SWOT, PESTEL and Porters 5 Forces analyses of Laura Ashley(2009, 2500 words) This paper offers an overview of Laura Ashley, one of UKs top homeware and clothes retailers with an excellent reputation. It examines the environment in which Laura Ashley is operating by employing a PESTEL analysis and then goes on to further analyze the industry in which Laura Ashley operates by using Porters Five Forces model. Finally, a SWOT analysis is used in order to identify the companys strengths and weaknesses and to reveal any opportunities it can capitalise on and threats it may encounter in the process of further development (SWOT). Laura Ashley, SWOT; PESTEL; Porters Five ForcesCompany OverviewHistoryLaura Ashley, one of todays most recognizable fashion and home furnishings brands was founded by Laura and her Bernard Ashley.
Their initiative enjoyed huge success on and by 1970 when sales had reached 300,000 and a huge number of shops were opening. Licensing operations brought about the opening of department store concessions in Australia, Canada and Japan in 1971, while further shops opened in Paris and San Francisco in 1974, and UK shop openings continued with a vengeance. The Company was listed to the Alternative Investment Market of London Stock Exchange on 5 December 1985. (Laura Ashley Official Website, 2009)Business SummaryLaura Ashley Holdings plc is engaged in the design, manufacture, sourcing, distribution and sale of clothing, accessories and home furnishings. The Company has four divisions: Home Accessories (30%), Furniture (28%), Decorating (23%) and Fashion (19%).
(Laura Ashley Osiris Financials, 2009) It operates through retail and non-retail operations. Retail operations include Laura Ashley’s managed stores, mail order and E-commerce, while non -retail operations include licensing, franchising and manufacturing. As of January 26, 2008, the Companys property portfolio in the United Kingdom included 208 stores, with three principal store types: mixed product stores (selling all product categories); home stores (selling the full range of home products), and 31 home concession stores.
(Laura Ashley Annual Report, 2009)PESTEL AnalysisTechnologicalTechnological changes over the last few years have made a significant impact on the way firms do business and on the products and services as well. (Barney ; Hesterly, 2008) As with other retail business operators, the Internet, and more precisely, online shopping creates opportunity for Laura Ashley to expand their market share. According to recent financial reports, Laura Ashleys good online shopping service has brought them significant financial benefits even in the period of global recession. Customers have become more and more accustomed to shopping from home, and this is especially true for the companys furniture and houseware products. Sales at Laura Ashley jumped 8.4 per cent since the beginning of 2009, mainly due to an 11% increase in online and mail orders.
(Retail Week, 2009)Demographics ; SocialThe UK market for furniture and house products is changing. The focus on interior design is growing, and as a consequence there is a trend for customers to express themselves with the look of their households. In addition, figures point that this particular demographic is growing (Datamonitor, 2008c). Laura Ashleys homeware products are specifically tailored to cater for this demographic and their understanding of the buying patterns of UK customers, both for furniture and clothes retail products bring sustained benefits to the company.
In addition, to their good grasp of the demographics of the UK market, Laura Ashley try to follow the success of franchises such as Topshop, Esprit and Zara and introduce fashionable clothing for young people. To what extent they succeed is debatable, as Laura Ashleys products are moderately priced, unlike the low price offered by the likes of Topshop, Espirt and Zara. (Beatty, 2003)Economic ClimateThe economys current state of recession is placing a heavy toll on all businesses. According to recent reports Laura Ashley store sales fell 6.2 per cent in the 53-week period despite total UK store sales jumping 10.8 per cent and internet sales rocketing 65.4 per cent.
Laura Ashley said that since December, gross margins had come under pressure due to “the continued deterioration of the UK economy, its impact on the retail sector and consumer confidence, the weakness of sterling and increased promotional activity” (Harrison, 2009) Despite the volatile economy, Laura Ashley is in a strong position because their products have very high perceived value from their customers. (Laura Ashley Annual Report, 2009) Their highly differentiated merchandise and the loyalty of their customers can sustain them even in the economic recession.Legal ; Political ConditionsThe rapid development of the Asian markets and the drop of trade barriers in many countries there (like China) have created an opportunity for Western companies. The maturity and the slow growth in the UK furniture and clothes retail sectors have made Laura Ashley look for growth opportunities internationally. Recent reports suggest that they are planning to expand to Asia Asia where consumers, with growing disposable incomes, are keen to spend. Plans are in motion to open 80 stores in China over the next five years. Laura Ashley also seeks partners to open stores in India, Indonesia, Philippines and Thailand.
(The Nation, 2009)Even though the political conditions are favorable, there still might be some legal barriers left for Asian expansion to be profitable. Even though countries like Thailand have dropped trade barriers they are still cautious that foreign players will overtake their traditional Thai companies. Furthermore, it is expected that Thailand will tighten foreign investment laws, thus creating problems for companies such as Laura Ashley who seek expansion there. (Fuller ; Arnold, 2007)Porters Five ForcesThreat of EntryThe clothing and furniture market in the UK is very competitive, with low entry and exist costs. Even though growth is on a decline, the clothing and furniture market in the UK is very lucrative for new entrants due to the low entry costs and the lack of significant investment required.
(Datamonitor, 2008c)Even though the threat of entry is generally high, Laura Ashleys differentiated products create a barrier of entry for new consumers. The product differentiation of Laura Ashleys merchandise, especially with regard to their furniture, is valued very highly by their customers. This type of product differentiation is often quite hard to imitate by new entrants and thus the threat of entry for Laura Ashley is substantially lower than for other players who sell less differentiated product. (Barney ; Hesterly, 2008)In addition, Laura Ashley was founded in 1953, and for most of their existence they have been among top market performers. In those 6 decades they were able to gain the approval of multitude of repeat customers this creating excellent brand reputation and customer loyalty. This represents an additional barrier of entry for new players in the market.
(Laura Ashley Annual Report, 2009)Threat of RivalryThe UK market is highly fragmented with a generally slow industry growth. That leads to extremely fierce competition, as many companies are battling over market share. The industry is characterized by frequent price cutting by firms, intense advertising campaigns and rapid competitive actions and reactions in the industry.
(Laura Ashley Annual Report, 2009)Laura Ashleys ability to differentiate their products enables them to demand a higher price of their products and not be caught in the price war. As long as they can maintain the high value perception of their products and continue to be lead differentiators in the furniture market the threat of rivalry will be relatively low, considering the turbulent market. (Barney ; Hesterly, 2008)In the clothing market Laura Ashley attempts to diversify its products by including more fashionable clothes, suited for the younger demographic. However, this strategy may be construed as risky because it endangers the customer perception of the brand. (Beatty, 2003)Threat of SubstitutesLaura Ashley is relatively safe from substitute products because their products are already different in the perception of their customers. It is hard to substitute a highly differentiated product.
(Barney ; Hesterly, 2008)Threat of SuppliersLaura Ashley is a very big customer for its suppliers therefore they can enjoy a very safe position with regard to the threat of suppliers. Whereas, for suppliers Laura Ashley is a big an important customer, for the company itself it is quite easy to switch their supplier. That enables them to demand better prices and quality from their supplier. (Datamonitor, 2008c)Threat of BuyersThe threat of buyers in the market is very high, and even though Laura Ashley is in a better position than less differentiated competitors, there is still a lot of rivalry even in the high value high price market niche. In addition there is no added cost in the industry for the customers to change their supplier.
(Datamonitor, 2008c)SWOT AnalysisStrengthsLaura Ashley has a strong brand, having been voted Retailer of the Year Awards in both 2008 and 2009. (Laura Ashley Annual, 2009)The Company introduced their first branded Laura Ashley Outlet stores, thus clearing previous season stock and achieving better inventory utilization.The company has adequate financial resources and a healthy balance sheet and remained resilient in a time of extraordinary economic difficulties.
(Laura Ashley Annual Report, 2009)WeaknessesA significant drop of 6.2% in like-for-like sales was experienced. (Laura Ashley Annual Report, 2009)There is a low Price/Earnings ratio, which is a key sign of investor confidence in an organization. (Wiliiams, 2002)The companys management of currency risk is not substantial enough, there are almost no hedging tools used.OpportunitiesDesigning clothes and furniture for a slightly different target market, in terms of age and price, would attract more customers.Conducting vigorous year-round promotions and offers would boost sales.The growth international business (especially in Middle East, China) through franchise and licensing operations, partnerships or wholly owned businesses represents an opportunity for the company.
ThreatsFailure of the Fashion and Home business to meet the changing buyer needs and tastes.Failure to deliver sales growth online by not to meeting customer expectations or website failure may cause loss of market share and customer loyalty.Currency fluctuations, especially a further fall in the sterling, may result in a decrease in Gross margin.Financial AnalysisRatio AnalysisThe financial ratio analysis of Laura Ashley consists of the calculation and comparison of ratios which are derived from the information in a company’s basic financial statements – income statement and balance sheet.
The values of these ratios are used to make inferences about a company’s financial condition, its operations and attractiveness as an investment. In the ratio analysis a comparison to a peer median will be made for a better understanding of the companys performance. (Wiliiams, 2002) All ratios can be found in Appendix I.
LiquidityOver the last 3 years Laura Ashley has maintained a current ratio higher than 1, thus staying in the positive working capital area. However, it has been steadily decreasing, reaching a value of 1.17 in 2008, a significant fall from 1.83 in 2006. It is important to point out that the same tendency can be observed for the peer meridian, where the decrease is from 1.71 in 2006 to 1.
16 in 2008. (Laura Ashley Osiris Financials, 2009) The data indicates that the UK retail company is able to pay off all its short-term liabilities using its cash, cash equivalents and receivables, qualifying as a good credit risk for short-term creditors and is in a better liquidity position than its competitors average performance. (Williams, 2002)Capital structureThe debt ratio displaying what proportion of the companys assets is financed by debt and thus measuring the creditors long term risk is not applicable for Laura Ashley. The Groups policy on liquidity risk is to ensure that is has sufficient cash flow to fund ongoing operations without the need to carry significant net debt over the medium-term. The Group does not have any borrowings and relies on internally generated cash to fund its operations. In contrast, the peer meridian has a history of relatively high debt to equity, peaking at 3.36 for the year ending 31 December 2008.
(Laura Ashley Osiris Financials, 2009) It is also valuable to look at the solvency, estimating the company’s capacity to meet long-term obligations. Generally, a solvency ratio of greater than 20% is considered financially healthy. Therefore, Laura Ashley Holdings 44% is definitely a positive sign.
(Williams, 2002)ActivityIn evaluating the activity of a company, the total asset turnover ratio is a key factor. Its value in the case of Laura Ashley amounts 1.95 for the fiscal year ended in December 2008.
Additionally, the companys inventory turnover ratio is 5.63 for the year of 2008. (Laura Ashley Osiris Financials, 2009) Both ratios are in the medium zone, but operating in the retail industry, this is expected as demands is not as growing and trends (mainly in furniture and decorating) are not as changing as in the communication equipment industry for example. The average collection period of the inventory, measures how quickly inventory sells in days and thus providing a more practical, rather than theoretical view on the matter, equals approximately 74 days for the year of 2008. (Laura Ashley Osiris Financials, 2009) This is a decrease of 13 days compared to the previous 2 years. Again, this is understandable and expected taking into account the economic conditions and the decreased consumer spending. (Williams, 2002)ProfitabilityThe data shows that for the year of 2008 the Laura Ashley Holdings profit margin is 3.
92%. This relatively high rate, considering the current economic conditions, reveals that the management has maintained high levels of earnings and control over the companys costs. With a profit margin of 8.
33% for the year of 2007 Laura shows a decrease, but so does the peer median. (Laura Ashley Osiris Financials, 2009) This low profit margin levels can be explained, again by the current economic conditions, but also by the fact that the retail industry is in a mature stage, which is usually characterized by drop in innovation and slowing growth in total industry demand. (Williams, 2002)Profitability can be further examined by examining return on assets. In the fiscal year of 2008 the companys ROA was 7.93%. This is a decrease compared to 2007 and 2006, but an increase e compared to the 10 years before that.
Therefore, looking at the bigger picture, these figures are a representation of the increasing productivity of Laura Ashleys assets and an indicator that the company is a good choice from an investors perspective. What is more, the Groups 19.62 % return on equity for the fiscal year of 2005, an increase from -26.86% for the fiscal year of 2002 is an indicator for a worth taking risk. (Laura Ashley Osiris Financials, 2009)Share performance analysisUntitled.jpgLaura Ashley Holdings shares are traded on the London Stock Exchange (SETS) – SSMM: Main – SETS, Berlin Stock Exchange, Frankfurt Stock Exchange , Stuttgart Stock Exchange and XETRA under the ticker ALY.
L. Its current selling price (as of 5th June) on its primary market – the LSE – is 17 pence per share.The above stated graph shows the movement of the share price for the past year, compared to 3 indices – FTSE 100 index, S&P Idex and FTSE Eurotop 100.It is evident that Laura Ashley Holdings has been underperforming compared to the 3 indices. However, it is a less risky investment.
This is no surprise as its beta, measuring the volatility of a security in comparison to the market as a whole, is far below 1, meaning it offers lower rates of return, but also lower levels of risk. The shares betas for the past year have been 0.07, 0.15 and 0.06 in regards to Dow Jones, FTSE 100 and FTSE Eurotop 100 respectively.
The Group announced on 9 May 2008, it purchased 100,000 of its ordinary shares of 5 pence each at an average price of 25.0 pence per share. The purchased shares were to be held as treasury shares.
(Laura Ashley Annual Report, 2009) A repurchase of shares is usually a sign that the company’s management believes the shares are undervalued. A share repurchase, or buyback, decreases the number of shares outstanding and increases earnings per share, thus elevating the market value of the remaining shares. (Williams, 2002) In 2009 Resolution 13 was adopted, authorizing the Company to make further market purchases of ordinary shares up to a maximum of 10% of the issued share capital if and when, in the light of market conditions prevailing at the time, the Directors are of the belief that such purchases would increase earnings per share and would be for the benefit of the shareholders in general. (Laura Ashley Annual Report, 2009)But despite this move on behalf of the management, the advice of most experts is to hold regarding Laura Ashleys shares according to it Reuters profile:2.jpgThe Group has tried to satisfy existing and attract new attract investors by maintaining high-quality communications with shareholders, providing them with up-to-date information and latest reports via the Laura Ashley Official website. Additionally, the Company pays dividends on a regular basis.
A final dividend of 0.75 pence per share has been recommended recently and when taken with the interim dividend of 0.5 pence per share paid on 7 November 2008, this takes the total dividend for the year to 1.25 pence per share. (Laura Ashley Annual Report, 2009)ConclusionLaura Ashley Holdings has faced the difficulties of the current economic conditions, resulting from the all-so-famous credit crunch. The company was particularly hit by the decreased consumer spending and the fluctuations of the Pound sterling. Still, it managed to stay flexible and competitive thanks to its healthy financials, mainly in terms of the fact that no assets are financed by debt, and the successful strategy of differentiation, store utilization and promotion.
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241 Issue 83, pD1, 0p.4) Cabinet Maker (2007a), Best Results for Ten Years for LA, Cabinet Maker, online (05/06/09) Availabe from 5) Cabinet Maker (2007b), Laura Ashley Group Will Still Go Public, Cabinet Maker, online (05/06/09) Available from 6) Cabinet Maker (2007c), Laura Ashley Sales 10%, Cabinet Maker, 09 January, p. 57) Cabinet Maker (2007d), Laura Ashley Sees Furniture Languish, Cabinet Maker, online (05/06/09) Available from 8) Cabinet Maker (2008), Laura Ashleys Growing E-commerce, Cabinet Maker, online (05/06/09) Available from 9) Datamonitor (2008a) Apparel Retail in the UK: Industry Profile, Datamonitor plc online (05/06/09) Available from 10) Datamonitor (2008b) Global Apparel Retail : Industry Profile, Datamonitor plc online (05/06/09) Available from 11) Datamonitor (2008c) Home Furnishings in the UK : Industry Profile, Datamonitor plc online (05/06/09) Available from 12) Datamonitor (2009d) Global Retaling : Industry Profile, Datamonitor plc online (05/06/09) Available from 13) Economywatch (2008) World Economy in 2008, Economywatch online (05/06/09) Available from: ; http://www.
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2007.15) Harrison, N. (2009) Volatile economy hits Laura Ashley’s profits, Retail Week, online (05/06/09) Availabe from www.lexisnexis.com16) Home Textiles Today (2007), And the Winners Are, Home Textiles Today, 28 November, p. 1217) Jonson, G. et al (2005) Exploring Corporate Strategy, FT Prentice Hall, London18) Laura Ashley Annual Report (2008a) Annual Report 2006, Laura Ashley Holdings online (05/06/09) Available from: 19) Laura Ashley Annual Report (2008b) Annual Report 2007, Laura Ashley Holdings online (05/06/09) Available from: 20) Laura Ashley Annual Report (2009c) Annual Report 2008, Laura Ashley Holdings online (05/06/09) Available from: 21) Laura Ashley Official Website (2009) Laura Ashley Official Website, online (05-6-09) Available from: < http://www.
lauraashley.com >22) Lynch, R. et al.
(2003) Corporate Strategy, Financial Times Prentice Hall, Harlow.23) The Nation (Tailand) (2009) Laura Ashley looks for partner in Thailand, The Nation (Tailand,) online (05/06/09) Availabe from 24) Laura Ashley Osiris Financial (2009) Osiris Database online (05-06-09) Available from: 25) Williams, J (2002) Financial and Managerial Accounting, McGraw Hill, New York.Appendix IALL RATIOSPrelim (C)ConsCons31/01/200926/01/200827/01/200712 months12 months12 monthsUnqualUnqualUnqualth GBPth GBPth GBPRNSARARIFRSIFRSIFRSProfitability RatiosProfit Margin (%)3.928.335.
42Return on Shareholders Funds (%)19.6231.9919.
77Return on Total Assets (%)7.9314.329.62Return on Capital Employed (%)17.
4028.2116.87Cost of Empl./Op. Revenue (%)n.a.19.
4018.44Operat. Rev. per Employee (th)n.a.9596Aver. Cost of Employee/Year (th)n.
a.1818Profit per Employee (th)n.a.85Cash Flow/Oper. Revenue (%)4.847.706.04Gross Margin (%)47.5248.0247.69EBIT Margin (%)4.037.795.11EBITDA Margin (%)6.148.887.56ROE (%)13.6522.6212.97ROA (%)5.5210.126.31ROCE (%)12.1619.9411.20EV / EBITDA4.176.7010.65Market Cap/Cash Flow from Operations-8.2015.6512.58Liquidity RatiosCurrent ratio1.171.401.71Liquidity ratio0.410.821.00Interest Cover105.00n.a.38.00Collection Period (days)281914Credit Period (days)953633Assets Utilization RatiosShare.Funds per Employee (th)n.a.2526Working Cap. per Employee (th)n.a.1111Total Assets per Employee (th)n.a.5554Stock Turnover4.916.025.97Net Assets Turnover4.403.383.04Structure RatiosShareholders Liquidity ratio7.227.464.98Solvency ratio (%)40.4044.7648.66Gearing (%)13.8513.4120.10