the threat of entry of potential entry of new competitors was low during the recession, while the threat of entry was high in Eurasian countries like China, where the market for luxury goods expanded.

2. Why was discounting looked down upon by industry peers, all of which were differentiated or focus competitors?
High fashion relies on its high process to maintain its image and demand. The informal code of conduct that governs the high fashion industry dictates no discount, no coupons, and no price wars between competitors. Discounting, a strategy that is frequently used in the low-end fashion industry, is generally viewed as dangerous and poisonous in high fashion, not only to the occasional firm that uses it, but also to the image and margin of the whole world of high fashion. During the Great Recession, for instance, many firms cut prices—but did so quietly. At Tiffany jewelry stores, salespeople advised customers about diamond ring price reductions, but otherwise there was no publicity. Gucci and Richemont offloaded their

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