Founded by the present non-executive director Sally Synnott and later sold out, Pumpkin Patch Limited is a child clothing brand that is located in Auckland, New Zealand. The brand mostly focuses on marketing, retailing, and wholesaling of clothing. In addition, the company has various retail stores all around Australia, New Zealand, United Kingdom, the United States, and Ireland. In essence, together with company’s subsidiaries, Pumpkin Patch Limited engages itself in the design, retail, marketing, and wholesaling of children’s clothing mainly in the UK, New Zealand, Australia, and the United States. It offers its clients every-day wear, nightwear, footwear, swimwear, and other accessories. Apart from that, the company also provides its customers with maternity clothing and even sells its products through the Internet and catalogue. In general, Pumpkin Patch Limited operates a total of 250 stores located in various parts of the world (Rama 2011).
This paper conducts an internal and external analysis of the company and determines strategies that the company is using to maintain its position in the industry. The analysis includes 13 individual steps. It also incorporates five forces that affect performance of a firm within and outside an industry.
External analysis of Pumpkin Patch Limited
Step 1- Which industry does the company belongs to?
It is the first task that needs to be done in company’s analysis. It identifies the industry that a firm belongs to. The company was established in 1990 by Sally Synott to fill the gap in the children’s wear market. Today, the company is a leader in children’s wear. It has tried to enter women’s wear market but failed. The company, therefore, belongs to the apparel industry. It had become the leading children’s wear retailer in Australasia ten years after its establishment.
Step 2- General environment analysis
General environment analysis refers to economic, socio-cultural, global, technological, political/legal, and demographic factors that affect the industry. Pumpkin Patch is among the most respected companies in Australasia. It has a plausible corporate social responsibility with their family oriented culture. They also encourage friendly environment among employees where they ensure that 16 % of shares are owned by their employees after the company was placed on the stock market (Story 2004). This ensures that employees take the company as their own and that they spearhead design outsourcing in order to improve their company. The company had no legal or political restrictions since the moment it was established. Therefore, it has established franchisees in the US and the UK successfully. However, operation of these franchisees had been subjected to quotas in these two regions in order to ensure high quality of goods. In this case, the company has ensured that their goods are checked for quality. This process begins before the clothes are weaved and follows about ten steps. This ensures that the company has the best products that meet European and American standards. Generally, it has not been involved in scandals or issues that could destroy its reputation. Due to this, the company can grow across the world without restrains. With increasing globalisation, it has a lot of potential in winning the world children’s wear market though it has a strong competition from the UK and US producers.
Step 3- The industry environment five forces
According to Porter (2008), there are five forces that one must consider in order to successfully conduct company’s analysis. The five forces are discussed below.
1. Threats of entry. Newcomers’ entry into the industry creates a threat. Barriers to entry are capital requirements, supply side economies of scale, demand side benefit of scale, and incumbency advantages independent of size. New entrants into the market also result to changing customer prices, unequal access to distribution channels, and restrictive government policy. When the company got into the US market in 2000, there was an important process that the company went through to ensure that their goods met US standards.This was as a result of increased number of poor quality goods being produced in Australasian industries such as China and India. This resulted into more strict regulations for Pumpkin Patch as well as increased quotas.
2. The power of suppliers is significant to any company. Reputable suppliers can contribute to increased sales and popularity of a company. Controversial ones will result to the opposite. At the same time, it was notable that suppliers can contribute to the downfall of a company. The closest Pumpkin Patch competitors had been their former suppliers. This led to their rise in the industry despite having been established in 1996, three years after the establishment of Pumpkin Patch. It is important that the company keeps their suppliers so that they do not become competitors after sometime.
3. The power of buyers determines the performance of any company to a great extent. Their tastes and preferences for products bring the difference in performance between companies within the same industry. They create the demand for a product, and if the price and demand is favourable, the company is able to increase its sales. Pumpkin Patch is the leading children’s wear company in New Zealand. Their products are ranked highly among home buyers. Nevertheless, there are better companies in the overseas market and the company success has been lower in their overseas markets than in their home market.
4. The threat of substitutes is an important factor that the company has to consider. However, apparel industry can rarely be threatened by this factor and Pumpkin Patch and other players in the apparel industry do not need to worry about it. This is because there are no substitutes to clothing and being in the apparel industry, Pumpkin Patch is safe.
5. Rivalry among existing competitors is an enormous factor that any organisation has to consider before expanding or even setting up their businesses. The overseas market for children wear is dominated by Wal-Mart and other discount stores. This can be attributed to poor performance of Pumpkin Patch in American market. Regarding competition issues, Pumpkin Patch has been successful in winning New Zealand’s market to its advantage making it hard for foreign retailers to penetrate that market.
Step 4- Competitive environment
This process determines strategic groups that a firm needs to consider in order to establish its strong position in the industry. The groups, if any, are evaluated and their capabilities are determined. Threats or opportunities that they pose to the firm are analysed so that adequate measures to strengthen firm’s position in this group are then put in place. Pumpkin Patch has taken advantage of their industrious designers who come up with new clothe designs every time to ensure that the employees stick to the organisation (Story 2004). If they left Pumpkin Patch, the company reputation would be lost, since their ability to develop new designs would be reduced. To keep them, the management team has ensured that the employees own the company by allowing them 16% of its ownership.
Step 5- Opportunities and threats can be pulled together now
At this point, one can follow all previous steps to determine opportunities and threats that a firm faces from the external environment. Their opportunities are the potential growth through online retail marketing, as well as increasing market in the South African market. Some of the threats are the recent global economic crises and the risk of foreign exchange. Another threat is the overseas market that reduces the chances of the company to venture in these markets.
Step 6- The firm resources: tangible and intangible
This stage determines possessions that the company has that would aid it in its operations. Tangible resources are those that are physical and can be physically determined such as manpower. Intangible are those that can not be physically seen such as expertise and skills, as well as position in the market. It ranges from technology, labour and expertise, assets among others. These are resources that help the industry to remain in business against all forces that pull it down. Among the most important assets that the company has is its big home market. This makes them the leading company in children’s wear in Australia and New Zealand. Further, there is dedicated manpower that is able to work with company’s success on their mind. This is because they own up to 16 % of the company. Pumpkin Patch is also getting higher profits that will allow it to grow and develop with time. The company has also increased their size through the acquisition of other businesses. The 2004 acquisition of 14 HBK girl stores ensured that the company was able to cement their high sales of their newly launched brand Urban Angel.
Step 7- Capabilities identification
This is the process, where one tries to determine what the firm can do. In most cases, it determines what the particular firm can do that other firms within the industry may not be able to. Pumpkin Patch can effectively retain their home market and this can result to the growth of the company. At the same time, the company is using a youth friendly system to sell their products and this will ensure that their sales will increase along with their strong status in the home market. This way, the company has a high chance to grow globally.
Pumpkin Patch Limited’s strategic plan puts more focus on consistent growth of company’s core markets of New Zealand and Australia and also delivers consistent profits caused by growth in its Australian market in the near future. The company intends to continue to increase its earnings and sales through using its strategies that are similar to the ones it has used successfully during the past 10 years. Pumpkin Patch strategy is mainly built around the idea of selling leading edge children’s fashion through various channels, which include company’s own retail stores, various selected department stores, mail order catalogues, the Internet, and wholesale distribution arrangements. Company’s history, which includes successful expansion of markets, channels, and products, has positively contributed to company’s success (Griffin 2004).
Step 8-Core competency analysis
Analysis of key strengths that a firm possess over other firms in the industry should be carried out. Uniqueness of these strengths that prevent other firms from using them should be analysed as well, determining whether they are too rare, too costly to be imitated, or whether they cannot be easily imitated by other firms. They differentiate a firm in an industry.
Pumpkin Patch has established itself as the best in the Southern hemisphere. This is why they have continued to produce better products within Australasia region with Chinese and Indian clothing becoming questionable in terms of their quality. The company has outsourced manpower to increase its creativity. This ensures that they are able to bring in new and more appealing products to the market. The company also controls its manufacturing, warehousing, and retail distribution, which ensures that it gets the highest profits. It also uses the now popular Internet to market and make orders. This technology gives the company upper hand in the industry due to the Internet popularity especially among young mothers.
Step 9 - Value chain analysis
Primary and supportive activities that the firm depends on are examined at this stage. The effects of external environment are observed and trends that affect these activities are examined. External environment keeps the company focused in its ability to compete in the industry. The company uses other companies’ designs to produce better and improved products. This ensures that they remain a leading company in the industry in its areas of operation. It also uses the Internet to market its goods. This step has proved to be successful in retaining company’s market position. Its value chain has been hailed by many people due to its efficiency and potential.
Step 10 – Weaknesses
Company’s weaknesses are determined at this point. The company has had several weaknesses that have hindered its success. One of the decisions, which were not acceptable either to the company or the shareholders, but which was eventually carried out, was the closure of retail operations in United Kingdom and United States. This decision was necessary given the fact that uncertain economic environments in the two business markets were faced with a prospect of incurring substantial losses in the future, which was unacceptable to the company and its shareholders. Meanwhile, during the process of closure, Pumpkin Patch Ltd identified various alternative franchise/wholesale and online opportunities for the company’s products in the markets, which will be explored in the near future. Their closure would create loss of confidence and disappointments among potential customers.
The company has poor measures of profitability. In the past, the management predicted the losses the company could incur and pulled it out of potential markets such as markets of the US and the UK. This has not been a favourable move since customers like companies that are strong and those that can make gambles. Pumpkin Patch lacks this ability.
Finally, the company has in the recent past plunged into debts that have seen it lose its popularity in overseas markets.
Some of the challenges faced by the strategy of Pumpkin Patch lie in the fact that this business organization has continued to have its exchange cover in foreign imports covering significantly below the current market rates. This implies that the organization is not fully exploiting the much needed benefits arising from high NZD. Despite the fact that trading conditions that were prevalent in Australia posed a big challenge for improvement of process of stock management and Christmas season, there was an increase in sales up to $98.4 million. As a result, company’s market was marked by a higher level of promotional activity, which had a great impact on gross margins. High cotton prices greatly influenced products or items that were sold across the 1H12 and which eventually drove costs of average products above the 1H11 category. Despite the improved results in sales, lower margins resulted into an EBIT of approximately $13.0 million or won by 13 %.
Pumpkin Patch’s business strategy at the end of the year 2010 was to manage business liabilities and assets successfully through balance sheet management. It also aimed to expand its major brand in 22 of its markets during soft economic conditions. Throughout the last year, Pumpkin patch limited faced various major challenges, which led to underperformance of the organization, thus required a reassessment. Some of these challenges included natural disasters, volatile conditions of trading in all markets, high exchange rate in NZD, political instability in the Middle East, opening costs of new stores, and low levels of inventory during the start, which resulted into poor trading period of six weeks in August and September of 2010.
Some of the external factors, which have possibly affected Pumpkin Patch’s Limited ability to increase its market potential include high unemployment rates in its major markets, increased GST in NZ, increased costs of living e.g. for food and petrol, which has made low income earners in most places to substitute premium brands for functional ones, an increase in borrowing costs on the global market, increased exchange rates in NZ, which implied that export earnings were actually counter balanced through a high value of NZ, the impact of the first Christ Church Earthquake that occurred in 2010, the Arab conflicts, the Japanese tsunami, and continued downturn in the United States and Europe during the period of post-GFC.
Step 11- Pulling it together
At this stage, one can pull back the strengths and weaknesses that a firm possesses. When combined with the stage five findings, a complete SWOT analysis of the company can be composed.
The company has a leading position in the market in both Australia and New Zealand. The company is, therefore, a leading company in speciality children’s wear in Australia, where it commands a market share of 8 % and 17 % in New Zealand. The company’s brand is available in almost 566 locations across 20 diverse markets, and this, since it is not reliant on one market, provides stability to its earnings. In addition, company’s investors actually have more exposure to opportunities of growth in various global markets. The company has a strong point in that children’s wear is more defensive as compared to the adult fashions. Pumpkin Patch is not a retailer but rather a brand that focuses on product quality, creation of style, shop design aimed at reflecting the brand image, store merchandising, and constant communication with clients among others. Company’s brands also have price elasticity and premium, which travel across the borders and thus are more global. Pumpkin Patch’s brands also place major focus on the growth of the gross margin as opposed to focusing on the sales volume. As a result, its brands are capable of developing and retaining their intellectual property.
The wholesaling part of the company is divided into key departmental stores and franchise type models or stand-alone stores, which allows for faster global expansion, higher net EBIT margins as opposed to retail. The wholesaling part of the company is beneficial in that the dual brand is capable of enhancing the retail part of the company. It is also suitable for markets that have barriers to entry such as language, cultural, and ownership barriers.
Robust/strong distribution and sales; Networks;
High home popularity;
Diverse design and popular innovations.
Substantial obligations on debt;
Weak indicators in profitability;
Middle East instabilities.
Key business initiatives;
Growth prospects-online retail;
Increasing market in the South African region.
Foreign exchange risk;
Global economic scenario;
Strong competitors in the overseas market.
Step 12- Current strategies
From the SWOT analysis, one can determine the strategies that the firm is using to ensure that strengths and opportunities are fully exploited and guarded in order to increase the profitability of a business. At the same time, the effects of weaknesses and threats are mitigated to ensure that they do not reduce profitability of the company.
Pumpkin Patch’s has put in place the following strategies to ensure they remain competitive in the industry. Over the last 10 months, Pumpkin Patch Limited has continually faced lots of retailing issues in most of its markets, which has clearly reflected on company’s results. However, the company has made progress in reorganizing its business strategies through taking various steps aimed at focusing on company’s core strengths through enforcing strategies, which will yield better financial results for its shareholders. Internally, Pumpkin Patch Ltd has started to reap benefits arising from the changes it has made in its business strategies, which will be reflected on future financial results of the company (Graham 2004).
Despite Pumpkin Patch’s challenging environment, its core business units increased sales. This was driven by an increase of 12% in Australian retail sales, increase of 32% in franchise/wholesale sales, and a strong increase in company’s online sales recorded at over 50%. Due to the challenging times, company’s gross margins were significantly impacted by an increased promotional activity and higher costs of products, especially cotton. However, Pumpkin Patch Ltd. has been capable of generating sales and expanding its market share despite the challenging times. Through Pumpkin Patch’s merger of the traditional online and retail models coupled with company’s investment in support systems and technology over years, it has been possible for it to remain ahead of the average retailer in the field.
There has also been a strong increase in the growth of the franchise/wholesale business as a result of increased orders arising from existing markets and through various new relationships, which come on stream. These includes the Charlie and Me franchise that was announced recently in the Middle East and the new relationship of Pumpkin Patch that has been prevalent in Mexico among others. The wholesale or franchise business is, therefore, very important for Pumpkin Patch Ltd. This is because not only does this business yield high margin earnings for the company, but it also leverages off company’s existing supply chain, design, and other support functions, and thus the company does not necessarily need to invest large amounts of capital to move forward. Such kind of a model also allows the company to enter international markets, which it could not enter on its own.
The combination of company’s strong Australian retail business, its ever growing online international operations, and franchise/wholesale operations makes the company an important multi-channel international organization, thus giving it a range of suitable strategies of market entry that can be used in various international markets. Through Charlie & Me and Pumpkin Patch brands together with multi-channel abilities available for the company it is very easy for Pumpkin Patch to follow multi-channel/multi-brand strategies in various markets around the globe. As a result, this gives Pumpkin Patch greater flexibility in working with various international partners to deliver solutions, which work best in partners’ markets.
Pumpkin Patch has directed a lot of its efforts towards taking care of its costs to ensure that the cost base of the business accurately reflects present environment and stays constant as the company grows with time. By working with landlords the company has obtained significant rent deductions during leases due for renewal. The business has also taken approximately 16% or £3.5m out of costs related to logistics functions and head office. With an improvement in company’s procurement processes and low cotton prices, the company has started to experience a reduction in costs of production, which will eventually help in grossing margins in the current financial year and even in 2013 financial year.
Upon launching of various brands in the market, Pumpkin Patch Limited resorted to various strategies to make sure the brands are sold. For instance, the company adopted the store within store format and even sold clothes in areas having the relevant signage and branding.
Step 13- Take advantage of the opportunities and handle the threats using the core competencies
The firm uses its advantages over the rest of the firms within the industry in order to ensure that its position within the industry is not jeopardised. The level of the company is important since the company can be placed at corporate or international levels. Pumpkin Patch is now expanding in the South African market, where there are fewer competitors. It also uses the aforementioned strategies to ensure the company retains its position as well as improves its weak areas.
PPL’s Profitability Summary and Conclusions
From the results from the Charlie & Me, the board was greatly encouraged by the potential of the brand. Group profits recount two stories excluding and including the proposed closure of United States stores. There was a two-year decrease of group revenues in the year 2010 and 2011 that was attributed to difficult trading conditions in most of company’s markets coupled with high New Zealand dollar.
For the company to maintain its strong position, it is important to address various priority areas, for instance manage present trading conditions and focus on trading conditions, reduce bank debts and the cost of doing business, fully understand company’s customers among others. Despite of various challenges facing company’s retail conditions in most of its markets, the firm has made tremendous progress in the reorganization and simplification of the business. It has refocused on the core strengths like product design and implementation of strategies.