Sonae SR. To the Board of Sonae SGPS From Nanyang Consulting. Nanyang Business School Deeksha Bajaj Bohao Zou Zeeshan Ashraf Wendell Shirley

Transcription

1 Sonae SR To the Board of Sonae SGPS From Consulting Business School Deeksha Bajaj Bohao Zou Zeeshan Ashraf Wendell Shirley

2 Agenda Problem Statement Analysis Recommendations Evaluation of Alternatives Implementation for Divesting in Spain Expanding in new markets Latin America Optimising operations Financial Management Implementation Timeline Risk Mitigation Key Takeaways 2

3 Problem Statement External Challenges Internal Challenges Economic downturn in Spain and Portugal Threat from new channels Online Establishing partnerships in new regions Lack of consumer knowledge e.g. Turkey Lack of product differentiation Lack of internal infrastructure to manage data and operations What can Sonae SR do to increase profitability in the long term? How can Sonae SR optimise its operations? 3

4 Analysis Existing Business Units Consumer Electronics Sports Goods Fashion Worten Sport Zone MO Zippy Revenues in 1H15 68% 18% 14% Competitors Amazon, Darty, Fnac Decathlon H&M, Zara, Mothercare Lack of product differentiation and intense competition are hampering profitability 4

5 Analysis Existing Geographic Presence SPAIN Sonae SR not profitable Investment in stores Future plans: to break even in 2017 PORTUGAL Retail based conglomerate Sales declining over the quarters Sonae SR 24% of the turnover Worten 68% of the Sonae SR turnover Revenues are primarily dependent on declining markets Portugal and Spain 5

6 Recommendations 1 Divest in Spain especially Warton and Zippy 2 Expand in Latin America 3 Optimising Operations Establish Analytics Hub and Global Business Services 6

7 Evaluation of Alternatives Economy Existing Competition Growth potential Overall Strengthen investment in existing markets Divest in Spain - Expand in new markets Cutting cost by optimizing operations 7

8 Recommendation 1: Divest in Spain 8

9 Divest in Spain Footprint in Spain Worten Sport Zone MO Zippy Number of stores Economy Competition - Performance Unfavorable Negative outlook for growth in Spain 9

10 Divest in Spain Divestment Plan Organically Joint Venture who has no footprint in Spain (e.g. Suning for worten) Share 60% Pull out resources for other expansion plans 10

11 Recommendation 2: Entry Plan for Latin America 11

12 Entry Plan for Latin America Pilot Entry into Major Metropolises Where? Brazil (Sao Paulo) Mexico (Mexico City) Why? 1. BRIC Country 2. Middle-income population, Megacity 3. Cultural Similarity and Shared Language 4. Lack of Existing Large Player Competitors Enter Latin America to fuel growth engine leveraging cultural overlap 12

13 Entry Plan for Latin America 1 Marketing Nominate Brand Ambassadors (including football players) 2 Adopt Digital Marketing via social media campaigns (recruit SMART) 3 Target millennials with trendy designs for original product lines Use targeted marketing strategies for Latin American customers 13

14 Entry Plan for Latin America Pilot Entry into Major Metropolises Franchisee near hypermarket Regional expert team to supervise local operations Online Retail Platform Delivery through sharing economy platforms Dual distribution channels to support future growth in Latin America 14

15 Recommendation 3: Establish Global Business Services 15

16 Optimising Operations Develop NGGAH Next Generation Global Analytics Hub WHAT? Big data analytics to understand consumer preferences and demographic changes Design targeted marketing Leverage machine learning WHY? Efficient management of actionable predictive data related to international stores and partners Capitalise on data insights for sales planning and marketing 16

17 Optimising Operations Develop NGGAH Next Generation Global Analytics Hub HOW? 1 Hire IT consulting firm Deloitte to develop in-house data analytics centre 2 Evaluate current IT system for data migration capabilities 3 Hire leading technical analyts to support data centre and forward reports to relevant departments on daily basis Seek external help from professional services firms to develop in-house capabilities 17

18 Optimising Operations WHAT? Establish a shared services model Global Business Services Shared services model for finance, logistics and marketing WHY? Leverage existing capabilities to scale business operations to reduce cost and increase productivity across all stores Capitalise on shared services model to reduce costs and increase productivity 18

19 Optimising Operations Establish a shared services model Global Business Services HOW? 1 Relocate regional personnel to central headquarters for finance, procurement and marketing 2 Use existing surplus HR capital for international expansion in other countries 3 Establish central procurement centre for existing markets (Portugal) Factors considered cost, existing infrastructure and regional expertise Develop central procurement centres to reduce costs 19

20 Financials, Implementation, and Mitigation 20

21 Financial Management Assumptions 70% Cost of Goods Sold in Retail Sector, unaffected by proposal 5 15 % Turnover Growth Rate in Latin America 5% Reduction in Capital Expenditure through recommendations 1% Net Effect on Distribution Cost Structure 10% Weighted Average Cost of Capital Turnover ( Millions) Worten Sport Zone MO and Zippy Cost of Goods ( Millions) Operating Income ( Millions) Distribution Expenses ( Millions) Marketing Expenses ( Millions) Capital Expenses ( Millions) Other Expenses ( Millions) EBITDA ( Millions) Projected Profitability increase of 200% by

22 Implementation Timeline Spain Divesture Divest to Chinese Investors Latin America Expansion Set up Regional Headquarters Nominate Brand Ambassadors Establish SMART Set up Online Capability Set up Joint Venture Acquire Franchisees Expand in Central America Optimizing Operations Hire IT Consulting Firm Create new NGGAH Hire more technical resources Set up centralized procurement center Create Global Shared Services Model Optimize internal operations to do a phased rollout in Latin America 22

23 Risk Mitigation Identified Risk Low Product Differentiation Proposed Mitigation Use advanced data analytics from NGGAH for targeted marketing Threat from Online Retail Giants Create omnichannel capabilities as Latin American markets mature Economic Instability in Latin America Minimize exposure through crafted franchising agreements Financial Exposure in New Markets Use natural hedging to distribute currency risk Leverage technology and capital-light structures to minimize risk 23

24 Key Takeaways What can Sonae SR do to increase profitability in the long term? How can Sonae SR optimise its operations? Divest in Spain especially Warton and Zippy Expand in Latin America Optimising Operations Establish Analytics Hub and Global Business Services 24

25 Questions? 25