1) Lingxiao Wei
2) Tianye Fan
Answers to Questions:
a) Assess BBBY business, operating, and expansion strategies. Are these strategies consistent with one another? What, if any, changes would you make to these strategies? We think that BBBY’s business strategy has important flaws because the strategies are inconsistent in the following three aspects.
The business strategy on advertising, Word of Mouth is inconsistent with the expansion strategy. BBBY is expanding its scale and market share by adding new stores in new markets and existing markets. In the meantime, BBBY is also expanding its existing stores. To achieve the goal of expansion, potential customers should be fully informed. However, a simple “word of mouth” advertising strategy is not effective enough. Approaches such as television advertising, direct-mail advertising and broadcast advertising should be added to the existing strategy.
The “promotion from within” policy of operation strategy is not entirely consistent with the expansion strategy. Although the policy leads to a low turnover in the management ranks, the depth of the management is concerned. A lot more experienced managers are required for an expansion strategy but the policy limits the recruitment. BBBY should implement a better recruitment policy focusing more on employing from outside.
BBBY also has the following strength compared to its competitors. 1.
Every-day low prices. BBBY offers name brand and better quality merchandise at every-day low prices.
Premium customer service. BBBY provides superior service from the time the customer drove into the parking lot to the time they left the store, and even when the customer returned merchandise.
No warehouse. BBBY’s policy of not using warehouses and shipping all inventory directly to the store ensured that merchandise is almost always in-stock.
Superstore format. BBBY’s superstores provide merchandise of a breadth and depth unmatched by most competitors.
Word of mouth advertising. BBBY spends less on advertising than virtually any other retailer of its size, relying instead on “word of mouth” advertising as our primary means of communicating with our customers.
Lease of store sites. The policy of leasing all sites makes it possible for BBBY to expand with less cost.
The table below shows BBBY’s advantages over specific competitors. BBBY’s advantage
Every-day low prices
Lease of store sites
b) Assess BBBY’s current performance. Evaluate the keys to its current success. How has the important performance measures changed over time? How does BBBY compare to its competitors? What is driving BBBY’s superior ROE? How sustainable are BBBY’s current ROE and growth rate?
We calculated these ratios.
Net Income/Sales (%)
*Avg. Assets/Average Equity
*(1-Dividend Payout Ratio)
=Sustainable Growth Rate (%)
Gross Profit/Sales (%)
Net Interest Income (Expense)/Sales (%)
Profit margin for the year 1993 of 7.16% implies that BBBY earned profit of $.0716 from each dollar sales. Profit margin ratios rose by 0.23% in 1992 and then fell by 0.20% in 1993. The fluctuation was small and showed that the profitability of BBBY was stable. Compared to the profit margin ratios of Strouds, Lechters and JC...
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