Opening a New Sports Shop - Essay Example

?OPENING A NEW SPORTS SHOP Introduction This case study centers on prospective entrepreneur Scott McPherson and his dream to own a business. He is keen on establishing a chain of retail stores across the south of England, bearing his name. Scott’s resources are substantial, since he inherited a substantial amount of money. Since Scott has no hands-on managerial experience, he seeks advice on the kind of business he shall embark upon, and the marketing strategies he may undertake. 1. Suggestion and justification for the retail sector: choice of sector, and reason. The business is intended to be a hands-on enterprise to be managed by the investor himself, therefore the line of business should be closely tailored to his circumstances. Scott McPherson is starting out as a small-scale businessman, testing his market and value chain before going full blast into an entire chain of stores. McPherson must therefore start out with a single store and expand gradually after that after gaining a stronger foothold on the business. The choice of a business should be one that has a quick cash cycle that would turn over sales at a relatively fast pace, but which has the potential of growing to a chain of store catering to retail sale of consumer goods. For this purpose, a sports retail business would be a good enterprise for McPherson, whose twenty years as secondary school teacher would have kept him abreast of the various sports events at least in the school level. The appeal and demand for sports and outdoors gear and equipment has a stable market because of the strong interest in sports and fitness. An image attaches to being associated with a healthy lifestyle, even if it be conveyed by one’s clothes or footwear. Finally, sports activity is usually complemented by a desire for healthy and nutritious A comprehensive analysis of the sports retail sector follows: SWOT ANALYSIS The SWOT analysis is a helpful tool for formulating the strategic plan of a business. It identifies the strengths and weaknesses of the firm and juxtaposes this against the opportunities and threats in the environment, maximizing strengths for opportunities and minimizing weaknesses to avoid the threats. The SWOT analysis for McPherson’s store chain follows: STRENGTHS A source of strength is the familiarity of McPherson with secondary schools’ sports programs, and his contacts with sports teachers and program directors in the different schools. It should be recalled that McPherson’s twenty year history as a secondary school teacher would have created friendships that would be useful for his business, from a relational point of view. Another strength of McPherson’s business would be its financial stability, having skipped the period of economic crisis which had ruined or weakened the finances of many small (and large-scale) businesses. OPPORTUNITIES A good number of schools and universities located in the South England area provide a lucrative market, which could still expand and absorb additional supply despite the existence of other stores. Retail customers are in constant search of new shops which may provide better product offerings, or better terms of sale. A further opportunity presenting itself is the growing interest in new media sports, where indoor digital sports consoles games enable persons interested in keeping fit but without the time to devote to a trip to the gym may obtain their share of physical exercise within the comfort of the home (Parr, 2002). WEAKNESSES The company is a start-up and will have to make its mark among those shops already established in the area. Also, McPherson has had no experience in business, and in particular in the retail sales of sports equipment. It is not certain whether he is himself a sports aficionado or fitness enthusiast, and in the event that he is not, this would be a further weakness for the firm. A further opportunity presenting itself is the growing interest in new media sports, where indoor digital sports consoles games enable persons interested in keeping fit but without the time to devote to a trip to the gym may obtain their share of physical exercise within the comfort of the home (Parr, 2002). THREATS As the economy recovers and demand returns to the retail sector, prices are sharply higher and inflation is up at 2.5% . This has caused a drop in sales figures throughout the different subsectors in the retail sector (Goldfingle, 2011). The same may impact poorly in McPherson’s store, hitting it when it would be at its most vulnerable – at the time when it is just starting out and building clientele. PESTLE ANALYSIS The PESTLE analysis presents a comprehensive assessment of the external environment that affects the industry under consideration – in this case, the sports retail industry. A cursory commentary on the important political, economic, social, technological, legal and environmental factors are presented here. Political - The sports industry per se is not very much affected by political factors in the context of developed countries, which makes it a particularly resilient industry even during periods of perceived political risk and uncertainty. On the other hand, cross-border trade liberalization may enhance the free flow of goods and services to and from other countries, which is expected to exert a downward pressure on prices. This would benefit McPherson’s business in so far as it may be sourcing its merchandise from outside the country, thereby lowering its costs. Economic - McPherson’s sports store is entering the industry just at the point when the economy is emerging from the recession of 2008-2010. While its competitors would have absorbed the full force of the credit crunch and the subsequent recession, McPherson is coming in fresh, without a history of losses nor substantial debt for which it would have paid a high rate of interest in 2008-2010. This is McPherson’s advantage, and a source of competitive strength against the other sports retail businesses that were in operation in 2008. On the other hand, inflation rate is rising and retail prices are going up, causing sales volumes to drop. Employment rate pressures will still continue to be a concern, because unemployment results in lower disposable incomes, for which the purchase of sports and exercise paraphernalia may be pre-empted. Social - There is a robust and renewed interest in physical fitness and sports activities. Enhanced social standing accompanies a perception of the individual as fit and attractive. Furthermore, renewed interest in health and well-being have sparked interest in health supplements of herbal formulation, which McPherson’s store should intend to carry. Technological - Advances in equipment design, more fashionable fitness and sports garments, and healthier options in health food, drinks and supplements provide new alternatives that cater to the demands of the market. Furthermore, developments in digital entertainment technology have made possible the new media sports devices and games, which promises to impact positively in all segments of the market (see market targeting matrix). Legal – There are few legal impediments to the sports retail industry other than those that pertain to the entire retail marketing sector in general. There is a need to comply with intellectual property rights (IPR) for those goods, garments and equipment sold by McPherson’s that bear brand names and trade marks, and McPherson must ensure that it does not source its merchandise from unlicensed sources (particularly the branded sports wear such as Nike and Adidas). Environmental – The interest in a healthier lifestyle usually sparks an interest in sustainable living, and vice-versa. More people who desire to keep physically fit would be using their automobiles less and opt to walk where possible, and conversely, the high cost of fossil fuels would encourage people to resort to healthier alternatives to get from one place to another. PORTER’S FIVE FORCES ANALYSIS Porter’s five forces model provides a helpful framework for assessing the competitive structure within an industry. The five forces include the internal competitive rivalry, the strength of the buyers’ and suppliers’ bargaining power against the industry participants, the threat of substitutes, and the height of the entry barriers for new entrants. These five forces shall be analyzed here for the chain of sports retail stores to be recommended. Competitive rivalry - The sports retail industry is a rather mature industry comprised of many small enterprises and a few large ones. The large sports stores are concentrated in the urban areas, while the small enterprises are found in the sub-urban areas and in the farther flung counties. Click Sports Shop website lists some 177 retail sports shop in the entire South England area. However, many of these are operating within the scope of their counties and service the immediate localities. With the growing interest in healthy lifestyles, there is still room for the market’ expansion. Bargaining power of buyers - The bargaining power of buyers is relatively strong, and a successful retail sports shop would fare better if they could provide value for price. In other words, price would be an important factor in the decision to purchase, because there are many other sports shops in the area. On the other hand, if McPherson’s retail shop could source quality products not usually found in other stores, then a lightly higher profit margin is justified. Bargaining power of suppliers - The bargaining power of suppliers is neither particularly weak nor strong. There are many other outlets of sports equipment from which suppliers may choose to contract. On the other hand, there are also many other suppliers in this industry, as the sports equipment industry is a relatively mature industry with value chains well diversified. Threat of new entrants - The industry is neither regulated nor restricted, and it does not require a particularly high capital outlay, making entry barriers low and enabling new entrants to more easily gain a foothold in the market. In this case, McPherson’s shop is the new entrant, therefore lower entry barriers would favor him at this point. Threat of substitutes - There are many possible substitutes to fitness gears and outdoors garments and footwear, the former being addressed by gym and fitness memberships where the equipment are available, and the latter by many variations of casual wear, not necessarily outdoors or sports attires and footwear. However, these are not exclusive substitutes, and patronage of these other alternatives may even enhance purchase of McPherson’s lines of products (for instance, gym memberships will necessitate purchase of fitness attires for gym wear). 2. Specific recommendations relating to the desired image and layout for the new shop The image that McPherson’s sports shop should convey is one of modernity and contemporaneousness, without however alienating the small-town (or urban) community. The store’s image should be warm and home like, with rich earth colors and cozy corners with shelves filled with well-ordered items In the next three photos are views of the interior appointments of retail stores dealing in sports equipment and apparel. The design and image envisioned for McPherson’s should exude the same functionality and appeal while presenting the merchandise in such a way that they attract the attention of the customer, and make it easy for the customer to find the product that he wants. There should be room for the customer to test his intended purchase, such as the putting corner where customers can try out some golf clubs. The lines of the interiors should convey simple elegance, so as not to detract attention from the products being displayed. Photo sourced from Katie & Scott, http://katie-newsletter.blogspot.com/2009/11/retail-store-layout-marketing-project.html Photo sourced from Katie & Scott, http://katie-newsletter.blogspot.com/2009/11/retail-store-layout-marketing-project.html Photo sourced from Modresdes.com, http://www.modresdes.com/search/sports+authority+store+design+and+layout 3. Target market/s for the new chain There are five groups of individuals which the McPherson sports shop may target, and five possible groups of products that are seen to serve their needs in varying ways and degrees. The five possible market segments are the average adult males and average adult ladies, referring to those who do not have special needs (such as those of seniors or athletes). There are also the youth, which includes adolescents, teens, and young adults, who would be normally more active than the average adults. Customer segment Exercise & sports equipment New media sports & games Sports & outdoors garments Sports & outdoor footwear Health food, drinks, & supplements Adult men Median High High High Median Adult ladies Median High Median High Median Youth Low High High High Median Seniors High High Low Median High Athletes High High High High High Two special needs groups are also identified, namely the senior customers who fall within the geriatric segment, and the athletes who require special equipment, garments and footwear for their training, and probably a greater need for health food, drinks and supplements to support their regimens. The entries in the matrix depict the observed requirements of each particular market segment for each particular type of merchandise carried by McPherson’s shop. The youth are considered to have low need for sports gear and equipment, except if they were athletes, in which case they would fall under the last segment. Otherwise, they would usually require one set of equipment for the sports they engage in, therefore they would not normally generate repeat purchases. On the other hand, seniors and athletes would have a greater need for sports and probably indoor exercise equipment because there is a greater need for them to regularly maintain a certain level of physical activity. It will be noted that, for obvious reasons, athletes would have a high need for practically all the product categories of the store. Of the products, there is one category that is seen to be able to generate high interest and high need among all the market segments. This is the new media sports category, which uses digital equipment to simulate the sports situation in an indoors environment, while providing the customer real physical exertion. This product is ideal for the youth, for apparent reasons. It would conceivably be enjoyable for adults who would not have the time to go to a gym because of their work schedule. Moreover, it is quite appropriate for seniors because it is entirely usable within a controlled setting, and may be adjusted to less strenuous levels of activity. It goes without saying that athletes will find these excellent entertainment alternative while keeping fit. The matrix may be further adjusted with changing market conditions, but it shows that McPherson may tailor its promotional thrusts and marketing efforts to specific segments for particular product groups, to optimize sales. Competitive advantage offered by the new chain McPherson’s sports stores will have to strive hard to make a mark in a mature market where many other stores have already established clientele and value chains. To do this, it will have to differentiate itself from the others in the mind of its target market. This report proposes to do this by offering a wide range of the most frequently sought, fastest moving retail products in sports and gym equipment, garments, shoes, and health food supplements. This is intended to be a lifestyle pitch – its competitive advantage is that it will cater to the basic and frequent needs of people who lead an active and healthy lifestyle. It intends to aim for mid-level pricing, going for a strategy of value-for-price, while presenting itself as a one-stop-shop for an active and healthy lifestyle. The sports chain will also tie up with local fitness shops, schools and universities; McPherson will use his insight into high school and even college sports activities in order to stock the store shelves with the most often used merchandise, as well as use his personal network to encourage purchases, as schools call for regular replacements of sports equipments and therefore periodic purchses (Jubenville, Goss & Ledford, 2004). Most especially, the store’s new media sports offering is a new addition to the traditional product line up in the sports shop. The new media sports console and programs is one of the fastest growing segments in physical fitness devices today (Parr, 2002). 4. Detailed recommendations relating to the merchandise range for the new chain The foregoing analysis of the market has provided insights into the type of merchandise that the new chain would ideally carry. The merchandise inventory shall be discussed using a generalized ABC analysis for inventory movement. ABC ANALYSIS The table following shows the classification of equipment types according to their nature (equipment, durables and consumables), their value (in monetary terms), the quantity of items in a single order, the frequency of restocking, and the size of the safety stock. For the purpose of this report, the entries will be qualitative and descriptive, to be replaced at a later time with more definite data. The present purpose is merely to visualize the type of merchandise movement the firm will have to undertake. Class Description Value Item quantity Frequency Size of safety stock A Equipment High Few Occasional Small B Durables Median Median Moderate Median, selective C Consummables Low High Frequent Large The following items in the product selections lists were drawn up through interviews with sports retail store proprietors and operators, as well as a broad based scan of brick-and-mortar and online sports and fitness stores. Class A product selection Class A will be the heavy equipment, pertaining to those machines and paraphernalia that have high unit costs and are expected to move more slowly. The stocking of this type of merchandise is not normally done in bulk due to their high carrying cost and danger of obsolescence when new models come online. Items included under Product Class A will include the following: Sports equipment: Tennis racquets and balls, soccer balls, basketballs, golf club sets and equipment, table tennis paddles and balls, racer and conventional bikes, skateboards, roller and ice skates, skis. Exercise equipment: Treadmills, elliptical trainers, exercise bikes, rowing equipment, multi-gyms, and fitness accessories including weights and dumbbells Class B product selection The second class of merchandise (Class B) pertains to the smaller durables such as garments and footwear which, depending on their use, are susceptible of repeat purchases, and may therefore be stocked more numerously and frequently. Items included under Product Class B are the following: Garments: Gym and aerobics attire, swimwear, diving suits and wet suits, dance wear, tights and leotards, tennis wear, sports shirts, cricket attire cycling shorts, gym shorts, conventional shorts, hockey jerseys and pants, riding habits, rugby shorts, T-shirts, compression shorts and sportswear, sports underwear (jock straps, support bras, sports socks), etc. Shoes: Track and field, golf, basketball, tennis, cross-trainers, equestrian boots, casual rubber and plastic footwear Sports accessories: Swimming caps and goggles, golf tees and gloves, baseball gloves and accessories, cricket paddles and equipment, boxing gloves, various protective head gears (e.g. boxing, helmets), head and wrist banks, knee and elbow pads, Class C product selection Finally, there are the consumables, referring to the health food supplements. These are expected to move more fluidly, so a larger supply of the more marketable brands and items should be appropriate. Items included under Product Class C are the following: Children’s multivitamins and minerals, Adult multivitamins and supplements, Geriatric multivitamins and supplements, Detox formulae, Glucosamine, Magnesium, Selenium, Vitamin C, Antioxidant Q10 Health foods (i.e., mainly meat and dairy analogues), fruit drinks, energy drinks 5. Initial recommendations relating to the locational strategy for the new chain Finally, the new chain should be located in areas that are close to their intended markets. It will be seen from the market segmentation and targeting exercise performed earlier that the intended customers include the general public (adult males and ladies and the youth) as well as specific groups with specialised needs (seniors and athletes). In the market thrust, one of the foreseen strategies would be to mobilize McPherson’s personal networks among schools in a form of relational marketing. The chain of stores should therefore seek locations in areas close to schools and universities, of which the south of England abounds. It should also situate itself close to the place where people live or work, in order to encourage walk-in traffic that may generate sales. Also, locations adjacent to fitness parlors and gyms where people go to exercise or where athletes may train would also be advantageous to the company. For retail outlets, the physical closeness of the outlet to the potential customers is important, because sales are transacted by the individuals who select their purchases from the physical line-up of merchandise. Sales may also be enhanced by online transactions, particularly when the store has established its group of loyal clientele; for the start, however, physical proximity to the market is important, and accessibility to modes of mass transportation is a key factor. Another important feature of McPherson’s stores would be a website that would double as a web store where people could transact the purchase of certain products, ask about the product details and features, and provide health and nutrition advice. The McPherson Health Advisory will retain the service of a health and physical fitness expert and a nutritionist who would answer specific questions to be e-mailed or posted by customer on the site. Summary McPherson’s chain of sports shops throughout South England is conceived to be a one-stop-shop for fitness and sports equipment, sports and leisure attire and accessories, and an assortment of health supplements and health food. Its aim is to bring to the neighbourhoods the products that would enhance interest in fitness and motivate people to adopt a more active and healthy lifestyle. There are both positive and negative aspects to this business, although overall, because of the necessity for all people to adopt a physical fitness regimen of some sorts, particularly those advancing in years, then there will always be a market for this range of products. The company’s online webstore that would complement its brick and mortar stores will provide an alternate distribution channel for the store’s products and services. Conclusion Scott McPherson is embarking on an entirely new career, one which he is uncertain of for lack of business experience. After twenty years as a school teacher, he will try his hand at being an entrepreneur. The type of business recommended for him is a chain of retail stores, and the particular industry is the sale of sports and fitness products. The fact that Mr. McPherson is well financed is an important consideration, because most businesses will experience slow sales and high starting costs (partly due to promotional efforts and slightly discounted start-up prices) that would result in losses in the first two or three years of business. However, given this staying power and the business owner’s familiarity with the network of individuals and institutions that are potential customers and suppliers, McPherson’s undertaking has every promise of eventually turning over a profit on its operations. References Bhattacharya, A; Sarkar, B & Mukherjee, S K. 2007 “Distance-based consensus method for ABC analysis.” International Journal of Production Research, Aug 2007, Vol. 45 Issue 15, p3405-3420 Burger, K & Oliver, S 1997 “A drink with an attitude.” Forbes, 2/10/97, Vol. 159 Issue 3, p112-113 Coman, A & Ronen, B 2009 “Focused SWOT: diagnosing critical strengths and weaknesses.” International Journal of Production Research, Oct2009, Vol. 47 Issue 20, p5677-5689 Goldfingle, G 2011 “Retail sales growth slows sharply as prices rise to 1991 levels.” Retail Week, 24 February 2011. Accessed 5 March 2011 from http://www.retail-week.com/data/monthly-sales-data/cbi-distributive-trades-survey/retail-sales-growth-slows-sharply-as-prices-rise-to-1991-levels/5022864.article Grundy, T 2006 “Rethinking and reinventing Michael Porter's five forces model.” Strategic Change, Aug 2006, Vol. 15 Issue 5, p213-229 Jubenville, C B; Goss, B D; & Ledford, B 2004 “Baseball Marketing: Back to the Minors.” Sport Marketing Quarterly, Vol. 13 Issue 1, p55-58 Neighborhood Statistics 2011 “statistics.gov.uk”. Accessed 5 March 2011 from http://neighbourhood.statistics.gov.uk/dissemination/LeadTableView.do?a=3&b=276854&c=Brighton&d=13&e=13&g=410702&i=1001x1003x1004&m=0&r=1&s=1197725414109&enc=1&dsFamilyId=1812 Parr, R 2002 “The changing face of sports marketing.” Sports Marketing (14608359), Jan2002, Issue 78, p16 PESTLE Analysis. UK Country Profile, 2008, p11-28 “Sports Stores Make Fans Feel Like One of the Team.” Souvenirs, Gifts, & Novelties, Feb 2008, Vol. 47 Issue 2, p124-128 Sway, R 2006 “Best-designed new stores.” Display & Design Ideas, Sep 2006, Vol. 18 Issue 9, p44-50 Tanwari, A; Lakhiar, A Q; & Shaikh, G Y 2000 “ABC Analysis as an Inventory Control Technique.” Quaid E-Awam University Research Journal of Engineering,, Science & Technology. Vol. 1 No. 1, Jan-Jun 2000 Zmuda, N 2008 “Fledgling brands may take the fall with Steve & Barry's”. Advertising Age, 7/7/2008, Vol. 79 Issue 26, p6-6, 2/5p Read More