Claire's Stores - Essay Example

?Claire's Stores Table of Contents Introduction 3 Analysis and Evaluation 5 Growth rate in sales 5 Analysis of significant ratios 5 Analysis of financial position 6 Analysis of annual cash flow 7 Peer Analysis 7 Issues or Problems 9 Alternatives 10 Policy Recommendations 11 Implementation of Policies 12 Conclusion 13 Reference 15 Introduction Background Information Claire’s Stores Inc. is a group of small shops indulged in the fashion industries. Rowland Schaefer, the founder of the group, had already acquired a number of shops dealing in fashion accessories since 1960 that finally ended with the acquisition of Claire’s Boutique, Inc. in 1973. Previously, it known as FT Industries after the acquisition of Fashion Tress, Inc. in 1961, and the new name was conceived in 1983, two years before getting enlisted with the New York Stock Exchange. The latest one, however, had been the biggest of all deals and eventually the most popular one with 60 stores scattered in different parts of Chicago. 1994 saw the industry moving out of homeland when it entered into a joint venture with Japan’s Jusco Co., Ltd., which resulted to the opening of the first branch of Claire’s Stores in Tokyo. Eventually, it spread out to 172 other locations by 2006. Though the company had been continuing with its overseas acquisitions since 1993, the next biggest one had been that in 1995 when it purchased Bow Bangles Holding Ltd., a Birmingham based chain of stores. It was followed by the acquisition of Bijoux One, a 53-chain store scattered across Switzerland, Austria and Germany in 1998, and Cleopatre Stores in France with chain of 42 stores. Schaeffer had strategized his moves so as to acquire almost all rival firms of the company. Although it had started out as a fashion accessories group of stores meant for young teenagers, it soon moved into the domain of selling accessories for older teenagers and young women post the acquisition of Afterthoughts in 1999; Afterthoughts had been a giant chain of 768 stores. However, the company had not always divulged into expansive strategies. The acquisition of a unisex garments chain for teenagers in 2002 as well as that of a trendy gift stores chain in 1998 both had proved disastrous for the company compelling Schaefer to eventually sell them away. Operational Information The features that Claire’s Stores Inc. is endowed with are common to almost every successful chain of shops. It had strategically planned its locations so as to stay in areas frequented most by its target customers, consisting of teenagers and young women. In order to keep its costs of operation low, the company has arranged distributors and suppliers in the nearest possible locations to their stores. Such a step not only helps to reduce the cost of operation but also arranges distributions within a short span of time. In addition, the company had been exploiting its negotiating powers with vendors to keep the profit margins high and also to compensate for the low footfall during seasonal fluctuations. This is one of the reasons which made the company popular and a common name among young teenagers. Eventually this very fact emerged as the company’s intrinsic strength. Moreover, the company had standardized its strategies in alignment to the upcoming fashion trends in the industry. Management had been one of the most important of all elements under the jurisdiction of the company in compliance to its policy of tracing its strategies in line with upcoming fashion trends. In terms of money management, Claire’s could rather be rated quite highly given that it had maintained insignificant levels of debts historically and in 2006 had no debt records as such. Analysis and Evaluation Growth rate in sales The number of stores under Claire’s Inc has increased significantly during the period 1992 to 2006. In the year 1992 the number of stores was 995 and this increased to 3050 in the year 2006. This implies a rise of more than three times. This has been achieved by the company through a rapid acquisition drive pursued by the company management over the years. The company has widened its presence across the globe. The stores of the company are not limited to US rather they have been able to set up their operations outside US as well like in UK. The rise in the store numbers has also enabled the company to raise the sales on a per store basis. This figure was $248,000 in 1992 and it reached $475,000 in the year 2006. Analysis of significant ratios The inventory turnover ratio of the company was 2.3 in the year 1992. The management of the company consistently worked towards maintaining an ideal level of inventory as reflected from the rise in this ratio in the following years. In the year 2000 this ratio has been reported at 3.4, which is the highest in the company’s recent history. A high inventory turnover implies that the company management has been able to fast convert its stock into sales thereby lowering the inventory base. This is a good sign as it lowers the costs associated with storage of inventory such as warehousing charges. Even in 2006 the company management has been able to sustain this ratio as per the previous years. In this year (2006) the company reported this ratio at 2.9. This is fairly good suggesting that the company management has been able to maintain inventory at reasonable levels. The Return on Sales of the company was 2.20% in the year 1992. Over the years the company has been able to increase this by nearly six times. In 2006 the company reported the return on sales at 12.6%. A high return on sales implies that the company management has been able to exercise a fair control over the administrative and selling expenses. This return followed more or less an upward trend during the period 1992 to 2000. However, after this year the return on sales figure dropped significantly and reached as low as 4.53%. From 2004 the company management was able to achieve a turnaround. Finally, in 2006 the company management succeeded in achieving 12.60% the return on sales which is the highest in the recent historical data of the company. Analysis of financial position The cash position of the company has strengthened significantly over the five year period 2002 to 2006. A sound cash position is a good feature as it indicates that company has sufficient liquid resources to take care of any financial demands. The net investment of the company in property, plant and equipment has also increased from $163.97 million in 2002 to $222.72 million in 2006. There has been a rise in the Accounts Payable position of the company. This figure was $30.87 million in 2002 and it increased to $50.24 million in 2006 suggesting that there has been a rise in the credit purchase of the company. The company does not have any long term loans in the capital base for the period 2004 to 2006. However, the equity investment of the company has remained steady over the years. This suggests that the company is financing its expansionary opportunities by using the equity and retained profits only. In other words, the company management seems to be biased in favor of equity. The Cost of Goods Sold of the company has increased over the years along with the level of net sales. However, the rise in net sales has been more than in commensurate with the cost. This is a good sign as it suggests that the company management has been able to exercise cost efficiency. The net income of the company was $19.58 million in the year 2002. This has increased remarkably over the years. For the year 2006, the company reported this figure at $172.34 million. Analysis of annual cash flow The net operating cash flows of the company have doubled from $108.99 million in 2002 to $242.86 million in 2006. The net cash flow from investing activities was -$57.73 million in 2002 and this decreased to $52.11 million in 2006. Peer Analysis In terms of market capitalization, Claire’s Stores is ranked at the top in the industry. The average market cap of the industry is $1830 million whereas that of the company is $2660 million. The number of employees of the company is also the highest in the industry. However, the growth rate of the company’s revenue is behind its other competitors in the market. While the industry average on this respect is 14.1%, the growth rate of the company is almost half the industry growth rate at 7.4%. The gross margin of the company has been reported as 53.65%. This is higher than the industry average of 46.24%. It is a good sign as it indicates that the company management has a fair control over its administrative costs. This has enabled the company to maintain high operating margins. While the operating margin of the industry is 10.42%, the same for Claire’s Stores is 17.36% which is much higher as compared to the industry average. The PE ratio of the company is 16.04 which is less than the industry average of 20.92. This is even less than that of its peer Tween Brands Inc. of 21.69. A high PE ratio implies that the investors are willing to pay a high price for the shares of the company. This ratio is low in the case of Claire’s. It suggests that the investors are not very confident about the company prospects. This is the reason they are not willing to pay a higher price for the shares of the company. Issues or Problems After the retirement of Rowland Schaefer, the leadership of the company was taken forth by the Schaefer sisters Marla and Bonnie. While Marla Schaefer handled the merchandise of the company and planned its future targets, Bonnie Schaefer happened to be the real estate consultant and strategist for international expansions of the company. Eventually either of them complements the strengths and weaknesses of the company. Although the company did not come across many obstacles owing to the fact that the company never had many direct competitors as such, some challenges that they face have been enlisted as follows: First and foremost, the company needs to keep a constant note about upcoming fashion trends and hence, assess the changing traits of demography, technology, etc. over time so as to keep the community of investors satisfied. Unlike Rowland Schaefer, Bonnie Schaefer believed in developing new stores rather than taking over the existing ones so that the normal tendency would be the transfer of cultural aspects from the homeland to the host region. This particular feature found some difficulty in acceptance in regions characterized by a conservative culture and heritage. This is where crops lies the problem of co-leadership in family owned firms. Thirdly, many investors and analysts find the family ownership of Claire’s as a glitch against appropriate corporate governance. Despite being featured by corporate governance better than 61 percent other retailers, their strategies continue to be suspected as being too skewed. This is the reason why many of them back off fom investing in Claire’s shares. moreover, the company was undergoing a phase of slow revenue growth which is one of the reasons that it had once planned a sale seriously. Despite the previously mentioned challenges, the company continues to be a popular brand with “100 percent name recognition”, as Marla claimed, and is endowed with features that have ensured it a high growth rate over years. However, its popularity owes to its being restricted within a narrow domain of teenage apparels rather than spreading out to a number of verticals. In fact, the company had made versatile attempts initially but failures each time had made it to stay restricted within a particular field of operation. Alternatives The overseas expansion of the company is primarily based on acquisition, however; the new management of the company is in favor of setting up new stores instead of acquiring the existing operating stores. The success or failure of this strategy is entirely based on how the company is able to gauge the market conditions and cultural factors in a different geographical set-up, if the company management possesses adequate resources to be able to do this efficiently and is able to take care of important aspects then the strategy is a good one. This requires that the company must make a thorough assessment of the demographical and topographical factors before opening stores. This will give them an idea as to which strategy is the most ideal one. On the other hand, the success of a store in an overseas location is largely dependent on cultural factors. However, the cultural influence on the stores operations is inevitable. Therefore, it is important the company analyses the cultural environment in a country before opening a store. Other than this the company is essentially a family firm with the ownership vested in the hands of its owners. This may not be very appealing for the institutional investors. These types of investors usually want the reins of ownership to be in the hands of meritorious people. Therefore, it is important that the company management promotes employees based on their merit rather than their association with the family. This will have a dual benefit. It will raise the morale of the employees as they will feel that their efforts are being adequately rewarded. This will motivate them to work in the best interest of the company. In addition, the company management will be able to win the confidence of the institutional investors. This would mean that the company will not face any difficulties in raising finance for its ventures. Policy Recommendations In order to overcome the challenges looming over the company, some policies might be adopted by the organization. Some such policies are: Evaluating the environment in which the company is planning its next expansion. The company could hire analysts to know about the cultures and traditions in which their target consumers have raised in prior to opening up a new store in a region. Secondly, in order to stay above the eye of skepticism, the company needs to hold regular meetings with their investors and update them about their strategies. In other words, the company needs to maintain their transparency and forecast their revenue growth rates appropriately to continue their popularity among their investors. This could also help the company from being confronted with criticisms in terms of their corporate governance techniques. Given the established nature of the firm, it must continue with its present business although instruments for regular surveillance must be employed. Although the founder and the successors pose difference in views regarding the operations of the company, the latter must be given a chance to prove their points. Implementation of Policies In order to implement the above policies, the company owners must adopt certain steps which have been briefed down as follows: The company needs to hire some capable analysts who might be able to assess the target market well. This is a step necessary to be undertaken by almost every MNC while expanding their branches overseas. Most of these organizations tend to transmit the trends in their home countries to the host regions which might not be as acceptable in the latter as it is in the former. Hence, it is wise to employ analysts who could evaluate the market trends properly and ensure a successfully established branch. The company also needs to stay updated about their operations in order to be able to convey timely information to their investors. In other words, it needs to adopt every method possible to maintain transparency in their operations. Conclusion The present paper dealt with the operations and strategy of the retail chain store Claire’s that deals basically in apparels for teenage girls. The company policies in fact had been quite helpful for its growth over the years. However, it had confronted with a number of issues such as unwise business decisions which had taken a toll upon its financials over the years. But the company found their ways out through mending their ways either by shutting down those verticals entirely or merging their activities with their existing businesses. One of the most important strategies that the company had always adhered to is to acquire those chains of stores which had been associated with a number of already established stores. Although, many allegations had come against the company policies such as those of being a family ownership firm which lacks suitable corporate governance, the company had been able to overcome these hurdles and continue their operations over years owing to the evaluations of analysts about their robust structure. The company has always believed in expanding its business through mergers and acquisitions and had successfully continued with its strategies until the Schaefer sisters took over. Afterwards however, there arose problems regarding the functioning of the company resulting to poor revenue growths and declining base of investors. However, the company has ample potentials to continue with its present business although it is high time that it adopts and implements some strict disciplinary measures in its operations. Reference Assenza, P. Eisner, B.A. Heimler, R. Claire’s Stores: Competing Betwixt and Between. 2007. [Pdf]. May 16, 2011. Read More