Strategic Management of JD Sports Fashion PLC

Strategic Management

Executive Summary

The report has a detailed analysis of external and internal environmental analysis. It has analysed the political, economic, technological, social, environmental and legal factors affecting JD Sports. In addition to it, the report has discussed the five forces framework of a particular firm. The report has examined the VRIO analysis of the financial, human, cost structure and research and development resources of JD Sport. It has elaborated the Bowman's Clock strategy and its application in the expansion in the Japanese market. The last section includes the Ansoff Matrix that has reviewed the possible growth strategies of expansion in the Japanese economy.

Introduction

Business growth of any company can be achieved through the analysis of micro and macro factors affecting the organisation. The use of different tools like PESTEL, VRIO, Porter’s Five forces framework and Ansoff Matrix will aid the report in achieving the required strategies. This report will enlighten the same factors of JD Sports. JD SPORTS fashion is the leading sports fashion wear in the country of UK. It operates as a retailer and distributor of Branded & Own Branded Sportswear & Fashion wear. The fashion wear store started its journey with the opening in Bury in 1981 by John and David. The products of JD Sports Fashion PLC targets all the gender and all the age groups. It offers commodities from different brands that are Adidas, Nike, Fila, Puma, Sketchers and many more. The company has recently expanded into Asian markets covering Kuala Lumpur, Malaysia and Sunway Velocity, Cheras. It has been recognised as the most innovative visual merchandiser of sportswear among its competitors. The company has faced increased challenges in strong comparative and the current economic and fiscal threats to consumers’ expenditure. The main aim of the company is to magnify its existence into the Asian market and increase its revenue by the coming years (jdsports.my, 2021).

Appraise the current strategic positioning of the given organisation.

External Analysis

To evaluate the external environment of the new market the PESTLE analysis is conducted.

PESTEL Analysis

Parameters	Factors	Influence
Political	Japan symbolises as monarchy but is ruled by the composition of Democratic Party of Japan, The People's New Party, Liberal Democratic Party, The Social Democratic Party and the New Clean Government Party (web-japan.org, 2021).	The influence of several parties in a single economy will be problematic to JD Sports from the point of market expansion. The different ruling parties might have different methods and rules for controlling the market. This will bring out the situation of misunderstanding and tiff among JD and its competitors.
Economical	The pandemic of Covid-19 shut down the economic activities in Japan (bbc.co, 2020). The unemployment rate in Japan is 2.29% (macrotrends.net, 2019).	The fall in the unemployment rate will be beneficial for JD Sports to start new ventures in Japanese markets. The abundant labour force will ensure more human capital at a lower price. This will advance the company to lower the cost structure.
Social	The population parameter of Japan is 126,476,461 for the year 2020 (worldometers.info, 2020). The median age of Japan for the year 2020 is 48.4 years (worldometers.info, 2020).	The fast-growing population of Japan will provide JD sports with an abundance of the target customer and increased sale of their products. A high median age for the economy sates that the majority of the population live a long and healthy life. This will ensure the retaining of existing customers in Japan for a long time.
Technological	The Japanese economy has a long-standing recognition for its advancement in a telecommunication system and mobile technology (japan.go.jp, 2020).	The technological advancement will allow JD Sports to excel in its digital advertisement in Japanese markets. JD Sports can install the new store-based application as mobile phones have reached the maximum population.
Environmental	It is found that the Japanese population is concentrated in and around Tokyo due to coverage of mountain and forest for most of the island. Japan is an island country in East Asia, surrounded by water and prone to frequent earthquake and tsunamis (env.go.jp, 2020).	The problem of land covered with natural features will be problematic to JD Sports in the market expansion segment in different parts of the country. It will be challenging for JD Sports to transport raw material and finished goods from the home country, UK. The commonly occurring natural calamities will cause difficulties in the installation of stores and warehouses.
Legal	The legal system of Japan follows the European system that focuses on Labour and Corporate Laws (ilo.org, 2021).	This will enable the smooth functioning of JD sports in the Japanese markets. The Japanese labour force will find it easy to comply with the terms and conditions of the JD Sports Fashion PLC.

Table no 1: PESTLE analysis

(Source: created by the learner)

The PESTEL analysis will provide detail on how to progress in the Japanese market concerning the above factors.

Porter’s five forces framework

The business environment for every company faces severe competition in the market it operates. Therefore, it is significant for the firm to identify the strategy potential profitability. Michael Porter created a powerful tool in 1979 to evaluate a sector's or a firm's profitability and corresponding market status called Porter's Five forces (Jancenelle, 2017). It identifies five different elements that are competitive rivalry, supplier power, and buyer power, the threat of substitution, and the threat of new entry. This section analysis JD Sports through the application of this tool (Goyal, 2020).

Competitive Rivalry (high) – JD sports belongs to the retail industry of the United Kingdom market that has a scenario of perfect competition among the sellers. It faces intense competition from its rivals that are Foot Locker and A Bathing Ape. In the set-up of a perfectively competitive market, the buyer is the price maker and the firm is the price taker because that implies that as the competition increases the price of the product drops down accordingly. Thus adversely affecting the overall productivity and profit margin of the company. JD sports has tactfully handled the market competition through the methodology of product differentiation and increment in the returns to scale of each quarter correspondent to the market position.

Supplier Bargaining Power (high) – The bargaining power of the suppliers advantageous them to reduce the quality of the product hike up the market prices or button up or down the market supply. It helps in constructing and adjusting the structure of the market. The prices and availability of the raw materials for the production of JD sports commodities play a significant role in determining the bargaining power of the company. Another factor that can cause an impact of the bargaining power of JD Sports is the dependence level of its customers on the sale offered by them and the availability of substitutes in the market. JD Sports have decided to increase their bargaining power by incorporating third-party manufacturers.

Buyers Bargaining Power (high) – The bargaining power of the buyers in the market is largely responsible for acquiring the equilibrium position for the product. The demand for the product needs to match up with the supply by the producer. Many factors determine the power of consumer but the major driving forces are the discounts based consumption and the availability of the new products. JD Sports serves a variety in its collection and is the major outstanding market pinch it implies. It helps in retaining the regular customer base and maintaining the returns to scale of the company. In addition to it, the fashion retail company also indulge in launching new products now and then to attract more customers as opposed to its rivals.

The threat of Substitution (High) – It is a market conjoint that every company faces that deals in a perfectly competitive scenario. Every consumer that enters a market place to make a purchase looks for substitute products to make a better judgement call. Thus almost every product in the market, unlike industry, faces competition in the form of substitute. The example of such a kind can be tea or coffee and McDonald's or Burger King. The key factor in the substitute product is that the prices and quality are almost the same and the switching cost benefits the customer. JD sports products are fashion-oriented; therefore, a threat to substitution is common in this genre. It can eliminate the fear of product extinction by constantly launching different styles in the market and understanding the requirements of the consumers.

The threat of New Entry (high) – Entry and exit criteria in a perfectly competitive market is boundless that implies that the firms enjoy free entry and exit as opposed to other forms of market. Every new entry brings variety in products, new lowered pricing strategy, innovation and new processing techniques to the existing level of the market. JD Sports is a part of the retail sector therefore the scope for every new entrant in the segment is huge. It can bring different design aligned with the customer preference and satisfaction level. JD Sports have indulged in different measures to tackle the tiff proposed by the new entries that include lowering the fixed costs per unit of production. The company enjoys supernormal profits in the short run, which balances the price and marginal costs of the products. This enables the company to further bring down the average cost, leaving room for heavier investment to introduce new products.

This section emphasizes the extent of external analysis using PESTEL and Porter's five forces framework. This gives insight on how the company processes on the front-end and evaluates its market status.

Internal Analysis

VRIO

The competition in the market is a threat in progression to every firm and its existence. Jay B. Barney introduced the concept of VRIO analysis to evaluate the microenvironment of any firm through financial resources, human resources, material and non-material resources (Hernández et al., 2018). VRIO analysis that focuses on the value, the rareness, the cost to imitate and the organisational capacity to capture the value of the resources utilised by any firm (Yudiono et al., 2019). This model is competent in answering whether the firm stands at a competitive advantage or disadvantage. It is an effective methodology to analyse the internal aspects of the organisation. This section of the report will analyse JD Sports fragments associated with internal processing.

Value – A deeper analysis of the value of the resources utilised by the organisation gives insights on whether it is suffering from a competitive disadvantage or not. JD Sports Fashion PLC has valuable financial resources that provide backing to the company in situations of monetary setbacks. It also provides full-fledged funding to the company to delve into the research and development segment for premiering new products to the market. Human resources of the retail fashion business are resources and hold great value as the company hires trained labour. The designers and employees working on product development are highly competent with the new technologies and fashion trend of the market. In addition to it, the company's cost configuration brings the utmost value as the structure deeply focus on the pricing strategy affluent to customer needs. The research and development also hold high value in terms of new product launch through varied design forms.

Rare – The question of the rarity of the used resources under the VRIO analysis determines the peculiarity of the company's products and services. The financial resources of the fashion retail organisation depend majorly on the cash reserves, returns on equity and investment, and the operation of Cash Flow Margin. This is a rare technique used by JD Sports to fund and support its findings. It has earned a 13.98% on its income that amounts to 854 million GBP (markets.ft.com, 2020). The human capital of the company also marks a rare existence in the market due to the intensity of the quality it brings to the plane. Its employees are highly compensated to ensure their continuance with increased productivity. Cost structure followed by JD Sports is also rare and so is the research and development division. This is due to different pricing technique and inventory methods.

Cost to Imitate – Practise of imitation concerning the products and services of any company follows two distinctive ways. It includes the duplicity methodology and the substitution methodology. The cost incurred in imitating any product or service from the market puts deep emphasis on the internal analysis of the organisation. JD Sports has gained recognition in the market through the marvellous service in the fashion-oriented retail market. This makes competitors difficult to imitate their commodities. In contrast to the above statement, given that JD sports specialise in fashionable goods, the imitation of ideas and design are very common. It also manufactures casual wear for different brands. The cost to imitate the financial resources are high as the equity analysis of JD Sports shows heavy involvement of stakeholders (). In addition to it, the research of the company works in an enigmatic way so the cost of imitation is very high. Therefore, it is not that difficult for the rivals to imitate the products and it puts the company into the category of temporary competitive advantage.

Organisation – The organisational structure of any company focuses on equitable resource allocation. Financial resources of JD Sports are distributed equally across all the subdivisions of the firm. This enables the company to reap profitable results per division. The human capital efficiency is proportionately organised to ensure that each department and each team is fully resourced with the labour force. Cost structure resources are organised in a way that states more investment in factors catering variable cost than the ones for fixed costs like heavy machinery and instalment of new warehouses. On the contrary, research and development of JD Sports put an example of an organised culture where a detailed emphasis is laid on all the areas of study.

Tabular representation of VRIO

Resources	Value	Rare	Cost of Imitation		Organisation		Results
Financial resources	?	?	?		?		Temporary competitive advantage
Human resources	?	?	?		?		Long-term competitive advantage
Cost structure	?	?		?	?	Unused competitive advantage
Research and Development	?	?		?	?	Temporary competitive advantage

Table no 2: VRIO

(Source: created by the learner)

This section elaborates the internal analysis of JD Sports through the tool of VRIO analysis. It states that human resources are at a long-term competitive advantage. Financial and research and development stand at temporary competitive advantage whereas cost structure evaluates at an unused competitive advantage.

Strategic recommendations you propose for the organisation (s) given in the case study to strengthen its current position in the given Market

Identification of Competitive Strategies

Bowman’s Clock

Bowman’s clock strategy was introduced in a remarkable paper of “Competitive and Corporate Strategy” that was published in the year 1997 by Cliff Bowman and David Faulkner (Kim, 2020). It is utilised as an instrument to position any firm in a particular market based on the pricing strategy and the recognised value. A product's predictive position that will provide the most competitive station in the market is strategic positioning. The word 'clock' in the name resonates with the eight positions in a marketplace, across the clock. This strategy is an extension of Porter's generic strategy. It elaborates on the eight positions namely low price and low value-added, low price, hybrid, differentiation, focused differentiation, risky high margins, monopoly pricing and loss of market share (Nacke, 2019). The details of these loci are discussed below in context to the Japanese market, a case study of expanding JD Sports into an Asian market.

Figure 1: Bowman’s Clock Strategy

(Source: aqua.org.uk, 2021)

Low Price & Low Value of JD Sports Fashion PLC

This position serves as the least competitive position in the marketplace. It does not attract customers due to the low quality of the product despite a low market price. This position levels with bargain-basement strategy as the competition still exist due to low prices. It is a good strategy to implement if the focus is to expand the company reach and is conceded to imminent businesses. JD sportswear specialises in selling apparel at low rates across its current divisions. On the other hand, Japan's retail market offers products and services that target the middle section of the society. Therefore, the strategy of low price and low value will be a good move while expanding its reach in Japanese markets. The target customer will be the lower middle segment of the economy. Japanese counterparts of JD Sports that are COMME des GARÇONS, A Bathing Ape and Undercover focus on quality and compromise on the market price. This edge out the customer needs branching out from people earning below the average real income.

Hybrid

The product existing at this locus of the market serves two distinctive features that are low prices and product differentiation. It serves as the moderate operation strategy of expanding market reach. The goal is to influence customers that there is a wholesome value added in the commodity through the amalgamation of an economical price and satisfactory product differentiation. This is a very effectual positioning strategy mainly if the benefit involves consistent work. JD Sports complements its cost structure through reinvestment techniques and cost-cutting methodologies. This will add to the revenue of the company and bring a wider customer base. The expansion of JD Sports Fashion PLC in the Japanese economy by following the hybrid strategy will result in acquiring a competitive position. This extended idea of product differentiation will bring a broader consumer foundation. It will be advantageous to JD Sports Fashion PLC to bring variety through targeting all age groups in the department of sportswear. Advancing the product scope by launching new sports equipment ranging in low prices will flock many more consumers as compared to the previous scenario. JD Sports need to focus on the quality as the existing companies, like, A Bathing Ape is versatile in providing the same. This has made the consumers of Japan prone to quality products.

Differentiation

The Bowman's clock strategy mentions many positions, out of which differentiation is a common practice among companies that focus on brand recognition. The primary goal of any firm that implements this strategy is to offer consumers the highest worth of distinguished value added to the product. The chief motive behind the enactment of this strategy is to promote the brand name by offering the best quality in the market. The target served by this strategy focuses on building a trust-based relationship with the consumers. JD Sports Fashion PLC can stretch through the initiation of subsidiary products branching from its main sale. The differentiation strategy supports the organisation to claim relationship based on loyal and trust. Therefore, uplifting the company’s strength to endure in the highly competitive market, as in this case the Japanese retail market. This strategy will give JD Sports an upper hand when compared with its Japanese rival company, The Long Yong.

The above section highlights the importance of Bowman's Clock Strategy in positioning the product's existence among the rest of the product. It provided details on the different particular position and how JD Sports will benefit if any of these strategies is implied to expand and strengthen the market reach.

Strategic Directions and methods of expansion

ANSOFF MATRIX

Ansoff Matrix was developed by Igor Ansoff in 1957 to develop into strategic management planning through a vector matrix of growth (Loredana, 2017).

Market Penetration – The first quadrant of the Ansoff Matrix focuses on market penetration by applying strategies that will enable the company to sell more of existing products to the existing customers. It is a conjugation of current products and markets (Dawes, 2018). Markets of the UK is well established concerning casual wear. Therefore, market penetration can be applied through the method of the target customer.

Market Development- Market development focuses on existing products and new markets. It develops into strategies that will help the organisation to cater to new customers and build the brand name of the company (Martins, 2020). The existing products offered by JD Sports re quality-oriented and align with cheap prices. Therefore, market development in the Japanese economy can be successful due to quality focus.

Product and Development – It focuses on developing the existing products and services of the company into the markets that are already operational. This strategy gives the company an approach to develop into the research and development division of the company (Sukma et al., 2019). JD sports can achieve product development through attaining Under Armour and ASICS in Japanese markets.

Diversification Strategy – This strategy emphasis on developing into new markets with new products and services. This will enhance the sales among the existing customers and will broader the new consumer base in the new markets. (Cleberg, 2019). This helps in penetrating the already established market and widen the brand name of the organisation. JD Sports can advance into launching new products for everyday life through digital magazine and brochures.

Market Expansion

The fate of every company is dependent on the strategies it uses to expand its market reach. The stage of an organisation’s life that yield opportunities and risks is the stage of business expansion. This section evaluates different methods of the same.

Corporate Expansion – Corporate expansion refers to the method of expansion that the company adopts to start its stores or operational centres in different locations. This method of expansion is very profitable for JD Sports, as it has already utilised this method to expand into the South Asian market of Malaysia. It can utilise the method of an asset purchase or consolidation.

Joint Ventures – It helps in expansion as it allows the access of the partner’s market and their existing customer portal.

Limited Partnership – This method develops the idea of involving into partnership but only accessible to a certain number of enterprises.

Licencing - It helps in policing trademark that is an exhibition of the streak but cannot provide substantial backing to the licensee or significant control over the licensee.

This section will provide a strategy for the growth of the company in Japan. It also shed light on the different methodology of market expansion.

Conclusion and Recommendation

The report lines out various market measures of the company that can provide strong recommendations to the company. The growth can be accelerated through product involvement in different types of market that are monopsony and oligopoly. The company can also expand more based on the innovation of product design. Many small and cheap brands around the world that can be included in the retail business of JD Sports to fetch new customers. These recommendations will enhance the brand recognition of the company and reach the target customers of the market.

The report has briefly highlighted the external and internal environmental analysis of a retail company, JD Sports Fashion PLC. It has brought the key factors that will help the company to build on its strengths and work on its weaknesses. The PESTEL analysis gives details on the different macro-based factors that can cause an effect on the company. In addition to it, the report has also shed lights on the Five Forces Framework. This will help the firm to take detailed decisions to progress in the market front. The report also carries a VRIO report analysis that positions JD Sports in the market among its competitors based on its development. In the later section, the foci of the report shifts to the identification of competitive strategy where the implication of Bowman's Clock Strategy discusses how to expand market reach in the Japanese economy. In addition to that, the method of expansion used under the Ansoff Matrix through the strategic process is presented.

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