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Lnt and bbby Retail Houseare industry Case assignment sandeep sharma

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Lnt and bbby Retail Houseare industry Case assignment sandeep sharma

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Lnt and bbby Retail Houseare industry Case assignment sandeep sharma

  1. 1. LET’S TAKE THIS PRIVATE: LINENS ‘N THINGS VERSUS BED BATH & BEYOND
  2. 2. I. Porter five forces model [ Not very difficult market as New Entrant and Rival needs to be controlled]. Threat of substitutes (Low or Weak) Bargaining Power of Supplier (Moderate to Low or less or weak) Rivalry among existing competitors (more or High or strong) Threat of new entry (Strong or High) Bargaining Power of Buyer ( Moderate to Low or Weak) Porter's Five Forces Factors (Houseware Retail Chain) Threat of new entry (High)  - more as Amount of capital required (PE funding , IPO 4 yrs late, not easy for competitor to get same kind of funding as market leaders).  - more as Retaliation by existing companies  - less as Legal barriers (patents, copyrights, etc.)  - more as Brand reputation (blurred lines between Low end good deal with high end quality) No Frill environment  - more as Product differentiation (ELDP) No Frill Cost savings  - less as Access to suppliers and distributors (unrestricted)  - more as Economies of scale (specialty Stores are Category killers as speciality Houseware Scale)  - less as Sunk costs
  3. 3.  - less Government regulation Supplier power (mix of Low Moderate)  Number of suppliers  Suppliers’ size  Ability to find substitute materials  Materials scarcity  Cost of switching to alternative materials  Threat of integrating forward Buyer power (mix of Low Moderate )  Number of buyers  Size of buyers  Size of each order  Buyers’ cost of switching suppliers  There are many substitutes  Price sensitivity  Threat of integrating backward Threat of substitutes (Low)  Number of substitutes less as high capital intensive only market leaders survives  Performance of substitutes  Cost of changing Rivalry among existing competitors (more or High)  Number of competitors  Cost of leaving an industry  Industry growth rate and size  Product differentiation  Competitors’ size  Customer loyalty  Threat of horizontal integration  Level of advertising expense
  4. 4. II. Situation Analysis ELDP strategy requiring less advertising cutting cost was good but left market open for BBBY in many States Where it LNT did not had presence in terms of matching no. of stores with competitor BBBY hence Game played out as advantage to competitors in those almost 20/50 states hence Market Share Strategy and Expansion coverage strategy was weak. Proof of that came as BBBY Herfindahl index was double hence more market share. Overall market is very fragmented leading to more bargaining power for buyer than usual and evensupplier can choose multiple stores. Chief executive officer of Linens ‘N Things, Robert DiNicola, decided in 2006 that his company was in need of a turnaround plan. Their major competitors were Bed Bath & Beyond, Target, and Walmart. Linens ‘N Things realized that they had to improve their systems in order to beat their competitors and stay in business. Houseware is a sector of the retail industry that in 2002, the five-year sales growth was 4.8 percent. Companies within the houseware sector all have their own niche to appeal to certain demographics. For example, Walmart dominates the low end of the market because they offer everything from groceries to furniture at a low price. Target has a similar niche but is known to be slightly better quality but still at a lower cost. Macy’s and Bloomingdale’s have a higher quality of product and service. Williams Sonoma companies sell high end house and homeware goods. Pier 1 describes themselves as sellers of native crafts and imported goods. Then we have stores such as IKEA, Bed Bath & Beyond, and Linens ‘N Things who have found niches that target customers who are willing to pay for quality but also recognize the value of a good deal. Linens ‘N Things was founded by Eugene Kalkin in the year 1975. Ironically, Bed Bath & Beyond was founded just four years before and only 16 miles away. LNT had loyal customers because of their good value on an assortment of merchandise as well as exemplary customer service. Bed Bath & Beyond is the #1 superstore in the United States. They have over 740
  5. 5. stores throughout the country as well as Puerto Rico. They sell private-labels as well as brand name merchandise that attracts customers looking for good quality merchandise at an affordable price. BBBY strives to use their customer service skills and be a “customer’s first choice”. LNT and BBBY clearly offer similar merchandise at a similar price. BBBY was able to expand and have no debt and this company tends to promote within. Analyst Hunt stated, “They stress service, every retailer tries to do that, but they are better at it than most.” DiNicola thought it would be a good idea for LNT to operate at a higher level and offer high-quality products. He found it difficult to work within the company's current structure. It was very hard to reach out to new customers because they did not have the advertising funds to do so. They had a reduction in employees which made it challenging to execute proficient customer services skills that would encourage customers to return to the store. Cleary, LNT is not as established as its competitors. They do not have their own unique niche. They’re very similar to BBBY but BBBY has more funds for expansion, advertising, and they created the store before LNT did. DiNicola had trouble restructuring the company because they did not have the means to so but could have tried just redoing the current structure and improving on it.
  6. 6. II. SWOT Analysis Strengths ● #2 home goods chain ● Commitment to everyday low prices ● Own private label ● Created loyal customers by offering an appealing array of merchandise and through bridal registry and online shopping services ● Centralized operations Not decentralized decision making leading to losses. ● Invested heavily in infrastructure to support inventory management ● Web based sales and marketing Weaknesses ● Late mover Given many state exclusivity to competitor as if did not expand to gain market share. Expansion and market share increase strategy Not ● Limited advertising budget and product offerings ● Weakened customer service due to reductions in full time employees ● No international presence like BBBY ● Founded right after & nearby to the founding of BBBY ● Oppositions Decentralized more Decision making at Store level. ● The profitability decreased. ● Lower stock price.
  7. 7. Opportunities ● New concept of cheap, stylish home decor that would be replaced before it wore out ● The increasing number of new stores ● Growth of international market ● Changes in real estate purchases, remodeling trends & marriage/wedding trends Threats ● New concept of cheap, stylish home decor that would be replaced before it wore out ● Changes in real estate purchases, remodeling trends & marriage/wedding trends ● Fragmented and intensely competitive housewares segment ● Maturity of U.S. market ● Price sensitive consumers ● Varying demand for housewares merchandise ● Reversal of financing trend ● Consumer demand for housewares was generally declining. ● Purchasing habits of consumers (small but frequent purchases) III. Problem Statement Linens ‘N Things was purchased by a private equity firm and needs to be restructured to work towards becoming an industry leader. IV. Development of Alternatives One alternative solution would be for Linens ‘N Things to introduce new merchandise that they are currently lacking but their competitor Bed Bath & Beyond offers. If Linens ‘N Things adds hampers, artificial plants and flowers, gift wrap, serveware and wall art to their inventory, they will have a better chance at not only increasing sales but becoming an industry leader over Bed Bath & Beyond. Adding these items to their inventory also has the possibility of bringing in new customers who may have shopped at Bed Bath & Beyond or other competitors
  8. 8. like Target or Walmart. A weakness of this solution would be the risk that they stock their inventory with these items for them to not sell and only sit on the shelves. Another weakness would be the possibility of having to reformat the stores in order to store and merchandise the additional new products. A second alternative would be for Linens ‘N Things to expand into a new international market, such as Korea or China. Similar brands in the U.S. have been popular in many Asian countries and the demand for houseware in the U.S has been declining in recent years. Entering the Asian market now would benefit Linens ‘N Things since their biggest competitor, Bed Bath & Beyond, has not yet entered this market. BBBY has not recently entered into any new international markets in the last few years. Another strength of this solution is that LNT would be able to attract more new customers in the Asian market, later leading their profitability to increase over the next few years. A weakness of this solution would be the unknown risk of the foreign market. The different culture will have different consumer behaviors and LNT does not have any past experience in foreign markets. Their managers will also face many unknown problems that they have never seen before, and they may make some wrong decisions during this process. A third and final solution would be for Linens ‘N Things to invest more into their advertising and marketing budget. In the past, Linens ‘N Things used low cost promotions like newspaper circulars and mailings to reach consumers. They can start by updating their website and creating an email list to increase online sales. They can also either start a catalog along with their newspaper circulars or invest in commercials to increase their outreach. The strengths of this solution is that their advertising will stand out above Bed Bath & Beyond’s low cost ads and their visibility among consumers across the country will increase. If they choose to implement a
  9. 9. mailing or email list, they will not only gain new customers but also increase their loyalty among regular customers. The weaknesses of this solution would be the cost of the budget increase as well as the time and focus put into finding a skilled advertising team. V. Evaluation of Alternatives and Recommendations DiNicola wants Linens ‘N Things to become the leading company in the houseware industry. As a final recommendation, the best way for Linens ‘N Things to reconstruct themselves is to invest more into advertising and update there website. They can continue to use newspapers while creating catalogs to give prices and further present their merchandise. For their online customers, Linens ‘N Things should revamp their website and use emails to connect with their shoppers. Making online shopping easier and more interactive will create and increase loyal customers. Other ways to improve the companies outreach is to put focus on making commercials that are enticing and relatable to their target market. By doing so, Linens ‘N Things will give customers a better visual understanding of what they have to offer. Advertising is an important part of the business and a great marketing tactic. With stronger advertising, Linens ‘N Things will be able to target their ideal customers while at the same time informing them about new products and promotions. Overall, by putting time and money towards ecommerce and advertisement, DiNicola well be able to give consumers a better experience and improve brand awareness.

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