Best Buy: Saving the Big Box Strategy

Best BuyA corporate strategy article by Thunderbird students Ahmed, Farrow, Goosen, Jones, Kortgard and Turra

Are the days of big box consumer electronics retailers coming to an end, or can Best Buy prove it has what it takes to adapt and compete in a changing global marketplace?

Rapid growth in the 90’s and early 2000’s propelled Best Buy to become the world’s largest and most successful consumer electronics (CE) retailer with global revenue exceeding $50 billion. However, myriad challenges have converged to create a hostile environment for traditional CE retailers. Accelerating commoditization of products and increasing acceptance of online purchasing are allowing non-traditional competitors, such as Amazon, to capture an ever-growing share of the global electronics market.  Some Wall Street analysts suggest Amazon should purchase Best Buy to complement its online growth strategy and capitalize on Best Buy’s strengths, namely its 1,400 brick & mortar locations[1]. Others argue that Best Buy will ultimately experience the same demise as Circuit City, CompUSA, and Borders.  Hulking shells of former big box stores are a stark reminder of how global markets are evolving at rates never seen before.  At best, the triumphant days of big box retail are being severely challenged. At worst, they could come to an end.

Razor Thin Margins: The Key to Finding Profits in Emerging Markets

razorTo Shave or Not to Shave

Like most men around the world, Prakash, a thirty-year-old Indian port worker wakes up in the morning facing the unpleasant but necessary task of having to shave. But unlike most men in the developed world, for Prakash shaving means sitting on the floor with a small amount of still water, balancing a hand-held mirror in low light, and experiencing frequent nicks and cuts from his double-edged razor[1].

On the other side of the globe, with headquarters in Cincinnati, Ohio, Procter and Gamble (P&G) is one of the largest consumer products companies in the world with operations in more than 80 countries and more than 300 marketed brands sold in 160 countries. Traditionally, P&G’s product mix has focused on high-end products geared towards the developed markets. Hurt by slowing sales growth in developed markets during the recent global recession and European economic crisis P&G began to look at emerging markets for long-term growth[2].  P&G’s historic focus on developed markets left them unprepared to enter the emerging markets where they were blindsided by their competitions’ market penetration. P&G underestimated the cost of building its presence in developing countries resulting in a shortage of funds to finance its expansion in emerging markets and an inability to achieve economies of scale. This resulted in higher priced products in these regions. Compared to its competitors like Unilever or Colgate-Palmolive, P&G has been slower at reverse engineering its products to be affordable to the bottom of pyramid market segment in emerging markets.

Luxury Goods MNCs Collaborate to Battle Counterfeiting in China

China counterfeitsA corporate strategy article by Thunderbird students David Curtis, Merissa Gordon, Kori Joneson, Emily Mahoney, and Robert Thompson

The luxury goods market in China is a must-enter space for global companies in this industry. Research indicates that multinational corporations (MNCs) need to assess their current strategies and take advantage of challenging, yet rewarding opportunities in emerging markets1.  By 2015, China will represent 20% ($27B) of the market in luxury goods, and MNCs like Marc Jacobs cannot afford to hesitate in penetrating this emerging market2.  The Chinese view these high-end products as “trophies of success” and are worn as such3.  Labels and visible brand symbols are critically important for show in public, but rarely of value in the home. While this new market opportunity presents promising avenues, the Chinese market is known for its battles with infringement through counterfeiting, parallel importing, or unauthorized selling of goods.  Companies like Marc Jacobs are forced to address this issue head on and seek ways within their global strategy to develop solutions.

Will the Death of Groupon Be its Lookalikes?

GrouponA corporate strategy article by Thunderbird students.

In 1887, Mr. Asa Candler was faced with a distribution dilemma. [1] The Atlanta druggist had spent $2,500 on a formula for a sweet-tasting drink and was looking for a way to promote the sale of this little-known beverage named Coca-Cola. [2] His solution: handwritten tickets offering customers a free sample. To Mr. Candler’s surprise, the offer was a huge success. So was born the coupon. By 1913, an estimated 11% or roughly 8.5 million Americans had received a free coke. [1] One could argue that Mr. Candler’s invention of the coupon is the reason Coca-Cola started on its path to becoming one of the most iconic global brands - ever.

Fast forward to 2008, when an internet start up based in Chicago, IL created one of the largest shake ups in the marketing world since Mr. Candler’s first hand written ticket; that company - Groupon. The novelty of Groupon was this: through the power of the internet, select “daily deal” coupons could be offered and if a big enough “group” agreed to purchase the deal, then the deal would become valid. [3] The program was used by participating companies as a way to reduce the risk of losses, increase customer traffic, and drive promotions. Now four years since its launch, the Groupon business model has come under attack and faces many strategic obstacles, including competition from lookalike websites.

Should IKEA ‘Table’ India?

IkeaA corporate strategy article by Thunderbird students Marquita Blanding, Ankush Brahmavar, Tim Clarke, Jennifer Garcia, Stephanie Sharma and Jason Teague

With approximately 500 million young adult consumers in India[1] and an affluent growth rate of 13% equaling USD 203 billion,[2] it would appear that Sweden-based IKEA can’t afford to delay its entrance into India any longer. A country that is accustomed to paying a higher price for the niceties that are afforded around the world, India has an educated, innovative, resource-rich base ready to ‘spend.’

In January 2012, the Indian government amended FDI restrictions to allow foreign companies to own 100% of their retail ventures in the country.  This was a welcome change from the earlier ownership cap of 51%, as it paved the way for global retail chains like IKEA, Wal-Mart, and others to have full control of their Indian operations. But the market opening came with new restrictions that many retailers view as obstacles to its investment, including a requirement that foreign companies obtain at least 30% of their products from domestic small companies and cottage industries. In light of this rule, IKEA has expressed that local sourcing requirements were “concerning” and more easily met by food retailers such as Carrefour than a single-brand company like IKEA with global product ranges.[3]

Under Armour – Positioning Themselves For The Next Win

Under Armour global strategyA corporate strategy article by Thunderbird students Eric Chown, Veronica Yusz, David Prestin, Sarah Olsem and Rosemary Geelan

The Under Armour brand evokes an image of elite athleticism, almost at odds with the company’s humble beginnings in the home basement of the founder’s grandmother. A simple idea ultimately developed into one of the most prominent names in the industry. As the company evolved, the relative importance of the strategic challenges they faced changed as well. One shift has already occurred – from word of mouth advertising to promotion by professional athletes – and this will likely be insufficient to expand their market in the direction that they are focusing on with their newest production lines. Their marketing strategies and ability to maintain the share they have established will be tested as they move away from their traditional customer base and into new niche markets. The challenge to Under Armour is whether to change their strategy as they expand, or to apply their initial model in new, innovative ways. Both have risks if not executed properly.

A New Year Brings New Challenges: A strategic look at Costco in 2012

CostcoHeading into 2012, Costco is well positioned not only to weather the storm of further economic downturns but also to consolidate its lead over other discount wholesalers like Wal-Mart and BJ’s Wholesale Club. Its intentionally low margin and exceptionally high inventory turnover, along with growing overseas sales and relatively low debt, are some of the main factors that point to Costco’s potential for continuing success.

The new year will also bring new challenges that the company must manage with careful strategy: increasing costs of products and labor; co-founder and CEO Jim Sinegal’s imminent retirement; and growing pressure to decide how and how quickly to expand both domestically and internationally. With its strengths and upcoming challenges in mind, we discuss a few of the key strategic decisions Costco must make, and explore how these choices might affect both its original business model and the changing retail industry in a volatile global economy.

The Race for China’s Youth Market

gap-china476A corporate strategy article by Thunderbird students Emma Brown, Caroline Caverly, Julie Goodman, Kelly Post and Angela Wong

Last year, when an apparel giant opened four stores in China and failed to gain a significant portion of the retail sales, multinational retail stores took note. The Gap, an apparel line successful in more than 3,000 locations worldwide, had everything going for them. So, what went wrong?

The Gap’s biggest mistake was the cookie cutter approach it took to establishing its presence in the world’s largest youth market. The Gap sought to target the increasing middle-income consumers in the rapidly growing Chinese market, but failed to capture the attention of their most important customers, the Chinese youth.

In China, the Gap is perceived as middle class apparel selling for a luxury price.  Status and luxury are important goals for China’s consumers, especially for the youth. However, a premium price for a middle class product is a cost youths are not willing to bear.  Moreover, The Gap chose to open stand-alone stores rather than locating in mall areas, forcing customers to go out of their way to make a special trip just to visit the store. The majority of Chinese consumers purchase apparel at a mall because they can use it as a single destination for shopping, eating, and entertainment. The Gap failed to realize that China’s middle class youth consumer is very different from an American consumer.

When innovation disappears: Five lessons from Circuit City

Circuit City global strategyBy Dan Benton, Dave Davidson, Kyle Larsen, Dan Olver and Jong Chul Park

Innovation is a buzzword thrown into corporate missions as evidence of how a company creates and differentiates; it’s a keystone for any business, a prerequisite for any manager, and a selling point for any investor.  But what is innovation? And why do we desperately seek it? The way we look at it, innovation is the creativity of a few put into action by many, offering quantitative and qualitative advantages over the competition.  However, any single act of corporate innovation is not enough to create sustainable value; legacies are created through continual value creation.

Imagine a company that created an industry, pioneering enormous growth and innovation in a consumer demand market that had never before existed.  Picture the company riding decades of success into the preeminent spot of its industry, rising to 160th in Fortune 500’s most successful companies, peaking at $10 billion in sales.  Now, envision this giant lying in ruins only two years later.  Circuit City is a case study in how not to run a business.

Redbox: The future of the movie machine

Redbox global strategyBy Jones Dias, Abhinav Kant, Vamsi Kothapalli, Kristal Nicholson, Filippo Sclafani and Pankaj Tamrakar

As recently as four years ago, almost no one would have been aware of what the word Redbox meant. Today, Americans have become devoted customers of this rising star of the impulse DVD rental industry. But will the fun and ease of Redbox’s unique impulse proposition last through the next decade? Do advances in technology, with an ever-changing array of readily available options, such as downloads or streaming, mean that the days of the Redbox are numbered?

The discussion seems to vary as to which strategy Redbox needs to take in order to continue to thrive in the rental business. Coinstar (Redbox’ parent) CEO Paul Davis, expressing his ideas in a recent conference call, considers streaming a “significant opportunity” while maintaining that he foresees a “long, profitable life ahead” for Redbox’s movie-machine kiosk business.


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