The Business Analysis of the Home Retail Group - Coursework Example

Business Analysis of Home Group plc. Table of Contents Executive Summary 4 Introduction 5 Porter’s five forces 6 TWOS Matrix 9 Internal Analysis by Value Chain Analysis 10 External Analysis by PESTLE 12 Industry Life Cycle 13 Strategic Capabilities 14 VRIO Analysis 15 Strategic Position 17 Porter’s Generic Forces 17 Bowman’s Strategic Clock 19 Ansoff’s Matrix 21 BCG Matrix 23 Strategic Evaluation 24 Conclusion 24 References 26 Executive Summary Home retail Group is one of the leading companies in UK to operate in the home decor and non-food retail industry. It operates in a highly competitive market which has been analysed by Porter’s five forces. The strongest competitive force it faces is from its rivals from every sector, like furniture, home decor, non-food retail, etc. Its major competitors are B&Q, Wickes, IKEA and even online retailers like Amazon. However, amidst such a strong competitive environment, Home Retail has managed to create its presence as a leading firm by multi-channel retailing and maintaining a competitive pricing. The company has huge opportunities in the consumer electronics business, as Argos has a significant brand preference in the market. The study reflects that Home Group has a strong positioning in the market and in due time it has the potential to overtake to the market giants IKEA or Asda. Introduction Business analysis of a company gives clear idea of the position and progress of the business operation to the stake holders. This paper is focused on the business analysis of Home Retail group. Theoretical models like the Porter’s five forces and the SWOT analysis has been used to assess the internal and external environment of the industry and the company’s relative position. It also includes the company’s strategic position based on the market environment and respective recommendations. Home Retail group plc, is UK’s major home enhancement and merchandise retailer. The company is headquartered in Buckinghamshire. Home Retail Group was formed in 2006, after several mergers and demerger activities. Home Retail Group was formed following the demerger from GUS plc. After its formation the company acquired Habitat UK, which boosted its business operations by providing three primary retail brands, Homebase, Argos and Habitat. Their retail products include a range of DIY home improvement products like furniture, paints, toys, consumer electronics and digital entertainment like DVDs, videogames, etc. The company also offers a range of financial products like credits and insurances. (Financial Times, 2014). The company reported £ 5.7 billion sales and £ 94 million net income in FY2013 (homeretailgroup, 2013). Porter’s five forces The porter’s five forces analyses the industry and measures the presence of competitive forces. It measures the competition based of five dimensions such as Power of Buyers, Power of Suppliers, Threat of Substitutes, Threat of new Entrant and Rivalry among existing firms. Power of Buyers: The buyers’ power is high because there is very low switching cost. The customers can easily switch between other companies like B&Q or Wickes. The products offered are mostly standardized so the consumers have a lot of other stores to choose from. Although, Homebase can differentiate their furniture range by introducing unique or user friendly design, but Argos offers a range of products which are also offered by its rivals like Dixons or Amazon (homeretailgroup. 2014c). Power of Suppliers: Power of suppliers is low, because the home décor industry has a lot of procurement channels. The company procures its supplies and raw materials from a lot of suppliers worldwide, so the suppliers do not have any controlling power over the price or supply quantities. The worldwide supply base allows the company to leverage the competitive advantage of the supplier countries, thus the low procurement cost allows group to maintain a low price in the market (homeretailgroup, 2014b). Threat of substitutes: The threat of substitutes is moderate. The retail sector products have substitutes offered by the local convenient stores or online retailers like Amazon, who may offer the same product at a lower price. However, Homebase offers a wide range of furniture and home décor products at a lower price, which may not have any direct substitute in the industry (Homeretailgroup, 2014d). Threat of New Entrant: Home Retail Group is a leading firm in the industry. Any new entrant willing to enter in the industry will require a huge amount of capital investment, experience in the retail sector and it also requires establishment in the sourcing and distribution channels. Thus Home Retail Group faces very low threat of new entrants. However, the increasing number of smaller firms offering the same range of products may give the customers more options to choose from, as brand switching cost will be reduced (Bubb, 2012). Rivalry among firms: Home Retail Group operates in a very competitive market as it faces competition from a lot of directions. The home décor and home improvement business faces competition from established brands like B&Q, Focus and Wickes. The consumer electronics and household appliance business is threatened by companies like Comet and Currys. IKEA and MFI pose steep competition to the furniture business, as they are the leading furniture brands worldwide. The retail sector faces competition from powerful players lie Asda, Tesco, Sainsbury, etc. as their non-food retail sector is growing over the years. The company also faces competition from online retailers like Amazon or eBay. Certain small independent stores, which offers products like jewellery or toys (homeretailgroup, 2008). SWOT Analysis The business environment of the market can be measured by the SWOT analysis. The internal environment is assessed by the Strengths and the Weaknesses, whereas the external environment is assessed by the Opportunities and Threats. Strengths: Home Retail Group owns the leading position in several product categories and has a 10 percent market share in the general merchandise and home decor and furniture industry (ONS, 2014). Being a major player in the non-food retail industry, Home Retail Group poses a high barrier to entry for new entrants and also poses competition to the existing firms. The company owns two of the best known brands in UK, Homebase and Argos (homeretailgroup. 2014a). It also owns some of the own labelled brands like Bush and Alba in the consumer electronics sector, Habitat in home furnishing and decor. It also owns brands like Chad Valley in children’s toys sector and Hygena and Schreiber in household furniture. Argos is one of the major retailers to introduce online reservation of products, by “click and collect” option in their website. This option gives the company a competitive edge over its rivals. The company uses economies of scale to maintain a competitive pricing in the market (Argos, 2014). Weakness: The economic recession in UK is still having its after effects in the market particularly in the housing market as well as in home decor and furnishing business. It also had its effect on the purchasing power of the customers, as they are highly dependent on credit availability. In the past two years the profitability has declined for Argos and Homebase. All the 750 stores of Argos are over spaced and have high maintenance costs (Homeretailgroup. 2014e). The company justifies the over spaced stores are necessary for its “click and collect” services. Home retail is highly dependent on the UK market itself, because it does not have any overseas acquisition (Duddy and Ashton, 2013). Opportunities: The re-launching of the brand Habitat will eventually increase the revenue as well as customer loyalty. Argos has huge potential in the consumer electronics sector, as it has already proved its potential in selling tablets and eBook readers. Argos is now overseen by a new managing director, John Walden, who has years of experience in the US multi-channelled retail industry, so the company has potential future prospects. Threats: The catalogue retailing business of Argos is quite old in the global retail industry, and it only exists in UK, so the company should change the business format to a much modernized and globally accepted one. The excessive cost control strategies of Home Retail may eventually degrade the staffing ratios and lower the service quality, as employees are the main determinant of service quality control. As mention earlier, Home Retail faces tough competition from well established firms like B&Q, IKEA, Wickes and several others. TWOS Matrix Source: (Weihrich, 2000) Internal Analysis by Value Chain Analysis Management: The management is comprised of the Board of Directors and the Group Executive board. The board of directors is formed by the Chairman John Coombe, Chief Executive, Senior Independent Director and Non- Executive directors. The group executive board is comprised of Chief Executive, Finance Director, Chief Operating Officers, Chief Digital Officer, Managing Director of Financial Services, Commercial and supply chain Director, Information Systems Director and Group HR Director. Human Resource: Home Retail operates with around 47,000 full time employees. The employees are encouraged to develop a ‘can-do’ attitude towards customer services. They are also given perks and privileges, like gym memberships, discount on travel, etc. The permanent employees are also given 10 percent discount on Argos products and 20 percent discount in Homebase products and 30 percent discount in Habitat Stores. Technology: Home Retail group uses technological advancement to seamlessly manage its operations like inventory management, stock monitoring, customer purchase patterns and refurbishment programs. Procurement: Home retail procures its products from suppliers all over the world. It uses economies of scale as a leverage to offer competitive pricing. Inbound Logistics: Inbound logistics include incoming supplies like raw materials from the suppliers to the manufacturing plants or retail goods to stores. Operations: Operations include all manufacturing activities and inventory management. Home Retail uses modern technology for efficient and fast production processes, like automated assembly line. Outbound Logistics: Outbound logistics include the outgoing finished products to the respective stores. Transit time is efficiently managed throughout the entire logistic process (Tseng, Yue, and Taylor, 2005). Sales and Marketing: Home retail uses competitive pricing to lure customers to their stores. They also offer value added services like online product registration and discounts. The company also launches several campaigns, like ‘Heart of House’, which is an integrated television advertisement for home décor and furnishing. Services and Support: The retail industry usually offers standardized products so retail companies try to differentiate by quality of service. Home retail offers good service quality and product support and it also responsibly handles complaints and grievances. All these business activities help the organization to generate profitability in the long run, by maintaining good customer relationships. Home retail group focuses on holding the leadership position in multi channel retail business. The company has put itself in a competitive pricing position, by taking advantage of multi channeled distribution and economies of scale. The company’s core competence lies in home furnishing and home improvement products. The company’s infrastructure backed by its financial strength will eventually push Home retail among the existing retail giants. External Analysis by PESTLE P Political: The free trade policy of the European Union allows the European countries to perform trade free with other nations like, Korea, Mexico, South Africa and the ASEAN countries as well as a result Home Retail enjoys having a wide range of suppliers and business partners (WTO, 2013). E Economic: The economic condition of is one of the major determinants of a company’s performance. The effect of the European crisis had its adverse effects is all the companies including Home Retail. The crisis also reduced the purchasing power of the customers, which in turn resulted in decreased sales figures. S Social: The social trend plays avital role in product and service design. Being a furniture and home décor manufacturing company, it must constantly monitor the growing trends among the customers, because every customer would like to buy furniture with new or unique design, which suits their personality and lifestyle. T Technology: U.K is one of the most technologically advanced countries. Home Retail uses all the available technological resources to manage its operations, design its products and offer better services to its customers. L Legal: Home Retail follows all the legal standards while performing its business activities, like following Human Rights regulations, suppliers’ code of conduct and business ethics. E Environmental: The company responsibly conforms to all the ecofriendly regulations and is also ISO 14001 certified. It follows proper waste disposal systems and all its manufacturing processes are design so that it does not affect the environment (homeretailgroup. 2013). Industry Life Cycle Source: (Sabol, 2013) The industry life cycle indicates that Home Retail Group is in their growth phase of their business. The sales and revenue are showing a growing trend, and also the company has future prospects of expansion by acquisition of brands like Habitat. Strategic Capabilities The strategic capabilities of an organization are the combination of resources and capabilities necessary for sustained growth. Threshold Resources: These are the resources are the minimum requirements for the company to meet its customer’s basic needs. For Home Retail group these are household furniture or decor products and retail goods. Distinct Resources: These are the unique resources of the firm which gives it a competitors a competitive advantage. These resources are usually difficult to imitate or possess. For Home Base Retail, its distinct resources are the unique product design and its high brand preference. Threshold Competencies: These are the activities and processes that a company follows in order to meet the customer’s basic requirements. The threshold competencies for Home Retail are its wide range of product portfolio available at a competitive price. Distinct Competencies or Core Competencies: These are the activities of a firm which allows it to enjoy a competitive advantage over its rivals. In this case, Home Retail group’s core competencies are providing good quality service, maintaining long term relationship and offering retail goods at a competitive price. VRIO Analysis The VRIO analysis is the measurement of the resources of an organization based on four dimensions: Valuable, Rare, Imitable, and Organization Value A wide of furniture and home decor products. Better Customer service Rare Competitive pricing. New design of furniture. Cost control Strategies Inimitable High brand awareness in home improvement products. Organization People centric. Offering Employee benefits. High cost control Source: (Chapman, 2011) Value is a firm’s ability to exploit opportunities or eliminate threats. These abilities assure that the firm has the necessary resources to gain a competitive advantage. Home Group Retail uses a wide of furniture and home decor products to stay ahead in competition. Moreover it has gained customer’s preference by providing better services and support. Rare indicates how limited are the resources to the competitors. Rare resources also give a firm a certain degree of competitive advantage. Home Retail due to its cost control strategies, has been able to provide furniture at a lower price that the rivals. Imitable indicates whether or not the value proposition of a company can be imitated by others. Duplicating another firm’s value proposition usually comes at a certain added operating cost. Higher the involved cost, the more difficult it is to imitate a particular product or marketing strategy. High brand awareness in home improvement products of Home Retail Group cannot be imitated so easily by other companies. Organization highlights the organizational structure and its approach to business. The resource alone does not translate to revenue, unless the firm does not employ sufficient marketing strategies to capture its value. Home Retail is highly people centric. It offers employee benefits and at the same time it also practice cost control measures. Strategic Position Home Group offers an exhaustive range of more than 80,000 products in both home decors, furnishing and general merchandise. The company seeks to build a business which will create high value proposition to the customers. Home Retail has designed certain strategic planning to restructure its two major brands: Argos and Homebase. The “Transformation Plan” which will boost the consumer electronics sales of Argos and the “Renewal Plan” for Homebase for a differentiated multi channelled home decor business. The company uses the strength of their brand valuation to gain and hold the leadership position in the industry. It provides a wide range of customer appeal by competitive pricing and value for the customers. Porter’s Generic Forces Source: (Dess and Davis, 1984) Cost Leadership: Cost leadership suggests that a company has advantage of producing its goods and services at a lower cost than its competitors. The firms usually attain the cost leadership position by adopting strategies like economies of scale, technologically advanced manufacturing processes, easy access to raw materials, etc. The multi-channel leadership and cost control strategies, has allowed the company to reduce its operating and manufacturing costs. As a result the company can enjoy a higher profitability and offer its products at a competitive price. Thus it can be stated that Home Retail group holds a cost leadership position. Differentiation: Differentiation measures a company’s variety of product and service portfolio, and its level of uniqueness. A firm follows this strategy to hold a unique position in the market, which cannot be imitated by its competitors. Home Retail group operates in non-food retail, furniture and home decor products, and financial products. Thus owing to its wide range of product and service portfolio, the company follows a differentiation strategy. Focus: A company following the Focus strategy operates in a niche market segment with a narrow product portfolio. The firm selects a particular market or industry which is less saturated and customizes its products or services to cater to that particular segment. The Home Retail operates with a wide range of products targeted at a wide customer base, so it does not follow Focus strategy. Bowman’s Strategic Clock Source: (Carlisle and Faulkner, 2006) Bowman’s strategy clock is a graph plotted for perceived market value against price. The graph shows eight directions, in which a business can progress depending on its business activities. a) Low price or Low added value: The firms generally avoid competing in this category unless their products or services do not process any unique value proposition. The low pricing may attract budget concerned customers, but the low product value will not lead to any brand preference. b) Low price: The firms which belong to this category are usually competes by offering a low price, while maintaining the quality of the products or services at a preferable level. These companies are usually low cost producers; they try to attract customers by triggering a price war in the industry. c) Hybrid: The firms which fall in this category are characterized by moderate pricing and moderate differentiation. These companies offer their products at a relatively lower price than the industry standards, but at the same time offers a superior quality than the competitors. They usually take the advantage of outsourcing their manufacturing process at a low labour cost and resource abundant region and also by taking the advantage of economies of scale. d) Differentiation: The firms in this category offer products with high perceived value, at a reasonable price. Based on these characteristics, it can be stated that Home Retail group follows the differentiation strategy. It offers its products at a competitive price and they also target different customer categories with its wide product portfolio. The major competitor of Home Retail is IKEA and Wickes (homeretailgroup. 2014c). e) Focused Differentiation: Companies which belong to this category offer higher valued products by charging a high price. These companies operate with a narrow product portfolio and specialize in a particular product segment. These major rival companies of Home Retail group, like IKEA and Wikes only operate in the furniture and home decor industry. They try to differentiate their products by innovative product design and brand valuation. Thus it can be stated that the rival companies follow Focused Differentiation strategy. f) Risky or High Margins: This category is characterized by premium luxury products or services. Their perceived value is extremely high and the customers are ready to pay a premium price for them. These companies usually operate in the niche customer segment. g) Monopoly Pricing: This category is characterized by the presence of only one firm in the industry, which usually offer products or services that do not have any substitute. The company does not worry about value proposition as there are no competitors in the industry. h) Loss of Market Share: Companies in this category is characterised by very low product value and a relatively higher price. The companies in this category usually lose their market share due to unjustified pricing of low quality products. Ansoff’s Matrix Existing Market Existing Product New Product Market Penetration Product Development New Market Market Development Diversification Source: (Ansoff, 1957) Market Penetration: Market penetration strategy involves, penetrating deeper in to an existing market with the existing products. Its sole purpose is to increase the customer base in the existing market. Product Development: This strategy involves introducing a variety of products or services in the existing market. Home base retail follows this strategy. The company operates only in UK and it offers a range of products and services, like non-food retail goods, furniture and home decor products and financial products (Homeretailgroup. 2014d). Thus based on its area of operations and product portfolio it can be stated that Home Retail group follows product development strategy. Market Development: Market development is shifting to a new market with the existing product line up. This strategy helps a company to expand in overseas markets. Diversification: Diversification is moving to a new market with a new products or services. This strategy helps a company to move to a completely new market with a new products or services. BCG Matrix Source: (Kotler and Keller, 2011) The BCG matrix assesses a company’s current position based on its market share and the market growth. Dogs: Companies which fall in to this category have low market share, and the market in which it operates also exhibits a very slow rate of growth. Dogs often trap a lot of investment, because of low potential of the business. Question Mark: The companies in this category have a low market share, but the market in which it operates show a rapid growth. The future of these kinds of companies is highly uncertain and moreover they do not generate much revenue. Stars: Stars generate a lot of revenue due to high market share, but it also faces a lot of competition due to the rapidly growing market. Home Retail group operates in the fast growing retail market with a significantly high market share. It generates good revenue, but the business needs investment to run in a steady manner (homeretailgroup, 2013). Thus it can be stated that Home Retail group falls under the “Star” category. Cash Cow: Cash cow operates in a mature market with high market share. These types of business yield more revenue with fewer investments. Strategic Evaluation Suitability: Suitability measures whether the firms’ actions are suitable for its current position. Home retail group operates with a multi channel supplier’s network and offers more than 60,000 products under the Hombase and Argos brand. The company’s marketing strategies have successfully proved its suitability for its business operations. Acceptability: The high brand preference and stake holders’ interest for investment proves that the company has a high Acceptability (homeretailgroup, 2013). Feasibility: Home Retail group hold enough potential from its financial strength and brand value to expand its business further by either diversification or by new product development (homeretailgroup, 2013). Conclusion Home Retail stands among the strongest rivals in the non-food retail sector. The company holds a cost leadership position due to its multi channel supply chain and efficient cost control strategies. The company also holds the Star position in the BCG matrix, which suggests that it needs sufficient amount of financial attention in order to hold its lucrative position. Although it has a leading position in some of the markets of home furnishing, but it should not be complacent about its position, because unlike its rivals it is only dependent on the UK market. Where as companies like IKEA have overseas operations as well. It tries to position itself as a low priced retailer by sourcing its supplier from global suppliers and by using competitive advantage economies of scale advantage. The company also tries to reduce its operating costs by severe cost control methods, however it may increase the profitability but it should not affect the employees’ relations. Finally, it can be stated that in order to stay ahead of the competition, the company must penetrate in to untapped consumer markets by following market development strategy and also by increasing its product portfolio. References Ansoff, I. 1957. Strategies for Diversification, Harvard Business Review, 35(5), Sep-Oct, pp. 113-124. Argos. 2014. Check and Reserve. [online] Available at:< http://www.argos.co.uk/static/StaticDisplay/includeName/Reserving.htm > [Accessed 4 November 2014] Bubb, N. 2012. SWOT analyses. Retail Week. December, 5-6. Carlisle, Y.M and Faulkner, D.O. 2006. The strategy of reputation. Strategic Change. 14(8), pp. 413-422. 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