The following newspaper article discusses strategic issues related to two large Canadian retailers: HBC and Winners.
COST-CONSCIOUS STRATEGY SCORES WINNER FOR HBC
Hudson’s Bay Co. (HBC), in the midst of an unfriendly take-over battle, appears to be having success in at least one area: its push to woo the value-conscious shopper. Indeed, the efforts may even be hurting a key competitor.
Winners, the discounter known for big-box stores and brand-name goods at lower prices, has experienced a drop in same-store sales at outlets open a year or more—an indication that the business is suffering. And some observers say it may be getting a bit more difficult for Winners to find quality goods from suppliers.
Why? Because a few years ago, HBC chief executive officer George Heller decided to take aim at Winners’ thriving “off-price” business. He wanted to ensure that his regular suppliers provided HBC with the same type of low-priced, end-of-season, and excess goods that have made Winners such a destination.
“They’ve choked off the supply a little bit to Winners,” says David Howell, president of consultancy Associate Marketing International. “It’s probably one of the smarter things that George has done. It’s a good strategy and it seems to be working.”
HBC, which owns the Bay, Zellers, and Home Outfitters, has increased its selection of the so-called “off-price products”—everything from jackets to house wares—and marketed them heavily through flyers and in-store signs as “power buys.” It opened special in-store boutiques called Style Outlets for discount items and, last year, began opening separate Designer Depot outlets similar to Winners stores.
In the midst of the push, late last month, HBC became the target of a $1.1-billion hostile takeover bid from U.S. financier and HBC shareholder Jerry Zucker, who is unhappy with the company’s performance and says he can run it better.
Despite HBC’s struggles, its off-price strategy stands out as a rare glimmer of hope. Executives did not like to see their vendors supplying their stores with full-price products
under well-known labels and then selling those very items—perhaps a little later in the season—to Winners at a fraction of the price.
“There’s such a big appetite in the Canadian marketplace for off-price product and it’s so underserviced,” says Marc Chouinard, chief operating officer at HBC. “It’s not surprising that this strategy is giving us what we want.”
Sherry Lang, vice-president of investor relations at TJX Cos., the large U.S.-based parent of Winners, rejects any suggestion of overly tough competition with HBC for supplies. “Winners have enormous clout in sourcing globally,” she says.
Rather, Winners’ difficulties began in the last half of 2004 when its buyers purchased too much inventory too far in advance of the season, she says. It was forced to mark down prices heavily after other retailers began to do so, she says.
The weak results continued into the first half of 2005 as Winners’ merchants attempted to correct the situation, she says. They purchased less inventory, and lowered all pricing
at the stores, although she would not say to what extent.
The results this year are soft, as well, because they are being compared to an “exceptionally” strong first half of last year, she adds.
Last week, TJX reported that October same-store sales at its Canadian division, which also includes HomeSense, fell 5% and in the third quarter 4%.
Ms. Lang says Winners’ latest sales were short of expectations and hurt by unseasonably warm fall weather. She says the outlook is better for the remainder of the year.
Robert Johnston, a vice-president at Mr. Zucker’s U.S. Company, says Mr. Zucker is pleased that HBC is making inroads in its off-price strategy. But it took too long to get it off the ground, he says, adding Mr. Zucker would accelerate the off-price program if he took over HBC. And while TJX has faltered of late, it has been vastly more successful over the past few years in its financial performance, compared with that of HBC, he adds.
Winners and sister off-price chain HomeSense still enjoys a comfortable lead in the category, generating more than $1.3-billion (U.S.) in annual sales.
HBC has about $250-million (Canadian) of annual “power buy” sales today, and aims to double that over the next three years, Mr. Chouinard says.
Based on the information provided (and, optionally, other Internet research you may wish to do), identify the strategies being followed in these two businesses. Apply the strategic systems approach outlined in the chapter, as follows:
a. Explain management’s objectives, strategies, and risks in the two businesses. What similarities and differences did you notice? b. In your opinion, did the managers in both businesses fully analyze the risks involved and take action to address them? Support your opinions with facts from the article (and your additional research, if any).
c. Do you think it is possible that any of the risks you have identified might have a material effect on the businesses? If so, what financial implications might these risks have, and could they affect the financial statements?