John Lewis - Threat Analysis

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| Management of Risk|
| Excellent (1)| Sufficient (2)| Limited (3)| Poor (4)| RiskLevel| Significant (3)| -Easy for JLP customers to ‘switch’-This ability to ‘switch’ for consumers is mitigated by JLPs unique approach to their customers – by providing real service, and service-incentives within employees, they create a shopping experience that cannot simply be replicated in any other store-CULTURE creation within their stores makes switching (with the same level of service) very difficult for consumers.-Relatively low share of retail market represents a real threat in terms of ‘weight’ in the market – threatens expansion-JLP has built more stores in past year, compared to any other year, despite limited capital – clear focus on expanding, excellent expansion in the food&drink sector, which is clearly very affluent (Tesco net profit over £2bn).| -Substantial investment into new stores, during recession and reduced consumer spending (*)-Extremely low profit margins, yet partners still received a 14% bonus, with a figure higher than net profit.-Liquidity is certainly a concern for JL, with a current ratio of 77% and gearing of over 25% - holds financial risk-JLP have pursued an aggressive expansion strategy in order to take advantage of their strong position, prior to any ‘boom’ or exit from the recession-Despite the risk, equity outweighs debt and now places them in a competitive position for the future-High partner bonuses mitigate the extent to which low margins create stakeholder concerns – after all, bonuses replace dividends in JLP-Significant gearing creates short term risk, however, essential due to the long lead time from store authorisation, to store completion| | | | Moderate (2)| | -Current move towards ‘own/value’ brands, especially within Waitrose risks contradicting their value of high quality-Mitigated by consumers’ ability to still purchase premium products – actually, this strategy will attract new customers to JLP – however, JLP must ensure that quality is still high in order to remain in line with their consistent strategy – sourcing strategies etc., suggest this will happen.-High standards for sourcing could out price their products in value brands – competing with huge companies, with significantly more capital -Tesco I.e.-‘Brand price match’ against Tesco will limit this impact, but for own goods – the perception of ‘quality’ will limit the extent to which this damages their consumer base| -Lack of experience in ‘cheap’ products-In the recession, people have surprising looked to more expensive/ premium brands in order to compensate for reducing their spend elsewhere (*) – ‘middle ground’ has been hit hard by the recession.-JL must avoid being part of the ‘middle ground’ – their value brands will be in this sector if they are not careful, as they cannot compete with Tesco for lowest price.| | | Minor (1)| -Reduction of partner bonus could cause concern amongst them-Partner bonuses still outweighed net profit, at over £160m. Essential move, financially, for JLP to finance their expansion incentives. As long as this does not continue into the long term, it represents a minimal and well managed threat. – JLP can now increase bonuses when they yield a return on investments (strong ROCI of around 7% suggests this will happen).| -Expansion of e-commerce within retail sector can reduce the extent to which JLP can provide their ‘value-adding’ in store service-JLP now provide click and collect in all JL stores, which has proven successful over the years of its running – Contact with customers upon collection can minimise the limited ‘value-adding’ service – in fact, by providing slick/smooth operations – this value-adding service can be, and is, maintained.| | |

| Management of Risk|
| Excellent (1)| Sufficient (2)| Limited (3)| Poor (4)| RiskLevel| Significant (3)| -Cost of investment to expand operations is extremely high – especially when looked...
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