Assignment Question 1:
Assessment of BBBY business, operating and expansion strategies
To offer huge quality branded merchandise at 20% to 40% low prices below department stores. Provide one shop buying by arranging maximum house furnishing items (30,000 SKU) and offer superior service to make buying experience and BBBY so pleasurable that they become “word of mouth advertisers” of BBBY.
Store layout, merchandise display and categorization is superb to facilitate easy tracing / location. Individual store managers have liberty to adjust merchandising mix to suit local taste and placing replenishment orders. Purchasing through central office to get maximum margins, low expense structure as there is no use of warehouses advertising is little, stores are located in low cost strip malls and lean corporate organization.
BBBY aims rapid expansion trough opening new stores and enhancing space in existing stores. Stores are not built but leased which gives company a saving of $1 million on each new store. However company emphasizes preserving value during expansion.
among Business, Operating and Expansion Strategies
All strategies are consistent in maintaining low cost of merchandise and low expense on operations (discounted purchase, lean organization and low capex through leasing, avoiding expenditure on warehouse. The funds spared thus are used in running operation.) Low cost prices and facilitation during whole process of buying gives pleasure to customers and advertise the company the word of mouth.
Management’s discussion and analysis of financial condition and results reveals that increase in sales is around 80% due to new stores and existing stores sale increase is around 20% (See Bed Bath & Beyond -page 15, 16&17). Also it has been described that any new store gives highest sale in 2nd and 3rd year, after which store matures and sale growth remain minimal. Low sale growth in existing stores is also due to the fact that company prefers to dispatch merchandise to new stores first and transfers experienced managers to new stores. These policies are not consistent with maintaining happy customers.
Suggested Change (i)
BBBY must also focus on increasing sales of existing stores otherwise customers may shift to the competitors. For this merchandise dispatch to old stores should be given equal priority. Product line may be increased in existing stores.
Suggested Change (ii)
Experienced managers are transferee to newly opened stores. The old stores are left with relatively less experienced staff. That is why sales growth at old stores remains relatively lesser. BBBY should focus this problem as well to achieve uniform sale growth in all stores.
Assignment Question 2:
Assessment of BBBY‘s Current Performance
BBBY’s sales have risen to $ 305,767 millions by year end of Feb. 1994. Data given in Exhibit-1A/1B show that sales are increasing steadily on the average @ 23.7% while in year 1994 sales growth has been 29.13%. Cost of goods sold as a % of total sales has decreased by 0.1% compared to 93 which has reduced operating profit in 1994 by 0.2% compared to 1993. Net earnings as a percentage of total sale are marginally lower than previous year. This is because of increase in provision for income tax as company went public and changed its status from small company to large company and expected implementations of federal tax on its earning. Overall the growth and earnings are increasing steadily.
Key Factors of BBBY’s Current Success and Superior ROE.
Key factors of BBBY’s current success and superior ROE are company’s ability to keep cost low through discounted purchasing, getting store space on lease instead of constructing its own stores and elimination of warehouses. Above measured have improved company’s inventory turnover and asset...
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