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Strategic Management : WHL And DJL Acquisition

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Question:

Discuss about the Strategic Management for WHL and DJL Acquisition.
 
 

Answer:

Introduction

WHL’s strategic objective shows that it intends to measure its performance beyond the financial terms. The firm’s long-term success is depended on the Group’s ability to implement its strategy thus achieve the strategic objectives. WHL would want to remain “the leading retail group in the Southern hemisphere” (WHL 2015: 1). For WHL to stay competitive, it has opted to build profitable customer relationships, become an Omnichannel business, and big food chain retail. The largest South African retail firm has always used partnership and acquisition to penetrate different markets. For instance, Austrasia region and Africa, the firm has variuos subsidiaries. Recently, it opted to acquire David Jones Limited thus open an upmarket department to counter the competitive pressure in the market.

Analysis of WHL’s and DJS’s Vision and Mission

WHL has the established a mission that shows that it intends to remain “the first choice for customers who are focused on sustainability, innovation, and value” (WHL 2015, 10). As the value-based leadership business, WHL intends to remain a passionate brand across all dimensions. WHL (2015) has identified that it can only achieve meaningful business growth by penetrating customer target markets and offering quality products at affordable prices. By acquiring DJL, WHL will become a customer-centric thus building a stronger customer relationships. David Jones has also become an extraordinary retailer for everyone. Its vision focuses on being “the first destination for style and a seamingless customer experience” (David Jones n.d). It intends to achieve its vision by opening additional stores that offer customers the best local and international brands across home, beauty, and fashion. Therefore, the purpose, value, and vision of DJL define the business thus deliver customer-centric outcomes (David Jones n.d).

Since these companies almost share vision of becoming customer-centric and delivering quality products, the acquisition would be successful. The WHL will not have to impose the workers to get training to meet the new demands.

 

WHL’s and DJS’s Current Competitive Strategies

WHL is an established firm that offers affordable products in a broad differentiated scope. It values its customers and responds to their needs. Woolworths has introduced a better pricing strategy because of its economies of scale and low cost outsourcing. The company uses the global and scale “sourcing opportunities to deliver more competitive pricing for customers” (WHL 2016: 5). This makes WHL the best-cost provider because it focuses on serving customers. WHL has also used broad differentiation to meet the demand of customers. The $3.3 high-end department retail chain provides clothing, food products, home goods, beauty, and financial services. The South African store chain operates franchise partnerships in the Middle East and Africa to remain relevant around the world. David Jones’ is a low-cost provider whose pricing strategy is a threat to other players such as Coles and Woolworths (Pash 2016).

The company is also market niche where it engages in the apparel products. However, recently, the company has been squeezing at both market ends thus embracing broad differentiation. The company is enhancing premium food selection to allow it competes. Following the $2.2 acquisition of DJL by WHL, the South African company is opening upmarket food stores (Pash 2016). The acquisition is beneficial because the company will now expand its market base to accommodate the low- to upper-income customers. David Jones has invested heavily building a strong relationship with local suppliers and build infrastructure capabilities to bridge the gaps experienced in the local market.

Most of the customers of this firm have strong bargaining power, as they are individual buyers. Such customers can be attracted to convenience and favourable prices products. They have special traits to make purchasing decision based on convenience and price.

WHL depends on its supply strength and efficient supply chain. The Country Road supermarket confirms its ability to find the best suppliers. To this effect, the suppliers’ bargaining is weak.

The rate of rivalry is high in the Australian retail market. SHL has to face stiff competition from international retailers like Smart and local competitors as Myer.

The existing competitors such as Aldi, IGA, Costco, and Coles have become dominant players in the market. These competitors use different variable accesses to distribute their trusted brands. To this effect, the new entrants would face difficulties because of high competitiveness.

The Australian grocery and retail industry faces strong competition. Companies such as Coles have WHL’s market share limited because they contribute to high concentration levels.

Based on the Porter’s five analysis, it is evident that the company will benefit from the acquisition because it will raise its stake in the Australian market. The competitive advantage of the acquisition would involve maximizing DJL’s market presence to expand its market share that appears threatened by high rivalry. With core competencies such as innovation, branding and market, integration, and excellent supply chain, WHL will outsmart other established firms.

 


WHL realized the best financial performance that has given it an opportunity to acquire the DJL at $2.1 billion. It also enjoys a strong reputation and trusted brand name thus gives an edge to expand the market share by increasing the customer base. WHL has established a strong supplier relationship, thus serving its retail stores are predictable. However, the firm’s limited geographical share is a weakness that the acquisition will resolve. The acquisition stands to expand its geographical market share, as it will access the Austrasia markets. The company also offer similar products and services under a roof. Therefore, the acquisition of DJL will expand its product portfolio, as it will introduce apparels as part of the product line. To counter stiff competition, the online retailing offers WHL an opportunity to grow. It should diversify into the health food sector to maximize its performance.

This SWOT analysis defines WHL’s experienced business units. With this experience, WHL has the best opportunity to counter other established firms in the market. The weaknesses that WHL must consider include high investments in R&D and competitive market (Smyth & England 2014). The retail market in Australia seems to attract different international retailers thus posing a great threat to the South African company. The firm needs to improve its investments in research to make it competitive. However, the company’s new acquisitions offer a significant opportunity for growth. With the growing demand in the market, WHL will improve its competitiveness and expand into other global markets through acquisitions. Conversely, WHL has to be concerned of the increasing costs and rates of interests. The market also faces external business risks and cash flow that threaten WHL.

The prospects of this acquisition seem positive thus strengthen the company’s competitiveness. For instance, DJL is an established brand name in the Austrasia market, and WHL will optimized the established networks to serve the market. With expanded market base, the company will maximize sales, use economies of scale, and double its operations thus make it competitive. DJL has always invested in R&D and has the top talents in the management. The company can utilize these resources to enhance its productivity (Smyth & England 2014). Therefore, the proposed acquisition of DJL will be prudent.

International Marketing Strategies and Reason for using Acquisition Strategy

WHL is never a new player in Australia as it has worked with its subsidiary to operate its retail business. The company has also used acquisition as a strategy to gain access to the Australian market.  The combination of David Jones and Woolworths offers a significant edge thus benefit both customers and companies. With the combined Group, the organization stands to increase its efficiencies and economies thus enhance global sourcing and leverage fashion and seasonality trends. Based on the proposed acquisition worth $2.1 billion, David Jones Limited will be a wholly owned subsidiary of the South African retailer. After the completion, DJL will be delisted from the ASX (WHL 2014).

 


The WHL’s strategy to acquire the DJL was timely as it stands to “strengthen its department store model against global competitors” (Fickling & Kew 2014, par. 1). The strategy stands to benefit the Cape Town-based retailer because it will breathe new life by maximizing the David Jones brand (WHL 2014). The company will expand its grip in the international market because the apparel companies have continued to seek opportunities in Australia and South Africa. The retailer intends to use own-label sales and reduce prices at David Jones. This will help WHL to boost its revenues, in particular, after introducing a loyalty-card project. The merger will make WHL the largest department-store operator in the Southern Hemisphere with projected revenues of about A$5.7 billion (WHL 2014). Woolworths Holdings Limited enjoys a majority stake in the second wealthiest country in the Southern Hemisphere as it has established about 470 outlets (Fickling & Kew 2014). To this effect, it can defend its market position from the retailers from the northern hemisphere.

The acquisition strategy could have been miscalculated and even the WHL manager says that it looks expensive but it stands to benefit the retailer in the long-term (WHL 2014). Since David Jones is a leading brand in Australia and has enjoyed a significant customer positioning, the acquisition place WHL at the premium end. It will enjoy a strong aspirational brand identities as it align its values that always put customers first by offering quality and excellent services. Similarly, David Jones is a prominent department store in Australia, and it operates about 38 departments in this country. It also opens flagship stores in Melbourne and Sydney (WHL 2014). The combination of these two retailers offers a significant advantage that stand to benefit customers and the companies. The WHL will increase its scale thus driving significant economies and efficiencies through the potential to leverage shared trends and seasonality and enhanced global sourcing (WHL 2014). The acquisition strategy will improve the company’s overall profitability and improve customer value. Therefore, both businesses will be positioned to counter the global retailers in the respective markets.

The acquisition will offer the companies strategic opportunities because as they work together, WHL will optimize the capable management team thus accelerates David Jones’ strategic programs thus grow and consolidate its performance and competitive position (WHL 2014: 3).

With the rapid rate of internationalization of various retail companies to enjoy a higher profitability and growth, the local companies are experiencing the heat because the foreign companies earn income from their international operations. Roberts (2005) believes that marketing is the only tool that guarantees a company growth. In case of a new product launch, new industry upstart, market entrant, the incumbent must defend its market position. For instance, the Myer Store Group must seek solace to restore and retain its market position. The company is already making itself ready for the battle by improving its armoury stores, better training its staff, better online services, and broadening the loyalty programs. These are some of the defensive strategies Myer has retagged as Fortress Myer using to battle WHL (Knight 2014). David Jones’ pricing strategy has always been a nightmare because it has always caused a significant price war thus the competitors needed to respond. Myer had to respond to the pressure by considering a potential takeover target because it had failed to merge with David Jones (Goria 2012).

 


With the share price weakening, Myer was becoming more vulnerable thus affecting the company’s profits and sales. According to Roberts (2005), the defensive strategy is meant to help companies to overcome the rivalry in the market. The incumbent has to protect its territory by discouraging the challengers from expressing substantial commitments thus dissuade the rivals (Goria 2012). The incumbents can begin with position defensive so that they can hold their current position by building customer loyalty and brand image. These incumbents need to invest in the current markets. Additionally, the companies can investment in mobile defensive strategy that allows the companies to be flexible thus adjusts to the new environment. This will involve making constant changes like introducing new products and improving its current products. The companies should further use flanking defensive by diversifying and entering new markets (Goria 2012). This strategy will ensure it compensates the losses from the new entrant.

Muscle flexing strategy could also help the incumbents and other international players. It ensures the dominant leader protects its competitive role against rivals that threaten its position. It involves adding new market offensives and making price cuts (Spark 2016). It would be prudent for the incumbents to offer better products and large promotional campaigns to maintain and attract new customers.

 

Bibliography

David Jones. (n.d) “David Jones Retail,” LinkedIn. (available from https://www.linkedin.com/company/david-jones)

Fickling, D., & Kew, J. (2014) “Woolworths $2 Billion David Jones Deal Bolsters Department Model,” Bloomberg, April 9. (available from https://www.bloomberg.com/news/articles/2014-04-08/david-jones-agrees-to-south-africa-s-woolworths-2-billion-bid)

Goria, S. (2012) “How to Adapt a Tactical Board War-game for Marketing Strategy Identification,” Journal of Intelligence Studies in Business. Vol. 2, No. 3, pp. 12-27.

Knight, E. (2014) “Fortress Myer is Looking Defensive.” The Sydney Morning Herald, September 11. (available from https://www.smh.com.au/business/comment-and-analysis/fortress-myer-is-looking-defensive-20140911-10f9al.html)

Pash, C. (2016) “Why David Jones’ ‘Less Price Sensitive’ Customers are a Threat to Woolworths and Coles,” Business Insider, Sept 1. (available from https://www.businessinsider.com.au/why-david-jones-less-price-sensitive-customers-are-a-threat-to-woolworths-and-coles-2016-9)

Roberts, J.H. (2005) “Defensive Marketing: How a Strong Incumbent Can Protect Its Position.” Harvard Business Review, November Issue. (available from https://hbr.org/2005/11/defensive-marketing-how-a-strong-incumbent-can-protect-its-position)

Smyth, J. & England, A. (2014) “Woolworths Wins Retail Battle for David Jones with A$2.15bn Offer,” Financial Times, April 9. (available from https://www.ft.com/content/213d1d68-bf8b-11e3-b924-00144feabdc0)

Spark, J. (2016) “Offensive and Defensive Strategies for Industry Leadership,” My Venture Pad, September 26. (available from https://myventurepad.com/offensive-defensive-strategies-industry-leadership/)

WHL. (2014) “Woolworths South Africa to Acquire David Jones to Create a Leading Southern Hemisphere Retailer,” Press Release, April 9. (available at https://www.woolworthsholdings.co.za/whl_mini_2014/pdf/press_release_final.pdf)

WHL. (2015) “2015 Integrated Report. (available from https://www.woolworthsholdings.co.za/investor/annual_reports/ar2015/whl_2015_integrated_report.pdf)

WHL. (2016) “WHL’16,” 2016 Interim Results. (available from https://www.woolworthsholdings.co.za/investor/interims/interim_results_2016/downloads/whl_analyst_presentation_2016.pdf)

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