Meeting Preparation

Part
01
of four
Part
01

Bob's Discount Furniture - SWOT

While Bob's Discount Furniture benefits from its competitive price point, industry partnerships, scale in the US and customer loyalty, the company continues to be challenged by its reputation for selling cheap products and by intense industry competition.

Strengths

  • Bob's Discount Furniture benefits from a variety of strengths, including the company's competitive price point, industry partnerships, scale in the US and overall customer loyalty.
  • Notably, Bob's Discount Furniture launched as a disruptor in the US furniture industry by introducing an "everyday low price model" that significantly undercut its competitors.
  • Since then, the company has gained significant market share based on the perception that it provides more affordable home furnishings through its purchasing power, expertise and commitment to providing value for money.
  • Additionally, Bob's Discount Furniture has built on this price-centric model by establishing a variety of industry partnerships with organizations such as Fortiva and Genesis Credit, which give the company's customers the opportunity to "quickly and easily" finance their purchases.
  • In parallel, the company has developed a strength in its scale of operations, with Bob's Discount Furniture expanding into 18 states through its 119 furniture stores.
  • As of mid-2019, the company was the twelfth-largest US furniture chain, adding to the company's visibility with customers, influence with suppliers and overall opportunity for operational efficiencies.
  • Finally, Bob's Discount Furniture continues to benefit from "strong customer loyalty," as reflected in the company's A+ rating by the Better Business Bureau and overwhelmingly positive customer reviews.
  • In addition to the company's value-driven business model, Bob's Discount Furniture's unique and enjoyable shopping experience including complimentary "gourmet coffee, ice cream, cookies and candy" has established its position as a loved and regularly frequented shopping destination by customers.

Weaknesses

  • However, one of Bob's Discount Furniture's greatest strengths also represents a significant ongoing weakness for the company.
  • Specifically, Bob's Discount Furniture struggles with the consumer perception that it sells "cheap" products.
  • According to Bob's Discount Furniture CMO Steve Nesle, the company had historically misstepped by emphasizing the words "discount furniture" within marketing and promotional activities.
  • As a result, the company is commonly interpreted as selling cheaper alternatives to the better made furniture of its competitions.
  • To combat this, Bob's Discount Furniture recently launched a new brand campaign to "clarify" that the company offers "Bob's discount" rather than "discount furniture."

Opportunities

  • In parallel, Bob's Discount Furniture is also capitalizing on a number of market opportunities, primarily related to US consumer's shift to online shopping in the furniture industry as well as the growing movement around corporate social responsibility.
  • According to Forbes, one of the key reasons that Bob's Discount Furniture has survived the "retail apocalypse" is that it was quick to establish an omnichannel presence.
  • Recognizing changing consumer preferences and the increasing importance of online purchases, the company invested in a strong online presence, particularly through its corporate website (which receives approximately 2.5 million visits every month) as well as its social media channels on Facebook (139,084 followers), Instagram (36,600 followers), LinkedIn (13,118 followers) and Twitter (7,300 followers).
  • More recently, Bob's Discount Furniture has further embraced this market trend with the launch of an IOs and Android App that incorporates an Augmented Reality experience for customers.
  • In addition, Bob's Discount Furniture stands to benefit from the movement around corporate social responsibility in the US, given that the company is regularly active with charities including Alex's Lemonade and Big Brothers Big Sisters.
  • Notably, the company has been committed to philanthropic work for over 20 years through Bob's Discount Furniture Charitable Foundation, and the company's separate Bob's Outreach program donates more than $2.75 million to charities each year.

Threats

  • Perhaps the single biggest threat to Bob's Discount Furniture is the highly fragmented and increasingly competitive home furniture marketplace in the US.
  • Not only does the company face competitive pressures from more traditional furniture retailers (e.g., Ashley Furniture HomeStore) and discount alternatives (e.g., IKEA), but Bob's Discount Furniture is increasingly facing competition from more affordable online challengers such as Overstock.com, Amazon and Wayfair, all of which are growing rapidly in the marketplace.
  • Additionally, Bob's Discount Furniture is being challenged by new entrants to the industry, such as innovative retailers (e.g., Hem) as well as niche furniture stores (e.g., Campaign).
  • Although the US furniture market is expected to grow overall, the increasing size, number and diversity of furniture store retailers in the US have the potential to siphon off potential new customers from Bob's Discount Furniture as well as challenge the loyalty of the company's existing customer base.
  • Moreover, tariff pressure from the US-China trade war will likely represent a second significant continued threat for the company.
  • Notably, many furniture retailers have been "forced" to raise consumer prices given the 25% tax on imports from China, and discount retails that import goods from China are therefore losing some of their price and cost advantages against companies that sell American-made products.
Part
02
of four
Part
02

Michael's - SWOT

Michaels is the largest arts and crafts retailer in the United States. The company has experienced multiple cyber attacks and data breaches. This report provides a SWOT analysis of Michaels.

STRENGTHS

WEAKNESSES

  • In 2011, Michaels suffered a data breach that interfered with point-of-sale devices in the Chicago area. The company informed the public that their financial data is at risk. Lawsuits were filed against Michaels following withdrawal of funds from customers' accounts.
  • Another data breach occured in 2014. Michaels announced that they experienced security breaches at its stores and 3 million customer's cards were compromised. Michaels was sued by several clients who argued that their online security should have been improved following the 2011 attack. These two incidents harmed Michaels reputation and many customers were worried about their personal data.
  • Michaels does not ship to Canada or international addresses. Shipping globally will allow the company to reach more customers and expand their brand awareness.

OPPORTUNITIES

  • Michaels can combat cyber attacks by using artificial intelligence (AI) and machine learning (ML) behavioral analytics. These systems can monitor normal trading patterns and pinpoint a suspicious activity.
  • The company can benefit significantly from AI chatbots as they only have live chat. AI chatbots can operate 24 hours a day, provide answers quickly and improve customer engagement.
  • In addition, Michaels should ship their products to international destinations. This will not only improve their clientele and brand awareness, it will reduce the risks of product saturation.

THREATS

  • A study carried out by Pew Research Center shows that 51% of American YouTube users, use the online platform to learn how to perform new tasks. There are videos on YouTube showing customers how to make frames and crates. These products are sold by Michaels. As more people learn online how to creates these artefacts, it is likely that the demand for some of Michael's products will fall.

ADDITIONAL FINDINGS

  • In December 2019, Michaels announced that Ashley Buchanan (former Walmart executive) was named President and designated Chief Executive Officer (CEO).
  • Mr Buchanan will succeed Mark Cosby whose term as CEO ends in April 2020.

RESEARCH STRATEGY

This research required comparison between Michaels and its competitors. The starting point was to identify all the US companies in the arts and crafts industry apart from Michaels. We found that other significant players in this field are Ben Franklin, Hobby Lobby, Jo-Ann Stores and A.C. Moore. We examined each company's culture, structure, policies, marketing strategies, financial statements, listings, and customer reviews. It was found that these companies have a lot in common for example, they do not ship internationally. Furthermore, law reports involving these companies were consulted and analyzed.
Part
03
of four
Part
03

Bain Capital Portfolio Insights

Bain Capital is a leading investment firm with a large portfolio in diverse sectors such as real estate, technology, life science and impact investing among others. The company uses various growth strategies to make that it invests in the right businesses. Here are some insights into the health of its portfolio:

Healthy Acquisitions

  • In January 2019, Bain Capital acquired a majority stake in Brillio, a leading player in the digital transformation industry. Through Bian's support, Brillio is on course to achieve $500 million in annual revenue with the next 3 to 5 years. The company is leading other mid-sized firms in the digital transformation space in co-innovation, development velocity, and agile transformation.
  • When Bain Capital injected $105 million investment in Acorns in 2019, the company was valued at $805 million allowing it to stay ahead of the pack in the robo advisors market. With over 4.5 million customers and assets worth more than $1.2 billion under its management, this fintech company is set for growth.
  • According to Business Insider, part of the funding by Bain Capital will be used to fund a CNBC and Acorns marketing media deal. This strategic partnership with CNBC will see the media company produce content focused on financial literacy and personal finance to promote Acorns' products.
  • Bain Capital is committed to investing in companies that have a positive impact on people and the environment. Its double impact belief is manifested across its investment portfolio as well as in its strategy and business operations. For instance, 56% of its investment experts are from underrepresented persons and 71% of its companies link the compensation of senior management to impact metrics.
  • The investment of Bain Capital in A Cloud Guru was pivotal in allowing the technology company to acquire its competitor Linux Academy. With over 850,000 students, this company boasts of the largest cloud computing library in the world.
  • To accelerate growth in A Cloud Guru, marketing technology expert Katie Bullard took over as president in 2019. With a record of helping DiscoverOrg/ZoomInfo grow from $60 million to $400 million, the new president is a perfect strategic pick to take the tech company to new heights of success.

Troubled Acquisitions

  • iHeartMedia is now set on a recovery path after a successful restructuring in 2018. The company had filed for chapter 11 bankruptcy after failing to pay a $20 billion debt acquired during a leveraged buyout. According to 2019 projections, the firm expects an adjusted EBITDA of 27-29% with the available cash being used for debt reduction.
  • After a successful liquidation, the troubled Toys R Us is planning a comeback. The firm is planning to open 10 stores across the U.S. in 2020. Its new re-entry plan involves avoiding past mistakes such as huge debts, overconfidence and failure to adapt to competition from other players such as Amazon and Walmart.

Growth Strategies

  • With investment opportunities in private equity dwindling owing to competition and fears of an eventual economic downturn, Bain Capital is considering the buy and build strategy. This involves acquiring promising mid-sized firms and improving them through mergers or reorganization, then selling them off a profit when they have grown in value.
  • When handling mergers and acquisitions, Bain Capital identifies that the success of such deals depends on the precision of the transaction and integration teams to identify and capture synergies in the organizations involved. This is achieved by undertaking effective due diligence.
  • Another important strategy to ensure successful mergers and acquisitions is to set up a "clean team" that has no affiliation with the transacting organizations to oversee the transaction. This is key in protecting the confidentiality of the transacting organizations.
  • Like most private equity investment firms, Bain Capital is embracing portfolio diversification that doesn't stray too far from the markets it operates to stir up growth.


Part
04
of four
Part
04

Private Equity Case Studies

Two examples of private equity companies that have successfully undergoing a consolidation in terms of media buying include WPP and Mondelēz International.

Case Study 1: WPP and S4

  • Martin Sorrell began his run as the longest-serving chief executive of an FTSE 100 company in 1985 by buying a controlling stake in Wire and Plastic Products, a British wire shopping basket manufacturer, for $675,000. He joined it full-time as a CEO in 1986.
  • Under Sorrell, WPP grew into a massive marketing services firm with a $20 billion market value, 170,000 employees, and 3,000 offices in 112 countries by the time Sorrell resigned in April 2019.
  • Sorrell's primary reason for investing in WPP was its access to capital. The company's listing on the London Stock Exchange enabled him to issue stock to finance acquisitions of "below-the-line" agencies, less glamorous marketing services shops that enjoyed high margins and operated a highly fragmented environment that was primed for consolidation.
  • As WPP's acquisitions appetite grew larger, its economies of scale diminished. Hostile bids for J. Walter Thompson ($556M in 1987) and Ogilvy ($864M in 1989) were the first of hundreds of expensive acquisitions (including Y&R, for a reportedly $4.7 billion).
  • Because of that, WPP became a conglomerate of standalone agencies, triggering an arms race with competitors such as Publicis, Omnicom, and Interpublic, often resulting in overpaying for acquisitions.
  • WPP usually executed these acquisitions on an earn-out basis, whereby it paid half the purchase price up front, and half when the agreement was fully executed many years later. The earn-out basis required WPP to carry a heavy debt load.
  • Servicing that debt load came to a head in 2015, when "the Association of National Advertisers alleged that, the holding companies were paid illegally and clandestinely by media owners in order to skew media buys their way, thus putting their own interest ahead of their clients." Clients cut their spend and brought resources in-house, compressing agency margins. Between 2017 and 2019, WPP's stock price fell 40%.
  • Sorrell has moved on to a new investment vehicle, S4 Capital, which accessed the stock market through a reverse merger with a listed company. Instead of earn-out based acquisitions, S4 acts like a private equity firm, letting management retain half the equity, minimizing S4's cost of capital and debt load.


Case Study 2: Mondelēz International

  • In Fall 2019, holding company Mondelēz International began consolidating its creative advertising business by reducing its agency relationships from five (plus numerous smaller holding companies and various individual agencies) to two: WPP and Ogilvy.
  • The $25.7 billion company spends around $800 million on advertising across all channels.
  • Based in Illinois, Mondelēz owns snack brands such as Oreo, Ritz Crackers, Chips Ahoy and Cadbury. WPP, whose work will be led by Ogilvy and Publicis, will be responsible for the creative content of nine snack brands.
  • Mondelēz began its creative agency review process in March 2019. The consolidation began on September 1st, 2019 and is expected to be completed by the end of 2020. As of January 30, 2020, the company's stock price is up 12.24% compared to their November low of $51.70.

Mondelēz International CMO Martin Renaud told Forbes that the new model is a means of “streamlining and concentrating” the number of global partners. While it's unclear what unit economics metric the company will use to measure efficiency gains, Renaud says the company will:
  • Increase digital spend, which Renaud said now makes up about 40% of all advertising investment;
  • Make better use of data for personalized messaging;
  • Provide better access talent at both the global and local level by leaving room for local “guest” agencies in various key markets;
  • Increase spending on marketing and advertising overall, with a plan to "progressively increase the investment behind the brands, and at the same time improving the effectiveness."

  • To contextualize Mondelēz's digital spend, in Gartner’s 2019-20 survey of over 600 CMOs in the U.S., Canada and United Kingdom, respondents on average said they spend about 9% of their advertising budget on digital channels, including social media and mobile ads, and another 5.3% on paid search.
  • CMOs of CPG brands also said they plan to increase their spending on digital advertisement. According to Gartner, marketing leaders allocated about 10.5% to digital ads, which is slightly more than the 10% average digital spend reported by marketers overall.
  • Gartner reports that while global holding companies are streamlining their agency relationships to increase creative control, its mid-tier clients are abandoning the traditional agency-of-record model to a portfolio approach that include various specialist agencies.
Sources
Sources

From Part 01
From Part 02
From Part 03