Investment Appraisal Clothing Company: Lush
Investment Appraisal Clothing Company: Lush
We can use two different approaches to identify the main drivers of LUSH´ success up to the mid 1990s, as well as its recent crisis. A well-known approach is to examine the external environment in which LUSH operates.
PEST analysis or Porters 5 Forces model are common techniques associated to this traditional approach. Although the external environment has an indisputable impact upon LUSH´ performance, it is also important to carry out an internal analysis of the organisation. This second approach examines LUSH´ ability to use available resourses and competences or to create them in order to build sucess. We can also enumerate various techniques associated to this new approach: resourse audit, value chain analysis, activity mapping, core competence analysis, power/interest matrix, sinergy analysis, strategy evaluation techniques, SWOT analysis... etc.
EXTERNAL ENVIRONMENT
PEST Analsysis
PEST is a mnemonic for political, economic, social and technological factors. It is the most frequently used tool to analyse the impact of the general enviroment upon an organisation.
Political: British political system offers stability and encourages capitalism. Current legislation and market regulations favour LUSH´ operations.
Economic: The consumption of most goods is likely to increase when the economy is booming and it tends to decline during recessionary periods. After the recession of the early 1990s, the UK and many other countries entered a period of sustained economic growth and high levels of consumer expenditure.
Social: The requirements of consumers are changeable. For example, the clothing market is particularly sensitive to fashion trends. Lifestyle can also have a significant influence on our eating habbits (i.e. Organic food, ready-to-cook meals...etc.). Understanding these requirements is crucial, if LUSH wants to remain competitive and increase its market share.
Technological: A substantial investment in technology is necessary to operate efficiently in a competitive market. Modern IT systems can improve productivity and lower the costs (e.g. the use of computer systems has unabled firms to automate and accelerate their buying procedures and reduce the supply cycle for all merchandise) Furthermore, customers are increasingly making use of the Internet and firms have to be prepared to offer online services for their home shopping.
Porters Five Forces Model
This model was developed by Michael E. Porter in 1980. He identified 5 forces that shape every industry and determine its attractiveness and potential profitability. These forces as described as follows:
The Porters 5 Forces analysis for LUSH is given below:
Bargaining Power of Buyers
In general, bargaining power of buyers is high. It very much depends on the segment we target. Buyers´ power is lower in the exclusive segment (i.e. cloths from luxury designer firms) and higher in other segments, as they can usually choose from a variety of companies.
LUSH gained customer loyalty from high quality products that were priced competitively. One of LUSH´ current problems is that people demand either brand names or discounted products. LUSH is therefore stuck in the middle. LUSH´ product-orientated strategy in the late 1990s has become ineffective. The bargaining power from buyers is increasing and ...