Company Analysis for Fawaz Alhokair Group - Essay Example

? Company Analysis for Fawaz Alhokair Group Overview Fawaz Alkohair Group is one of the leading retail companies in Saudi Arabia. It was established by three brothers as partners in 1989 as retail operators of two menswear stores. From this humble beginning, the company now owns 60% market share of the fashion sector in Saudi. Company operates in two business segments, the retail fashion and the real estate business. In the real estate business segment, company builds, owns and operates shopping malls. In the retail fashion segment, company operates in Saudi Arabia, Jordan, Egypt, Georgia, Morocco, Kazakhstan, Azerbaijan, Armenia, and United States. Currently, it has 10,000 employees working in Saudi and abroad. Company has experienced significant increases in gross profit, a corresponding net profit increase, and in operating income for the fiscal period ending March 2013, as shown in Table 1 below Table 1. Income increases, Fiscal Year 2013* Comparative increases in income Item 2012 2013 % increase Net profit SR447.38M SR619.69M 38% Gross profit SR789.98M SR1,130.37M 43% Operating Income SR439.28M SR583.93 32.9% *12 months period Company considers these increases are due to their business strategies of new stores opening, introduction of new concepts and brands, international expansion and acquisition of the Nesk Trading Projects, LLC. Sales totaling SR1.899bn in 2009 increased by 2%; Revenue in KSA market increased by 34.6% in 2013, while international market revenue increased by 186% in 2013. For 2014, sales is expected to reach SR2,925bn. Management believes it is able to draw and keep competent workforce because of its corporate culture, and these trained employees are experienced in adapting to swift fashion transformation of the retail market in the Kingdom. Out of its 10,000 employees, 33% are Saudis. The company represents famous international brand products and is acknowledged as a leader in fashion retail businesses in Saudi Arabia. It has maintained healthy business relations with its principals so that there is no business termination so far. As far as level of company awareness is concerned, international franchises and the number of new stores opening is an attestation that the company is well recognized and patronized. Company has continued to supply the market with new and fresh products in its stores conveniently located on major commercial centers and shopping centers. Furthermore, the grandiose product display excites the customers to the store and into the product. This marketing strategy has allowed the company to be on top of competition and to be abreast on fashion trends. The various brands it carries in its collection are aimed to target the middle bracket segment of the population thus creating a large base of operation. It has a competitive advantage of being able to offer lower cost pricing because of the economies of scale in bulk products purchase, lease rentals, combined attributes of manpower quality, committed management and a fully integrated logistics model. The low cost approach and the ability to source competitively priced products enabled Alkohair to gain an edge over its competitors. The low cost policy is one of the reasons for the success of the company. The fashion retail segment of the company sets a competitive advantage seeing that it can choose prime locations and get better rental deals since the real estate segment of Alkohair is the largest shopping mall developers in KSA. Alkohair works with a demographic structure that allows them to offer higher quality and more fashionable products. However successful the company is, it is still confronted by problems related to the internal environment shown as: 1. Constant changes in fashion. These are the sensitive characteristics of the fashion industry. Fashion has a short life cycle since the designs that are popular in one season loses its attractiveness in the next season. This turns out to be a problem because company has to be aware of the fashion trends all the time. 2. Poor performance of brands. Not all brands in the market perform similarly, and it is possible that sales performance of one brand is not up to its expectations. Decline of brand sales could also be due to power of competition or short of product support from company partner. This appears as a risk to the company since it has considerable investment in the brand. 3. Exchange Rate Risk. The company has been affected by the weakening of the US$ since Alkohair imports most of its products from countries whose currencies have appreciated against the US$. Purchases of the company are done in its headquarters in Saudi Arabia whose currency is attached to the US$, thus its weakening had a pessimistic effect on its revenue. 4. Dependence on key personnel. Alkohair relies on the performance and abilities of its key personnel. While company has done its best to retain them, they are not assured of retaining their services nor there is a guaranty that they can attract qualified personnel whenever there is a need for it. It is believed that Alkohair’s business operations will be badly affected by the loss of its key personnel. 5. Launch of new concepts. In order to continue business growth, company often launches new products and new concepts. The problem here is that the start-up costs of every launching are high; there is no guarantee that it will recoup its investments on the product, or that it is going to be beneficial, even if the track record of the company shows that it can manage the risks very well. 6. The business is sensitive to changes in consumer spending decisions. There are changes in the business environment that cannot be predicted like the economic conditions, consumer preferences and lifestyle. Conditions may also differ from one market to another. This situation bothers the company as it affects the conditions where it operates. 7. Geographic concentration. The lack of presence of the company in other Middle East Countries having a strong potential for market growth have put competitors ahead of the race for market share. They have by now set their niche in these regions and are making profitable ventures. Geographic concentration also exposes the company to a variety of risks of politics, economy and climate that are allied with the region. 8. Real Estate and Property Management. Capitalization of this business segment is quite exhaustive since it needs sustained getting hold of real properties and infrastructure developments. It poses as a barrier for entry in this industry, since it will need substantial funds and ready access in the credit markets. The company’s potential to sell debt securities may be narrowed by the unfavorable conditions that increase the cost of debt issuance. 9. Terrorist activities. Fear of terrorist activities have risen and have affected the cities where company is doing business. Management has the idea that it may cause a negative effect on its business since terrorists aim at high-status urban areas where they are in. 10. Highly competitive market. Fashion industry is a competitive market since both small and big players contend with each other for a market share. Each one tries to outdo another by offering similar products of different designs for the same purpose, i.e. spring and winter clothes have different looks. Competition comprises of producing the best marketing mix of pricing, service, performance, novelty, quality and others. Some competitors have established marketing edge due to its staying power and length in the industry, technical know-how, distribution chains, marketing expertise especially in brand recognition and positioning. Great financial support from the parent company is advantageous in exerting pricing schemes. All of these factors affect the financial conditions of the company that may either decline or raise sales and income. Competition comes as a barrier to newcomers in the industry. External opportunities. The rise of on-line shopping, internet usage and e-commerce are opportunities for growth. Advanced technology, communication and development have made this possible. However, whether this trend would be a convenient excuse to replace the mail-order system is still a question for the company to resolve. The company faces external opportunities. These problems are the following. . 1. Online shopping: There is a fair degree of confidence in predictions for distribution, where it’s thought likely that the internet will continue to gain ground, at the expense in particular of traditional mail order – although the extent of this change is debatable. In addition, sales made through social networking channels are likely to rise.  Describe Your Marketing Goals and Objectives. They can be concepts like increase company visibility, increase audience size, differentiate from competition, increase or maintain market share, generate qualified sales leads or increase usage within existing customers. List your goals and objectives as being: Long-term, with 6 to 8 goals listed a priority order to be accomplished in the next two years. Short-term, with a narrowing to 1 to 2 goals to be accomplished in the next 12 months. Read More