Marketing Strategy Recommendation
Expansion into Trinidad and Tobago
Team A1
April 21, 2006
Company Overview
“World’s largest home improvement retailer”
• Founded in 1979 in Atlanta, GA by Bernie
Marcus and Authur Blank
• Robert L. Nardelli- president/chairman/CEO
• Over 2000 stores throughout US, Canada,
Mexico, Puerto Rico and St. Thomas
– Approx. store size-108,000 sq ft,
– 40,000+ SKUs
• 2005 Revenue- 73.1 billion
Trinidad and Tobago
Target Market Strategy
Emphasis on home appliance items for new and replacement
purchases.
• Customer base
– Do-it-yourselfers
– Contractors
• Age
– 18-60 years
• Profile
– Middle aged singles
– Young families with dual incomes
– Professionals
Expansion into Trinidad & Tobago
Recommendations
• Start-up Cost
– 16M
• Format
– Renovated 108,000 square ft structure
• Product selection
– 25,000 products
• Type of sales
– In-stock and installed sales
Expansion into Trinidad and Tobago
Recommendations
• Operations
– 6:00am- 11:00pm-M-S
– 10:00-9:00pm S
• Personnel
– 100 Pt & FT Employees (All local residents)
– Mgmt- 1 GM, 4 Asst. Mgrs., 6 Spvs.
• Promotion/Advertising Budget
– $500,000
• Community Sponsorship
– Kids in Need of Direction- K.I.N.D.
Trinidad and Tobago at a Glance
•Principal Government Officials
–President-George Maxwell Richards
–Prime Minister-Patrick Manning
–Attorney General-John Jeremie
–Chief Justice-Satnarine Sharma
•Two-Island Republic
•Total area of 1,980 square
miles
• 1.3 million people share a
culture
• Experienced tenth straight
year of economic growth
• GDP reached $11.48 billion
www.fas.usda.gov/info/fasworldwide/2005/12-2005/TrinidadTobagoretail.htm
Souers, Michael, 2006. Home Depot Solid Foundation; Business Week
Tourism and Travel Industry
•5.2% growth next 10 yrs
• Contribute 15% of GPD
• 2nd fastest T&T economy in
Caribbean
• 15 Billion Mass Transit
system to link East & West
3rd largest city Port of Spain 2/6/06 Sun
Sentinel
http://www.gov.tt/ttgovnews/files/cms/WorldTravelTourismCouncil.pdf
http://www.gov.tt/news/news_article.asp?id=3803
http://www.trinidadexpress.com/index.pl/article_opinion?id=125832459
SWOT ANALYSIS
Strength
•Solid cash reserves
•Existing structure and
systems
Weakness
•Brand new market
•No local contacts within
government could result in
favoritism for local biz
•Solid company
Opportunity
•Could expand throughout
Caribbean
•Local product usage could
result in new line of product
for US
Threats
•Established local competition
•Backlash from locals due to
Depot size
•Lowes enter the market if
successful
Economic Environment
Has earned a reputation as an excellent investment
site for international businesses
•The leading Caribbean producer of oil and gas
•The economy benefits from low inflation and a
growing trade surplus
•Prospects for growth in 2006 are good as prices
for oil, petrochemicals, and liquefied natural gas
are expected to remain high, and foreign direct
investment continues to grow to support
expanded capacity in the energy sector
http://www.cia.gov/cia/publications/factbook/geos/td.html#Econ
Market Attractiveness and Competitive Position
MarketAttractiveness
factors
Weight
Rating 0-10
Total
Customer Needs and
Behavior
.5
8
4.0
Segment Size and
Growth Rate
.3
10
3.0
Macro Trends
.2
8
1.6
Total market
Attractiveness
1.0
8.6
Competitive
Position Factors
Opportunity for
Competitive
Advantage
.5
6
3.0
Capabilities &
Resources
.2
6
1.2
Industry
Attractiveness
.3
7
2.1
Total
Competitive
Position
1.0
6.3
BHAGWANSINGH’S
• Bhagwansingh (BHSI)
was founded in 1974 and
currently has over 800
employees
• Revenues for this private
company were $687
million
• BHSI are distributors and
manufacturers of plastic
water tanks, rounds, flats,
wooden doors, chain link
wire and welded mesh
fabric and nails
• BHSI has four locations
on the island and is a well
known local/regional
brand throughout the
Caribbean.
COURTS
• Courts’ is a
distributor and
seller of home
furnishings,
electronic items
and appliances
• The current count
is now 18 peaking
at 19 in 2002.
• Revenues for
Courts Trinidad
LTD are reported
to be over 828
million.
SISSONS PAINT
•
•
Prior to becoming
incorporated Sissons Paint
were manufacturing and
marketing its paints in
Trinidad for several years
until 1956 when they
became incorporated.
Sissons Paints was the first
company to successfully
introduce products such as
Siscolac Chinese Lacquer,
polyurethane varnish, oil
varnish stain (stain and
varnish in one), non-drip
ceiling white, weather
guard exterior emulsion
and a water based enamel.
There are seven Infinity
Colour Shops currently on
the island of Trinidad.
PRICESMART
• Sol Price created the
discount store industry
in the United States by
launching FedMart in
1954
• Sol and Robert Price
subsequently
developed the
membership
merchandising
business with the first
Price Club in 1976
• PriceSmart now
operates 23 warehouse
clubs in 11 countries
and one U.S. territory
• 618 million in revenues
2005
Emphasis on New Product-Market
Growth
Heavy
No emphasis
Analyzer
Home Depot
Defender
Sissons Paints and
Small Mom and Pop
stores that rely on
loyal customers.
Advertisment- word of
mouth
Kmart
Ace Hardware
Lowe's
Low cost offering
Mullins, W and Larreche, B, 2006. Marketing Strategy Chapter 3.
Reactor
PriceSmart, Dansteel,
Courts and
Bhagwansingh
Home Depot
Cost Leadership
Competitive Strategy
Differentiation
Prospector
PriceSmart, Dansteel,
Courts, and
Bhagwansing. Lower
current prices to
match Home Depot
Regulatory Environment
• Trinidad and Tobago achieved independence
from Britain in 1962 followed by republican
status in 1976.
• The twin-island nation is currently a member of
the Commonwealth
• Fully democratic elections are held every five (5)
years, since 1956. Universal adult suffrage, with
a minimum voting age of 18.
• The Tobago House of Assembly is responsible for
administrative governance within Tobago. City
and county councils are responsible for local
governance.
Regulatory Environment cont.
• The Judiciary comprises a Supreme Court and
district courts.
• The Supreme Court consists of the High Court of
Justice and the Court of Appeals.
• The High Court is presided over by the Chief
Justice and ten (10) judges.
• The district courts are presided over by a chief
magistrate and seven (7) senior and eighteen
(18) stipendary magistrates.
Tariffs-Trade Agreements -Imports
• Member of CARICOM
started in 1973
• CARICOM was
established “for the
purpose of facilitating
the economic and social
development of member
states and unifying the
Caribbean”
• Ultimate goal is to
become a Single Market
for members
• CARICOM imports from
NAFTA up 9.5 billion to
12.5 billion from 19962001
• NAFTA imports from
CARICOM down from
44.7% to 43.6% from
1996-2001
• Value Added Tax (VAT)
15% import/export
• Common External Tariffs
(CET) 0-20% range with
some products at 40%
(Ministry of Foreign Affairs and Foreign Trade, 2001).
Break-even Analysis
Break Even Analysis
Assumptions
Average per year unit revenue
Average per unit year variable cost
Gross margin per unit
Estimated yearly fixed cost
Year 1
$
56.42
$
39.50
$
16.93
$ 9,590,817.83
$
$
$
$
Break-even point in units
Break-even point in dollars
566,601
$ 31,969,392.75
$
Year 2
60.25
42.18
18.08
9,590,817.83
530,574
31,969,392.75
Year 3
$
64.35
$
45.04
$
19.30
$ 9,590,817.83
$
$
$
$
496,810
$ 31,969,392.75
465,195
$ 31,969,392.75
UNITS
Break-Even Analysis
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Year 1
Year 2
Year 3
Year 4
Year 5
0
1
2
3
Year
Year
Year
Year
Year
Year
1
2
3
4
5
0
566,601
530,574
496,810
465,195
4
5
6
Year 4
68.72
48.11
20.62
9,590,817.83
Pro-forma Income Projections
Years
0
2006
1
2007
2
2008
3
2009
5
2010
Flows ( Time line of annual cash flows)
Investment Outlays: Long Term Assets
Building
Equipment
Land
$
$
$
Operating Cash Flows Over the Projected Life
Units Sold
Sales price
Sales revenue
Variable Cost
Fixed Operating costs
Depreciation (building)
Depreciation (equipment)
Oper. Income before taxes (EBIT)
Taxes on operating income (40%)
Net Operating Profit After Taxes (NOPAT)
Add back depreciation
Operating cash flow
Cash Flow Due to Net Operating Working Capital
Net Operating Working Capital (based on sales)
Cash flow due to investment in NOWC
(4,050,000.00)
(2,125,000.00)
(6,500,000.00)
$
$
$
$
$
$
$
$
$
$
636,631
56.42
35,918,707.15
22,378,574.93
9,590,817.83
105,300.00
297,500.00
3,546,514.40
1,418,605.76
2,127,908.64
402,800.00
$
$
$
$
$
$
$
$
$
$
655,730
60.25
39,510,577.86
24,392,646.67
9,590,817.83
101,250.00
605,625.00
4,820,238.37
1,928,095.35
2,892,143.02
706,875.00
$
$
$
$
$
$
$
$
$
$
675,402
64.35
43,461,635.65
26,587,984.87
9,590,817.83
101,250.00
514,781.25
6,666,801.71
2,666,720.68
4,000,081.02
616,031.25
$
$
$
$
$
$
$
$
$
$
695,664
68.72
47,807,799.22
28,980,903.51
9,590,817.83
101,250.00
460,577.81
8,674,250.07
3,469,700.03
5,204,550.04
561,827.81
$
(12,675,000.00) $
2,530,708.64
$
3,599,018.02
$
4,616,112.27
$
5,766,377.85
$
$
3,591,870.71 $
(3,591,870.71) $
3,951,057.79 $
(359,187.07) $
4,346,163.57 $
(395,105.78) $
4,780,779.92
(434,616.36) $
Salvage Cash Flows: Long Term Assets
Net salvage cash flow: Building
Net salvage cash flow : Equipment
Total salvage cash flows
Net Cash Flow (Tme line of cash flows)
MIRR
$
(16,266,870.71) $
$
$
0
(16,266,870.71) $
(16,266,870.71) $
FALSE
$
3,203,912.24
$
4,181,495.92
$
4,474,615.38
968,000.00
5,442,615.38
$
16,957,773.16
16%
Years
Culmative cash flow for payback
Cum. CF>O, hence Payback Year
Payback found with Excel function =
Check Payback =
2,171,521.57
0
4,780,779.92
1
2
2,171,521.57 $
3,203,912.24 $
(14,095,349.15) $ (10,891,436.90) $
FALSE
FALSE
3
4,181,495.92 $
(6,709,940.99) $
FALSE
4
16,957,773.16
10,247,832.17
TRUE
3.40
Balance Sheet
Assets
Current Assets:
Cash
Receivables
Inventory
2006
2,008
2009
2010
$ (12,675,000.00) $
$
$
388,344.76 $
734,084.23 $
4,934,378.06 $
427,179.24 $
807,492.65 $
5,181,096.96 $
469,897.16 $
888,241.92 $
5,440,151.81 $
516,886.88
977,066.11
5,712,159.40
$
6,056,807.05 $
6,415,768.85 $
6,798,290.89 $
7,206,112.39
6,500,000.00 $ 10,000,000.00 $
4,050,000.00 $ 4,050,000.00 $
2,125,000.00 $ 2,125,000.00 $
10,000,000.00 $
4,050,000.00 $
2,125,000.00 $
10,000,000.00
4,050,000.00
2,125,000.00
12,675,000.00 $ 16,175,000.00 $
16,175,000.00 $
16,175,000.00
603,846.16 $
443,846.16 $
363,846.16
Total Current Assets
Property and Equipment @ cost
Land
Building
Furniture/Fixtures/Equipment
Construction in Progress
2007
$
$
6,500,000.00 $
$
$
6,175,000.00
$
Less Accumulated Depreciation
$
Net Property & Equipment
$
12,343,076.92 $ 15,571,153.84 $
15,731,153.84 $
15,811,153.84
$
18,399,883.97 $ 21,986,922.70 $
22,529,444.74 $
23,017,266.23
Total Assets
$
-
331,923.08 $
Liabilities and Stock Holder's Equity
Current Liabilities
Accounts Payable
$
2,823,702.25
3,106,072.48
3,416,679.73
3,758,347.70
Total Current Liabiliities
$
2,823,702.25 $
3,106,072.48 $
3,416,679.73 $
3,758,347.70
Stock Holder's Equity
Retained Earnings
Total Stock Holders Equity
Total Liabilities and Stock Holders Equity
$
$
$
3,745,623.45
5,867,236.12
11,830,558.28
13,013,614.10
18,399,883.98 $ 21,986,922.70 $
4,797,789.50
14,314,975.51
22,529,444.74 $
3,512,445.47
15,746,473.07
23,017,266.23
Final Group Recommendation
• Economic Environment
• Political Environment
• Financial Analysis
• SWOT