Strategic planning is an organisation’s process of defining its corporate strategy, making decisions on allocating its resources to pursue its strategy, including its capital and human resources. In this modern and competitive era growing business, means taking timely, quick and accurate decisions about the way we want to grow our business. As an organisation grows, it becomes more and more complex for management to control. In this case, strategic planning is the key component for all type of organisations, which help them to keep on track. All organisations depend on strategic plan to keep the long-term focus synced up with day-to-day decision-making. From Board level to front line staff, everyone is aligned with the organisation’s strategy and vision. Because it is a road map to lead organisation from where it is now to where it would like to be in future. It is very important for management that they make sure, that all those who involved in any activity are clear about what that organisation is looking to achieve and how they are planning to do it.
The main source of information is included from official websites and reports published by companies. Moreover, references from different books, published journals articles, research reports and internet have been used to support the arguments.
Primark is an Irish clothing retailer. It opened its first store in Dublin in 1969 under the name of Penneys. The company head office is based In Dublin, and operates 193 stores in Ireland, UK and other European countries. Primark is a subsidiary of Associated British Foods Plc (ABF) and positions itself as marketing (selling) fashionable clothing at cheap prices, targeting women, men, children and supply home decoration goods. Primark aim is to focus on latest fashions and sell to its customers with the variety of design at affordable prices. Primark mission statement is “to provide customers with high quality, fashion basis at value for money prices” (Primark 2009).
According to clothing market review 2008, the United Kingdom retail clothing market was worth £42.45 billions in 2007. It account for almost 6% of total consumer spending which is lowest proportion in the history of UK. The reasons for decline in market were the declining prices and intense competition in the industry. Survey also shows that the cheap clothing market consumers will increase in the future and there is no sign of growth in market value over the next five years (Market Report 2008).
Primark face intense competition due to number of competitors (Appendix 1). According to Bowman’s Strategic Clock (1996), Primark is position itself in competitive environment at low price in his strategic clock (Appendix 2). This strategy helps Primark to analysis it competitive position in other competitors. Primark is fashion conscious targeting under 35s with the slogan “Look good pay less at Primark”. It offers good quality fashion clothes at very competitive prices. According to Porter Generic Strategies (1980) Primark is following cost leadership Strategy in retail clothing market. The success of this strategy is based on access to cheap resources and buying in bulk.
Michael Porter’s Five Forces (1979) Model of competitive position helps Primark to analyse its competitive position in the industry. Cost leadership strategy helps Primark to create barrier for new entrant to sell same products at lower price. Primark imports from Asian countries where cost of production is very low and buying in bulks help Primark to improve its Bargaining power. On the other hands, bargaining power of the customers is not very strong because no other retailer is selling trendy and fashionable products at such a low price. So all this help and provide a platform to Primark for expansion both gaining market share and entering into new markets.
PEST analysis can be used to examine the factors affecting on Primark’s external Environment. All four factors have a considerable impact on Primark’s environment. Political factors such as labour law, environmental, trade restrictions, tariffs, tax policy restrict Primark to operate within the limits. Economic factors such as interest rate, inflation rate, exchange rate, economic growth and disposal income affect Primark business operation and day-to-day decision-making. Social and cultural factors help Primark to take into account trends, fashion, growth rate in population, age, gender etc. Finally, technological factors helped Primark to reduce cost, improve quality and lead to innovation.
In UK, clothing market is very competitive and credit crunch made it worse. Primark is the only clothing retailer who gets benefit from credit crunch. According to Igor Ansoff (1957), Primark is penetrating the clothing market to targeting competitor’s customers and retaining existing customers. Sean Poulter (2008) report says, Primark sales rose over 25% in 2008 and gave Primark overall 10% market share of UK clothing industry. It made second biggest seller after M&S (12% Market Share). Primark has a very clear market positioning at the cheap end of the market.
For Primark internal environmental analysis, SWOT analysis is used to assess Primark’s internal capabilities, core competences while threats and opportunities assess external environmental factors. Primark SWOT analysis is shown in appendix 3.
F.W. Woolworths Company founded Woolworths in UK in 1909. In 1982 it was acquired by Paternoster Stores ltd, the subsidiary of Kingfisher Plc. Woolworths Group Plc was formed by the demerger of Kingfisher and began trading as listed company in August 2001. It inherited a mountain of £200 million debts, and costly lease agreements. Right from the beginning, it sold a variety of goods such as children’s clothes, toys, stationery, electronic goods and confectionery. Pic ‘n’ mix sweets and Woolworths have always gone together until went into administration. In first four years company really took off but after 2005 it faced constant decline in business and finally it went into administration on 27 January 2009 (Times Online 2008). This company was one of the biggest victims of recession.
Woolworth’s mission was “”to be at the heart of the community and the best loved retailer for kids, home and family leisure”. Vision was “to provide quality products and services to customer all the time through price strategies” Elrico (2002).
My aim is to analyse strategic planning process of Woolworths to analyse past seven years performance by using various strategic tools. Woolworth’s performance has been variable over the past few years and in 2005 private equity group Apax made a takeover bid, which was rejected by the board, and four weeks later they received another offer and it made Woolies future uncertain in retail sector.
Strategic planning is usually begins with external environmental analysis of the organisation. Competitors are the primary external consideration for strategic planning. For Woolworths Porter Five Forces (1979) can be used to analyse external environment. Woolworths failed to respond the threats of it competitors. They never made any strategy to build barrier for competitors such as ASDA, Tesco, Argos, Discount Stores etc. Its management always depend upon advertisement and customers’ loyalty. Perfect competition brought more choices for customers and due to intense competition (Rivalry) in the industry, profit squeezed and market demand saturated. Woolworth’s customers switched to its competitors. Woolworths faced huge problems with suppliers in last couple of year of trading and they forced to pay cash at the time of purchases because of lack of security.
According to Michael porter’s (1980) Generic Strategies to obtain competitive advantages, organisation must have one of the following strategies:
Woolworth get stuck in the middle without having any competitive strategy as a result competitors (ASDA, Argos etc) took advantages of that and stole all customers form it. They never released the importance of competitive strategy and had growth strategy to compete with competitors by opening new stores in different parts of the country. According to Igor Ansoff (1957), Woolworths had Market development strategy to target new customers.
Woolworth’s internal environmental analysis, SWOT analysis is the best tool, which can be use measure internal and external factors that affected on its strategic planning. Internal analysis examines Woolworth’s capabilities and external analysis examines factors that bring opportunities and threats (Appendix 4).
In the highly competitive environment in which all UK retailers are in war to sustain their position against competitors in this recession, Primark is doing remarkably well. The key of success in based on its well-planned strategies that evaluate internal and external factors that affect on it environment. On the other hands, Woolworths group Plc failed because, they were never thought about any strategy that gave them competitive advantages over any of its competitor. People and media said that Woolworths was the victim of recession but I would say it was the victim of bad management. My aim is to compare and contrast the strategic planning of both organisations. For this purpose, I have discussed few strategic planning models in critical analysis and now I am going to compare them and find out the reasons of success and failure.
According to Michael Porter (1980) to get competitive advantages organisation must follow one of its generic strategies. Primark slogan is “look good pay less,” means cost leadership strategy. Cost leadership strategy does not mean low prices but it lead to emphasize on efficiency by reducing cost in all departments. This strategy gave competitive edge to Primark over it competitors. According to Jonathan Prynn (2009), Primark has boomed in the recession with the British biggest discount clothes chain unveiled big increase in revenue and profits. Primark revenues increased from £1.17bn in 2007 to £1.6bn in 2008 and it jumped to £2.31bn in 2009. On the other hand, Woolworths was trading without having any competitive strategy, which help its management to focus on the ways in which it can achieve the competitive position in the retail industry. Its revenue declined since 2004 and in final year of trading, Woolworths announced pre-tax loss of £99.7m for the first six months. This is just because of Woolworths was stuck in the middle of competitive strategies for long time and management was not sure what price they charge to customers for particular products. Woolworths products were comparatively expensive than its competitors and customers realised their products are not good quality compare to the prices Woolworths charged.
Competitors are the real enemies for all organisations. Successful organisation always makes plans ahead to avoid the consequence of any threat from its competitors. Both organisations operate in highly competitive environment. Competitor analysis is very important for both organisations strategic planning. Sometimes organisations think that they are doing well and it is best to carry on with their plans and other become obsessed with monitoring every action of competitors. Woolworths Group Plc was well aware about competition. In Woolworth’s financial reports 2008, directors mentioned competition is a big risk for Woolworths but they did not come up with any strategy (carry on their own plans) that help Woolworths to maintain and improve it competitive position in the market. They lost most of there business to competitors. In clothing retail industry, Primark is also facing intense competition. Most of Primark’s competitors hold same percentage of market share as Primark have. Nowadays fashion has become disposable and to avoid competition Primark has led fast fashion revolution at lowest prices taking the fast fashion retail industry into new era. I would say Primark has emerged as the McDonalds of the fast fashion retail industry.
Customer’s analysis is an operative tool, which helps organisations to understand the specific customers demand, preferences and loyalty to the organisation. To keep competitive in today’s environment, organisations need to take an in depth look at customers to explore and identify opportunities and threats. I would say Primark is the market leader to understand customer’s demand and response quickly to the fast fashion requirements of customers. Primark’s “time-to-market has been very fast, both in terms of copying designs rapidly after they come out & in terms of getting the new stock into their stores while items are still ‘hot’” (R. M Grant, Blackwell 2009). New style, quality and low prices keep customers coming in and encourage them to come back again. All these help Primark to increase its market share and revenue. On the other side of the picture, Woolworths failed to focus on what they were good at, to sell to there customers and failed to identify their core products and customers. From customer’s point of view, Woolworths was a complete mish – mash with hundreds different types of products, but low product ranges. As a result, Woolworths did not have enough selection of any product to attract customers (John McMillan 2008). All these factors forced customers to switch to Woolworths competitors.
Organisations used marketing tools to create, keep and satisfy customers’ needs and demands. To get competitive advantages in the target market organisations use segmentation, targeting and positioning tools. These tools help organisations to differentiate there goods and services from their competitors.
Market segmentation help organisation to split customers or potential customers into different groups. Primark segments it customers on socio-economic (disposable income) and demographic (age, gender, lifestyle) bases. Robert Stockdill (2007) says in his report, “Primark’s target customer is young, fashion conscious and under 35 years old. So like many other retailers chasing that demographic or the broader value end of the market, Primark is now targeting a four to six week turnaround from design to shelf, sourcing primarily from Asia”. Primark also target low-income group who have less disposable income to spend on latest fashion. Woolworths was also segmented its customers on demographic bases but there aim was to target all customer in the market. They never identified their target customer, market and which income group they were targeting.
In market positioning, my aim is to create an image in the target market for both organisations, their products, and brands. Primark is known as cost leadership retailer in the market, which has over fifteen own brands (Appendix 5). Customers think that Primark’s products are good value for money. Woolworths also had very rich and successful long history with the number of brands such as Chad Valley, Ladybird, Winfield and Worthit etc. Form customers’ point of view both organisations market-positioning image can be mapped in the following Bowman’s Strategic Clock (1996);
Most organisations are affected by the fluctuation in business activity at different part of the year. According to director’s 2008 report, Woolworths was highly seasonal business. Most of its revenue, profit, and cash flow have been come from Christmas season. Lower than expected performance in the Christmas period may have adverse impact on overall Woolworth’s results. It happened continuously after 2004 with Woolworths and it performance was very unstable un-till it went into administration. Woolworths never made any strategy to avoid adverse affects of Christmas sales. Primark’ business is all four seasons. Although most of its sales come from Christmas season but other three seasons of the year its make good profit. According to (James Hall 2009) report, Primark total revenue reaches it highest level of £1 billion in first six months of trading, which is 18 % more than last year. Primark is the only largest fashion retailers around the world, who produce solid performance in credit crisis due to strong strategic planning.
Strategic planning is directional map, key instrument for strategic management for deciding where their company is headed and how they are planning to get there. Strategic planning is known as a process of defining strategy and making decisions on allocation of organisation resources to pursue strategy. It is a dynamic tool of continuously looking at organisational current position, examine and plotting future move. All this need in-depth knowledge and understanding about organisation and its internal and external environment in that operates in. the best organisations like Primark always engaged in some form of strategic planning to keep themselves update about internal and external environmental factors.
Based on my detailed strategic planning analysis of Primark, i would say that Primark has comprehensive strategy planning, which considers all-important factors that affects on its business environment. From my above research, I conclude that, there are number of reasons behind Primark success. Firstly, they understand customers’ specific requirements and always come up with the solution of latest fashion at low price. Secondly, Primark has a very clear market position at the cheap end of the market and target customers who have low disposal income and fashion conscious. All this gave Primark competitive advantage over its competitors. Third, Primark has access to cheap resources and has very tight control over costs, which help them to increase profitability.
Many people say Woolworths was the victim of credit crises. Other says Woolworths faced financial pressures (received over £200 million debts in inherent and seasonal business crises) and severe competition from day one, so that is why it failed to survive. From my above discussion and analysis, I conclude that Woolworths was the victim of bad management and poor strategy planning. From my above discussion, I have mentioned several reasons of Woolworth’s failure. Woolworths completely failed to respond the threats of competitors, new technologies, customers buying patterns and target market. The world change very fast in 21st century and strategy worked in 1990s does not work today. Woolworths was keeping the old fashion strategy and planning to run business successfully in 21st century, where yesterday’s strategy could be out date today. World has become global village and customers have many choices to buy products from any were in the world through internet. Ignorance of all these external factors have leads Woolies to lose their business to competitors.
Finally I would say the key of success is to do few things right like Primark, not 100s things badly like Woolworths, keep ears and eyes open, monitor your internal and external environment, and response best to the threats and convert into opportunities.