Business Case Study Contest 2013

1.

About Company Tallmart is one of the largest non-food retailers in USA with headquarters in San Francisco, California. It was established in 1990 and its first department store was launched in downtown San Francisco. The department store focused on giving the customer the latest in various product categories that it offered, at better prices than other retailers. Customers immensely liked the choice of products offered by Tallmart, and the store became #1 in its category in California by 1992. Based on this, Tallmart replicated the model by opening similar stores in other US cities and tasted similar success. It became a publicly listed company in NYSE and NASDAQ in 2005. It also created online shopping site and started selling products through this channel in 2008. The online shopping site sends request to warehouse nearest to customer for product dispatch and delivery. 1.1 Product Categories Tallmart is involved in retailing of following categories of products, a. Technology for Personal Use laptops, PCs, mobile phones, home theatre, TV, cameras, etc. b. Home and garden sofas, dining tables and chairs, furnishings, modular kitchens, cooking equipment, refrigerator, washing machines, lawnmowers, gardening and landscaping tools, etc. c. Clothing Mens, Womens, Boys, Girls, Baby clothes d. Health and Beauty Perfumes, deodorants, makeup kits, beard trimmers, skin care, etc. e. Jewellery and Watches Ladies and Mens jewellery, watches, cufflinks, etc. 1.2 Sales Channels a. Retail stores i. Format Department store ii. Size the stores range from 5000 - 20000 sq.ft. area iii. Location - major cities/towns across USA Online retailing

b.

1.3 Company Data a. FY2012 i. No. of Stores 500 ii. No. of Employees 50000 iii. No. of Warehouses 50 (almost one for every state)

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Vision & Objectives 2.1 Vision Continuous innovation, cost optimization, and growth to better serve and satisfy customers 2.2 Objectives a. FY2013 i. Establish a unique positioning in the industry ii. Profit margin (based on PBT) 20% iii. Keep sales intact i.e. no growth, no decline b. FY2020 i. Annual Sales USD 20 Billion ii. Total stores across USA - 1000 or more iii. Profit margin (based on PBT) 25%

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Target 2013/2020 Strategy Shift from conventional department store format to catalog -based retailing in the new format, very few items are displayed in the store; customers select products from catalogs available in the store and fill an order form, based on which items are retrieved from the attached storage area and sold to customer. a. Reason for choosing above Strategy i. Profits impacted by escalating fixed costs (real-estate, salaries) and variable costs (utilities, inventory maintenance, etc.) ii. Lack of differentiating factors/USPs compared to other retailers in the category iii. Sales impacted by price competition from other retailers iv. Catalog-based retailing is a completely new concept in USA and hence expected to be a USP Expected Benefits i. Reduce costs through reduced store space and store staff ii. Start more stores easily since cost/maintenance of new store is much lesser due to lesser space and staff requirement iii. Generate additional income by leasing out or selling available space to other retailers/Companies iv. Generate new business from existing and new customers who enjoy the catalog-based retailing experience v. Data analysis identify fast selling items and track customer buying patterns Expected Costs Major additional costs to be incurred are expected to be as follows

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One Time Expense I. Renovation of store design II. Training programs to educate employees on new processes III. Marketing campaigns of the new store format/experience IV. Revamp of Warehouse management - to stock sufficient inventory of all items listed in the catalog V. Creation of team and processes to manage leasing/sale of surplus retail area available

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Recurring Expenses I. Creation and maintenance of catalogs II. Customer education and awareness exercises Financial Summary Fiscal Year 2012 performance a. Financials i. Annual Sales USD 10 Billion ii. Fixed Cost USD 2 Billion iii. Variable Cost - USD 6 Billion iv. PBT (Profits Before Tax) USD 2 Billion v. Profit Margin (based on PBT) 20% vi. Sales growth (compared to FY2011) 0% vii. Profit growth (compared to FY2011) (10%) viii. Contribution Margin 40% Sales i.

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Sales by Channel Retail stores 75% of sales Online retailing 25% of sales ii. Sales by Category Below details are common for sales through online and in-store channels I. Technology for Personal Use 20% II. Home and garden 15% III. Clothing 30% IV. Health and Beauty 15% V. Jewellery and Watches 20% I. II.

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Expenses can be classified into following categories, i. Retail Stores stock keeping, utilities, maintenance, etc. ii. Business administration - Payroll, Finance, Learning & Knowledge Management, etc. iii. Online Retailing maintenance and order processing, with server capacity of max 5000 concurrent hits and transactions iv. Marketing Customer support, Marketing and sales initiatives, CRM systems v. IT systems for business operations, etc. vi. Storage and Warehouse management vii. Logistics Other Factors i. Cost of setting up a new department store USD 50 Million ii. Cost of adding new warehouse USD 20 Million iii. Cost for adding server capacity USD 1 Million per annum for every additional 500 concurrent hits and transactions

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Fiscal Year 2013 Performance At the end of FY2013, Tallmart found that compared to FY2012, sales dipped by 30% and profit margin reduced from 20% to 14%. The stock price crashed by 40%, and analysts downgraded the companys shares from "Buy" to "Sell" stating that the new strategy had failed to achieve the objectives and didn't look promising anymore. a. Financials i. Annual Sales USD 7 Billion ii. Fixed Cost USD 1 Billion iii. Variable Cost - USD 5 Billion iv. PBT (Profits Before Tax) USD 1 Billion v. Profit Margin (based on PBT) 14% vi. Sales growth (Year on Year) (30%) vii. Profit growth (Year on Year) (50%) Sales i. Sales by Channel I. Retail stores accounts for 60% of sales II. Online retailing accounts for 40% of sales Sales by Category Below details are common for sales through online and in-store channels

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I. II. III. IV. V. c.

Technology for Personal Use 25% Home and garden 15% Clothing 15% Health and Beauty 25% Jewellery and Watches 20%

Strategy Execution In the first two months of FY13, i. All 500 stores were renovated according to revised design ii. Marketing campaigns were launched informing about change in retailing format through print, TV and online channels iii. Catalogs were created and put in the stores 25 catalogs per store iv. Employees were trained on new processes v. Internal processes were revamped to suit the new retailing model vi. Warehouses were optimised based on stocking requirements vii. Additional store space leasing/sale was initiated

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Issues with Strategy/Mid-Course Introspection a. As a result of the retail boom, Tallmart faced rapidly expanding product range in many core product areas and being a catalog retailer, Tallmart had to ensure it stocked all the products listed in the catalog throughout the season. This lead to increasing inventory of unsold items. Inventory/Warehouse Management was not optimized to handle this Leasing/sale of additional retail space didn't happen as planned, hence estimated income from this channel was not generated Customer footfall in the stores had reduced and overall customer satisfaction levels went down. Reasons were found to be as follows, i. They couldnt see the product and touch/feel it before deciding to buy it. This took away from the overall buying experience ii. Catalog format eliminated their interactions with salesmen and hence the consultation process iii. They found it difficult to access catalogs due to crowd/rush during weekends iv. They found it difficult to browse the catalog and find product of their choice v. They found that most of the latest products were not available in the catalog vi. Many times, they got the wrong product despite quoting correct "product id", hence ended up wasting time at the store vii. Negative word-of-mouth among existing customers drove away potential new customers Store employees were unhappy with the catalog format which they felt alienated them from customers Tallmart has implemented the new strategy and is at a stage where they can't switch back to the old methods

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6. Questions a. Identify and elaborate on issues/gaps, if any, in Tallmarts target 2013/2020 strategy? Provide relevant data/workings where needed b. Identify 3 different solutions to fix the above mentioned issues, and do a cost-benefit analysis to identify the best approach to help Tallmart get back on track to achieve the objectives/targets set for 2020. Provide relevant data/workings to substantiate the same c. If you have the opportunity to define Tallmart's Target 2013/2020 Strategy, what will it be, keeping in mind the objectives for 2013/2020 and company performance in fiscal year 2012? Elaborate on the same and provide relevant data/workings to substantiate the same

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