Essay on Merger, Acquisition, and International Strategies
An important aspect of strategic management relates to business growth due to mergers and acquisitions. Both local and international expansion can be fueled by the use of mergers or acquisitions. Such strategic decisions should be backed up by the initial analysis of the company’s positions and the attractiveness of the merger or acquisition.
In this paper, two public companies will be considered, one of them should be operating internationally and have a history of mergers or acquisitions, and the other should be operating within the United States and have no previous history of mergers and acquisitions. The purpose of this paper is to provide an overview of both companies, to evaluate the strategy of international company that led to the merger or acquisition, to identify a possible candidate for merger or acquisition for the company that operates only within the U.S., to evaluate international business-level and corporate-level strategy of the international company and to suggest one international business-level and one international corporate-level strategy for the company operating within the United States. The considered industry is department stores and the chosen companies are Macy’s Inc. (the company operating internationally) and Kohl’s Corporation (the company operating in the United States).
Overview of Chosen Companies
The company operating internationally is Macy’s Inc (NYSE:M) (Macy’s Inc., 2014). It is a large multinational holding which operates two chains of department stores – Bloomingdale’s and Macy’s. The stores primarily sell clothing, shoes, accessories, jewelry, beauty products, houseware and furniture. Macy’s Inc. stores can be found in 45 states, in the District of Columbia, in Puerto Rico, Dubai and Guam (Macy’s Inc., 2014). Moreover, Macy’s Inc. sells its products online and therefore reaches out to the customers throughout the world. In 2013, Macy’s Inc. was rated the 16th retailer by revenue in the United States (Macy’s Inc., 2014).
Macy’s stores offer a variety of merchandise and is associated with popular culture while Bloomingdale’s stores are upscale and are intended for more affluent customers. The first store was opened in 1858 and there were primarily dry goods offered in that store (Macy’s Inc., 2014). Later on, the store started producing clothing made to the customer measurements. The company expanded using mergers and acquisitions, the most notable of which were the merger with Federated Department Stores in 1994 and the acquisition of the May Department Stores in 2005 (Macy’s Inc., 2014). Macy’s Inc. shares are performing slightly better than the department stores industry in general (Yahoo Finance, 2014b).
Kohl’s Corporation (NYSE:KSS) also operates in the department stores industry and runs a chain of retail stores named Kohl’s. These stores largely sell clothing, jewelry, footwear, electronics, houseware, beauty products, bedding and furniture. The company operates in the United States and its stores are present in 49 states (Kohl’s, 2014). The first Kohl’s supermarket was built in 1946 (Kohl’s, 2014). The positioning of the store was between discount stores and upscale department stores. The company grew primarily due to opening new retail stores, and although there was one major acquisition of BATUS Inc. stores in 1986, it was before the company went public in 1992 (Kohl’s, 2014). In general, Kohl’s shares are performing well and are in line with the overall industry trend, demonstrating slight growth (Yahoo Finance, 2014a).
Analysis of Macy’s Inc. Strategy Prior to Acquisition
The acquisition that had the most notable impact on the recent development of Macy’s Inc. was the acquisition of May Department Stores in 2005. Before the acquisition, Macy’s Inc. entered a period of diversification and brand reinforcement:. The first two stores of Bloomingdale’s were opened in 2003 in Atlanta, targeting more affluent and demanding customers. Furthermore, Macy’s integrated the stores existing in different states and re-branded them – the nameplates for different regional Macy’s stores were changed to include Macy’s brand name. Macy’s Home Store division was created in 2004 (Macy’s Inc., 2014). In addition, the company launched a new program of customer loyalty in 2005 and offered new credit cards for its customers (Macy’s Inc., 2014).
The actions of Macy’s Inc. during the 2003-2005 time span show that the company managed to arrange its organizational structure in order to improve efficiency, enhanced the brand by including the word Macy’s into all store names, added a division for diversifying the existing brand (Macy’s Home Store), created a new brand and a chain of stores for affluent customers.
Such strategic decisions indicate that Macy’s Inc. was in the state of active expansion both in horizontal direction (opening new stores) and in vertical direction (optimizing organizational structure, cutting costs, diversifying products and strengthening the brands).
The May Department Stores company had about 500 department stores and 800 stores of formal and bridal wear in the United States and overseas. The stores were selling the same range of items as Macy’s. The acquisition was strategically efficient for Macy’s Inc., since the company improved its structure and branding and sought to expand its network in the United States and abroad. The acquisition of the May Department Stores was a very wise choice because it allowed Macy’s Inc. to gain market leadership in the department stores industry and to make its stores available across the United States. The acquisition helped Macy’s Inc. turn from a middle-scale player into one of the leaders of the department store industry.
Probable Candidate for Kohl’s to Acquire
Kohl’s Corporation operates a large network of department stores and has many loyal customers. The company focuses on selling great brands and offers shopping convenience, value and excellent customer service (Kohl’s, 2014). However, the revenues of Kohl’s are dropping: they declined by 10% in 2013 and the forecast for 2014 is a decline of earnings by 15% (Kohl’s, 2014). The decline in sales is taking place due to the changing competitive environment – customers prefer to shop online and there are many online retailers offering a wide range of products. Currently Kohl’s is working to create an own ecommerce solution, but it might be difficult to compensate the decline in sales by relying solely on a e-commerce solution.
A viable opportunity for Kohl’s is to acquire its former competitor, J.C. Penney Company Inc (NYSE:JCP). This company also operates in the department stores industry and sells various clothing brands. JCP used to be very successful in 2008-2009: it combined online sales with catalog sales (Yahoo Finance, 2014c). However, a series of inefficient strategic steps such as the decision to change the approach to pricing, the conflict with Google regarding search results, late exit from catalog business etc. significantly damaged market position of the company (Yahoo Finance, 2014c). Stock prices of JCP are rather low at the moment. However, the company still has a large network of stores and it might be a very valuable acquisition for Kohl’s. Furthermore, JCP already has a working solution for ecommerce which Kohl’s can re-use. Therefore, it might be very beneficial for Kohl’s to acquire JCP. This acquisition will both help Kohl’s expand its network of stores across the United States and will open more opportunities for selling the products abroad.
International Business-Level and Corporate-Level Strategies of Macy’s Inc.
A business-level strategy can be defined as the set of coordinated and integrated commitments and actions which the company uses to achieve a competitive advantage by using its key competencies in specific markets (Hitt, Ireland & Hoskisson, 2014). For large markets, key types of business-level strategies are cost leadership and differentiation, for narrow markets the strategies are focused cost leadership and differentiation (Hitt, Ireland & Hoskisson, 2014). There is also a mixed strategy which is referred to as integrated cost leadership / differentiation (Hitt, Ireland & Hoskisson, 2014).
Macy’s Inc. collaborates with different brands and provides valuable offers to its customers in the United States and worldwide. The company targets a wide range of customers and therefore its business-level choices are either cost leadership or differentiation. Initially, Macy’s Inc. tended to rely on differentiation and gained customer attention due to wide range of brands available in the stores. However, since 2010 Macy’s also introduced cost cutting and cost optimization strategies which helped the company to remain profitable even in the context of intensive competition with other retailers selling their products online (Macy’s Inc., 2014). Therefore, currently Macy’s Inc. uses an integrated differentiation / cost leadership business-level strategy at the international level.
A corporate level strategy describes the set of actions that a company undertakes to achieve a competitive advantage by selecting and managing several businesses related to different product markets. Depending on the level of corporate relatedness (the similarity of products) and on the level of operational relatedness (the similarity of activities) a company can choose either unrelated or related linked diversification (in the case of low operational relatedness), related constrained diversification or both operational and corporate relatedness (in the case of high operational relatedness) (Hitt, Ireland & Hoskisson, 2014).
In the case of Macy’s Inc., its brands have notable similarity in the range of products offered (though differing in product quality and price) and the activities needed for selling different brands across the U.S. and online are similar. The levels of both corporate relatedness and operational relatedness are high and Macy’s Inc. is able to use a corporate-level strategy which utilizes the advantages of both types of relatedness. Due to the presence of corporate relatedness, Macy’s Inc. can transfer its core competencies such as unique brand collections and excellent customer service to the international level, and using operational relatedness, Macy’s Inc. can use economies of scope and optimize its costs.
Possible strategic improvements for Macy’s Inc. include increasing the use of the economies of scale, establishing agreements with international transportation companies in order to boost online sales, offering virtual fitting-room and additional mobile services to attract customers. Macy’s should use non-traditional methods of attracting online customers in order to remain competitive.
Suggested International Business-Level and Corporate-Level Strategies of Kohl’s
The acquisition of JCP which was recommended in the previous sections for Kohl’s would create opportunities for going international. Kohl’s addresses a wide range of customers and positions itself as a store chain with unique brands and labels offered for moderate price. Therefore, it is best for Kohl’s Corporation to choose an integrated differentiation / cost leadership strategy for international expansion. It is recommended to sell items online and to offer private brands and rare brands. Furthermore, Kohl’s can stand out among other online retailers due to exceptional customer service and convenient interface for purchasing products.
Regarding corporate-level strategy, Kohl’s choice should be the simultaneous corporate relatedness and operational relatedness strategy. Indeed, Kohl’s should utilize economies of scale in order to cut costs and offer competitive prices; at the same time, Kohl’s should offer a unique assortment of goods in order to gain customer attention. It is best for Kohl’s to enter the Canadian market first of all, and then, after achieving success in online sales, to offer its products in Europe, Australia and South America. The recommended acquisition will enhance both corporate and operational relatedness and will help to improve market position of Kohl’s Corporation.
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