- 10 Marks
BMIS – L1 – QE9 – Operations strategy
Question
SkyStar Clothing Limited (SSCL) is engaged in the business of manufacturing a wide range of children’s clothing for the past six years. The Company has built a reputation for good quality products of the latest designs, and its brand name is very popular in the middle-class segment of the market. The Company strongly believes in a policy of giving “value for the customer’s money.” At present, SSCL markets its products through a widely dispersed network of independent retailers who sell the company’s brands along with the products of other manufacturers.
SSCL is considering a proposal of forward integration and establishing its own chain of retail outlets for the sale of its products. SSCL would, however, continue to sell its products through the network of existing retailers also.
Required
Identify and explain briefly the different factors which SSCL should examine while evaluating the proposal for establishing its own network of retail outlets.
Answer
SSCL should consider the following factors while evaluating the decision to establish its own network of retail outlets:
(i) Examine the existing network of retailers of SSCL to ascertain the extent to which they have advantages of location of their shops in important shopping centres.
(ii) Compare the capital expenditure involved in the establishment of retail stores and their recurring operating expenses and inventory carrying costs with the costs incurred under the existing set-up.
(iii) Estimate the envisaged number of SSCL’s own retail stores to be established to cater to the requirements of the target segment of the market.
(iv) Determine the ability of SSCL to mobilise sufficient financial resources required to establish and operate the business of retail marketing of its products.
(v) Examine whether sufficiently experienced and trained staff at various levels would be available to manage and operate the retail outlets.
(vi) Ascertain the profit margins currently earned by the independent retailers on the Company’s products and the impact of the self-owned retail outlets on the company’s profitability.
(vii) Consider the impact of the decision to establish own retail outlets on the Company’s future relationships with the independent retailers.
(viii) Examine the need to revise the terms and conditions relating to sales to be offered to the independent retail outlets.
(ix) Enquire into the business policies of competitors who have their own retail network and whether SSCL would be able to enjoy a competitive advantage over the independent retailers.
(x) Examine the extent to which the availability of more reliable information of future market and fashion trends would be an advantage after SSCL establishes its own retail outlets.
(xi) Analysis of the industry growth expected and the market share to be captured, carry out a viability study of the share of market available.
(xii) Analyse the value addition by gaining ownership of retail outlets; evaluate the possibility of brand dilution in independent retail houses.
- Topic: Operations strategy
- Uploader: Samuel Duah