Strategic Management
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Executive Summary
Strategic management gives overall direction by formulating guidelines and strategies aimed at achieving goals and then assigning resources to put the plans into action. Finally, strategic management is used by organizations to obtain a competitive advantage over rivals of the company. JD Sports PLC was established in 1981 as a small clothing retail and discount sale store in Greater Manchester and the second store was opened in Oxford Street, London in 1989 after 8 years of success struggle. By 2021 even during the pandemic of COVID, JD acquired DTLR who has 247 stores across 19 states of USA and moved to athlete footwear market and with that across the world among 29 countries, 3300 retail stores and 890 JD stores could be established by JD by end of 2021. As a part of that, JD Sports can think about diversifying their business to some other feasible business segments or new business sectors. Recently JD Sports is planning to diverse their business and moving towards real estate sector as well. This report is to analyse their strategic position feasibility towards new business segment. But according to the PESTEL and Porter’s Five Forces Analysis, it is not feasible to the JD to invest in the real estate sector because of the high competitiveness of the industry among the existing players and the lack of proficiency of JD in the real estate sector.
Table of Contents
Executive Summary 2
1.0 Introduction 5
1.1 JD Sports UK 5
1.2 Current Challenges Faces by JD Sports 6
2.0 External Analysis 6
2.1 PESTEL Analysis 6
A. Political Environment 6
B. Economic Environment 7
C. Social Environment 8
D. Technological Environment 10
E. Legal Environment 10
F. Environmental Factors 11
2.2 Porter’s 5 Forces Analysis 11
3.0 Internal Analysis 14
3.1 VRIO Analysis 14
4.0 Competitive Strategies 15
4.1 Porter’s Generic Strategies Analysis 15
5.0 Strategic Directions 16
4.1 Ansoff’s Matrix Analysis 16
6.0 Conclusion and Recommendations 17
References 19
Introduction
Planning or building a system entails a lot of issue and resource evaluation, techniques to fight the hazards, and productive utilization of assets, all while attempting to meet a significant goal. SM and the role it plays in corporate success has been the topic of extensive analysis which focuses for a long time. SM of an organization ensures that goals are decided, critical challenges are outlined, time and resources are repositioned, work is coordinated, the internal environment is set up to achieve the goals, outcome measures and results are accepted upon, and the organization remains able to adapt to any changes of the external context (Bowman, and Faulkner, 1995).
Keeping in mind the long term advantages to companies, essential planning encourages them to focus on the internal condition, by empowering and challenging people, assisting them to achieve individual as well as organizational goals. Meanwhile, it is ensured that external issues are handled with, negative situations are dealt with, and dangers are assessed (Bowman, and Faulkner, 1995).
JD Sports UK
JD Sports PLC was established in 1981 as a small clothing retail and discount sale store in Greater Manchester and the second store was opened in Oxford Street, London in 1989 after 8 years of success struggle. In 1996, JD Sports was listed in the London Stock Exchange and 2005 after making its own brand in the UK; JD Sports was acquired by the Pentland Group with the 57.5% of rights for the equity and changed its name as JD Sports Fashion PLC. In 2009 JD Sports acquired Chausport which is a French sports retailer and through that kept its first step to the Europe and Its 1st JD Outlet opened in France in 2010. In 2011 JD acquired Sprinter, a Spanish Sportswear retailer and in 2012 JD joined with the Blacks and Millets and expanded its outdoor market. 2016 was another milestone for the JD group due to its 1st international expansion out from the EU to Asian countries to Malaysia and simultaneously acquired Go Outdoors, UK and moved to the Gymnasium in the UK with the latest gym techniques as a part of their business expansion. In 2017 JD moves to South Korea with the acquisition of Hot-T, in 2018 moves to USA by acquisition of Finish Line who owns retail shops in 44 states of USA and in 2020 JD opened its flagship brand JD in the Times Square, New York, USA. During 2020 JD acquired Shoe Palace, USA who had 167 stores across the USA and moved to shoe business at USA. By 2021 even during the pandemic of COVID, JD acquired DTLR who has 247 stores across 19 states of USA and moved to athlete footwear market and with that across the world among 29 countries, 3300 retail stores and 890 JD stores could be established by JD by end of 2021 (JD Sports PLC, 2022).
Current Challenges Faces by JD Sports
Like any other business, within the industry, JD Sports is also experiencing a number of issues that need management to conduct a thorough investigation. The first issue is raising competitiveness. JD Sports’ exposure to new rivals grows as it develops into new regions of operation. Managing the competitiveness is challenging, and in order for the firm to enhance its operations, a strategic action plan must be developed. Another significant obstacle that JD confronts is the challenges associated with its development into new marketplaces, which influence it in a variety of ways and must be examined. Another issue that JD is experiencing is the operational context dynamics, which include variations in client choices and pricing swings, since some rivals offer extremely cheap rates.
As a part of that, JD Sports can think about diversifying their business to some other feasible business segments or new business sectors. Recently JD Sports is planning to diverse their business and moving towards real estate sector as well. This report is to analyse their strategic position feasibility towards new business segment.
External Analysis
PESTEL Analysis
Political Environment
As an international business, the political context of UK makes a huge impact on its performances and mainly operating within EU. Even though UK is a politically stable country, with the Brexit it created many uncertainties to the business communities who are operated within EU. Some experts predict Brexit would cause inconceivable upheaval, while others feel it will unlock the gates to enormous potential for the UK in the future (The Department of Communities and Local Government, 2021). Similarly, the recent increase in violence and criminality has raised major concerns. With that, speculators say that the privileges enjoyed by UK as a Union and international trading benefits as well as the tourism related benefits will be deprived. Further, as per the speculations, UK will have to face a labor deficit because of the issues with free migration & employee earning taxes among the EU countries (The Department of Communities and Local Government, 2021).
As per the RISC survey, with the new regulations of the UK government, the buyers of the residential housing were inquired by various ways due to COVID virus. With that the demand for the residential housing was reduced 74% and the survey revealed further 42% the market will be dropped down. With that existing real estate companies assets’ book values went down. Further to fix the collapsed housing market, the government is interfering to monitor the real estate companies and make their operations more transparent to increase the demand (The Department of Communities and Local Government, 2021). However, due to this, housing prices has been increased by 11% and it again affects to the housing sale adversely. But the government of UK is making effort to build up the commercial and residential housing market through various projects and the Department of Communities and Local Government has a plan for diversifying the housing by giving funding facilities to the small and medium scale contractors through the Home Building Fund, giving people to custom-building homes to design their houses according to their choices, bringing new local and international contractors than the traditional contractors, encouraging existing large scale real estate companies for constructing more housing for private rent, and encouraging to construct more family friendly housing schemes in the UK (The Department of Communities and Local Government, 2021).
Economic Environment
EU imports into the UK have declined more than the reverse. Part of the reason for this is the general post-pandemic drop in car sales, which are down £14 billion or 30% in the first ten months of 2021 compared to 2019 (RICS, 2021),.
Surprisingly, imports out from EU to UK are up 16% during this period of time, with Tesla automobiles purchased from the USA and China accounting for a portion of the increase. Aircraft, electronic components, medicines, steel, and nuclear technology all suffered significant decreases from EU to the UK imports. As UK Government’s official forecasts, the trade intensity was in the UK five years ago will be dropped down within next one and half decade by 15%. Because UK is not much depending on imports and even UK export market is highly depending on the imported raw materials. From January through October 2021, bilateral trading between the USA and the EU totaled $627 billion, up from $532 billion during the same period in 2020, or an 18% of increasing. Between China & EU bilateral trading was €558 billion during January to October of 2021, up from €479 billion in 2020, a 17% increase. The similar statistic for the UK’s bilateral trading with the EU is 2% increase, or £308 billion vs £302 billion. Means, unlike the majority of global trade, between UK & EU trading has failed to recover during the 1st year of post-Brexit trade arrangement (RICS, 2021).
Personal tax allowance limit was £12,570 in 2020 and this was remained unchanged until 2023 as per the UK governmental policies due to COVID pandemic. Compares to 2021/22 tax year, 2022/23 tax year there are no changes of the tax base. According to that the income between £12,571 and £50,270 will be applied 20% of basic tax rate and the income between £50,271 and £150,000 will be applied 45% of tax rate. For 2021/22 Fiscal year, corporate tax rate is 19% and when taxable earnings can be traced back to the exploitation of patents, a lower effective tax rate applies which is 10% (RICS, 2021).
Increasing the personal tax rate is reducing the disposable income of the target audience and it affects to the demand negatively. In the UK inflation rate reported as 5% in 2021 and by it the time of spring in 2022, the bank of England expects to be risen up this to 6% which is again affecting on the housing prices. Due to this, the interest rates of the bankers also increased from 0.1% to 0.25% during last two years and this is expected to be increased more until the COVID is over (RICS, 2021).
Social Environment
During the Economic crisis in 2010, the housing market was badly bankrupted in the UK. After a decade The UK housing market 47% is running with the mortgaged housing facilities and 53% of the buyers are purchasing houses by their own capital. Housing mortgages are the highest income of the UK banking sector as well as the highest burden for the households as well. Average price of the regular size house £500,000 and when it comes to city of London the housing prices are significantly high and this goes up to £860,000 average (National Statistics UK, 2022). As per the London Bank report annually housing prices in the London is rising 11.4% within every five years of period. When it comes to Kensington and Chelsea area the average housing prices reaches to £1.2Mn and in Barking and Dagenham area the average price of a median house is £215,000 which is higher than England and Wales median house average price which is £192,000 (National Statistics UK, 2022).
The impact of the COVID is still there in the UK and many people lost their jobs and lost their incomes due to this. Because of this, people had to sell their goods and housing is one item among them. People were badly bankrupted and it affected to the bankers as well. Majority of the UK households’ income is below to the median income which is £34,200 (2018), and during last five years the median income has been increased by 2.2% and this shows the income distribution inequality is getting increased in the UK further. The richest 5% is increased by 4.7% but the income of the poorest 5% is increased by 1.6% annually. The poorest 20% of the populations’ average income is £12,798 while the top 20% showed an average income of £69,126 (National Statistics UK, 2022).
Figure 1: Wealth Distribution on the UK relative to the other developed countries in the world
As figure 1 shows, when it comes to the low income holders’ level, the wealth distribution in the UK compares to other developed countries is unequal. That means the lower income holders are unable to reach to a mortgaged house which is 17.5% from the population (Charles Russell Speechlys, 2022).
Technological Environment
When it comes to the technological changes, higher usage of artificial intelligence (AI) to the business growth is a one key factor. Google, YouTube, Facebook and even the company websites are collecting user details without their knowledge customers’ choices are assessed and based on that their online marketing strategies can be implemented. Based on that regionally, or gender wise products can be promoted and recommended to the target audience (Charles Russell Speechlys, 2022).
And the development of Social media is a better platform for the businesses to promote its business, exhibit its products and services, collecting customer feedbacks and inquiries and allowing for the customer referrals. Among the global population 4.55 billion people are using social Medias and it is 57.6% from the total. Total child population (below 15) is 27% from the global population and out of adult (above 15) population this users are 78.9%. Annual growth of social media users is 9.9% (Gibson, 2022). Among the social Medias, an average one user is using 6 to 7 social media platforms and daily spend average 2 ½ hours in them. Among the social media platforms, based on the highest customer demand Facebook (2.895Bn), YouTube (2.291Bn), WhatsApp (2Bn), Instegram (1.393Bn), Facebook Messenger (1.3Bn), WeChat (1.251Bn) and TikTok (1Bn) are the highly utilized apps and can be utilized for effective marketing purposes by the business communities across the world (Charles Russell Speechlys, 2022).
Further, mobile applications, development of the smartphone, ecommerce platforms and international payment methods are also having at a favorable position for the business community. Therefore, it helps to promote the housing products through the internet marketing strategies which reduce the cost of the company (Charles Russell Speechlys, 2022).
Legal Environment
Cyber security related local and international laws, international money transferring & payments clearance related laws, intellectual property related laws, goods and services sales acts & ordinances, branding & trademark related acts are affecting on the international business (Roe, 2022). The nature of the legal system in the UK provides several advantages to foreign investors in the real estate sector, along with a comprehensive and stable legislative framework, confidence of law and ownership, a pure income (operating expenses given by residents), and also a very attractive tax structure (Roe, 2022). A new company can be started as a Partnership, Limited Liability partnership, Joint Venture, Property Unity Trust and REITs. Most of the lending facilities are occupational leases which are granted for maximum .25 years. The value of the UK housing is determined by the Royal Institution of Chartered Surveyors (Mayor Brown, 2017).
Environmental Factors
When it comes to real estate industry, it has a significant damage to the natural environment. leather products are the most severe issue to the global warming issues. With the leather products animal farming, skinning animals, using forests for their farming activities like so many things are happened. And it is highly brutal industry and it released methane and nitrous oxide like toxic gases to the earth which is highly affected on the global climate change. It pollutes water, damages to the natural water system and reducing the oxygen level in the water which caused to die animals in the water. This increases hypoxic zones which mean animal dead body zones and it again pollutes the nature. During last ten years 70% of the Amazon rainforest has been utilized for the animal agriculture works (for their living, cultivation of their foods, and etc.) which is a highly critical problem to the world. Because of that instead of natural leather there are many alternatives are being considered now in the world (Gibson, 2022).
Porter’s 5 Forces Analysis
Customer Bargaining Power
Supplier Bargaining Power
Threat of New Entrants
Threat of Substitutes
Because of the homogeneous nature of the products among the brands there is less price differentiation can be seen in the products. But because of the High Quality factor customers cannot bargain with the prices as it is determined by the Royal Institution of Chartered Surveyors. Because the land and houses have a determined price by the government, the customer cannot bargain for the prices and therefore the risk is low. But the customer can avoid purchasing a house due to their budget restrictions (Fern Fort University, 2022).
Almost all organizations in the Real Estate market obtain their raw materials from a variety of vendors. Suppliers in dominating positions might reduce the market profit margin that Property Investments firms can generate. Dominant vendors in the Finance industry utilize their bargaining leverage to exact higher costs from Real Estate businesses. A Stronger supplier negotiating power has the ultimate effect of lowering the profitability of the property investment companies. And the same time because the existing real estate companies have a good relationship with the financial companies and the wholesale land suppliers and brokers this bargaining power of the existing players with their suppliers is very high compares to a new firm in the industry. The JD Fashion also has a huge risk of investing when it comes to the real estate sector as the supplier bargaining power is relatively very high compares to an existing player (Fern Fort University, 2022).
Arriving New competitors in to the real estate industry provide creativity, innovative methods of operating activities, and exert more influence on the existing real estate corporations through reduced pricing strategies, cost reductions, and unique value offerings to the target market audience. To maintain their competitive advantage, real estate firms must handle all of these difficulties and construct efficient barriers.
In the business in which JD operates, economies of scale are hard to attain but already JD has it. But in the real estate sector is a newest field to the JD and achieving economies of scales in the new industry is taking much time to the company. Therefore, arriving new entries to the real estate sector is reducing their competitive advantage and increasing the competitiveness. At the initial stage, facing to a higher level of competitiveness is making more difficult to manage the business and there for the risk is high. Because they have a good financial strength it can be manage up to a certain level (Fern Fort University, 2022).
Profitability of the real estate industry decreases when a new product or service satisfies comparable client wants in alternative ways. Services such as Google Drive and Dropbox are the examples, that serve as a substitute for physical storage devices facilities. The risk of a replacement service or commodities is strong if it delivers an unique selling package that is distinctively differentiated from the current options available in the existing industry. But when it comes to the real estate sector, the players in the industry cannot make a huge price difference among them as all they have a maintainable price according to their costs. And there is no substitutes for the housing products as all the human beings need a shelter for their existence to live as a family or group or alone. Therefore, the threat of substitutes is very low and insignificant in the industry (Fern Fort University, 2022).
Competitive Rivalry
The competition is high but because of the size and the experience of the JD fashions when it comes to the real estate sector, because of the very lower economies of scale, brand, reputation, quality of the service are very low as the customer has no experience with it as a real estate company. Compares to the JD Fashions, Land Securities Group, Robertson Group, Land Securities, Mccarthy & Stone, Engie Regeneration, Cushman & Wakefield, and Mitie Technical Facilities Management Limited like strong powerful players are very powerful players in the UK real estate industry and there are many more existing players also and all these are having a strong supply chain management and client relationship management in the real estate sector. Therefore, the competitive rivalry is extremely high (Fern Fort University, 2022).
Internal Analysis
VRIO Analysis
V
Valuable
R
Rare
I
Inimitable
O
Organized
Competitive Disadvantage
No
Competitive Parity
Yes
No
Temporary Competitive Advantage
Yes
Yes
No
Unused Competitive Advantage
Yes
Yes
Yes
No
Sustainable Competitive Advantage
Yes
Yes
Yes
Yes
Socially responsible brand image, JD Brand Image, Reckoned brand, best practice with supplier relationships, capital raising ability and proclivity for innovations are the Competencies that important assistance JD in capitalizing on opportunities and mitigating challenges from the micro and macro environmental factors. These skills enable a company to develop, expand, and grow.
International expansion and merging with the related international competitors to mitigate the competition and business risk, taking the risk and the advantage of the market by challenging others, and adhering to the changes of the market very quickly with a solid base are Few Core Competencies that are unique and distinctive in nature are owned and created by just a few organizations in the sector, and they contribute to the competitive advantage of JD.
Quality of the products, wide range of geographical expansion, and offering competitive pricing with unique customer experience are unique competencies that contribute to an competitive advantage and sustainable growth of JD. Competitors find it difficult and costly to replicate similar capabilities and resources.
Financial, employees and other resources strength, technological advancement & integration, well trained employees, continuous research & developments, well arranged sustainable supply chain relationship management, corporate culture, visionary leadership and economies of scale in purchasing, production, & distribution and competitive marketing strategies are critical competencies have been possessed with JD that cannot be reached by competitors. Since resources are unique to JD that allows capitalizing on opportunities and productively deploy relevant resources for the sustainable growth of it.
Competitive Strategies
Porter’s Generic Strategies Analysis
Competitive Advantage
Competitive Target Market Scope
Cost
Product/ Services Uniqueness
Broad
Cost Leadership Strategy
Effective Value Chain Management
Price Differentiation among the different income levels of the target audience
Price affordability to the customers compares to the quality
Wide range of Availability with large number of outlets
Lower production cost and highest efficiency of the supply chain due to economies of scale
Differentiation Strategy
Unique product features
Wide range of international brands and geographical expansion to reach quickly
Providing all kind of complementary products (jackets, pants, shoes, socks and etc.) and alternative options for those products based on the affordability of the customers
Effective, attractive and unique marketing strategies
Strong brand Image
Narrow
Focus Strategy
JD follows the emphasis approach in considerations of both low cost and providing the highest value. The low-cost focus approach is implemented by meeting the demands of a certain segment of the market at the lowest acceptable cost. While focusing the best value approach is used by stressing the flavor, size, and product design that may best meet the wants and expectations of the clients.
JD revises strategies of branding and introduces constant modifications in designing products and packaging by focusing on quality in order to fulfill psychological requirements and optimizing the return on investment of the customers.
JD is a worldwide corporation with a strong presence in key market categories. The industry’s increasing rivalry has made it difficult for JD to maintain its position as the market leader and expand market position despite making substantial efforts. The current business climate requires JD to get a vital edge over others in order to keep up with the competition. JD, as a global brand with a significant presence all over the globe, has established its strategic positioning related to key essential aspects that offer a considerable advantage over rivals, along with the Competitors in the main target markets. To deal with the competitiveness, JD has used a combination of cost leadership, differentiation, and focus methods and it achieves the target market expansion and revenue growth objectives.
Strategic Directions
Ansoff’s Matrix Analysis
JD Fashion
Products
Existing
New
Markets
Existing
Market Penetration
Expanding the number of outlets in the UK
Product Development
Adding new global fashion brands to the existing list of brands
New
Market Development
Opening up new branches in the Europe
Diversification
New business segment – investing in the Real Estate
Source: Author Developed (Ansoff, 1988)
When considering the risk of the real estate sector and the competitiveness of the existing real estate companies, entering in to the real estate sector is not highly feasible to the JD Fashion as their experience in the new business segment is very low. Even though JD fashion has a huge financial strength, brand image, long term business experience and economies of the scale in the fashion sector, real estate sector is highly unfamiliar to the company. Therefore, even though the company can enter in to the new business segment initially there will be a huge risk of earning losses or lower margin in the real estate sector.
Conclusion and Recommendations
When considering the JD fashion, the company has a lengthy history in the commercial sector as a successful company, a good financial position, economies of scale, a strong brand image, very rich supply chain relationships and loyal customer base, when it comes to the real estate sector, the company is still young and experience less in the industry. Therefore, it is not recommended to the JD fashion to diverse their business in to the real estate sector. But, if the company is really in to the real estate sector, following recommendations need to be considered.
JD needs to focus on creating a strong supplier base in the real estate sector from the whole sale building and land sellers, brokers and financial institutes in order to reduce their cost of the business and to keep maintain their image in the real estate sector to recommend their brand to the market
JD needs to conduct a strong marketing campaign via both online and offline to promote their brand among the existing customer base in the fashion sector to build up their market in the real estate sector and promote their brand in it
It is better if the JD can start up a joint venture business with an existing real estate company to reduce their business risk and to create an image in the new business segment
References
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