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1、 bcCompiler:Reviewer:Retail Co.Created: August 26, 1999Copyright 1998 Bain & Company, Inc. Seva RozanovThomas Shannon1BackgroundApproachConclusionImplementationResultsAgenda2Retail Co is $10+B “speciality retail” conglomerate whose financial performance has deteriorated since 1990Background3Achieve
2、top quartile performance-market/book value: 2.8x-return on equity: 17-18%-annual earnings growth: 10-12%Divest businesses that are poor fitsPrepare the company to weather challenging industry conditionsCreate a compelling vision and growth strategyFinancial ObjectivesStrategic ObjectivesBackgroundRe
3、tail Co Objectives4AgendaBackgroundApproachConclusionImplementationResults5Define the characteristics of a successful strategy Develop a range of viable strategic alternativesAssess and prioritise the strategic alternativesBuild consensus around the preferred strategyFully quantify the impact of app
4、ropriate action stepsGain final approvalLaunch implementationApproach6Components of Successful StrategyDoable:Evolves from current business mixFits Retail Cos core competenciesIs fundableDevelops significant competitive advantagesCapitalizes on the volatility of retail cyclesUnderstandable:Communica
5、tes a clear and compelling approach to the businessWill be fully valued by analysts and shareholdersDesirable:Creates clear economic value and top-quartile financial resultsbuilds a portfolio of high-potential businessesmakes business units more valuable to Retail Co than to othersAvoid excessive la
6、yers, overheads, and decision processesIs attractive to key managers in targeted businesses and functionsApproach7Market sizeMarket growthSegment returnsSegment profitability trendsCompetitive intensitySupplier powerSegment stabilityMarket AttractivenessMarket shareMarket share trendGeographic cover
7、ageCurrent profitability/EVAEarnings trendManagement teamRetail brand equityInfrastructure and systemsCustomer value propositionStrategic PositionCorporate experience, skills, and valuesCorporate functional supportCorporate portfolio developmentCross-divisional sharingFitRetail Co businesses were ev
8、aluated along three groups of criteriaApproachRevising the Mix of Businesses8Fact BaseHow structurally attractive is this market segment? (projected)industry sizeindustry growthindustry profitabilitycompetitive intensitybuyer concentration/powersupplier concentration/powercommitted capital requireme
9、ntsstage in market evolutionacquisition opportunitiesHow does the stock market value this segment?industry volatilitymarket valuation multiple and timingvalue transparency to stock marketDo we have a strong position today?market share (local/regional)market share growth trendsprofitabilityrelative c
10、ost positionbrand equitycondition of assetsDo we have the key success factors to achieve a strong position tomorrow? (or can we acquire/build them)functional process capabilitiescost structurenew product/concept developmenthuman resources/people skillscapital resourcesHow does this business fit with
11、 other Retail Co divisions and capabilities?cash flow generations/requirementscommon functional processescommon customer profileslinkage to central resourcesunique people skillsThe five questions approach was used to build fact base on every business of Retail CoApproach9AgendaBackgroundApproachConc
12、lusionImplementationResults10Business Unit Evaluations (1 of 2)DivisionConclusionStrategic PositionMarket AttractivenessFitNorthLarge market ready for consolidation, good profitability, very strong positionHollandLarge potential market with opportunity to boost growth and profitability through acqui
13、sitions and improved operating efficiencyItalyRapidly growing channel with high returns. Need to invest to capture market share and improve operating efficiencyHong KongLarge overall market with slow growth. Cash provider capable of funding growth businessesLuxembourgReevaluate growth plans. Economi
14、es of scale not yet achieved but segment extremely profitableConclusion11Business Unit Evaluations (2 of 2)BritainModerate size segment with good profitability but strong competition; declining market share, low relative operating marginsIrelandDeclining market segment, poor position, little opportu
15、nity for sale, potential for savings by folding into Hong KongFranceOvercapacity in segment, losing market share, below average profitabilitySwedenLarge overall market but requires substantial investment to develop new products and achieve scale to improve cost position; business has poor fit with R
16、etail Co skillsSpainSmall segment, low growth, high volatility, and seasonalityDivisionConclusionStrategic PositionMarket AttractivenessFitConclusion12Business Unit RecommendationsDivisionStrategic PositionMarket AttractivenessFitGrow(Spin Off)North*HollandItalyHong KongLuxembourgHoldBritainDivestIr
17、eland France SwedenSpain*SpinOffConclusion13Strategic AlternativesLong-term vision:Corporate profile:The leader in selected business lineschain drugapparelfootwearhometoysBusiness line competenciesCost and experience sharing in the groupsAcquisitions to achieve business line dominanceGroup-based org
18、anisationA balanced portfolio of speciality retailersResource allocation competenciesLean corporate structureDecentralised managementGrow and keep successful businesses. Divest the unsuccessfulA leading developer of targeted growth-stage retailersSelection and expansion competenciesCorporate experti
19、se in critical growth functionsbusiness development (R&D and research)real estatesystemslogisticsCost and experience sharing in key activities across all businessesAcquire and grow promising concepts. Divest when value-added peaksConclusionGroup SpecialistRetail ConglomeratesGrowth-stage greenhouse
20、(Retail Co. “Classic”)14Revise the mix of businesses in the portfolio-allow North to pursue an independent strategy-sell France, Spain and Sweden at the right price and timeEnsure remaining businesses address the most important strategic issues-establish clear strategies for growth businesses (Holla
21、nd, Luxembourg, Hong Kong, Italy)-finalise turnaround plans for businesses which cant be sold at reasonable prices-take write-offs as requiredConsider acquisitionsReduce corporate expensesAdd value to the businesses in the portfolio-build R&D capabilities-leverage costs-upgrade the organisationConcl
22、usionAction Recommendations15Chain drug industry is consolidatingeconomies of scale in systems investmentsrelationships with third-party payersAn independent North generates significantly more shareholder value as it participates in the evolution of the industryNorth makes minimal use of corporate f
23、unctions; there is little cost-sharing among North and the other divisionsMarket timing is attractiveNorths value is not being fully recognized in the marketplaceConclusionExample: Rationale For an Independent North16Planned capacity additions will result in industry-wide negative comp store sales t
24、hrough 1998Consolidation is essential to eliminate excess capacitylowers costsallows comp store sales growthRetail Co is better suited to be a seller than a buyersynergy is equal whether France chooses to acquire or be acquiredleading competitors market value is highermanagement group at France has
25、several significant holesConclusionExample: Rationale for the Sale of France17Continue to pursue opportunities to consolidate and reduce over-capacityFill key executive openingsRestore the historical bargain edge with core customersincrease the mix of opportunistically-purchased goodsdeliver values
26、averaging 20% below department store sale pricesReduce costs to support price reductionsreduce overhead costs by approximately $60MMreduce investment cost for new stores and remodelsClose unprofitable locations and exit several markets which France cannot dominateIf the sale of France takes longer t
27、han anticipated, several actions will be taken to improve Frances performance:ConclusionExample: France - Strategic Imperatives18Vision:To consolidate our position as the leading widget retailer to our target customers (high-volume purchasers of trendy widgets in their 20s and 30s) To be recognized
28、by our target customers as the leader in product assortment and customer service for widget retail (our unique positioning)To reach a 10% share of the national widget retail market by the year 2000Financial Goals:To reach and maintain ROIC levels of 20%To grow sales by 5% per year and net earnings b
29、y 10% per year81998 sales objective: $1,225MM81998 net earnings objective: $47MMStrategy Summary (1 of 2)Conclusion19Key ImperativesInitiativesDevelop our new concept, Widget Factory, into the second-largest non-mall based widget retailerRetail Co Real Estate audit of potential new sitesWidget Facto
30、ry rapid deployment initiative (opening of 30 new stores per yearClose non-performing storesClosing of the 10 worst performing mature stores (both XYZ and Widget Factory) each yearImprove margins by changing mix and reducing costsMix change based on GMROI approachImplementation of 4-Walls systemRede
31、sign of logistics flow based on Retail Co studyImprove density of markets by backfillling five marketsModify our image in the eyes of the customerAssortment redesign based on demand and profitabilitySales force training initiative on customer serviceLaunch of a new advertising campaignFocus new stor
32、es in Southern geographiesAcquire and integrate Southern Widget by end of 1996Retail Co Real Estate audit of potential new sitesProposed partnership with Southern Malls, Inc.Strategy Summary (2 of 2)Conclusion20Fit with Retail Co-clear opportunity for value creation-potential to maximize sharing wit
33、h related divisionsMarket attractiveness-substantial market potential-dominant market position opportunity-concept in early stages of a long lifecycleFinancial opportunities-affordable within target capital structure-meets minimum return and growth hurdlesLimited risk factors-existing management tal
34、ent or supplementable-low to moderate volatilityConclusionCriteria for Acquisition21Corporate Cost Reduction Opportunities*Excluding interestConclusion22Primary Levers:Corporate Roles:Corporate portfolio developmentKeep aware of market and customer trends driving potential opportunitiesDevelop crite
35、ria for screening acquisitions and partnerships or alliancesIdentify and evaluate new concepts and consolidation opportunitiesDevelop a network of deal contactsStructure, negotiate and close dealsCoordinate effective integration planningEvaluate opportunities to spin-off/exit businessesFinancial con
36、trolsDefine primary measures of financial performanceSet specific financial return and earnings growth targetsDevelop financial planning and control systemsAllocate capital and other resourcesBusiness oversightDefine management decision-making processesCoach divisional managementfocus managers on me
37、asurable resultsquestion assumptions and challenge thinkingProvide leadership on critical issues (e.g., division strategy, value disciplines, and priority and resource conflicts)Identify opportunities to improve operations and set specific improvement goalsPrimary Levers Available to Add Value (1 of
38、 2)Conclusion23Primary Levers:Corporate Roles:Expertise sharing and operational improvementInstill company wide commitment to spreading best practicescoordinate regular experience sharing at all levelsfacilitate communication among divisions and functionsDrive value disciplines to improve operations
39、 across all processes, functions and divisionsProvide leadership and expertise to support improvements in performanceManagement allocation and developmentAttract, motivate and retain the best managementrecruit top tier candidatesreward based on performancepromote based on abilityProvide strong, prof
40、it- related incentives linked to corporate objectivesRotate managers across functions and divisionsDevelop formal training programsStrategydevelopmentPerform analysis to support strategic decision-making (corporate and divisional)Define corporate strategic directionAssess market attractiveness, perf
41、ormance, position and fit of divisionswork with divisions to build high-quality, fact-based strategic plansIntegrate division plans with corporate strategyCentralservices and infrastructure sharingProvide scale services and functions to achieve lower cost and higher qualityLeverage infrastructure ac
42、ross businessesPrimary Levers Available to Add Value (2 of 2)Conclusion24Projected EarningsNorthNew Retail Co*From Monte Carlo analysisNote: Earnings equals net income after taxes and interestConclusion25*With $300MM share repurchaseGap vs. SBP ProjectionsGap vs. RealisticROE target:ROE*:(Gap)/surpl
43、us:11.1%12.0%$10.8MM15.9%19.2%$35.6MM17.0%21.6%$61.3MM11.1%9.4%($22.4MM)15.9%13.4%($28.6MM)17.0%14.9%($30.2MM)ConclusionGap Analysis26AgendaBackgroundApproachConclusionImplementationResults27Corporate GovernanceThe decisions of the Board will be evaluated under the traditional business judgement rul
44、e standardThe distribution of North should not require shareholder approvalthe distribution is a dividend which requires only board approvalAT&T precedentThe potential divestitures should not be considered a sale of substantially all of Retail Co remaining assetsNew Retail Co will be a substantial e
45、ntity with estimated sales of $4.2B, net income of approximately $119, and assets of $2.1BImplementation28Note: Distribute North stock dividend at appropriate time3Q954Q951Q962Q963Q964Q961997Approve all components of Strategic ReviewClose France transactionClose Spain transactionlClose Sweden transa
46、ctionReorganize Corporate officeClose loss storesClose North IPOComplete merger of Ireland/Hong KongComplete MIS and telecommunications outsourcing projectsPilot centralization of Accounts Payable, General Accounting, and Sales AuditSpin-off NorthInitiate merger of Ireland and Hong KongImplementatio
47、nTiming29StrategyCorporate managementCorporate employeesDivision presidentsDivision employeesMediaFinancial communityRetail industry consultantsIndividual shareholdersLandlordsVendors/factorsLocal officialsInitiate all communications from Retail Co headquarters in order to maintain controlled, consi
48、stent messagesFully explain the rationale of the plan and how it will enable Retail Co to take advantage of its unique strengths, skills, and opportunities over the long termDefine a clear strategy and vision for Classic Retail Co going forwardExplain how the plan is expected to enhance shareholder
49、valueAssure employees in divisions slated to be spun off or sold that Retail Co will do everything possible to ensure an orderly transition and communicate potential benefits of the plan for these divisionsInitiate direct contact with all landlords who will be affected by store closings on announcem
50、ent dayTarget AudiencesImplementationCommunications Plan30AgendaBackgroundApproachConclusionImplementationResults31Increase in Shareholder ValueResultsMarket capitalisation has increased by 60% upon the implementation of the recommended strategyNote: Excludes over $1 per share (105 MM shares) in dividend payment over the period32
