Galaxy Ltd.

Essay by miabanzonUniversity, Master'sA, March 2009

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Galaxy Ltd finds itself in the midst of a market share crisis, in light of increasing competition. Mr. K.N. Reddy finds himself in the pilot's seat, trying to steer the company into un-chartered organized territory, up against other major players. The perspective of this analysis would be that of Mr. Harsh Chatterjee, a Senior Consultant at Star Consulting, called in to help Mr. Reddy master his cockpit controls and ensure smooth flying.

Galaxy Ltd. has had an internal and external revamp to achieve market share and retain profitability. But the vital parameters like Stock turnover and DSO still lag behind Industry averages, but Galaxy has retained control on distribution costs through a better warehousing system. While Galaxy is doing well, it needs to take certain long-term actions to gain a strong foothold in the market as well as cater to the market in the tier 2 and tier 3 cities.

The following analyzes the Opportunities and Threats for Galaxy Ltd. in the external environment.

Opportunities:

There is ample room for growth in the organized sector, because of the shift in consumer preferences and spending patterns. Tier 2 & 3 cities show a lot of promise in the retail space. A recent survey (www.propertybytes.com) predicts tremendous growth in these cities and has further classified the top cities into Maturing, Transition, High-growth, Emerging and Nascent based on spending forecasts in the Retail sector (exhibit #1 ). More and more people are shifting towards focused fitness spending because of more stressful lifestyles and affluence.

Threats:

With increasing growth in the organized retail sector, property prices have been skyrocketing in major metros and emerging cities. Also, major conglomerates have been embarking on retail engagements and expansions, thereby increasing competition.

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Financial Analysis: (Refer Exhibit -2)

The financial analysis draws attention to three important parameters.

Raw Material Costs: As compared to the competitors, the raw material costs are higher (48% raw material costs as compared to 45% in the case of competitors). Galaxy should evaluate options for either sub-contracting manufacturing to low-cost manufacturers within the country or evaluate off shoring the manufacturing to low cost locations such as China. Especially for low-margin and high selling products, off-shoring can be done to achieve economies of scale.

Selling and administration costs: As we can see from the exhibit, the selling costs are lower than of its competitors to the extent of 2 % i.e. amounting to 112 Mn. It is suggested that aggressive marketing approach be adopted. This is also important in light of the fact that Brand recall factor is low in case of females. Galaxy can look at spending more marketing budgets to influence female market and also to promote new/upcoming sports.

Receivable (% of sales): The Company's receivable turnover is low as compared to its competitors. As we can see that its average receivables are 19% of sales as compared to about 9% in case of its competitors. The company should look at providing trade discounts to entice dealers and traders to pay off sooner and reduce its receivables. This will reduce its working capital requirements and at the same time reduce the costs of bad debts.

Having analyzed the opportunities and threats in the external environment, and having looked at the financials of Galaxy Ltd. in comparison to its competitors, we recommend the following strategy for the company to meet its medium to long-term needs.

Proposed Strategy:

A growing company like Galaxy Ltd. has to optimize resources to ward off competition, to delicately balance Market share and bottom-line.

Mr. Chatterjee recommends a phased penetration (Refer - Exhibit - 1 ) into cities with upside potential. Given that Galaxy has already invested heavily in Retail infrastructure in seven cities in India (including the 4 Metros), careful due diligence needs to be employed in as far as Capex is concerned.

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Tier 1 cities:

Since tier 1 cities are maturing or almost maturing, there is no threat from rising rental/ real-estate or other costs. There would be no additional investments in setting up of Galaxy specialty outlets. Rather Galaxy needs to adopt a franchise program for these cities to attract savvy entrepreneurs to reduce its Capex exposure.

Short-term: In the short term, Galaxy should focus on increasing the number of Galaxy outlets through franchising. In order to also increase market share, Mr. Chatterjee proposes introducing a second brand called Malin, with the basic features of Mayall�, but without the bells and whistles. Malin would be made available only in the multi-brand outlets and not Galaxy outlets. This brand would carry fine-print saying ' From the makers of Mayall' .

Long-term: The male market segment has a good recall of the Galaxy (Mayall) brand. However, the emerging female segment needs a lot of attention for future competitive positioning, because of poor recall. Hence, Galaxy should also venture into new product lines for ladies called MayallVenus & MalinVenus. This would help in long-term positioning of the Galaxy brands in the minds of this emerging female market segment.

Galaxy would carry the Mayall and Malin brands in the ratio of 50:50 in the multi-brand stores initially.

A quick snapshot of the Mayall strategy for Tier 1 cities is given below:

Product: Premium (New subtle colors for MayallVenus.)

Placement: Exclusive Outlets (visibility in Multibrand stores)

Price: High-end

Positioning: High-end customers, Exclusivity

Promotion: National celebrity-endorsed Ads also including the Venus product line for women.

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A quick snapshot of the Malin strategy for Tier 1 cities is given below:

Product: Sub-Premium (New subtle colors for MalinVenus.), new product introductions on a

regular basis.

Placement: Multi-brand Outlets (visibility in exclusive stores)

Price: Aggressive/ Offers

Positioning: Mid-tier customers

Promotion: Piggy-back on the Mayall brand and remind to associate with Mayall brand.

Production: Outsourced to cheaper geographies because of volume and scaled-down technology.

Tier 2 & 3 cities:

The focus on Tier 2 & 3 cities would be to open sufficient number of own and franchise outlets. Galaxy should also create a property management company to create a 'Land Bank' in all the cities listed in exhibit -1 . The booming retail sector in India is also leading to increase in real estate prices. The overall strategy would be to open outlets in a phased manner but also to be a "First mover " in all the cities to have a competitive advantage. The success will hugely depend upon having appropriate locations at reasonable prices to be able to make money in the long term.

In addition to the real estate strategy in tier 2 & tier 3 cities, Galaxy also needs to have a strategy towards creating its products targeted towards popular and upcoming sports in the country.

As we can see in the exhibit - 3 below, four sports i.e. Cricket, Soccer, Hockey and Volleyball are key sports in India and are more popular in certain regions within the country. Galaxy should focus on these four sports in each of the market segments. In addition to these sports, there are following sports which are up-coming:

Golf

Lawn Tennis

Swimming

Running

Badminton

YOGA

The strategy would be to invest in the promotion of the above sports so that Galaxy can have brand loyalty from existing customers and also capture new customers.

A quick snapshot of the Mayall strategy for Tier 2&3 cities is given below:

Product: Premium (New subtle colors for MayallVenus.)

Placement: Exclusive Outlets (visibility in Multi-brand stores)

Price: High-end in own outlets and mid-end in Multi-brand outlets

Positioning: High-mid end customers

Promotion: Associate with local sport events/ promotions, sponsor upcoming athletes/ sportspersons at a regional level.

A quick snapshot of the Malin strategy for Tier 2&3 cities is given below:

Product: Sub-Premium (New subtle colors for MalinVenus.), new product introductions on a

regular basis.

Placement: Multi-brand Outlets (visibility in exclusive stores)

Price: Aggressive/ Offers

Positioning: Mid-tier customers

Promotion: Piggy-back on the Mayall brand and remind to associate with Mayall brand + local sponsorships, etc.

Production: Outsourced to cheaper geographies because of volume and scaled-down technology.

Conclusion: Since Galaxy is at the threshold of the booming Indian Retail sector; there are a lot of opportunities to capitalize on, especially in transitioning and emerging cities with huge urban populace. Product positioning based on geography/ market segmentation would yield desired results in the short and long-term. Also, marketing directed towards building brand equity/ recall should be established (Marketing expenses of Galaxy are low compared to competition). Further opportunities exist in the real estate in emerging cities also.

Timelines: The Retail expansion and Real Estate Investment should be in a phased manner as depicted in exhibit #1.

Exhibit - 1 - Classification of cities

Note - The cities has been classified into Tier 1, 2 and 3 based on author's experience

Exhibit - 2 - Financial Analysis

Exhibit - 3 - Positioning Strategy for different sports segments

VOLLEY BALL

East

West

North

South

HOCKEY

CRICKET

2007

2012

SOCCER

� Galaxy sells its premium product line today through its "MAYALL" brand, named after a Galaxy in the solar system.