Reference no: EM133237788

CASE STUDY Mr Price: An African retail success story

Serving fashion since 1985 

In 1985, the retail giant, Mr Price, opened its doors in Durban, South Africa. At the time, the founders, Stewart Cohen and Laurie Chiappini, felt that clothing prices were too high and they dreamt of a new kind of factory shop that sells quality merchandise at substantially lower prices (Mr Price Group 2021). Their idea was a factory shop with attractive interiors that boasts desired merchandise and great advertising, but with a very low-cost structure to allow for low margins off high volumes (Mr Price Group 2021). With their vision that factory outlet stores would make sense for South Africa, Laurie Chiapinni and Stewart Cohen acquired the company they were working at the time through funding assistance from a local bank (Palmer 2018). The first Mr Price store opened in 1987 and by 1991 they were in full control of the company (Oxford Business Group 2012). 

Next, the two partners invested substantially in a new brand, Milady's, launching fresh television advertising and opening dozens of new stores. By the beginning of 1994, the company had well over 200 stores and the brand was moving fast in a South African landscape that was changing for the better (Palmer 2018). At the time, the retail concept that the partners had adopted had already proven to be successful in major global markets, and their product line of affordable clothing and houseware was perfect for South Africa's growing and sizable black consumers. By 2002, the company claimed to have been selling three million pairs of jeans annually; and by 2012, Mr Price was targeting expansion of 50 stores per year with an increase of local trading space of 5% per annum (Oxford Business Group 2012). By 2016, the Mr Price Group was one of the fastest growing retailers in South Africa with brands including Mr Price, Mr Price Sports, Mr Price Home, Sheet Street and Milady's (South African Market Insights 2016). 

The Mr Price growth strategy has predominantly been driven by existing businesses rather than through acquisitions. Market share gains were expected to be driven by store growth and later through online capability. Mr Price further improved its operating margin through rationalising its store base, by reducing space in chains that were over spaced and by moving to a more direct sourcing model. By 2012, the company sourced 95% of its products directly and the advantages of going straight to the manufacturer were two-fold: first, it enhanced the company's bought-in gross margin by cutting out the middleman; therefore, reducing the cost of goods; and second, Mr Price was allowed greater control over its inventory, by forging direct relationships with manufacturers which, in turn, led to lower markdowns and a higher stock turnover (Oxford Business Group 2012). 

Mr Price scrutinises all their markets to decide whether they can build scale on each investment, and they consider whether each investment "warrants the time, finances and resources." (Kew, 2020). In 2020, Mr Price announced that they had decided to exit Nigeria and had already closed four of its five Nigerian stores (Buthelezi, 2021). They joined other clothing retailers, such as Woolworths and Truworths, that also closed their Nigerian stores in recent years. Subsequently, Mr Price froze head office salaries to conserve cash and announced its plans to divest its shares in Nigeria to pursue other growth opportunities in South Africa (Kew, 2020). One of the reasons for entering the Nigerian market was the market size potential in Nigeria, as Mr Price had expected the Nigerian market to support 50 to 100 stores because of its population, currently estimated at over 200 million (Adesanya, 2020). However, in 2019, Mr Price announced that it would be revaluating its international strategy and had commissioned an external review of the Nigerian operations (Buthelezi, 2021). The reason behind the exit was the volatility in the West African market (Kew, 2020). In addition, South African companies have long struggled to operate in Nigeria for a number of reasons, including challenges associated with bringing goods in and out of the country; supply chain disruptions; weak economic growth and difficulty in repatriating money - getting funds out of the country (Mochiko, 2021). Mr Blair further explains that Mr Price had previously entered foreign markets on an organic basis with limited local expertise and infrastructure and this strategy had proven "challenging and distracting." He indicated that in the future, they would more likely enter markets via partnerships through which it can put its large cash pile to use (Hedley, 2019). 

Leaders that "walk the talk" 

Stuart Bird, the former CEO of Mr Price Group, played an integral part in growing the fashion value retailer into one of the top performers in South Africa (The CEO Magazine, 2019) with a market capitalisation of over R60 billion (CFO, 2018). The Chairman of Mr Price Group Limited, Nigel Payne, says "Stuart's success has been as a consequence of focusing on our customers and ensuring we provide the products that appeal to them. He has also taken key steps to create the infrastructure and capabilities upon which our future success will be built." (CFO, 2018). Over the years, the Mr Price Group has also proved its commitment to its CSR and invested about R153 million since 2006 in empowering the youth and teachers of South Africa through its education and skills development programmes (The CEO Magazine, 2019). Stuart says: "It's very important for us and we approach it with a business mindset and a focus on sustainable solutions"; and explains: "The work we do in upskilling teachers so they can give their best is important because if you have the right leadership in schools, you can accomplish amazing things"(The CEO Magazine, 2019). Another initiative is their "Jump Start" programme which works to prepare young people for their careers. The programme has upskilled more than 22 000 unemployed youth and has provided retail and manufacturing jobs to more than 10 000 young people (The CEO Magazine, 2019). 

While MRP has had immense success with Stuart at the helm, he does not take the credit and instead praises the people in all departments of the business (The CEO Magazine, 2019). He goes on to explain that "we have a strong culture of performance at the core. It's not a 'performance at all costs' kind of environment; it's a team environment. And that starts with management. Our leaders walk the talk - they are the example and they set the tone." Stuart also mentions that building and maintaining strong business relationships with partners has played an integrate role in the company's approach, emphasising: "you have to be fair and if you can build those kinds of relationships, you will attain success. I believe you'll achieve much more by having a cooperative approach. You can't do it alone." (The CEO Magazine, 2019). Stuart Bird retired at the end of 2018, and the CFO at the time, Mark Blair, was appointed as his replacement in the beginning of 2019 (CFO, 2018). Nigel said at the time "Mark is well-placed to lead the next phase of the Mr Price Group's growth and geographic expansion. He is deeply committed to our culture and values and enjoys the support of a strong leadership team." 

The surprise "all-cash" deal to buy Yuppiechef 

It seemed that for the decade leading up to the mid-2002, Mr Price could not put a foot wrong. However, from 2018 onwards the retailer seemed to have "lost its sparkle as growth and the share price slowed." (Planting, 2021). This was because of South Africa's poor economic growth and growing levels of unemployment. The Board, with the blessing of the former CEO, tasked Mr Blair with developing and executing a strategy that would take the group into its next phase of growth. After 20 years of organic growth, management identified several category extensions and new concepts which would be pursued either organically or via acquisition. 

"I'm generally sceptical about acquisitions as very few of them work," says Reuben Bealders, Chief investment officer at Griffon Asset Management, but this does seem a good fit as it gives Mr Price a toe in the water of higher LSM spending and access to a fast-growing online retail space which certainly seems to be the place to be." (Planting, 2021). In March 2021, the Durban-headquartered retail group announced a surprise deal with Yuppiechef, agreeing to buy 100% of the "omnichannel" Yuppiechef, a retail business focused on kitchenware, for an amount of about R470 million (McLeod 2021). The acquisition is said to boost the company's online home and kitchenware offering and comes at a time when South Africa's major retailers upped the ante around boosting online sales in the face of growing competition from the likes of Takealot.com and even Amazon locally, especially in the general merchandise space (Naidoo 2021). 

Mr Price CEO, Mark Blair, said, "We are very excited about welcoming the Yuppiechef team into our family. We are partnering with the market-leading business, which has won numerous awards relating to both e-commerce and stores, and Yuppiechef has a proven ability to launch private-label categories, which have also attracted industry recognition" (BusinessTech 2021). In a statement to shareholders Mr Price mentioned that "the retail division represents 85% of turnover (70% via e-commerce) and has been a pioneer of online retail in South Africa, consistently winning awards throughout its history" (Naidoo 2021). Mr Price indicated that the intention with the deal was to allow it to target a higher LSM customer base. It added that the deal meets its "strict investment criteria", which guides its "capital allocation decisions and these have been applied with the same disciplined approach in the case of Yuppiechef" (Mcleod 2021). 

Commenting on the deal, Yuppiechef's Smith emphasised that the "timing is right" for the company to move forward with its growth ambitions with a partner that "has a shared vision and the resources to help [it] achieve this". Smith further commented that "as a founder-led business, they share our entrepreneurial roots, and we are eager to jointly realise the company's ambitions. "On the one hand, the partnership will allow Mr Price to expand in South Africa in line with its strategic objectives, through an established, high growth, omnichannel brand. On the one hand, the opportunity gives the Mr Price Group access to the skills of a highly talented team, which will allow them to serve a new customer base (Mcleod, 2021). On the other hand, Yuppiechef will benefit from the company's financial strength to accelerate growth plans, including broadening the product assortment into areas where they have well-established skills and expanding their physical presence beyond the currently limited number of stores (BusinessTech 2021). In this regard, the CEO, Mark, added, "We were early adopters of e-commerce in South Africa and our consistent investment has really paid off for us. Yuppiechef gives us another platform to escalate our ambitions in online retail and enables us to be strategically positioned for further growth" (Mcleod 2021)

Question 2:

1. You are a business consultant that specializes in advising organisations on creating sound organisational architectures. You advise the CEO of Mr Price that the distinct characteristics of a sound organisational architecture should:

i. focus on isolating non-value adding activities in the organisation. 

ii. be contained in a formal document that clarifies what the business is about. 

iii. relate each pillar of the organisational architecture to the organisation itself to develop a unique blueprint 

iv. contain specific reference to the key strategic drivers of the organisation

              a. (i), (ii) and (iv) 

b. (ii) and (iv) only 

c. (ii), (iii), and (iv) 

d. All the above

2. The CEO of Mr Price consults you on how best to structure their reward system at Mr Price. You advise that a strategically aligned reward system should: 

a. incorporate a gap between the highest and lowest paid worker that should not be advertised 

b. comprise a healthy mix of financial rewards (such as bonuses, shares and competitive basic salary) only, and not non-financial rewards 

c. incorporate financial incentives that are linked predominantly to attendance behavior and getting the job done 

d. keep the time gap between performance and reward to an absolute minimum

3. As a business consultant, you advise the CEO of Mr Price that management can use several guidelines to provide an indication of how the organization might position itself for effective strategic alignment and implementation. Which of the following guidelines should they adhere to? 

i. The focus should be on disciplinary teams that work on specialized functions within the organization and with a profit-driven focus. 

ii. The leadership style should favor autocratic leadership so that more focus is placed on toplevel management. 

iii. Different departments in the organization should act independently to achieve desired results. 

iv. Risk tolerance should be quite low to facilitate effective strategic alignment and implementation.

a. (i) and (ii) 

b. (ii) and (iii) 

c. (iii) and (iv)

d. None of the above

4. According to Peters and Waterman (Louw & Venter, 2019), the following attributes or values are typical within a highly successful and excellent organization: 

i. A bias for action 

ii. Being hands-on and values driven

iii. Complex structures and numerous levels of management

iv. Strong planning and limited control while allowing for manager autonomy

a. (i) and (ii) 

b. (ii), (iii) and (iv) 

c. (i), (ii) and (iv) 

d. (iii) and (iv)

5. The CEO of Mr Price asks you to give a presentation to executive management on managing strategic risks within the organisation. You begin your presentation by explaining what managing strategic risk entails. Identify the correct statement below. 

a. Managing strategic risk entails monitoring changes that take place in the internal and external business environment. 

b. Managing strategic risk entails considering predominantly changes in the business environment and how they influence the strengths and weaknesses of an organization. 

c. Managing strategic risk entails reacting predominantly to changes in the internal environment as organisations cannot anticipate changes in the external environment and the unpredictable nature of external factors. 

d. Managing strategic risk entails giving the same level of attention to all risks present in the environment.

6. ________________ refers to the processes and practices that produce and disseminate actionable intelligence on the internal and external environment to advance strategic decisionmaking by ethically and legally collecting, processing and analyzing information. 

a. Strategic surveillance 

b. Environmental scanning 

c. Competitive intelligence 

d. Corporate governance

Question 3: 

3. Discuss the corporate level strategies employed by Mr Price. Begin by briefly discussing the purpose of corporate strategies, then identify and discuss two (2) types of growth strategies and one (1) type of defensive strategy and their specific forms that are evident in the case study. Support your discussion by integrating the appropriate theory and practical examples from the case study.

Question 4: 

4. Critically analyse Mr Price's decision to exit Nigeria. As part of your analysis, identify and discuss the macro-environmental forces at the global level that influenced Mr Price to pull out of Nigeria. Then discuss the potential benefits Mr Price would have considered when doing business in another country. Based on your analysis and using evidence from the case study, conclude by commenting on whether you believe it was a good decision for Mr Price to exit Nigeria or not. You need to support your evaluation by integrating the appropriate theory in your discussion with practical examples from the case study.

Question 5: 

5. Critically evaluate the strategic leadership at Mr Price under the leadership of Stuart Bird, the former CEO of Mr Price. As part of your evaluation, introduce the concept of strategic thinking as a key responsibility for strategic leaders and evaluate Stuart Bird as a strategic leader by discussing the key responsibilities of a strategic leader. As part of your evaluation, comment on whether Stuart Bird was a successful leader or not. You need to support your discussion by integrating the appropriate theory in your discussion with practical examples from the case study.

Question 6: 

6. Consider Mr Price's decision to acquire Yuppiechef and advise Mark Blair on how to develop an integrated organisational system by referring to the tasks that needs to be fulfilled by Mark, as a strategic leader, in order to ensure successful strategy implementation in this next phase of their growth. You need to support your discussion by integrating the appropriate theory in your discussion with practical examples from the case study.