Esprit: Resources and Competencies Analysis

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Table of Contents

Introduction
Framework
Human Resources
Brand Recognition
Innovation Capabilities
Conclusion
Reference List

Introduction

In the current atmosphere of globalization and a highly competitive environment, critical factors for a firm’s success may be attributed to correctly identified and applied resources and competencies. This analysis will discuss several key areas: human resources, niche marketing, and innovation capabilities. All these resources were deemed relevant in the given competitive environment. Given that Esprit has struggled for revenue in recent decades, the selected strategy should aim to improve the situation.

Framework

The framework selected to analyze the actions that could help create the competitive advantage of Esprit relies on Barney’s VRIO analysis. This framework critically examines a firm’s resources that will most likely provide it with returns (Lynch, 2018). According to the resource-based view, a business should strive to identify and utilize individual, internal sources to deliver a competitive advantage and added value (Lynch, 2018). Lastly, any resource to offer the company a sustainable competitive advantage should be competitively superior and rare (Angwin and Cummings, 2017). The proponents of this view contend that a firm should select a resource allocation strategy that would allow it to either maintain or improve its performance in the market (Angwin and Cummings, 2017). In addition to the resources being rare, unique (not easily imitated), and valuable (competitive and relevant), they should also be exploited effectively through an appropriate organization (Chatzoglou et al., 2018). In other words, it is not enough to possess a competitive resource – the firm should be able to utilize it in the best, most efficient manner to excel in the market.

Human Resources

The first resource that is critically important for the company is its organizational structure regarding the specific aspect of human resources. One of the ways that the company aims to organize its processes to make the best out of its staffing sources is by ensuring fair pay. Esprit acknowledges that there has historically been an issue with low wages in the clothing industry, partially related to high global fragmentation and rival brands operating at the same facilities (Roadmap to sustainable profitability: Annual report, 2020). With the manufacturing processes across different nations, it becomes difficult to calculate living wages and ensure fair and equitable payments to all workers. Thus, an all-encompassing organizational and financial change in the human resources field is of paramount importance.

Historically, some of Esprit’s vital competitive advantages were related to its human resources and the organization thereof. For instance, the company possessed “strong CRM capabilities, best in class eCommerce competence,” and the “ability to operate across multiple channels” (Interim results announcement for the six months ended 31 December 2016, 2017). While some advantages, such as eCommerce domination, have arguably been lost, the solid operational network remained in Esprit’s possession even after cutting much of its staff.

Application for Competitive Advantage

If Esprit manages to have competitive pay and better working conditions, it will gain a considerable advantage over other firms. However, the change should be genuinely systemic, involving union workers, higher management, and employees starting from the manufacturing stage to the retail. According to the company, its most valuable resource is the people who work there (Esprit: environmental, social, and governance report, 2020). However, in the same year, Esprit simultaneously dismissed nearly 20% of its workforce and reduced wages (Esprit reaches restructuring milestone and is well-prepared for the new business reality, 2020). Hence, presently, the company’s actions are not entirely consistent with its values.

One of such steps toward leveraging Esprit’s workforce advantage has been allowing the unionizing processes for the workers. The company grouped with different brands and the IndustriALL Global Union to create a so-called “Action, Collaboration and Transformation” initiative (ACT) (Roadmap to sustainable profitability: Annual report, 2020, p. 35). This initiative addresses the insufficient pay in the industry by introducing the opportunity for the workers to bargain for higher wages through their union delegates (Roadmap to sustainable profitability: Annual report, 2020, p. 35). Thus, given the poor market situation, the company can address a broad scope of matters about the operating environment and maintain a competitive advantage in the market.

Brand Recognition

Prior efforts of Esprit to establish a brand that would resonate with the audience were largely unsuccessful. They have gradually led to the loss of appeal and profits (Lung, 2020; Santamaria, 2018). The major downside that Esprit has experienced in the past was its inability to offer products appealing enough to its target audience of millennials and generation Z (Lung, 2020; van Elven, 2018). Thus, the company should an appealing and recognizable brand image to provide a competitive advantage. Regarding the VRIO analysis, numerous brands offer casual wear and basic capsule wardrobes. Thus, if Esprit does not establish unique features in its branding, it would not stand out and be easily imitated, thereby losing much of its competitive potential.

At the moment, Esprit operates majorly in Europe and, to a limited extent, in Asia. Most of its retail sales come from Germany and other European countries, and a marginal amount is from Hong Kong (Smith, 2022a). In either of these markets, many established apparel brands operate in the same general line as Esprit, focusing on casual clothing and fast fashion. To improve brand recognition, the firm must provide relevant collections that generate high enough demand to compete with companies like ASOS, H&M, or Zara.

Application for Competitive Advantage

To secure a competitive advantage as an original footwear brand, Esprit must determine its target customers. Esprit’s recent efforts include moving toward a higher emphasis on sustainable production and simple collections (Roadmap to sustainable profitability: Annual report, 2020). The emphasis on these product aspects would allow Esprit to produce fitting, long-lasting, and timeless products, giving them a competitive advantage over many lower-quality brands in the market. Coupled with the fact that its prices remained medium-range, this approach may be highly effective (Schuster, 2017). To make its brand stand on its own, Esprit should organize a highly unique product selection, which would contrast significantly with the increasingly popular fast and ultra-fast fashion brands. Thus, instead of chasing the ever-changing tastes and trends, the brand would represent a “circular fashion” strategy (More Sustainable Materials, no date). While such an application is a riskier strategy, it could present the firm with a unique opportunity to establish a brand that could endure changes in customers’ tastes if implemented and marketed well.

Innovation Capabilities

The notion of a company’s resources does not have to reference the physical aspects of production or extant assets exclusively. Additionally, it may reference the present capabilities of the firm (Angwin and Cummings, 2017). In the case of Esprit, one of the capabilities it should develop more is its fabrication processes, which is a logical continuation of its commitment to a more niche audience, mindful production, and developed staff organizational capacity. According to the 2020 report, the firm aimed “to be recognized as the most innovative and sustainable lifestyle brand in our market environment” (Roadmap to sustainable profitability: Annual report, 2020, p. 23). The innovation capabilities that the company possesses rely on the newly hired executive team that is determined to create products that are tailored to customers’ needs (Yuen, 2022). One of the noteworthy reasons for emphasizing this marketing message lies in the growing public interest in sustainable fashion (Hur and Cassidy, 2019). Albeit a challenging route, ‘betting’ on sustainability may be the best innovative approach to select for Esprit.

Application for Competitive Advantage

Esprit must make the best use of its human resources and strive for excellence to gain a competitive advantage based on its innovation capabilities. At the moment, Esprit’s new intention is to “design smart” and use more sustainable materials in the process (More Sustainable Materials, no date, para. 1). However, the innovation should not stop at sustainable production – the firm should also consider new approaches to the distribution of its products. Currently, the largest proportion of global sales in 2021 was conducted through online platforms, followed by wholesale and retail (Smith, 2022c). Such an approach may be adapted with sustainable distribution techniques and local manufacturing. In other words, Esprit may consider minimizing the shipping distances whenever possible, reducing emissions. Esprit’s determination to redesign its brand image and approach is working, with 2021 being the first year since 2014 to yield positive net profits (Smith, 2022b). However, the suggested VRIO-based tactics aim to provide long-term solutions, which means the company would have to keep its effort up for a while longer.

Conclusion

In conclusion, Esprit has come a long way in setting a more effective strategy for utilizing its resources and competencies, but much is left to be done. One requirement of utilizing company sources effectively should be to bring sustainable change. Esprit has excellent chances to develop its human resources capacity by keeping up the work with unions and ensuring fair wages. Additionally, the company has the potential to carve a niche in the competitive apparel market if it is willing to commit to its circular, sustainable, and innovative fashion. Lastly, the present team’s innovative capabilities empower the company to critically evaluate current practices and break away from its unsuccessful history.

Reference List

Angwin, D. and Cummings, S. (2017) The strategy pathfinder: core concepts and live cases. 3rd edn. Hoboken, NJ: Wiley.

Chatzoglou, P. et al. (2018) ‘The role of firm-specific factors in the strategy-performance relationship: revisiting the resource-based view of the firm and the VRIO framework’, Management Research Review, 41(1), pp. 46–73.

van Elven, M. (2018) ‘“We’ve lost touch with our audience”: Esprit announces major changes’, Fashion United.

Esprit: environmental, social, and governance report (2020). Esprit Holdings Limited.

Hur, E. and Cassidy, T. (2019) ‘Perceptions and attitudes towards sustainable fashion design: challenges and opportunities for implementing sustainability in fashion’, International Journal of Fashion Design, Technology and Education, 12(2), pp. 208–217.

Interim results announcement for the six months ended 31 December 2016 (2017). Esprit Holdings Limited.

Lung, T. (2020) ‘After latest round of store closures, maybe Esprit is a boomer brand not worth saving’, Forbes. Web.

Lynch, R.L. (2018) Strategic management. 8th edn. Harlow, United Kingdom; New York: Pearson Education.

More sustainable materials (no date) Esprit Company.

Roadmap to sustainable profitability: annual report (2020). Esprit Holdings Limited.

Santamaria, B. (2018) ‘Esprit back in the red as its collections fall out of fashion, FashionNetwork.

Schuster, L. (2017) Customer relationship management in social media in the German apparel retail industry. Master’s Degree Thesis. Copenhagen Business School.

Smith, P. (2022a) Distribution of ESPRIT retail sales by country, 2021, Statista.

Smith, P. (2022b) ESPRIT: operating profit worldwide, 2021, Statista.

Smith, P. (2022c) Sales of the ESPRIT brand worldwide by distribution channel 2021, Statista.

Yuen, S. (2022) ‘CMO Larry Luk readies marketing team to “breathe new life” into Esprit brand’, Marketing Interactive.

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