APPROVAL Name: Michele Buttle Degree: Master of Business Administration Title of Project: Strategic Analysis Of A Small Retail Business Supervisory Committee: Senior Supervisor Ed Bukszar, Associate Professor Second Reader Michael Parent, Associate Professor Date Approved: ABSTRACT This paper is a strategic analysis of a small silk underwear and sleepwear business. It has been prepared to provide the owner insight into the many factors affecting the industry and her firm's business performance. The analysis is designed to answer two key questions: Should the business continue to operate, and if so how? Could the business be sold? The analysis revealed that, in its current financial state, the company is not an attractive purchase target. Instead, the owner must take immediate steps to achieve, sustain and improve profitability in order to minimize the amount of external financing required and to avoid a distress sale. A niche differentiation strategy combined with a strategic focus on a reduced set of business opportunities is recommended. In addition, sound accounting and financial management practices are required in order to establish an attractive financial track record. DEDICATION To my husband (Michael), my daughter (Charlotte) and extended family for their support and encouragement throughout the MBA program and the writing of this paper. ACKNOWLEDGEMENTS I would like to thank the owner of the business for her candour and support of this project. I would also like to thank Professor Ed Bukszar for the advice, guidance and interest he provided throughout this project, Professor Alain Duncan for the assistance he provided in restating the firm's financial statements and Professor Michael Parent who acted as my second reader. Last but not least, I would like to thank my EMBA professors for the calibre of their instruction, and my class mates and team members for providing a fun and rewarding EMBA experience. TABLE OF CONTENTS Approval .......................................................................................................................................... ...ii Abstract ........................................................................................................................................... in Dedication .......................................................................................................................................iv Acknowledgements.......................................................................................................................... v Table of Contents ............................................................................................................................vi List of Tables ..................................................................................................................................ix List of Figures ................................................................................................................................. xi Firm Overview .....................................................................................................................1 Introduction ............................................................................................................................ 1 Company History ................................................................................................................... 1 Financial History ....................................................................................................................3 Project Purpose .....................................................................................................................4 Products and Services ............................................................................................................ 4 1.5.1 Product Positioning .................................................................................................. 4 1S.2 Product Styles and Price Points ................................................................................. 5 1.5.3 Analysis of 2004 Sales .............................................................................................. 6 Inventory Assessment .......................................................................................................... 12 Current Target Market .......................................................................................................... 14 1.7.1 Demographics / Psychographics ............................................................................. 14 1.7.2 Analysis of Customer Base ..................................................................................... 14 Major Competitors ............................................................................................................... 20 1.8.1 Lingerie Retail Competitors .................................................................................... 21 1.8.2 Online Competitors ................................................................................................. 23 Industry Analysis ............................................................................................................... 37 Intimate Apparel Market Overview ..................................................................................... 37 2.1.1 Industry Definition and Size .................................................................................. 37 2.1.2 Product Categories ..................................................................................................37 2.1.3 Competitors ............................................................................................................. 39 2.1.4 Customer Segments................................................................................................. 39 2.1.5 Product Trends and Innovations.............................................................................. 40 2.1.6 Buying Trends and Behaviours ............................................................................... 42 Five Factor Analysis ............................................................................................................ 44 2.2.1 Bargaining Power of Customers (Low to Moderate) .............................................. 45 2.2.2 Rivalry Amongst Existing Competitors (High to Very High) ................................ 45 2.2.3 Threat of New Entrants (Moderate to High) ........................................................... 46 2.2.4 Bargaining Power of Suppliers (Low to Moderate) ................................................ 47 2.2.5 Threat of Substitutes (Moderate) ............................................................................ 48 Attractiveness of Intimate Apparel Industry Sector ............................................................. 48 Key Issues Facing Firms in the Intimate Apparel Industry Sector.................................. 49 Internal Analysis ................................................................................................................50 Apparel Industry Value Chain Overview ............................................................................. 50 Essentials Participation in the Fibre to Apparel Value Chain .............................................. 54 Essentials Internal Value Chain ........................................................................................... 55 Support Activities ................................................................................................................ 56 3.4.1 Firm Infrastructure ................................................................................................. 56 3.4.2 Human Resource Management ............................................................................... 61 3.4.3 Technology and Development ................................................................................ 63 3.4.4 Procurement ........................................................................................................... 66 Primary Activities ................................................................................................................ 67 3.5.1 Warehouse/Logistics (Overall Rating of Fair) ........................................................ 67 3.5.2 Production (Fair) .....................................................................................................68 3.5.3 Merchandising (Range of Nonexisterit to Adequate Depending on Channel) ........ 69 3.5.4 Advertising and Promotion (Poor) .......................................................................... 70 3.5.5 Sales & Service (Range of Excellent to Fair Depending on Channel) .................... 71 3 S.6 Fulfilment (Excellent) ............................................................................................. 74 3.5.7 After Sales Service (Excellent) ............................................................................... 75 Financial Analysis ..............................................................................................................76 Financial Analysis Overview ............................................................................................... 76 Books A (Official Company Financial Statements)............................................................. 77 Books R (Restated 2004) ..................................................................................................... 79 Analysis of Essentials 2004 Income Statement (Books R) ..................................................81 4.4.1