COMPANY ANALYSIS 12
CompanyAnalysis: L Brands Inc.
CompanyAnalysis: L Brands Inc.
Missionand Vision Statement Analysis
Limited Brands is committed to building a family of the world’s best fashion brands offering captivating customer experiences that derive long-term loyalty and deliver sustained growth for our shareholders.
L Brands is committed to building a family of the world’s best fashion brands offering captivating experiences to the modern woman in a way that derives long-term loyalty whilst simultaneously delivering sustained growth for our shareholders.
Ascan be seen, the proposed mission statement contains a fewenhancements to the current one. It is felt that the originalstatement contains a majority of the elements of effective missionstatement, only that it does not specify the target consumers. Forthis reason, the phrase ‘to the modern woman’ has been added toshow that L Brands deals in women’s products.
With the increasing pace of globalization, L Brands sees an opportunity to increase its revenues by venturing into newer markets
Research shows that beauty products, especially skincare products, have witnessed increasing demand lately in countries such as the US (MarketLine, 2016).
The implication of this for L Brands is that this trend signals greater revenue.
Even in the countries in which the company operates, the markets are not fully utilized. For example, in the North American region, where L Brands runs more than 3,000 stores, close to 800 stores are not fully stocked with Victoria’s Secret brands (Weishaar, 2016). This means that if the stores are fully stocked, the company will definitely make high sales.
Increasing popularity of e-commerce
In countries like the US, consumers are demonstrating preference for online transactions, essentially as this facilitates easy shopping, besides disclosing better deals (MarketLine, 2016).
This is a major advantage for L Brands, given that it sells its merchandise via e-commerce sites. To be precise, the company could leverage its network of online retail distributors, thus expanding its market and making more sales.
Competitive edge over rivals, both existing and prospective
Owing to L Brands’ strong brand name, it is projected that the company is capable of commanding pricing power that is relatively sustainable and consistent.
When ranked against its rivals such as the Gap and La Perla, L Brands seems to be in a better bargaining position due to its pricing strategy.
Similarly, new entrants are poised to experience pricing challenges, especially when it is considered that the Victoria’s Secret brands have already developed substantial economies of scale (Weishaar, 2016).
Because of its strategically-positioned store fleet, as well as marketing advantages, L Brands is expected to continue dominating over rivals, at least in the near term.
Rising labor wages
A significant rise in labor wages has been noted in most parts of the world, particularly in the US. To be exact, as of the year 2010, the minimum rate set by the federal government was $7. 25. More importantly, it is reported that many states have raised this rate in accordance with higher living costs (MarketLine, 2016).
This increase in wages is a threat to the company’s profitability because it increases the overall costs.
Increase in retail theft
L Brands may incur revenue losses as a result of planned retail crime.
According to MarketLine (2016), the company has lately suffered significant losses as a result of retail robbery. For instance, in 2014, merchandise valued at over $2,569 was stolen during the year 2014 alone. Similar cases had been witnessed in previous years, causing the firm losses worth more than $120 billion
In a bid to implement tight security measures to avert the occurrence of such incidents in future, L Brands might be compelled to spend huge sums of money, which increases operating expenses.
Increase in counterfeit crime
A negative outcome of globalization is the growth of markets dealing in counterfeit products, which negatively affects branded merchandise sales (MarketLine, 2016).
This trend has been witnessed in different product segments, including beauty products.
Should the trend continue, L Brands’ reputation will be seriously undermined, hence affecting its current market share.
Additionally, if nothing is done to address the counterfeiting problem, the competitive advantages enjoyed by the company, including its strong brand image and exclusivity, will be weakened.
The ratio analysis provided by the MorningStar Investment Research Center indicates that since the year 2009, L Brands profitability has been increasing steadily, even though there are some slight variations.
To be more specific, the results show that except in the 2014 financial year in which the company’s profit margins slumped slightly, the profitability trend has been positive. However, the analysis reveals that L Brands’ profitability is largely affected by selling, general and administrative expenses.
Surprisingly, the company seemingly does not invest in research and development, which could be one of the reasons why it heavily relies on external merchandise supply.
The financial results further show that since 2013, the company’s net income, as well as earnings per share has been growing steadily. Nonetheless, between 2012 and 2013, the figures dropped slightly, and this is crucial given that the company’s revenue did not decline during the same period.
This latter observation intimates that there are some factors that affected the amount of money given to shareholders. Going by the report that L Brands made huge losses as a result of retail thefts that took place in 2013, it is possible that the company was forced to commit some of its revenue towards offsetting these losses and implementing the necessary security measures.
Compared to TJX Companies Inc., which is one of its main competitors, L Brands clearly performs better in most aspects. For instance, the company outdoes TJX in terms of gross margin, operating margin, and earnings before tax. Consequently, L Brands is able to offer its shareholders higher returns on their investment, as compared to TJX.
In order to obtain a better understanding of L Brands, it is important to analyze industry specific metrics such as sales-per-square-foot, comparable-store sales, and foot traffic. In brief, sales-per-square-foot represents the efficiency with which retailers utilize their floor space, while comparable-store sales denote the performance that a given location records between one year and the next (Value Line Inc., 2016). On the other hand, foot traffic denotes the number of prospective shoppers that a company receives in its premises.
L Brands has a portfolio of powerful brand names that include Bath & Body Works, as well as Victoria’s secret.
Victoria’s Secret ranked among the 50 leading retail products in the US in the year 2015
Similarly, Bath & Body Works ranks among the top specialty retailers offering personal care and home fragrance products in the US.
The powerful brand names associated with L Brands give the company an edge over rivals in that it enhances customer loyalty, besides granting the company pricing power (MarketLine, 2016).
Due to its powerful brand names, L Brands has made higher profits than its rivals in the recent past.
For example, in the 2015 fiscal year, the company’s net profit was 1.4% higher than that of The Gap, a close competitor and 6.7% more than that of American Eagle Outfitters (MarketLine, 2016).
This profitability enables the firm to make extra cash that can be used for expansion purposes.
L Brands has an excellent management team that has played a pivotal role in upholding the mission and culture of the company
Precisely, the long-serving nature of the management team has given L Brands its stewardship rating, thus helping the firm to make the most of shareholder returns (Weishaar, 2016).
One of the factors behind L Brands’ pricing power is its aggressive marketing tactics. The company reportedly employs a combination of techniques to inform customers about its products.
Besides utilizing the viral/word of mouth strategy, L Brands also relies heavily on social media and other technological platforms to disseminate information regarding its products (Weishaar, 2016).
The company also holds fashion shows to market its merchandise to customers (Weishaar, 2016).
Excessivedependence upon external sources for merchandise
The company buys its products via importers together with contract manufacturers it, therefore, lacks direct control of manufacturing processes as well as raw material quality.
Consequently, the company is highly prone to the danger of delays in product shipment, which could affect sales.
SWOT,Existing Strategic Plan, and Your Proposed Strategic Direction
Aggressive marketing strategies
Powerful brand names
Excessive reliance on external sources of merchandise
Growing popularity of e-commerce
Entry barriers for new players
Increased retail crime
Increased counterfeit crime
Rising wage rates
Accordingto the company’s website, L Brands current strategy is to providequality products by employing a mix of direct business transactions,wholly-owned stores, and franchise partnership throughout the world.Despite this diversity, the company makes sure that the productsoffered to customers in different markets are uniform and adhere tothe highest standards set by the company.
Whileacknowledging the fact that L Brands is among the leading companiesin the fashion industry, there are several recommendations deemed tobe essential in enhancing the firm’s rank and competitive position:
L Brands will need to expand its production ability in order to minimize dependence on external supplies. To achieve this, the company will have to invest in research and development so that it can manufacture most of the products it currently outsources, thereby reducing operating expenses.
L Brands will play an active role in pressurizing governments to take urgent measures to end the menace of counterfeit crime. Precisely, the company will assume a leadership position in collaborating with governments and other agencies in charge of security so that the problem of counterfeit crime is addressed.
L Brands will tighten security in all its premises in order to tackle the issue of retail crime. Towards this end, the company will employ a range of measures that include closed circuit television systems, burglar alert systems, and trained security personnel to ensure that its premises are safeguarded at all times.
MarketLine.(2016). CompanyProfile: L Brands, Inc.Accessed on <<http://web.b.ebscohost.com.ezproxy.ohiodominican.edu/ehost/pdfviewer/pdfviewer?vid=0&sid=1af1a363-29f7-473d-889d-b12c8a7f2214%40sessionmgr2>>on 31 October 2016.
ValueLine, Inc. (2016). Industryoverview: apparel.Retrieved from <<http://www.valueline.com/Stocks/Industries/Industry_Overview__Apparel.aspx#.WBd1iPCSTIU>>on 31 October, 2016
Weishaar,B. (2016). Wide-moatL Brands progresses on its strategic changes at Victoria’s Secret.Retrieved from <<http://analysisreport.morningstar.com/stock/research?t=LB&region=usa&culture=en-US&productCode=MLE>>on 31 October 2016.
Linkto TJX Companies financials:http://library.morningstar.com.ezproxy.ohiodominican.edu/stock/key-ratios?t=TJX&region=USA&culture=USA
Linkto L Brands financials:http://library.morningstar.com.ezproxy.ohiodominican.edu/stock/key-ratios?t=LB&region=USA&culture=USA