This report provides an analysis of Billabong’s current situation and both the external and internal evaluations. Methods of analysis include vertical and horizontal evaluation as well as SWOT implement. There is a thorough analysis of economic, social-cultural, political and legal factors, and also environmental points of view, alongside the overview of Billabong and how it basically operates. This report also aims to explore the current problem and challenges of Billabong that have to be confronted.
All the findings disclose that the current issues of Billabong are having huge debts and lack of a strong competitive advantage aspect, also a lack of small retail management experience causing stock turnover problems. The report shows the prospects of Billabong in its current situation are not positive. The main challenges of Billabong are addressed in detail and strategies have been recommended to improve or ride these. This is done in the format of three categories: business, functional and corporate, also useful strategic recommendation implementation and control are concluded at the end.
It lays out the strategy of product design diversification, online marketing and sales development, managerial hierarchy restructure, disagreement of the current TPG contract and continuing to close unprofitable stores. Those strategic suggestions could be a transition to make Billabong operating more positive and to overcome the challenges through the strong analysis in various prospects. However, how to control and monitor the store performance could be another challenge to confront.
Also, in order to apply the discussed strategies into reality and make them happen, Billabong has to strengthen their Human Resource management to keep the company operating smoothly. Overall, Billabong is now facing a complex and unforeseeable situation, unless efficient and proper strategies are implied on the right track to overcome all of the challenges which have been analysed. Current situation Billabong International is Australia’s largest surf wear manufacturer with a main interest in the distribution of clothing, accessories and eyewear.
The company sells products under nine other brand names some including Element, Von Zipper and Tigerlily. Billabong was founded in 1973 and first appeared on the Australian Securities Exchange in 2000 with several other milestones in between, such as establishing a global identity in 1983 when exporting to America. Since this time Billabong has also expanded to Europe, Asia and other Oceania with over 70% of total sales taking place outside of Australia.
The company has approximately 6000 staff worldwide, and its products are licensed in more than one hundred countries worldwide. The major revenue comes from wholly-owned operations in Australia, North America, Europe, Japan, New Zealand, South Africa and Brazil. The brand are highly promoted internationally through association with high profile professional athletes, junior athletes and events. The boardsports and apparel industries are very strong even though Billabong did not show proof to that, such as Quicksilver is one of leading companies.
But Billabong’s values and objectives remain constant in which they are committed to brand protection and enhancement, the manufacture of design-relevant and functional products, marketing in the core boardsports channels, the professional development of staff, and ongoing attention to customer service and relationships. Billabong also adopted a social standard called SA8000 which is a certification standard designed to help companies manage workplace conditions throughout a global supply chain.
Some of the things that come along with this standard are no child labor, no forced labor, and safety and health precautions. On the environmental side of things Billabong has not established one specific standard but they do continually do things to help with the environment and have plans of doing more and more to help. These include things like recycling and a commitment to reduce waste, or it may include the building of complex infrastructure that leads to more energy efficient processes.
(Managing change,2012) On February 17th 2012 Billabong announced the closure of 150 stores and loss of 400 jobs internationally, along with almost half of the Nixon brand name being sold into a joint venture. The purpose of this restructure was to reduce some of the 700+ million dollar debt the company had accumulated due to the retail “strategy” of buying up independent stores and small brands. (Claire Harvey,2012) The reasons why Billabong went into debt can be separated into three areas.
They are the subprime mortgage crisis in 2008 and European debt crisis, the company's large investment of purchasing other brands and blind expansion. The best situation Billabong had was when they reached top value in 2007, however the effect of the subprime mortgage crisis in 2008 caused sales of the company to begin to decrease. To deal with the risk of sales continually dropping the company started to purchase many other small brands which were predicted as potential positive prospect.
Along with this Billabong also started to invest more in retail business, by purchasing and opening more stores in recent years. This turned out to be a bad venture as the European debt crisis caused Australian consumers to be purchasing less, resulting in lower sales and these new stores were not being utilised. Different opinions came out from some of the shareholders, and the company shareholders started to discuss the acquiring program in order to solve the negative debt situation.
Currently, Billabong just received the second offer from TPG's takeover bid program, which is a much lower price than the first offer in February they rejected. The price is $1. 45 per share which the total price is 695 million dollars. It is lower than the first one by 20 per cent. But some major shareholders of Billabong are supporting this offer such as Perennial value and Colonial First State. (Gavin Lower,2012) External Economic The state of the economy has a major impact on the company’s profitability and overall success.
It affects people's spending, shopping patterns and behaviour. For an international retailer like Billabong who is distributed in over 100 countries evaluating the economic status in each of these countries is highly important. – Rising levels of living costs and decreased consumer income The Australian retail market is under a strong pressure due to “increased living costs, new taxes, global economic uncertainty, not to mention the natural disasters that set the backdrop for some of the most challenging conditions Australian retailers have ever seen” (Traylor, Stewart & Gondevska, 2012).
Although living costs are rising the average consumer income has fallen for the first time in fourteen years from $859 in 2008 to $848 in 2010, (http://www. switzer. com. au/business-news/news-stories/first-fall-in-household-income-in-14-years-dwelling-approvals-hit-28-month-low/) which means people are spending even less. As Billabong products are not categorised as essential items these economic changes have a negative impact on the company’s sales, as buyers do not have any or enough disposable income to purchase the luxury goods.
– Exchange rates Surprisingly Australia does not generate the most profit for Billabong, with American sales sitting at 48% followed by Australia at 28% and Europe at 23%. A reason for this could be the exchange rates as strong currencies in the Asia and Pacific regions have worsened the situation for local retailers, encouraging consumers to shop online from offshore based businesses and therefore Australians are not purchasing locally as often.