Clive Peeters Ltd of Australia is one of the leading retail chains in the country dealing in a variety of electronic and white-goods. The Company deals over 140 brands with nearly 20,000 different products. Their products include computers and electronics, home entertainment, household appliances like refrigerators, washing machines and air conditioners etc. The philosophy of the company is to become the ‘premier electronic and computer retailer’ in the country. The strong point of the company is their after sales service that includes helping with installation of the products at customer premises. They have highlighted this aspect through their slogan ‘so easy’.
The company is facing a slowdown in this highly competitive segment for the past year and does not expect the situation to improve in the near future. This paper is an attempt to analyse the reasons behind this situation. It is also proposed to apply relevant theories of strategic management with reference to the development of its marketing activities. The paper will also chalk out some suggestion which can be taken up in an effort to improve the situation. The company operates in five states across Australia namely, Victoria, Queensland, Tasmania and New South Wales, and Western Australia (as Rick Hart).
The current scenario
Rising price levels of various commodities including petroleum had created a market slow down in Australia which reflected badly on many sectors including the sector in which Clive Peeters operates. The country’s top retailer (electronics and household goods) in terms of volume, Harvey Norman had admitted that their annual sales growth had been poor this year due to decreased demand from consumers. In comparison Clive Peeters fared more poorly. Its profit for the year fell nearly 27% and stood at 10 million AUS dollars even though the company experienced a sales growth of 17% (534.8 million AUS dollars). But the comparable store sales growth was only 0.6%. The company has also predicted that the situation will continue for the next year also. Part of the reason for the increase was the addition of seven new stores. The company’s gross profit margin was a healthy 26.4% of sales, but for net profit the figure comes only to 2%. One of the reasons attributable to this was the loss of 4 million AUS dollars in Sydney area. (Clive Peeters FY 2008 Profit Announcement. 2008). The company could pay a dividend of only 3.2% (8.1 cents per share) whereas the figure was 4.5% (10 cents per share) the previous year. The company has a total number of 48 stores in operation at present.
Apart from the Company’s own problems which will be discussed later, it appears that there is a genuine slowdown in the market growth in the country. An analysis of articles in the business section of newspapers reveal that the country may be facing a recession after nearly twenty years of growth. David Uren in the Sydney Morning Herald says agrees with this line. He says that the reasons may be the general slow down of the world economy of be one of the reasons for this. The raising of interest rates regularly by the Reserve Bank of Australia is also another reason. He further argues that the period of continuous growth had made the population quite callous about savings. The average Australian family has spent more than it is really capable of and many of them now have a negative cash flow. The article also quotes Gerard Minack, chief analyst of Morgan Stanley who says that “…….the picture looks a lot worse when you look instead at household cash flow.” (Uren 2008). The Sydney Morning Herald also echoes the same sentiment regarding recessionary trends in the country. The article in the paper states that this pressure in felt in almost all areas of the Australian retail sector. The article further says that unlike Clive Peeter’s and a few other companies, many retailers will not admit to this trend and will go on as if nothing untoward is happening. But it appears that this time at least, the country’s retailers are bracing for tough times ahead. According to the article, this is the time for retailers to try innovative methods and also resort of giving discounts. The trend seen among people is that they still shop, but for smaller amounts. For example, where once they bought goods worth 300, they now prefer to shop for much smaller amounts. In such a case, a chain like Clive Peeters who is in the premium segment of the market could be some of the worst hit retailers. People would just put off buying expensive electronic and household items and spend part of the money on something much cheaper. Mr McInnes, chief executive officer of the department store David Jones says that “people always buy cosmetics; you always need a lipstick or your skin care. They won’t buy a new TV or fridge or bed, and they will delay buying the new jumper for their husband.” (Retail Therapy. 2008).
He adds that women have a tendency for reduced or no spending on their home and then for their husbands. In such a case, purchase of premium items will come down. This is also the time when people look out for discounts and bargains rather than at free offers given away with purchase of premium articles. Gary Perlstein chief executive officer of Speciality Fashion Group says that his high profile women’s fashion section has been hit seriously by the slowdown. This section had only a quarter of the previous year’s sales figures. Clive Peeters, Harvey Norman and Myer are among the other companies mentioned in the article as having been affected by the slowdown. So, in the case of Clive Peeters, it can be said that the company has been genuinely hit by the recessionary situation in Australia.
As for the problems faced by the company internally, the loss making sector in New South Wales would stand out as a source of worry. The NSW market is one of the most competitive in the country and moreover, the company operates only five stores in the state. It is no wonder that this area of the company has not been able to run profitably. But even in such a situation, the company is planning its expansion plans in the area. This is in tune with the company’s philosophy of becoming an established leader in electronic goods in Australia.
The Boston Consulting Group Matrix
This matrix usually referred to as the BCG Matrix is used to analyse the portfolios of companies. But in this instance it can be used to analyse the different areas in which the company operates. Given below is the graphical representation of the BCG Matrix. The top right hand corner is the high growth low share quadrant. Products or markets that come in this area are under a doubt as to their success. In other words, it could go either way and hence this quadrant is marked with a question mark. In this quadrant, it would be wise to do any of the following. The company can do nothing and see if the market develops. It can invest heavily and try to bring the market to the star quadrant and thereafter to the cash cow segment. Thirdly, the company can be selective and sell off or stop some products. It can also sell off or stop the entire portfolio.
The star quadrant is where there will be high expenditure because the company has to maintain its growth. It will also be highly profitable, thereby balancing cash inflow and outflow. But sustained growth will bring it on to the most profitable segment namely the cash cow segment. Here the company would have established itself and would be among the market leaders. Very little cost would be needed to maintain this position. Hence this quadrant will generate huge cash flows for the company. In the dog quadrant, there will be no market share as well as any potential for growth. It would be better to stop the product line or close off all stores that come in such a quadrant. (BCG Matrix: The Four Segments of the BCG Matrix. 2008).
It can be seen that the New South Wales market appears in the question mark quadrant. It will still need a lot of cash to survive and has still not gained market share. The situation is unclear as to which way the market will grow. It has already been mentioned that the NSW market is very competitive. If the company can make a mark there is potential for high growth since it is the potentiality of the market that brought other competitors there in the first place. The company could do very well to select possible and potential locations. It could also close down operations in cities where it will not be practical to operate. By being selective and through cautious expansion, the company can change to the star segment and there on to the cash cow segment.
The Company had announced that it plans to cut down its advertising budget substantially. Apart from reducing costs by laying off part-time and underperformers, a cut of 3 million dollars in advertising budget is also proposed. A review of advertising literature has consistently shown that this is not a good practice to be followed. It is true that managements will have a tendency to cut costs across all fronts. But studies prove that those companies who maintain or even increase their advertising budget will yield better results during the recession and to a period of approximately three years after the recession. This was shown from a study conducted by McGraw Hill in the United States. The survey that included 600 companies across sixteen industries showed that aggressive advertisers were able to increase sales up to 256% over those that did no or reduced advertising. The period of the study was about the advertising spend by the companies during the recession in 1981 and 1982. (Gass 2008). The one thing to be considered here is whether Clive Peeters has the revenue and reserves for maintaining an aggressive advertising budget. The figures released by the company had shown that the net profit achieved by the company was only marginally lower than estimates. Hence the company should rethink its policy or reducing advertising. One option would be to advertise aggressively only in the regions the company operates. The bulk of the advertising can be done in Western Australia where the company has a strong presence and NSW where the company plans to expand. It would also be worthwhile to give more focus on advertising than on expansion.
Since the company is dealing with high priced and premium products, it would be difficult for the company to introduce an economical product mix. One strategy that the company could follow is targeting the wealthy sections of the population with attractive discounts and other packages. This section would not have been hit much by the recession and will be attracted to buy from Clive Peeters, if the strategy is effective. Another study by the Mc Kinsey Corporation has revealed that companies having a wide product mix are more likely to ride off a recession than those with a narrow product mix. (Dobbs, Karakolev and Raj 2007). This more recent study was of the 2001 recession and included nearly 1600 companies in the United States. In this regard, Clive Peeters is at an advantage since they already possess a wide range of products. They have nearly 140 product categories and 20,000 products. A strategy of discounts and free offers as mentioned earlier can help the company to tide over the recession. The company has a credit facility for their customers which they should aggressively promote and also modify to make things easier for them.
Another strategy would be to give more focus on new technology products. Some people may purchase such products for the satisfaction of being one of the few persons to own such products.
As mentioned earlier, the presence of Clive Peeters in NSW is very poor. Instead of spending on opening new stores an alternative would be acquisitions. The company has a policy of acquiring other stores and small retail chains. This should be seriously looked into because the recessionary trends will enable them to make acquisitions at lower costs
Even though the company is finding it difficult to increase sales, it appears from their balance sheet that they do have a reasonable financial strength. They have over 11 million dollars in cash and cash equivalents and also approximately 26 million in trade and other receivables. They also have 96 million worth of inventories on the asset side and 81 million as payables on the liability side which would balance out each other. Another category which they can make use of is the retained earnings of 22 million. This position would indicate that the company may not be in a position to invest strongly in either opening new stores or for making acquisitions. What they should follow is gradual planned acquisition of well established small retail chains who would find it difficult in survive in recessionary conditions. They could stop or reduce their dividends for one or two years and utilize it for advertising and acquisitions. One thing that they should ensure is to cut operational costs. Their plan to cut down temporary and non-performing work force is a good strategy. Advertising should not be curtailed.
Clive Peeters is genuinely finding it hard to maintain its earnings in a recessionary trend in Australia. This has been affecting the retail sector in the country as a whole. Moreover, their stores in NSW have yet to yield profits, causing dilution in the bottom line of the company. The company should follow the policy of cutting down operational costs (without cutting down on advertising), make cautious acquisitions, formulate strategies for discounts and more credit facilities etc. The company is quite experienced in the white goods business and following the above strategies will help to survive its present condition.
BCG Matrix: The BCG Matrix Product Portfolio Method. (2008). [online]. Value Based Management.net. Web.
BCG Matrix: The Four Segments of the BCG Matrix. (2008). [online]. 123 Manage – The Executive Fast Track. Web.
Clive Peeters FY 2008 Profit Announcement. [online]. Clive Peeters Ltd. Web.
DOBBS, Richard., KARAKOLEV, Tomas., and RAJ, Rishi. (2007). Preparing for the Next Downturn: Product Offerings. [online]. The McKinsey Quarterly. Web.
GASS, Michael. (2008). . [online]. E-Zine Articles.
Retail Therapy. (2008). News Articles. Sydney Morning Herald. [online]. Invest Smart. Web.
UREN, David. (2008). Australia Faces recession: Analyst. [online]. The Australian. Web.