universiti putra malaysia a case study on watson's personal care

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UNIVERSITI PUTRA MALAYSIA

A CASE STUDY ON WATSON'S PERSONAL CARE STORES SDN BHD

CHOW SOOK MUNG

GSM 1999 33

A CASE STUDY ON WATSON'S PERSONAL CARE STORES SDN BHD

BY CHOW SOOK MUNG MATRIC NO: GSO 1413

THE CASE STUDY IS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE MASTER OF BUSINESS ADMINISTRATION IN THE MALAYSIAN GRADUATE SCHOOL OF MANAGEMENT UNIVERSITI PUTRA MALAYSIA

SEPTEMBER 1999

PENGESAHAN KEASLIAN LAPORAN

Dengan ini saya, Chow Sook Mung, No. Matrik : GSO 1413, pelajar Program Master of Business Administration, mengaku bahawa projek ini adalah hasil asal saya sendiri.

TABLE OF CONTENTS

Page ACKNOWLEDGEMENT ABSTRACT

ii

ABSTRAK

iii

P ART I : THE CASE 1.0

2.0

3.0

INTRODUCTION

1

1 .1

Company Profile

2

1 .2

Economic Review

4

1 .3

The Retailing Industry

5

THE COMPANY

2.1

Watson's Background

6

2.2

Watson's Mission

7

2.3

Watson's Organization Chart

8

Human Resources Department

2.3.2

Operations Department

13

2.3.3

Buying Department

13

WATSON'S BRANCHES IN WEST MALAYSIA 3.1 3.2

9

2.3.1

Classification of Stores Profile of The Store Management Level

18 20 21

PART IT : THE ANALYSIS l.0

Problem Statement

24

1 .1

Human Resources Depaltment

25

1 .2

Operations Department

26

1 .3

Buying Department

27

2.0

Alternative Solutions 2.1

2.2

4Ps solution 2.1.1

Focus on product

28

2.1.2

Focus on price

29

2.1.3

Focus on place

32

2.1.4

Focus on promotion

34

Implement new policy 2.2.1

2.3

3.0

28

35

Controlled labour cost

35

2.2.2

Ti ghten the controllable cost

35

2.2.3

Achievement of sales target

37

2.2.4

Implement new POS

39

Providing Outstanding Service

RECOMMENDATION AND CONCLUSION

40

44

Appendix 1

45

Appendix 2

46

ACKNOWLEDGEMENT

I would like first to express my gratitude to Puan Siti Rahayu Bt Russin for her

valuable time during the early stages of this case which has been most beneficial.

I also

express my sincere thanks to all the learned and dedicated lecturers of the faculty and my fellow MBA course mates who have given me the valuable contributions either directly or indirectly towards the completion of the case study.

I would also like to thank Wanis Muharnri b Zainal, for his support, not only during the writing of this case, but in my other endeavors over the past two years.

Finally, my parents.

I would like to express my appreciation for the encouragement offered by

ABSTRACT

Since the economic crisis in July 1997, the performance of the retail industry has been affected by reduced consumer expenditure and higher costs of imports.

Watson's

Personal Care Stores Sdn Bhd, the retail chain store in Malaysia since 1994 was also affected by this economic turmoil. The problems that Watson's faced were the declining of profits plus some internal problems in each department i.e. the Human Resources, Operations and Buying Department. With all the challenges in the retailing industry, Watson's need to overcome the situation and remain competitive in the market.

There are 4 strategies that Watson's can adopt to increase the sales and profits of the company i.e. 1) focus on the 4Ps - Product, Price, Place, Promotion; 2) Implement new policy ;

3 ) Providing outstanding service to the customers and 4) Set up the

Marketing Department.

ii

Abstrak

Sejak krisis ekonomi bermula pada Julai

1997, pengurangan perbelanjaan oleh

pengguna dan kos impot yang tinggi telah mempengaruhi prestasi syarikat di dalam industri peruncitan. Watson's Personal Care Stores Sdn Bhd, adalah rangkaian peruncitan di Malaysia sejak

1994 juga telah merasai kesan kemelesatan ekonomi ini. Masalah yang

dihadapi oleh Watson' adalah pengurangan dalam keuntungan ditambah pula dengan masalah dalaman dalam setiap jabatan.

Dalam menghadapi cabaran tersebut, Watson's

perlu mengatasi masalah-masalah tersebut supaya dapat bersaing di dalam pas�an.

Terdapat keuntungan iaitu bam;

4 strategi yang Watson's boleh gunakan untuk meningkatkan jualan dan 1) memfokus kepada prinsip pemasaran iaitu 4P; 2) Menggubal polisi

3) Memberi perkhidmatan yang terbaik dan 4) Menubuhkan satu jabatan

labatan Permasaran.

iii

iaitu

1.0

INTRODUCTION Tim Harvey, the Managing Director in Hong Kong, hadn't been with Watson's for very long when he was transferred to Malaysia in early 1999 to oversee the business in Malaysia and Singapore.

As he was seated in his new

office, he read the reports that were lying on his desk that needed his immediate attention. In the Operations report submitted by the Operations Controller, Ms Ho Lai Lan it was reported that profits, as measured by net operating results, had decreased over 10% compared to 1997.

From the Human Resources report written by Ms Lim Soh Buay, the I

Human Resources Manager, it was reported that the staff turnover rate remained high with an average of 15-20% from January 1999 to June 1999 even in this economic turmoil.

As Mr Harvey was reading the reports, he foresees that much has to be accomplished in the coming years as he was seated in his new office. The parent company, Hutchison Whampoa, was concerned that Watson's profits were declining 10% below 1997 (Appendix 1).

This was partially due to the economic

conditions, the effect of currency devaluation and also the lower consumption by the customer. As such much has to be done to increase the sales for the coming year in order to be one of the survival in this competitive market.

After having read all the reports, Tim Harvey sighed.

With all the

challenges in the retailing industry, how does Watson's overcome the situation. What are the best mechanisms that Watson's need to adopt to remain competitive in this industry? This was what lingered in his head as the Managing Director of the company.

1. 1

COMPANY PROFILE Hutchison Whampoa Limited (HWL) is a Hong Kong-based conglomerate with its origins dating back to the 1800s. Hutchison Whampoa is one of Hong Kong's largest blue-chip companies with over 70,000 employees worldwide. The group operates five core businesses:

a)

Property Development and Investment Hutchison Whampoa

Property develops residential

and

commercial

properties for sale and lease. Its portfolio includes some of Hong Kong's largest private housing projects and several landmark developments in the Mainland.

b)

Ports and related services The group's expertise in port investment and management stems from its pioneering operations in Hong Kong. Its port operations arm, Hutchison International Port Holdings', is now exporting its professional experience and expertise to ports in different parts of the world.

2

c)

Retailing and Manufacturing A.S. Watson operates four of Asia's most innovative retail chains: Park'N Shop supermarkets, Watson's Personal Care Stores Sdn Bhd;

Fortress,

selling domestic electrical appliances and computers and Bhs lifestyle fashion and home stores. The manufacturing division produces and distributes a wide range of food and beverages throughout Hong Kong, the Mainland and other Asian countries.

d)

Telecommunications and Media Hutchison

Telecom

operates

a

wide

range

of

integrated

telecommunications services worldwide and is one the world's major providers of mobile communications.

e)

Infrastructure and Energy The Group has major shareholdings in Cheung Kong Infrastructure which holds interests in infrastructure and related businesses, and power plant projects: Hong Kong Electric - the sole supplier of electricity to Hong Kong Island, and Husky Oil - one of Canada's largest, privately owned oil and gas companies.

3

1.2

ECONOMIC REVIEW The Malaysian economy experienced its first decline in 1998 since 1985, with Real Gross Domestic Product declining by 6.7%.

Further, real

aggregate domestic demand declined by 25.9% due to erosion of real wealth, uncertainty with regard to job security and high interest rates.

On the supply side, the manufacturing and construction sectors reported contractions of 10.2% and 24.5% respectively whilst the services sector grew by 1.5%.

The wholesale and retail trades, hotels and restaurants subsector of

the

services sector declined by 2% in 1998 as a result of the economic downturn and cautious consumer spending.

During th� year under review, the government implemented several measures to stabilise and reverse the declining economy.

Among these

were the National Recovery Plan, selective exchange controls, easing of monetary policy and measures to restructure and recapitalise the financial system and the Home Ownership Campaign.

4

1.3

THE RETAILING INDUSTRY The retailing industry in Malaysia was fiercely competitive. The retailers competed among themselves among the retail chain store and giant retailer such as Tops, Carrefour and Giant for a share of the domestic market.

Since the beginning of the Asian fmancial and economic crisis in July 1997, the performance of the retail industry has been affected by reduced consumer expenditure and higher costs of imports.

In Appendix 2, it

reveal the degree of impact on each retail sub-sector. Overall, retail sales (non-weighted) have dropped by

17%.

Retailers dealing in food,

household products and other daily necessities are not badly affected in relation to retailers merchandising non-essential and high-end products and services.

Today, more than ever, organization is searching for a competitive edge, a strategic uniqueness, which will distinguish them from their competition. In the retailing, even huge hyperstores no longer have the advantage of large price differentials.

Intense competition has eroded this pricing

advantage to a considerable extent, and stores had

begun to concentrate

on other mechanisms for achieving points of difference.

5

2.0

THE COMPANY 2.1

WATSON'S BACKGROUND

A.S. Watson

&

Co Ltd is a subsidiary of Hutchison Wbarnpoa Limited

and is one of the best known trading names in Asia. The company began as a small dispensary in Guangzhou, China in 1828, opened in Hong Kong in 1841, and became one of the first companies in the world to produce carbonated soft drinks. By the turn of the century, A.S. Watson had became a major trading force in Hong Kong, China, Macau, Taiwan, Singapore, Malaysia and Thailand with more than 300 retailing and dispensing branches.

In

Taiwan, the group has a major chain of 145 drugstores. The 90 stores

in Singapore and Malaysia are expected to increase steadily by about 15 per year, while the number of stores in Thailand will grow to 25 in the near future.

In

China, A.S. Watson operated in excess of 90 outlets, the largest chain of foreign­ owned stores in the mainland. This is expected to grow at the rate of 40 to 50 stores a year and to provide profitable returns within the decade.

Watson's is the original personal care retailer with more than 150 years of retail experience in the region, with over 300 stores throughout Asia. Watson's regularly carry more than 25,000 items sourced from over 20 countries, including its own label that is GIANETTO. These imported items contributed most to the

6

total profits of Watson's.

GlANETTO can be divided

m SIX

major product

groups:*

Personal Care

*

Lifestyle

*

Beautiful You

*

Sweet Expressions

*

Health and Fitness

*

Fun and Games

The store count has doubled in the last 4 years and is poised to exceed 500 stores by the year 2000.

Today over 10 millions shoppers visit Watson's each

month in Malaysia, Singapore, Taiwan, Macao, China, Hong Kong and Thailand. The store range in size from 2,000 to 12,000 sq. ft. with the ideal size being 5,000 sq.ft.

2.2

WATSON'S MISSION

Attain and subsequently maintain leadership position in the health, beauty and fashion stores sector through: a) building a reputation for excellence in meeting customer needs b) generating continuous profit growth c) believe in, create and maintain virtuous circles

7

2.3 WATSON'S ORGANIZATION STRUCTURE

HR

Training

Area

Officer

Manager

Officer

Buyer Store Manager/

Asst. Store Mgr. i

HR Asst.

Front Desk Clerk

8

Sales Coordinator

Buying Assistant

2.3.1

HUMAN RESOURCES DEPARTMENT

The Human Resources Department was headed by Ms Lim Soh Buay, the Human Resources Manager with at least 20 years of experience as a human resources practitioner with the assistance of 2 Officers and a Clerk.

The total workforce of Watson's was about 550 people throughout West Malaysia. The main function of human resources was to recruit the staff for the operation in the Klang Valley as when and where needed. For the outstation stores, the Store Managers were empowered to recruit and trained by the management in the stores.

It

was compulsory for a newly

joined staff to undergo the induction training and on-the-job training for 3 days upon reporting to work before placing them at the specify store in the Klang Valley. However, when there was an urgent basis, some of the newly joined staffs were send to the shop floor before they had the chance to undergo the proper training.

The turnover for the sales personnel were high in Klang Valley compared to the outstation stores.

Through the exit-interview that was

conducted in Klang Valley, the following were the reasons of the high tumover:-

9

1.

Wider job opportunity even though at this economic downturn as more new giant retailers were opened such as Tops, Giant etc.

2.

The

working

environment

in

Watson's

was

humid

and

especially at the busy stores such as Watson's Kota Raya Wang.

hectic and Sg

Both stores generated the highest sales compared to other

stores. 3.

The sales personnel felt that there were no career development for them.

4.

Relationship with superior - was only a one way communication whereby store management only gave instructions and orders without any guidance to the sales personnel.

5. No proper training as sometimes the store management did the recruitment themselves without the knowledge of Human Resources Department. 6.

Salary was not attractive compared to the workload that need to be done as Watson's had different promotions monthly.

7.

The sales personnel found difficulties to understand in the language being taught as most of the training modules were in English. Majority of the sales personnel were only Form 3 and Form 5 dropouts.

10

Besides that, the other reasons were some of the staffs were tenninated by the management due to dishonesty and mishandling of cash money and they were immediately sent to the police.

The high turnover of staff in the operations especially in the big and busy stores were majority situated in

Klang Valley

in Table 1 as

shown below:

Table 1

:

STAFF TURNOVER IN KLANG VALLEY

STORE A

JAN 99

FEB 99

MAC 99

APRIL 99

MAY 99

TOTAL

SgWang

1

3

2

2

3

11

Kota Raya

2

2

1

2

3

10

Bangsar

2

1

1

1

1

6

The Mall

1

1

1

2

2

7

KLCC

5

1

3

2

4

15

B Utama

2

3

1

1

1

8

TOTAL

13

11

9

10

14

57

Source. Company s record I

11

Based on the statistic shown in Table 1, there were some serious problems in retaining the staff in the busy stores.

The duration of staying for the sales

personnel in Watson's were approximately one year upon confirmation. statistic also indicates that management part

there

might

be some

weakness

on

the

The store

such as lack of interpersonal skill and leadership skill. It

was very costly and time consuming as much effort had been put on to train a staff.

Due to the high turnover, the level of customer service rendered by the staff was also deteriorating. In the past 6 months, the Human Resources Manager received an average of 1 complaint from dissatisfied customer about the way the sales personnel handle the business situation on the spot.

Based on the

investigation, it was reported that the sales personnel involved were mostly the newly joined staff.

The weekly/monthly tasks to be performed in Watson's Stores A were listed as below:•

300,000 items sold weekly



2000 PLU (price Look Up) changes monthly



120,000 customer monthly



500 PLU items on promotion monthly



Tag and re-retag 100,000 units of merchandise weekly

12

Based on the above routines that needed to be performed, it was difficult to retain the operations staff as the jobs were done manually and the salary was not competitive with the work load.

2.3.2

OPERATIONS DEPARTMENT

Ms Ho Lai Lan , the Operations Controller joined Watson's since 1997. Prior to that, she was attached with KFC (Kentucky Fried Chicken) for 17 years and her last position was as the Country Manager before joining Watson's. As the Operations Controller, she was fully responsible for the total operations in all the outlets throughout Malaysia.

2.3.3

BUYING DEPARTMENT

Buying department was led by Catherine Williams, the Merchandise Controller which was based in Watson's Singapore.

She was assisted by 2

Merchandise Managers i.e. Ian Cruddas who was in-charged of the Toiletries and Cosmetics Department and had only joined the company 6 months ago while Loo Chii Shian, a qualified Pharmacist was in-charged in the Confectionery and

Pharmaceutical Section, had been with the company for the past 4 years.

There

were 2 Buyers and 4 Buying Assistants to perform the task in the Buying Department.

13

The task of Buying Department were as below: a)

plan for centralized buying

b) plan for centralized promotion c) plan for the layout design d) negotiate with suppliers on the trading terms and pricing

Despite the monthly centralized promotion which was planned one year ahead by the HQ (Head Quarters), Catherine still receive complaints from the operations on the ordering of stocks to be allocated to the stores. There was no proper planning; all was done on ad-hoc basis. Some of the store did not receive the promotion stocks although the promotions had already started or quite often, there were insufficient stocks to be sold to the customers.

For ordering of stocks, the Buyers decide the quantity of stocks to be ordered. This had raised dissatisfaction among the Area Managers on this issue. Many times, during the monthly meeting with the Buyers, they brought up this matter.

Their argument was that since the management staff in the operations

knew best which stocks were top sales and which were not, they were the best person to do their ordering of stocks instead of the buying department. Table 2 showed the comparison of product ranking between the actual sales and the

14

allocated products by Buying department in the Chemist section. Obviously some of the products that had been allocated were not what the customer's demand.

TABLE 2:

COMPARISON OF PRODUCT RANKING BETWEEN ACTUAL

SALES AND ALLOCATION OF PRODUCTS BY BUYING DEPARTMENT IN CHEMIST SECTION

Top 10 Sales Product Ranking

Top 10 Product Allocated by Buying

st 21 Century Chitosan 250mg 30's

st 21 Century Herbal Hairplus Cap 30's

Imedeen Tablets 60's

st 21 Century Weight Loss Powder

Allergen Comp Comfort Plus TlPack

Durex 12's Extrasafe

B& LRenu

st 21 Century Chitosan 250mg 30's

Durex 12's Extrasafe

B&LRenu

Durex 12's Fetherlite

Spritzer Mineral Water

Appeton Weight Gain Power - Adult

PanaGol 10's

Kordel Evening Primrose Oil

Ciba Vision Solocare

Tummitrim Xtra Performance

Klean and Kare Normal Saline

Panadol 10'5

Total Purewater Distilled Water

Source: Company s record ,

15

3.0

WATSON'S BRANCHES IN WEST MALAYSIA

Watson's stores in Malaysia were located at most of the major shopping Watson's fIrst store was opened in 10hor Bahru

complexes.

in

1994.

Since then,

Watson's had opened another 42 stores throughout West Malaysia. The headcount in a store varies, in which it depends on the size and location of the store.

In order to have a better control, the management has divided into 5 regions

namely Northern, Southern, Central I, Central II and Central South. An Area Manager headed each region, which consisted of Store Managers and/or Assistant Store Managers, Supervisors

and/or

Assistant

Supervisors,

a

Back

Room

Clerk

and

the

Sales

Coordinators. Each outlet was given a sales target to achieve whereby the high achievers would be rewarded in terms of bonus at the end of the year.

Below was the Watson's outlet at each region:NORTHERN REGION

SOUTHERN REGION

1.

Alor Setar

1.

Batu Pahat

2.

Penang One Stop

2.

Kluang,

3.

Bukit lambul

3.

Holiday Plaza

4.

Komtar

4.

Perling Mall,

5.

Megamall Prai

5.

Pelangi Leisure Mall

18

6.

Bukit Mertajam

6.

Plaza Tasek,

7.

Kinta City, Ipoh.

7.

Plaza Angsana

8.

City Square

CENTRAL I

CENTRALD

1. Leisure Mall

1. Sungei Wang

2. Bandar Utama

2. Kota Raya

3. Alpha Angle

3. Selayang Mall

4. Ampang Point

4. Bandar Baru Klang

5. Pandan Kapital

5. The Mall

6. Sunway Pyramid

6. Centre Point Klang

7. KL Plaza

7. Kuantan Parade

8. Summit Square USJ

8. BerjayaMegamall

9. Amcorp Mall

9. Mine�.

19

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universiti putra malaysia a case study on watson's personal care

UNIVERSITI PUTRA MALAYSIA A CASE STUDY ON WATSON'S PERSONAL CARE STORES SDN BHD CHOW SOOK MUNG GSM 1999 33 A CASE STUDY ON WATSON'S PERSONAL CARE...

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