Charles tyrwhitt annual report

Charles tyrwhitt shirts

Assignment 1

MGMT 20143 Think BiG

Lecturer

Student

12345678

30 march 2018

Charles Tyrwhitt Shirts Student 12345678 Page 14 of 14

Executive summary

This report explores the Charles Tyrwhitt business model using the nine component Business Model Canvas approach to identify the features that had such an immediate impact on Australian fashion retailing. The analysis relies on publically available information.

Charles Tyrwhitt’s online model draws on core elements of a direct mail order business relying heavily on renting mailing lists of potential customers with the propensity to buy using the internet capture orders.

Growth in inventory holdings and a slowing of the inventory cycle have been compounded by opening new stores in low growth markets and largescale owner capital drawings.

Charles Tyrwhitt can reshape its business model and avoid being disrupted by potential new entrants. The following are recommended to achieve future growth:

· Move from a propensity driven to a job to be done customer segmentation model

· Better understand whether the disruptive innovation concept of zero consumption competition applies to CT

· Halt UK store growth and focus on applying the lessons learned in Germany and Australia to Scandinavia and other English speaking markets respectively.

Charles Tyrwhitt Shirts Student 12345678 Page 3 of 14

Table of Contents

Executive summary 2

Table of Contents 3

List of Tables 3

I. Introduction 4

II. Business model 4

A. Building blocks 4

1. Customer segments 4

2. Key partners 4

3. Value proposition 5

4. Key activities 5

5. Channels 5

6. Revenue streams 5

7. Cost structure 6

8. Key resources 6

9. Customer relationships 6

B. Interrelationships 6

C. Critical success factors 6

D. Downside risks 7

E. Business model changes 7

III. Conclusion 7

IV. Recommendations 8

Appendix 1 – Charles Tyrwhitt Business Model Canvas 9

Appendix 2 – Charles Tyrwhitt performance benchmarks & comparators 10

References 12

List of Tables

Table 1 Charles Tyrwhitt UK & US mailing list profiles 4

Table 2: Charles Tyrwhitt web referral commissions Australia 5

Table 3: Charles Tyrwhitt sales supported per store by major market 5

Table 4: Charles Tyrwhitt Australian sales (2013-2016) 6

Table 5: Charles Tyrwhitt Business Model Canvas 9

Table 6: Charles Tyrwhitt Australian fashion industry comparison 10

Table 7: Charles Tyrwhitt LLP & Shirts Ltd financial performance (2011-2017) 11

I. Introduction

In 2012 Charles Tyrwhitt (CT) launched an Australian website selling men’s English-style cotton business shirts (Loadman, 2013) with the promise to ‘make it easy for men to dress well’ (Charles Tyrwhitt Shirts Ltd., 2017) and save money buying proper quality shirts in multiples of four. The launch followed the Australian arrival of two fellow tennants from London’s Jermyn Street, the famed home of English shirtmakers for 200 years. Thomas Pink and TW Lewin both opened Australian stores in 2012 (Loadman, 2013). CT offered a web-based shopping experience tailored to men’s apparent dislike of shopping drawing on the infrastructure of a traditional mail-order business. Since 1986 CT has sold over 34 million made-to-measure shirts off the shelf (Confessions of a shirtmaker, 2017) in its principal markets in the UK, USA, Germany and now Australia.

II. Business model

CT runs a traditional high/low retail strategy (Kaufmann, Smith, & Ortmeyer, 1994) also drescribed as ‘was/now’ (ACCC 2016) where new season stock is quickly discounted and sold cheaply driving sales and moving stock. Their Australian arrival was accompanied by a huge direct marketing and newspaper insert brochure campaign that also sold Jermyn Street in seeming equal measure to CT itself.

A. Building blocks

Osterwalder & Pigneur’s (2010) nine building blocks approach details CT’s business model (see Appendix 1 – Charles Tyrwhitt Business Model Canvas).

1. Customer segments

The defining feature CT’s direct mail advertising is precisely targeting people with a propensity to buy by renting lists. CT now rents its own lists out. Table 1 below describes affluent professional males.

Table 1 Charles Tyrwhitt UK & US mailing list profiles

Note: nd not disclosed

Source: (NextMark Inc, 2018), (NextMark Inc, 2018a)

2. Key partners

Access to mailing lists, newspapers and third party referral websites (see Table 2) are essential for CT to develop brand awareness and generate sales traffic.

Table 2: Charles Tyrwhitt web referral commissions Australia

Source: (Charles Tyrwhitt Shirts Ltd., 2017)

Australia Post and couriers to deliver brochures, catalogues, customers orders and product returns.

Manufacturers in Vietnam, Sri Lanka and India ensure consistent product quality and supply at lowest cost.

3. Value proposition

i. Make it easy for men to dress well,

ii. Make Jermyn Street quality and style affordable for everybody by cutting out the middle man and selling direct. (Confessions of a shirtmaker, 2017)

4. Key activities

Reliable brochure mailing and courier delivery of finished orders accepted over the internet.

A direct mail advertising ‘match back’ process links individual purchases with the particular offer presented to the customer and the rented mailing list by a code (Data Services Inc, 2015).

5. Channels

Table 3 details CT sales supported per store in each major market assuming Jermyn Street store supports all sales globally. Australia, Germany and the Rest of the World have no in country stores and buy exclusively online but support 26 percent of 2015 sales at £44.16 millon.

Table 3: Charles Tyrwhitt sales supported per store by major market

Source: (Charles Tyrwhitt LLP, 2016)

6. Revenue streams

In 2012 CT recognised approximately £1 million of Australian turnover driven by former expats that had jumped to £10 million by 2014 (see Table 4). Long term operating profit averages 10 percent (see Table 7)

Table 4: Charles Tyrwhitt Australian sales (2013-2016)

Source: (Data Services Inc, 2015), (Charles Tyrwhitt LLP, 2016), (Speed, 2014)

7. Cost structure

Stock costs are 40 percent of the sale price (see Table 7). Distribution and selling costs are about 30 percent of revenue while administration costs account for approximately 20 percent.

8. Key resources

Mailing lists and match-back capabilities/infrastructure are indispensible for direct mail advertisers, along with a website to accept orders.

9. Customer relationships

Regular direct mail and email of current offers, promotions and catalogues to past customers and potential future prospects supported by an internet order platform.

B. Interrelationships

CT prints and mails 35 million brochures annually with 15 million sent to prospective buyers identified from rented lists (Data Services Inc, 2015) that generates 75 percent of sales turnover (Elejalde-Ruiz, 2014). The linkage between mailing houses, key partners, that rent lists to CT of potential buyers, customer segments, is foundational.

The CT value proposition ‘make it easy’ links the customer to the cost advatages of a direct channel online/mail order distribution and the revenue strategy of multibuy bundles of four shirts ‘affordable’. ‘Quality and style’ also links offshore suppliers with cost and revenue through profit margins.

CT’s 130,000 square foot warehouse in the UK fitted with 30,000 square feet of racking ensures customer segment demand is met by sufficient stock to avoid missed revenue opportunities due to stock run outs (Roberts, 2017). It also allows for apparent mass customisation by holding stock in multiple sleeve lengths and fits thereby linking customer demand for well fitting shirts and revenue opportunity.

Linking the cost and revenue is inventory mangement and the ‘was/now’ pricing tactic (ACCC, 2016) that ensures old stock doesn’t become dead stock by continuous rolling discounting of slow moving stock. It delivers savings to customers and clears stock, albeit at a reduced margin.

The centrality of the Jermyn Street brand to CT’s marketing success is interesting. Cooperating with Thomas Pink and TW Lewin by promoting Jermyn Street quality separately CT itself, makes an interesting link between lost revenue through competition and key partners that support sales. This was first described by Nash (1950) and extended (1953).

C. Critical success factors

"I used to run a dodgy old catalog business and suddenly I was running a very sexy Internet business, almost overnight"

Nick Wheeler, founder Charles Tyrwhitt (Elejalde-Ruiz, 2014)

The match-back process is fundamental by linking the customer characteristics that decribe a propensity to buy on the rented mailing list, with the offer presented and the composition of purchase outcome. Feedback refines insights into future list selection and offer creation (Data Services Inc, 2015).

Continuous process improvement and the application of capital investments allows CT to improve speed of fulfilment at lower cost and with fewer errors. Recent commissioning of a conveyor system in the warehouse facility enables 7500 orders to be processed each day by two people rather than seven or eight staff previously. (Roberts, 2017)

In 2016 CT stores supported on average £6,778,000 in sales for each store against between $500,000 and $776,000 on average in Australian stores. Table 3 above breaks this down by CT primary market to the point where a single store in London’s Jermyn Street supports £44,160,000 in sales in Australia, Germany and the Rest of the World.

D. Downside risks

In the five years between 2011 and 2015 CT owners withdrew and distributed £44,971,000 (Table 7) potentially impeding CT’s ability to grow and invest.

CT holds stock for on average from 75 days in 2011 to 131 days in 2016 (see Table 7). Australian fashion retailers hold between 90 and 100 days (Table 6). Old stock is harder to move and is often written off at great financial cost.

The ‘was/now’ tactic resulted in the ACCC fining CT $10,800 for essentially fabricating the ‘was’ price; no customers had purchased at the high price. If trust in the credibilty of the retailer diminishes the business model is at risk of failing.

Movements in foreign exchange (FX) markets can add costs to global businesses. CBA (2015) reported 70 percent of retailers had FX induced cost increases but only 43 percent had raised prices. Further the UK’s exit from the European Union is predicted to add a further 10 percent to costs (Bridge, 2017).

E. Business model changes

I would move toward better understanding buyer behaviour moving away from propensity to causality (Christensen et al, 2016). I would seek to observe buyers and precisely understand what job needs to be completed that gives rise to a purchase.

CT’s success may in part be attributable to Christensen’s (2016) disruptive innovation concept of competing against zero consumption. Perhaps men didn’t buy shirts at all and their partners, parents and children were in fact purchasing shirts in department stores for them. Web based purcahsing by men themselves possibly was an ideal market entry point that needs to be understood.

Expansion in high growth, low cost markets such as Germany and Australia is potentially undermined by the expansion of stores in low growth markets such as the UK and France (BCG, 1970). I would halt UK store growth. Expand online offerings in Scandinavia following the learnings from the Germany and similarly expand into Ireland, Canada and New Zealand applying Australian lessons.

III. Conclusion

The preceding analysis is based on public information. CT has been wonderfully successful in the application of old school direct marketing practices to the cost and distributional efficiencies of the internet. The future is not without risk. Perhaps the greatest risk is that without next level insights, CT may be open to disruption itself.

IV. Recommendations

· Move from a propensity driven to a job to be done customer segmentation model

· Better understand whether the disruptive innovation concept of zero consumption competition applies to CT

· Halt UK store growth and focus on applying the lessons learned in Germany and Australia to Scandinavia and other English speaking markets respectively.

Appendix 1 – Charles Tyrwhitt Business Model Canvas

Table 5: Charles Tyrwhitt Business Model Canvas

Source: (Osterwalder & Pigneur, 2010, p. 44)

Appendix 2 – Charles Tyrwhitt performance benchmarks & comparators

Table 6: Charles Tyrwhitt Australian fashion industry comparison

Source: (Charles Tyrwhitt Shirts Ltd, 2016)

Table 7: Charles Tyrwhitt LLP & Shirts Ltd financial performance (2011-2017)

Source: (Charles Tyrwhitt LLP, 2011-16), (Charles Tyrwhitt Shirts Ltd, 2016), (Bectin Ltd, 2018)

References

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