The warehouse is one of largest retailer in New Zealand which delivers a wide range of products from clothing, entertainment, technology and music to sporting, gardening, groceries and many more. The Warehouse has been providing kiwis with a bargain since 1982 with 86 stores throughout New Zealand.
Mission of the Warehouse
The main purpose of The Warehouse is to:
- Make the desirable affordable - It provides people with wide range of item teamed up with amazing designers and well known companies at a surprisingly low price
- Support the communities - It raises around $2 million dollars every year for charities and community groups including Surf Life saving New Zealand, the Arthritis Foundation & Cancer Society New Zealand from sausage sizzles and Scratch n win ticket sales.
- Protect the Environment - It focus on sustainability by reducing waste and recycling kinder to environment and helps make a difference to the lives of New Zealanders.
- Put customers first - it gives its most priorities to customers.
- Teamwork - They believe that working together with different talent and skills can result in performing best results to benefits its customers.
The Warehouse is a strong business that is gathering momentum. They have the leadership and planning in place to guide through this recession however, they are increasingly confident in the prospects of the business over the next 12 months. They continue to focus on the strategy of building long-term, sustainable values are investing in business assets and capabilities of our people.
The Warehouses aim is to work together as a team and make peoples lives easier by making the desirable affordable by placing their customers first and supporting the communities and environment of New Zealand.
Levels of Strategies
The Warehouse is implementing better disciplines around product availability and price competitiveness throughout the business. In 2009 they have rework their groceries and Liquor department in larger stores. Their 17 stores will be re branded 'The Warehouse Extra' which will undergo development into destination stores offering an extended range of general merchandise and apparel. Digital photo processing has also rolled out to all stores and introduction of the Republic Revolution homeware range and Rachel (Hunter) women's clothing is making great design available to everyone at Warehouse prices. SMART365 brand was launched in 2009 to provide a quality alternative to national consumable brands across all categories.
The strategic focus is drive profitable growth by putting their customers first, and responding to both their needs and their wants, improving their stores and multi-channel capability, simplifying their business, and reducing costs. The customer research program identified the customer perspective of value, quality and shopping experience which has helped to build profit. The quality of the product offered is comparable with specialist retailers and the introduction of higher-priced product at retail prices well below those of the specialists was well received by the customers with a significant lift in sales and market share. E-commerce enabled allowing customers to buy great bargains online and have them delivered direct to their homes.
Numbers of initiatives are delivered to simplify the business. 'Project Invigorate', a program has been implemented in each store to uplift sales and improve productivity through management and customer service training.
Strategy development process
The strategies that an organization actually pursues are typically mixture of intended and the emergent. One of the main intended strategy of The Warehouse is to make a difference to people's lives by making the desirable affordable'. They will continue to make clear improvements in product quality and choice for the customers but, at the same time, they will always remain true to our core value proposition of delivering bargain prices. However according to Wikipedia, 2009 the Warehouse has always been heavily criticized for poor products they offer at exceptionally lower prices. Consumers claim that The Warehouse generally stocked low quality, easily breakable products.
The environment gives it organization their means of survival. For the Warehouse to satisfy the customer's needs and wants is keeping this organization in business. However the environment is also a source of threat such as competitors, economic stability and market demand. The Warehouse is in a Maturity stage of its industry life cycle. Barriers to entry tend to increase as control over distribution established and economies of scale and experience curve benefits come into play. Buyers may become more powerful as they become less keen for the industry for the product or service and more confident in switching between suppliers.
When carrying out a strategic environmental analysis, I have used two Theoretical frameworks to analyze the organization. The Two theoretical frameworks are SWOT analysis and Five Forces Analysis Theory.
- Profitable company - The Warehouse focuses to drive profitable growth by placing customers first, improving their stores and reducing costs. Cost reduction is the central key strategy and aims to offset inflation on occupancy costs, labor, energy and costs of goods sold. These savings results in anticipated increases in their fixed and variable cost base so that their top line growth returns and Earning before interest and tax improves. Despite a less-than-satisfactory operating result, the business made good progress particularly in managing costs and simplifying the way they do business. This reduces support office fixed costs, store variable costs, logistics costs and continues to rationalize the supply chain.
- High level of customer awareness of brands - The Warehouse informs its customers about the product or brand they provide through many means. Recently it was introduced its ecommerce online shopping for customers which includes an enhanced design and online search and shopping experience. It also advertises about its products and special on Television and mailer.
- Serves Communities - The Warehouse is well-known for supporting its local community and New Zealand families. It is partnering with Strategies with Kids / Information for Parents (SKIP). SKIP is a community based programme supported by Ministry Social Development. Its gives practical parenting information and skills so parents can have a strong relationship with their children. It Promotes The Warehouse and SKIP co-branded resources for mums and dads and promotes positive parenting message through out The Warehouse stores. The Warehouse Stationery, which is a subsidiary company of The Warehouse, also supports a number of community initiatives. 'KidsCan' raincoats for kids programme received financial support from a 'Scratch' n Win' promotion that ran throughout the stores nation wide. They also promoted 'Jandal Day' in support of Surf Life saving New Zealand and 'Loud Shirt Day' in support of the Hearing House and Southern Cochlear implant Paediatric programme.
- Decoration consistence in the all stores - all The Warehouse through out New Zealand has been painted the same so that it's easier for people to recognize. The Warehouse is also well known by its red colour which is sometimes called the 'Red shed'.
- Customer Satisfaction - customer satisfaction is one of the most important priorities for The Warehouse. They believe that by satisfying the needs and wants of customers will improve the business profit and growth. They continually understand their customers and deliver the products and categories they need at New Zealand's best price. At the same time they use customer insights to ensure that they continue to attract and retain a wide range of customers for long term sustainable market share growth. They have a special market research team which conducts a customer research that they need to separate how they treat products that meet customers' needs, which are purchased on a price basis from those that meet their wants.
- Efficient and trained staff - The Warehouse has continued to make significant investment in identifying and developing the future leaders. They have introduced leadership development programme to provide a strong source of successors for senior manager position. They have highly talented and skilled people across all our teams. They will continue to build their skills and knowledge and work with them to develop their careers with them in order to help them meet them grow.
- Modern technology- The Warehouse keeps up to date with modern technology to satisfy the customer needs and to be efficient. For example, The Warehouse has placed price checkers, where customers can go and scan the product barcode to check the price of an item. It also has security scanners in the entrants so that the item does not leave the premises without being paid.
- Quality item - The Warehouse specifically researches on the product so that the quality of the item sold to the customers is at a good standard. The Shanghai Regional Office continues to outclass and deliver product not only at its best price but improved quality and consistency in product. They also ensure that the Smart365 will provide a quality alternative to national consumable brands across all categories.
- Multicultural work environment- Warehouse employees people of all races and cultures through out the world.
- Ageing top management- It has been noticed that some of the top level managers are of older age. Warehouse should also try to give chance to younger generation because younger generation may come up with better and creative ideas which can add value to the business. Having a mixture of top level managers will benefit the company and improve their profit.
- Focus on a wide variety- Warehouse focuses to provide products in a wide category of goods to its customers. This can be a bit difficult for a company to satisfy its customers in all categories of goods they provide as all goods can not be at a high quality standard that will satisfy the customers, therefore customers can loose trust and the whole reputation can be ruined.
- High training cost- The Warehouse has spent $3 million training its shop-floor work force so that staffs can satisfy customer's needs under Project Invigorate. Training and building career pathways for the entire employee has cost The Warehouse a lot where as, they could have employed qualified people who could have been ready to perform the task.
- Overseas expansion - The Warehouse currently operates two major forms under three different divisions. The warehouse which is known by red shed first started to operate in New Zealand in year 1982. In 2000 the company expanded its brand in Australia also known as Yellow Shed. There are other branches in Ireland and UK which is also known as Grey Shed. Since The Warehouse has multicultural working environment it can expand its operation into other Countries to provide goods and services at relatively low prices.
- Brand Extension - The Warehouse every time introduces new products and brands so that they can offer customers better quality products at a relatively lower prices. Currently The Warehouse stocks limited variety of products of a particular brand. The Warehouse can either introduce more brands or has the opportunity to expand the variety of products in the existing brands. For example, Currently The Warehouse only sells Guess brand jewelries. They can get Guess Brand other products as well such as clothes and caps.
- Introduction of new products- The Warehouse currently has wide variety of products but they can introduce some of the new products which can help to increase profit and satisfy all customers. For example, all warehouse stores should sell groceries in a wide extend so that everything will be under one roof.
- Exchange rate fluctuating - The Warehouse is exposed to foreign exchange risk arising from currency exposures, primarily with respect to the US dollar by purchasing inventory directly from overseas supplier. They have used forward foreign exchange contracts to reduce the currency risks associated with these purchases.
- Economic recession - The fall in consumer and business spending at times of recession affects the sale of the company. The decline in sales specially affected higher priced goods such as furniture, television and computer technology sales. As a result of sale reduction the company has to face higher storage costs as the turnovers gets really slower.
- Competitors - Any companies faces sale reduction due to competitors. Due to competition, The Warehouse sells its product at relatively low price so that it can beat its competitors and increase its sales. Sometimes goods have to be sold below cost to prevent products to be obsolete. Some of the top competitors of The Warehouse are Super Cheap Auto, Farmers, Number1 Shoes and K Mart.
Five Forces Analysis
Potential new entrants
Power is affected by the ability of people to enter into the market threats of entry depends on the extent and high of barriers to entry. Types of barriers are:
- Scale and experience - As The Warehouse is the relatively large organization in New Zealand which consists of 253 stores through out the world and has 27 years of experience of servicing customers, the new entrants will find it hard to enter into business and compete with The Warehouse as the Warehouse have extremely high economies of scale. As the Warehouse has so many stores, it does bulk buying at lower costs and sells it at lower prices. New competitors will find it hard to do this as they won't be able to buy in such a large quantity as The Warehouse does and might not get the products as same costs price.
- Capital requirement - The Warehouse has so many different departments in one store and with so many variety of products, some competitors will find it hard to invest that much capital into the business to compete with the Warehouse.
- Customer royalty - The Warehouse has been serving its customers for over 25 years, it has gained a lot of loyal customers which will only shop at The Warehouse. It also provides better goods return policy, which is money back policy, where new competitors might not be able to afford it at an earlier stage of business.
- Differentiation- Warehouse provides products and services with higher perceived value, which means good quality products at lower price, so new competitors will find this difficult as Warehouse has high economies of scale.
Bargaining power of buyers
Bargaining power of buyers determines how much customers can impose pressure on margins and volumes.
- Degree of dependency upon existing channels of distribution- Customers rely on the availability of products at the Warehouse as it keeps stocks in large quantity. If for some reason the products has ran out in a particular store, Warehouse can always get the products from other competitors.
- Buyer volume - The Warehouse is well known and trusted by so many customers that they always have more chance of people shopping at the Warehouse than in any other competitor's stores. Over the years, Warehouse has gained customer loyalty. If Warehouse fails to satisfy their customers, their customers will loose faith on Warehouse and thus, Warehouse might loose those customers.
- Availability of existing substitute products - Customers always looks for quality item at the lowest price possible. If the price of substitute goods is lower at other place, customers will buy the substitute goods.
- Buyer information availability - if customers are not informed properly or finds it hard to know about the product, he might buy the substitute of the good from the competitors. So Warehouse needs to inform the customers in an effective way otherwise customers will walk out of the door.
- Bargaining power of suppliers - the concentration of suppliers and the availability of substitute suppliers are significant factors in determining supplier power.
- Presence of substitute inputs - Switching to an alternative product is relatively simple and is not related to high costs.
- Concentration of Suppliers - If the supplier of the Warehouse stops supplying goods, Warehouse would find it really hard to survive as it will be hard to look for another supplier who can supply products of similar quality. This way supplier gets more bargaining power to control the overall supply of goods.
- High Switching costs - if it is expensive to move from one supplier to another, then the buyer becomes relatively dependent. If Warehouse switches its supplier, it might turn out to be expensive so Warehouse has to rely on the supplier for the products.
- Supplier competition threat - Suppliers has increased power where they are able to cut out buyers who are action as intermediaries.
- There is possibility of the supplier integrating forwards in order to obtain higher prices and margins. This treat id especially high when:
- The buying industry has a profitability than the supplying industry
- Forward integration provides economies of scale for the supplier.
- The buying industry hinders the supplying industry in their development
- The buying industry has low barriers to entry.
Threat of Substitute products
The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives:
- Power of alternatives and substitutes - Other competitors such as K Mart, Farmers and Mitre 10 provide similar products at similar prices. If the products sold at competitors stores more environmental friendly or of better presented, the customers will switch to substitute goods.
- Relative price performance of substitute - if the price of the substitute goods is cheaper then customers will buy substitute goods from competitors. For example, The Warehouse is selling Citizen brand watch and Pascoe's Jewelry sells Guess watches for cheaper price then Citizen sold by The Warehouse, then buyers would purchase Guess watches as it is cheap but as of similar quality as Citizen brand.
- Product differentiation- is a type of competitive strategy with which the organization seeks to distinguish its products or services from its competitors. For example, Warehouse sells MAYA brand clothes which only exclusive to them. SMART365 brand was launched by Warehouse in 2009. If people are not satisfied with their products, they might look for substitutes then.
- Number of substitutes products available in the market - The Warehouse is not specialized in one particular product so people might seek other substitute good who are specialist in that type of product. For example, The Warehouse does not sell a wide variety of automotive products so customers might go to REPCO or Super Cheap Auto for automotive products.
Rivalry among Competitors
This force describes the intensity of competition between existing competitors in an industry. High competitive pressure results in pressure on prices, margins and profit.
- Competitors balance - is a situation where all competitors are off equal size, there is risk of intense competition as one of the competitor's attempts to over power the other.
- Industry growth rate - in a situation of competition there is likely to be lower growth for the business or if there is any growth, it will be at the expense of a rival. Lower growth means lower profit for the industry.
- High fixed costs - Companies have higher fixed costs because they require high investment in capital equipment cost, tend to be higher in rivalries. Then will seek to reduce their unit cost by increasing their volumes, decreasing their price so that they can punish their rivals.
- Low differentiation - In a market situation where products are differential, competitors increase and customers switch between competitors so the only way to compete would be on price.
Strategic position statement
The new strategic position statement for the warehouse should be that they should offer customers a wide variety of quality products at a lower price by providing the best information regarding the product which will satisfy the customer's information required. The Warehouse should ensure that the customers have better shopping experience by placing customers at the first priority for the company and not profit. They should also offer customers with greater quality, style value and range of brands. Finally they should always remain true to their core value proposition of delivering bargain prices.
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- The Open Polytechnic of New Zealand. (Ed.) (2009). Module 1: Introducing Strategy. In 71340 Strategic Management. Lower Hutt, New Zealand
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- The Warehouse: Company Reports: 2009 Annual Reports. (2009). Retrieved December 15, 2009, from http://www.thewarehouse.co.nz/is-bin/intershop.static/WFS/TWL-Site/TWL-B2C/en_NZ/content/Investors/Company%20Reports%20PDF/2009%20Annual%20Report.pdf
- Wikipedia: The Warehouse Group: Criticism. (2009). Retrieved December 17, 2009, from http://en.wikipedia.org/wiki/The_Warehouse_Group#Australian_Operation