Ocean State Job Lot Bus 400 CE

Final ExaminationBy: Alejandro Votteler

Table of Contents

Case AnalysisIndustry Overview: Discount Department StoresCompetitive Analysis

Big Lots:Target:Sears Holding Corporation:

SWOT AnalysisStrengthsWeaknessesOpportunitiesThreats

Trade offsRecommendationsAppendix

Exhibit 1.Exhibit 2.

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Case Analysis

Ocean State Job Lot was established as a business in 1977 opening their first store in

Kingstown, Rhode Island. They now have expanded to 113 locations in New England, New

York, and Connecticut with 4,000 employees. Their initial strategy consisted of selling brand

name products at closeout prices. They still employ that same strategy today with a slight twist

and generate $540 million in annual sales.1 The company seeks out wholesalers with overstocked

or discontinued brand name goods that are in the market to sell these products at steep discounts.

Ocean State Job Lot has enjoyed a 25% compound rate of annual growth since it’s

inception in 1977. In the past decade this has slowed down to 7-10% annual growth allowing it

to withstand the economic recession. The company predicts it will reach $1 billion in sales while

1 Ocean State Jobbers Inc., “Business Inquiries”, http://www.oceanstatejoblot.com/contact/

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expanding more throughout the Northeast.2 Recently, Ocean State Job Lot has followed in the

mis-steps of its largest competitor Wal-mart by purchasing the former Wal-mart building in

Rockland, Massachusetts. The 94,000 square foot building will be divided into two sections, one

of which will be a store, and the other will be rented out. The acquisition went for a total of $3.1

million and both parties were able to come out with a win. Ocean State with a great location, and

Wal-mart attempted to decrease it’s property tax in Rockland by more than half.3 These types of

strategic decisions that allow Ocean State to find bargain deals, whether it be in location or

product acquisition, are one of their essential core competencies .

Ocean State Job Lot has proven itself impervious to any types of economic downturns by

purchasing products that bring value to their customers. They take advantage of closeouts from

wholesalers and will buy almost any brand of product as long as it provides value. Their erratic

purchasing patterns have created a “treasure hunt” atmosphere, and their selection of “Non-

GMO” and organic products attract a cult following of foodies. Bargain hunters also stop at

Ocean State before the grocery store to buy kitchen staples like rice, spices, olive oil,

condiments, grains, flour, and even maple syrup. Ocean State’s CEO Mark Perlman stated, “We

probably sell more maple syrup than anyone else in New England, you’ll get it cheaper from us

than you would a farm stand in Vermont.”4

Ocean State Job Lot became the leader in sourcing by implementing the TradeStone

Sourcing and Global Order Management solution in order to quicken lead times with vendor

2 Business Wire, “Regional Discount Retailer”, http://www.businesswire.com/news/home/20101122006007/en/Regional-Discount-Retailer-Ocean-State-Job-Lot#.U1BIWVVdUUA 3 Betts Stephen, The Bangor Daily News, “Walmart Seeks Tax Cut”, http://bangordailynews.com/2014/02/16/news/midcoast/wal-mart-seeks-100000-tax-cut-from-rockland-eyes-statewide-reductions/4 Business Wire, “Regional Discount Retailer”, http://www.businesswire.com/news/home/20101122006007/en/Regional-Discount-Retailer-Ocean-State-Job-Lot#.U1BIWVVdUUA

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compliance and payment processing. Since implementing these programs Ocean State was able

to double their imports year by year.5 They were also able to greatly expand their international

assortment of products from Asia, India, Mexico, and South America. Ocean State Job Lot

understood the discount retail environment hinges on a companies ability to increase its margins,

speed, and efficiency from product sourcing to distribution. Their ability to source products from

around the world will create a blue ocean for Ocean State Job Lot similar to that of Trader Joes

because most low priced retailers like Walmart focus on price instead of providing the customers

with items they will enjoy finding.

Another recent expansion for Ocean State has been to partner with CM Communications.

The companies will be working closely to design and execute Ocean State’s marketing strategies.

These include creative, production, media, advertising campaigns, PR initiatives, and social

media marketing. These investments have double their Facebook likes, and have increased its

website ranking by 40%.6 Overall, Ocean State is in a healthy position coming out of the

recession and is beginning to put in place the infrastructure that will allow it to prosper for many

more years amongst its giant competitors like Target and Wal-mart.

Typical Ocean State Job Lot stores are less than 40,000 square feet and a small amount

of employees. There are usually four or five checkout counters and the checkout system is very

traditional. They offer employees high growth opportunities and give generous employee

discounts of 20% to sometimes 30% on merchandise. The company also provides full coverage

of health insurance, and donates to multiple food banks domestically, as well as globally.

5 Business Wire “Ocean State Job Lot Recognized”, http://www.businesswire.com/news/home/20070522005797/en/Ocean-State-Job-Lot-Recognized-2007-Mid-Market#.U1BfxlVdUUA 6 CM Communications Inc., “Ocean State Job Lot”, http://www.cmcommunications.com/details/items/ocean-state-job-lot.html

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Charitable donations from Ocean State have been estimated at $10 million to fight hunger, and

they routinely offer 30% discounts to soldiers or teachers in need of school supplies.7

Ocean State has recently taken advantage of the change in a Massachusetts state law in

order to begin to sell alcohol at certain locations. The retailer also is planning expansion into

New Jersey and testing of alcohol sales has begun. Ocean State will be offering J.W. Morris, a

Californian wine producer, and Barrel Trolley and Double Take beer brands. The beer will be

selling for $6.49 per six pack and even though they are unfamiliar brands, each has been taste

tested and approved for sale. The CMO of Ocean State explains, “We’re not just selling low-

priced, value-oriented stuff, no matter what it tastes like. If consumers won’t enjoy drinking it,

charging a low price for it doesn’t matter.”8

Industry Overview: Discount Department Stores

The industry consists of low price retailers that sell a broad range of products such as

apparel, cosmetics, sporting goods, groceries, home furnishings, tools, toys, and electronic

appliances.9 Most discount stores use a low cost leadership strategy which allows them to sell

products at industry price and gain profit by selling higher volume, these companies focus their

strategies on process efficiency and supply chain management. Walmart is the top example of

how a discount retailer can perfect its distribution in order be able to continually sell product as

fast as possible.

Discount retailers are highly dependant on per capita disposable income as well as

consumer confidence. Unemployment in the United States has reached 6.3% the lowest since

7 Perlman, M. (2012). Adventures in Shopping. Retail Merchandiser, 82.

8 Chesto John, Boston Business Journal, “OSJL Now Selling Beer and Wine”, http://www.bizjournals.com/boston/blog/mass_roundup/2014/04/spurred-by-change-in-mass-law-ocean-state-job-lot.html?page=all9 IBISWorld, “Department Stores in the U.S., http://0-clients1.ibisworld.com.helin.uri.edu/reports/us/industry/default.aspx?entid=1090

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September 2008, but average daily earnings have remained stagnant only up 1.9% over the past

year.10 This shows that consumer confidence is increasing, but at a very conservative pace. The

slow growth is also reflected in the industries annual growth rate of 0.3% between 2009 and

2014.11 The five years following 2008 were very tough for discount retailers so many discount

giants like Target and Walmart expanded their markets adding fresh grocery sections. This

moved the discount giants into the Warehouse Clubs and Supercenters industry creating extra

market share for discount retailers like Ocean State. Many retailers in the industry are now facing

more competition with the emergence of e-commerce websites like Amazon.com. Traditional

brick and mortar stores are likely to continue losing customers to these services as they begin to

expand into home delivery services.

Competitive Analysis(Refer to Exhibit 1.)

Big Lots: Big Lots has most of its locations in the Western and Southern parts of the country including

California, Texas and Florida. The large retail chain only has about 160 locations in the New England

area mainly focusing on states like New York, Pennsylvania, New Jersey, and Massachusetts. Looking at

Big Lots financials on Exhibit 1. we can clearly see that they hold a strong position in the market with a

higher asset turnover than Target. Although they have lower financial leverage, Big Lots is doing a better

job utilizing its debt and assets to finance its operations.

Big Lots employs a similar strategy to that of Ocean State relying on closeouts to sell brand

named merchandise while keeping prices low.12 They also have an extensive array of international foods

and promote the treasure hunt atmosphere created by an unpredictable range of products featured. While

Big Lots earning plunged 30% in the fourth quarter of 2013 the retailer has taken steps like increasing it’s

10 Bloomberg, “Hiring in U.S. Kicks Into Higher Gear”, http://www.bloomberg.com/news/2014-05-02/payrolls-in-u-s-rise-by-most-since-2012-unemployment-at-6-3-.html11 IBIS, “Industry at a Glance”, http://0-clients1.ibisworld.com.helin.uri.edu/reports/us/industry/ataglance.aspx?entid=109012 BigLots Corporate, “About our Company”, http://www.biglots.com/corporate/about-our-company

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food selection, updating its e-commerce platform, and closing many of its Canadian locations in order to

remain profitable.13

The company has found that stores that sell coolers and freezers have been selling product

quickly. They have also tested a furniture-financing program that has performed solid and will be

implemented at the end of the third quarter this year. Big Lots CEO David Campisi has also taken steps to

develop a management team to analyze and reduce costs.

Target:

Target is one of the industry leaders alongside Wal-mart, differentiating itself by providing

quality products at a low price. Target has lost some position in the industry, but still remains effective.

The company has one of the best e-commerce and social media platforms in the industry which have

contributed to its high sales. Most products in store are available to purchase online, and Target has

implemented a new Cartwheel app that allows customers to redeem digital coupons in store. Recently,

Target experienced a data breach that tarnished the brand value, but the company is taking active steps to

alleviate the problem.

The company has also recently tested smaller sized stores in specific locations and is working on

adding fresh produce to the food selection. Their clothing lines consist of established fashion brands that

are willing to partner with Target. The electronics section at Target is extensive, but often yields low

margins. Large retailers like Target and Wal-mart have recently increased their product selections

regardless of the margins each sector generates.

Target has a strong position in the industry with a fairly high profit margin of 2.72% and a

industry median asset turnover. Some analysts are voicing concerns about Target with the resignation of

former CEO Gregg Steinhafel. The credit breach has strongly affected its Redcard sign up and usage rates

which were a large part of Target’s success.14

Sears Holding Corporation:

Sears Holding Corporation operates Sears, and K-Mart stores. The company suffered greatly

during the economic recession and still has difficulties remaining profitable today. Sears Holding

Corporation has negative profit margins and terrible returns on assets and equity. Although its asset

turnover has remained high the company has struggled to excite consumers with its stale and outdated

brands and store image. Over the past few years Sears has been cutting costs and reducing its locations in

order to deal with the economic downswing. Some believe CEO Eddie Lampert is to blame because he

13 Waheed Zahid, “Why There is Still Hope for Big Lots”, http://www.fool.com/investing/general/2014/04/16/why-there-is-still-hope-for-big-lots.aspx14 Smith Rich, “Tuesdays Top Upgrades”, http://www.fool.com/investing/general/2014/05/06/tuesdays-top-upgrades-and-downgrades.aspx

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has been trying to run the company like a hedge fund instead of a discount retailer. Strong brands like

Craftsman, and Kenmore have been drawing in consumers to the store, but many other areas like clothing

that have high margins have continually suffered.15

SWOT Analysis

Strengths Ocean State Job Lots strength lies in its ability to create a treasure hunt aspect to price savvy

consumers. The company is very flexible in terms of sourcing product from all over the world and often

takes unknown brands if they pass quality inspections. Another strength that ocean State has developed

over its competitors is its small size. The chain only has 113 locations in New England and has been

expanding slowly into states close to its main operations like New Jersey. They offer significantly lower

prices on staple items that have attracted consumers to bargain shop for these items before going to the

bigger discount retailers to get their other grocery needs.

Weaknesses With impending threats from e-commerce sites and social media marketing strategies Ocean State

Job Lot has missed the boat on many opportunities to drive more customers through the stores by

engaging them through social media channels. They have also avoided looking into further technology

that can be implemented in-store and on their website. Competitors like Target use digital coupons adding

extra convenience and incentive for customers to stay updated with promotions. Ocean State currently

only advertises its promotions through its two social media channels, and through a weekly flyer that is

available for viewing on the website. Ocean State is also notorious for not treating its employees fairly.

Many managers have noted that corporate managers have little knowledge of the store employees and that

store managers should have more empowerment because they know their store and staff better than the

corporate managers.16

15 Williams Sean, “Which Struggling Retailer is Better?”, http://www.fool.com/investing/general/2014/05/03/jc-penney-or-sears-which-struggling-retailer-is-be.aspx16 Glassdoor, “Ocean State Jobbers”, http://www.glassdoor.com/Reviews/Ocean-State-Jobbers-Reviews-E156746.htm

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Opportunities Ocean State Job Lot is well positioned in the industry and can exploit many strategies

that similar retailers have tried. Ocean State has very loyal customers that could use more

incentives to visit their stores and consider Ocean State when making larger purchasing

decisions. Digital discount codes are a feature that could be implemented easily on the Ocean

State website. The company can also take advantage of other social media channels including

pinterest, instagram, and blogs in order to target bargain hunter foodies with new product

offerings.

Another opportunity that the company has is that it can look at similar strategies like

Trader Joes and try to implement them into their own culture. Trader Joes employs graduate

level entry employees in order to build a pool of competent employees that can later move up

into management positions. Training at Trader Joes is extensive and communicates very clearly

the vision of the brand. Trader Joes also empowers its store level managers to make decision

because they often know employee and customer preferences better than corporate managers.

Overall, the look and feel of many Ocean State locations has much room for improvement and

small cost effective changes could increase sales significantly.

Another huge opportunity for Ocean State is the recent addition of beer and wine. Much like

Trader Joes liquor sales could be a huge source of revenue for Ocean State Job Lot because of their

unknown brand names and extremely low prices.

Threats The biggest threat Ocean State Job Lot faces is from e-commerce sites employed by

Target, Walmart, and other large competitors. As well as websites that are purely e-commerce

like Amazon who has expanded into home delivery services that include groceries and anything

you would be able to purchase at a discount retailer. They are also threatened by a rising

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economy because they will need to be able to satisfy a new target of consumers if the current

consumers gain disposable income and switch to alternatives like Stop and Shop or Target.

Another threat will be expansion into untested demographics because Ocean State has only

enjoyed success in one region of the country does not mean they will be able to translate this

success nation-wide. Scaling a business comes with recruiting, financing, distribution, and

sourcing challenges, as well as dealing with a new customer demographic. Ocean State can turn

this into a second movers advantage by noticing that many of its larger competitors like Big

Lots, and Target have not had success in Canada and many of those store locations are now

being closed.

Trade offsThere are a number of different trade offs that Ocean State undergoes in order to clearly

communicate its value proposition to customers. Looking at location and aesthetics of the stores, Ocean

State locations are very old fashioned and often run down looking. Products are left in boxes that are half

torn apart, and shelf space is utilized wherever it can to fit new products coming in. This has played to

Ocean States advantage because this strategy keeps costs low, they do not need to have high maintenance

costs and are better able to direct the sales they make into profit. Similarly, employee salaries are

relatively low and the company does not put much emphasis on development and training.

Another trade off is the size and speed at which Ocean State Job Lot has expanded. Some retailers

rush to be in every city nationwide while other wait for opportunistic times to start expanding. Ocean

State was very smart not only because they established a recession proof business model, but also because

after the recession they began to expand by taking advantage of closed locations by other retailers.

Allowing all of these trade offs to occur Ocean State is better able to focus on its global sourcing

operations in order to find cheap products that will bring a treasure hunt atmosphere and value to the end

consumer.

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Recommendations(See Exhibit 2.)

My recommendations to Ocean State Job Lot are aligned with the Value Chain Model in

Exhibit 2.Ocean State Job Lot has a unique stance in the market and should continue to operate

this way while implementing slight changes in order to attract more consumers. My

recommendation to Ocean State would be to provide digital coupons through a mobile

application in order to save in store technology costs. Another suggestion would be to empower

store level managers with purchasing decisions and to ultimately rethink the company’s culture

in order to cultivate a friendly and guest oriented environment like the one that has worked

extremely well for Trader Joes.

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Appendix

Exhibit 1.

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Exhibit 2.

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