What has historically been Hudson Bay Company’s source of sustained competitive advantage?
Hudson Bay's competitive advantage developed from its long Canadian history and resilience in the face of an economic downturn. Started off in 1670 has a fur trading company, the company grew to expand into the interior of Canada, with numerous acquisitions of retail stores along the river networks that predated the major Canadian cities. These acquisitions covered a vast spectrum of investment fields. However, as of the recent past, the company has been making headlines for all the wrongs reasons. From unprofitable investments to reduced net profits. The company has also been at loggerheads with the activist investor, LBMI for ideological differences. The numerous resignations of top company executives have also been on the rise, further affecting the confidence consumers and investors once had on this mighty corporation.
Use Porter’s Five Forces to analyze Hudson Bay Company in the context of the retail industry. Remember that Porter’s Five Forces is a tool, not a bunch of paragraphs. Each force is to be labeled: strong, weak or neutral. When a force is strong, is that better for you or worse for you?
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To adequately understand the situation, and profitability as well as the future of this producer, it is essential to analyze its productions using Porter's Five Forces Analysis model.
Threat of New Entrants.
Though Hudson Bay's has been in the market for centuries now, it continues to face threats from new sector players. Although the Canadian retail industry was projected to increase in value by 17.7% by 2020, the breakdown of industry growth represents a threat to HBC. This growth rate was primarily driven by the e-commerce segment arising from the fact that the consumers continually held higher expectations for shipping and service standards for online sale, triggering the trend towards digitizing store experiences for competitors such as Sear Canada and Northern Canada, both of which directly competed in the department store service. However, HBC has been in the industry for a long time and has built reasonably strong customer loyalty. This force, therefore, can be said to be neutral.
Threat of Substitutes.
The greatest substitute Hudson Bay's face is in the form of another producer; Amazon. Consumers point out that while they have to wait for about three days for the company's online order to be delivered; Amazon's orders come in just one day. This online substitute creates a potent threat to Hudson's Bay e-commerce, and unless something is done, most of its clientele will shift to Amazon. The main factor, in this case, is the availability of close substitution; banking on Amazon's fast delivery program. Unless HBC diversifies its e-commerce, this threat remains to be strong.
Bargaining Power of Customers.
One useful observation for Hudson Bay's though is the fact that the bargaining power of customers has remained relatively low. This is mostly attributed to the fact that the prices of its commodities have remained relatively on the same level, thereby not triggering the consumer sensitivity to price changes, which would otherwise translate to high bargaining power. The force can be said to be weak.
Bargaining Power of Suppliers.
This is another area that does not pose any threat to HBC. The company continues to enjoy a stable working relationship with its suppliers. The chief factor for low bargaining power of suppliers, in this case, would be supplier loyalty to the company, just as much as HBC has been able to build a lasting relationship with the clients over the years, the same can be said of suppliers. This force is weak.
Industry Rivalry.
This is the most potent threat HBC currently faces. With increased competitive rivalry from companies like Amazon and Sear Canada, HBC needs to reorganize its positioning and marketing strategy to be uniquely dispensed in the industry. This explains why it is in the bid to diversify its retail operations. However, with the faulty management and investments, many consumers fear that this may not be realized soon enough. This force is strong.
Is HBC well-positioned in the retail industry?
On average, it can be said that HBC has a good market positioning; however, the increasing competitive rivalry requires the company to adjust its marketing and positioning strategies on the market to avoid the threat of substitutes, which is quite strong in the retail industry.
Should HBC consider a leveraged buy-out to tap into the value of its real estate holdings?
Yes, HBC should consider a leveraged buy-out to tap into the value of its real estate holdings. This will be relevant in supporting the growth of the company on the market. However, if it does not act in due time and bring its operations and management in order, the forces may grow stronger, leading to the fall of the company, the worst case scenario.
What should HBS do?
The immediate strategy would be a buy-out to tap into the value of real estate holdings.
