Sa Sa cosmetics 1 Situation Analysis Most big companies have faced a crisis period after 10-20 years of their induction. A few examples of this are Apple Inc and IBM. They all came back by bringing in changes in their corporate strategy and business approach. After this they both showed a positive turnaround in their fortunes. We believe that Sa Sa Cosmetics is passing through a similar phase as these big companies. They lost their core competency in discounted retail stores as many new competitors came up with similar models looking at Sa Sa’s success in this field.
Lack of professionalism in the top management also contributed to their crisis period. They have already taken some steps to face this crisis period. The changes in management and corporate restructuring have helped them to show some positive signs in balance sheets. 1. 1 History:- Sa Sa cosmetics started on April 1st, 1978 in Hong Kong as a simple cosmetic retailer. Soon they realized that discounted store concept had greater possibilities in cosmetic segment and started selling products at a lower margin than its competitors.
The increased sales and volume helped them to offset the loss due to lower margins.
They also used the parallel imports to get the products at a lower price than other retailers. Sa Sa had four product categories skin care, fragrances, cosmetics, hair care and accessories with respective order of percentage sales. More than 50% of the sales came through the skin care products. They developed a unique training program for sales agents which gave them a competitive edge. The training was so effective that the competitors were trying to get sales agents from Sa Sa by lucrative offers. In 1997 Sa Sa went public. The initial public offering was a huge success with an over subscription of 560 times.
The money raised was used to fund its expansion in overseas markets. 1. 2 Environment:- The prolonged economic crisis in Asia in late 1990’s affected the growth plans of Sa Sa cosmetics. Even though they expanded aggressively after public offering they had to close down some shops and concentrated on their major markets in Hong Kong and Taiwan. Along with economic crisis increased competition also affected the sales. The increased media attention business model of sa sa meant that more and more companies came up with similar models and product availability from parallel import reduced.
In order to solve the problems in supply chain they introduced in house products. Since the brand Sa Sa had already been well established they did not have to spend much on advertisement and brand creation. Also margin of such products were really high about 60% of the sales. It had two categories private, which can be sold by other retailers and exclusive, only for Sa Sa shops. By 2001the in house product contributed to 27% of sales. In 1999 Sa Sa wrote off obsolete inventory and reported a loss of $11. 1million. They also reduced the inventory from 35000 SKU to 22000 SKU since most of the sales were from 20% of the inventory.
To bring back the company to track they brought in experienced personals at top management level and restructured their business. 1. 3 Moving forward:- Having lost their core competency in discounted retail store Sa Sa now has to focus on innovating and getting some competitive advantage over the new entrants. They also have to solve the costing problems associated with the long inventory period. 2 Statement of objectives * Reduce the inventory period from 150 days. * Increase the sales of in house products. * Expand over other Asian markets. 3 Alternatives * Centralised inventory monitoring system as in Walmart Aggressive marketing of in house products. 4 Decision Criteria * Long term and short term profitability * Competitive advantage – Sa Sa Cosmetics lost some of its competitive edge because of the entrance of new players in this industry. They need to find ways to regain this advantage which they can do as they have the largest market share and risk bearing capability 5 Analysis * Many retail giants like Walmart has centralized inventory monitoring system to increase the efficiency of inventory handling. Whenever a sales happens in any of the retail shops of Walmart the sale detail goes to the computer system in their head quarters.
If the level of inventory goes below a critical value the system automatically places the order to the respective manufacturer for the product. One of the reason behind high efficiency and low price of the Walmart is this efficient monitoring system. * This monitoring system will help in reducing the inventory period which in turn will increase operational efficiency leading to higher short term profits. * Overall efficiency will give it a competitive advantage over its competitors which will increase long term profitability and stability of the firm. * Since the Sa Sa Cosmetics is looking for expansion over Asian markets.
They need such a system handle the large amount of data that will be generated from these individual shops. This system will help to control the inventory period also support the future expansion plans for the company. * Sa Sa Cosmetics has approximately 60% margin for their in house products. The other brands they sell are highly established brands. They need to market their in house products aggressively so that it increases the market share of their brands. Initially it may affect their profitability but in the long run it will increase their sales, profit margin and increase their brand value in the market.
The increase in sales of their in house products will lead to less dependency on private labelled brands. This will help them to reduce the inventory period. 6 Recommendations * Introduction of centralised inventory system will help in managing inventory efficiently and increase operational profits. * Currently they are spending only 1% of their sales on promotional activities. This is very low compared to industry standards. So they should increase their advertisement expenditure to about 5%.
Cite this History And Analysis of Sasa Cosmetics
History And Analysis of Sasa Cosmetics. (2017, Jan 31). Retrieved from https://graduateway.com/sasa-cosmetics/