BSG Report, Part 3
What will do differently in the future.
- We will build new factory in LA
- We will upgrade AP in C and one other option.
- Also, we can upgrade NA in C and one other option. We can keep and sell NA after year 16 if we have good and large LA factory. The issues depend on cost of production. We can check that before making decisions.
- Keep focus, year 17, we over sleep in Victory, and ignore competitors. This is a good lesson in class that can be valuable in life.
- Never give up, we can always find a good way to improve a company, despite its position in a market.
A five year strategic plan for the future.
For the next five years from Year 18, we will continue:
- Expand factory in AP
- Build new factory in LA and upgrade to C and one more, may be D
- Continue with High Quality 8 and 9 stars
- Continue with 500 models
- Keep NA and LA for controlling Private Label, this year will also requires high S/Q so we have good advantages.
- Keep track of close competitors, H and others.
- Net Profit of 150 million with increase of 25% every year.
To provide highest quality branded athletic shoes to the global market at a competitive price.
We keep the Mission which we built from last 8 years.
G Brand has a Vision to establish a worldwide brand dedicated to innovative design and best provider in quality at reasonable prices, allow becoming a global leader in the athletic branded shoe market.
We always provide best S/Q with reasonable price just 15% higher than Industry Average, with Largest collection 500 models and also largest networks of retailers worldwide.
Our company will provide its customers provide multiple choices in footwear that will satisfy any of their footwear needs. No matter the location, our goal is to satisfy our customers’ “foot fashion” desires and provide them with the best style and quality in footwear. G-Brand will continue to build on its existing strategy (Globa Differentiation Strategy) of attempting to gain a competitive advantage primarily by differentiating the Value and Quality for Price, customers pays for Real High Quality Value and Fashionable athletic shoes with much higher Quality what our competitors would charge for similar products. This is the case of iPhone or any other high end products are bringing values to customers such as cars and fashions. We are in shoes industry, so we can provide the differentiation with larger Collections.
We will work tirelessly to ensure that our shoes are within reach of purchasing and get the high quality shoes with very large selection. Moreover, we will invest on advertising and make use of “celebrity appeal” to gain brand consciousness.
Our revised strategy is three stages:
- Our G-Brand Company will continue to pursue its existing High Quality – Average Price – Large Collection strategy; However, to increase its market share and thereby increase revenue, our company, focus on Net Profit to increase ROE.
- We will keep Expansion of Internet Sales, keep low-cost-strategy with Highest Values that customers can get Online. We will adjust collection online lower to 400 compared with 500 in stores.
- We will build new Plants in LA, keep focus on different segments, high and very high quality. We will differentiate prices to allow our shoes to be reasonable priced to the average personal. Keep the price expand from Average to higher, but Maintain Highest quality of our shoe will continue to exceed the quality of shoes within offered by our competitors and which are with the same price-range.
With respect to our employees well-being, our G-Brand Company intends is to continue its practices of investing in employee-development and utilize a compensation model that encourages our employees to work hard, while simultaneously striving to be more productive and efficient. We increase wage, compensation, bonus and keep high training, TQM as we used to doing in the last 8 years.
G-Brand continue to be a good steward of the environment and social responsibility. Toward that end, it put in place responsible environmental policy that ensures more decisions for community. Increase from 3 to 6 activities to support society and environment. G-Brand will continue to make all efforts to use good materials which environment friendly. Also, G-Brand believes that every organization has a social responsibility to promote harmony within the community it exists. G-Brand will invest more in the Use of "Green" Footwear Materials, Energy Efficiency Initiatives and Charitable Contributions to build a bigger Image of societal Brands.
G-Brand has been performing for many years Higher than Investors’ Expectation. In order to be continue higher competitive and perform to the higher levels, there are still some areas in which the company can focus to operate better. Over the next five years, G-Brand will pursue strategies that will help it improve its financial bottom line, especially ROE because the company has quite high Equity. To do so, G-Brand has to improve on the effectiveness of its operation, especially increasing Net Profit higher than ratio of expanding its Factories. It has to find ways expand so that cost of production at high quality still low enough to increase high margin, high market share and getting over all high Net Profit. Also, G-Brand need to keep high market shares, year 17 market shares are reduced, but G-Brand has get back to Top in Year 18. We need to keep continue going up to expand and to create new markets.
With revised strategy, G-Brand will focus on offering higher quality products, more models, more fashion, to be industry leader in cost for value. In next five years, G-Brand will be more competitive with production capacity at the top and also high quality with largest collection. We aim to increase market share through factories in three continents, NA, AP and LA. We will keep the largest market shares in Internet Sales. Largest network of retailers around the world. Keep control of Private Label market with upgraded factories that can produce most of quality at lower cost than any competitors.
Furthermore, G-Brand will continue focus on what we are top leading like S/Q, models, strong advertising, retailer support, celebrities. We do not focus on rebate, time of delivery. We will upgrade new factory in LA to produce top high quality shoes with C options an B for large quantity.
We are doing well, so Stock Price is high too, over 120, we will buy back some with extra money, cash in hand of G-Brand will be over 150 million every years. We do not leave it in bank or safe. So, after expansion of new factory in LA with 120 million, we reduce the number of shares to increase EPS. We will get ROE higher soon, and faster than other competitors.
In year 18, end of the game, G Company has more than 150 million Cash in hand, so we pay old loans to get A+ Credit Rating.
We always used the 10 decision groups of Finance and Cash Flows in most careful ways to maintain high EPS, in fact we should spend more Cash in hand to buy back Share in early years. We also regularly pay old loans to get higher Credit Rating. From Year 19, if any, we have over 100 million cash in hand and Net Profit every year, it will be better financial status for us to expand or invest in upgrading new factories, or even produce at higher stars 8, 9 or 10 stars.
Another important indicator of profitability is the return on equity (ROE). ROE indicates how much profit is generated with the investments that shareholders made. In Year 18, we have increased ROE to 26.3% vs. IE of 15%.
We need to figure out most effective ways to increase ROE by increasing Net Profit but keep Total Equity low, not expanding faster than increase of Net Profit.
- Looking at Company Operating Report, Distribution and Warehouse Reports, we see Cost of Branded Pairs Sold in Year 18 is $25 and Warehouse Operating Expenses is 3.71. We need to keep track of cost in more details in next years.
- Looking at Company Operating Report, Marketing and Admin, Private Label, we also need to focus on reading and understanding Business and Financial Statement. The key factors need to be considers is Cost of Branded Pairs Sold, e.g. 24.51 is low, we can reduce with good factory in AP so increase the margin to much higher. Total Wholesale Marketing is 12.92 is good now, we will keep maintaining strong marketing to get higher sales volume. Total Admin Expenses is very low, just 1.49 per pair of shoes. This support strategy of expansion and getting high Sales, Higher Net Profit and higher market shares.
- Cost of pair sold, Ware house expenses, Marketing expenses, and Administrative expenses, all the 4 key contribute to Operation Cost. Net Revenue of 52.76, but cost of 25.43; 3.16 for warehouse; 10.50 for marketing; 1.16 for Admin, make the Net profit of 12.53. This can make Net profit quite simple, if we produce 12.000.000 pair of shoes, we will get about 144 million Net Profit. This is quite good at the year 19 and later.
From Company Operating Reports, we focused on Balance Sheets and Cash Flow, we see Total fixed Assets of 573,906; Total Liabilities of 127,335 and Total Shareholder Equity of 446,571. The ROE in Year 18 is good back to 24,3% compared with Investor Expectation of 15%. We get out of Year 17 with bad results in ROE because we expand too fast in that year.
The key information form balance sheet is not just Total Cash outlays of 711,362 or Net Cash balance for every year. We also learn that Loans from previous years may have higher interest rate, we can borrow new loans to pay off old debts, and get higher Credit Rating because we can pay loans. Also, we are doing better than in the past so interest rate is lower. More effective.
We note to see Return on Equity, so keep Total Equity lower than increase Ratio of Net Profit. We have quite large Total Shareholder Equity of 446,571. Net Profit must over 110 million every year to keep ROE higher than 25% or more. This is the key to affect our strategy in the next five years.
Our EPS increase fast from 7.36. 7.39 to 12.81 over last three years, much higher than Investor Expectation of 4.3. We will keep going with this rate in next five years with expansion strategy, based on large volume, higher S/Q and reasonable Prices.
Our ROE fluctuated over the years due to expansion of factories, we now have paid all the old loans and have quite good cash in hand, we do not have to increase equity in next five years, at least we do not have to borrow for expansions. We have good Cash in hand over 100 million each years. Over Year from 15 to 18, ROE changes up and down 22.5, 18.2 then 20.0 then in year 17 down to 16.8 then up to 24.3 in Year 18. We need to control this better in next five years.
We are doing very well, even up and down from 1st and 2nd position but we have a strong and clear visions for future strategy to lead the company at top of market and meet Investor Expectations. We also learn a lot from the BSG itself and from our class mates, other teams, even we compete in the games, but in order to run effectively, we have to look at our competitors to learn their strategies and we see what they did well or not very well, we learn by doing this.
We also thank the Professor and creators of BSG Online to give us a good environment to learn, to practice with full of knowledge, competitions and emotion close to business life. Through the games, we learn more in-depth knowledge and skills in making decision in big business fields, from Corporate Social Responsibility, to Sales Forecast, which is very important. Then we can analyze business results to identify new marketing, production strategy. We have never looked in very details of business management like sales margins or even a few percent of market shares. Now we learn from the game and be more knowledgeable in making business decision. One of the most useful skills we learnt from BSG in Financial Analysis, we have had the chance to read Income Statement and Financial Reports every years, for last 8 years, many time, which we understand more about cost and revenues, details of cost, details of revenue, we notice the importance of loans, interest rate, credit ratings. We even understand the very details such as marketing per pair of shoes, cost of warehouse, administration per pair of shoes, which can contribute to the total cost making the Net Profit higher or lower then decide the Business Results and overall market development.