Sears canada Competitive Analysis
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Sears canada Competitive Analysis Document Transcript

  • 1. Prepared By: Chetan ChannaDate: 02/18/2011
  • 2. Sears Contents1. Sears History ................................................................................................................................ 12. Sears Business Description ........................................................................................................... 33. Industry Analysis .......................................................................................................................... 44. Sears Business Analysis ................................................................................................................ 6 4.1 SWOT Analysis ...................................................................................................................... 6 4.2 Financial Ratio Analysis ......................................................................................................... 7 Current Ratio .................................................................................................................................. 7 Quick Ratio ..................................................................................................................................... 8 Inventory Turnover......................................................................................................................... 8 Debt Ratio ....................................................................................................................................... 9 Gross Profit Margin ........................................................................................................................ 9 Operating Ratio ............................................................................................................................ 10 Revenue per square feet .............................................................................................................. 115. Strategic Suggestions ................................................................................................................. 116. Overall Analysis .......................................................................................................................... 137. Exhibit 1: Financial Information ................................................................................................. 148. Exhibit 2: Financial Ratio Calculation ......................................................................................... 159. References.................................................................................................................................. 17 Page | 2
  • 3. Sears1. Sears HistorySears Canada is a full-line retailer of general merchandise and home-related services in Canada. At theend of January 2010, the company operated 122 Full-line department stores, 280 Specialty stores(including 48 Sears Home stores, 186 Dealer stores operated under independent local ownership, fourAppliances and Mattresses stores, 30 Corbeil stores and 12 Outlet stores), 22 Floor Covering Centres,1,853 catalogue merchandise pick-up locations and 108 travel offices.Sears Canadas history dates back to 1952, when Simpsons-Sears, a Canadian catalogue order and retailcompany, was incorporated as a result of an agreement between Simpsons of Toronto and Sears,Roebuck and Co of Chicago. Subsequently, in 1971, the company modified its logo to display simply thename Sears in order to prevent customer confusion between Simpsons and Simpsons-Sears.HudsonsBay acquired Simpsons in 1978 and Roebuck &Co acquired the 17 million shares of Simpsons-Searsowned by the Hudsons Bay in 1983. This gave it majority ownership and 75% of the voting shares of thecompany.By acquiring the leases to seven Bay and Simpsons stores in 1991, the company entered theurbandepartment store market. Sears Canada introduced its dealer stores which provided applianceandelectronics goods through independent, locally owned outlets, in 1994. In the following year,thecompany opened its first Sears Whole Home Furniture Store location.The company acquired T Eaton(Eatons) in 1999. In 2002, Sears Canadalaunched its new online travel service and during 2003, Searsentered banking services by forming Sears Canada Bank in the same year.Sears Canada acquired theCantrex Group, a buying group representing independent merchantsof furniture, appliances, electronics,photography equipment and floor coverings, in 2005. The company sold its credit and financial servicesoperations to JP Morgan Chase Bank, a subsidiaryof JP Morgan Chase & Co, in 2005. In 2007, SearsCanada announced a major new charityinitiative and alliance with Coast to Coast against CancerFoundation that helped raise awarenessand funds for childhood cancer.In 2008, the company purchasedthe assets of Excell Duct Cleaning, a privately-held Ontario-basedcompany which managed a network ofair duct cleaning licensees for Sears in 24 regions. In March 2009, Sears Canada launched a promotionalSears Certified Real Estate Services wherethe customers are given gift certificates when they buy or sella house in the Greater Toronto Area.In the same year, it also launched a new residential paint servicefurther adding to its homeimprovement. Sears Canada unveiled a new beauty destination, Oasis, inNovember 2009. Oasis offers a one-stophead-to-toe shopping destination featuring an assortment of Page | 1
  • 4. Searsbeauty brands and personal care tools.Sears Canada announced its new "Live Green" program, aimed atidentifying eco-friendly productsand services for customers seeking greener choices, in March 2010. Page | 2
  • 5. Sears2. Sears Business DescriptionSears Canada Inc. and its subsidiaries (Sears) is a Canada-based company. The Company operates in twobusiness segments: merchandising operations and real estate joint venture operations. Themerchandising operations includes the sale of goods and services through the Company’s Retail channel,which includes its Full-line, Sears Home, Dealer, Outlet, Appliances and Mattresses, Cantrex Group Inc.(Cantrex) and its wholly owned subsidiary, Corbeil Electrique Inc. (Corbeil), and its Direct(catalogue/Internet) channel. It also includes service revenues related to the Company’s product repair,home improvement, Cantrex, travel and logistics services, and performance payments received fromJPMorgan Chase Bank, N.A. (Toronto Branch) (JPMorgan Chase) under the Company’s long-term creditcard marketing and servicing alliance with JPMorgan Chase. The real estate joint venture operationssegment includes income from the Company’s joint venture interests in 11 shopping centers acrossCanada. Sears Real Estate Merchandising Joint Ventures JV interests in Retail Travel Home Services Direct 11 shopping centres Online Catalog Page | 3
  • 6. Sears Retail Full-Line Appliances & Independent Sears Home Stores Department Stores Matresses Stores Dealers3. Industry Analysis1. Threat of New Entrants - One trend that started over a decade ago has been a decreasing numberof independent retailers. While the barriers to start up a store are not impossible to overcome, theability to establish favorable supply contracts, leases and be competitive is becoming virtuallyimpossible. Their vertical structure and centralized buying gives chain stores a competitive advantageover independent retailers.2. Power of Suppliers - Historically, retailers have tried to exploit relationships with suppliers. Agreat example was in the 1970s, when Sears sought to dominate the household appliance market. Searsset very high standards for quality; suppliers that didnt meet these standards were dropped from theSears line. You could also liken this to the strict control that Wal-Mart places on its suppliers. A contractwith a large retailer such as Wal-Mart can make or break a small supplier. In the retail industry, supplierstend to have very little power.3. Power of Buyers - Individually, customers have very little bargaining power with retail stores. It isvery difficult to bargain with the clerk at Safeway for a better price on grapes. But as a whole, ifcustomers demand high-quality products at bargain prices, it helps keep retailers honest. Page | 4
  • 7. Sears4. Availability of Substitutes - The tendency in retail is not to specialize in one good or service, butto deal in a wide range of products and services. This means that what one store offers you will likelyfind at another store. Retailers offering products that are unique have a distinct or absolute advantageover their competitors.5. Competitive Rivalry - Retailers always face stiff competition. The slow market growth for theretail market means that firms must fight each other for market share. More recently, they have tried toreduce the cutthroat pricing competition by offering frequent flier points, memberships and otherspecial services to try and gain the customers loyalty. Page | 5
  • 8. Sears4. Sears Business Analysis4.1 SWOT AnalysisSears Canada (the company) is a multi-channel retailer based in Canada. The company, through severalstore formats, offers general merchandise and home-related services. Sears Canada has beenincreasingly focusing on improving its private and exclusive brands portfolio to enhance theexclusivity.As private labels provide higher operating margins than national brands, increasedpenetration of theseprivate labels will improve the margins of the company. Additionally, they offera competitive advantageand will enable the company to develop a niche customer base. However,rising labour costs couldnegatively impact the profitability of Sears Canada. Strengths Weaknesses Increasing focus on private and Declining market share in Canadian exclusivebrands portfolio driving retail spending margin growth Declining sales from direct channel Multiple formats coupled with multiple channels catering to varied preferences oflarge customer base Specialty services helping differentiate fromcompetitors Opportunities Threats Growth in demand and GDP in Canada Labor shortage and increasing wages Expanding product portfolio Intense competition in difficult retail Increasing online retail spending likely Economic Recovery in US and to environment offer opportunities for exchange rate of CAD vs US$ growth Weak Housing Market Ageing Population Cultural/Ethnic mix and population especially in Toronto & Vancouver Page | 6
  • 9. Sears4.2 Financial Ratio AnalysisThe following section contains the analysis of certain financial ratios to spot important trends and tocompare Sears’s performance from 2005 to 2009 with Canadian Tire and Home Depot. To spot thetrend, ratios are calculated for each quarter and special attention is paid to notice any unfavourabletrends that may be starting.Current Ratio 2.5 2 1.5 Sears 1 Canadian Tire Home Depot 0.5 0 2009 2008 2007 2006 2005This ratio foretells if the business have enough current assets to meet the payment schedule of itscurrent debts with a margin of safety for possible losses in current assets, such as inventory shrinkage orcollectable accounts. This ratio shows an unfavourable trend for last year w.r.t to its competitors. Sear’sliabilities increase as some LT debts matured. While the ratio is still in safe zone but management shouldkeep eye on this especially as the management is trying to reduce the inventory levels which couldfurther affect this ratio. Page | 7
  • 10. SearsQuick Ratio 2 1.5 Sears 1 Canadian Tire 0.5 Home Depot 0 2009 2008 2007 2006 2005The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. TheQuick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, itconcentrates on the really liquid assets, with value that is fairly certain. It helps answer the question: "Ifall sales revenues should disappear, could my business meet its current obligations with the readilyconvertible `quick funds on hand?". This ratio shows a favorable trend but competitors have faredbetter in this regard. Also looking Quick and Current ratio together, it looks that management shouldcontinue focusing on reducing inventory levels.Inventory Turnover 12 10 8 Sears 6 Canadian Tire 4 Home Depot 2 0 2009 2008 2007 2006 2005This ratio reveals how well inventory is being managed. It is important because the more timesinventory can be turned in a given operating cycle, the greater the profit. Higher the ratio better it is. Page | 8
  • 11. SearsLooking at the drop in sales, this ratio looks fin but competitors have fared better in this regard.It shouldbe kept in mind that inventories shouldn’t be reduced to a level that it starts affecting sales.Debt Ratio 0.35 0.3 0.25 0.2 Sears 0.15 Canadian Tire 0.1 Home Depot 0.05 0 2009 2008 2007 2006 2005A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives anidea to the leverage of the company along with the potential risks the company faces in terms of itsdebt-load. This ratio shows a very favourable trend and Sears should keep focussing on improving these.Lower leverage means more potential to get LT loans to go for acquisitions and improvement in supplychain, which might be necessary to reduce costs.Gross Profit Margin 0.4 0.35 0.3 0.25 Sears 0.2 0.15 Canadian Tire 0.1 Home Depot 0.05 0 2009 2008 2007 2006 2005 Page | 9
  • 12. SearsA financial metric used to assess a firms financial health by revealing the proportion of money left overfrom revenues after accounting for the cost of goods sold. Gross profit margin serves as the source forpaying additional expenses and future savings. It is a measure of firm’s productivity. This shows afavourable trend but it lies below both of it’s competitors. Management should further focus on processimprovement, investing further in improving efficiency of it’s operations.Operating Ratio 0.98 0.96 0.94 0.92 0.9 Sears 0.88 0.86 Canadian Tire 0.84 Home Depot 0.82 0.8 0.78 2009 2008 2007 2006 2005This ratio shows the efficiency of a companys management by comparing operating expense to netsales. The smaller the ratio, the greater the organizations ability to generate profit if revenuesdecreases. However, it doesnt take debt repayment or expansion into account. This ratio shows anunfavourable trend over the last 2 years which might be due to decrease in sales due to recession. Oneprobable area to improve is the marketing expense. Also it is worthwhile to note that, competitors arefaring better in this regard. Page | 10
  • 13. SearsRevenue per square feet Sears 320 300 280 Sears 260 240 2009 2008 2007 2006 2005This ratio is showing a very unfavourable trend. While this is mainly due to decrease in sales butmanagement should a keep a watch on non-productive stores and if possible try to lease them or sellthem totally.5. Strategic Suggestions1. Focus on Tweens- Tweens are classified as 9-12 years old that account for around 260Billion inUS$ spending. With such tremendous buying power held by this group, Sears should start marketing tothis segment. This could be done by having a special area focusing on this generation, decorated to theirtaste and carrying latest trends in clothing and styles.2. Focus on Ageing population – As population ages in Canada, Sears should set up sections for thispopulation according to their taste and requirements. Also the Sears loyal customer base is the agegroup between late 30s and late 40s so to retain them won’t require a huge marketing investment.3. Generation- Y – The leading age group of this population has graduated from college whileyoungest are exploring pop culture and media. This group has an average of $100 per week as adisposable income and they are generally affected by peers and internet. Also this group is now startingtheir jobs, moving into new houses or getting married. To attract this population, Sears should spendmarketing dollars to advertise to this segment. It could have deals for say newly married couples that ifthey do this much of a shopping then they could win a vacation to some place. For the younger, Searsshould start promoting and keeping brands endorsed by celebrities and youth icons. Sears could call incelebrities in the store to attract crowd and youth in to the stores. Page | 11
  • 14. Sears4. Focus on Cultural Mix/Ethnic Marketing in Toronto and Vancouver – 70% of the population inToronto is made up of immigrants. Immigrants tend to hold on to their traditions and culture for at least2-3 generations. Sears could attract this market by introducing section having traditional clothes andmerchandise. On one hand, these items generally have higher margins while on the other hand suchitems would help in building up the loyalty in a new segment for Sears.5. Improve the Website and Social Media Presence – While Sears website is easily one of the beste- commerce websites there are some things which can be done to improve it further.a. Use social media sign-up instead of new registrations. Last year, a survey done by LEEDSsuggested that over 70% of the online shoppers don’t like registering and even if they do theinformation is not correct. Social media sign-up would decrease the back-end database costs andincrease the incidence rate on website.b. Add “Users who bought this also bought this” section. When the users select an item, Searswebsite should show items related to the item being searched. This technique would help in increasingwallet share from existing online users.c. Improve Social Marketing capabilities and use social media not just as a tool for marketing but tolisten to customers. There are only 5000 ‘Likes’ in Sears Canada and it is miniscule as compared to113,000 for Canadian tire and 227,000 for Home Depot. Also the feedback received on the Facebookpage should be looked into.d. Add ‘Like’ Button on website. Adding Like button on website is an important step towards SocialMedia Marketing. For e.g. if a customer goes and ‘likes’ a new watch or a gym machine, it would beposted on his Facebook page from where ‘friends’ with similar mentality would be interested in buyingthese items too.6. Invest in BI, CRM and Analytical tools – Sears should invest in latest technologies especially in theareas of BI and CRM. These tools would help management in making more informative decisions andCRM tools at POS would greatly enhance customer satisfaction. Also with NFC technology and mobilepayment being on verge of commercialization, it would make a lot of sense to study the cost involvedusing these technologies. Page | 12
  • 15. Sears6. Overall AnalysisOverall, no alarming trend are seen but it is worthwhile to note that in above comparisons competitorshave fared equally well or better as compared to Sears. Also Management should focus on reducingcosts and expenses as this is one area in which Sears lag behind unequivocally. Management should trybenchmarking it current processes and operations with the industry leaders and find out areas toimprove. This could also mean to vertically integrate by acquisitions. Also Sears should invest intechnology and make itself more social media friendly. On the revenues side, as the ConsumerConfidence grows revenue would start increasing but Sears should constantly update it’s productselection to entice the customers. Page | 13
  • 16. Sears7. Exhibit 1: Financial Information Sears 2009 2008 2007 2006 2005Current Assets 2491.4 2244.8 1997 1915.2 1884.1Current Liabilities 1376 1096 1220 1542 1665.3Revenues 5200.6 5733.2 6326.4 5933 6273.6Inventory 852.3 968.3 855.4 805 788.2Cost of Goods Sold 4712.3 5213.1 5783.8 5468 5814.6Total Debt 350.7 364.6 372 543 749.3Total Assets 3404 3237 3003.1 3060 3198.6Net Income 234.7 290.7 308.5 153 770.8Operating Expense 4853 5311 5865 5693 5316.6Sq Foot 19.8 19.8 20.9 21.1 21* In Million CAD Canadian Tire 2009 2008 2007 2006 2005Current Assets 5004.6 5196.2 3979 3138.2 2541Current Liabilities 2212.1 2647.8 1999.7 2113.7 1663.6Revenues 8980.8 8686.5 9121.3 8606.1 8269.1Inventory 901.5 903.6 917.5 778.7 667.3Cost of Goods Sold 8000.2 7788.1 8200.5 7694.5 7451.7Total Debt 1220 1494.2 1338.3 1603.6 1171.4Total Assets 8764.1 8872.5 7783.8 6764.8 5804Net Income 453.6 335 375.4 411.7 354.6Operating Expense 8383 8207 8578 7994 7246* In Million CAD Home Depot 2009 2008 2007 2006 2005Current Assets 13900 13362 15674 18000 15269Current Liabilities 10363 11153 12706 12931 12706Revenues 66176 71288 77349 79022 81511Inventory 10188 10673 11731 12822 11401Cost of Goods Sold 43764 47298 51352 52476 54191Total Debt 9682 11434 13430 11661 11643Total Assets 40877 41164 44324 52263 44405Net Income 2661 2260 4395 5761 5838Operating Expense 61373 66929 70107 70156 72148 Page | 14
  • 17. Sears8. Exhibit 2: Financial Ratio Calculation Current Ratio 2009 2008 2007 2006 2005Sears 1.81061 2.048175 1.636885 1.242023 1.131388Canadian Tire 2.262375 1.962459 1.989798 1.484695 1.52741Home Depot 1.34131 1.198063 1.23359 1.392004 1.201716 Quick Ratio 2009 2008 2007 2006 2005Sears 1.191206 1.16469 0.935738 0.719974 0.65808Canadian Tire 1.854844 1.621195 1.53098 1.116289 1.126292Home Depot 0.358197 0.241101 0.310326 0.400433 0.304423 Inventory Turnover 2009 2008 2007 2006 2005Sears 5.528922 5.383765 6.761515 6.792547 7.377062Canadian Tire 8.874321 8.618969 8.937875 9.881212 11.16694Home Depot 4.295642 4.431556 4.377461 4.092653 4.75318 Debt Ratio 2009 2008 2007 2006 2005Sears 0.103026 0.112635 0.123872 0.177451 0.234259Canadian Tire 0.139204 0.168408 0.171934 0.237051 0.201826Home Depot 0.236857 0.277767 0.302996 0.223122 0.2622 Gross Profit Margin 2009 2008 2007 2006 2005Sears 0.093893 0.090717 0.085768 0.078375 0.073164Canadian Tire 0.109188 0.103425 0.100951 0.105925 0.09885Home Depot 0.338673 0.336522 0.3361 0.335932 0.335169 Return On Assets 2009 2008 2007 2006 2005Sears 0.068948 0.089805 0.102727 0.05 0.24098Canadian Tire 0.051757 0.037757 0.048228 0.060859 0.061096Home Depot 0.065098 0.054902 0.099156 0.110231 0.131472 Page | 15
  • 18. Sears Operating Ratio 2009 2008 2007 2006 2005Sears 0.933162 0.926359 0.927068 0.959548 0.847456Canadian Tire 0.933436 0.944799 0.940436 0.928876 0.876274Home Depot 0.927421 0.938854 0.906372 0.887803 0.885132Same Store Sales 2009 2008 2007 2006 2005Sears 262.6566 289.5556 302.6986 281.1848 298.7429 Page | 16
  • 19. Sears9. References1. Sears Annual Report 2005,2006,2007,2008,2009,20102. Home Depot Annual Report 2005,2006,2007,2008,2009,20103. Canadian Tire Annual Report 2005,2006,2007,2008,2009,20104. Google Finance5. Investopedia.com6. Datamonitor Company Analysis7. Wikipedia.com Page | 17