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1、 bcCompiler:Reviewer:Retail Co.Created: August 26, 1999Copyright 1998 Bain & Company, Inc. Seva RozanovThomas Shannon1RetailCo2bcRetail CoCorporate Strategy ToolkitBackgroundApproachConclusionImplementationResultsAgenda2RetailCo2bcRetail CoCorporate Strategy Toolkit Retail Co is $10+B “speciality re
2、tail” conglomerate whose financial performance has deteriorated since 1990Background3RetailCo2bcRetail CoCorporate Strategy ToolkitAchieve 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 t
3、o weather challenging industry conditionsCreate a compelling vision and growth strategyFinancial ObjectivesStrategic ObjectivesBackgroundRetail Co Objectives4RetailCo2bcRetail CoCorporate Strategy ToolkitAgendaBackgroundApproachConclusionImplementationResults5RetailCo2bcRetail CoCorporate Strategy T
4、oolkitDefine 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 appropriate action stepsGain final approvalLaunch implementationApproach
5、6RetailCo2bcRetail CoCorporate Strategy ToolkitComponents of Successful StrategyDoable:Evolves from current business mixFits Retail Cos core competenciesIs fundableDevelops significant competitive advantagesCapitalizes on the volatility of retail cyclesUnderstandable:Communicates a clear and compell
6、ing 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 layers, overheads, and de
7、cision processesIs attractive to key managers in targeted businesses and functionsApproach7RetailCo2bcRetail CoCorporate Strategy Toolkit Market sizeMarket growthSegment returnsSegment profitability trendsCompetitive intensitySupplier powerSegment stabilityMarket AttractivenessMarket shareMarket sha
8、re trendGeographic coverageCurrent profitability/EVAEarnings trendManagement teamRetail brand equityInfrastructure and systemsCustomer value propositionStrategic PositionCorporate experience, skills, and valuesCorporate functional supportCorporate portfolio developmentCross-divisional sharingFitReta
9、il Co businesses were evaluated along three groups of criteriaApproachRevising the Mix of Businesses8RetailCo2bcRetail CoCorporate Strategy ToolkitFact BaseHow structurally attractive is this market segment? (projected)industry sizeindustry growthindustry profitabilitycompetitive intensitybuyer conc
10、entration/powersupplier concentration/powercommitted capital requirementsstage 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 s
11、hare (local/regional)market share growth trendsprofitabilityrelative cost 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 r
12、esources/people skillscapital resourcesHow does this business fit with 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 ba
13、se on every business of Retail CoApproach9RetailCo2bcRetail CoCorporate Strategy ToolkitAgendaBackgroundApproachConclusionImplementationResults10RetailCo2bcRetail CoCorporate Strategy ToolkitBusiness Unit Evaluations (1 of 2) DivisionConclusionStrategic PositionMarket AttractivenessFitNorthLarge mar
14、ket ready for consolidation, good profitability, very strong positionHollandLarge potential market with opportunity to boost growth and profitability through acquisitions and improved operating efficiencyItalyRapidly growing channel with high returns. Need to invest to capture market share and impro
15、ve operating efficiencyHong KongLarge overall market with slow growth. Cash provider capable of funding growth businessesLuxembourgReevaluate growth plans. Economies of scale not yet achieved but segment extremely profitableConclusion11RetailCo2bcRetail CoCorporate Strategy ToolkitBusiness Unit Eval
16、uations (2 of 2) BritainModerate size segment with good profitability but strong competition; declining market share, low relative operating marginsIrelandDeclining market segment, poor position, little opportunity for sale, potential for savings by folding into Hong KongFranceOvercapacity in segmen
17、t, 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 Retail Co skillsSpainSmall segment, low growth, high volatility, and seasonalityDivisionCon
18、clusionStrategic PositionMarket AttractivenessFitConclusion12RetailCo2bcRetail CoCorporate Strategy ToolkitBusiness Unit Recommendations DivisionStrategic PositionMarket AttractivenessFitGrow(Spin Off)North*HollandItalyHong KongLuxembourgHold Britain Divest Ireland France Sweden Spain *SpinOffConclu
19、sion13RetailCo2bcRetail CoCorporate Strategy ToolkitStrategic Alternatives Long-term vision:Corporate profile:The leader in selected business lineschain drugapparelfootwearhometoysBusiness line competenciesCost and experience sharing in the groupsAcquisitions to achieve business line dominanceGroup-
20、based organisationA 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 competenciesCorporat
21、e expertise 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 gr
22、eenhouse (Retail Co. “Classic”)14RetailCo2bcRetail CoCorporate Strategy ToolkitRevise 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-
23、establish clear strategies for growth businesses (Holland, 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 ca
24、pabilities-leverage costs-upgrade the organisationConclusionAction Recommendations15RetailCo2bcRetail CoCorporate Strategy ToolkitChain drug industry is consolidatingeconomies of scale in systems investmentsrelationships with third-party payersAn independent North generates significantly more shareh
25、older value as it participates in the evolution of the industryNorth makes minimal use of corporate functions; 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 I
26、ndependent North16RetailCo2bcRetail CoCorporate Strategy ToolkitPlanned capacity additions will result in industry-wide negative comp store sales through 1998Consolidation is essential to eliminate excess capacitylowers costsallows comp store sales growthRetail Co is better suited to be a seller tha
27、n a buyersynergy is equal whether France chooses to acquire or be acquiredleading competitors market value is highermanagement group at France has several significant holesConclusionExample: Rationale for the Sale of France17RetailCo2bcRetail CoCorporate Strategy ToolkitContinue to pursue opportunit
28、ies to consolidate and reduce over-capacityFill key executive openingsRestore the historical bargain edge with core customersincrease the mix of opportunistically-purchased goodsdeliver values averaging 20% below department store sale pricesReduce costs to support price reductionsreduce overhead cos
29、ts 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 than anticipated, several actions will be taken to improve Frances performance:ConclusionExample: France - S
30、trategic Imperatives18RetailCo2bcRetail CoCorporate Strategy ToolkitVision: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 by our target customers as the leader in product assortment a
31、nd 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 by 10% per year81998 sales objective: $1,225MM81998 net earnin
32、gs objective: $47MMStrategy Summary (1 of 2)Conclusion19RetailCo2bcRetail CoCorporate Strategy ToolkitKey ImperativesInitiativesDevelop our new concept, Widget Factory, into the second-largest non-mall based widget retailerRetail Co Real Estate audit of potential new sitesWidget Factory rapid deploy
33、ment 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 systemRedesign of logisti
34、cs 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 stores in Southern
35、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)Conclusion20RetailCo2bcRetail CoCorporate Strategy ToolkitFit with Retail Co-clear opportunity for value creation-po
36、tential to maximize sharing with 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
37、factors-existing management talent or supplementable-low to moderate volatilityConclusionCriteria for Acquisition21RetailCo2bcRetail CoCorporate Strategy ToolkitCorporate Cost Reduction Opportunities *Excluding interestConclusion22RetailCo2bcRetail CoCorporate Strategy Toolkit Primary Levers:Corpora
38、te Roles:Corporate portfolio developmentKeep aware of market and customer trends driving potential opportunitiesDevelop criteria for screening acquisitions and partnerships or alliancesIdentify and evaluate new concepts and consolidation opportunitiesDevelop a network of deal contactsStructure, nego
39、tiate and close dealsCoordinate effective integration planningEvaluate opportunities to spin-off/exit businessesFinancial controlsDefine primary measures of financial performanceSet specific financial return and earnings growth targetsDevelop financial planning and control systemsAllocate capital an
40、d other resourcesBusiness oversightDefine management decision-making processesCoach divisional managementfocus managers on measurable resultsquestion assumptions and challenge thinkingProvide leadership on critical issues (e.g., division strategy, value disciplines, and priority and resource conflic
41、ts)Identify opportunities to improve operations and set specific improvement goalsPrimary Levers Available to Add Value (1 of 2)Conclusion23RetailCo2bcRetail CoCorporate Strategy Toolkit Primary Levers:Corporate Roles:Expertise sharing and operational improvementInstill company wide commitment to sp
42、reading best practicescoordinate regular experience sharing at all levelsfacilitate communication among divisions and functionsDrive value disciplines to improve operations across all processes, functions and divisionsProvide leadership and expertise to support improvements in performanceManagement
43、allocation and developmentAttract, motivate and retain the best managementrecruit top tier candidatesreward based on performancepromote based on abilityProvide strong, profit- related incentives linked to corporate objectivesRotate managers across functions and divisionsDevelop formal training progr
44、amsStrategydevelopmentPerform analysis to support strategic decision-making (corporate and divisional)Define corporate strategic directionAssess market attractiveness, performance, position and fit of divisionswork with divisions to build high-quality, fact-based strategic plansIntegrate division pl
45、ans with corporate strategyCentralservices and infrastructure sharingProvide scale services and functions to achieve lower cost and higher qualityLeverage infrastructure across businessesPrimary Levers Available to Add Value (2 of 2)Conclusion24RetailCo2bcRetail CoCorporate Strategy ToolkitProjected
46、 Earnings NorthNew Retail Co*From Monte Carlo analysisNote: Earnings equals net income after taxes and interestConclusion25RetailCo2bcRetail CoCorporate Strategy Toolkit*With $300MM share repurchaseGap vs. SBP ProjectionsGap vs. RealisticROE target:ROE*:(Gap)/surplus:11.1%12.0%$10.8MM15.9%19.2%$35.6
47、MM17.0%21.6%$61.3MM11.1%9.4%($22.4MM)15.9%13.4%($28.6MM)17.0%14.9%($30.2MM)ConclusionGap Analysis26RetailCo2bcRetail CoCorporate Strategy ToolkitAgendaBackgroundApproachConclusionImplementationResults27RetailCo2bcRetail CoCorporate Strategy ToolkitCorporate GovernanceThe decisions of the Board will
48、be evaluated under the traditional business judgement rule 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
49、 Co remaining assetsNew Retail Co will be a substantial entity with estimated sales of $4.2B, net income of approximately $119, and assets of $2.1BImplementation28RetailCo2bcRetail CoCorporate Strategy ToolkitNote: Distribute North stock dividend at appropriate time3Q954Q951Q962Q963Q964Q961997Approv
50、e all components of Strategic ReviewClose France transactionClose Spain transactionlClose Sweden transactionReorganize Corporate officeClose loss storesClose North IPOComplete merger of Ireland/Hong KongComplete MIS and telecommunications outsourcing projectsPilot centralization of Accounts Payable,
51、 General Accounting, and Sales AuditSpin-off NorthInitiate merger of Ireland and Hong KongImplementationTiming29RetailCo2bcRetail CoCorporate Strategy ToolkitStrategyCorporate managementCorporate employeesDivision presidentsDivision employeesMediaFinancial communityRetail industry consultantsIndivid
52、ual shareholdersLandlordsVendors/factorsLocal officialsInitiate all communications from Retail Co headquarters in order to maintain controlled, consistent messagesFully explain the rationale of the plan and how it will enable Retail Co to take advantage of its unique strengths, skills, and opportuni
53、ties over the long termDefine a clear strategy and vision for Classic Retail Co going forwardExplain how the plan is expected to enhance shareholder valueAssure employees in divisions slated to be spun off or sold that Retail Co will do everything possible to ensure an orderly transition and communi
54、cate potential benefits of the plan for these divisionsInitiate direct contact with all landlords who will be affected by store closings on announcement dayTarget AudiencesImplementationCommunications Plan30RetailCo2bcRetail CoCorporate Strategy ToolkitAgendaBackgroundApproachConclusionImplementationResults31RetailCo2bcRetail CoCorporate Strategy ToolkitIncrease 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 period32RetailCo2
