By Vipin Kumar APMG 8119: Digital Enterprise Post Graduate Diploma in Business Enterprise
Professor: Dr. Robert Davis
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APMG8119 Vipin Kumar 1414046 2. EXECUTIVE SUMMARY Retail industry is a very important aspect of modern world and is happening both offline and online. In order to fulfill our necessities and luxuries, the existence of a well-structured retail industry is a must. Retail industry has faced innovative ideas in last century and has seen many forms with each idea. Chaotic markets, single brand outlets, multi brand outlets, shopping centers, huge malls, and interactive home shopping are forms that retail industry has seen in the last century. In a highly competitive retail industry which operates on very small margins, there is no scope of errors for retailers. Customer experience has become the key to successful retail operations. It is interesting to understand the different business models retailers use and how they have been shaped over the years. This report studies the business model of Briscoe Group (BG), a prominent retail organization in New Zealand. BG facilitates retail for homewares and sports related goods. Company operates in both marketplace and marketspace, hence; possess the necessary tools to stay competitive. Original company was founded more than 150 years ago in England. Fortunes smiled on BG New Zealands operations after Rod Duke took over as managing director in 1988. BG holds a strong position in the market today with 48Homeware and 32 Rebel Sports outlets. BG operates under three nameplates in New Zealand market and they are Briscoes Homeware, Living & Giving and Rebel Sports. BG has dedicated Ecommerce websites for all three nameplates. The study looks into companys structure, value proposition and value creation to understand the business model. BGs engagement in aggressive promotions and value capture strategies have paid well and resulted in huge cash reserves for the firm. Report identifies implications to the current value proposition of the company and they are: Regional Dominance Acquisitions Cross Selling and Alliances Improvement in consumers web Experience.
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APMG8119 Vipin Kumar 1414046 3. TABLE OF CONTENTS 1 Cover Page 01 2 Execut i ve Summary 02 3 Tabl e of Cont ent s 03 4 Company Background 04 4. 1 I nt r oduct i on 04 4. 2 Pr oduct s and Ser vi ces 05 4. 2 I ndus t r y 06 4. 4 St akehol der s 07 5 Bus i nes s Model 11 5. 1 Code of Conduct 12 5. 2 Obj ect i ves 12 6 Revenue Anal ys i s Chart 13 6. 1 Oper at i onal Act i vi t i es 14 6. 2 Non- Oper at i onal Act i vi t i es 16 7 Cos t Anal ys i s Chart 17 8 Val ue Creat i on Anal ys i s 20 8. 1 I nt er nal & Ext er nal Per s pect i ve 20 8. 2 I mpl i cat i ons 22 9 Concl us i on 24 10 Ref erences 25 10 Appendi x 27
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APMG8119 Vipin Kumar 1414046 4. Business Background 4.1 Company introduction: Briscoe Group Limited (BG) features among the biggest retail companies on New Zealand. BG has its headquarters based in Auckland; New Zealand. Its product range constitutes clothing, equipment and accessories for household, outdoors and sports purposes. BG is not only one of the major players in Homewares and sports equipment retail, but also is one of the oldest businesses across world that is still functioning. What is known as Briscoe Group today was established in Wolver Hampton, England in 1781. British Empire dominance presented flourishing business opportunities and soon business expanded into British colonies including New Zealand and Australia. William Briscoe and son opened the first warehouse and an established a store in 1862. From 1973 to 1990 the New Zealand and Australian operations of the company changed hands from Merbank Corporation, Hagemeyer and RA Duke Trust. Rod Duke established trust under the name of RA duke is the majority shareholder with 78.47% stake in the company (Annual report, 2013). During the time from 1973 to 1988, BG faced multitude of troubles because of changing management, business transformation and continuous losses. Rod Duke gained control of the company as managing director of the company in 1988 and finally bought it in 1990 via his trust. Company negotiated a franchise agreement with as Australian sports company, Rebel Sports for New Zealand operations. Company opened Rebel stores across New Zealand and by 2001 had established, 28 Homeware and 11 Rebel Sports stores. BG saw a phase of rapid expansion and by 2006 had established 48 Homeware and 27 Rebel sports stores. In 2006 company acquired 9 stores from Living and Ginving. By 2008 company had established 57 Homeware and 32 Sports goods stores. BG reduced the number of Homeware stores to 48 in 2013 and continues to operate with 32 Sports goods stores (History, n,d,). BG has its product range divided into three subsidiaries: Briscoes Homeware, Living & giving and Rebel Sports. Group has its presence across New Zealand via 41 Briscoes Homeware stores, 32 sports good stores and 7 Living & Giving stores located in Hamilton, Northland, Auckland, Waikato, central North Island, East coast, Wellington, Upper south Island, Christchurch and Otago. BG has also consolidated its presence in terms in Marketspace and has fully functional P a g e | 5
APMG8119 Vipin Kumar 1414046 Ecommerce websites for all three subsidiaries. The group continues to hold a strong position in terms on constantly increasing sales revenue and clocked 452,702,000 in fiscal year 2012-13, an increase of 3.35 % to previous financial year (Annual Report, 2013). Table 1: Briscoe Group Sales Trending Financial year 2012-13 2011-12 2010-11 2009-10 2008-09 Sales Revenue 452,702 438,037 419,294 416,686 388,467 GP Margin 40.00% 39.50% 39.80% 39.90% 38.60% EBIT 40,970 36,666 32,755 30,118 15,113 NPAT 30,468 27,529 21,612 21,026 11,634 Cash Flow from Operating Activities 31,406 42,030 45,264 14,910 28,099 *in $000 Source: Annual Report (2013) BG provides financial support to Cure Kids. Cure Kids is an agency that supports medical researchers across the globe dedicated in finding the cures to diseases. Cure kids has invested close to USD 32 million by 2012 and BG has raised more than 2 million for the charity organization (Cure kids, n.d.) 4.2 Product and Services BG facilitates retailing for a huge selection of products under three name plates: Briscoes Homeware, Rebel Sports and Living & Giving. Homeware: Briscoes Home ware offers selection in various categories such as bed & bath, Electrical, Kitchen, dining & entertainment, Cleaning & Laundry, Bags & Luggage, Decorating & Accessories, Outdoor Living, Furniture & Storage. Store offers selection form various brands such as Brabantia, Breville, Churchill, Classic Living, Cloud 9, Cloud 9 Optima, DeLonghi, Design Plus, Essential Collection, Fieldcrest, Galaxy, Goldair, Habitat, Hampton & Mason, Jamie Oliver, Kas, Kenwood, Maxwell & Williams, Philips, Playboy, Prestige, Remington, Royal Doulton, Russell Hobbs, Scanpan, Sunbeam, Table fair, Tefal, Urban, and Zip. Company has a dedicated Ecommerce website apart from 41 stores that serve to the needs of the customers (Briscoes Homeware, n.d.). Living & Giving offers similar but less diverse selection in the P a g e | 6
APMG8119 Vipin Kumar 1414046 Homeware range. BG has a different website for the name plate and product selection offered in the nameplate (Living & giving, n.d.) Sports Goods: BG offers a variety of sports gear related to majority of sports and games under the nameplate of Rebel Sports. Selection available is categorized under Clothing, Foot ware, Sports Gear, Exercise & fitness, Camping & Fishing, Games & Accessories, Swimming and water sports. Various brands that are associated with Rebel Sports are ADIDAS, ASICS, AVIA, CASIO, CCC, CONVERSE, EVERLAST, GILBERT, HI-TEC, KOOKABURRA, LOTTO, MIZUNO, NEW BALANCE, NIKE, PRINCE, PUMA, RUNNING BARE, RUSSELL ATHLETIC, SAUCONY, SKINS, SPEEDO, THE NAKED GYM, UNDER ARMOUR, WILSON, and YORK (Rebel sports, n.d.). 4.3 Industry: The era of exponential growth in retail industry has gone and retailers constantly contemplate operational efficiency to gain competitive advantage. Retail Industry is being driven via online expansion, operational restructuring, promotional planning, cost control tactics, people development and inventory management (Retail market, 2013). Businesses operate in a highly competitive and challenging environment. Value proposition in highly competitive retail environment is closely associated with product choice availability and customer experience. Abundance of retail outlets and diminished profit margins in New Zealand clearly reflect that it is a mature industry. The following chart shows that the profit margin for retail industry has come down to 3 % from 6.3 % in 2003 (Retail market, 2013).
Retail industry has an intense competition in the market. The presence of stores in New Zealand market is evenly poised with the population concentration and the following table outlines the kind of competition BG faces in the retail environment across the country. Table 2: Category Wise Store Competition Store Type Number of Stores Department Stores 284 Footwear Retailing 601 Other Personal Accessory Retailing 186 Furniture Retailing 737 Houseware Retailing 280 Electrical, Electronic & Gas 1,149 Other Electrical Equipment Retailing 218 Sports/Camping Equipment Retailing 1177 Toy & Game Retailing 223 Newspaper & Books Retailing 642 Total 5,497 Source: Retail market (2013) 0.0 2.0 4.0 6.0 8.0 2003 2003 2004 2004 2005 2006 2007 2008 2009 2010 2011 NZ Retail Industry: % Net Profit before tax/Revenue P a g e | 8
APMG8119 Vipin Kumar 1414046 BGs area of focus for the year has been on effective implementation of resources in order to generate maximum revenue. In order to understand its competitive position, it becomes imperative for BG to look into the regional breakup of the competition that group faces. It is necessary and very critical for BG to identify the opportunities and reap their benefits which arise from strategic locations. Group can also look into creating regional dominance if possible. Following table shows the regional concentration of various retail outlets as per different categories BG deals in. Table 3: Category Wise Regional Concentration of Retail Stores
Source: Retail market (2013) The retail industry and the environment as a whole are evolving because of various reasons such as advancement in technology, buying patterns, consumer focus, and Ecommerce (Retailer association review). Incessantly increasing use of smart phones by the customers is a new P a g e | 9
APMG8119 Vipin Kumar 1414046 version of web space retailers need to look into. Price comparison, user reviews and social media connectivity is happening round the clock via these mobile devices. Retailers consider this as a new area of opportunity to reach their target consumers and simultaneously understand that failing to do so may impact future performances. Consumers behavior has changed too especially in terms of price and value. Price offers linked to brands are getting more results than just the price offers, which is a compelling fact for the brands and their need to accommodate the consumers demand (Conseur, Fiorito & Gable, 2010). Despite the economic conditions across globe, retail industry in New Zealand continues to grow. Retail sales for the year 2012 has shown an increase of 3.7% as compared to the previous year with a total revenue of $70,302 M. Majority of the classes in the industry have shown positive movement except clothing, footware & accessories and Electrical and electronic goods in 2011- 12. Looking at a global perspective, the economy world over is recovering fast, however; considerable uncertainty continues around the retail sector. Advancement in technology, especially mobile arena, is affecting consumer behaviors and coming years may see such trends accelerate (Retail market, 2013)
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APMG8119 Vipin Kumar 1414046 4.4 Stakeholders BG has its presence in New Zealand and hence majority of its stakeholders are local. Figure 2: Briscoe Group Stakeholders
Listed below are the most prominent stakeholders in the company: BG is a publically listed company however, majority of the shares are held by RA Duke Trust. This accounts for 78.47% stake in the company. Other prominent shareholders are Gerald Harvey, Harvey Norman properties and New Zealand Central securities depository Ltd. BG has more than 1700 employees across 80 stores in New Zealand. Group has 72 employees in various support functions such as management, information technology, finance and administration, and other support functions P a g e | 11
APMG8119 Vipin Kumar 1414046 Company is closely associated with more than 55 brands and numerous suppliers which are both local and international. Being one of the oldest companies in New Zealand, BG has a large and diverse consumer base across the country. Another key stakeholder for the company is Cure Kids, a nonprofit organization. BG has been closely associated with the charity organization for more than a decade. BG has multitude of people associated with the company in industries such as manufacturing, retail, logistics, and advertisement.
5. Business Model Zott et al. (2011) define business model as a framework that looks at a holistic perspective on how a firm downs its business, with an emphasis on firms activities and importance of value creation. BGs business model can be looked at as a first level distribution channel that uses both marketspace and marketplace in order to conduct its operations. The business model for an organization can be understood by four interlocking elements together that create and deliver value. They are profit formula, value proposition, key processes and key resources (Johnson, Christenson & Kagermann, 2008, as cited in Zott et al., 2011). In order to understand the business model for an organization, there are multiple aspects which need to be looked at. Lets Start with Rodney Duke, individual who shaped a loss making business of 1980s to a profit center of 2000. He is the managing director of the company and holds 80% stakes in the company. Rod took over as managing director of the company in 1988 with a goal to bring the company back into profitability and sell it off. He has worked in retail industry all his life and has been associated with names such as Waltons Ltd, Homecraft/Eric Anderson Stores, Grace Brothers and Norman Ross Ltd. Looking to expand business, Rod took a franchise of Rebel sports in 1995 and the exclusive rights to operate from 2005 in New Zealand. He reflects the acumen of a true entrepreneur and is shows interest in the business that is related to groups core competencies. BG has not been under debt in 15 years and as a result of huge cash reserves, Rod acquired 9 stores of Living and Giving in 2006. He understands the P a g e | 12
APMG8119 Vipin Kumar 1414046 importance of online businesses and hence, has dedicated websites for all three business lines (Director profiles, n.d.). To understand what BG looks to deliver to the customers, the code of conduct BG mandates on all employees and parties associated must be looked at. 5.1 Code of conduct Company has defined a code of conduct which serves as values for the company and believes that these are essential to groups recognition and success. The values apply to all employees and businesses that are associated with the group. The Group requires all to preserve and enhance groups reputation among all by: Being truthful and fair Abide by law Demonstrate respect, integrity and openness. (Code of conduct, n.d.) 5.2 Objectives Group has been working on various objectives over the years to stay competitive and improve continuously. The objectives of the group are To improve value and quality of products To promote relevant products at great prices To improve inventory management process and stock turn To control operational cost and improve customer service levels BG is looking forward to enhance customer experience and increase companys profitability in near future. The objective outlined by the group for 2013 are To maximize Profit growth. To continue develop and improve the quality of our people To develop our online businesses. P a g e | 13
APMG8119 Vipin Kumar 1414046 To expand the number of fulfillment locations that will result in lower freight costs and quicker deliveries to customers. (Annual report, 2013)
6. Revenue Analysis Chart BG has been looking forward to improving customer service in the stores to generate more revenue and enhanced customer experience. Another area of focus is to fine tune the profit centers to ensure optimization of resources. Online business presents another opportunity for the business to grow further and focus remains at making the online experience efficient, easy and attractive. The efforts put in by the BG reflect well on sales revenue for financial year 2012-13. Business earned $452,702,000 from operational activities. Company received a total of $3,051,000 additional earnings from non-operational activities such as financial and lease related activities (Annual report, 2013). Figure 3: Revenue Breakup Briscoe Group 2012-13
Table 4: Revenue Analysis 2012-13 Nameplate Homeware Sport Goods Revenue 307051000 145651000 No Of stores 48 32 0.67% 67.37% 31.96% Non Operational Homeware Sport Goods P a g e | 14
APMG8119 Vipin Kumar 1414046 Area of stores 93014 51884 Revenue/Store $6,396,896 $4,551,594 Revenue/Sq M $3,301 $2,807 Source: Annual report (2013)
6.1 Operational Activities Operational activities for BG are the core retail activities of the group. These include business operations for Homeware and sporting goods name plates. Operational revenue for the group was $452.7 million in 2012-13. Homeware Homeware represents Living and Giving and Briscoes Homeware. Together they accounted for 67.3% of the total earnings of the group which was $307,051,000 in 2012-13. BG believes this is the outcome of relevant and aggressive promotion strategies developed by the company which has kept the brand in front of customers. New range of products accompanied by price based promotions, kept the stores in limelight and special emphasis was given to range, quality and value combination. BG realizes the potential of the web based retail and believes that Living & Giving sections future would be web dominated in near future. Average revenue per store for Homeware nameplate was $6,396,896. Revenue earned per square meter was $3,301 (Annual report, 2013). Sports Sporting goods sales revenue for the year 2012-13 was $145,651,000. Rebel sports accounted for increased sales in previous year due to Rugby World Cup. The sales performance continued to sustain the previous year levels and contributed a share of 31.96% to total earning for the year. BG believes that the performance is a result of aggressive marketing and promotion strategy as the competition is more intense in fishing, camping and 5 other outdoor categories. Average revenue per store for Rebel Sports nameplate was $4,551,594. Revenue earned per square meter was $2,807 (Annual report, 2013). P a g e | 15
APMG8119 Vipin Kumar 1414046 Risks: There are a number of risks that are associated with BGs retail operations revenue and they are: 1) The volatility of marketplace in constantly increasing because of various reasons such as dependence on other industries, technological innovations, currency fluctuations and trade relations. 2) Growing complexity of the operations for group is another risk area. Various factors that contribute to the risk are: huge number of suppliers and product range, recent advent into market space, limited delivery capability for ordered goods. 3) Low growth of retail industry and presence of big competitions such as Warehouse, presents another challenge for the companys revenue making capability. 4) Profit maximization in retail industry is dependent on operational efficiency and cost control practices. Inability of retailers to control direct costs makes them vulnerable to excessive cost control in support and operational activities such as employee numbers and advertisement, which puts them at risk of sabotaging core operations. 5) BG is a retail firm and does not have any in-house production. Hence, operations are dependent on suppliers and leave the firm vulnerable to supplier disruptions. Secondly, majority of the brands on offer are off shore brands and are services through Chinese and Australian suppliers. Political situation and trade relations also carry significant importance in companys successful operations. 6) Another risk to online operations of BG is the dispatch capability of physical stores. All online orders are dispatched from 2 Auckland stores. 7) The industry analysis of the report reflected that BG faces hyper competition in the market. With abundance of stores and mega retail players, competition may result in wrong price image in consumers and may prove fatal to businesses. 8) Real estate is on a boom in New Zealand and hence the prices are sky rocketing. Rental and related expenses present a severe threat to companys profitability. 9) BG has a huge product range and there are similarities in the products at offer. BG faces a trivial choice as reduction in offered products could decrease competitiveness and less popular items hold space for longer durations impacting profitability.
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APMG8119 Vipin Kumar 1414046 Opportunities: Opportunities available to the group in Homeware and Rebel Sports retail are: 1) Market space consolidation as the most apparent area that BG needs to look into. BG has already announced its plans that Living & giving nameplate would be dominated by web based business with minimum possible physical stores. Company is clear with the objective however, a lot of work is required to accomplish the same. The web sites are basic Ecommerce engines designed to facilitate transactions only. They fail to achieve Hoffman and Novak (2009) flow perspective. 2) Cross Shopping is the key to current retail industry. More time customers spend in store or on the website, better are the chances of that they will spend more and hence increase revenue. 3) BG needs to look into regional dominance for revenue growth. In the face of fierce competition strategic store location would result in competitive advantage. 4) ICC world cup is approaching and shall be jointly held in New Zealand and Australia. This presents a bright opportunity for Rebel Sports in near future. 5) Real estate boom in densely populated areas such as Auckland has is a result of scarce availability of residential spaces. Governments has announced plan to ramp up construction to meet the demand and presents a juicy opportunity to BG. If BG can negotiate a contract to supply Homeware in new furnished accommodations, revenue for the company will be at a whole new level. 6) Co-creation between customers, company and suppliers, is another value proposition that BG needs to look into. A cohesive relationship will result in higher revenue and loyal consumer base. 6.2 Non-Operational Activities Another source of income, though negligible, is through nonoperational activates such as hedging, lease, interest and financing. Net earnings from this component accounted for $3,051,000 during the year 2012-13, which was 0.67% of total earnings (Annual report). There is multitude of risks associated with this aspect of groups earning. These are set of different activities that group undertakes as support to operational activities. All of them present unique risks and opportunities for the members of those industries for example finance for P a g e | 17
APMG8119 Vipin Kumar 1414046 hedging and real estate for lease. Although, these activities are unrelated to core operations of the group, BG must keep an eye out as they can impact financial performance.
7. Cost Analysis Chart In order to survive in a mature and heavily competitive industry, BG incurs a lot of costs in terms of advertisement, brand promotion, and related business investments. BG has been conducting business in a traditional retail environment. Group has taken into account the potential of Market space platform since 2010 only. Although, BG is cash rich firm and has not seen debt in last 15 years, need to be mindful of the volatility in the market and need to invest in technology, creative ideas and innovative ideation principles (Zott et al., 2011). Figure 4: Cost breakup Briscoe Group 2012-13
Source: Annual Report (2013) Total cost incurred in2012-13 by BG was $271,598,000. 48 Homeware stores accounted for 67.5% of the total cost incurred by BG. On the other hand, 32 Rebel sports stores accounted for 32.5% of the total cost. To understand further the cost involved in each operations type, we can look into the following chart. Average cost per store in the Homeware nameplate is $3,820,104, whereas the average cost per store in Rebel Sports stores is $2,757,281. Comparison can also be made on the grounds of cost per square meter to get better comparative understanding. Cost per 67.5% 32.5% Homeware Sport Goods P a g e | 18
APMG8119 Vipin Kumar 1414046 square meter in Homeware stores was $1,971, whereas it was $1,701 in Rebel Sports. This is clear that BG has been concentrating efforts towards the Homeware nameplate to increase revenue and hence the cost in the efforts made is higher too (Annual report, 2013). Table 5: Expenses Analysis Briscoe Group 2012-13 Nameplate Homeware Sport Goods Cost Of sales 183365000 88233000 Expenses 154114000 77863000 No Of stores 48 32 Area of stores 93014 51884 Cost/Store $3,820,104 $2,757,281 Cost/Sq M $1,971 $1,701 Source: Annual report (2013) The Following chart outlines the breakup of all costs and expenses incurred by the group in the year 2012-13. Figure 5: Expenses Analysis Briscoe Group 2012-13
Source: Annual report (2013) 58.89% 31.14% 6.44% 1.69% 1.79% 0.04% Wages and Salaries Operating Lease and rental Expenses Depriciation Withdrwan Inventory Other Bad Debts P a g e | 19
APMG8119 Vipin Kumar 1414046 It is clear the maximum cost driver for BG is employee wages, salaries and other short term benefits. The total cost to company for this component of expenses was $50.56 million which covered 58.89% of the total costs & expenses. This is in alignment with the traditional marketplace retailing across markets. With 31.145 of total expenses, Operating, lease and Rental expenses accounted for a total of $26.74 million during the same period. Depreciation expenses cost was $5.5 million which was 6.44% of total income. It is very important for BG to look into the next component of the cost which is Withdrawn Inventory. Total cost incurred by the group under the component was $1.45 million and accounted for 1.69% of total expenses. It is nearly impossible to estimate the actual cost of the component as the time this inventory was on shelves is lost and could have resulted in better sales figures if the space has been occupied by popular items. Bad debts for the group were at 0.04% of the total expenses and accounted for only $37,000. This is an indication of companys robust monetary policy. Other expenses for the group were $1.53 million and accounted for 1.79% of the total expenses. These expenses include Directors fees, audit expenses, share option expenses, software amortization, and loss on sale of property. BG paid a total of $12.2 million as Income Tax to the New Zealand government (Annual report, 2013). Risks: Various risks associated with current cost structure are: 1) Groups investment has been only towards the core businesses. The number of stores is showing a decline. In such situation BG should be looking forward to invest considerably in new ideas or concentrate on acquisition of already successful companies. That has not been seen and Rod Duke in his interview reflected that BG may not go that route, rather concentrate on core business. While the big competitors such as Warehouse are improvising and actively looking for acquisitions, BG may be too late if not stagnated and stationary business group. 2) As mentioned earlier BG plans to limit Living & Giving to marketspace, it would require substantial efforts in accomplishing this task as it is in contrary to the rest of groups efforts which are concentrated on bringing the customers to physical stores. 3) As mentioned earlier, BG has a primitive distribution system which is concentrated in Auckland region only. As a result it is less efficient and attracts more cost.
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APMG8119 Vipin Kumar 1414046 Opportunity: The opportunity areas for the group related to cost structure are: 1) BG has had to close down 10 stores as a result of underperformance since 2010 under Homeware nameplate and now stand at 48 stores from 58 in 2010. The firm needs to look into cost reduction by opening stores in near vicinity to each other. As a result firm can look forward to introduce shared management, shared warehouses, and regional dominance to lower costs. This will result in reduced vulnerability of underperforming stores against closing down. 2) As mentioned above that BG lost 1.45 million to withdrawn inventory. There is clearly a need for better inventory management. Although BG has invested in SAP for inventory management tool however, more emphasis needs to be put into negating such losses. 3) BG lost $37,000 in bad debts. Though it accounts for very small loss percentage, firm can look forward to decrees it further.
8. Value Creation Analysis 8.1 Internal & External Perspective The success of a business model lies in the value proposition for internal and external customers. Eriksson et al. (2011) divided the study of a business model into three components and they are: design, value creation and value exchange. Basic component of the business model is design element. This element includes the operational activities of the firm, the structure and governance. Value creation is an important aspect of the BGs business model. Amit & Zott (2001) identified four drivers of value creation and they are Novelty, Customer Lock in, Complementarities and Efficiency. Value Exchange can be understood as the exchange of value between suppliers, marketers and customers (Amit & Zott, 2001). BG gives a face to more than 55 suppliers in front of customers. Morris et al. (2005) found that the novelty in superior value creation. BG experimented successfully by opening the Rebel store and Homeware next to each other resulting in better management for both stores and cost control. BG offers signup vouchers of a value $500 through P a g e | 21
APMG8119 Vipin Kumar 1414046 draws to its customers. Group offers deals on Living & Giving such as 30% off storewide which attracts the customers and creates value for brand.
Figure7: Profit/revenue Ratio comparison
Source: Annual report (2013), Retail market (2013) The comparison of the profit after tax to revenue between industry average and BG gives a clear picture on how the company has been creating value by decreasing the direct cost of operation and increasing efficiency (Zott et al., 2011). BGs investment in technology for effective inventory management and attention towards people development will act as a source of competitive advantage and shape future development of the organization (Park et al., 2012). BG has been investing in aggressive promotional strategies and operational restructuring. That has brought stability in the sales revenue to both Homeware and Rebel sports. BG paid $21,368,750 to its shareholders and also introduced group incentive schemes for the employees on account of good sales performance. BG is also looking into up- skilling people as they are the key to an excellent customer experience in stores (Amara & Landry, 2012). Value creation should be considered from an external customers perspective. Value can also be created by non-economical means that contribute to societal wealth improvement and reduction 0.0 2.0 4.0 6.0 8.0 10.0 2008 2009 2010 2011 2012 Industry Average Briscoe Group P a g e | 22
APMG8119 Vipin Kumar 1414046 in human suffering (Thompson & McMillan, 2010). BG supports NGO Cure Kids, an organization that funds the researchers dedicated to finding cure for widespread diseases. Cure Kids has funded breakthroughs related to childhood leukemia, cot death, hole in heart babies, cystic fibroses, genetic birth abnormalities, and inherited heart disease. In essence, the group brings value to the whole community by funding Cure Kids. BG promises the lowest price guarantee for all products on Rebel Sports. With a total of 80 stores across New Zealand, this brings the factor of convenience into customers minds. BG hosts 55 renowned brands and a huge product range to choose from. This helps customers in onsite features and price comparison and associated brands serve as a symbol of product quality. BG itself is a brand name in the market and helps product sale of the brands that are less known in the market, a perfect example of value creation via value exchange (Zott & Amit, 2001). Extensive product range, promised product quality, associated brands, professional staff from BG, and customer service all act together to lead to an excellent consumer experience and hence create value (Osterwalder & Pigneur, 2005). 8.2 Implications: An understanding of the business model has reflected that BG is doing better than the industry average in terms of efficiency. There are both risks and opportunity areas that were identified. In order for BG to increase value, few opportunities can be looked into and they are: 1) Regional Dominance: Retail market is saturated and as a result abundance of retailers can be seen all around. BG tried to expand and found that some of the stores had to be closed down due to underperformance. The way forward shall be via consolidation of regional presence and dominating the market. BG can look into decreasing cost by shared management and warehouses in high density areas. Also, strong brand presence means increased customer loyalty and lessened promotional expenses. 2) BG has a strong management team led by Rod Duke. The company is sitting at a huge cash reserve and the core business is maturing fast. BG should be looking into acquiring small firms in similar industry. There are numerous promising web based startups in the market that company can look to acquire. Careful brand diversification will increase value for shareholders. P a g e | 23
APMG8119 Vipin Kumar 1414046 3) BGs ecommerce websites for all three nameplates are average to above average setups. These websites need to be equipped with content and services that make consumers time worthwhile. A number of value additions can be offered to complete the task. For example, designing solutions can be made available to people to decorate and remodel their houses on Homeware sites. On the other hand, Rebel Sports can look into providing fitness tips and other sports related information. Consumers forums and product feedback is another area that needs to be worked upon as co-creation would lead to value creation for the business (Rayport and Sviokla, 1994). Advancement in technology is changing the way consumers interact and shop. Investment in technologies such as tablet and smart phone will be at the core of value creation in businesses (Prahalad and Ramaswamy, 2004). BG needs to look into integrating all the three web sites to provide a flawless experience to customers. 4) Densely populated areas have encountered a housing boom. This present an area of opportunity for Homeware section of the firm. Company can look to get contracts from builders to provide furnishings in furnished homes. While BG can look to support builders with huge selection and better price, BG in turn gets a consistent and defined source of revenue. 5) It is a proven fact that more time people spend in the stores or on websites, better are the revenue propositions for the business. Hence, cross selling becomes the key retail market is looking for. Looking at the profiling of the retail customers where majority of Homeware customers are women and majority in Rebel Sports are athletes, BG should look into making alliances with other brands to share the consumer base and force people to spend more time around the stores. Value creation by exchange can be achieved if Rebel Sports nameplate can look to partner with the fitness institutions and Homeware can look to share space with coffee shops or interior designing firms (Zott et al., 2011)
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APMG8119 Vipin Kumar 1414046 9. Conclusion Rod Duke has done an exceptional job in bringing a cash strapped company to high levels of profitability. BG business model seems to be the traditional marketplace style retail. The unique selling point of the group is a vast range of product availability for both Homeware and Rebel Sports. BG concentrated on the expansion from 1996 to 2010 and reached to a total of 90 stores. However, as a result of highly competitive retail environment and business restructuring, underperforming stores were closed down. Group understands that the time for mindless expansion is gone and success now lays in strategic locations and efficient operations. BG is learning from its mistakes and understands that Ecommerce has huge potential especially for big brand names. BG has invested in the web space for all three nameplates of the group. BG is now a high cash reserve firm and holds a comfortable position in the market. BG has to look into some of the shortcoming associated to current business model. Business has reached its mature stage and requires entrepreneurial ideation to expand further. Competitors such as warehouse are investing in acquisition of web based promising business. BG should look into different ways highlighted to create and capture value via value exchange in order to stay competitive and prosper further.
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APMG8119 Vipin Kumar 1414046 Retail market in new zealand an analysis 2013. (2013, may). Retrieved from http://www.retail.org.nz/downloads/2013 Retail Market in NZ.pdf Sang-Chul Lee, Kwang-Hyuk Im, Sang-Chan Park, Liu Fan, (2012). An evaluation model of business value for research and development of technology to improve the competitiveness of companies. Asian Journal on Quality, 13(1), 22 - 36 Susan S. Fiorito, Myron Gable, Amanda Conseur, (2010). Technology: advancing retail buyer performance in the twenty-first century. International Journal of Retail & Distribution Management, 38(11/12), 879 893 Thompson, J. D., & MacMillan, I. C. 2010. Business models: Creating new markets and societal wealth. Long Range Planning, 43: 291-307. Zott, C., Amit, R., & Massa, L. (2011). The Business Model: Recent Developments and Future Research. [Article]. Journal of Management, 37(4), 1019-1042. doi: 10.1177/0149206311406265
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