Harvey Norman Business Analysis free essay sample

Executive Summary3 Introduction4 Current Strategic Position4 Figure One: Financial Analysis for Harvey Norman5 External Factors6 PESTLE Analysis6 Economic Forces6 Technological Forces6 Political-Legal Forces6 Ecological/Environmental forces7 Socio-cultural forces7 Porters Five Forces7 Figure Two: Porters Five Forces7 Figure Three: External Factor Analysis Summary8 Internal Analysis8 Figure Four: Internal Factor Analysis Summary9 Recommendations10 Conclusion11 Executive Summary Harvey Norman Holding Pty Ltd (HNH) in June 2012 delivered a net profit of $227. 41 million, a decrease of 39. % from the previous year (HNH Annual Report 2012). Clearly the company was not meeting the ever increasing demand of the retail consumers, that were becoming increasingly savvy and expecting more specification through on-line shopping and a getting in-store experience (Baird Kilcourse 2011). Slow off the mark, HNH finally recognised the power of online platforms and its influence as a sales channel it invested heavily in the fiscal year of 2012 to develop an integrated retail, franchise, property and digital operations with its release of the Omni-Channel Strategy. We will write a custom essay sample on Harvey Norman Business Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Online sales have been low as initially predicted, within HNH announcing it has been established for future gain (HNH Annual Report 2012). However, the retail industry would argue that HNH has not only been slow in changing the with retail environment, it has also failed to recognise that its new strategy will only address some of its business concerns, labelled with a poor customer focus and in store service (Reidy 2013). Using Porters Five Forces analysis HNH faces high threats from rivals within the market, competing with well-known brands like Myer and savvy businesses that have embraced change like JB HiFi whom integrated its online experience five years ago (Reidy 2013; Wheelen Hunger 2012). HNH also faces threats from consolidation of suppliers and the infinite possibilities online providing the consumer with greater knowledge and expectations (Wheelen Hunger 2012). Whilst both its internal and external factor analysis have indicated that HNH is rated below average, it has the ability to pull itself out of this business rut, as a result of its strong branding position and asset base. To again be competitive within the market place it is recommended that HNH not only embraces its online technology, but also looks to update its strategic vision, purpose and values in line with Omni-Channel Strategy, along with undertaking ongoing consumer reviews, looking to improve its lean practices within its supply chain, improve its marketing and advertising strategies and look at exploring new market opportunities. Introduction HNH Holding (HNH) is one of the largest retailers in Australia and operates through a combination of company operated stores and franchise operated stores. It currently has 213 franchised stores in Australia and 76 company-operated stores HNH owns a third  of its stores which it leases to franchisees and provides them services in return for a percentage of sales (HNH Annual Report 2012). In fiscal year of 2012, HNH approved a new strategic approach to integrate its retail, franchise, property and digital operations into an Omni-Channel† Strategy (HNH Annual Report 2012), which promises customers a seamless on and off line shopping experience and has seen many of the top retail brands diversify for a ‘competitive advantage’ (Baird Kilcourse 2011). This report will provide an internal and external analysis into HNH’s change in strategic approach, its current positioning and recommendations for future strategic growth. Current Strategic Position HNH’s decision to adopt an Omni-Channel strategy in 2012 came out of a need to mitigate some of the damaging past business decisions and to adapt to the changing retail landscape. Sales dropped 8. 6% in the first six months of the 2013 fiscal year in Australia (Reidy 2013). HNH within the retail industry is known for its poor customer service and inflated prices. HNH’s Chairman was also out of touch with current trends and refused to acknowledge the internet as a sales channel let alone a mobile-commerce (Reidy 2013). HNH’s new strategic slogan of â€Å"click, pay and collect† supports the businesses commitment to become more viable and robust in a complex and difficult market (Reidy, 2013). The Omni-Channel strategy HNH implemented in 2012 includes (HNH Annual Report 2012, p. 4): 1. The ability to diversify product offerings to franchise operations, 2. Strong balance sheet underpinned by real, tangible property assets, 3. Strong asset position and working capital allows to conservatively manage the debt levels, 4. The digital, store and distribution centre channels are fully integrated. The business challenge retailers are coming to terms with is that the supply chain model was based on fulfilling consumer demands within stores (Baird Kilcourse 2011). With the entrant of virtual technology increasing the knowledge and expectations of consumers, traditional strategies are largely missing out on consumer demands. The opportunity for the retail industry is to develop a clear pathway for consumers through the infinite channels to ensure the end result is a purchase within its stores. As studies show that 95% of all purchases by the consumer are still within a ‘bricks and mortar’ store (Baird Kilcourse 2011). The below chart displays three key financial performance indicators for HNH from 2008 until 2012. Net sales can be used as an indicator of growth rates, return on equity (ROE) ‘reflects how much the firm has earned on the funds invested by shareholders’ (Anthony, Merchant Hawkins 2011, p. 68) and Gross Sales Margin is an indicator of the businesses profit margin. [pic] Figure One: Financial Analysis for Harvey Norman From this financial data it is clear that HNH sales have been unstable over the past five years and that the return on equity is displaying a negative trend over this period. An interesting point is that the gross sales margin has remained relatively flat throughout the period, which says that reduced returns cannot be significantly attributed to reduced margins. Overall these trends do not paint a positive view for HNH and go some way to displaying that the company is not in a good competitive position and that the strategies being followed during this period have not been sound. External Factors To consider the external factors that impact on HNH the PESTLE and Porters Five Forces Analysis have been undertaken below. PESTLE Analysis Economic Forces The IMF observed modest improvement in economic conditions and estimates global growth to reach 3. 5% in 2013 from 3. 2% in 2012 (Anonymous 2013a). The Australian Dollar continues to be strong (Ryan 2013), which positively affects the retail industry. The trend for online shopping continues to increase. Online retail sales in Australia increased by 26% in 2012, compared to 0. 4% for the traditional retail sales (Oster, White Davis 2013). The online purchases have reached 5. 8% of the traditional retailing, with the split of 73% to 27% between domestic and international retail sales (Oster, White Davis 2013). Technological Forces Online shopping continues to be one of the fastest growing platforms. The OECD forecasts that online sales will become the main channel in the next 10 years (OECD as cited in Ha Coghill 2008). The development of the smartphone technology has taken online shopping to a new level (Baker 2009). Currently 47% of Australian consumers use mobile device to find products and services (Elsworth 2012). The trend is likely to continue and the retailers that haven’t already developed mobile apps for Android and iOS platforms will find themselves behind the competition (Farfan 2013). Political-Legal Forces Imported goods worth less than $1000 are not subject to GST, which has given online purchases an automatic advantage over the traditional retail sector and is a significant issue for retailers. HNH, Myer and 19 other retailers have united forces and campaigned to the Government to change the taxation law (Apostolou 2011). The introduction of the carbon tax has had a mixed reception, research by the Australian Retail Association indicates that 80% of the businesses have experienced a negative impact (Hammond 2012). Ecological/Environmental forces The aspects and impacts of the activities undertaken in the retail sector on the environment continue to be one of the major challenges facing the retail industry. The government contracted agencies such as the Australian Packaging Covenant (APC) Council to work closely with the industry to reduce the environmental footprint of the retail sector (Anonymous 2011a. ) Socio-cultural forces The social media has enabled customers to share insights, voice their opinion and put pressure on organisations more than ever before. The retail industry has to be actively involved in discussion with consumers to understand the needs and establish a relationship (Teuber 2012). By establishing social network communities and opening direct lines of communication, consumers are invited to actively shape the services and offerings of retailers which may potentially lead to increases in sales and consumer loyalty (Anonymous 2011b). Porters Five Forces Figure Two: Porters Five Forces Figure Three: External Factor Analysis Summary | |External Factors |Weight |Rating |Score | |Opportunities |Strong Australian economy |0. 5 |4 |0. 6 | | |Online shopping continues to increase |0. 1 |2 |0. 2 | | |Mobile technology continues to develop |0. 1 |2 |0. 2 | | |Advance product visualisation technology |0. 05 |1 |0. 05 | | |Social media and networks |0. 15 |3 |0. 5 | | |Specialised and tailored service based on demographics |0. 1 |3 |0. 3 | |Threats |Increase in overseas online purchases |0. 1 |2 |0. 2 | | |Carbon tax |0. 05 |3 |0. 15 | | |Environmental Legislation |0. 05 |4 |0. | | |Social media – negative views, boycotts and scandals |0. 15 |3 |0. 45 | | | |Total we ighted score |2. 8 | From the various external factors resented in the PESTLE analysis and Porter’s Five Forces analysis, ten opportunities and threats have been selected to create an External Factor Analysis Summary (EFAS) table below (Wheelan Hunger 2012, p. 126). The total weighted score for an average company is 3. 0. A score of 2. 8 is therefore below the industry average, which indicates that HVH is slower to react to current and emerging external factors. This is true when comparing HNH to JB HiFi who integrated an Omni-Channel Strategy into its business five years ago (Reidy 2013). Internal Analysis The HNH mission is to (HNH Limited 2008b, p. 3): †¢ Be recognised as a world leader in delivery of retail services in the fast moving consumer goods sector †¢ Generate superior returns for shareholders Create an inspiring workplace †¢ Be welcomed in the communities in which we operate Whilst the mission statement does address the needs of the four key groups of stakeholders (customers, owners, employees and the community), it does little to give direction to the company. Of further interest when considering the company’s financial performance and new strategic position its mission does not appear to have been updated sin ce 2008. HNH’s long history as a store retailer sees the company’s internal resource strengths and capabilities situated around retailing i. . locating stores in suitable demographic populations, sourcing quality products, attracting consumers to the stores and completing the sale. In light of the increasing ease of access to product information over the internet and the trend towards online purchasing, it is evident that a number of internal resource and capability weaknesses exist which are contributing to the reduced profitability of HNH. Assessing the key areas of strategic functional resources and capabilities within a business as proposed by Wheelan and Hunger (2012, pp. 58-62; pp. 47-163), a variety of strengths and weaknesses have been determined. This list of strengths and weaknesses has been considered in conjunction with the concepts that ‘competitive strategy is about being different’ (Porter 1996, p. 64) and that competitive advantage is gaine d when resources and capabilities are difficult to copy (Collins Montgomery 2008, p. 142). Nine strengths and weaknesses have been selected to create an Internal Factor Analysis Summary (IFAS) table below (Wheelan Hunger 2012, p. 164). The total weighted score for an average company is 3. 0. Since HNH has scored 2. 5, the company is considered below average in terms of its competitive internal resources and capabilities. This is supported by the retail industry views that HNH offers poor customer service and high prices (Reidy 2013). Figure Four: Internal Factor Analysis Summary [pic] As HNH is an almost pure retailer and has little upstream activities, the company’s value chain (Wheelan Hunger 2012, p. 146) is considered reasonably simple and short, certainly if compared to a manufacturing company for example. Nevertheless, costs and profit margins still rely on the efficiency of this value chain. The realisation of the potential ‘economies of scope’ (Wheelan Hunger 2012, p. 147) for marketing and distribution is a reason for the company’s Omni-channel strategy. Whilst HNH has now addressed the distribution side of its business, there has been little change in the supply side of the business, thus it is likely that opportunities still exist in this area. Recommendations HNH has lost much of its previous competitive advantage in its market segment due to an inability to evolve with the changing industry and consumer environment (Thompson et al 2012). As identified above, the rivalry amongst competitors is high, with many looking to online sales to give them the edge. HNH’s delay in embracing the new technology has left it behind competitors who offer similar products (JB-HIFI for example). It is common for companies to ‘deliberately aim to be similar, to be able to compete’ (Kennedy Ehrenberg 2000, p. 1). Without an online business HNH is missing a key competency that competitors have already developed. However, with a strong asset base and a brand reputation that has been built up over the years, HNH is well positioned to move from a declining position and begin a revival. We make the following recommendations to help achieve this: Perform more effective market analysis HNH has a defining vision, sense of purpose, and values in which it aligned its business, however has failed to update its strategies in-line with the changing external environment to ensure a competitive advantage could be maintained (Thompson et al 2012). Effective Market analysis would help the business identify changes in the external environment and alter strategy to suit. Undertake customer satisfaction surveys Taking customer satisfaction surveys when creating competitive strategy can help align business units, products and services to achieve a winning formula (Martin 2010). Business should look for feedback from both internal sources and external sources and not just rely on the opinions of the senior management team (Thompson et al 2012). Undertaking customer surveys to obtain their views and input can be crucial to understanding the market environment (Kotler et al 2010). Access Value-Chain opportunities Break down the different elements within the value chain to assess what does not create value and amend as necessary (Ghemawat Rivkin 2006). This could help identify areas that HNH can create value. While the scope for vertical integration is limited, partnerships with suppliers can help drive costs down (Wheelan Hunger 2012). Look to Lean Operations and Inventory Systems Holding costs can be significant for business such as HNH. By working with suppliers these costs can be marginalised by implementing lean inventory management. With time and after developing the competencies for inventory control the business can look to move to a Just-In-Time inventory system (Liker 2003). Develop required technological competencies With the market trending towards online sales HNH needs to move with the times. By developing their online business they will be able to successfully compete with industry rivals. Technological innovation is a constant process that businesses need to undertake to remain competitive (Wheelan Hunger 2012). Development of a phone application would further drive this. Maintain competencies in marketing and advertising Marketing and advertising are key to the retail sector that HNH competes in (Kotler et al 2010). With advertising on traditional channels on the decline HNH should look to capitalise on the rise in online advertising. This can achieve synergy with the development of their online business. Look for new market opportunities The current market segment already has fierce competition. Competing in this ‘Red Ocean’ is HNH’s primary revenue stream and should not be forgotten. However by identifying under developed market segments HNH can create a ‘Blue Ocean’ segment which research shows are significantly more profitable due to the lack of competitive forces (Ghemawat Rivkin 2006). For example the business could work with builders/designers of homes to fully furnish new houses. Conclusion With a new strategic vision, HNH has a chance to reverse its current declining market presence. With the current market shifting towards online based businesses, HNH will need to adapt to remain relevant in the future. By applying sound strategic principles outlined in this report, lessons from past failures and achievements and staying true to their company vision and values, HNH will be positioned to return to the financial success of the past. References Anonymous 2010, The Australian Consumer Trends Report Secondary Research Report 2010, The Australian Centre for Retail Study (ACRS); Monash University Business and Economics. Anonymous 2011a, Economic Structure and Performance of the Australian Retail Industry, Australina National Retail Association, Manuka ACT 2603. Anonymous 2011b, Social Media World Forum; Retail Brands Investigate Social Shopping Trends at Social Media World Forum Europe 2011, Marketing Weekly News, p. 1026. Anonymous 2013a, Modest Growth Pickup in 2013, Projects IMF, IMFSurvey Magazine: In the News, viewed 01/03/2013, . Anonymous 2013b, Consumer confidence hits a 2-year high, updated 14/02/2013, Switzer Media, viewed 28/02/2013, . Anonymous 2013c, About APC; National Environmental Protection Measure, Australian Packaging Covenant, viewed 04/03/2013, . Anthony, RN, Merchant, KA Hawkins, DF 2011, Accounting: text and cases, McGraw-Hill/Irwin, New York. Apostolou, N 2011, Australias retail revolution, vol. 82, Jun 2011. Baker, M 2009, Top 10 global retail trends, Fairfax Media, viewed 04/03/2013, . Baird Kilcourse, 2011 Collis, D J Montgomery, C A 2008, ‘Competing on resources’, Harvard Business Review, July-August, pp. 40-150. Elsworth, S 2012, Use of mobile phones, tablets to shop online surges to more than $5 billion, updated 14/11/2012, News Limited Network viewed 05/03/2013, . Farfan, B 2013, Mobile Retailing Research Reveals Largest Retail Chains Invisible to Mobile Shoppers Latest Retail Mobile Data and What Retail Leaders Aren’t Doing About It (LTD, DRI, TJX, KSS, SVU), updated 28/02/2013, About. com Guide, viewed 05/03/2013, . 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Thompson , AA, Peteraf, MA, Gamble, JE Strickland III, AJ 2012, Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, 18th edn, McGraw-Hill/Irwin, New York, NY. Thomson, J 2011, 5 reasons big retailers are wrong, Smart Company, viewed 03/03/2013, . Wheelan, T Hunger, J 2012, Strategic Management and Business Policy, 13th Edn, Pearson Education, New Jersey. BUSS 5390 Strategic Management [pic] Click, Pay Collect – Omni-Channel Strategy Threat of New Entrants: Medium Current economic scenario makes retail market less attractive to new players. HVN has established itself in a variety of market space which makes it difficult for new entrants to come and expand rapidly. However, entry to the retail sector via the internet and online shopping platforms has reduced the barriers for new entrants. Threat of Substitute: Low The products sold by HVN have become essential for the modern family . The substitute for current technology is new technology. Threat Buyers – High Development of online shops selling similar products adds pressure to traditional retailers. In current economic scenario retail market is getting highly competitive there by giving customers both choice of substitutes and alternatives. It is a challenge to attract new customers and retain customer loyalty Threat of Suppliers: High Consolidation of suppliers has allowed suppliers to negotiate better terms with retailers. Availability of alternate selling medium such as direct selling, online stores have potential impact on retailers. Threat of Rivals: High Competes with other retailers like David Jones, Myers, Masters who offer similar products and services. The trend towards online purchasing, particularly of electronic products, has increased over the last several years and retailers have discounted heavily to retain sales in the stores. 7