Dearn Shoes Ltd ACCA SBL Pre-Seen – June 2025

If you’re preparing for the ACCA Strategic Business Leader (SBL) exam in June 2025, you’re likely well into analysing the pre-seen material focused on Dearn Shoes Ltd.

Let’s jump straight into it.

Area 1 – Company Introduction

What Does the Company Do?

Dearn Shoes Ltd is a shoe manufacturer and retailer based in Lucland. Founded nearly 100 years ago, it has built a longstanding reputation for producing well-made, reasonably priced shoes for both adults and children. Dearn manufactures and sells four categories of footwear: formal, semi-formal, casual, and children’s shoes. It is distinctive within the industry for using both mass production and handcrafting techniques.

While most of Dearn’s manufacturing is outsourced to X Co, a third-party manufacturer based in Totland, the company retains in-house production for its formal, handcrafted shoes at its factory in Layne, a town in south-west Lucland. Dearn does not engage in export activity; it operates solely within Lucland through 75 branded retail outlets and an online platform.

Location of the Company

Dearn is headquartered in Layne, where it also houses its warehouse and its only factory. The company continues to be one of the major employers in the region, playing an important socioeconomic role in the local community. Despite its national presence and substantial market share, Dearn is not listed on the Lucland Stock Exchange, and operates as a privately owned company.

It has chosen not to establish formal audit, nomination, or remuneration committees, but does have an internal audit team that reports directly to the Chief Financial Officer (CFO). Its governance arrangements are nonetheless described as being in line with principles of good corporate governance.

Ownership and Governance

Dearn is predominantly family-owned, with 70% of shares held by the founder’s family. Other shareholdings are distributed between directors (15%), employees (10%), and others (5%). While the family retains ownership control, it does not play a role in day-to-day management or board-level governance. This separation of ownership and management supports objectivity but also places strategic leadership squarely in the hands of the executive team.

The board comprises both executive and non-executive directors and adopts a hierarchical, functional structure. Most board members have been with Dearn for over two decades, and the leadership style is described as risk-averse, focused on operational consistency rather than bold innovation.

Key Stakeholders

Dearn’s primary stakeholders include:

• Shareholders (particularly the founder’s family and directors),

• Staff across head office, factory, warehouse, and retail outlets,

• Customers, with a strong base of repeat family buyers,

• Third-party manufacturer X Co,

• Distribution partner DT Global Transport,

• Suppliers across materials and logistics,

• The National Shoe Union (NSU), which represents employees’ rights,

• The Lucland Shoe Association (LSA), which promotes industry standards.

Stakeholder relationships are generally strong, particularly with staff, who show high levels of satisfaction and loyalty. However, challenges have emerged in the relationship with X Co due to declining product quality and delayed deliveries.

Capital Structure and Funding

As a private company, Dearn’s capital is primarily equity-based. Its conservative financial strategy and lack of external shareholding suggest limited reliance on debt or external funding. However, the board’s risk-averse stance may restrict agility in capital investment, particularly in areas requiring digital transformation or operational overhaul.

There is no mention of substantial bank debt or external investors, implying a largely self-funded operation supported by retained earnings and organic growth. This structure enhances autonomy but may constrain responsiveness in a fast-changing industry.

Performance Insights

Dearn Shoes Ltd has experienced relatively stable financial performance over the past five years, but with clear signs of stagnation. Revenue peaked at $371.5m in 20X1 and has since declined gradually, standing at $352.5m in 20X4. This downward trend suggests that while the company retains a loyal customer base, it is struggling to generate new growth in a competitive and evolving marketplace.

Despite the revenue decline, Dearn’s market share of 9.4% in 20X4 keeps it positioned as the fourth largest shoe manufacturer in Lucland. Its gross profit margin of 26.2% is substantially above the industry average of 24.2%, indicating that the company maintains healthy pricing power and cost efficiency, particularly in its domestic production line. However, margin growth appears to have plateaued, likely reflecting growing cost pressures and operational inefficiencies linked to its overseas supplier.

One of the more concerning metrics is the fall in customer satisfaction, which declined from 8.7 in 20X0 to just 7.0 in 20X4, now sitting below the industry average. This drop may be primarily attributed to:

• Product quality issues linked to outsourced production from X Co in Totland, where manufacturing faults have resulted in a rise in customer returns.
• Underwhelming digital experience, including a limited-functionality website and the lack of a home delivery service, which limits customer convenience in an increasingly e-commerce-driven market.

In contrast, staff satisfaction remains a key internal strength, rising from 8.1 in 20X0 to 8.3 in 20X3, above the industry average. This reflects a stable and committed workforce, particularly in Dearn’s home town of Layne. Strong staff engagement underpins the company’s longstanding reputation for high in-store service quality—particularly in children’s footwear fitting.

Dearn’s online sales represent just 12% of total revenue, significantly underperforming the industry average of 25%. This underperformance is linked to:

• The absence of a home delivery service—a critical consumer expectation in Lucland.
• A basic e-commerce platform that lacks key functionality, reducing conversion and repeat sales.
• The company’s reliance on in-store collection for online orders, which negates the core benefit of digital convenience.

Strategic Implications 

• Product Quality Risks: The ongoing quality issues with outsourced manufacturing at X Co threaten Dearn’s reputation and customer satisfaction. Continued reliance on this supplier without intervention could further erode brand trust.
• Digital Underperformance: Dearn’s limited online reach is a strategic weakness. The requirement for in-store collection and an outdated e-commerce platform undermines competitiveness in a sector increasingly driven by convenience and digital experience.
• Resilience in Physical Retail: Dearn’s success in its 75 physical outlets is commendable, particularly its reputation for excellent customer service and fitting for children’s shoes. However, this strength must be balanced with digital development to stay relevant.
• Staff Engagement as a Strategic Asset: High employee satisfaction and low turnover, especially in Layne, create a strong internal culture. This can be leveraged for strategic change, including innovation, customer engagement, and sustainability initiatives.
• Flat Revenue Trajectory: While Dearn’s financials are stable, lack of revenue growth signals the need for new strategic initiatives—whether through digital expansion, process innovation, or product repositioning.

Business Model

Dearn operates a hybrid business model that combines both mass production (outsourced) and handcrafting (in-house). This dual structure enables it to serve a broad range of customer needs across four product types—formal, semi-formal, casual, and children’s shoes—but also introduces operational complexity and risk.

1. Value Proposition

Dearn positions itself as a provider of reasonably priced, well-made shoes, delivering consistent value through:

• Quality-focused craftsmanship in formal shoes (made in Lucland).
• A strong reputation for customer service, especially in retail fitting for children.
• A heritage brand image rooted in family-friendly values and ethical production for specific product lines.

However, this value proposition is inconsistently delivered across its product portfolio. While its formal shoes reflect high quality and ethical standards, its casual and semi-formal shoes, manufactured by X Co, have drawn increasing complaints over quality and reliability.

2. Operating Model

• Manufacturing: Mass production is outsourced to X Co in Totland (semi-formal, casual, children’s shoes), while formal shoes are handcrafted in Dearn’s Lucland factory.
• Distribution: All products are shipped to a central warehouse in Layne. Retail outlet replenishment is automated, but online order fulfilment remains manual, limiting scalability.
• Sales Channels: The company relies on 75 retail outlets across Lucland, which are central to its identity and service quality. It also operates an online store restricted to domestic customers and requiring in-store collection.
• R&D and Style Management: Dearn reviews styles annually. Each type of shoe includes 20 styles, with underperforming ones retired and replaced. This slow refresh cycle limits its ability to respond to fashion trends—particularly in the casual segment.

3. Revenue Model

• Revenue is entirely derived from Lucland, with no export income.
• Approximately 60% of revenue is generated via in-store sales, 12% from online (collection only), and the remainder through indirect fulfilment.
• The product mix targets:
  • Formal shoes: Premium market, aged 30–50.
  • Semi-formal: Over 55s (Dearn is market leader).
  • Casual: 18–30 age group (Dearn struggles here).
  • Children’s: Strong brand, known for fittings.

4. Technology and Systems

• Dearn’s internal systems are largely off-the-shelf and ageing, especially in finance.
• Inventory visibility is limited—updated daily for retail, but only weekly for the rest of the supply chain.
• Its e-commerce platform is outdated and lacks digital marketing capability, CRM integration, and personalisation features.

5. Strategic Interpretation:

• Dearn’s business model is service-driven, heritage-based, and operationally sound in traditional retail – but digitally weak and poorly diversified.
• The hybrid manufacturing model introduces both brand strength (via MiL-accredited formal shoes) and reputational risk (via outsourcing).
• Its lack of export markets is a missed opportunity, especially for handcrafted shoes that align with global demand for quality and ethics.
• Dearn is well-positioned to adopt a selective transformation strategy—modernising delivery and digital processes, tightening supplier governance, and elevating the brand through ethical and experiential value rather than cost competition.

Prospects of the Company

Dearn’s future prospects are mixed. On the one hand, it has a solid foundation in terms of heritage, brand recognition, and operational efficiency. It retains a loyal customer base—particularly among families—and leads the market in semi-formal and children’s shoes.

However, to remain competitive, Dearn must address several pressing challenges:

• Digital Transformation: To capture growth in online retail, Dearn must revamp its e-commerce offering, introduce home delivery, and improve digital marketing capabilities.
• Quality Control and Supplier Relationships: Addressing the growing dissatisfaction with X Co is critical. Dearn may need to renegotiate terms, enhance monitoring, or consider partial reshoring of production.
• Product and Market Innovation: With changing fashion preferences, sustainability concerns, and demographic shifts, Dearn will need to adopt a more agile approach to product design, branding, and customer engagement—particularly for the underperforming casual segment.
• Sustainability and Reputation Management: Environmental scrutiny is rising. Dearn’s use of overseas mass production and synthetic materials must be counterbalanced with visible, credible sustainability efforts, perhaps building upon its MiL accreditation for formal shoes.

If Dearn can modernise selectively without compromising its reputation for quality and service, it can reclaim market momentum. Strategic agility, technology adoption, and customer-focused innovation will be vital in positioning the company for future growth.

Area 2 – Governing Body and Ownership of the Company

Board Composition & Governance Framework

Dearn Shoes Ltd operates under a private ownership model, with the majority of shares (70%) held by the founder’s family, who are not involved in the company’s governance or day-to-day management. The remaining ownership is split between directors (15%), employees (10%), and other shareholders (5%).

The company is not listed on the Lucland stock exchange, which exempts it from many regulatory requirements associated with public companies. Nonetheless, Dearn is committed to maintaining sound governance practices. While it does not have separate audit, nomination, or remuneration committees, it has established an internal audit function that reports to the Chief Finance Officer (CFO). This helps ensure a baseline of internal control and financial oversight.

The company is governed by a Board of Directors that includes both executive and non-executive directors, led by an Executive Chair. The board members have, in most cases, been with the organisation for over 20 years. This longevity contributes to strong internal cohesion and consistency of decision-making but may also limit exposure to fresh perspectives and innovation.

Dearn’s governance approach is notably risk-averse, with a preference for operational stability and incremental change over disruptive innovation. This has supported consistency but may hinder responsiveness to fast-evolving market conditions, particularly in digital retail and sustainability.

Executive Leadership Culture

The board comprises key executive roles and non-executive directors, with a clearly delineated functional leadership structure:

• Executive Chair – Leads the board, oversees corporate governance, and steers specific strategic initiatives.
• Chief Executive Officer (CEO) – Leads the executive team, implements board decisions, and is responsible for overall strategic execution.
• Chief Finance Officer (CFO) – Manages financial strategy, reporting, internal audit, and oversees the warehouse and Lucland factory. Also maintains the relationship with outsourced partners.
• Chief Operations Officer (COO) – Oversees retail outlet operations, e-commerce sales, and business development.
• Chief Commercial Officer (CCO) – Responsible for customer experience, brand positioning, and overall commercial strategy.
• Chief Product Officer (CPO) – Heads R&D, product design and development, and marketing initiatives.
• Chief Information Officer (CIO) – Manages IT systems, the website and e-commerce platform, and communication with outsourced production facilities.
• Chief Human Resources Officer (CHRO) – Oversees recruitment, retention, training, and development across all areas of the business.

The board is supported by four non-executive directors, who provide additional oversight, though their level of independence is not clearly disclosed. This board composition aims to ensure operational efficiency, but may require enhancement in governance robustness, particularly in light of challenges related to quality control, supply chain risks, and digital underperformance.

Organisational Design

Dearn follows a functional, top-down, hierarchical structure. This means that authority and decision-making are concentrated at the top, with clearly defined roles and departmental responsibilities. Communication follows formal channels, and day-to-day operations are structured and consistent.

Key functional departments include:

• Head Office Departments: Finance, HR, IT, Purchasing, Business Development, Customer Service, and R&D.
• Operational Divisions: Warehouse, Layne-based factory, and the national retail network.

Departmental managers form the senior management team and report to the respective board members. The structure supports operational reliability and cost control but may be less suited to rapid innovation or cross-functional collaboration.

Assessment of Government Effectiveness

Strengths

• Experienced and cohesive executive team.
• Internal audit function providing oversight.
• Strong alignment between board roles and operational functions.
• Clear chain of command ensures consistency and accountability.

Weaknesses

• Absence of formal board committees could limit independent oversight.
• Risk-averse culture may limit strategic agility.
• Limited board diversity in terms of background, tenure, and perspectives.
• No direct shareholder involvement from the family, despite majority ownership, which may distance strategic vision from ownership values.

Recommendations for Governance Enhancement

1. Strengthen Board Independence and Oversight – Introduce formal board committees (audit, risk, remuneration) to enhance checks and balances.

2. Broaden Strategic Thinking – Consider recruiting external board members with expertise in digital transformation, sustainability, and supply chain resilience.

3. Enhance Internal Communication and Cross-Functional Collaboration – Create project-based task forces across departments to support innovation, especially in digital retail, marketing, and environmental initiatives.

4. Adopt Succession Planning and Leadership Development – Formalise succession planning for executive roles and encourage leadership development programmes to prepare mid-level staff for future roles.

5. Increase Transparency and Reporting – Develop governance disclosures and regular performance reports to improve stakeholder confidence and prepare for potential future external financing or listing.

Area 3 – Ethics & Corporate Social Responsibilities (CSR)

Ethical Positioning & Public Perception

As a company with a nearly century-long legacy, Dearn Shoes Ltd has traditionally promoted values of craftsmanship, quality, and long-term employee commitment. It also holds a ‘Made in Lucland’ (MiL) accreditation for its handcrafted formal shoes, indicating compliance with standards in product safety, labour practices, and sustainability. However, its broader ethical and CSR positioning faces mounting scrutiny due to supply chain risks and a relatively underdeveloped sustainability strategy.

Dearn operates in a sector increasingly impacted by environmental, social, and governance (ESG) expectations. Consumers are becoming more environmentally and ethically conscious, and stakeholder pressures are growing, especially regarding outsourcing practices, labour rights, and product sustainability.

Main Ethical Threats

Product Quality and Consumer Trust

The quality issues emerging from its outsourcing relationship with X Co in Totland have raised concerns. Inconsistent quality checks and rising customer returns due to faulty shoes suggest a breakdown in ethical sourcing and operational control. These issues may damage Dearn’s long-standing reputation if not addressed transparently and swiftly.

Ethical best practice:

Ensure full supply chain accountability through enhanced due diligence, transparent reporting, and regular quality audits of third-party manufacturers.

Labour Practices in the Supply Chain

There is growing awareness of poor employment protection legislation in countries like Totland. While Dearn itself operates responsibly within Lucland, its reliance on outsourced manufacturing raises ethical concerns about working conditions, wages, and workers’ rights at X Co.

Ethical best practice:

Adopt ethical sourcing policies and demand compliance with internationally recognised labour standards by suppliers. Consider supplier audits and public ESG statements to reinforce accountability.

Environmental Impact of Mass Production

Dearn uses man-made materials and synthetic rubber in several of its shoe types. These materials are non-biodegradable, contributing to landfill waste and greenhouse gas emissions. Additionally, Dearn does not yet appear to have committed to industry-wide recycling initiatives or eco-friendly product innovation.

Ethical best practice:

Introduce eco-conscious product lines, explore recyclable or biodegradable materials, and commit to carbon reduction targets in production and logistics.

Accessibility of Ethical Choices

Currently, only Dearn’s formal shoes, which are handcrafted in Lucland, carry the MiL mark. Other categories—such as semi-formal, casual, and children’s shoes—are mass-produced abroad and do not carry similar ethical assurances. This creates inconsistency in the ethical value offered to customers across the product range.

Ethical best practice:

Broaden MiL compliance or an equivalent ethical certification across more product lines, enabling consumers to make values-based choices.

Digital Transparency and Data Responsibility

Dearn’s limited digital presence may also raise concerns about transparency, particularly in how it handles customer data, online returns, and digital engagement. While data security is not noted as a current risk, the company’s expansion into e-commerce will require clear ethical data practices.

Ethical best practice:

Strengthen data governance and include privacy and ethical AI considerations in any digital marketing or analytics strategy.

Environmental, Social, and Technological Risks

Corporate Social Responsibility (CSR) Practices

While not formally labelled as a CSR programme, Dearn demonstrates some embedded socially responsible behaviours, particularly around:

• Employment Practices: Long-term commitment to staff, low turnover, and strong satisfaction scores highlight a culture of employee respect and fairness.

• MiL Accreditation: This applies to Dearn’s formal shoe line, ensuring compliance with quality, safety, and sustainability standards.

• Customer Service Excellence: Particularly in children’s shoes, where Dearn has a reputation for accurate fitting and service.

However, broader CSR initiatives—such as ethical sourcing policies, sustainability reporting, or environmental stewardship—appear underdeveloped.

Recommendations for Strengthening Ethics & CSR

1. Develop a Formal CSR Strategy

• Introduce a sustainability and ethics charter.
• Appoint a dedicated CSR or ESG officer reporting to the board.

2. Strengthen Supplier Governance

• Formalise an ethical sourcing policy.
• Conduct annual ESG audits of suppliers and publish findings.

3. Expand the Scope of MiL Accreditation

• Apply for accreditation beyond formal shoes, particularly in children’s and semi-formal lines.

4. Introduce a Sustainable Product Line

• Follow industry trends by offering one or more eco-friendly, ethically sourced shoe ranges.

5. Engage in Industry and Community Initiatives

• Collaborate with the Lucland Shoe Association to pilot national recycling schemes.
• Enhance community outreach via educational partnerships or responsible footwear donation drives.

6. Launch Transparent Communication

• Use Dearn’s website and stores to publish ESG goals, progress reports, and ethical commitments.

Area 4 – PEST Analysis

A PEST analysis examines the Political, Economic, Social, and Technological factors that impact Dearn Shoes Ltd (“Dearn”). As a major shoe manufacturer and retailer in Lucland, Dearn operates in a developed, politically stable environment, but it must navigate evolving regulations, economic shifts, changing consumer expectations, and technological advancements in the Lucland shoe industry.

Political Factors

Regulation and Industry Oversight

Dearn faces a robust regulatory framework. All Lucland businesses (including shoe manufacturers) must comply with stringent laws on employment, health and safety, consumer protection, competition, and data protection. Industry-specific oversight is provided by the Lucland Shoe Association (LSA), which offers guidance and has established the ‘Made in Lucland’ (MiL) accreditation. The MiL mark – which Dearn’s formal shoes carry – certifies compliance with quality, safety, labour, and sustainability standards. This regulatory environment means Dearn must maintain high product safety (legally required materials testing) and ethical labour practices to uphold its reputation and accreditation.

Trade Policies and Outsourcing

Lucland’s political stability and trade policies have enabled Dearn to optimize costs through outsourcing. Fifteen years ago, Dearn moved most manufacturing offshore to Totland (a country with lower production costs). This arrangement benefits Dearn’s margins but exposes it to foreign labour standards and any changes in trade agreements or import regulations. Shipping from Totland to Lucland is handled by a third-party (DT Global Transport), so political or logistical disruptions could affect Dearn’s supply chain (for example, tariffs, customs delays, or geopolitical issues). Recent quality control issues with the Totland supplier (X Co) – including rising defects and late deliveries – highlight the political-risk overlap; if Lucland were to impose stricter import quality regulations or if relations with Totland change, Dearn would need contingency plans. Importantly, Dearn currently does not export any of its shoes, so it is less exposed to international trade barriers on the sales side, but also misses out on any government export incentives.

Labour Laws and Union Influence

Lucland has comprehensive labour laws, and most industry employees (including Dearn’s) are members of the National Shoe Union (NSU). This means Dearn must abide by fair labour practices, wage standards, and collective bargaining agreements. High unionization can lead to political pressure on issues like pay and working conditions. Thus far, Dearn enjoys strong employee loyalty and low turnover (multiple generations of families have worked at Dearn), suggesting it meets worker expectations. However, it must remain vigilant in maintaining good labour relations to avoid disputes or regulatory sanctions. Any changes in employment law (e.g. higher minimum wages or stricter workplace safety rules) would directly impact Dearn’s operations and cost structure.

Government Policy & Stability

Lucland’s government is stable and generally pro-business, providing a predictable operating climate. Intellectual property rights are strongly protected, which benefits companies like Dearn that develop their own shoe designs. Looking ahead, political attention to environmental and ethical issues in manufacturing is rising. If the Lucland government enacts new sustainability regulations or local content requirements in response to public concern (for instance, incentivizing domestic production or penalizing high-carbon imports), Dearn may need to adapt its strategy (such as investing in greener technology or reconsidering its overseas production balance).

Key Political Considerations for Dearn

• Maintain Compliance & Standards: Ensure full compliance with all relevant legislation and uphold industry standards (MiL accreditation) to protect Dearn’s reputation and avoid legal penalties. This includes rigorous product safety testing and ethical labour practices in both Lucland and TotlaEngage Stakeholders & Industry Bodies: Proactively engage with the LSA, government agencies, and the NSU to anticipate or influence policy changes. Building good relationships can help secure support (e.g. industry grants or favorable trade terms) and manage union expectations on wages and conditions.
• Supply Chain Governance: Monitor and manage political risks in the supply chain. This involves contingency planning for any trade policy shifts (tariffs, import/export rules) and holding overseas partners to high standards. Strengthening quality control and ethical audits for the Totland manufacturer will help pre-empt regulatory issues and meet growing scrutiny of offshore production.

Economic Factors

Domestic Growth and Consumer Spending

The health of Lucland’s economy directly affects Dearn’s performance. Economic growth in Lucland has been slowing significantly – from 5.1% five years ago down to just 1.1% in 20X4, with only 0.8% growth forecast for 20X5. This slowdown means consumers have less disposable income growth, which in turn softens demand for shoes. Household disposable income is the key driver of shoe sales, so a weaker economy has led shoppers to become more price-conscious. Industry data shows a shift in buying patterns: the proportion of mid-priced shoes sold is falling while sales of lower-priced shoes are rising.

In Dearn’s case, known for “reasonably priced, well-made” shoes, it will need to monitor price competitiveness as consumers trade down. A potential economic downturn is even listed on Dearn’s risk register, underscoring the importance of economic trends.

Market Growth and Competition

The overall Lucland shoe industry is growing only modestly (historical average ~1.7%, with forecast around 1.06% annually for the next five years). With five major domestic players holding almost half the market, competition for market share is intense, especially as growth stagnates. Dearn is the fourth-largest player, meaning larger competitors (like Flamingo, Rigo, Parrish) may use their scale to weather economic headwinds better (e.g. through pricing or marketing).

Additionally, inflation in costs (materials, energy, wages) can squeeze margins if shoe prices cannot rise correspondingly in a weak economy. For example, skilled labour for handcrafted shoes and leather material costs may be climbing. Dearn must manage such cost pressures, as raising retail prices in a price-sensitive climate could hurt sales.

Consumer Purchasing Power and Product Mix

With softer household income, consumers are not only shifting to cheaper shoes but also buying slightly fewer or cheaper-quality pairs. Industry trends indicate mid-range products are struggling while demand persists for either budget-friendly footwear or premium, high-quality shoes for those who can afford them. Interestingly, one growth area in the industry despite the slowdown is handcrafted luxury shoes – sales of high-end “Made in Lucland” shoes are forecast to drive industry growth, particularly via exports to wealthier markets. Dearn, however, currently does not export at all and generates all its revenue within Lucland. This lack of diversification means Dearn is highly exposed to domestic economic conditions.

Unlike competitors who are capitalizing on overseas demand for Lucland-made footwear, Dearn isn’t benefiting from that buffer or growth avenue. On the other hand, Dearn’s focus on the home market means it must capture as much local demand as possible, even as that demand shifts in composition (for instance, ensuring it has attractive offerings in the low- to mid-price segments that are gaining share).

Import Costs and Currency Factors

Dearn’s cost of sales is influenced by its manufacturing arrangement in Totland. While production costs are lower there, the company is exposed to exchange rate fluctuations between Lucland’s currency and Totland’s, as well as international shipping costs. Any depreciation of Lucland’s currency could make imports from Totland more expensive, squeezing Dearn’s margins. Similarly, global increases in fuel or logistics costs would raise shipping expenses.

Thus far, Dearn has enjoyed reliable logistics with its distribution partner, but an economic factor to watch is the cost stability of this supply chain. Additionally, if Totland experiences economic changes (e.g. wage inflation or political instability driving costs up), Dearn might see its outsourcing savings diminish.

Key Economic Considerations for Dearn

• Resilience to Domestic Slowdown: Diversify and adapt revenue streams to mitigate a sluggish Lucland economy. For example, Dearn could explore export opportunities for its Lucland-made formal shoes (leveraging the MiL mark) to tap into growing overseas demand for quality footwear. Domestically, focusing on value-for-money propositions and essential product lines can help retain budget-conscious consumers.
• Cost Management: With rising input and labour costs, Dearn should improve operational efficiency and cost control. This might include optimizing its supply chain (e.g. negotiating better shipping rates or finding cost-effective materials) and investing in productivity enhancements at the factory. Careful pricing strategy is needed to maintain margins without alienating price-sensitive customers.
• Market Strategy in Slow Growth: Intensify competitive strategy in a low-growth market. Dearn may need to increase marketing efforts or promotional deals to maintain market share against larger rivals. It should also monitor consumer trends closely – if lower-priced segments are growing, ensure Dearn’s casual and budget lines are appealing. Conversely, if there’s a niche of consumers still spending on higher-end shoes, Dearn might highlight its quality (e.g. handcrafted formal line) to capture that segment. In summary, agility in product mix and marketing will be crucial as spending patterns evolve.

Social Factors

Demographics and Customer Segments

Dearn’s customer base spans multiple age groups, but demographic trends are affecting demand. The company’s product lines are tailored to distinct groups – for example, semi-formal shoes target those over 55 (an older demographic where Dearn is market leader) while casual shoes target 18- to 30-year-olds. An aging population in Lucland could mean a stable or growing market for comfortable, traditional styles (benefiting the semi-formal range), but Dearn is struggling to engage younger consumers. Younger buyers tend to be fashion-conscious and digitally savvy; they expect trendy designs and online convenience. Indeed, fashion trends in Lucland now change rapidly, with consumers (especially younger ones) wanting to refresh styles frequently to keep up with influencers and peers.

Competitors like Flamingo have capitalised on this “fast fashion” footwear trend by speeding up design-to-shelf cycles to just a few weeks. Dearn, by contrast, reviews and updates its styles only annually, which may be perceived as too slow to attract the 18–30 segment. Ensuring relevance to younger demographics without alienating core older customers is a key social challenge.

Consumer Behaviour and Expectations

Lucland shoppers increasingly demand convenience and a seamless buying experience. One common expectation is e-commerce with home delivery, which Dearn notably does not offer (online customers must collect orders in-store, an unusual practice in Lucland). This policy has limited Dearn’s online sales to just 12% of revenue, far below the industry’s ~25% online share. Modern consumers may favor competitors who provide doorstep delivery and easy returns. Additionally, Lucland consumers value customer service – a traditional strength of Dearn’s. The company’s excellent in-store service and personal selling approach have built its success over decades. As retail trends evolve, Dearn must maintain this high service standard while also meeting new expectations like omnichannel shopping, quick availability of new styles, and perhaps interactive in-store experiences.

Another aspect of consumer behaviour is the high return rate for online purchases in this industry (many customers order multiple sizes or return shoes that don’t fit). This trend not only affects costs but also raises environmental concerns, pressuring retailers to improve sizing tools or encourage responsible shopping.

Ethical Consumption and Sustainability

Society in Lucland is becoming more conscious of ethical and sustainable consumption. A growing number of customers are unwilling to purchase shoes made in countries with poor labour protections and harmful environmental practices. This is directly relevant to Dearn’s situation: most of its shoes are made by a third party in Totland, one of those low-cost manufacturing countries where labour and environmental standards lag behind Lucland’s.

Consumers concerned about exploitation or pollution may view Dearn’s outsourced production critically. In fact, some shoppers, despite tighter budgets, are opting to pay more for shoes from manufacturers like Parrish that emphasise their Lucland heritage, ethical sourcing, and high-quality handcrafted products. These ethical producers are thriving both in Lucland and abroad, showing that “value-driven” consumers will support brands aligned with their values. Dearn was an early adopter of the MiL mark for its formal line, reflecting some commitment to local quality, but the perception issue remains if the bulk of its products come from Totland.

On the sustainability front, the shoe industry’s environmental impact is significant – it accounted for 1.4% of global greenhouse gas emissions in 20X4 and generates huge waste (worn-out shoes filling landfills for years). In Lucland, there’s increasing public pressure for sustainable practices, like using eco-friendly materials or recycling programs. While some foreign manufacturers are piloting recycling, Lucland’s industry has seen little progress here so far. Dearn lists the environmental impact of shoes and customers’ reactions to it as a current risk, indicating awareness that it must address sustainability (e.g. reducing plastic-based materials, offering recycling or repair services, etc.) to meet community expectations.

Community Relations and Brand Image

Dearn is a nearly 100-year-old company with deep roots in its community. Its head office, lone factory, and warehouse are all in the town of Layne, where Dearn remains one of the main employers. This long heritage engenders goodwill and loyalty among locals – many families have been involved with the company for generations. As a result, Dearn’s brand carries a sense of tradition, trustworthiness, and social responsibility to the local community. Community stakeholders expect Dearn to continue providing stable employment and to act as a responsible corporate citizen in the region. Any decisions such as further outsourcing, store closures, or major operational changes would likely draw local attention.

Conversely, Dearn can leverage its strong community ties and history in marketing (e.g. celebrating its Lucland identity and decades of craftsmanship) to differentiate from newer or foreign competitors. Maintaining a positive public image – through charity involvement, ethical conduct, and consistency between what Dearn says (mission, values) and does – is essential in the current era where brand reputation can strongly influence consumer choice.

Key Social Considerations for Dearn:

• Evolving Customer Engagement: Modernize Dearn’s approach to better engage younger, fashion-conscious consumers. This could include more frequent style updates, collaborations or marketing campaigns to make the brand feel “fresh”, and a stronger social media presence. At the same time, preserve the factors that older and family customers appreciate (comfort, quality, excellent service) to retain loyalty across demographics.
• Ethics and Sustainability: Strengthen ethical sourcing and sustainability practices to meet rising public expectations. Dearn should highlight its MiL-accredited local production (formal shoes) and consider increasing transparency about its Totland supply chain, ensuring that partner factories meet acceptable labour and environmental standards. Initiatives such as introducing eco-friendly materials, offering shoe recycling or repair programs, or reducing waste in packaging can boost public perception of Dearn as a responsible retailer. Emphasizing a “Lucland heritage with modern sustainability” narrative could win over ethically minded customers.

• Customer Experience & Community Trust: Continue to deliver exceptional customer service and adapt to convenience trends. For instance, introducing home delivery or easy returns would align Dearn with standard retail practices and consumer expectations in Lucland. Engaging with local communities via events or sponsorships will further solidify Dearn’s image as a community-centric brand. Given Dearn’s role as a key local employer, maintaining open communication with employees and residents during any changes will be vital to uphold trust and social goodwill.

Technological Factors

E-commerce and Digital Innovation: The retail technology landscape is rapidly advancing, and Dearn risks falling behind. In Lucland’s shoe industry, online sales have grown to about 25% of total revenue, yet Dearn’s own online sales lag at 12%. One reason is Dearn’s underdeveloped e-commerce platform, which has limited functionality and lacks features that competitors and customers expect (e.g. robust online browsing, personalized recommendations, or integrated digital marketing). Moreover, Dearn’s insistence on in-store pickup rather than home delivery is a technological and logistical gap that directly hampers online conversion. In the age of convenience apps and one-click ordering, investing in a modern, user-friendly e-commerce site or mobile app is crucial.

Digital marketing tools – like data analytics for customer personalization, or omnichannel CRM systems – are also part of the technological arms race in retail. If Dearn cannot effectively engage customers through digital channels (social media campaigns, email marketing, online loyalty programs, etc.), it will miss out on growth from younger, tech-oriented consumers.

Manufacturing Technology and Automation: On the production side, technology is transforming how shoes are made and distributed. Dearn has made significant investments in advanced manufacturing technology at its Lucland factory. For the portions of production done domestically (its formal handcrafted line), Dearn uses modern machinery to assist skilled labor, improving efficiency while maintaining craftsmanship. It has also implemented an automated picking system in its central warehouse to fulfill retail store orders, which speeds up distribution to its 75 outlets. However, automation could be expanded further: currently, online orders at Dearn are still picked manually, an area ripe for improvement as e-commerce grows. Industry-wide, there is a trend toward using 3D printing and other advanced manufacturing tech. 3D printing, for example, can rapidly produce prototypes or even custom-fit shoes and limited edition designs, reducing development time and catering to niche demands.

While primarily large firms or innovators are using such tech now, it could become standard; Dearn should watch these developments. Additionally, Dearn relies on X Co’s manufacturing technology in Totland for mass production. If X Co has not kept pace with automation or quality control systems, that could be contributing to the quality issues observed. Technologically, Dearn might need to support or influence its supplier to adopt better processes, or potentially invest in technology to bring more production back onshore if it proves more efficient long-term.

AI and Retail Analytics: The rise of Artificial Intelligence and data analytics is another technological factor shaping retail. AI-driven tools can analyze sales trends, predict fashion preferences, manage inventory levels, and personalize customer recommendations on e-commerce platforms. In footwear retail, some companies use AI for things like virtual shoe fitting (augmented reality apps to try shoes virtually) or chatbots for customer service. While the pre-seen information doesn’t mention AI use at Dearn, competitors may leverage AI to optimize everything from supply chain (predicting which styles will be in demand, thereby reducing stockouts or overstock) to marketing (targeted ads, dynamic pricing). Dearn’s relatively dated IT systems (its finance and HR systems are older off-the-shelf solutions) suggest the company has yet to fully embrace these cutting-edge tools.

Upgrading to a modern ERP or analytics platform could yield efficiencies and insights – for example, a new inventory management system could provide real-time supply chain visibility, something Dearn currently lacks as its existing system updates non-retail stock only weekly. Embracing data analytics might help Dearn identify purchasing patterns (e.g. which styles sell best in which regions, or seasonal demand shifts) and respond more quickly, which is increasingly important in a tech-enabled competitive environment.

Data Security and Privacy: With greater digital presence comes the responsibility of securing customer and company data. Lucland’s strict data protection laws require businesses to safeguard personal information. As Dearn grows its online platform and collects more customer data (emails, payment info, browsing habits), it must ensure robust cybersecurity measures are in place. Any breach or misuse of data would not only incur regulatory penalties but also damage trust among Dearn’s traditionally loyal customer base. This is an area where Dearn’s current IT limitations could pose a risk – outdated systems might be more vulnerable to cyber threats.

Investing in up-to-date, secure technology (and possibly obtaining data security certifications) will be important for compliance and customer confidence. Additionally, technology can aid Dearn in compliance with other regulations, such as intellectual property protection (ensuring designs are not stolen or counterfeited) and adherence to any emerging standards for sustainability reporting (tracking environmental data).

Key Technological Considerations for Dearn:

• Digital Platform Enhancement: Invest in upgrading Dearn’s e-commerce platform and digital customer experience. This includes adding functionalities like home delivery options, detailed online product displays, easy returns, and personalization features. Improving the website/app and leveraging digital marketing (SEO, social media, email campaigns) will help Dearn reach younger consumers and increase online sales from the current 12% towards the industry norm.

• Automation and Innovation in Operations: Continue to adopt advanced technologies in manufacturing and logistics. Dearn should explore automation for its online order fulfillment and consider technologies like 3D printing for rapid prototyping or custom-fit offerings. Keeping pace with industry innovations (and possibly using AI for demand forecasting or inventory management) can improve efficiency and product development speed, allowing Dearn to respond quicker to fashion trends.

• IT Modernization and Cybersecurity: Modernize core IT systems (finance, inventory, CRM) to gain better data visibility and decision support. Enhanced data analytics can inform strategy, while a robust IT infrastructure will support growth. In tandem, prioritize cybersecurity and data privacy compliance as Dearn digitizes more of its operations, protecting customer data and transaction security is essential for maintaining trust and avoiding legal issues. This might involve hiring IT security expertise or partnering with technology firms to bolster Dearn’s defenses.

Summary of PEST Analysis

Political: Highly regulated industry (safety, labour, data) in a stable country; industry standards (LSA, MiL mark) enforce quality; outsourcing to Totland faces scrutiny and potential trade/policy risks. Maintain strict compliance with all laws and standards to uphold reputation. Proactively engage with the LSA and government on policy/industry issues. Mitigate supply chain risk by ensuring ethical practices at the Totland supplier and preparing for any trade changes.

Economic: Slowing domestic economy and weaker consumer spending (growth ~1%); consumers shifting to lower-priced shoes; Dearn has no export sales (100% reliance on Lucland market); potential cost pressures from inflation and supply chain. Improve cost efficiency and pricing strategy to remain competitive in a price-conscious market. Consider diversifying revenue (e.g. exploring export of Lucland-made products or new channels) to reduce reliance on domestic demand. Focus on value propositions and marketing to maintain sales volume during economic lulls.

Social: Aging core customer base (strong with over-55 and children’s markets) vs. difficulty attracting younger buyers; consumers expect convenience (online sales, delivery) and fast fashion updates; rising demand for ethical, sustainable products and local craftsmanship; community relies on Dearn as a key employer. Refresh brand appeal and product offerings to engage younger, trend-driven consumers (without alienating loyal older customers). Enhance customer experience with omnichannel convenience (e.g. introduce delivery, online engagement). Embrace ethical practices and sustainability (e.g. highlight Lucland-made lines, eco-friendly initiatives) to meet consumer values and strengthen community goodwill.

Technological: Growing importance of e-commerce and digital marketing (online sales rising industry-wide); Dearn’s current online platform is limited; competitors adopting new tech like automation, 3D printing, and AI; Dearn’s systems need updating (outdated IT, manual processes for online orders) and data security must be ensured. Upgrade and expand Dearn’s digital capabilities – invest in a robust e-commerce platform and use technology for better customer engagement (personalization, online outreach). Implement further automation in production/warehousing and consider innovative tech (3D printing, AI analytics) to improve efficiency and responsiveness. Strengthen IT infrastructure and cybersecurity in line with data protection obligations to support these advancements safely.

Strategic Implications

By understanding and addressing these external factors, Dearn can enhance its resilience and long-term performance. Politically, keeping regulatory compliance and strong industry relationships will secure Dearn’s license to operate and brand trust. Economically, a focus on efficiency and exploring new markets or segments can help offset the pressures of a slow-growth home market. Socially, adapting to consumer trends – both in fashion and in ethics – will be crucial for Dearn to remain relevant and preferred by customers (young and old alike) in Lucland.

Technologically, investing in digital transformation (from e-commerce to automation and data security) will not only improve Dearn’s operational efficiency but also open up new opportunities for growth and customer engagement in an increasingly tech-driven retail landscape. By proactively responding to the PEST factors, Dearn can position itself to maintain its proud 100-year legacy in Lucland while securing future success in a changing business environment.

Area 5 – Ansoff’s Matrix

Ansoff’s Matrix is a strategic planning tool that helps businesses explore growth opportunities by considering whether they should develop new or existing products and whether they should target new or existing markets. The matrix identifies four strategic options:

1. Market Penetration – Existing products, existing markets

2. Product Development – New products, existing markets

3. Market Development – Existing products, new markets

4. Diversification – New products, new markets

Dearn Shoes Ltd can apply this framework to evaluate how it may grow sustainably amidst rising competition, shifting consumer behaviours, and evolving market expectations.

1. Market Penetration (Existing Products, Existing Markets)

This is Dearn’s current strategy. The company offers four types of shoes (formal, semi-formal, casual, and children’s) to the domestic Lucland market through 75 retail outlets and a limited-functionality online store. It relies heavily on brand reputation, in-store service, and value-for-money pricing.

Tactics already in use:

• Maintaining high customer service quality, particularly in children’s fittings.
• Annual style reviews to refresh product offerings.
• Investing in automated warehouse processes for retail replenishment.

Opportunities:

• Boost sales volumes through local marketing campaigns, customer loyalty schemes, or seasonal promotions.
• Increase share in segments where it already leads (e.g. semi-formal and children’s shoes).
• Improve online conversion within Lucland by enhancing website functionality and offering home delivery.

Risks:

• Limited growth due to market maturity and economic slowdown.
• Intensifying price-based competition from rivals like Flamingo and Betterby.

2. Product Development (New Products, Existing Markets)

Dearn has potential to introduce new or enhanced product lines tailored to the Lucland market.

Opportunities:

• Launch an eco-friendly footwear line using biodegradable or recycled materials to attract environmentally conscious consumers.
• Develop a youth-oriented fashion range or athletic collection to re-engage the 18–30 demographic.
• Offer customisable shoes or explore technology-integrated footwear (e.g. smart insoles, fitness trackers) in line with industry trends.

Challenges:

• Requires investment in R&D and possible changes to the supply chain.
• Risk of cannibalising existing products without clear differentiation.

Strategic Consideration:

This route allows Dearn to retain its domestic focus while modernising its appeal and meeting evolving consumer expectations, especially around sustainability and innovation.

3. Market Development (Existing Products, New Market)

Dearn currently sells only within Lucland. Market development would involve selling its existing shoes in new geographical markets, particularly exporting its MiL-accredited formal shoes to countries with rising demand for high-quality footwear.

Opportunities:

• Tap into international markets that value craftsmanship and ethical sourcing.
• Partner with distributors abroad or establish an online international platform for formal shoes.
• Leverage the MiL mark as a unique selling point overseas.

Risks:

• Logistics complexity, regulatory compliance, and brand unfamiliarity in foreign markets.
• Initial capital outlay required to establish distribution channels or export infrastructure.

Strategic Consideration:

Given its strong in-house manufacturing of formal shoes, this strategy could be low-risk and revenue-enhancing without needing to introduce new products.

4. Diversification (New Products, New Markets)

This is the most ambitious growth strategy and currently least aligned with Dearn’s core operations.

Speculative ideas could include:

• Moving into non-footwear leather goods (e.g. belts, bags) for Lucland or export markets.
• Launching a fashion or apparel range targeting family or lifestyle branding.

Risks:

• High investment and execution risk.
• Diverts focus from core competencies and brand identity.

Strategic Consideration:

Diversification may be considered only if other growth routes are saturated and Dearn has the capacity to manage multiple brands or product types. It is not a short-term priority.

Strategic Insights & Recommendations

Dearn’s most viable and strategic growth options within the Ansoff framework are:

Product Development: Introducing a sustainable shoe line and enhancing offerings for younger consumers would refresh brand relevance and tap into modern preferences.

Market Development: Exporting Lucland-made formal shoes could be a natural next step, allowing Dearn to capitalise on its heritage and quality reputation.

Market Penetration should be optimised through better digital integration and pricing strategy, but has limited long-term upside in a slowing domestic market.

Diversification is not recommended at this stage due to the company’s limited digital maturity, focus on operational efficiency, and absence of related brand extensions.

Area 6 – Porter’s Diamond Analysis

Porter’s Diamond Framework explains why certain industries within specific nations are more competitive globally. It identifies four interrelated determinants that contribute to national competitive advantage:

1. Factor Conditions

2. Demand Conditions

3. Related and Supporting Industries

4. Firm Strategy, Structure and Rivalry

Applying this model to Lucland’s shoe manufacturing and retailing sector helps explain the industry’s enduring strength and sets the context for Dearn Shoes Ltd’s strategic choices.

1. Factor Conditions

Lucland possesses a number of advanced factor conditions that benefit its shoe industry:

• Skilled Labour: The handcrafting segment of the industry relies heavily on skilled workers, particularly in producing high-quality leather shoes. Lucland has a heritage of craftsmanship, which supports the premium segment. Dearn’s own factory in Layne uses such skilled labour for its formal shoes.

• Infrastructure: Lucland benefits from efficient logistics and supply chain infrastructure. Dearn’s operations—including production in Layne, warehousing, and retail distribution—are supported by reliable transport, including DT Global Transport for shipping from Totland.

• Technology Readiness (Limited in Dearn’s Case): While other firms are experimenting with innovations such as 3D printing and augmented reality, Dearn has only selectively invested in manufacturing automation and has an underdeveloped digital presence.

Strategic Implications for Dearn:

• Leverage the strength of its skilled workforce and MiL-accredited production to build brand equity.

• Invest in digital infrastructure to upgrade technological competitiveness and supply chain visibility.

2. Demand Conditions

Domestic demand in Lucland is sophisticated and evolving:

• High Expectations: Lucland consumers expect quality, ethical standards, and increasingly, environmentally responsible products. This aligns well with Dearn’s formal handcrafted range but challenges its mass-produced offerings from Totland.

• Fashion-Conscious Market: Demand is shifting toward trendy, frequently updated styles, especially among younger consumers. Speed to market is a growing differentiator, as seen in competitors like Flamingo.

• Growth in Ethical Consumption: Consumers are willing to pay a premium for sustainability and local sourcing, especially in formal and luxury footwear.

Strategic Implications for Dearn:

• Improve agility in product design to better respond to local fashion trends.

• Consider expanding its ethical range beyond formal shoes to meet rising sustainability expectations.

3. Related & Supporting Industries

Lucland’s shoe industry benefits from well-established support systems:

• Lucland Shoe Association (LSA): Promotes the industry through expertise, guidance, and the MiL mark. Dearn is already aligned with this through its accredited formal shoes.

• National Shoe Union (NSU): A powerful labour body that affects employment practices. Dearn enjoys strong staff satisfaction and low turnover, suggesting a well-managed relationship here.

• Retail Infrastructure: The presence of branded retail outlets and growing e-commerce activity enables direct access to consumers.

Strategic Implications for Dearn:

• Deepen engagement with the LSA to co-develop sustainability initiatives or export promotion.

• Expand collaboration with domestic tech and design partners to enhance digital offerings.

4. Firm Strategy, Structure & Rivalry

• Industry Competition: Lucland’s market is dominated by five major players (including Dearn), with over 200 smaller firms. Rivalry is intense, especially in casual and children’s segments, where Dearn faces stiff competition from Flamingo, Rigo, and Betterby.

• Strategic Orientation: Dearn has a functional, top-down structure with a risk-averse board. Most competitors have adopted more agile strategies, especially in terms of product refresh and digital engagement.

• Local Commitment: Companies that promote local production and environmental responsibility (e.g. Parrish, Kind Shoes Co) are gaining popularity, suggesting strong competitive advantage for firms aligning with national values.

Strategic Implications for Dearn:

• Reassess board-level risk tolerance to allow more agile, innovation-driven decision-making.

• Compete on more than just quality and service—speed, digital presence, and ethics must be integrated into Dearn’s competitive strategy.

Conclusion: Competitive Advantage For Dearn Within Lucland

By aligning more fully with Lucland’s national strengths—particularly craftsmanship, ethics, and digital innovation—Dearn can strengthen its competitive positioning and respond more effectively to modern retail dynamics.

Area 7 – Porter’s Generic Strategies

Porter’s Generic Strategies framework outlines three key strategic options for achieving competitive advantage:

1. Cost Leadership – Competing by being the lowest cost producer in the industry.

2. Differentiation – Competing by offering unique value, such as superior quality or service.

3. Focus Strategy – Targeting a specific market segment, using either cost focus or differentiation focus.

Dearn Shoes Ltd operates in a moderately saturated market where differentiation and focused branding are critical due to changing consumer behaviour, modest industry growth, and rising sustainability concerns.

DEARN’S CURRENT STRATEGIC POSITION

Dearn exhibits elements of both differentiation and focus, rather than pure cost leadership.

Differentiation Characteristics:

• Quality and Heritage: Its formal shoe range, handcrafted in Lucland and MiL-accredited, reflects strong brand values centred on quality and tradition.

• Customer Experience: Dearn is known for high service standards in its retail outlets, especially for children’s shoe fitting, which reinforces a customer-centric approach.

• Ethical Sourcing (Partially): While its formal shoes are produced domestically under ethical conditions, most other shoes are mass-produced overseas, diluting the differentiation narrative.

Focus Characteristics:

• Targeted Segments: Dearn serves clearly defined customer groups—over-55s for semi-formal shoes, young adults for casual shoes, and families for children’s shoes. It has achieved market leadership in children’s and semi-formal shoes, suggesting effective niche positioning.

• Domestic Market Only: With no export operations, Dearn’s strategy is entirely focused on the Lucland market.

Not a Cost Leader:

• Dearn does not compete on price alone. While it offers reasonably priced products, it is neither the cheapest (like Flamingo) nor aggressively positioned to scale cost leadership across the board. Its hybrid production model and ethical sourcing commitments for formal shoes imply higher costs in certain product lines.

Strategic Evaluation

Strengths of Current Approach:

• Dearn’s differentiation through heritage and service has built strong customer loyalty, particularly in the children’s segment.

• It successfully focuses on specific market segments where brand trust matters (e.g. parents prioritising fit and service for children).

• High staff satisfaction and operational consistency reinforce service quality, which supports differentiation.

Weaknesses and Risks:

• Inconsistent value proposition: While formal shoes reflect Dearn’s ethical values, casual and semi-formal products—manufactured by X Co in Totland—may not align with rising customer expectations for sustainable and ethical production.

• Limited digital differentiation: Dearn’s online platform is weak and lacks delivery, undercutting its competitiveness in a channel where differentiation (UX, convenience) is vital.

• Stuck in the middle?: Without clear cost leadership or full differentiation across all product lines, Dearn risks being perceived as average, especially by younger, value-driven consumers.

Recommendations: Strengthening Strategic Focus

To sharpen its competitive edge, Dearn should pursue a Differentiation Focus Strategy more decisively:

Reinforce Differentiation

• Expand MiL principles across more product lines (e.g. children’s and semi-formal shoes) to align brand perception with ethical expectations.

• Highlight heritage, quality, and sustainability in brand messaging.

Deepen Segment Focus

• Strengthen its hold on family and older adult segments by improving product comfort, durability, and ethical transparency.

• Consider relaunching or repositioning the casual range to better attract younger consumers—possibly with sustainable or customisable features.

Digital Differentiation

• Upgrade the online platform to reflect the same high-quality experience as in-store. Add home delivery, size guidance, and digital fitting tools.

• Use customer data to personalise product recommendations and promotions.

Avoid Price Wars

• Resist competing purely on cost. Instead, build emotional loyalty through values-led branding, storytelling (e.g. heritage of craftsmanship), and post-sale service (e.g. free repairs or recycling).

Conclusion

Dearn is best suited to a Differentiation Focus strategy—leveraging its strong brand heritage, craftsmanship, and trusted retail experience while honing in on selected customer segments (families, older adults). To make this approach sustainable and defendable, it must resolve inconsistencies in its value proposition, improve digital engagement, and extend ethical and quality commitments across its full product range.

Area 8 – Porter’s Five Forces Analysis

Porter’s Five Forces framework helps assess the competitive intensity and attractiveness of an industry by evaluating five key forces:

1. Competitive Rivalry

2. Threat of New Entrants

3. Bargaining Power of Suppliers

4. Bargaining Power of Customers

5. Threat of Substitutes

This analysis explores how these forces shape the shoe manufacturing and retailing industry in Lucland, and how they affect Dearn Shoes Ltd’s ability to maintain and grow its competitive position.

1. Competitive Rivalry – High

The Lucland footwear industry is highly competitive:

• The top five manufacturers—including Dearn—hold a combined 45% market share, with the remainder fragmented across over 200 smaller companies.

• Price competition is strong, especially from companies like Flamingo (low-cost, mass production) and Rigo (youth-focused, trend-led).

• Key players differ in production approach, with Parrish and Kind Shoes Co focusing on handcrafted, sustainable models that appeal to high-end and ethical consumers.

• Dearn competes directly in all four shoe categories but lacks dominant leadership in casual shoes, where brand loyalty is strong for competitors like Rigo.

Strategic Implications for Dearn:

• Dearn must avoid being “stuck in the middle” and instead reinforce clear points of differentiation (e.g. ethical production, heritage, quality service).

• Staying relevant across all segments requires agility in product development, especially to counter fast fashion dynamics.

• Strategic partnerships or niche branding (e.g. exclusive sustainable collections) could help reduce head-to-head price-based rivalry.

2. Threat of New Entrants – Moderate

Although barriers to entry are not negligible, new players continue to emerge:

• Capital requirements for online-only or niche production models are relatively low.

• Ethical and sustainable micro-brands like Kind Shoes Co have successfully entered by targeting specific value-driven segments.

• However, building a trusted brand, retail network, or earning MiL accreditation takes time and investment.

Strategic Implications for Dearn:

• Protect its legacy and brand reputation by expanding MiL-accredited products and reinforcing community-based marketing.

• Enhance its digital footprint and customer experience to discourage new entrants from gaining a foothold online.

• Innovate faster to reduce the appeal of newer, trendier entrants among younger consumers.

3. Bargaining Power of Supplliers – Moderate to High

Dearn has limited control over one of its critical suppliers:

• X Co in Totland manufactures the majority of Dearn’s products. Quality and delivery issues have been rising .

• The dependence on a single third-party supplier increases risk and reduces Dearn’s leverage.

• Dearn’s in-house Lucland factory offers more control but produces only its formal shoe range.

Strategic Implications for Dearn:

• Reduce dependence on X Co by diversifying suppliers or reshoring production where feasible.

• Introduce stricter service level agreements and conduct regular quality audits.

• Consider backward integration or investment in supplier development to safeguard product quality and timelines.

4. Bargaining Power of Customers – High

Customers in Lucland have considerable power due to:

• Easy price and quality comparisons across brands and platforms.

• Growing expectations for ethical sourcing, sustainability, and fast delivery.

• High online return rates and an industry-wide lack of standardised sizing, adding pressure for flexible service.

Strategic Implications for Dearn:

• Improve customer retention through loyalty programmes, superior service, and value-added offers (e.g. free repairs, recycling schemes).

• Invest in digital customer experience and analytics to personalise interactions and reduce return rates.

• Educate customers on Dearn’s value proposition (e.g. ethical sourcing, community engagement, quality guarantees).

5. Threat of Substitutes – Moderate

Substitutes for traditional footwear include:

• Imported low-cost footwear from international online retailers.

• Second-hand or refurbished shoes from resale platforms.

• Alternative products like multipurpose trainers or lifestyle shoes replacing formal footwear in casualised work environments.

Strategic Implications for Dearn:

• Emphasise craftsmanship, heritage, and comfort to distinguish from mass-produced substitutes.

• Consider adding repair, recycling, or resale services to reduce competition from second-hand markets.

• Expand into adjacent categories (e.g. comfort-led or smart shoes) that meet changing lifestyle needs.

Summary of Competitive Forces

Area 9 – SWOT Analysis

The SWOT framework enables a strategic assessment of Dearn Shoes Ltd by categorising its internal strengths and weaknesses alongside external opportunities and threats. This analysis draws upon the insights from earlier sections of the deep-dive and reflects Dearn’s current strategic position in the Lucland shoe industry.

Strengths

• Established Heritage and Brand Reputation

Dearn has operated for nearly 100 years and is recognised for producing reasonably priced, well-made shoes. Its heritage and MiL accreditation support strong brand credibility in Lucland.

• Handcrafted Formal Shoe Line

Dearn retains full control over the production of its formal shoes, which are manufactured in Lucland using skilled labour. This supports quality assurance and appeals to ethically conscious consumers.

• Customer Service Excellence in Retail Outlets

Particularly noted for its accurate children’s shoe fittings and overall service quality, Dearn has built loyalty and trust through its 75 branded stores.

• High Staff Satisfaction and Loyalty

Dearn enjoys low staff turnover and strong employee engagement, with many employees spanning generations of the same family—especially in Layne.

• Market Leadership in Children’s and Semi-Formal Segments

Dearn holds a strong position in these segments and has a reputation for comfort and quality, especially among families and older customers.

Weaknesses

• Overreliance on Outsourced Manufacturing

The majority of Dearn’s products are produced by X Co in Totland, which has been underperforming in terms of product quality and delivery. This raises reputational and operational risks.

• Limited Digital and E-Commerce Capabilities

The company’s online platform lacks home delivery, has limited functionality, and contributes just 12% to total revenue—well below the industry benchmark of 25%.

• Inflexibility and Slow Style Refresh

Dearn updates its product styles only once per year, making it less responsive to fast fashion trends, particularly in the casual shoe segment.

• Conservative, Risk-Averse Leadership

Long-tenured leadership and a top-down structure contribute to stable operations but may limit strategic agility and innovation.

• No Export Presence

Dearn does not export, which limits its growth potential and increases reliance on the domestic market—currently facing economic slowdown.

Opportunities

• Export Potential for MiL-Accredited Formal Shoes

Rising demand for ethically made, high-quality shoes in international markets presents a clear opportunity for Dearn to expand via export.

• Growth in Ethical and Sustainable Consumer Preferences

Consumers are increasingly prioritising sustainability and ethical sourcing. Dearn can capitalise on this by extending MiL accreditation and developing eco-conscious product lines.

• Digital Transformation and E-Commerce Expansion

There is significant scope to improve online sales through website upgrades, digital marketing, home delivery, and virtual fitting tools.

• Product Development in High-Growth Niches

Dearn can develop new product lines, such as sustainable casual wear or customisable athletic shoes, to attract younger consumers.

• Recycling and Circular Economy Initiatives

Industry trends point towards footwear recycling and environmentally responsible practices. Dearn could pioneer initiatives in Lucland aligned with this trend.

Threats

• Intense Industry Competition

Lucland’s footwear market is highly competitive, with strong players like Flamingo, Rigo, and Parrish dominating key segments and newer ethical brands entering the market.

• Rising Customer Expectations

Consumers expect fast delivery, seamless digital experiences, and ethical transparency—areas where Dearn currently underperforms.

• Economic Slowdown in Lucland

Reduced household income is shifting demand to lower-priced footwear, placing pressure on margins and reducing overall spending.

• Supplier Risk

Continued quality and delivery issues with X Co may further damage customer trust and erode Dearn’s brand image.

• Environmental and Regulatory Pressures

As environmental concerns rise, regulation and consumer scrutiny around unsustainable practices (such as use of synthetic materials or outsourced production) may intensify.

Strategic Alignment Summary

Conclusion

Dearn is well-positioned to consolidate its strength in key customer segments and product lines by enhancing digital capabilities, reinforcing ethical branding, and reducing reliance on underperforming suppliers. With growing public demand for sustainability and quality, the company must modernise its offerings and expand beyond its traditional boundaries—particularly in online retail and international markets—to secure long-term growth.

Area 10 – Mendelow’s Matrix

Mendelow’s Matrix is a stakeholder mapping tool that classifies stakeholders based on two dimensions:

• Power – their ability to influence organisational decisions.

• Interest – the extent to which they are affected by or concerned about the organisation’s actions.

The matrix helps determine the appropriate communication and engagement strategy for each stakeholder group. For Dearn Shoes Ltd, effective stakeholder management is vital to preserve brand reputation, secure supply chain performance, and maintain internal and external trust.

Mendelow’s Matrix for Dearn Shoes LTD

Strategic Implications

• X Co and the Board must be managed as key players, as they are central to Dearn’s operational stability and strategic direction. The supply chain challenges with X Co necessitate closer monitoring, stronger SLAs, and potentially diversified sourcing.

• The founder’s family, despite not being operationally involved, holds ownership power. Strategic shifts—especially involving ethics, expansion, or divestment—must be justified to preserve long-term support.

• Employees and the NSU are important for maintaining service quality and productivity. With high satisfaction currently, any restructuring or tech investment must be handled with transparency to sustain trust.

• Customer segmentation needs to be differentiated: Dearn should maintain a high-engagement strategy for its loyal family-oriented base while selectively targeting the younger segment through modernised branding and digital campaigns.

• Industry bodies like the LSA are essential allies in securing reputation and credibility, especially around ethical sourcing and MiL certification. Deepening this relationship could also assist with future export opportunities.

Summary

Key Players (High Power, High Interest)

• Board of Directors
• CEO
• X Co (Outsourced Manufacturer)

Keep Satisfied (High Power, Low Interest)

• Founder’s Family
• Lucland Shoe Association
• Bank

Keep Informed (Low Power, High Interest)

• Employees
• NSU
• Loyal Customers (Parents, Older Adults)

Minimal Effort (Low Power, Low Interest)

• DT Global Transport
• Younger, Less Engaged Customers

Conclusion & Strategic Priorities

CONCLUSION

Dearn Shoes Ltd stands at a strategic crossroads.

As a well-established player in Lucland’s shoe industry with nearly a century of brand heritage, Dearn enjoys trust, loyal customers, strong internal culture, and market leadership in key segments such as semi-formal and children’s shoes. Its MiL-accredited handcrafted formal shoe line, excellent in-store service, and employee satisfaction distinguish it as a reputable and responsible business.

However, the external landscape is shifting rapidly. Consumer preferences are evolving toward sustainability, digital convenience, and style agility. Competition is intensifying from low-cost rivals, fast fashion entrants, and ethical niche players. Internally, Dearn is hampered by an underperforming supply chain partner, an outdated digital presence, and slow product refresh cycles. Its conservative leadership and domestic-only market focus may limit its ability to compete in the next phase of industry transformation.

The challenge for Dearn is clear: modernise while preserving its values. To do so, the company must enhance its responsiveness to market trends, embrace digital and operational innovation, and engage proactively with its stakeholders—all while maintaining its reputation for quality, ethical production, and long-standing community relationships.

Strategic Priorities

To secure long-term competitiveness and relevance, Dearn should consider the following five strategic priorities:

1. Reinforce Brand Differentiation Through Ethical Positioning

• Extend MiL accreditation across more product lines.
• Develop a transparent ethical sourcing policy and supplier code of conduct.
• Communicate sustainability efforts clearly in branding and customer engagement.

2. Modernise Digital Capabilities and Customer Experience

• Upgrade the e-commerce platform to include home delivery, modern UX, and sizing tools.
• Increase digital marketing efforts to attract younger demographics.
• Introduce data analytics to personalise offers and predict customer behaviour.

3. Strengthen Supply Chain Control and Quality Assurance

• Reassess the relationship with X Co, introducing stricter KPIs and exploring alternative suppliers or partial reshoring.
• Improve supply chain visibility through investment in updated inventory and logistics systems.
• Consider more frequent product refresh cycles to respond faster to fashion trends.

4. Explore New Revenue Streams via Market and Product Development

• Export MiL-accredited formal shoes to premium international markets.
• Develop new products, such as eco-friendly or tech-integrated footwear, to meet unmet demand in the youth and active lifestyle segments.
• Pilot recycling or repair services to align with circular economy trends.

5. Reassess Strategic Agility and Board Governance

• Encourage a more risk-balanced leadership approach, open to innovation and strategic transformation.
• Introduce external expertise at board level, especially in digital, ESG, and global expansion.
• Invest in cross-functional collaboration to reduce siloed decision-making and improve responsiveness.

By taking bold but carefully planned steps in these areas, Dearn can remain true to its identity while evolving into a forward-looking, digitally capable, and ethically trusted brand—well-positioned to lead in both its home market and beyond.