Marketing Strategy Marketing Strategy RecommendationRecommendation

Expansion into Trinidad and Expansion into Trinidad and TobagoTobago

Team A1Team A1April 21, 2006

Company OverviewCompany Overview

• Founded in 1979 in Atlanta, GA by Bernie Marcus and Authur Blank

• Robert L. Nardelli- president/chairman/CEO• Over 2000 stores throughout US, Canada,

Mexico, Puerto Rico and St. Thomas– Approx. store size-108,000 sq ft,– 40,000+ SKUs

• 2005 Revenue- 73.1 billion

“World’s largest home improvement retailer”

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Trinidad and Tobago Trinidad and Tobago Target Market StrategyTarget Market Strategy

Emphasis on home appliance items for new and replacement purchases.

• Customer base– Do-it-yourselfers– Contractors

• Age– 18-60 years

• Profile– Middle aged singles– Young families with dual incomes– Professionals

• Other• Other

Expansion into Trinidad & Tobago Expansion into Trinidad & Tobago RecommendationsRecommendations

• Start-up Cost– 16M

• Format– Renovated 108,000 square ft structure

• Product selection– 25,000 products

• Type of sales– In-stock and installed sales  

Expansion into Trinidad and Tobago Expansion into Trinidad and Tobago RecommendationsRecommendations

• Operations– 6:00am- 11:00pm-M-S– 10:00-9:00pm S

• Personnel– 100 Pt & FT Employees (All local residents)– Mgmt- 1 GM, 4 Asst. Mgrs., 6 Spvs.

• Promotion/Advertising Budget– $500,000

• Community Sponsorship– Kids in Need of Direction- K.I.N.D.

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Trinidad and Tobago at a Trinidad and Tobago at a GlanceGlance

•Principal Government Officials

–President-George Maxwell Richards–Prime Minister-Patrick Manning–Attorney General-John Jeremie–Chief Justice-Satnarine Sharma

•Two-Island Republic

•Total area of 1,980 square miles

• 1.3 million people share a culture

• Experienced tenth straight year of economic growth

• GDP reached $11.48 billion www.fas.usda.gov/info/fasworldwide/2005/12-2005/TrinidadTobagoretail.htm Souers, Michael, 2006. Home Depot Solid Foundation; Business Week

TourismTourism and Travel and Travel IndustryIndustry

•5.2% growth next 10 yrs

• Contribute 15% of GPD

• 2nd fastest T&T economy

in Caribbean

• 15 Billion Mass Transit

system to link East & West

http://www.gov.tt/ttgovnews/files/cms/WorldTravelTourismCouncil.pdfhttp://www.gov.tt/news/news_article.asp?id=3803 http://www.trinidadexpress.com/index.pl/article_opinion?id=125832459

3rd largest city Port of Spain 2/6/06 Sun Sentinel

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SWOT ANALYSIS

Strength Weakness •Solid cash reserves •Brand new market •Existing structure and systems

•No local contacts within government could result in favoritism for local biz

•Solid company

Opportunity Threats •Could expand throughout Caribbean

•Established local competition

•Local product usage could result in new line of product for US

•Backlash from locals due to Depot size

•Lowes enter the market if successful

Economic EnvironmentEconomic Environment

•The leading Caribbean producer of oil and

gas

•The economy benefits from low inflation

and a growing trade surplus

•Prospects for growth in 2006 are good as

prices for oil, petrochemicals, and liquefied

natural gas are expected to remain high,

and foreign direct investment continues to

grow to support expanded capacity in the

energy sector http://www.cia.gov/cia/publications/factbook/geos/td.html#Econ

Has earned a reputation as an excellent

investment site for international businesses

Market Attractiveness and Competitive Market Attractiveness and Competitive PositionPosition

Market-Attractiveness factors

Weight Rating 0-10 Total

Customer Needs and Behavior

.5 8 4.0

Segment Size and Growth Rate

.3 10 3.0

Macro Trends .2 8 1.6

Total market Attractiveness

1.0 8.6

Competitive Position Factors

Opportunity for Competitive Advantage

.5 6 3.0

Capabilities & Resources

.2 6 1.2

Industry Attractiveness

.3 7 2.1

Total Competitive Position

1.0 6.3

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BHAGWANSINGH’S • Bhagwansingh (BHSI)

was founded in 1974 and currently has over 800 employees

• Revenues for this private company were $687 million

• BHSI are distributors and manufacturers of plastic water tanks, rounds, flats, wooden doors, chain link wire and welded mesh fabric and nails

• BHSI has four locations on the island and is a well known local/regional brand throughout the Caribbean.

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COURTS

• Courts’ is a distributor and seller of home furnishings, electronic items and appliances

• The current count is now 18 peaking at 19 in 2002.

• Revenues for Courts Trinidad LTD are reported to be over 828 million.

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SISSONS PAINT

• Prior to becoming incorporated Sissons Paint were manufacturing and marketing its paints in Trinidad for several years until 1956 when they became incorporated.

• Sissons Paints was the first company to successfully introduce products such as Siscolac Chinese Lacquer, polyurethane varnish, oil varnish stain (stain and varnish in one), non-drip ceiling white, weather guard exterior emulsion and a water based enamel.

There are seven Infinity Colour Shops currently on the island of Trinidad.

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PRICESMART

• Sol Price created the discount store industry in the United States by launching FedMart in 1954

• Sol and Robert Price subsequently developed the membership merchandising business with the first Price Club in 1976

• PriceSmart now operates 23 warehouse clubs in 11 countries and one U.S. territory

• 618 million in revenues 2005

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Emphasis on New Product-Emphasis on New Product-Market GrowthMarket Growth

Mullins, W and Larreche, B, 2006. Marketing Strategy Chapter 3.

Heavy No emphasis

Home Depot

KmartAce HardwareLowe's

Home Depot

Low cost offering

PriceSmart, Dansteel, Courts and

Bhagwansingh

Sissons Paints and Small Mom and Pop stores that rely on loyal customers.

Advertisment- word of mouth

PriceSmart, Dansteel, Courts, and

Bhagwansing. Lower current prices to

match Home Depot

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Prospector Analyzer Defender Reactor

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Regulatory Environment

• Trinidad and Tobago achieved independence from Britain in 1962 followed by republican status in 1976.

• The twin-island nation is currently a member of the Commonwealth

• Fully democratic elections are held every five (5) years, since 1956. Universal adult suffrage, with a minimum voting age of 18.

• The Tobago House of Assembly is responsible for administrative governance within Tobago. City and county councils are responsible for local governance.

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Regulatory Environment cont.

• The Judiciary comprises a Supreme Court and district courts.

• The Supreme Court consists of the High Court of Justice and the Court of Appeals.

• The High Court is presided over by the Chief Justice and ten (10) judges.

• The district courts are presided over by a chief magistrate and seven (7) senior and eighteen (18) stipendary magistrates.

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Tariffs-Trade Agreements -Imports

• Member of CARICOM started in 1973

• CARICOM was established “for the purpose of facilitating the economic and social development of member states and unifying the Caribbean”

• Ultimate goal is to become a Single Market for members

• CARICOM imports from NAFTA up 9.5 billion to 12.5 billion from 1996-2001

• NAFTA imports from CARICOM down from 44.7% to 43.6% from 1996-2001

• Value Added Tax (VAT) 15% import/export

• Common External Tariffs (CET) 0-20% range with some products at 40%

(Ministry of Foreign Affairs and Foreign Trade, 2001).

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Break-even AnalysisBreak Even Analysis

Assumptions Year 1 Year 2 Year 3 Year 4Average per year unit revenue 56.42$ 60.25$ 64.35$ 68.72$ Average per unit year variable cost 39.50$ 42.18$ 45.04$ 48.11$ Gross margin per unit 16.93$ 18.08$ 19.30$ 20.62$ Estimated yearly fixed cost 9,590,817.83$ 9,590,817.83$ 9,590,817.83$ 9,590,817.83$

Break-even point in units 566,601 530,574 496,810 465,195Break-even point in dollars 31,969,392.75$ 31,969,392.75$ 31,969,392.75$ 31,969,392.75$

Year 1 0Year 2 566,601Year 3 530,574Year 4 496,810Year 5 465,195

Break-Even Analysis

0100,000200,000300,000400,000500,000600,000700,000

0 1 2 3 4 5 6

Year

UN

ITS

Year 1

Year 2

Year 3

Year 4

Year 5

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Pro-forma Income Projections

Years 0 1 2 3 52006 2007 2008 2009 2010

Flows ( Time line of annual cash flows)

Investment Outlays: Long Term AssetsBuilding (4,050,000.00)$ Equipment (2,125,000.00)$ Land (6,500,000.00)$

Operating Cash Flows Over the Projected LifeUnits Sold 636,631 655,730 675,402 695,664 Sales price 56.42$ 60.25$ 64.35$ 68.72$ Sales revenue 35,918,707.15$ 39,510,577.86$ 43,461,635.65$ 47,807,799.22$ Variable Cost 22,378,574.93$ 24,392,646.67$ 26,587,984.87$ 28,980,903.51$ Fixed Operating costs 9,590,817.83$ 9,590,817.83$ 9,590,817.83$ 9,590,817.83$ Depreciation (building) 105,300.00$ 101,250.00$ 101,250.00$ 101,250.00$ Depreciation (equipment) 297,500.00$ 605,625.00$ 514,781.25$ 460,577.81$ Oper. Income before taxes (EBIT) 3,546,514.40$ 4,820,238.37$ 6,666,801.71$ 8,674,250.07$ Taxes on operating income (40%) 1,418,605.76$ 1,928,095.35$ 2,666,720.68$ 3,469,700.03$ Net Operating Profit After Taxes (NOPAT) 2,127,908.64$ 2,892,143.02$ 4,000,081.02$ 5,204,550.04$ Add back depreciation 402,800.00$ 706,875.00$ 616,031.25$ 561,827.81$

Operating cash flow (12,675,000.00)$ 2,530,708.64$ 3,599,018.02$ 4,616,112.27$ 5,766,377.85$

Cash Flow Due to Net Operating Working Capital Net Operating Working Capital (based on sales) 3,591,870.71$ 3,951,057.79$ 4,346,163.57$ 4,780,779.92$ 0Cash flow due to investment in NOWC (3,591,870.71)$ (359,187.07)$ (395,105.78)$ (434,616.36)$ 4,780,779.92$

Salvage Cash Flows: Long Term AssetsNet salvage cash flow: Building 4,474,615.38 Net salvage cash flow : Equipment 968,000.00$ Total salvage cash flows 5,442,615.38

Net Cash Flow (Tme line of cash flows) (16,266,870.71)$ 2,171,521.57$ 3,203,912.24$ 4,181,495.92$ 16,957,773.16$

MIRR 16%Years 0 1 2 3 4

Culmative cash flow for payback (16,266,870.71)$ 2,171,521.57$ 3,203,912.24$ 4,181,495.92$ 16,957,773.16$

Cum. CF>O, hence Payback Year (16,266,870.71)$ (14,095,349.15)$ (10,891,436.90)$ (6,709,940.99)$ 10,247,832.17$ Payback found with Excel function = FALSE FALSE FALSE FALSE TRUECheck Payback = 3.40

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Balance SheetAssets 2006 2007 2,008 2009 2010

Current Assets:Cash (12,675,000.00)$ 388,344.76$ 427,179.24$ 469,897.16$ 516,886.88$ Receivables 734,084.23$ 807,492.65$ 888,241.92$ 977,066.11$ Inventory 4,934,378.06$ 5,181,096.96$ 5,440,151.81$ 5,712,159.40$

Total Current Assets 6,056,807.05$ 6,415,768.85$ 6,798,290.89$ 7,206,112.39$

Property and Equipment @ costLand 6,500,000.00$ 6,500,000.00$ 10,000,000.00$ 10,000,000.00$ 10,000,000.00$ Building 4,050,000.00$ 4,050,000.00$ 4,050,000.00$ 4,050,000.00$ Furniture/Fixtures/Equipment 2,125,000.00$ 2,125,000.00$ 2,125,000.00$ 2,125,000.00$ Construction in Progress 6,175,000.00$

12,675,000.00$ 16,175,000.00$ 16,175,000.00$ 16,175,000.00$

Less Accumulated Depreciation 331,923.08$ 603,846.16$ 443,846.16$ 363,846.16$

Net Property & Equipment 12,343,076.92$ 15,571,153.84$ 15,731,153.84$ 15,811,153.84$

Total Assets -$ 18,399,883.97$ 21,986,922.70$ 22,529,444.74$ 23,017,266.23$

Liabilities and Stock Holder's EquityCurrent LiabilitiesAccounts Payable 2,823,702.25$ 3,106,072.48 3,416,679.73 3,758,347.70

Total Current Liabiliities 2,823,702.25$ 3,106,072.48$ 3,416,679.73$ 3,758,347.70$

Stock Holder's EquityRetained Earnings 3,745,623.45$ 5,867,236.12 4,797,789.50 3,512,445.47 Total Stock Holders Equity 11,830,558.28$ 13,013,614.10 14,314,975.51 15,746,473.07 Total Liabilities and Stock Holders Equity 18,399,883.98$ 21,986,922.70$ 22,529,444.74$ 23,017,266.23$

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Final Group Recommendation

• Economic Environment

• Political Environment

• Financial Analysis

• SWOT