Accounting Assignment: Impact of COVID-19 on Lovisa

Question

Task: Lovisa Holdings Limited (Lovisa) is one of Australia’s largest fast fashion retailers, specialising in a range of jewelry products. The firm was founded in Queensland in 2010 and, over the past decade, has expanded to more than 400 stores across the world (Lovisa, 2020). Given the impact of Covid-19 and growing awareness regarding the firm’s environmental and social impacts, the management team of Lovisa have commissioned you to provide a research report.

This accounting assignment must include the following:
1. A brief overview of the nature of Lovisa and their current strategic priorities.
2. A detailed overview of Lovisa’s environment using Porter's Five Forces Model.
3. An overview of three key ways in which Lovisa impacts the environment.
4. An overview of how the group impacts three key stakeholder groups.
5. An overview of your recommended strategy to improve Lovisa’s revenues, market share and sustainability over the next three years.
6. A balanced scorecard (BSC) which translates your recommended strategy and includes relevant objectives and key performance indicators (KPIs). This BSC must include at least five objectives and two KPIs for each objective.

Answer

Introduction
The strategic report would be presented onLovisa Holdings Limited, a rapidly growing fashion retailer across Australia specialising in jewellery items. The report would explore the current scenario that the organisation is dealing with in context to the COVID-19 outbreak as its business came to a standstill. So while preparing the report, the impact of the global pandemic creating havoc in the business scenario would be kept in mind. In such a situation, the business environment of Lovisa would be analysed using Porter’s Five Forces Model. It would also analyse how the business impacts the environment and run an analysis of three major stakeholders of the company. It would tend to provide recommendations for the business strategy in terms of revenue, market share, and sustainability issues in the upcoming years. Lastly, the report would draw a Balanced Scorecard (BSC) to accommodate the recommended strategies in alignment with the key performance indicators (KPIs) of the business.

1. Overview of Lovisa and its business strategy
Lovisa Holdings Limited is known for retailing fashion jewellery and accessories across Australia, New Zealand, Singapore, South Africa, the UK, and franchises in the Middle East. Currently, there are over 400 Lovisa stores across 15 countries globally. The jewellery retailer used to operate its business directly in various countries while followed the franchisee model in the Middle East(Lovisa, 2020). So far the retailer has strived to evolve its business strategies taking account of the changing tastes and preferences of the targeted customer segment. But the COVID scenario tended to have a different perspective on the way the businesses are conducted.

The lockdown phenomenon led both the buyers and sellers to stay indoors and showed a new way of business through online selling. The ongoing pandemic situation showed that online marketing activities have been a breather for various businesses and so does for Lovisa. Therefore, it would be better for the jewellery retailer to concentrate on digital marketing activities. It would help to get the attention of the buyers and sell the products as most of the stores are closed and there is no clarity about normalisation of the situation(Hitt & Duane Ireland, 2017).

2. Porter’s Five Forces model of Lovisa
Porter’s five forces model strives to analyse the competitive environment of the business exploring the sort of competition it faces, a new entry in the market, availability of substitutes, and negotiation power of the customers and suppliers. So this particular model is effective to understand the sort of situation in which Lovisa is currently subjected. The various facets of Porter’s model are as follows:

Figure 1: Porter's Model for Loviso
Source: (Meilich, 2019)

Threat of new entry (Low)–
Lovisa operates in a scenario characterised bya higher level of economies of scale. So existing players like Lovisa could manufacture products in larger quantities to exploit the cost advantage situation. But this proposition would not be applicable for the new players entering the retail jewellery segment in Australia owing to their limited capacities(Meilich, 2019). Besides economies of scale, the industry also demands differentiation, higher capital, and an effective distribution system to survive the market. So Lovisa has a lower level of threat of new entrants in the market. In the current COVID struck scenario, the retailer would be better off to exploit the extent of economies of scale in a focused way strengthening its cost advantage. The digital marketing strategy would be beneficial to reach out to the customers more effectively and take advantage of the scenario which a new player could not facilitate(Chaffey & Ellis-Chadwick, 2019). It is due to the strong brand identity that Lovisa has been instrumental in establishing its prowess in the market.

Bargaining power of suppliers(Low) –
Lovisa has various suppliers in the market who provide standardised products. Since there is a number of suppliers, it becomes easy for the retailer to have a lower switching cost. The supplier does not have the requisite expertise to provide other alternatives making them weaker in their bargaining process(Grant, 2019). It creates a winning proposition for Lovisa in exploiting its supplier to get the right kind of material to suit the customer requirement. The company has its reputation in the market making it an influencer and the supplier does not want to challenge its position. In the COVID struck situation, the supply side seems to be interruptive but Lovisa works with multiple suppliers across various geography saving the day. So the product display might be a little less but the customers are not disappointed owing to a strong portfolio of suppliers.

Bargaining power of customers(Low) –
Lovisa is known for its exquisite design, breathtaking jewelleries which align with the passion and panache of the targeted customers. These sorts of designs and concepts are difficult to imitate, so the customers have very few options available and Lovisa rightly fills the gap. Therefore the buyers have a lower bargaining power as they are yet to find any suitable player offering homogenous products in terms of quality and design(Trigeorgis & Reuer, 2017). Again, Lovisa has the advantage of economies of scale enabling it to supply the products at a comparatively lower cost. So the customers are not able to find any suitable alternative offering such kind of products at a lower cost and maintaining the unique design of the jewellery piece. Moreover, the digital marketing activities undertaken in the process would be effective to provide the customers with more economical advantages.

Threat of substitutes(Low) –
Jewellery is an exquisite item that very few have the expertise to showcase and Lovisa has such creativity and innovation to present the market. The jewellery retail industry is a low profit-earning segment so very few players are willing to participate in the market(Lasserre, 2017). Therefore, it implies that Lovisa has a lower substitution threat as it could not be easily replaced in the marketplace paving it a dominant position. Some players are either providing the products at a higher price or could not match up the quality offered by Lovisa(Steiner, Lan, Unterschultz, & Boxall, 2017). Therefore, the organisation has a lower substitution threat as women, its targeted segment hasa penchant for designer jewellery.

Industry competition(Medium) –
Lovisa operates in a competitive industry having players like Kobelli, Kay Jewellers, Follie Follie, Ana Luisa, Kendra Scott, and others but the completion level is not so intense. Since it is a low-profit margin segment, there are no such changes in theintense activities of the players. Therefore, the retail jewellery retail segment has a medium level of competition and Lovisa has a favourable position owing to its cost advantage(Whittigton, Regner, Angwin, Johnson, & Scholes, 2020). In the COVID-struck situation when the population is experiencing loss of employment, they are curtailing budget for luxury items like jewellery. Therefore, Lovisa would have an advantageous position in the industry to get the attention of its customer segment exploiting the digital marketing strategy. Thus Porter’s model shows that Lovisa owing to a weaker competitive forcewould be able to generate greater profitability of the firm. The digital marketing strategy could be effectively used by the jewellery retailer to promote its products and continue the business economically in pandemic-hit times.

3. Environmental impact of Lovisa
Workshop for the local community –
Lovisa is a responsible organisation delivering to help the community and contributing to a better environment. The jewellery retailer runs frequent workshops to create awarenessof the environmental and social impact. Recently in December 2019, Lovisa arranged for a workshop in Nuuk, Greenland facilitating exchanges between the indigenous and local businesses from Sweden, Denmark, Greenland, and Finland. The workshop was effective to promote the interests of the indigenous community in such countriesenabling the backward community to get an opportunity to participate in the mainstream society(Copeland, 2016). The sustainability programs paved a way for Lovisa to participate in uplifting the community for agreater contribution to society.

Reduction in carbon emission –
Lovisastrives to reduce the environmental impact in its business scenario by looking for specified measures to reduce the instance of carbon emission.So the organisation strived for effective means like minimal usage of clean water in the manufacturing process, doing away with unnecessary wastage, and reduced usage of electricity(Jacobides, Cennamo, & Gawer, 2018). The organisation curtailed business trips and had video conferencing as measure to reduce the emission level as part of its green initiatives. The retailer ensured that its stores would maintain greenenvironmental aspects to promote sustainability. Lovisa has strict guidelines for its stores and manufacturing facilities ought to be maintained throughout to have a sustainable environment and create an impression in the market. It seems to be a good strategy as customers nowadays check the sustainability meter of the player before buying its product and Lovisa does not want any stone unturned to get the attention of the targeted segment.

Adoption of digital marketing strategy –
In the pre-COVID era, Lovisa like other businesses was not so keen on the application of digital marketing initiatives. But the lockdown situation made it difficult to promote the products while the retailer found solace in virtual marketing strategy(Chaffey & Ellis-Chadwick, 2019). The digital marketing strategy besides saving costs for the organisation tends to reduce the environmental impact.These sorts of initiatives do not need any sort of transportation or usage of unnecessary papers like flyers, other promotional materials. So through the difficult scenario as well, it is the business genius of Lovisa to contribute to the aspect of a sustainable environment.

4. Stakeholder analysis
Stakeholders play a crucial role in the business scenario and form an integral part of the business as they are impacted by its different actions andoutcomes (Diouf & Boiral, 2017).There are different types of stakeholders in the business scenario of Lovisa and three of the most significant stakeholders are as follows:

Figure 2: Stakeholder analysis of Lovisa
Source: (Diouf & Boiral, 2017)

Customers –
The customers belong to the matrix of High Power, High Interest as they are the most important stakeholders of the lot. It is the responsibility of Lovisa to manage them closely by providing the kinds of products they anticipate(Trigeorgis & Reuer, 2017). It ought to be a designer, creative pieces that are high in quality but at a reasonable rate. In the COVID-struck scenario, when the people are losing their job they allot a lower budget for the jewellery items. It is anticipated that the fashion jewellery segment would experience a decline in 2020-21 by 8.4% owing to the pandemic-hit situation(Ibisworld, 2020). So it would be effective for Lovisa to have a reasonable offer price for its products enabling the targeted customers to quench their buying thirst.

Employees –
The employees play a crucial role in attaining the organisational objectives but they need to be kept informed and motivated to get the best out of them. The employees belong to the category of Low Power, High Interest but they are the only means for the organisation to extract high level of productivity that suits the customer requirement(Meyer, Neck, & Meeks, 2017). It is the most suitable time to train the employees in digital marketing activities and enable them to put the knowledge into action to continue the marketing spree of Lovisa even in the COVID-struck situation.

Management –
The management possesses High power, Low Interest as they are the decision makers. They deliver minimum effort to attain the business objectives as they provide the vision while the employees execute it. Still, the management is poised to play an important part in the business process as they strived to implement the digital marketing strategy.It enabled Lovisa to continue its business even when the stores are shut on account of the pandemic(Chaffey & Ellis-Chadwick, 2019).It is necessary to keep the management who are generally the investors satisfied as they provide the necessary business input, the capital.

5. Recommended strategy
Going through the so far discussion, it seems that Lovisa would be able to chalk out its path in terms of revenue, market share, and sustainability over a period of 3 years. Accordingly, certain strategies are worked out for Lovisa in various dimensions to provide a definite direction.

Revenue –
In the difficult times of COVID, it would be effective for Lovisa to avoid any sort of loss scenario. It opts to adopt the digital marketing strategy that has the potentiality to reach out to the targeted segment virtually and market the product.This could be done using various tools like SEO, social media, and internet platform among others. Accordingly, Lovisa could strive to have its online presence in a more effective way tending a 5% increase in its revenue annually considering the prevailing difficult times.

Market share –
Lovisa has the aspect of cost advantage to its credit and this phenomenon ought to be exploited through digitalmarketing tactics to enhance the market share. The jewellery retailer has the right opportunity to expand its market base owing to the relevance of digital marketing. The rightful application of digital marketing would enable the organisation to win over new market segments which was not possible otherwise. So the organisation would aim for a gradual increase of its market share, say 10% of the market share by the end of the 1st year and 15% and 20% of the market share in the subsequent years.

Sustainability –
Lovisa would strive to bring down its environmental cost like reduced energy usage, transport costs on account of digital marketing activities replacing the physical activities for the time being. It would be a gradual effort to take steps for attaining the sustainability stunt by adopting more green measures to have an environment-friendly image in the market. Measures like video conferencing replacing the business trips would be suitable and adoption of solar energy within 3 years across all of its stores and manufacturing facilities would be welcoming.

6. Balanced Scorecard strategy
The balanced scorecard (BSC) is an effective strategic planning process and management facilities to strive for better communication across various departments of the organisation to conduct the daily functions strategically. The BSC strategy strives to address the strategic intent of Lovisa using the financial, customer, business process, and learning and growth perspective(Papke-Shields & Boyer-Wright, 2017). Accordingly, the business comes up with the following objectives to attain in the upcoming three years –

• To implement the digital marketing strategy full-fledged by providing adequate training to the marketing executives.

KPIs –
The business process perspective would measure quality, cost as the yardstick. The customer perspective for better accessibility of the products as per their convenience.

• To enhance the organisational revenue by 5% annually.

KPIs –
The financial perspective would consider the operating income, return on capital employed for the purpose.

The business process perspective would strive to explore the performance of the competitors for a better analysis of the situation.

• To increase the market share by 10% in the 1st year, 15% in the 2nd year, and 20% by the end of the 3rd year.

KPIs –
The financial perspective is to adjudge the sales revenue earned by Lovisa in subsequent years.

The learning and growth perspective would explore the level of commitment delivered by the organisational staff for this achievement.

• To adopt green business practices in the business scenario like reduction in energy, use of solar power in the stores and manufacturing facilities.

KPIs –
The financial perspective would evaluate the costs saved by Lovisa by adopting the energy-saving measures to have sustainability in the business process. It is to determine the customer perspective in getting their standpoint before the adoption of the environmental measures and after the exercise whether it affected the brand image or not.

• To carry on with its sustainability measures like a workshop with indigenous communities for better social participation.

KPIs –
It is for the learning and growth perspective enabling the indigenous community to participate in the social learning spree.

The business process measurement is to be worked out showing the level of commitment that the commercial entity is putting for uplifting the backward community.

Conclusion
The report states that Lovisa though in the midst of COVID difficulty to run its business, has the bright opportunity to run its business and sustain in the long-run. The digital marketing tactics could be adopted in the business scenario of Lovisa to reach out to its targeted segment and earn profitability as its ultimate goal. The Porter’s five forces show that Lovisa has various weaker competitive forces that enables it to reign supreme in the market. The market position of the jewellery retailer is quite strong and influences its primary stakeholders, the customers owing to its varied showcased pieces of jewellery. The environmental impact of the retailer plays a strong role as it strives to reduce the energy costs and the transport expenses owing to various environmental initiatives for a sustainable future. Accordingly, the BSC strategy points out the various business objectives undertaken by Lovisa along with its KPIs to achieve such measures to fulfil the organisational objectives. These objectives are supposed to be met by the organisation within the upcoming 3 years for its gradual development over the years amidst the pandemic situation.

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