strategic management case analysis

8/15/2019 Strategic Management case analysis

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De La Salle University - Manila

Master of Business Administration

In partial fulfillment of the requirements forStrategic Management Course

(BUS835M)

SSI Group Inc. CASE ANALYSIS

Submitted to:

Professor Joseph Pangilinan

Submitted by:

Karen G. Supapo



""

EXECUTIVE SUMMARY

SSI Group Inc. holds majority the luxury brands to be exclusively distributed in the

Philippines. Being in a highly competitive market, SSI Group Inc. needs to consider new entrants

in the market brought about by the ASEAN Integration and the Bilateral Trade Agreements of

the Philippines and other States.

SSI Group Inc. as an institution in the specialty retail industry has a competitive

advantage over its competitors for its services it delivers to its valued clients.

However, due to its large investment for the consolidation of companies and its strategy

to open its corporation to the public, its financial strength became weak for 2013 and 2014. As

such, its generic strategy is on focus differentiation, complementing it with competitive strategies

to enhance its financial strength while maintaining its competitive advantage for it to become

aggressive in the industry.

Indeed, SSI Group Inc. will need to boost its sales through the efforts of the sales and

marketing departments. Also, its finance department and operations will roll out a plan that will

make the strategy financially supported and making its operation more efficient.



"""

ACKNOWLEDGEMENT

To Almighty God, I trust and believe in you! Thank you for all the blessings!

To the Department of Foreign Affairs Office of Legal Affairs, especially Division I

headed by Atty. John Reyes, Atty. Edgar Adolfo Guibone, and Ms. Cristina Telan, thank

you for the understanding, consideration and unwavering support in allowing me to finish this

paper.

To my parents, thank you so much and I love you both!

To the JD-MBA Batch 2017, this is it! We are almost done.

To my MBA and JD Professors, thank you for the wisdom.



"#

TABLE OF CONTENTS

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ACKNOWLEDGEMENT ................................................................................................................... ///

TABLE OF CONTENTS .................................................................................................................... /0

I. INTRODUCTION .....................................................................................................................1A. Purpose of the Case Study .................................................................................................................. 1 B. Why SSI Group Inc.? ........................................................................................................................... 1

II. AREAS OF CONSIDERATIONS ..........................................................................................2A. External Environment Analysis (Pestled, Porter’s, EFE) ............................................................ 2

1. The Specialty Retail Industry $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ % 2. Analysis of Present Task Environment (Porter’s Five Forces Analysis) $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ % 3. Analysis of Potential Changes in the Macroenvironment (PESTLED) $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ & 4. Threats and Opportunities (External Factor Evaluation) $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ' 5. Industry and Competitive Analysis $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ( Source: Euromonitor International (2014) Luxury Goods in the Philippines $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ )* 6. Analysis of the Macroenvironment $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ )* 7. Broader Societal Expectations $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ))

B. Internal Environment Analysis (Value Chain, Financial Analysis) ........................................ 11 1. Company Profile $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ )) 2. Organizational Chart $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ )% 3. Value Chain Analysis $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ )% 4. Financial Statement Analysis $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ )+

C. Analysis of Internal Factors ............................................................................................................ 21

III. STRATEGIC PLAN ............................................................................................................... 23A. Vision And Mission Statement (Collins And Porras) ................................................................ 23

1. Vision Statement $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ %, 2. Mission Statement $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ %, 3. Analysis of the Vision Statement using Collins and Porras Framework $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ %, 4. Analysis of the Mission Statement $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ %-

B. Objectives ............................................................................................................................................. 24 C. Evaluation of Present Corporate Strategies (TOWS Analysis) ............................................... 25 D. Proposed Corporate Strategies (SPACE Matrix) ....................................................................... 26

1. Competitive Advantage $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ %. 2. Space Matrix $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ %'

IV. FUNCTIONAL AREA STRATEGIES .............................................................................. 37A. Marketing ............................................................................................................................................ 37

1. Identifying Target Marketing Segments $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,* 2. Marketing Objectives $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,) 3. Marketing Plan $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,)

B. Operations ........................................................................................................................................... 32 1. Operational Objectives $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,% 2. Operational Plans $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,%

C. Finance ................................................................................................................................................. 32



#

1. Financial Objectives $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,% 2. Financial Plan $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,,

D. Information Management ................................................................................................................ 33 1. Information Management Objective $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,, 2. Information Management Plan $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,,

V. STRATEGY EXECUTION .................................................................................................. 34VI. FINANCIAL PROJECTIONS ............................................................................................. 35



)

I. INTRODUCTION

A. Purpose of the Case Study

The purpose of the study is to determine the present position of SSI, analyze its

environment and know its strengths and weaknesses to come up with a more relevant strategy

that will answer the existing problems and help the company become well prepared for the future

to have a sustainable development.

B. Why SSI Group Inc.?

SSU Group Inc. is the largest distributor of luxury brands in the Philippines. It is the

exclusive distributors of well-known brands such as Lacoste, Prada, Gucci, and Hermes to name

a few. As an established company, it employs approximately 7,000 employees from store

personnel to executive and managerial personnel. As the largest distributor of high-end brands in

the Philippines, it is in the position to introduce premium goods in the Philippine market.

Likewise, the researcher is a former internal auditor of the SSI Inc. a year before it

decided to be a public corporation and consolidate itself as SSI Group Inc.



%

II. AREAS OF CONSIDERATIONS

A. External Environment Analysis (Pestled, Porter’s, EFE)

1. The Specialty Retail Industry

In general, the specialty retail industry consists of the apparel, computer and electronics,

home improvement, specialty stores, automotive and hoe furnishing retail sectors.1 The apparel

retail segment accounts for a further 16.2% of the industry. Its main activity is the operation of

retail luxury brands.2

2. Analysis of Present Task Environment (Porter’s Five Forces Analysis)

a) Supplier Power

Source: MarketLine (2014)

The key suppliers in this industry are clothing manufacturers and wholesalers. The

wholesale and clothing manufacturing sectors are fairly fragmented. Supplier fragmentation is

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Forward integration

Importance of quality/

cost

No substitute inputs

Oligopoly threatPlayer dispensability

Player independence

Supplier size

Switching costs

Supplier Power in the Apparel Retail Industry in

the Philippine 2014



,

made greater by the ability of retailers to source from foreign manufacturers. Although retailers’

switching costs are not very high, switching includes the risk of choosing a supplier with a more

extended supply chain or who may not be able to cope with sudden changes in demand on the

market. The lack of diversity between suppliers weakens their power as the apparel retail

industry is highly important to their business. As apparel manufacturing is labor intensive due to

difficulty of automating processes, the existence of minimum wage in many countries slightly

increases the power of suppliers of labor. Overall, supplier power in this industry is assessed as

moderate.

b) Buyer Power


According to MarketLine (2014), buyer power in the apparel industry is weakened by the

small size of buyers: virtually all buyers are individual consumers. Likewise, retailers tend to

have large numbers of individual customers, which further weakens buyer power, as the loss of

one is unlikely to have a significant impact on revenues.

Brand loyalty is not the absolute overriding factor in decision making of buyers despite

their prevalent brand consciousness. Buyer power is enhanced by a high level of choice, which is

generated by the absence of switching costs. Brand loyalty within the top end of the apparel

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Buyer Power in the Apparel Retail Industry inthe Philippines 2014



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retail industry is connected more with the particular designer than the retailer, although some

labels also have their own retail operations. The depth of price sensitivity varies regionally,

although clothes are perceived as closely linked to lifestyles and social status, which grants

retailers the opportunity to influence consumer behavior. Buyer power is weakened as retailers

can differentiate themselves fairly strongly through the styles of clothing offered and its price

range. As apparel is an essential item for consumers and the players are significantly exposed to

the penetration of marking icons and images into most forms of media.

Despite consumers lacking financial muscle, the position of retailers at the end of the

value chain makes it impossible to integrate forward. This means that they are obliged to offer

buyers what they demand, in a market often subject to unpredictable and rapid changes in

fashion. These factors strengthen buyer power. Overall, buyer power is assessed as moderate as

illustrated above.

c) Degree of Rivalry


The Philippines’ retail industry is typically composed of large numbers of similar retailers.

Nonetheless, large small industry players can still compete in this industry.

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d) New Entrants


Based on past sales by large retailers, there is an increasing trend on the consumption,

which means that the industry is growing despite the worldwide recession and because of the

influx of dollars brought about by the BPO industry and the remittances from OFWs. Likewise,

barriers to entry are not high, with capital requirements being low enough for individuals to

enter. However, a small number of large corporations, such as Fox Wizel and Fast Retailing,

account for a significant share of total market revenues. They benefit from scale economies that

allow them to build brands in multiple retail outlets, and greater buying power when negotiating

with suppliers. The latter allows them to compete more intensely on price. There is little

regulation as such for retailers in the market, but there are some self-imposed conventions related

to child labor, working conditions and workers’ wages. New entrants who are known to have

items manufactured outside of such conventions may lose customers and suffer long-term

reputational damage. Low switching costs for buyers and a low level of product differentiation

make it easier for new entrants to compete with existing players. Overall, there is a strong threat

of new entrants to this market.

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Low fixed costs

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Scale unimportant

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Weak brands

New Entrants in the Apparel Retail Industry in

the Philippines 2014



.

e) Substitutes


As there are no substitutes to apparel, there are alternatives to retail. It can be purchased

directly from the manufacturer as opposed to the conventional distribution chain. This is

facilitated by the growth of online sales. All major apparel retailers now have their own online

stores as there is an increased consumer acceptance of the internet, as an alternative shopping

channel.

A growing number of “pureplay” online fashion stores have emerged in the market, as

they look to take advantage of lower running costs from not having to pay for the overheads

incurred by running a high street store. The online retail avenue opens the door for manufacturers

who may be tempted by the opportunity of selling directly to end users without the need for the

retailer.

Homemade and custom-made (couture) clothing are also niche alternatives to the retail of

ready-made clothes. Counterfeit clothing can be a significant threat to the revenues of

manufacturers. Another option is purchasing second-hand clothing from charity shops and

internet sites such as eBay.

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Threat of Substitutes in the Apparel Retail

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The threat of substitutes to the apparel retail industry is assessed as weak overall.

3. Analysis of Potential Changes in the Macroenvironment (PESTLED)

a) Political

ASEAN countries will have its full integration as one economic community by 2016.

This is brought about by the desire the all ASEAN member countries to boost its economy and

have a free trade between member states.

b) Economic

The Philippines is a booming economy, as it no longer considered as a sick man in Asia.3

c) Social

Consumers desire to upgrade their lifestyle through luxury goods as until now, one’s status or

social class is being attributed to brands bought by consumers. There is also an increasing trend

for disposable incomes

d) Technological

Though internet retailing is emerging in other countries, this is not the case in the

Philippines as consumers prefer store-based retailing when it comes to luxury items as

proliferation of fake goods sold in the internet is prevalent.4

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e) Law

As the Accelerated Integration of the ASEAN members will be fully implemented in

2016, a lot of investors from non-ASEAN countries are eyeing to invest in the Philippines. As

such, bilateral trade agreements are created between countries promoting free trade and exchange

of knowledge.

f) Environment

As more and more countries are experiencing the effect of climate change, a pressure to

be socially responsible for the environment pushes the textile and retail industry to be conscious

in closing the loop from acquiring raw materials to recycling its products to avoid dumping it as

garbage.

g) Demographics

Based on Marketline, the total population in the Philippines from 2011-2014 increased in

a constant rate of 1.7% year-on-year as indicated in Table 1 below:

Table 1. Population Growth in the Philippines

Year Population

(in millions)

%

Growth2010 94.0 1.90%

2011 95.6 1.70%

2012 97.3 1.70%

2013 99.0 1.70%

2014 100.7 1.70%Source: MarketLine (2014)

Based on the analysis of Euromonitor International, the Philippines’ middle class will

expand by 24.9% by year 2030.5

4. Threats and Opportunities (External Factor Evaluation)

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5. Industry and Competitive Analysis

a) Strategic map

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b) Market definition

The apparel retail industry consists of the sale of all menswear, womenswear and

childrenswear. The menswear market includes men’s activewear, casual wear, essentials, formal

wear, formalwear-occasion and outerwear. The womenswear market includes women’s

activewear, casual wear, essentials, formal wear, formalwear-occasion and outerwear. The

childrenswear market includes baby clothing, boys activewear, boys casual wear, boys essentials,

boys formalwear, boys formalwear-occasion, boys outerwear, girls activewear, girls casual wear,

girls essentials, girls formalwear, girls formalwear-occasion, girls outerwear and toddler

clothing.

c) Market distribution

Clothing, foot/sportswear & accessories retailers form the leading distribution channel in

the Filipino apparel retail industry, accounting for a 59.7% share of the total industry’s value as

indicated in the table below:

Channel % Share

Clothing, foot/sportswear & accessories retailers 59.7%

Department Stores 27.7%

Hypermarket, supermarket & discounters 8.2%

Discount, variety & general merchandise retailers 3.3%

Other 1.1%

Total 100.0%Source: MarketLine



)*

Source: Euromonitor International (2014) Luxury Goods in the Philippines

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6. Analysis of the Macroenvironment

External Environment Effects on Barriers,

Determinants and

Factors

Effects on 5-Forces Conclusion

(Threat or

Opportunity

P Accelerated integration of ASEANEconomic Community

Number of key playersin the market will

increase

The degree of rivalry will be intensified as the

competition becomes stiffdue to new entrants

Threat

E Rising economy of the Philippines Buyer size increases asmore Filipinos can now

Buyer power increases Opportunity

LVMH Moet

Hennessy, 17.8

Lacoste SA, 7.7

Rolex SA, 5.7

Others, 38.4

Company Shares of Luxury Goods: % Value 2014



))

afford luxury goodsdue to rising disposable

income of middle-income earners

S Rising living standards of the Filipinos

brought about by the increase of theirdisposable income

Financial muscle of

consumers strengthen

Buyer power increases as

it demands quality andselection of choices

Opportunity

T Internet usage will continue to grow andadapted by Filipinos

Internet-based sales asalternative to retail

Increases threat ofsubstitutes of store-based

retailing

Threat

L Relaxing of laws for economic trades

between ASEAN countries and othercountries thru bilateral trade agreements

Number of key players

in the market increases

Increases new entrants in

foreign markets

Opportunity

E Growing concerns to act for climatechange

Players in the industryare pressured to self-

regulate as a matter of

concern for theenvironment

Threat of new entrantsdecreases

Opportunity

D The population in the Philippines has an

average 1.7% growth

Oligopsony threat

decreases

Buyer power decreases Opportunity

7. Broader Societal Expectations

a) Corporate Social Responsibility

Key players in the textile and apparel industry are now conscious on how its products inthe after sales affect the environment and how it should be address by these key players.

B. Internal Environment Analysis (Value Chain, Financial Analysis)

1. Company Profile

SSI Group, Inc. is the leading specialty retailer in the Philippines with an extensive

portfolio of established international brand. SSI Group Inc. leads the Philippine specialist retail

market in terms of the size and breath of its international brand portfolio and store footprint. It

was incorporated in 2007 as Casual Clothing Specialists Inc. (CCSI) and undertook restructuring



)%

in 2014. Nonetheless, the operations began in 1987 as Stores Specialists Inc, now a subsidiary of

SSI Group Inc with a retail pedigree dating back to the founding of the Rustan’s Group in 1951.

Brand management and specialty retailing is the Group’s principal business. The Group’s

position as exclusive franchisee of well-known and prestigious international brands and its

extensive and diversified portfolio enable it to secure prime retail space appropriate to the

brands. SSI Group’s brand portfolio can be broadly classified into five categories: 1) luxury and

bridge, 2) casual, 3) fast fashion, 4) footwear, accessories and luggage, and 5) others. SSI Group

manages more than 106 brands, which includes Hermes, Prada, Gucci, Michael Kors, Tory

Burch, Jimmy Choo, Zara, and Burberry among others.

2. Organizational Chart

3. Value Chain Analysis

a) Primary Activities

(1) Supply Chain Management

100%

100%

60%

50%

60%

Samsonite

Philippines, Inc. (21)

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

40%

50%

100%

100%

SSI Group, Inc. (1)

Stores Specialists, Inc. (2)

Specialty

Investments, Inc. (3)

Global Specialty

Retailers, Inc. (4)

SIAL SpecialtyRetailers, Inc. (5)

SIAL CVSRetailers Inc. (6)

PFM (20)

Rustan Specialty Concepts,

Inc. (7)

Specialty Office Concepts,

Inc. (8)

Footwear Specialty Retailers, Inc. (9)

International Specialty Concepts, Inc. (10)

International Specialty Fashions, Inc. (11)

International Specialty Retailers, Inc. (12)

International Specialty Wear, Inc. (13)

Luxury Concepts, Inc. (14)

Rustan Marketing Specialists, Inc. (15)

Specialty Food Retailers, Inc. (16)

Casual Clothing Retailers, Inc. (17)

Fastravel Specialists Holdings, Inc. (18)

International Specialty Apparel, Inc. (19)

Varejo

Corporation

SamsoniteCorporation, Inc.

50%50%

SKL International, Limited (20)



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5Q4241@542 1AA?G154; F42 "54J F42 =5?24$ O?2 =5?24= A?G154; "7 _<5> O244[ "5 Q1= 1 D?7;4;

L124Q?<=4 7412 5Q4 1"2F?25$

(2)

Operations

SQ4 C47421A 0171M42 J171M4= 5Q4 ?F4215"?7$ SQ4 d241 0171M42= 124 51=3 5?

?#42=44 =4#421A =5?24= <7;42 Q42 =<F42#"="?7$ EE: C2?<F :7G$ Q1= =45 <F =5?24= "7 5Q4

@?AA?L"7M A?G15"?7=

(3) Distribution

EE: C2?<F :7G$ Q1= "5= ?L7 A?M"=5"G=$ 6"34L"=4[ 5Q4 D?<5"e<4= 124 =52"G5A> <7;42 5Q4

=<F42#"="?7 ?@ 5Q4 F2"7G"F1A @2?J 5Q4 A1>?<5 17; Q?L 5Q4 F2?;<G5= 124 12217M4; "7 5Q4

=4AA"7M 1241$ EE: C2?<F :7G$ A41=4= 17 1241 "7 J1AA= L"5Q =F4G"@"G15"?7= <7;42 =<F42#"="?7 ?@

5Q4 /2"7G"F1A$ EE: C2?<F :7G$ G?7;<G5= D";;"7M @?2 5Q4 G?7=52<G5"?7 ?@ =5?24= D<5 J171M4;

D> "5= ?L7 47M"7442"7M ;4F125J475$ 6"34L"=4[ EE: C2?<F :7G$ Q1= 5Q4 @?AA?L"7M 7<JD42 ?@

D217;=[ =5?24= 17; M2?== =4AA"7M =F1G4B

As of December 31

2012 2013 2014

Number of Brands 81 91 106

Number of Stores 524 597 723

Gross selling space 82,593 98,126 133,640

Growth in Gross Selling Space (%) 17.6 18.8 36.2



)-

_<4 5? A"J"54; A<V<2> =Q?FF"7M G47542=[ EE: C2?<F :7G$c= M2?L5Q "= ;4F47;475 ?7 5Q4

M2?L5Q ?@ 5Q4=4 G?JJ42G"1A G47542=$ U<22475A>[ "5 J1"751"7= 24A15"?7=Q"F= L"5Q J1]?2

;4#4A?F42= =<GQ 1= d>1A1 617;[ E0 /2"J4 W?A;"7M=[ 04M1L?2A; U?2F?15"?7[ H?G3L4AA 617;

U?2F?215"?7[ EQ17M2"P61 U?2F?215"?7$

(4) Sales and Marketing

EE: C2?<F :7G$ Q1= 1 012345"7M _4F125J475 5Q15 "= 51=3= 5? G?7521G5 L"5Q @1=Q"?7

J1M1N"74=$ :5 1A=? G?7;<G5= 4#475= 5? F2?J?54 5Q4 D217;= ?2 LQ474#42 A1<7GQ"7M 1 74L

G?AA4G5"?7$ EE: C2?<F :7G$

(5) Service

Customer satisfaction is very important to SSI Group Inc. It conducts trainings for its

sales consultants and cashiers. As an after-sales customer service, SSI Group Inc. offers a

significant longer period for its return and exchange policy. It also issues gift receipts with a 30

days expiration dates for products bought as gifts. It also has service centers for some items or

communicates to the service centers of every brand it handles like Charriol. It also has gift cards

and loyalty cards.

b)

Supporting Activities

(1) Product Research and Development, Technology and

Systems Development

SSI Group Inc. has no research and development. For its inventory management, SSI

Group Inc. uses SKU system. It uses POS system for its transactions.

(2) Human Resource Management

E1A4= U?7=<A5175= 124 <=<1AA> Q"24; 1= G?7521G5<1A 17; G17 ?7A> D4 1D=?2D ?2

24M<A12"N4; <F?7 24G?JJ47;15"?7$ :5 Q1= 1FF2?V"J154A> &[*** F42=?774A 8D?5Q "7 5Q4

@2?75A"74 17; "7 5Q4 D1G3 ?@@"G4 ?2 =<FF?25 M2?<F$



)+

(3) General Administration

0?=5 D217;= Q1#4 17 1GG?<75"7M =>=54J 4VG4F5 @?2 W42J4= 17; K#AM12" 1= "5 "=

J17<1AA> 24G?2;4;$

4. Financial Statement Analysis

a) Vertical Analysis

Stores Specialists Inc.

COMPARATIVE STATEMENT OF FINANCIAL POSITIONAs of years ended December 31, 2012, 2013 and 2014

(Amount In Pesos)

Common-size

2012 2013 2014 2012 2013 2014

ASSETS

Current Assets

Cash and Cash Equivalents 1,300,000,000.00 1,134,749,837.00 2,527,828,209.00 14.16% 9.55% 14.00%

Trade and other receivables 375,411,682.71 499,297,538.00 584,872,648.00 4.09% 4.20% 3.24%

Merchandise inventory 5,400,000,000.00 5,898,907,758.00 7,980,070,099.00 58.80% 49.66% 44.19%

Amounts owed by related parties - 8,668,359.00 6,941,758.00 0.00% 0.07% 0.04%

Prepayments and other current

assets 226,600,000.00 331,649,745.00 590,339,738.00 2.47% 2.79% 3.27%

TOTAL CURRENT ASSETS 7,302,011,682.71 7,873,273,237.00 11,690,052,452.00 79.51% 66.28% 64.73%

Noncurrent Assets

Investment in an associate - 42,937,695.00 49,117,530.00 0.00% 0.36% 0.27%

Interests in joint venture 136,900,000.00 369,074,715.00 479,455,513.00 1.49% 3.11% 2.65%

Property and equipment 1,300,000,000.00 2,592,700,507.00 4,680,064,601.00 14.16% 21.83% 25.91%

Deferred tax assets - 185,264,695.00 254,727,150.00 0.00% 1.56% 1.41%

Security deposits and construction bonds 444,900,000.00 565,049,456.00 806,968,668.00 4.84% 4.76% 4.47%

Other noncurrent assets - 249,618,459.00 99,591,385.00 0.00% 2.10% 0.55%

TOTAL NONCURRENT

ASSETS 1,881,800,000.00 4,004,645,527.00 6,369,924,847.00 20.49% 33.72% 35.27%

TOTAL ASSETS 9,183,811,682.71 11,877,918,764.00 18,059,977,299.00 100.00% 100.00% 100.00%

LIABILITIES AND EQUITY



).

Current Liabilities

Trade and other payables 6,600,000,000.00 3,497,635,725.00 3,248,120,916.00 71.87% 29.45% 17.99%

Short-term loans payable 672,500,000.00 3,810,985,777.00 3,596,635,490.00 7.32% 32.08% 19.91%

Current portion of long-term debt - 108,333,333.00 328,514,924.00 0.00% 0.91% 1.82%

Amounts owed to related parties - 155,236.00 24,220.00 0.00% 0.00% 0.00%

Deferred revenue - 22,507,779.00 24,100,045.00 0.00% 0.19% 0.13%

Income tax payable - 210,269,251.00 192,460,335.00 0.00% 1.77% 1.07%

TOTAL CURRENT

LIABILITIES 7,272,500,000.00 7,649,887,101.00 7,389,855,930.00 79.19% 64.40% 40.92%

NONCURRENT LIABILITIES 511,311,682.71 1,461,523,238.00 1,798,261,376.00 5.57% 12.30% 9.96%

TOTAL LIABILITIES 7,783,811,682.71 9,111,410,339.00 9,188,117,306.00 84.76% 76.71% 50.88%

EQUITY 1,400,000,000.00 2,766,508,425.00 8,871,860,253.00 15.24% 23.29% 49.12%

TOTAL LIABILITIES AND

EQUITY 9,183,811,682.71 11,877,918,764.00 18,059,977,559.00 100.00% 100.00% 100.00%

Stores Specialists Inc.

COMPARATIVE STATEMENT OF COMPREHENSIVE INCOME

For the Periods Ended December 31, 2012, 2013 and 2014

(Amount In Pesos)

Common-size

2012 2013 2014 2012 2013 2014

NET SALES 11,609,762,839.00 12,787,581,909.00 15,213,323,956.00 100.00% 100.00% 100.00%

Costs of Goods Sold

Cost of Merchandise sold

Merchandise inventory, beginning 4,651,662,778.00 5,394,140,577.00 5,898,907,758.00 40.07% 42.18% 38.77%

Net purchases 6,914,021,561.00 6,613,957,018.00 8,200,682,848.00 59.55% 51.72% 53.90%

Cost of merchandise available for sale 11,565,684,339.00 12,008,097,595.00 14,099,590,606.00 99.62% 93.90% 92.68%

Merchandise inventory, ending 5,394,140,577.00 5,898,907,758.00 7,980,070,099.00 46.46% 46.13% 52.45%

Cost of Merchandise sold 6,171,543,762.00 6,109,189,837.00 6,119,520,507.00 53.16% 47.77% 40.22%

Personnel costs 68,048,461.00 86,919,485.00 180,237,387.00 0.59% 0.68% 1.18%

Advertising 145,992,013.00 149,465,083.00 162,641,469.00 1.26% 1.17% 1.07%

Royalty fees 45,367,456.00 47,728,817.00 83,460,981.00 0.39% 0.37% 0.55%

travel and transportation 28,057,188.00 31,880,439.00 45,556,239.00 0.24% 0.25% 0.30%

Rent 21,387,393.00 26,036,041.00 33,588,866.00 0.18% 0.20% 0.22%

Depreciation and amortization 6,569,806.00 12,856,742.00 19,889,501.00 0.06% 0.10% 0.13%

Security and safety 3,365,634.00 2,502,001.00 10,192,718.00 0.03% 0.02% 0.07%

Utilities 5,361,759.00 8,374,478.00 11,105,076.00 0.05% 0.07% 0.07%

Repairs and maintenance 1,138,783.00 4,411,945.00 7,183,052.00 0.01% 0.03% 0.05%

Insurance 1,171,652.00 1,104,727.00 1,843,788.00 0.01% 0.01% 0.01%

Supplies and maintenance 1,158,296.00 976,024.00 1,463,570.00 0.01% 0.01% 0.01%



)&

Taxes and licenses 150,051.00 144,913.00 404,564.00 0.00% 0.00% 0.00%

Outside services 818,566.00 592,070.00 45,825.00 0.01% 0.00% 0.00%

Others 10,132,038.00 13,401,086.00 3,711,909.00 0.09% 0.10% 0.02%

Total Cost of Goods Sold 6,510,262,858.00 6,495,583,688.00 6,680,845,452.00 56.08% 50.80% 43.91%

GROSS PROFIT 5,099,499,981.00 6,291,998,221.00 8,532,478,504.00 43.92% 49.20% 56.09%

Operating expenses

Selling and Distribution

Rent 1,126,350,766.00 1,418,371,779.00 1,705,386,223.00 9.70% 11.09% 11.21%

Personnel costs 729,985,628.00 943,124,768.00 1,019,935,414.00 6.29% 7.38% 6.70%


Utilities 353,575,011.00 435,557,082.00 554,521,919.00 3.05% 3.41% 3.64%

Credit card charges 172,681,925.00 143,186,687.00 270,505,097.00 1.49% 1.12% 1.78%

Supplies and maintenance 167,188,847.00 234,295,289.00 250,089,287.00 1.44% 1.83% 1.64%

taxes and licenses 115,672,645.00 134,221,490.00 162,454,489.00 1.00% 1.05% 1.07%

security services 100,936,360.00 137,423,007.00 170,587,881.00 0.87% 1.07% 1.12%

advertising 101,668,541.00 134,895,271.00 100,531,934.00 0.88% 1.05% 0.66%

global marketing contribution fee 54,651,819.00 71,234,407.00 93,987,925.00 0.47% 0.56% 0.62%

repairs and maintenance 41,738,227.00 45,984,020.00 69,897,861.00 0.36% 0.36% 0.46%

travel and transportation 31,330,737.00 35,494,763.00 53,590,474.00 0.27% 0.28% 0.35%

delivery and freight charges 50,727,533.00 39,595,133.00 41,313,876.00 0.44% 0.31% 0.27%

communication 30,464,108.00 38,554,785.00 28,954,612.00 0.26% 0.30% 0.19%

insurance 15,621,844.00 18,221,544.00 27,006,452.00 0.13% 0.14% 0.18%

Entertainment, amusement & recreation 4,481,464.00 5,936,966.00 11,501,434.00 0.04% 0.05% 0.08%

outside services 17,157,484.00 25,758,158.00 8,559,742.00 0.15% 0.20% 0.06%

professional fees 18,803,846.00 30,594,218.00 6,533,482.00 0.16% 0.24% 0.04%

telegraphic transfer 1,499,430.00 2,265,146.00 3,073,835.00 0.01% 0.02% 0.02%

others 83,286,203.00 135,265,367.00 33,909,596.00 0.72% 1.06% 0.22%

Total Selling and Distribution Expenses 3,746,285,955.00 4,583,855,201.00 5,530,234,060.00 32.27% 35.85% 36.35%

General and Administrative expenses

Personnel costs 327,990,247.00 362,322,982.00 425,607,374.00 2.83% 2.83% 2.80%

Taxes and licenses 26,954,909.00 30,250,242.00 106,709,144.00 0.23% 0.24% 0.70%

Rent 66,085,763.00 65,846,124.00 106,907,950.00 0.57% 0.51% 0.70%


Advertising 17,643,496.00 53,500,578.00 86,054,909.00 0.15% 0.42% 0.57%

Supplies and maintenance 28,902,123.00 30,340,899.00 41,212,235.00 0.25% 0.24% 0.27%

Utilities 24,286,427.00 24,828,452.00 39,101,467.00 0.21% 0.19% 0.26%Professional fees 18,459,205.00 14,719,591.00 36,561,512.00 0.16% 0.12% 0.24%

Travel and transportation 33,351,002.00 24,802,366.00 34,863,630.00 0.29% 0.19% 0.23%

Security services 10,977,433.00 11,075,933.00 23,660,394.00 0.09% 0.09% 0.16%

Repairs and maintenance 28,454,447.00 16,084,053.00 22,031,820.00 0.25% 0.13% 0.14%

Insurance 10,642,997.00 10,561,476.00 14,390,334.00 0.09% 0.08% 0.09%

Communication 13,986,894.00 17,148,386.00 12,344,058.00 0.12% 0.13% 0.08%

Entertainment, amusement & recreation 15,491,270.00 8,655,315.00 9,516,353.00 0.13% 0.07% 0.06%



)'

Impairment loss on security deposits - - 4,870,502.00 0.00% 0.00% 0.03%

Outside service 8,772,780.00 10,301,361.00 754,970.00 0.08% 0.08% 0.00%

Others 33,405,321.00 43,688,640.00 54,651,055.00 0.29% 0.34% 0.36%

Total Gen and Admin Expenses 722,983,583.00 791,070,174.00 1,120,760,076.00 6.23% 6.19% 7.37%

Total Operating Expenses 4,469,269,538.00 5,374,925,375.00 6,650,994,136.00 38.50% 42.03% 43.72%

Other income (charges)

Share in net earnings of an associate 16,129,065.00 17,628,250.00 24,179,835.00 0.14% 0.14% 0.16%

Interest accretion on security deposits 2,505,521.00 6,165,280.00 8,510,623.00 0.02% 0.05% 0.06%

Foreign exchange gains-net 10,942,751.00 21,117,594.00 6,167,211.00 0.09% 0.17% 0.04%

Interest income 13,037,077.00 3,887,650.00 4,473,664.00 0.11% 0.03% 0.03%

Interest expense (21,506,046.00) (92,226,440.00) (281,585,421.00) -0.19% -0.72% -1.85%

Share in net losses of joint ventures - (20,275,285.00) (144,869,202.00) 0.00% -0.16% -0.95%

Others-net 5,089,873.00 48,125,922.00 (1,692,202.00) 0.04% 0.38% -0.01%

Total other income (charges) 26,198,241.00 (15,577,029.00) (384,815,492.00) 0.23% -0.12% -2.53%

Income Before Income Tax 656,428,684.00 901,495,817.00 1,496,668,876.00 5.65% 7.05% 9.84%

Provision for (Benefit from) Income tax 0.00%

Current 222,775,520.00 347,374,886.00 551,119,917.00 1.92% 2.72% 3.62%

Deferred (28,487,333.00) (59,622,162.00) (52,733,938.00) -0.25% -0.47% -0.35%

Total Tax 194,288,187.00 287,752,724.00 498,385,979.00 1.67% 2.25% 3.28%

NET INCOME 462,140,497.00 613,743,093.00 998,282,897.00 3.98% 4.80% 6.56%

Other Comprehensive Income 0.00%

OCI reclassified to profit (7,696,234.00) 1,833,736.00 9,758,244.00 -0.07% 0.01% 0.06%

OCI not reclassified to profit (4,060,882.00) (34,395,164.00) (38,903,557.00) -0.03% -0.27% -0.26%

TOTAL OTHER COMPREHENSIVE

INCOME (11,757,116.00) (32,561,428.00) (29,145,313.00) -0.10% -0.25% -0.19%

TOTAL COMPREHENSIVE INCOME 450,383,381.00 581,181,665.00 969,137,584.00 3.88% 4.54% 6.37%

Basic/Diluted EPS 0.24 0.30 0.42

b) Financial Ratio Analysis

LIQUIDITY RATIO 2012 2013 2014

Current ratio 1.00 1.03 1.58

Acid test ratio 0.2304 0.2136 0.4212

Working Capital P29,511,682.71 P223,386,136.00 P4,300,196,522.00

Interpretation:

In determining the liquidity of a company, the short-term creditors as well as the long-

term creditors and the shareholders will enable to gauge if the company has the ability to pay its

short-term debts as it falls due. The current ratio measures the number of times that the current



)(

liabilities could be paid with the available current assets. For SSI Group Inc. the current ratios for

2012-2014 indicate that the company maintains just enough current assets to pay its current

liabilities. Apparently, SSI Group is a bite more liquid in every year compared to previous year,

as there’s an increasing trend in its current ratio. However, the current ratio for 2012 and 2013

are too low because SSI Group might find it difficult to pay its current obligations when it

mature as the ratio is close to 1 meaning that for every one peso of current liabilities, SSI Group

reserves only1, 1.03, and 1.58 pesos for 2012, 2013 and 2014, respectively.

Affirming the interpretation above, SSI Group Inc. acid test ratios indicate and confirm

that the company might have difficulty in paying its current obligations at it is not all close to at

least 1. However, since SSI is in the retail industry, where investment is more on consumer

goods and considering the items being sold are luxury items, which are not easily sold, and

considering it was restructured in 2014, the company might still be in good condition despite

these and considering the factors mentioned above.

Nonetheless, SSI Group Inc. is not liquid based on the ratios determined above.

PROFITABILITY RATIO

Gross Profit Rate 0.44 0.49 0.56

Contribution Margin Rate 0.76 0.73 0.65

Break-even Sales 2,077,009,280.23 3,519,949,026.45 5,329,143,364.11

Margin of Safety 4.59 2.63 1.85

Return on Sales 0.04 0.05 0.07

Return on Assets 0.05 0.05 0.06

Return on shareholders' equity 0.33 0.22 0.11

Return on Invested Capital - 8.58 10.71

Times interest earned 21.49 6.65 3.55

Interpretation:

SSI Group Inc.’s gross profit ratios for 2012-2014 indicate that there are changes in the

company’s pricing policy, which is at an increasing trend. Likewise, the gross profit ratios

indicate that the company has an average mark ups of 44%, 49% and 56% for 2012, 2013 and



%*

2014, respectively. These are acceptable considering the industry and the inventories it tries to

sell in the market. Looking at the return on sales ratio, the company is negligibly earning a profit

as indicated by 4%, 5% and 7% for 2012, 2013 and 2014, respectively. Nonetheless, the

company is still said to be earning a profit though the ratios are low.

CASH FLOW RATIO

Operating Cash Flow Growth %

YOY - - -

Free Cash Flow Growth % YOY - - -

Cap Ex as a % of Sales 7.44 15.25 20.67

Free Cash Flow/Sales % -2.68 -34.38 -22.19

Free Cash Flow/Net Income -0.67 -7.16 -3.38

Interpretation:

SSI Group Inc. has negative free cash flow. This is brought about by the large investment

of the company when it had its IPO last 2013. This means that the company needs other source

of financing to be reinvested in the company if it wants to have additional investment.

LEVERAGE RATIO

Debt-to-equity ratio 5.56 3.29 1.04

Debt ratio 0.85 0.77 0.51

Equity ratio 0.15 0.23 0.49

Interpretation:

Leverage ratio refers to the company’s ability to pay all its debts, whether current or

noncurrent. Despite the fact that the ratios are at a decreasing trend from 2012-2014, the

company is assessed to be solvent. As indicated by the debt and equity ratio, SSI Group heavily

relies on outside financing, which exposes the company to greater financial risks.

EFFICIENCY/ACTIVITY

Days' Sales Outstanding 11.64 14.06 13.84

Receivable Turnover 30.93 25.61 26.01

Days' supply in inventory - 331.46 379.13

Inventory Turnover 1.21 1.15 0.96

Days' payables outstanding 252.01 201.53 108.58



%)

Payables turnover 1.05 1.31 2.43

Cash Conversion Cycle - 149.4 208.04

Fixed Assets Turnover - 4.93 4.18

Asset turnover 1.42 1.43 1.05

Interpretation:

SSI Group Inc. efficiency ratio indicates that the company is efficient in settling its due

but is very relax in its collections.

Overall, SSI Group Inc. is said to be financially stable and doing well in running its

operations for years 2012-2014.

C. Analysis of Internal Factors

Value Chain Analysis and

Financial Ratio Analysis

Impact on Value

Chain Elements

Effect on SSI Group

Inc.'s Business Model

Conclusion

Strength or

Weakness

Supply Chain Management Absence of demand

management as the

Principal determineswhat items are to beallocated for the

Philippine MarketAbsence of

integration to thesupply chain

processes asinventories go through

series of process before delivering it to

the stores.

Increases cost of

ownership as

inventory cost areincurred for storingthe goods.

Weakness

Operations Presence of resource

and activity

Increases firm cost

structure

Weakness

Outbound Logistics Presence of activity

and resource

Increases cost of

ownership asmaintaining the

delivery cargoes addsto the overhead cost of

Strength



%%

the company but at thesame time adds

convenience for the benefit of the

company

Sales and Marketing Presence of skill,resource and

capability

Increases perceptionof value and customer

relations

Strength

Service Presence of resource Increases perception

of value and customerrelations

Strength

Firm Infrastructure Absence of activityfor value

configuration as theactivities and

resources are not

undergoingcontinuousimprovement for

alignment

Increases firm coststructure

Weakness

HR Management Presence of

mechanism forcustomer interface

Improves relationship

with customers

Strength

Technology Development Absence of capabilityand resource

Undermines valueconfiguration and core

competencies toexecute the business

model

Weakness

General Administration Presence of resource,

activity andcapability

Improves firm cost

structure

Strength

Liquidity Cost disadvantage Undermines revenuemodel

Weakness

Profitability Cost advantage Undermines cost

structure

Strength

Gearing Cost disadvantage Undermines revenue

model

Weakness

Free Cash Flow Cost disadvantage Undermines revenue

model

Weakness

Leverage Cost disadvantage Undermines revenue

model

Weakness



%-

Core Ideology Envisioned Future

Core Values 10-30 years BHAG

World-ClassFinestGod-centered

InnovationLuxury

To be the undisputed leader in brand management ofspecialty retail concepts in the

Southeast Asian Region

Core Purpose Vivid Description

To provide the ultimateshopping experience

Wide-presence of specialtyretail boutiques in all

Southeast Asian Market

4. Analysis of the Mission Statement

EE: C2?<F :7G$c= J"=="?7 =5154J475 "= G?7@<=4; L"5Q "5= #"="?7 =5154J475$ :5 ;?4= 7?5

;"24G5 5Q4 G?JF17> 5?L12;= 1GQ"4#"7M "5= #"="?7$

B. Objectives

O?2 "5= U?2F?2154 RD]4G5"#4[ EE: C2?<F :7G$ =Q?<A; D4 1DA4 5? 4VF17; "5= J12345

F24=47G4 "7 5Q4 /Q"A"FF"74= @2?J ),,[.-* C2?== E4AA"7M EF1G4 5? )'%[*)& ?2 17 "7G241=4 ?@

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%*)+$



%+

C. Evaluation of Present Corporate Strategies (TOWS Analysis)

Opportunities:

1. Rising economy

2.

Rising livingstandards3. Free Trading

Agreements4. Pressure to

change forclimate change

5. Increase in population

growth

Threats:

1. Influx of

foreign playersin the market2. Increasing

trend of onlineshopping

O/T:

Tap foreign markets to

spread the risk and sellthe slow movinginventory to other

market

Strengths:

1.

Outbound Logistics2. Sales and Marketing

3. HR Management4. Service

5. General Administration6. Profitability

S/O:

Adopting severalmarketing

campaigns to takeadvantage the rising

disposable income

S/T:

Differentiateservices to clients

SO/T:

Improve the servicesto the niche market to

make their shoppingexperience in stores a

delightful one.

Weaknesses:

1. Supply Chain

Management2. Operations

3. Firm Infrastructure

4.

TechnologyDevelopment5. Liquidity

6. Gearing7. Leverage

8. Free Cash Flow

O/W:Invite other brands

in countries wherefree trade

agreements exist to

counteract lossfrom discontinued brands

W/T:Make the business

efficient to be at par with foreign

companies

O/WT:Increase distribution

channels

S/W:

Enhance the revenue model togenerate more cash to the

company

SO/W:

Offer luxury goodsto different markets

to improve thefinancial health of

the company

S/WT:

Enhancemarketing and

service will keepthe clients

shopping thrustore-based as part

of their experience

TOWS:

Improve the financial

health of the

company while

maintaining its

competitiveadvantage over the

niche market

(Focus

Differentiation)



%.

D. Proposed Corporate Strategies (SPACE Matrix)

1. Competitive Advantage

a) Present Competitive Advantages

(1) Strategic Direction

SSI Group Inc’s initial public offering in 2014 signals the company’s commitment in

bringing more international brands into the local market. Although not limited to apparel and

footwear, the company is expected to prioritise apparel and footwear, taking advantage of urban

consumers’ increasing propensity to spend on these products. While most of its outlets are in

Metro Manila, it is expected that more SSI brands will be seen in key cities outside Manila like

Cebu and Davao, where consumers’ disposable income is steadily rising. Within SSI’s portfolio,

fast fashion is growing fastest in terms of store network and sales which will encourage the

company to pay greater attention to this category.6

(2) Competitive Positioning

Stores Specialist Inc distributes a wide range of international apparel and footwear brands

in the local market, each of which contributes only marginal shares. Some of these brands are

Zara, Calvin Klein Jeans, Diesel, DKNY, Gap, Lacoste, Payless ShoeSource and Massimo Dutti,

among others. Its portfolio includes brands at different price points and classified under luxury

and bridge, casual, fast fashion, and footwear, accessories and luggage.7

SSI reported that compared to 31 December 2014 it added 19 brands from its portfolio by

September 2014. Some of these are apparel and footwear brands that include Pull and Bear,

Alexander McQueen, Old Navy, Reiss, and A2 by Aerosoles among others. In addition, SSI

opened 87 more stores housing a number of apparel and footwear brands. With these

developments, the company’s shares in both apparel and footwear continued to grow.8

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%&

Compared to other brands in the market, SSI’s portfolio had upscale positioning as they

are mostly located in high-end shopping centres and malls. SSI successfully carved a niche

among more affluent buyers wanting to buy international brands. The company’s fast fashion

portfolio was expanding more vibrantly than other categories indicating its growing interest in

brands which are at a lower price point and are more affordable to a wider consumer base.9

SSI launched its IPO in November 2014, raising PHP5 billion which will be used to

expand its speciality retailing business. The company also noted that some of the proceeds will

be used to make additional investments in its Family Mart convenience store chain and

establishment of more Wellworth Department Stores.10

(3) Retail Operations

By the end of 2013, SSI had 587 stores carrying both apparel and footwear and non-

apparel items. This number grew to 657 by the end of September 2014. Recognising the high

potential of international brands in the local market, SSI continued to open new stores to house

its new brands as well as expand the presence of its rapidly growing brands.11

Introduced in 2014, Wellworth Department Stores is “a value-based, midmarket

department store chain, aiming to exploit the country’s growing aspirational yet price-conscious

shoppers.” Wellworth Department Stores house its apparel and footwear brands, together with

health and beauty, sports, luggage and stationery products. The company is keen to establish

more Wellworth Department Stores in more locations within Metro Manila, aiming for 20 stores

in the forecast period.12

SSI does not use innovative in-store technology, relying instead on traditional methods.

13

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%'

(4) Internet Strategy

SSI maintains a website where visitors can find information about its brands, company

news, new collections and store locations. SSI unveiled its plan of entering e-commerce which

will allow it to distribute its products online. Starting with 20 brands, SSI is expected to launch

its e-commerce portal by the first quarter of 2015. This is to grow strategically with its

customers’ evolving lifestyles. SSI launched its mobile app in 2013, which provides information

about company’s store locations, new launches and promotions to smartphone users.14

Catering to the upscale market, the company was less aggressive in the use of social

media like Facebook and Twitter. Payless ShoeSource Philippines has a Facebook fan page

where it posts new products available inside the stores and answers customer queries. Newly-

launched Wellworth Department Stores also has a Facebook fan page that features selected

products and their prices.15

b) Proposed Competitive Advantages (WHARTON Model and Value

Chain)

SSI Group Inc. has a competitive advantage on its relationship with brand principals. It

has the majority share in terms of brand portfolio. It has

2. Space Matrix

As net result of the SPACE Analysis Matrix, SSI Group Inc.’s alternative strategies are

thrust in the Competitive Posture. As such, the implicit strategy is to raise its financial strength

while maintaining its competitive advantage.

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%(

a) Financial Strength

Assessing the factors for financial strength (i.e. return on sales, return on assets, cash

flow, gearing and working capital intensity), SSI Group Inc. is scored with 2 (weak). Compared

to its competitors, Although it has wide selection of brand portfolios and is earning more than its

competitors, SSI Group Inc.’s cash flow ratio is at the negative based on the cash flow ratio from

2012 to 2014. This is reasonable since it only consolidated its companies under one parent

company and made its IPO in 2013. Such strategy is costly for the company as indicated in its

Financial Statements.

b) Competitive Advantage

For the Competitive Advantage, market share, quality, customer loyalty, cost levels and

product range were assessed. SSI Group has the majority share for specialty retail industry based

P.

P+

P-

P,

P%

P)

*

)

%

,

-

+

.

P. P+ P- P, P% P) * ) % , - + .

Current Strategy of SSI Group Inc. using SPACE

Matrix



,*

on the sales per value in 2014. As such SSI’s competitive advantage is scored minus 1 (very

strong)

c) Industry Attractiveness

Based on MarketLine (2014), the apparel retail industry in the Philippines is very

attractive to new entrants. The growth potential is predicted to shoot up as the disposable income

and the number of middle income earners increases. Entry barriers are weak although the Bureau

of Customs regulates importation of goods. Likewise, apparels have no substitutes. However,

there are alternatives to the products sold by SSI Group Inc. As such, Industry Attractiveness is

scored 5 (very strong).

d)

Environmental Stability

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IV. FUNCTIONAL AREA STRATEGIES

A. Marketing

1. Identifying Target Marketing Segments

Geographic segmentation: Customers who are living in the urban upscale area.

Demographic segmentation: Men, women and children who are in the socialclass A and upper and broad B ages 15 and up;



,)

customers whose annual disposable income is atPhp400,000

16

Psychological segmentation: Customers who prefer to buy high-end brands.

2. Marketing Objectives

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3. Marketing Plan

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B. Operations

1. Operational Objectives

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2. Operational Plans

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C. Finance

1. Financial Objectives

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2. Financial Plan

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D. Information Management

1. Information Management Objective

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2. Information Management Plan

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V. STRATEGY EXECUTION

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strategic management case analysis

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