Bbby's Business

1. Assess BBBY business, operating, and expansion strategies. Are these strategies consistent with one another? What, if any, changes would you make to these strategies?

ANS:

These three strategies are consistent with each other. The company established lower price than department store, emphasized customer oriented policy using word of mouth advertising, build superstore format not using warehouse and shipping inventory directly to store ensured merchandise is always in stock. The operating strategy preserves business value and adjusts to local market demand. The expansion strategy process consolation to gain more market shares to enhance competitive position, opening of new in both existing and new market and the expansion or replacement of existing store with new larger store.

2. Assess BBBY's current performance. Evaluate the keys to its current success. How have the important performance measures changed over time? How does BBBY compare to its competitors? What is driving BBBY's superior ROE? How sustainable are BBBY's current ROE and growth rate?

ANS:

Key to success

a. not maintaining a central warehouse

b. opting to lease instead of owning stores helped to company cost down

c. spent less on advertising compared to competitors. They relied on word of mouth to attract more customers.

d. Customer oriented strategy aimed at being one-step-shopping eliminating the need to go from store to store looking for particular items.

ROE is strong attributed to their return on invested capital since the company has not financed with any debt.

Net sales of BBBY's increased by 41% in 1993 to 305.8 million and net earnings per share was 0.64, which is a 36% growth from previous year.

3. What potential problems are likely to be encountered as BBBY's management attempts to implement its expansion plans? How is BBBY planning to finance its growth? Will internally generated funds and borrowings available under the $20 million credit facility be sufficient to fund BBBY's normal operations as well as its expansion program for the remainder of fiscal 1994 and on into fiscal 1995?

ANS:

The company should consider sufficient cash on hand because expansion program requires the company to make capital expenditure for fixturing and leasehold improvement on an ongoing basis. Also, the company should consider the uncertainty to analysis the market demand and whether the inflation would incur or market share could support and maintain the balance of revenues and expenses.

The company has