Ferragamo

Ferragamo

After reviewing the facts of your situation I am making a strong recommendation for you to reconsider becoming a full line luxury house. Instead, I suggest you narrow your focus to men and women's shoes, and concentrate your efforts on differentiating these shoes from competitors, which is where your advantage lies.

The rational behind narrowing your market is based on a two-fold strategy: product and distribution. In terms of product, 1989 sales figures show that men and women's shoes account for about 70% of total sales, and when this figure is broken down into individual markets the number is even greater (e.g. US shoes were 82.3% of total sales). Furthermore, knowing that your main customer base is loyal to one product line, shoes, it is fair to say that purchases from other divisions are not sought out, but one-off type purchases. Maintaining these buying habits is expensive since it doesn't product even a moderate return, and expansion into these divisions was internal instead of market driven. For distribution, you should concentrate on department stores, which account for 85% of volume. Boutiques don't seem to produce adequate returns and the cost of maintaining them is high.

Repeat customers are loyal to you because of your consistent high quality, and the breath of sizes and styles. This means that the bargaining power of your buyers is high (see exhibit 1). If quality decreases, individuals will stop purchasing the product from department stores and in turn they will stop as well. Moreover, suppliers have low bargaining power because if they do not produce the quality materials, you will stop buying from them and there is high competition among a few firms in the luxury clothing industry. I feel that by concentrating on shoes, your efforts will be focused to continue producing the high quality you are known for (close control of suppliers and manufacturing), and you will be competing with fewer firms in a less volatile market.

In terms of your ability to continue producing high quality shoes, you are in good standing. You have a close relationship with suppliers that is unparalled by competition and they are willing to work with you to produce the design, feel, and effect of the material you are seeking.