Management and Organizational Problems of Recreational Equipment - Case Study Example

 Table of Contents Company & Industry Analysis 2 About the company 2 About the Industry 2 Business problems 3 Management and Organizational Problem 3 Technological Problem 3 Business Strategy of REI 4 Internet and Technology in REI 4 Role in Business Strategies 4 Role in Solving Business Challenges 5 Effectiveness Technology in Maintaining Competitive Advantage 5 Current Standing of the Company 6 Conclusion 6 References 7 Company & Industry Analysis About the company Recreational Equipment was founded in 1938 by Lloyd and Mary Anderson in Seattle, Washington (REI, n.d.). Initially, the company sold sporting equipments only for serious mountain climbers (Kraabel, 2005, p.04). Gradually, the emphasis shifted towards other sporting equipment like Bicycling kayaking and other outdoor sports and selling "sport casual" clothes which are currently one of the most top selling products of REI. About the Industry The retail sporting goods industry consists of over 20,000 companies with combined annual revenues of approximately $25 billion each year (Davis, Ruiz, & Alvarez, 2007, p.11). The industry has many competitors like Dick’s sporting goods, Cabela’s sporting goods, Big 5 Sporting Goods and Hibbett Sport (Davis, Ruiz, & Alvarez, 2007, p.09). Certain departmental stores like Walmart have a sporting goods section which may act as a threat to REI. Firm’s then are forced to have price wars in order to fight for market share (Davis, Ruiz, & Alvarez, 2007, p.09). This industry is very fragmented. Business problems Management and Organizational Problem REI faces a channel conflict. The online store generates more revenue than the physical store for example, net-influenced sales (sales driven by Internet based research by Consumers) represented three times the revenue of direct on-line sales in 2003. This ratio is expected to double by 2007(Kraabel, 2005, p.12). The employees of the physical store may resent the addition of other channels as: 1. It reduces the number of employee visit to the stores 2. Sales target of the employees becomes difficult to achieve 3. The online website gives detailed information about the products and educates the customer on the usage of the products. However, the explicit knowledge transferred online may not be equivalent to the tacit knowledge gained though experience in a physical store. For example, the sports shoes tried and tested at the store would be more convenient for the customer (Kraabel, 2005, p.13). Technological Problem 1. The online stores may have generated more revenues than the physical retail store. However, the fundamental differences between these channels compared to the more traditional channels. These differences are related to the product selection and the richness of information available. (Kraabel, 2005, p.12-13). 2. Before the implementation of wireless Local Area Network, the productivity of the employees skyrocketed. In each store, an employee spends 25 hours per week whereas; previously they would spend 48 hours a week. 3. The internet site does not have a deep impact on the consumers as the physical retail store. The personal interaction of the physical retail store is missing in the online store. Business Strategy of REI It does not follow competitive pricing and believes in providing customers with a good service. They believe in educating the customers about their products through their official website which has at least 40000 pages of information. The main motto of the company is to provide a very good shopping experience to customers, so that the customer retention power is high. REI focuses on niche products, both as regards the overall retail industry and as regards the outdoors sporting goods retail industry in particular. REI’s product selection is vast and extremely varied, and it offers niche products in most every category of the business, from winter to summer sports, from family to hard-core extreme (Kraabel, 2005, p.07). Internet and Technology in REI Role in Business Strategies The company is currently in the process to incorporate handheld wireless devices that would facilitate employees to access product information instantly on the web. It has adopted IBM's WebSphere web-development environment, which enables the company to focus on each of the business channel’s simultaneously. The use of SeaTab Software's PivotLink has improved the logistic and inventory system of the company. The official website provides information and guidance to consumers about the usage of products. Role in Solving Business Challenges 1. The price of inventory and warehousing cost has reduced drastically. 2. It has reduced inefficiencies which were cutting into profits. 3. In mid-2003, the company introduced a web based program that enables customers to order products from their home and then pick up their orders at the local REI store. Effectiveness Technology in Maintaining Competitive Advantage Although catalogue sales have dropped slightly after rei.com was launched, REI believed that if their online store didn’t cannibalize the shares, their competitor would definitely do the task (Kraabel, 2005, p.13). 1. The online stores have around 78000 items which is twice the number of products available at the flagship store in Seattle. By shopping online, customers are likely to find items which are not kept in the inventories (Kraabel, 2005, p.13). It uses the software PivotLink which enables faster and proper decision making and give critical data to vendors. 2. Its product offering is very compatible with the internet (Kraabel, 2005, p.20). Its collaborative approach in the Product Life Management program enables all the teams of the company to enhance product development. 3. The automated system developed for the inventory system enabled the goods to leave the warehouse at regular intervals. Current Standing of the Company The net sales of REI were $ 30,168 thousand in 2011 compared to $ 30,230 thousand in 2010 which shows that sales have been considerably growing (REI, n.d.). The company does believe in genuine quality of products. The relatively high prices of REI.com reflect this (Kraabel, 2005, p.20). Conclusion The company has been drawing over 2 million customers per month. Since 1988, the company has made its place every year in the ‘100 Best Companies to Work For’ list of the Fortune magazine (REI, n.d.). It believed that internet would be one of the major tools of success and this theory was proved to be right. REI is one of the few retailing success stories of the internet (Kraabel, 2005, p.30). Forbes Magazine recognized REI.com as the top internet site for outdoor gear in 2000, and was placed seventh by Smartbusinessmag.com in their 2001 list of the top 50 U.S. companies to have increased their business network using the Internet (Kraabel, 2005, p.30). References Davis, N., Ruiz, J., & Alvarez. (2007). Dick’s sporting goods. Retrieved from http://mmoore.ba.ttu.edu/ValuationReports/Fall2007/Dick'sSportingGoods.pdf. Hitt, M. A., Ireland, R. D. & Hoskisson, R. E. (2010). Strategic management: competitiveness and globalisation, concepts. Connecticut: Cengage Learning. REI. ( No Date). About us. Retrieved from http://www.rei.com/about-rei.html. REI. ( No Date). Financial information. Retrieved from http://www.rei.com/content/dam/documents/pdf/2011%20REI%20Financial%20Statements.pdf. Kraabel, B. (2005). Recreation equipment, inc.e-marketing analysis. Retrieved from http://bkraabel.free.fr/publications/white_papers/Recreational_Equipment_Inc.pdf. Read More