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Baker's Dozen
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Thanks, HKrentzman- appreciate the comments! Below are some of my thoughts on your feedback
1) Sephora’s partnership with Marc Jacobs was the first time Sephora partnered with another LVMH subsidiary to expand its beauty line. Sephora already sells products under its Sephora Originals name. As you noted, Sephora is incredibly protective of its supplier-relationships. For a long time, department stores prevented brands carried on their beauty floors from entering Sephora (think Bobby Brown, Estee Lauder etc). So much of Sephora’s business model relies on its product mix so I do not think it will expand to become a beauty conglomerate. I believe this capability will continue to be used to facilitate strategic production partnerships
2) Sephora doesn’t have a direct competitor, but its peer group includes Ulta and Bluemercury. I do not think Ulta is a direct threat as it is slightly lower-end than Sephora. Bluemercury is better positioned to pose a competitive threat- acquired by Macys earlier this year, Bluemercury has seem tremendous store growth as it expands its brick and mortar presence. The customer value proposition is not identical- Bluemercury offers a smaller selection of brands on the high-end of prestige and offers beauty services at many locations- but it is the most likely to cause Sephora to respond competitively.
3) Sephora’s use of technology is to drive sales of its partner brands online and in-store. I do not think they would be supportive of an at-home DIY product that may divert sales from its partner brands. I can imagine Sephora carrying the product as a tween/teen gift for younger girls to experiment with at home.
I really enjoyed your post! You clearly laid out the distinctive features of Costco’s customer value proposition (low cost goods) and the operating model the retailer has put in place to support its business strategy.
There are a few components of Costco’s business model that I was curious about after reading your post:
1) As you noted, Costco’s $55 membership fee is a key component of its operating model and allows it to command lower margins than competitors. I can appreciate that a subscription model is compelling for a middle-aged consumer that can anticipate future needs, but how is Costco going to make this an attractive investment for a younger generation? It is hard for me to imagine a younger demographic foreseeing the need for a Costco subscription, so I imagine the retailer either needs to rethink its targeting to millennials or limit itself to an older demographic? I envision there are some limitations of this strategy.
2) Costco’s business model is somewhat tied to its superior in-store shopping experience (fewer SKUs, easy checkout, famous food sampling). How is the retailer responding to “Big Box” online retailers such as Big-Box, Soap.com, etc that are now similarly offering bulk items at low cost with no membership needs or need for in-store shopping? Is it reasonable for Costco to waive its membership fee requirement for online purchasing?
3) Is Costco affected by the resurgence of urban living? Cities across the United States have seen a flurry of high-end commercial and residential real estate activity and an influx of a professional demographic (ie a potential Costco consumer). Does this trend towards apartment/city living shift the value proposition that Costco is offering to consumers with more limited storage space? The bulk items are attractive to rural and suburban customers, but unrealistic for most urban dwellers. Costco will have to rethink this as such trends challenge a basic tenet of its business model
I really enjoyed this post! Your summary very clearly lays out the key elements driving Bim’s growth–attractive payment terms, limited product mix, superior supplier relationships, and cost-control measures. The company’s ability to grow so meaningfully over the past 20 years (averaging ~225 stores/year) demonstrates a compelling business model that is transferable to other communities/countries.
I was curious about a few aspects of the business after reading your post:
1) With expansion into Egypt and Morocco, Bim’s has proven its ability to grow in markets marred by political and economic upheaval. GDP growth in Turkey, Egypt, and Morocco has fluctuated significantly over the past ~10 years, but Bim’s growth has been stable. What elements of its business or operating models are able to support that sustainable growth despite broader economic instability? Are its suppliers not impacted? Despite their superior supplier relationships and savvy cost measures, I would have thought a consumables retailer would feel the impact of recent declines.
2) Thus far, Bim’s growth has been achieved through geographic expansion. With its expanding footprint and private label products, I wonder if Bim’s will transition into serving as a low-cost brand in the Middle East? As you noted, it seems to be generating significant brand recognition through its private label goods and will soon come to be synonymous with “lowest cost” goods?
3) Is Bim’s facing competition from international “low cost” retailers such as Costco? Wholesalers have undergone significant international expansion and are increasingly looking to emerging markets to achieve growth targets. There is a (mistaken) perception that American brands offer higher and more consistent quality. I wonder if Bim’s will face competition from these wholesale behemoths or if the populations they serve are fundamentally different?
What an interesting company! Your post clearly lays out Ollie’s customer value proposition and points to the most relevant elements of the operating model that exist to support its business strategies.
I was curious about a few aspects of Ollie’s business and operating models after I read your summary:
1) Distinctiveness in a Competitive Space: As you pointed out, Ollie’s business model relies on consumers consistently shopping at its stores for deals on a range of products (high-end and low-end), but how does differentiate itself in a crowded clearance/wholesaler industry? I imagine Ollie’s faces competition from similar retailers such as National Liquidators, Big Lots etc- is Ollie’s able to win because of the diversity of its range of products? Superior locations? Compelling loyalty program?
2) Response to Dot Coms- you mentioned Ollie’s attracts a customer base of “treasure hunters”, a consumer base accustomed to browsing before purchasing. Given the overwhelming presence of online retailers with a similar business model (e.g. overstock.com, H&J closeouts), is much of Ollie’s business moving online? I imagine the Ollie’s consumer would similarly appreciate the ability to virtually browse its aisles. Would this force the company to expand its distribution centers (and incur those costs)?