Strategy Case Analysis

Case 1.4 True Religion

True Religion was founded in 2002 by Jeff and Kym Lubell, a husband-and-wife duo. The company specializes in premium jeans which are priced in the range of $100 to $400. Being the second largest premium denim brand in the country, True Religion has faced a lot of changes and threats since its birth; but with effective and efficient business strategies, the company has survived the economic crisis of 2008 and competed successfully with other prominent denim brands such as Levi Strauss, Rock & Republic, etc This paper sets to explain the success story of True Religion by examining the strategies used by True Religion and how those strategies help fought off the competition. One of True Religion business strategies is the diversification of products ranging from denims to non-denims items such as sportwear, T-shirts and hoodies. The related diversification of products helps to boost the sale of denim and non-denim products. Accompanying the diversification strategy is the implementation of forward vertical integration in its distribution and marketing of products. Using its own stores, True Religion was able to introduce to customers the non-denim products because the offers to sell those to big retailers were denied because retailers only viewed True Religion as a denim brand. Also by having over 70 stores in the United States, with many located in the best locations, True Religion has a competitive edge over its competitors in the race for sales. As of 2009, as the majority of sales were coming from the domestic market, the company saw an immense opportunity to expand internationally to Europe ( United Kingdom, Germany as major markets) and Asia ( Japan as the major market). Soon after the expansion move, the company experienced a 36% increases in international sales

with the strongest growth from Germany and Japan. True Religions motive was clear in the international expansion strategy to become a globally recognized denim brand with the likes of Levi Strauss and Calvin Kline. Aside from the expansion strategy, the company also increased its sales with the introduction of an in-house sales force to substitute the third party independent sales companies. The in-house sales force not only help the company increase its margins but also improve the relationship with suppliers and customers. Lastly, the most important competitive edge that True Religion has over its competitors is a well-established brand identity. With the modern consumers paying more and more attention to their lifestyles and fashions, True Religions products offered domestic and international customers alike a Made in America brand that they can wear with pride. True Religion return on equity is 19.5% with the industry average of 20.3% so we can conclude that the company is doing relatively well. Its profit return on assets of 16.5% and gross margin of 64.8% is better than the industry average of 9.7% (ROA) and 52.3% (gross margin). However, True Religion profit margin of 9.6% is only above the industry average of 6.1% but much lower than others such as Buckle (16.3%), Guess (13.7%) and Joes Jeans (90%). The company is at a competitive parity in such a competitive industry but they could definitely improve their profit margin to match with their competitors by finding ways to lower costs. A five-forces analysis yield these results: Threats of entry (medium-high): barriers to entries are relatively low; with the right plans, a lot companies could enter the denim market.

Threats of substitutes (very high): there are a lot of companies offering the same denim products. The substitutes could in the same price range and also in the lower price ranges for value-conscious customers.

Threats of rivalry (medium-high): True Religion needs to stay up with the latest trends in fashion to overcome the threats of rivalry.

Threats of suppliers (high): True Religion is very vulnerable to the price of cotton and the actions of their suppliers.

Buyer power (medium): consumers are getting more and more value-conscious but there are also a group of privileged customers who are willing to pay a premium for the best quality.

VRIOs of competitive advantages: Independent sales force: the sales force is valuable to the development of sales relationships and customer services. However, the independent sales force is not a rare thing in the denim industry and can be easily imitated by competitors. Shop locations: the location of storefronts is crucial to maintaining a high number of sales. Locations are rare and cannot be copied by competitors. Brand identity and reputation: this component is valuable to any company in the fashion industry. Brand identity are rare because of historical events and can be somewhat difficult to imitate. True Religions business-level strategy is working since they are experiencing growth in both the domestic and international markets. However with so many competitors in the industry, the company could face declining margins in the next 2-5 years as result of higher cotton prices and

market shares taken by new and old competitors. The premium price charged could also be a major setback as customers are seeking for cheaper substitutes. To become more competitive, True Religion should consider changing their pricing strategy to match the consumers mentality. Also, expansion by innovation with higher quality products is another way True Religion can use to retain their market shares in the future.

References WikiInvest, Company Over View. Retrieved from http://www.wikinvest.com/stock/True_Religion_Apparel_(TRLG)#_note-ANF_10-K. FindTheCompany, True Religion Apparel. Retrieved from http://cash-flows.findthecompany.com/l/3183/True-Religion-Apparel.

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