Economics Essay: Ted Baker Company Market and Financial Analysis

This essay provides an economic analysis of Ted Baker, a luxury clothing retail company listed on the London Stock Exchange. It begins by examining the market structure of the personal goods industry, concluding that it operates under monopolistic competition. The essay then identifies factors affecting supply and demand, such as consumer income, product quality, advertising, and production costs, illustrating their impact on Ted Baker's revenue. It explores the company's long-term financing, primarily through borrowings and share offerings. Furthermore, the essay investigates the influence of macro-environmental factors, including cultural, technological, legal, political, and economic factors, on the company's performance. The analysis concludes that despite potential risks from macro-environmental factors, Ted Baker presents a good investment opportunity due to its differentiated products and positive market position. The essay uses financial data to support its arguments and references relevant academic sources.

ted baker
Essay
Economics
Student
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The purpose of this essay is to undertake a research on one of the FTSE 250 companies which
are listed on the London Stock market and discuss the market structure of the company’s
industry, determine the factors affecting the supply and demand in the industry, the employment
of the long-term finance in the company, study the impact of macro-environmental factors in the
industry on the performance of the company and analyze the reason behind all this. The FTSE
250 Index is the capitalization weighted index that comprises of 101st to 350th largest companies
which are listed on the London Stock exchange. The companies keep on promoting and
demoting on this index on quarterly basis. The FTSE 250 Company that will be discussed in this
essay is “Ted Baker”. It is a luxury clothing retail company and one of the fastest growing and
leading brands of lifestyle in UK. It operates in the personal goods industry of UK. The products
of the company include menswear and womenswear collections, accessories, fragrances,
footwear, watches, eyewear etc. (Baker, 2014). Apart from the stores in UK, the company has
established its international stores as well.
There are different market structures in which the companies operates like the monopolistic,
perfect competition, monopoly, oligopoly duopoly etc. There are several peers of ted baker in the
market like Paul Smith, Reiss, L.K. Bennett, French Connection, Jack Spade, Hackett, Swiggy
etc. (Keller, 2014). The industry of the personal goods in London does not restrict the entry and
exit of the companies but the products of the companies are differentiated. Each of the brands
sells different designs, prices are also different, the collection is varied and all the material is
exclusive on these shops. Thus, the market structure that operates in the personal goods industry
where Ted Baker exists is monopolistic competition. The companies are found to earn a normal
profit in the long run which is again an indication that the market structure is monopolistic. The
peers of ted baker in the market are big in size and the people who buy the products from them
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are also large in number. Though all of them sell the personal products but the products differ
immensely in shape, trademark, durability, usage, quality and style. For example, the menswear
collection which ted baker has is very different from the menswear collection which Reiss has.
Each of them has different market to cater and they have their own target customers based on the
need of the consumers and their affordability levels. Just like in monopolistic completion, the
products are substitutes but then also they differ from each other. For example, if only the term
“clothes” is used, then Ted Baker as well as its peers sells the clothes but they are highly
differentiated. Another feature of the monopolistic market which is observed in the industry of
ted baker is, that the factor of production and the goods and services here are not perfectly
mobile (Feenstra, 2016). Thus, the monopolistic market structure operates in the personal goods
industry of Ted Baker.
There are several factors that determine the supply and demand of the products within the
personal goods industry and they have a direct impact on the sales revenue of the company. The
factors that affect the demand are: change in the income of the consumers, when it rises, they
started demanding more and when the income falls, their demand also falls for the goods of Ted
baker. Then, the consumers also look for the quality that the companies in this industry are
selling. If they get to see better quality at some other store, then they change their demand for the
products of Ted Baker negatively (Finger, 2015). There are some expectations that the
consumers have from the goods of ted baker but if those are not fulfilled, then they tend to
change their demand. Also, advertising has a major role to play in this industry. If the
advertising positively influences the people, then they increase the demand for the products of
that company. The factors that affect the supply are: fall in the cost of production or operations
tend to increase the supply because the company gets to earn more. When the entry of new
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companies happens, the supply automatically gets affected. Also, with the improvements in
technology, the ways of production changes and the products are supplied in larger quantities
(Collis, 2015).
(Source: http://www.tedbakerplc.com/investor-relations/results-and-reports/2016)
From the above figure it can be seen that there is change in the revenue from 2015 to 2016. This
is because with the improvement in the income of people due to inflation in the country, the
demand rose and with the improvements in the technology, the supply also increased. Hence, the
company was able to sell more and earn more revenue. This not only impacted a particular range
of products, but the entire performance of the Ted Baker group was improved from 2015 to
2016.
For carrying out its operations, the companies have to arrange finance for carrying out its
operations. For the finance, the various funds sources are identified and contacted. Ted Baker has
also employed the long term finance for supporting its operations. It finances its operations via
borrowings and by floating the shares which is also a form of borrowing. The borrowing facility
of the Ted Group increased to £65 million in 2014 (Collis, 2015). This credit facility is mainly
associated with the Royal bank of Scotland and Barclays. So, most of the funding or finance
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comes from these two sources. They basically give the company a form of loan with which the
Ted Baker runs its operations. Apart from this, the company floats its shares in the market with
which the people or the investors subscribe. Whenever the company requires finances to run its
operations or the company plans to introduce new products, expand in the international markets
etc., it offers its shares in the market and thus it gets the required capital. The people usually
subscribe to the shares of this company because the company is doing well, it has an excellent
market position and it becomes successful in almost all its endeavors. So, the company does not
face an issue in getting finances via the floating of shares in the market.
Ted Baker does not operate in isolation. It exists in an environment which is not only dynamic,
but also very influential. There are various macro-environmental factors that affect the
performance of this company. One of them is that macro environmental factor which relates to
the consumers like the cultures, lifestyle of the people, the norms, demographics, the changes in
the population etc. (Pine, 2014). There are different ways in which such factors affect this
company. For example, when Ted Baker introduces a new range if clothes in UK, it may not be
suitable for the people in other countries because of the cultural differences in the countries. In
respect of the clothes, culture has a large impact on the way in which people select the clothes.
Then, the type of population like the old age people, the youth etc. have different demands for
the personal goods and thus, the changes in the expectations of the consumers affects the
performance of the company. Another macro-environmental factor is the technological factor.
The availability of the resources, demand and the production are the technological factors that
impact the company. For example, any change in the technology of producing the goods will
have an impact on its cost as well as price. So, when the technology advances and the competitor
uses the latest technology, decreases its cost of production, then Ted products get affected as it
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also have to install the new technology or it has to find other ways to cut down the cost of
production and cost of running its operations. One of the most important macro environment
factors which affect the performance of ted baker is the legal and the political factors. There are
some of the issues that are associated with the personal goods industry permanently. These issues
include the rights of the workers and the child labor laws, the union demand etc. (Omololu,
2013). Whenever the salaries, work environment or the medical facilities of the employees in
Ted and the other personal goods companies are found or believed to be less favorable by the
workers, they tend to approach the union and lead to workers picketing. This hampers the
operations of the company to a great extant and the problems are not solved till the negotiation
happens and the issues of the works get resolved by the union. Due to this, the operations of the
company gets delayed (Dawson, 2014) and the negative publicity of the company happens.
Finally, there are economic factors that also impact the performance of the company. They not
only have negative impact on Ted, but positive too. When the economy booms, the purchasing
power of the people rises and the customers of Ted Baker rises, more and more people buy the
products and start demanding more. But, during the economic period of recession, the effect is
opposite. Usually, the recession is very rare in London but it can impact the performance of Ted
in other countries where it operates. Pricing is a part of the economic factors and affects the
performance of the company. When there is increase in the price of Ted, the competitors gain
because the consumers get driven towards the competitor.
As discussed above, Ted Baker has more positives than negatives. This is because, it operates in
a monopolistic competition and the products of Ted Baker are differentiated from that of other
competitors. This shows that the consumers will not move away from Ted Baker and they will
not look for substitutes. Thus, Ted Baker will continue to cater to its target market. Next is, the
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factors that affect the demand and the supply of products of Ted Baker are all positive and
inclined towards the company. For example, the prices of the goods of Ted Baker are as per the
requirements and affordability of its target market. The company’s financing options are good
enough and it is able to raise the required capital for its operations. The figure that has been
attached above shows that there is a significant rise in the revenue of the company from 2015 to
2016 which shows that its financing as well as operations are going well because of which it is
able to earn the required revenue. The macro environmental factors can impact the performance
of the company but they have not been found to affect the operations and strategies of this
company in a greater way. Only the legal factor has some amount of impact, rest all factors are
under the control of the company. So, the possible risks to the company are very less. Therefore,
this company is a good opportunity for investment.
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References
Baker, T., 2014. Ted Baker Men's TE1054 Time Flies Contemporary Square Digital Case
Watch. accessed Oct, 9.
Collis, J., 2015. Financial Accounting. Palgrave Macmillan.
Dawson, J.A. and Mukoyama, M., 2014. Building international strategy with formats and
formulae. Global Strategies in Retailing. Asian and European Experiences, pp.37-54.
Feenstra, R.C., 2016. Gains from Trade Under Monopolistic Competition. Pacific Economic
Review, 21(1), pp.35-44.
Finger, M. and Jaag, C. eds., 2015. The Routledge Companion to Network Industries. Routledge.
Keller, C., Magnus, K.H., Hedrich, S., Nava, P. and Tochtermann, T., 2014. Succeeding in
tomorrow’s global fashion market. McKinsey Global Institute.
Omololu, E., 2013. The Strategic Expansion of Hennes & Mauritz AB: A Potential Acquisition
of Next or Ted Baker PLC.
Pine, C., 2014. Cool vs creepy. Instyle, (May/Jun 2014), p.104.
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