Sustainable competitive advantages
Strategy is concerned with matching a firm’s resources and capabilities to the opportunities that arise in the external environment.
The North Face identify its resources and evaluate them to identify the key resources which give them the competitive advantage and protect them to maintain the strategic advantage from other competitors. In order to increasing competitive advantage TNF management team need the understanding of the strengths and weaknesses of the workforce then establishing the HR Development function as a strategic partner. Understanding and the way TNF manage to combine resources and capabilities is a key that make them sucessful.
Furthermore, as mentions above, TNF follow a top down approach and it enables TNF to maintain a high position in the customer’s mind. Most of their marketing activities concerned high end consumers because they are most frequent users of the company. And technocrats tend to be opinion leaderships. They would share their experience through word – of – mouth communications and that likely to attract more customers.
SWOT analysis
To truly value and analyze the future prospects of North Face, we felt it necessary to gain an insight into the company’s strategy, its future plans, its position vis-à-vis its competitors, and the industry dynamics that affect the long-term performance. We started by performing a SWOT analysis.
North Face’s strengths lie in its brand equity. The company’s products are well known and accepted not only by the individuals looking to climb Mt. Everest, but also by the college age group who sports the company’s jacket and backpacks. North Face Products range from casual apparel to equipment to outerwear to rugged footwear and snow sports gear. These represent main categories under which you will find such items as T-shirts, thermal underwear, anoraks, jackets, parkas, sleeping bags, pullovers, vests, sweatshirts, full body suits, etc. The company’s goal is to offer the most technically advanced products in its industry and to establish the industry standard for quality and performance.
Though it is hard to continuously be profitable selling consumer durables, the company has been able to be successful because it regularly reviews its product lines and actively seeks input from a variety of sources including elite athletes, retailers, consumers and suppliers. The company has an excellent product development team, which includes experts in textiles and design engineering. The company also enhances the reputation of its products by including climbers, explorers, and extreme skiers in its research and development team. With these factors, North Face has been able to sell its product by pushing the status button reaping premium prices for its products.
Unfortunately, the premium brand is the extent of North Face’s success. Its major weakness is with its internal management who has consistently done a poor job managing the company financially. As a result, returns to shareholders have been minimal and the stock price has continued to decline. The poor financial performance of the company has affected its standing in the market and has also affected its ability to take advantage of the different opportunities present in the industry.
Besides, Jack Gilbert, the Sales and Marketing Vice President stated that a North Face retail operation would damage the company’s excellent relationship with its dealers. As the result, the dealers may not give too much their business to the company. Furthermore, entry into expanded retail operations was not a profitable strategy in the short run, (Adapted from TNF case). It is critical for the company to balance the scale of dealers and retails, with the limited financial resources.
North Face’s opportunities are few as the company already carries a diverse line of products. With proper positioning and advertising, the company can maintain and enhance its brand equity, drawing consumers to its stores. Currently, the company only operates three retail stores in California, three in Illinois, and two in Colorado and one in Washington. The main opportunity for North Face is to open more retail stores through the United States as a way of expanding its customer base.
E-Commerce is also another form of outlet that needs to be developed as more consumers are now turning to the net for shopping. However, such expansion in both infrastructure and technology would require significant cash outlays to which the company currently has no access.
Threats for North Face are in the form of the competition. More companies are popping up with similar product line and are very successful at building their own brand equity. Amongst the most important ones are Columbia Sportswear Company, LL Bean, and K2. These companies are well positioned with strong financials, which will enable them to continue building their brand equity and taking advantage of opportunities that come their way as they grow their business.
From the analysis, it is clear that with regards to products and market recognition, North Face is well positioned for success with product line of skiwear. However, management has been extremely ineffective, destroying value for their shareholders. With limited on financial, North Face is currently a “dog” in the market.
External analysis
Macro trend analysis
Demographic environment: Increased Number of Teenagers/Aging Population
The apparel industry will change with demographic trends. It is expected that over the next ten years, the number of both younger and older households will increase, while the number of middle households will contract. Companies are accustomed to servicing the middle group, and will now have to find new strategies to meet the new faces of the consumers. There is good news associated with the shift in demographic trends as the teenager and young adult markets provide new profit opportunities. On the other hand, the aging segment of the population with more disposable income at its reach is also a good niche for companies. Also, older individuals will have more time for leisure/outdoor activities increasing their need for casual clothes. For more detail on number, see following table:
U.S. Population from 1998 to 2015
Socio-cultural environment
• Changes in Lifestyles: Consumers are becoming more active outdoors as can be seen with their increased participation in a variety of outdoors activities such as camping, hiking, and backpacking. A 1997 survey by the Travel Industry Association of America indicated that one-half of U.S adults, or 74 million people, have taken an adventure travel trip in the past five years. This is good news for ski wear market.
• Dressing differences: The US has experienced a shift toward casual attire both at home and in the work place increasing the amount on money spent on such items. A growing number of employers have implemented casual dress days, which has significantly benefited the apparel industry.
Economic environment
• The fact that the U.S. economy as a whole has experienced modest inflation, low unemployment, and a booming stock market. The effects of these factors have trickled down to the apparel industry in the form of increased spending.
• Rising income: Baby boomers are experiencing a rise in income associated with the bull market. Increased gain in personal income has led to an increase in personal consumption expenditures with individuals in higher income brackets spending more money. It is important to note that consumers are spending more in general but are very reluctant to spend significant amounts of money on one particular item. Pricing is very important to these savvy consumers and company now needs to create extremely sophisticated advertising mechanisms as a way to justify the increased expenditures.
Technological environment
The IT industry also includes companies which not only use, but, more importantly, design, build and supply the means for electronic commerce. Assemblage of computers, networks, software, and related computer services makes electronic commerce possible. TNF has done little so far to integrate its IT into the fast growing business-to-business (B2B) electronic commerce, which has been one of the major channels by which companies have been able to overcome their distance to market limitations. Still, in computer services, proximity to the customer is essential because the best way to clearly identify market opportunities is through familiarity with cultural, administrative and regulatory issues that clients need to address. As a result, most service companies concentrate on regional and national markets, implying that commercial presence, in various forms, is an important mode.
Globalization
With fierce competition, TNF have turned to foreign companies as a way to boost sales, cut costs and increase operating efficiencies. This has led to the expansion of offshore manufacturing, which is highly influenced by trade regulations. In addition, many companies have elected to increase sales operations overseas in an effort to boost revenues.
Natural environment
The Conservation Fund's - Go Zero program works with a diverse group of partners to develop solutions to global warming. Partners range from local communities to public agencies to leading companies to committed individuals. The North Face partnered with Go Zero to offset the annual carbon dioxide emissions from its staff travel and annual sales conferences. Through the Go Zero program, the company will establish the first "North Face Forest" as a lasting legacy for the company, its customers and employees. However, with global warming in the future, the ski market will face many difficulties.
Five force analysis
Rivalry among present competitor: Apparel industry in general as well as skiwear market in particular is very volatile and demand of consumer changes in fashion. There has been some consolidation as companies look to gain economies of scale and create brand equity across product lines. The industry is now quite stable. Thanks to e-commerce which is changing the face of the industry as it had provided an extra outlet for sales. This has forced companied within the industry to quickly adapt to the technology in order to remain competitive.
The main competitors of TNF are Columbia Sportswear, LL Bean, Nike, Mizuno. LL Bean and Mizuno are privately held companies; it is difficult for us to gather information for comparison. Columbia Sportswear is the number one US skiwear seller and one of the world’s largest outerwear companies. Although Nike is doing better financially than TNF, the company is also fighting a battle to remain competitive. According to figure in 2007, among Columbia Sportswear, Mizuno, TNF, Brooks and Asics, the market share of Nike made up about more than 80%.
Threat of new entrants: Threat of new entrants in the consumer apparel industry in general as well as skiwear market in particular is always present, because new designers and companies are always entering the market. Barriers to entry are not large enough to prevent entry. However, as the fashion industry is highly volatile and consumer’s demands are diversified and always change, the risk of failure is high for new entrants. Moreover, these companies’ ability to effective compete against The North Face, Colombia Sportswear or LL Bean (firms with established brand equity), is minimal.
Bargaining power of suppliers: TNF relies on approximately 50 unaffiliated manufactures to produce nearly all of its products. There is no long-term contract and any disruption in the company’s ability to obtain manufacturing services could have a material adverse effect in the company’s business. Another foreseeable problem is the ability of the suppliers to stop supplying to TNF for non-payment. It is difficult to manage its suppliers who will be able to stop supplying the company, especially when the company encountered financial problems.
Bargaining power of buyers: Consumers are now more demanding and even more knowledgeable. They are so fickle especially with respect to fashion. Moreover, they are price sensitive and do not hesitate to move to the competitor if an item falls short of their expectation. Therefore, the bargaining powers of buyers are increasing.
Threat of Substitutes: Threat of substitute is not a major factor to TNF. There is often no major differentiation amongst the items with the exception of the brand. As long as TNF remains in production and continues to produce high quality products, substitutes will not affect the company’s ability to grow.
In short, according to the analysis above, the ski market can be seen as attractive to TNF. However, it has a tendency to decrease.
Conclusion from External analysis
From all of these analyses mentioned above, we can conclude that there is still a good chance for TNF to invade the new market for skiwear. In addition, in order to minimize the negative effects of weaknesses and threats, firm should try to maintain and develop its excellent traditional skills to deal with the conflict as well as its output channels. Beside, TNF might need to find a new market for the substitution.
Marketing Strategy
The top down approach
The top down approach can be considered as one of the North Face’s critical success factors as mentioned above. It is common for a company to cut down cost in order to meet increasing demand. But Knapp wished The North Face could maintain a high position in the customer mind. Therefore, the company focuses on a niche market for mountaineers and backpackers.
Knapp also discover that by using this approach, the company can influence the word – of – mouth communication, which is a field that marketers have less power to influence over. This help the company build strong market image which encourage customer to repeat purchases.
- Potential market – ski wears market
The North Face became a market nicher, targeting “climbers, mountaineers, extreme skiers, snowboarders, and explorers”. However, Knapp realized TNF’s product had reached its maturity period so he decided to introduce the ski wears line to the public. The target market is the extreme athletes or individuals who use skiing as a hobby rather than a way of life. It targeted mostly Generation X (29-42 year olds) and Generation Y (18-28 year olds) or the active baby-boomers. Because TNF is famous for its product’s quality and excellent service so it could be said that TNF might stand a chance in gaining share in the ski wears market. It is also a promising industry due to the increasing number of teenager and who are very keen on outdoor activities especially skiing.
Recommendations
In the past, TNF provided high quality at high price products; therefore target individuals must be well off to afford them. However, the customer is more price sensitive and seeks comfortable rather than high quality, TNF should keep the ideas of high quality but adjusting reasonable price.
TNF was not a pioneer in ski wears market. However, as a follower in this market, TNF is able to take advantage because they can learn from other’s competitors’ mistake. As a newbie in ski wears, TNF should push up their marketing activities so consumers would recognize their brand name.
In 2008, TNF co-operated with Twitter and I-phone to create “The North Face Snow Report”. It is a special weather report on mountains areas. It informs all the weather detail to subscribers as well as recommendation on what they should prepare themselves if they decide to go for a skiing trip. It is an electronic marketing activity on mobile to help consumers gain awareness about the new ski wears products of The North Face.
The North Face could also continue use their effective word of mouth communication through technocrats or celebrities. Famous mountain climbers or professional skiing competitors should be hiring to be the spokesperson or they could be the opinion leadership as consumers perceive them to be expertise in particular field.
Conclusion
In the conclusion, with critical success factors that are analyzed above like external and internal analysis as well as marketing strategy, TNF can be seen as quite successful in skiwear market. However, there are some weakness and threat that TNF has to face. Thus, firm should try to maintain and develop its excellent traditional skills to deal with the conflict as well as its output channels. Moreover, TNF should find a new market for the substitution.
Reference
Haberberg and Rieple (200)1: the strategic management of organizations, chapter 7
Leonard-Barton, D. (1992). "Core Capabilities & Core Rigidities: A Paradox in Managing New
Porter, M. E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press)
Dan Butcher (November, 3, 2009), The North Face targets skiers, snowboarder with iPhone applications, viewed October, 22, 2010
Appendix A: The North Face Company’s background
The North Face, Inc whose name refers to the most treacherous side of a mountain in the Northern Hemisphere was started in 1965 as a retail store by Doug Tompkins and is devoted to mountaineering equipment and supplies. Throughout the 70s and the 80s, the company was very successful, as its product innovation was the best in the industry. Its design of geodesic dome tents and synthetic bags set the industry standards for these items. During the late 1980s the company made a fatal move by entering the manufacturing side of the business. The company experienced a severe downturn leading to its acquisition by Odyssey Holdings International (OHI). Unfortunately for North Face, OHI declared bankruptcy in 1993 and North Face was sold at auction to J.H. Whitney & Company. Three years later the company went public. The company’s problems have persisted throughout the late 1990s. Accounting problems plagued the company, which has led to consecutive financial restatements. The restatement for 1998 lowered previously reported earnings by 62%.
Though the company is in severe financial difficulties, its customers seem to be somewhat oblivious to its misfortune. For the six months ending June 1999, sales rose 19% and in 1998 sales grew by 18.6%. North Face’s product line consists of high-end outerwear, skiwear, and equipment for mountaineers.
The company’s goal is to increase brand awareness by projecting a high quality, technically sophisticated and authentic image that appeals to professionals and serious outdoor enthusiasts. North Face’s products are sold primarily through specialty outdoor, premium-sporting goods. In 1996, the company introduced the Summit Shop concept, which is a store within a retail store dedicated to selling North Face products.
