Answer All Questions:
Book: Principles of Management
Q1. What different strategies are available tothis firm? (Hint: More horizontal growth, Increase storesizes/activities etc. etc.) Give at least three other strategies(i need more details and more Explain)(use your own words don't copy and paste) (don't usehandwritting)
Q2. What are the problems and benefitsassociated with each strategy? (i need more details andmore Explain) (use your own words don't copyand paste) (don't use handwritting)
Q3. What would be the best choice of action?(i need more details and more Explain)(use your own words don't copy and paste) (don't usehandwritting)
Case Study,
HORIZONTAL GROWTH AT KOLEDA PURERENT, INC.
CASE SYNOPSIS
The case of Koleda PureRent, Inc. illustrates how a smaller firmcan achieve market power and survive through horizontalintegration. Growth, however is only the beginning of a successfulstrategic process. It does not in sure long-term success, as thereare numerous strategic challenges for this and other firms insimilar circumstances. The firm has reached a size that couldattract the attention of larger competitors. This new level ofcompetition would increase the hostility and complexity of theexternal environment. Due to the new larger size, the firm willalso encounter internal problems in such areas as management andlogistics.
THE COMPANY
Koleda PureRent, Inc. is a small and relatively new firm. Itinitially was located in the eastern U.S., and was incorporatedover ten years ago with more than one hundred retail rental stores.These stores appealed to the desire of consumers lacking cash orcredit to rent products for a short time period. The firm struggledalong, fighting problems that come from small size and inadequatecash flow. Being small meant paying high interest rates for a lineof credit, and lacking clout when buying additional supplies andequipment for its stores. After nine years of slow growth, KoledaPureRent, Inc. decided to change strategies. The time appeared tobe ripe for faster horizontal growth. Koleda PureRent, Inc. usingfinancing from a friendly bank, bought out a similar-sizedcompetitor located in its competitive area for $ 20 million incash. In addition, it purchased 51 percent of the stock of a largerrental firm in the south-eastern U.S. for $ 18 million. Theseactions meant that in one year it had more than tripled in size andin the market it served. It then organized itself geographically,with three layers of management below the president. Store managersreported to 55 regional managers, who in turn reported to 11regional vice-presidents. Compensation for both regional and storemanagers was tied to store performance. Corporate headquarters hascentralized purchasing, financial planning, personnel, training,individual store evaluations and site selection.
THE INTERNAL ENVIRONMENT
STRENGTHS
The firm has an excellent MIS system that each unit of merchandiseand each rental agreement. The computer at each store is connectedto the main computer at corporate headquarters. Each day’s activityis compiled for stores by region. Management has access to daily,weekly and monthly data in order to make precise decisions aboutpersonnel, about merchandise, about stores, and about regions.Since all merchandise goes directly from vendors to stores, nowarehouse or storage costs are incurred. Various vendors are usedto help keep merchandise prices competitive. Growth rates inrevenues per store have been increasing at 18 percent a year.
WEAKNESSES
The biggest weakness facing Koleda PureRent, Inc. is theinefficiencies associated with absorbing the two chains itpurchased. Regional managers and store managers must learn newmethods and new information-gathering guidelines. Organizationalcultures are slow to change.
THE EXTERNAL ENVIRONMENT
OPPORTUNITIES
The rent-to-own industry has been consolidating for several years.The biggest problem facing the independent store or the small chainis a lack of adequate financing. Koleda PureRent, Inc. wasfortunate that it found a bank to provide the cash needed forexpansion. Current and future trends indicate that industryconsolidation will continue. Koleda PureRent, Inc. shouldaggressively continue to seek acquisitions or merger partners toavoid being left out of the industry changes. If smaller firms willbe squeezed out of the industry, Koleda PureRent, Inc. must pursuegrowth to insure survival. Current social trends appear to begrowing. The U.S. continues to be an itinerant society. People movemore, so they need to own less. People want to do more, but lackstorage for ownership of things. Many people lack both cash andcredit, so the purchase of furniture and appliances is difficult.Rentals and rent-to-own activities will continue to be a growthindustry. Koleda PureRent, Inc. must take advantage of this trendto enhance per store sales and increase cash flow for repayment ofbank loans.
THREATS
The rent-to-own industry is highly competitive. In 1994, the tenlargest firms accounted for 37 percent of the total industry sales.The rental industry must also compete with discount and departmentstores for customers. Another serious threat is the growth of thecredit industry. Credit cards are available to almost anyone,giving people more choices when considering a major purchase.Rent-to-own stores may lose potential customers to big discount anddepartment stores that offer easy credit or access to their creditcards. The rent-to-own industry is heavily regulated and furtherlegislation at the national level is being considered. Restrictionson interest rates and fees, on contract language and disclosure,and on lending in general would increase costs and further limitthe profit potential of the industry. Other near term costs thatare expected to increase are shipping rates, taxes, fuel/energy,and paper costs. Investors will shy away from an industry whereprofits are falling and firms are consolidating.
