In: Operations Management
SWOT analysis is a strategic planning technique for analyzing strengths, weaknesses, opportunities and threats faced by an organization. Based on the case study, prepare a SWOT analysis for Al-Ikhsan.
CASE STUDY
Source: The Star Online, New Straits Times
THE economy may be slowing and the retail industry is going through
a rough patch, but Al-Ikhsan Sports Sdn Bhd believes this is as
good a time as any for it to shine. “The economy is soft, even
globally. I think Malaysia is fairly stable in that sense. When the
economy faces rough weather, that’s when the true strength of
retailers can be seen. “When the economy does well, everyone does
well. You can hide your inefficiencies and all that. But if you can
grow your business when the economy is down, it shows the strength
of the company. As the economy gets tougher, Al-Ikhsan will become
more relevant,” says chief executive officer Vach Pillutla. At a
time when most businesses are looking to downsize their physical
presence, Al-Ikhsan is looking at ways to expand its number of
outlets. The company currently has 131 stores under five different
retail models, namely, the Al-Ikhsan Sports chain (116 outlets),
Sports Warehouse (4), Football Republic (6), Sneaker Street (2) and
Factory Outlets (3). The homegrown sports retailer has carved a
name for itself in the market by selling products from
international sporting brands such as Nike, Adidas, Puma and Umbro
at an affordable price. Pillutla says it is planning to open 12 to
14 new doors every year, with 80% of its expansion plans focused on
the entry- to mid-level concept. Although the retail industry has
become increasingly competitive, he notes that the company’s
advantage in staying ahead of the pack is its core mission to stay
affordable.
2
“Our core purpose will keep us going for the next few years. As
long as we are able to communicate our core purpose properly to
consumers, I think they will keep coming back,” he says. Tapping
the bottom As consumers become a little more tight-fisted,
retailers have been trying to diversify into either the more
premium or niche markets to maintain margins and profitability.
Pillutla notes that unlike most emerging markets, the local retail
space has two very distinct segments: the high-end and entry-level
segments. “Most emerging markets have a very big middle-class
segment. It works like a typical pyramid, where the well-heeled
consumers make up the smaller segment at the top and the entry
level is much bigger. As the economy grows, the middle-class will
expand and other consumers will aspire to move up the pyramid.
“Malaysia is different in the sense that people are either at the
top end or at the entry level. There’s very little middle-class. So
brands and retailers who try to stay in the middle of the spectrum
don’t do well because consumers who see a middle-class brand are
either willing to trade up or trade down. So you either have to be
at the upper-end or lower-end of the market, ” he explains. Hence,
he believes that there is also money to be made at the bottom of
the pyramid. “People at the bottom of the pyramid are also
aspirational. They, too, want things and if you can make it
affordable for them, you can tap that market. Consumers are the
king. So we have to keep our brand focus and give them what they
want,” he adds. Although margins may be thinner at the entry-level,
Al-Ikhsan has a variety of retail concepts which can be pushed out
to meet the needs of the market it is in and grow its volume.
Pillutla says its Sports Warehouse brand, for example, which
focuses on entry-level consumers, is a concept that still has legs
to go, particularly in smaller towns. “Wherever that has a
catchment of 50,000 people, we can do any one of our concepts. We
started the Warehouse this year and it has shown very strong
results so far. We can
3
see another 35 to 40 Sports Warehouse outlets over the next three
to five years. Our next position is to move down, deeper,” he says.
That said, he maintains that Al-Ikhsan also has enough variety of
products to cater to a wider range of consumers. “Our stores have
products from different brands. We can have prices for certain
products that go up to RM600. So while we make products affordable
to consumers, we are also able to sell them at a certain level of
prices if the brand can command that price. In that way, we can
cater to a wider range. “But we always try to stay to our core
purpose, to stay affordable. We are about making Malaysia fit and
active since 1993 by making brands affordable to consumers. That is
our strength and our core purpose. It cannot go away.” Al-Ikhsan
was founded by Ali Hassan Mohd Hassan in 1993 in a small shop in
Holiday Plaza, Johor. His entrepreneurial pursuit had started
earlier on as a student in Universiti Teknologi Malaysia to fund
his studies. He sold trinkets and such and managed to graduate with
a diploma. When he started the business, he was diligent to ensure
that he maximised every opportunity to keep sales going. He built a
good rapport with his customers and kept his sports products
affordable. Ali Hassan’s success in growing Al-Ikhsan was obvious
when the retailer caught the eye of government-linked private
equity firm Ekuinas, which bought a 35% stake in the company in
2016. Ali Hassan and his wife still holds the remaining 65% of the
company and he has stayed on as its chairman. Pillutla thinks the
company is only halfway through “what we are really capable of
doing”. As long as the sports industry continues to grow, Al-Ikhsan
will be able to grow in tandem. He adds that its retail concepts
are also applicable to any emerging market, making it easier for it
to expand overseas when the time is right.
4
On the horizon Over the next three years, the company will continue
to expand into tier-2 and -3 cities. It will also continue its
focus on the entry-level concept stores like the Sports Warehouse.
Another thing that the company will be paying close attention to in
the coming years is its private label. Pillutla hopes to make its
private label and licences more relevant to the masses as he views
this as a good channel for Al-Ikhsan to have a deeper engagement
with its consumers. “We want to create products that consumers
want. I think our house brand can grow to be a significant brand
pillar for us, maybe making up to 30% of the brands we have,” he
says. With these strategies in place, the retailer is aiming to
keep its double-digit growth every year – a target that Pillutla
says is “absolutely achievable”. “That’s the job of professional
CEOs like us. There’s a limit to what founders and entrepreneurs
can do for a company because the thing about professional CEOs is
that we don’t think from our hearts. “We see opportunities, we look
at our current capabilities and we think in terms of how we can
build that capability for future growth. We are a bit disconnected,
so we don’t make decisions based on emotions. But that is not to
say that one is right and one is wrong. It is just a way of
working. “In business, you need data and experience to take a very
informed action, so that you’ll have stronger chances of success.
And we believe we have a formula here,” he says. “The challenge for
us is more internal. We are no longer small. And we need to
continue to drive and align our people towards our mission. As long
as we understand our core, we can have market share,” he says.If
all goes well, the company is eyeing listing plans in two to three
years’ time. The company’s three concepts – Al-Ikhsan, Football
Republic and Sneakers Street – are vital to promote sustainable
growth for its retail sports business in order to mitigate the
seasonal impact.
5
“Our three concepts are catered for entry to mid-level consumers
and up to high-end consumers. Football Republic is a specifically
designed for personalisation or customisation of football’s boots
and attire, targeting professional amateur players or fans”.
“Sneakers Street category is a sports lifestyle concept that offers
affordability for sneakers and accessories to consumers,” he said.
Pillutla said the company aspires to have stability in its business
earnings with promising growth for long-term sustainability, while
adapting to the current market needs. “We want to aggressively
expand our market reach, especially in East Malaysia and outside
the country with about eight stores are expected to be opened this
year. “For long-term expansion plan, we target to open up to 30
stores by 2021,” he said, adding that this would allow the company
to reach about 145 Al-Ikhsan stores nationwide. Pillutla said the
company also plans to open 15 Sneakers Street stores in the next
three years, with initial four stores to be opened this year,
followed by additional five Football Republic stores in the future
from the current five stores. He said Al-Ikhsan is currently in the
discussion with various parties to expand its business in other
market in Southeast Asia region, while providing numerous choices
to consumers. “We have ‘reasonable’ allocation for capital
expenditure (capex) as it will be financed internally. The cost of
each store will typically be depended on its size and location,” he
said, citing that it is important for the company to have
single-digit or lowest double-digit rent-to-sales ratio. Pillutla
said capex should not be extremely high as the company on its
self-sustaining mode to generate sustainable earnings, while
reducing its debt. The company’s inventories is also important to
keep its earnings healthily to avoid inventories not age beyond
certain points. “We will also embark on digital platform – Omni
Channel – to complement our existing retail stores. This allows
customers to choose and buy our products virtually through
6
mobile app or online platform. The initiative would also enhance
our efficiency and productivity, as it easily helps us to monitor
our inventories,” he said. "Our commitment is to keep Malaysia fit
and active by making sports affordable for all. We also need to
understand consumers well and must change ourselves based on what
consumers want,” he said in a media interview here recently.
Al-Ikhsan will launch a new e-commerce online platform (website)
next month, a move that will help the company become a global
player in the sports retail segment. “We are ranked 64th largest
sports retailer in the world. Therefore, when consumers look at us,
they don’t just perceive us as a Malaysian company but rather
benchmark us as a global player,” Pillutla said. “I don’t think,
even our founder Tuan Haji Ali, thought that we could reach this
stage,” says Vach Pillutla, Chief Executive Officer of Al-Ikhsan
from his office at Taman Tun Dr Ismail. The company, with its
various concept outlets, is by far the largest sports retailer in
Malaysia, commanding over 20 percent market share in the sports
equipment, apparel and footwear segment. “Ten million people have
walked through our doors every year. To put things into
perspective, almost one third of the Malaysian population visited
Al-Ikhsan stores.” He expects Al-Ikhsan’s e-commerce platform to
contribute about 5.0 per cent of the total sales over three years.
“In general, the overall retail sector grows about 4.0 per cent to
5.0 per cent annually, while the sports retail around 8.0 per cent
to 9.0 per cent. “Globally, most markets are likely to remain
stagnant but I think Malaysia continues to perform quite well in
sports retail,” he said. He also said Al-Ikhsan continued to learn
about consumers and offered products and services at prices
preferred by customers. “As long as we continue to pursue it, we
are not worry about competitions. For the next three years, we
intend to open up to 14 stores annually in the Peninsular Malaysia
with
7
concepts including Football Republic and Sneakers Street, depending
on the market and catchment to match consumers’ demand,” he said.
He did not divulge further on how much capital the company would
invest, saying that it had sufficient money to fork out internally.
As stated earlier, Ekuiti Nasional Bhd (Ekuinas) acquired a 35 per
cent stake in Al-Ikhsan in July 2016 for RM68.6 million. Ekuinas
chief executive officer Syed Yasir Arafat Syed Abd Kadir said the
first two years since the partnership with Al-Ikhsan were about
stabilising the company, in particular improving its back-end
support. “We need to ensure that we have strong back-end processes
before exploring growth. We focus on effective resource planning -
an inventory software system - as well as execute strategic
business plans, recruit the right talent and strengthen existing
brands under us,” he said. Syed Yasir Arafat said it was important
for the government-linked private equity fund manager to strengthen
Al-Ikhsan’s foundation and expand in certain areas, while offering
different products not only active brands but promoting in-house
products. “We have about 30 brands under Al-Ikhsan. We employ
around 1,200 staff and command about 30 per cent local market share
in multi-retailer segment.” Syed Yasir added that since Ekuinas
invested in Al-Ikhsan, the former had managed to more than recoup
its investment. “From Ekuinas’ perspective, Al-Ikhsan has strong
liquidity and sufficient cashflow to grow, with good inventory
management. Hence, Al-Ikhsan doesn’t require further capital
injection to expand further,” he added. Al-Ikhsan founder and
chairman Ali Hassan Mohd Hassan believes the sports retail business
was growing with abundance of opportunities locally. “We are
investing about RM1mil in each new outlet, inclusive of renovation
and stocks.” Ali Hassan said strengthening the company’s position
in the local sports goods retailing segment would discourage
foreign companies from taking over the domestic market.
8
He said it was important to stop these companies from expanding in
Malaysia, as local players should be given the opportunities. He
said prospects for sports goods in Malaysia were bright as the
goods sold here were the second cheapest in the world after the US.
Ali Hassan said by having a formidable presence in the urban and
rural areas, it would be almost impossible for foreign sports goods
retailers to gain a strong footing here. He said the company
catered to customers who were serious in sports and those who were
into sports fashion. He said Malaysians were brand conscious and
more customers were willing to spend money on branded items.
“Previously, there was a huge pressure from the sports brand
principals as they demanded for growth based on the global trend.
“Similarly, they expected growth from Al-Ikhsan in Malaysia due to
opportunities in sight. Hence, we decided to partner with Ekuinas
to support our future growth and become more competitive,” he said.
Through the partnership, Ali Hassan said Al-Ikhsan had undergone
due diligence exercise to evaluate the company’s weaknesses and
strengthens. “Ekuinas had helped us to find new team members, while
consolidating our stores and improving the back-end
processes.
9
Solution:
SWOT analysis is a technique for evaluating internal and external analysis of factors impacting a company at a point in time. The internal analysis depicts the Strengths and Weaknesses of the company while the External analysis depicts Opportunities and Threats.
The SWOT analysis for the given company is as given below:
Strengths | Weaknesses |
|
|
Opportunities | Threats |
|
|