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Team Case Project on Adairs Limited

Introduction

This report is based on Adairs Limited, where the Board and Management team of Adairs are advised regarding the effectiveness of Adairs business strategy. In this regards the TOWS analysis, key capability analysis, major stakeholder analysis, generic business-level strategy, and Corporate Balanced Scorecard (BSC) for Adairs have been performed. Adairs is a foremost exclusive retailer of apparel, kids wear, homewares and furnishings. Its business model is vertically integrated as it manufactures and retails its own kids wear, homewares and furnishings in its own 131 stores. Its stores are structured in five different formats, namely; Adairs Outlets, Adairs Homemaker, urban home republic, Adairs Kids, and Adairs. It provides a wide variety of homewares products such as towels, bedding products, bed linen, and cushions. The sales growth of the company was around 17% during the FY 2014, and it was around 22% during the first half of the FY2015. (Adams, 2015a).

TOWS Analysis

 The TOWS analysis has been performed to identify the potential threats and opportunities, as well as the weaknesses and strengths which Adairs holds. (Bhatia, 2008)

 

Original Text Use Synonyms
The declining trend in the retail industry and worsen economic conditions in the macro environment can result in reduction of sales for Adairs. The sales growth during the past and the present year indicates towards sales growth opportunities in the industry.
Competition in the industry may increase or change and the market share of Adairs can be captured by the competitors such as Myers and David Jones. There is an opportunity to increase the existing market share of Adairs by capitalizing more of its brand image and differentiation strategy.
Wrong judgment or interpretation of the fashion, trends and change in customer buying habits can adversely impact the sales of Adairs products. It can capture the market share of its competitors such as Myers and David Jones by product development and differentiation strategy.
Inability of retaining or securing the key store sites. It can expand its business internationally.
Inability to refinance debt or arrange new debt on favorable terms. It can expand its product sourcing market to diversifying its supplier, as presently it sources most of its products from Chain, so by sourcing its products from other countries like India, Bangladesh, Vietnam and Turkey it can diversify its suppliers.
Exchange rate may become adverse.

Weaknesses Strengths
It has to depend upon external sources to seek finance. Well renounced brand name and image in the homewares and furnishings industry in Australia.
Cost of finance is higher due to its dependency on finance debt and it also limits its business expansion. It is vertically integrated due to which it does not have to rely on third party to source, design, manufacture, and distribute its products.
It sources its product mostly from one country, China. Specialized and differentiation products.
As it uses product differentiation strategy therefore it is unable to achieve cost leadership in the industry. Company operated 131 stores across Australia and has continuously opening new stores from last five years in Australia.
The value for money pricing strategy prevents it from attracting price sensitive customers and hence limits it to expand its market share. IStrengths
A wide range of homewares, furnishings
and kids wear specialized products.

Key Capabilities that Adairs Possesses

 The analysis of the two key capabilities for Adairs is provided in the following table. The assessment is provided to explain if each of the two capabilities is the core competency for Adairs.

Table 2: Key capability analysis for Adairs

Key capability for Adairs Resources this capability utilises Core competency assessment
1. Vertically integrated model
  • End-to-end controlled and in- house sourcing, designing, manufacturing, and distribution process for its own products.
  • 90% of the products which Adairs sold in its stores are manufactured in-house.
  • Products are sourced from diversified markets namely, Chain, India, Bangladesh, Vietnam and Turkey.
  • It retail its products in its own 131 company operated stores across Australia. (Adairs, 2015a)
  • This vertically integrated model is a core competency for Adairs as it enables the company to develop a competitive advantage by providing specialized and differentiation products, which further helps in creating the exclusive and unique brand image of Adairs in the mind of the customers. Based on the following points the vertically integrated model of Adairs has been identified as a core competency.
  • The sourcing, designing, manufacturing, and distribution process is end-to-end controlled and in-house operated therefore the threat of disruption in the product supply is minimized.
  • By sourcing it products from various markets (such as Chain, India, Bangladesh, Vietnam and Turkey) Adairs is able to diversify it supplier base and so the reliance on only market source and the bargaining power of its suppliers is reduced.
  • It retails its products in its own operated stores and so do not have

to rely on third parties to sell its products. (Adairs, 2015a)
2. Product differentiatio n strategy
  • Exclusive, specialized and differentiation products.
  • A wide range of apparel, kids wear, homewares and furnishings product which are designed and manufactured exclusively for Adairs.
  • The product team, product development and design team, and merchandising planning team enable Adairs to execute the differentiation strategy.
  • (Adairs, 2015a)
  • This product differentiation strategy of Adairs is also a core competency for Adairs as it enables it Adairs to achieve competitive advantage over its rivals. The following are the points based on which the product differentiation strategy of Adairs has been identified as a core competency.
  • The product team, product development and design team, and merchandising planning team enable Adairs to develop exclusive, specialized and differentiation products.
  • The product team of Adairs comprised of experienced and skilled home textile designers and product managers.
  • The product team travel internationally and utilizes social and mainstream media to identify the new trends and seek inspirational designs.
  • (Adairs, 2015a)

Stakeholder Analysis

Table 3: Major stakeholder analysis for Adairs

 

Adairs’ stakeholder group Specific interests of this group Assessment of Shareholder value alignment
1. Customers The typical customers of Adairs are female who are home owners and have family. The specific interest of these stakeholders is to get the exclusive, specialized, differentiation and fashionable apparel, kids wear, homewares and furnishings products. It includes a wide range of differentiated products. (Adairs,2015a) The specific interest of customer stakeholder group is generally aligned with the generation of shareholder value because providing differentiated products is the core competency of Adairs. Therefore Adairs can increase its sales and profitability by addressing the specific interests of the customer group, meanwhile the increasing sales and profitability will maximize its

shareholder’s value. (Adairs, 2015a)

2. Suppliers The specific interest of suppliers group is to receive regular purchase orders and payments from Adairs for the products they supply. (Adairs, 2015a) This specific interest of the suppliers group is in line with the generation of shareholder value because if the suppliers will provide get the orders and payments for the orders then they will be in a position to provide the products which Adairs sells to its customers to earn profit for the

shareholders. (Adairs, 2015a)

3. Employees The specific interest of employees group is to receive good pay, have job security, growth and development opportunities.

(Adairs, 2015a)

The specific interest of employees group is generally aligned with the generation of shareholder value because if the company will earn more profit

and increase sales then the employees

would be able to receive good pay, have job security, growth and development opportunities.
(Adairs,2015a)

(Blythman, 2013)

Adairs Generic Business Level Strategy

 Porter’s generic strategies model have been used to identify the generic business level strategy that Adairs is pursuing. Using following table based on Porter’s generic strategies the generic business level strategy of Adairs has been identified. (Porter, 1980)

Table 4: Porter’s Generic Strategies Model for Adairs

Source of Competitive Advantage
Cost Uniqueness
Breath of Competitive Scope Broad Target Market Cost Leadership Differentiation (Adairs)
Narrow Target Market Focused Low Cost Focused Differentiation

(Porter, 1980)

Based on the Porter’s Generic Strategies Model it has been identified that the generic business level strategy that Adairs is pursuing is differentiation strategy. It is because the focus of Adairs business strategy is on uniqueness more than the cost, and it tends to target broad market rather than targeting the narrower niche market, which is evident from the above table. (Adairs, 2015a)

 

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Review of the two Key Strategies Identified by Adairs’ Board and Management

 Selected Strategy One – Continued product and range differentiation to drive above-market like-for-like (LFL) sales growth

The above-selected strategy is reviewed based on the following four criteria.

a)  The suitability and feasibility of the strategy in context with the TOWS analysis above

 In context with the TOWS analysis given above the selected strategy seems to be suitable and feasible for Adairs. It is because it would enable Adairs to minimize the potential threat of increased competition in the market as a competitive advantage would be developed by means of continued product and range differentiation. Moreover, this strategy utilizes the existing strength of Adairs which is to provide specialized and differentiation products. (Adairs, 2015a)

b) Its acceptability to the major stakeholders analysed above

The strategy would be acceptable to the major stakeholders identified above (namely; customers, suppliers, and employees) because it would secure their specific interests. The customers’ interest is to get the exclusive, specialized, differentiation and fashionable apparel, kids wear, homewares and furnishings products. While suppliers’ interest is to receive regular purchase orders and payments from Adairs for the products they supply. However the employees’ interest was to receive good pay, have job security, growth and development opportunities. All of these interests can be fulfilled by this strategy as by using this strategy Adairs could provide continued product and range differentiation which would enable it to increase sales and profits, which in- turn would create business for the suppliers and good pay and growth opportunities for the employees. (Adairs, 2015a)

c) Its consistency with the generic business-level strategy identified above

The generic business-level strategy of Adairs was identified as a differentiation strategy. This continued product and range differentiation to drive above-market like-for-like (LFL) sales growth are in line with the differentiation strategy. It is because under differentiation strategy the uniqueness is the source of the competitive advantage and the breath of competitive scope is focused on the target market. The selected strategy is also focused on continued product and range differentiation. (Adairs, 2015a)

d) Shareholder value implications of the strategy for Adairs

 The strategy is focused to achieve continued product and range differentiation to drive above-market like-for-like (LFL) sales growth. When the sales will increase it would likely to increase the profits and hence the shareholder value would also be increased by implementing this strategy. (Adairs, 2015a)

Selected Strategy Two – Continued store roll-out in Australia

 The above selected second strategy of Adairs is also reviewed based on the following four criteria.

a) The suitability and feasibility of the strategy in context with the TOWS analysis above

 In relation to the TOWS analysis above the selected strategy of continued store roll-out in Australia is a suitable and feasible strategy. This strategy would enable Adairs to seize the opportunity to increase the existing market share and expand its market share. From the last 5 years, the company is continuously opening new stores in Australia which has been identified as one of the strengths of Adairs. (Adairs, 2015a)

b) Its acceptability to the major stakeholders analysed above

The strategy should be acceptable for the major stakeholders as it would enable them to achieve their specific interests if the strategy is implemented. The continued store roll-out in Australia would result in the opening of new stores and so the customers would have more access to specialized and differentiated products. Moreover, the new stores would also create growth and new job opportunities for the employees. Furthermore, this strategy would also increase production and hence supplies from the suppliers. (Adairs, 2015a)

c) Its consistency with the generic business-level strategy identified above

The continued store roll-out in Australia is consistency with the generic business-level strategy because the new stores of Adairs are specialized and are based on differentiation, so as the generic business-level strategy of Adairs which also focused on uniqueness and target market. (Adairs, 2015a)

d) Shareholder value implications of the strategy for Adairs

 The strategy which is focused to achieve continued store roll-out in Australia may create value for its shareholders. When the new stores will be opened on a continued basis then if the sales will increase then it is likely to increase the profitability of Adairs and hence the shareholder value. However continued store roll-out in Australia would require Adairs to make investments, raise finance and if it would not result in increased sales then it could negatively result on shareholder value. Therefore this strategy may or may not result in shareholder value creation. (Adairs, 2015a)

Corporate Balanced Scorecard (BSC) for Adairs, which aligns with the generic business-level strategy and the strategies analysed in the previous part

 Strategy Map with clear linkages between strategic objectives across the four BSC perspectives

The above strategy map depicts a clear linkage between the strategic objectives across the four BSC perspectives.

A Balanced Scorecard containing strategic objectives, performance measures, targets and initiatives

  • The strategic objective of Adairs regarding the financial performance perspective is to increase its sales growth. The performance measure and target for financial performance is to increase its sales growth by 22%. The initiative in this regards is to continue opening new stores in Australia and source, design, manufacture, and distribute its products by using product differentiation. (Kaplan & Norton, 2006; Adairs, 2015a)