Strategic Management Report

Executive Summary

JD Sports is one of the established multichannel sports fashion retailers in the UK. The critical issues faced by the company recently include a decline in store football and closure of the stores due to strict lockdown during the Covid-19 situation. The company is planning is to expand its business in China. The internal and external business environment analysis has been conducted in this study using a suitable framework and model. From the findings, it has been evident that China has a vast scope for business. The only fact is that JD Sports needs to do proper strategic planning. In this regard, product diversification and development would be the most profitable strategy for gaining market share in China. Also, it is recommended that improvements and development of the online platform would be beneficial for the company to gain new customers in China.

1. Introduction

In the fast-changing business world, it has become vital to ensure strategic management of the business. It is a broad term based on research where the organization needs to initiatives to implement the strategies in the best possible manner. Strategic management requires analyzing the company goals, vision, and objectives along with the plans. Strategic management is essential for a business to predict future trends that would enable the business to understand business growth and development. In addition, strategic management allows the organization to make the proper use of available resources for the overall growth of the company. Besides, proper strategic management would help the company in developing a bridge between the weaknesses and strengths that would help in overcoming the shortcomings of business in the long run (Pishkari, 2017; Nedelea & Păun, 2009). In this regard, this paper focuses on developing an individual strategic management report for JD Sports Plc UK. Besides, to narrow down the focus and create a better understanding, the information will focus on expanding the business in China market.

John David (JD) Sports is one of the leading multichannel retailers in the UK, which focuses on sports fashion. This company has gone through enormous changes from early 1981 to 2020. This company was established by John Wardle and David Makin in 1981, and it started with just a small store in Bury, Greater Manchester. However, in recent time the company has successfully established about 2440 stores globally in the 19 territories of the world. The company has more than 500000 employees working together for the growth of JD Sports.

Additionally, JD Sports sells various brands of clothing and footwear, for instance, Adidas, Puma in the kids, women, and men segment as well. In the growth term, UK plays a significant role in growing the geographical market, which is around 43% as compared to the US and Europe, which is only 26% in both cases. On the other hand, the retail store plays a crucial role, generating around 74% of the revenue. In the global pandemic situation, the company shows more than 30% growth in the payment in the year 2020 as compared to the previous years (JD Sports Fashion Plc, 2020).

In the Covid-19 situation of 2020, the main priority of the company has been to save the financial resources to reduce the impact on profitability. Despite the right competitive position of the company in the market and ensuring safety measures for the customers and employees, still one of the vital challenges that JD Sports is facing the risk of closure of stores due to the Covid-19 pandemic and strict lockdown measures for the safety of the people which significantly impacts the overall growth of the company, in this context, it can be highlighted that one of the significant challenges due this is that it could affect the consumer behavior and the footfall in the store in the future after the recovery from this pandemic situation (Singh, 2020). Besides, another challenge is that the UK has left EUin the year 2020, which can hurt the overall supply chains, exchange rates, and tariff rates in the future in the long run.

Apart from the above challenges, the company must replace the paper-based shipping and warehouse processing with integrated technology, which in turn would support the continued growth of the company. Thus, the company will provide quality service to suppliers, which will help in the development and increase the accuracy and speed of the business globally.

2. External Environment- Analyzing Organizational Competitiveness

Among all the Asian countries, China is one of the most attractive and demanding economies for conducting business. China, with strong power, has a vast scope for business due to growth potential and the larger size of the market. China has integrated with other countries for business; however, despite the fact, JD Sports needs to analyze the China market before the expansion of its business in the respective market. In this regard, PESTEL Analysis can be a useful tool for investigating the macro-environment factors of China and taking the decision for business expansion.

The two political factors that significantly impact the presence of foreign traders in China and the domestic traders are government regulation and the existence of the Communist party. The China market often faces disturbances due to the sudden changes in policies by the government. Besides, the communist party is in power in China. Thus, any products and services in China have to be sold based on the decision of the communist party. Otherwise, it is strictly banned (Rahman, 2020). Furthermore, to deal with the China market efficiently, JD Sports needs to design its marketing and advertising strategies accordingly.

Currently, the Chinese economy is performing good based on the GDP growth rate. Figure 1 below shows the GDP of China till 2019, and the forecast showed till 2025. From the model, it is apparent that the GDP of China in 2019 was 14.73 trillion US Dollars, which is exceeding that of other countries such as Brazil, India, Russia, among others (Statista, 2019).

The purchasing power of people is improving with time, and thus, foreign brands are also gaining demand in the market. In China, the labor cost is low, attracting foreign brands as hiring the workers costs less, and thus profit can be more (Rahman, 2020). Therefore, from an economic point of view, China can be a suitable market for the business expansion of JD Sports. The only factor that can impact the growth of China's economy is the rising inflation rate (Figure 2). If no such control is made, it can increase the interest rate, which would affect the growth of small, medium enterprises.

The social trends are linked with the cultural values of China. On the other hand, China's culture is deeply influenced by the political setting of the communist party. Thus, any change made in regulations is actively supported by the China population. Additionally, in the recent period, urbanization has also impacted the social behavior of people. People now have more access to the internet regulating their buying behavior (Rahman, 2020). Thus, in this regard, before the expansion of business in China, it is vital for JD Sports to study the social behavior of the customers and their interest in internet-based purchases that would help the company in gaining market share in China.

One of the biggest technological trends driving the market in China is the use of the internet. In March 2020, there were approximately 904 million internet users in China (Figure 3). This fact indicates the purchasing pattern of Chinese customers. Additionally, e-commerce is another factor that is drastically impacting the purchasing power of customers. Thus, considering the technological point of view, the use of advanced technology for developing the brand can be an opportunity for JD Sports.

Another factor for analysis is the environment. China is among one of the most polluted economies, and thus, ensuring the environmental standard is vital for any business. The company needs to spend additional money to maintain ecological standards, reducing the overall profit margin. Lastly, the legal factor indicates following the laws and regulations of the country. The labor cost in China is less, and that factor is sufficient for any company to have its factory in China. According to the statistics of 2019, approximately 774.7 million people are employed in China (Figure 4). Thus, in this regard, it can be highlighted that for the successful establishment of the company, it is vital for the business to follow the labor law of the country that is for the protection and benefits of the labor (Rahman, 2020).

MICRO (Five Forces Framework)

Michael Porter’s Five Forces Analysis can be a useful tool for JD Sports to study the fashion retail industry in China and the overall scope in the market for successful business expansion. The five forces of the framework are the threat of new entrants, bargaining power of the suppliers, bargaining power of the buyers, threat of substitute, and rivalry among the existing competitors.

In recent years, there has been a significant change in the urban lifestyle in China. People are more interested in a healthier lifestyle, which has motivated them towards fashion trends linked with the sportswear industry. Specifically, the younger generation in China is demanding more sportswear, including apparel and shoes. In this regard, the China government is also sporting the growth of the sports industry (Mirae Asset, 2020). Figure 5 presented below reflects the sportswear market size in China.

Based on figure 5, it can be highlighted that the retail sports market in China is vital as it is having experienced continuous growth from 2008 to 2018. Thus, it underscored that entering into China market can be a threat to the development of JD Sports due to the strong existing market and competitors.

JD Sports has several raw material suppliers. In this regard, powerful suppliers in the market can significantly impact the overall profitability of the retail sector. The sportswear market is growing steadily in China. The retail value of China sportswear in 2019 has experienced a growth of approximately 17%. However, despite the fact, Nike and Adidas remains the dominating brand in China and has about 40% of the market share. Besides, brands such as Li Ning and Anta have also witnessed growth in 2019 (Daxue Consulting, 2020) (Figure 6). Therefore, for successful expansion in the China market, it is essential for JD Sports to develop an efficient relationship with the different suppliers to build a business in the long run.

With the lifestyle change, people are demanding more. The bargaining power of buyers is that factor that is likely to pressure JD Sports to offer products at an affordable price. In the past years, the sale of sportswear in China has risen significantly. Figure 7 presented below, represents the sale value of the sportswear in China from 2014 to 2019. In 2014, the sale value was 148.3 billion yuan, which increased to 316.6 billion yuan in 2019. Based on this data, it can be stated that the number of customers and purchases of sportswear drastically increased in the present scenario (Statista, 2019).

The threat of substitute products and services in the market would make it challenging for JD Sports to sustain in the long run. A high substitute threat is when the product and services are offered by other industries at a lower price. This factor is also dependent on the psychological thinking of the customers, whether they want to switch to additional products and services or not.

The athletic brands are gaining more scope in China due to the government's initiative to raise more awareness about fitness and developing sports participation among the people. With this government initiative, the market potential is enormous in China. This is an opportunity for JD Sports to build its market in China. With the increase in disposable income of the middle class, people have started to demand the right class products as the interest in fitness increases. This increase in demand is fueling the growth of the sportswear market in China. The rivalry among the competitors is another factor that can drive the profitability of the company. In China, most of the foreign sports retailers are unrivaled leaders. In this regard, it can be highlighted that the top sportswear brands of China are Nike, Adidas, Anta, Li Ning, and Xtep, among others (Figure 8). Besides, Nike and Adidas have more market share in China as customers believe that these brands are not only prestigious but also offering cool quality daily wear at a reasonable price. Thus, although JD Sports operates in a competitive environment, it becomes vital for the company to develop collaborations with the existing brands in the market to gain more market share rather than just focusing on gaining a competitive advantage in the market (Zhao, 2017).

3. Internal Environment Analysis

In this competitive world, every organization has got something different, which provides a competitive edge over others in the rapidly changing world with the advancement of technology. In this technology-driven world, to gain business success, it is necessary for the organization to conduct internal analysis properly. The internal environment analysis helps in understanding the strengths and weaknesses of the company, along with exploring the core competencies and capability of the organization. In this regard, the Values Chain Analysis is a useful model for understanding how JD Sports can use its strengths to gain a competitive advantage and mitigate the risks associated with the weaknesses. JD Sports is one of the prominent names in the multichannel retailer in the sports fashion segment. The strength of the organization is the quality of standards and services provided, which show that the company maintains discipline in its overall work. In the year 2020, the company established more than 30% growth in revenue. Also, the company has made significant progress globally, where the company has increased the number of new stores every year by 76. This highlights that the company discipline in their work, which is the reason behind the significant growth of the business (JD Sports Fashion Plc, 2020).

Also, the company has acquired the Footasylum business in the year 2019 in the UK. The company has 69 stores in the UK. These acquisitions provide an edge over the competitor in the long run. Besides, this will also increase the sale density by 5% of the overall sales and improve the opportunity to expand the business online and in-store after this investment (JD Sports Fashion Plc, 2020). This has also increased the total workforce of the company. Again, this will help to provide quality service to their loyal customer within a given time. This, in turn, will increase the overall revenue and footfall in stores. In the year 2020, the business has gone through various ups and downs due to Covid -19 pandemic worldwide. This year was the year of uncertainties for different outdoor companies. The major weakness is that the company was not prepared for this uncertain situation where all the outdoor stores were closed due to strict lockdown measures imposed by the government. Also, the company lacks a well-trained workforce to tackle this kind of uncertainty. This has caused some impact on the overall business of JD Sports for a short period.

Another weakness of the company is that it must change all the paper-based process related to warehouses or stores and integrate it with the advanced technology to tackle uncertainty. The company has to focus on online trading on its website (Loftus, 2008). This has shown significant growth during the lockdown period, and people were unable to buy something outdoor due to the strict social distancing norms. This, in turn, increases the sale of goods online, where people preferred to purchase goods online without risking their life (JD Sports Fashion Plc, 2020). The overall analysis highlights that the internal environment of the company is right to tackle any situation in the business. The company has also stressed that the business can grow in any case with appropriate planning and management by implementing it efficiently within the organization.

4. Identification of Competitive Strategies

Porter's generic strategy framework was introduced by Michael Porter, enabling the company to select a suitable strategy for gaining a competitive advantage. This particular framework focuses on three factors that are cost leadership, differentiation, and focus (The Economic Times, 2021). JD Sports is one of the well-known sports fashion retail company that has high recognition in many countries globally. Intense competition in China is one of the factors that have made it a challenging task for JD Sports to obtain market share in the business environment. Despite being one of the global brands, JD Sports needs to set its strategies in such a manner that it can gain a competitive position in China and win over the competitors.

Under the cost leadership strategy, the primary objective of JD Sports will be to gain as much as a market share in China. To achieve this objective, the company can target both the upper and middle-class people of China. According to the statistics of 2020, the purchasing power of people in China has increased by 40.3% (Figure 9). Therefore, it is an excellent opportunity for the company to target this segment of people to gain customers.

Also, the company should focus on the affordability of the products as well that in turn will enable raising brand awareness and improve the sales further, thus maximizing the overall profitability in the long run. Besides, campaigns can be undertaken to increase the popularity of the brand and encouraging consumption among the China people. Another suitable strategy competitive strategy for JD Sports can be the differentiation of the products. This will help the company to gain a competitive advantage and achieve the growth objective of the company. Under the differentiation strategy, unique product features can be offered to people that would help in gaining more customer base in China. Additionally, under the focus strategy, JD Sports needs to concentrate on improving the paper-based shipping and warehouse processing by adopting the integrated technology that would solve the previous challenges faced by the company (Tanwar, 2013).

5. Strategic Directions

Based on the internal and external environment analysis, the strategic goal of JD Sports should be to gain maximum market share in China rather than competing with the existing rival fashion sports retails. In this regard, JD Sports plans to grow its business in China and increase sales and profitability in the long run. From the analysis of the business environment, it can be highlighted that the expansion of the business is dependent on few factors that as the financial status of the company, the level of competition in the market, and government regulation in China. The most common forms of growth strategies preferred by any business include market penetration, market development, product/service expansion, acquisition, and diversification of products, among others (Numfor & Ajang, 2007). For market expansion, JD Sports may prefer market development. The company will be selling the existing products in the China market to analyze the demand factor. This strategy will allow the company to find new users for its products in the new market. Also, the company needs to implement a plan for the expansion of the product line. From the competitor analysis, it has been evident that there are top five competitors in the market that is Nike, Adidas, Anta, Li Ning, and Xtep, selling similar products. Thus, adding new products or new features to products would be beneficial for JD Sports to increases sales and profit. Besides, another effective strategy for the company will be product diversification. In this regard, targeting a new segment of customers in the new market with new diversified products would enable the promotion of the brand and develop the purchase intention among the customers (JD Group, 2021).

6. Conclusion and Recommendations

From the above analysis, it can be concluded that strategic planning is vital for JD Sports as in the recent year, it has been facing threats of store closure due to the Covis-19 pandemic situation. On the other hand, planning for business expansion in China, one of the largest markets, needs proper strategic management. Threats to business and weakness can be mitigated to get established in the marketplace. Based on the Macro environment analysis, it can be highlighted that China has a vast business scope as the economic condition is the excellent and positive GDP growth rate. The purchasing power of people has improved over time, and thus people prefer wearing branded products, and so the demand for sports fashion products is also increasing. Porter's five forces (microanalysis) revealed that the younger generation in the urban sector demands more sportswear, including apparel and shoes. Internet users have also increased in China. Thus it becomes easier for the company to target people using the online platform. Based on the overall scenario, it is recommended that JD Sports should focus on developing the online platform and make the maximum use of it for targeting the young generation. This would be an effective strategy for the company in the long run for gaining more customers and understanding their needs in a better manner by taking their feedback on the products purchased.

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