1. 1 Current Management Issues in the Retail Industry TEAM 1

2. 2 What is Retail? Sale of physical goods, merchandise, or services Sold from a fixed location, ex. department store Stores act as middlemen Publicly or privately owned Classification examples: - Food products - Hard goods or durable goods (Ex. appliances, electronics, furniture, sporting goods, etc.) - Soft goods or consumables (Ex. clothing, apparel, and other fabrics)

3. 1. Management by Stephen P. Robbins and Mary Coulter 3 Main Functions of Management Strategic Planning Organizing/Decision Making Leading Controlling “Management is the coordination and oversight of the work activities of others so that their activities are completed efficiently and effectively. ” ¹

4. 4 Issues Confronting the U.S. Retail Industry Revenue growth & margin improvement Cost management Reporting, risk, compliance, and control

5. 5 Revenue Growth & Margin Improvement Revenue Growth & Margin Improvement How to continue to generate growth in the current, challenging economy ? Issues: Importance of successfully managing margins - input costs are rising (commodity and energy) - creates inability to pass costs along due to inflation - consolidation in the industry is cutting out the need for retail stores Management’s ability to formulate/execute strategically aligned cost initiatives Imperative to moderate pricing pressures with: - product innovation - supply agreements - changing product mix - distribution channel collaboration Proper planning / implementation of effective cost reduction programs

6. 6 Cost Management Cost Management How to develop a cost management strategy that maximizes efficiency without compromising growth potential? Issue: - Traditional cost reduction methods are:  Failing to achieve the targeted reduction  Taking longer  Becoming more expensive than expected Management Solutions: 1)Understand what money is spent and why on a functional basis - Ensure functional costs are aligned to company financial plans / budgets 2)Change the way money is spent - Make cost reductions sustainable - Create cost consciousness culture that will promote further cost reductions

7. 7 Reporting, Risk, Compliance, and Control Reporting, Risk, Compliance, and Control How to safeguard a company from risk in this world of constant change? Strategic risk management: - sets strategy / direction to effectively balance growth goals with risks - effectively deploy resources in pursuit of this objective Effective risk management: - looks beyond vulnerabilities to consider sources of both risk and opportunity - provides a process for balancing growth, risk, and return - establish policies to promote a risk-management culture Proper risk management protects: - company reputation - brand image - shareholder value

8. http://en.wikipedia.org/wiki/Retail#Challen ges 8 Additional Issues Confronting the U.S. Retail Industry Additional Issues Confronting the U.S. Retail Industry Regulatory barriers: - Restrictions on real estate purchases - Restrictions on foreign investment in retailers Unfavorable taxation structures Absence of developed supply chain and integrated IT management High competitiveness resulting in low profit margins Lack of properly educated / trained work force, often including management

9. 9 Examples of How to Manage Retail Industries Blockbuster vs. Netflix

10. Business and Company Resource Center Database 10 Early History Incorporated in 1982, entered movie rental business in 1985 Headquartered in Dallas, Texas Original store was designed to rent movies and it was never mass marketed By early 1990s: - Opened hundreds of stores - Became multibillion dollar company Became leading global provider of rental/retail movie and game entertainment Blockbuster Inc. merged with Viacom in 1994 Founded in 1997 in Los Gatos, California Started as movie rental-by-mail company, with no late fees The first leading streaming company, content is commercial-free, can instantly stream TVs and PCs Offers subscribers access to library of movie, television, and other filmed entertainment titles 20 million streaming members

11. Business and Company Resource Center Database 11 Expansion and Phenomenon Expanded its services and location by mid 90’s Completed its IPO in 1999 2004, it split off from Viacom and became fully independent 2010 there were 5,000 Blockbuster stores in the U.S. and 17 countries worldwide 2008 Started to experience significant revenue losses due to video rental competition like Netflix In 2009, Blockbuster began installing Blockbuster Express Kiosks in an effort to compete with Redbox Declared Bankruptcy in 2010, wiping out more than $1B of debt Offering subscription service and unlimited rentals for one low monthly price by 1999 Had 12.3 million members by the end of 2009 In 2010 Netflix is available on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, and other Internet connected devices From 2011 to the beginning of 2012 they have rapidly expanded throughout the world

12. 12 SWOT Analysis of SWOT Analysis of FavorableUnfavorable Strengths: User experience Streaming capability Very competitive price No return policies Weaknesses: Pricing power More on pricing power The terms of content distribution Opportunities: Branding International Distribution Threats: Content producers going their own way Other streaming offerings Internet pipe providers Internal External

13. 13 FavorableUnfavorable Strengths: Strong Brand Recognition Offers both movie and video game rentals Located all around the world Return in store or via mail No late fees (for a period of time) Weaknesses: Weakened brand Low investor confidence Failure to implement and plan on home delivery or streaming service High operating expenses, with lackluster store locations Brash management styles Opportunities: Implementation of streaming service Lower prices to compete in the market Partnerships with Cable providers Create a better in store experience Threats: Netflix Red Box Independent Video Rental stores Cable and Satellite T.V. with the demand services Video Piracy Internal External SWOT Analysis of

14. http://go-digital.net/blog/2011/02/netflix- vs-blockbuster-perfect-example-of-an- industry-replaced-by-a-more-efficient- version-of-itself/ 14 An Industry Replaced by a More Efficient Version of Itself An Industry Replaced by a More Efficient Version of Itself

15. Strategic Planning 15

16. 16 Strategic Planning What do we do? Create a more effective and cost efficient rental business For whom do we do it? Video and DVD rental consumer market How do we expand? Movie, gaming, TV shows; online and mail-delivery services, rental kiosks

17. Leading 17

18. 18 Leading Blockbuster Leadership issues Disgraceful leadership John Antioco disagreement Plans to eliminate late fees This debacle lowered investor confidence Created poor public perception of the brand

19. 19 Leading Style Blockbuster had two CEO’s - John Antioco (1997-2007) - Jim Keyes (2007-2010) No teamwork Jim Keyes, had been constantly insulting his competition and disrespecting them – "Between the time Keyes took the reins as CEO of Blockbuster and today, the price of Netflix stock is up 500% and the price of Blockbuster stock is down about 90%” hurting Blockbuster’s image

20. Decision Making 20

21. 21 Organizing/ Decision Making Upper Management Conflicts Frequent turnover in upper management positions Poor repositioning of Blockbuster brand Headquarters moved from Florida to Dallas, Texas Loss of valuable upper management due to move

22. http://retailexaminer.co.nz/2011/03/techn ology-and-the-dvd-market/ 22 Netflix vs. Blockbuster Shares 2008-2011

23. Enron/ “No Late Policy” Blockbuster’s Decisions to team up with Enron, and the “No Late Policy” scandal Enron signed a deal with blockbuster – DSL, Online streaming Enron scandal Terminated deal 2005 Blockbuster introduced “No Late Policy” 23

24. No TO NETFLIX 24

25. Present Price Comparison 25

26. Conclusion Blockbuster is staring to make improvements: Blockbuster acquired with Dish Network - No longer an independent stock Improving business model since bankruptcy Implementing ways to keep remain a top competitor, adjusting to modern technology and online demands 26

27. 27 Thank You!