Welcome to the new and improved Spectrum Brands ®. The organization has embarked on a cost reducing strategy that will enable our business to focus on our primary businesses whilst removing the non-core businesses. Divesture will not facilitate a cost to our firm. We seek to obtain profits by selling off assets and by reducing liabilities outstanding. The liabilities such as pensions can be bought at a value below maturity and therefore removed from the balance sheet as a future long-term liability obligation.
The feasibility of divesture, as well as debt restructuring is not novel. However, many businesses choose not to 'cut the fat' so to speak and remain marginally profitable due to the dragging business lines. We seek to sell off these marginal performers and perhaps invest into a new line of business. A new line that will continue to see growth in a booming industry such as automotive or baby supplies will enhance the revenue stream to generate the revenue consistent with double digit growth.
The risks of such a plan are limited to the external threats and the internal limitations of each environment, respectively. The industry will seek to re-establish their respective position within the market place when confronted with the new strategy. We expect the divesture to save millions in costs and provide cash to reduce the long-term debt. The metrics will be sales growth of our businesses kept and we will track the industries of our divesture and determine if the industry is continuing on a downward spiral. However, what matters is our growth in revenue as a function of the strategy implemented. We expect a $50,000mm return by 2015, estimated from divesture profits, the savings in debt financing, and the generation of profits from our businesses.
The Rayovac Corporation was an example of the old school economy, brick-and-mortar based, undiversified, and highly susceptible to losing market share to new and more innovative competition in the market place. The revenue model was based on its manufacture and distribution channels of the Rayovac brand of battery. Strategic Management and positioning of the firm forced the diversification of the firm hence facilitating the resources to acquire businesses in an array of businesses.
Rayovac was able to survive the declining stream of revenue by recognizing the need to diversify its business holdings and product offerings. A function of the external environment, the internal environment must adjust and identify the parameters of the market and facilitate the business operations to utilize resources and obtain a greater percentage of the outstanding market. The Rayovac Corporation was subsequently renamed to Spectrum Brands to acknowledge its new path and diversification of goods.
Analysis of the case
Michael Porter's Five Force Model identifies the market dynamics that can segment the market activity and identify opportunities and weaknesses in context. Ostensibly, this is an analysis of what Porter refers to as the 'microenvironment'. The microenvironment enables a company to serve its customers most appropriately by enabling the organization to best utilize its resources to directly affect the transition of its products into the market place.
Porter's Five Force Model provides an assessment of the five most centric components to the future of an organization. These include the following:
Entry of competitors
Threat of Substitutes
Bargaining power of buyers
Bargaining of power of suppliers
Rivalry among the existing players
Prior to the rejuvenation of what was once the Rayovac Corporation to the new and sustainable Spectrum Brands, the Rayovac Corporation was not well positioned according to the five forces model. However, Spectrum Brands is specifically operated to harness the advantages identified by a five forces model. With such brand diversity, Spectrum brands are among the group of diversified conglomerates such as General Electric (GE), Proctor & Gamble (P&G), and Johnson & Johnson (J&J).
The entry of competitors into this market is medium when speaking of the barriers to entry. There is not high regulation when speaking to become diversified. Manufacturing operations can be facilitated to be least costly when manufacturing in countries that are friendly to specified industries. However, the cost to be diversified is often a function of the acquisition cost to obtain the target companies that are currently operating and producing the goods or providing the services to the market the company wishes to enter.
The Threat of Substitutes is not imminent when considering the product line of the brands carried by Spectrum. The acquisition of Tetra Holding, Jungle Labs, Marineland, ASI, and Perfecto aquatics brands, diversified the company in the area of aquatic supplies. The market for aquatics is a billion dollar in revenue market and is growing as a function of population growth and size of living spaces for pets, care/maintenance. By identifying the best suppliers and then acquiring them, Spectrum Brands were able to enter into a market with no previous experience yet strategically position itself to obtain the lion share of the current market share.
The bargaining power of suppliers is where Spectrum Brands also yields an advantage. As a large company with the ability to pick its supply chain, Spectrum can price an order and force companies to fill that order based on the willing to pay price. If Spectrum were not as large or possessing the distribution channels that access the target market, the bargaining power of the buyers would be much greater.
The bargaining of buyers is again where Spectrum shines. Given its broad product line and product mix, the buyer has bargaining power via the available choices. Spectrum ultimately will have a much larger percentage of the shelf items and so the choices available to the buyer are mostly Spectrum owned. Buyers are facing an elastic demand curve yet when taken into consideration of the product mix, the curve becomes rather inelastic as buyers are unwilling to deviate from a one or two products which are likely to be produced by Spectrum. Consumer purchasing theory indicates that consumers will seek to obtain a first-hand account of a product or service before trying said product or service themselves.
Rivalry among the existing players in the market is palpable. The major rivals, not including the brand specific rivals, are P&G, GE, J&J, and Unilever. Game theory has repositioned the industry sabotage and the price discrimination and strategies that were once coordinated efforts. Game theory is able to identify the potential moves of a company in a given market at a given time based on its resources and based on the current external environment. The information that is not known is estimated and predictions are made. Therefore, rivalry is a function of strategy, and at times, strategic alliances also called syndicates. The pharmaceutical industry engages in the formation of syndicates to save money on the R&D necessary to produce ground-breaking medications and bring them to market.
The major strength of the company is in its diversification. The company stock price became a function of its diversification. Spectrum's engagement in the pet care, men's grooming, consumer battery, lawn and garden, pest control, and portable lighting products, has facilitated a hedged portfolio of holdings that enable the growth if its revenue and profits by investing into areas that are ostensibly disposable income purchasing choices for the consumer.
Spectrum is now globally positioned in markets on six of seven continents. Specifically, the company sees its greatest advantages in the U.S. And Canadian markets, yet has exposure to Mexico, Central America, South America, and the Caribbean.
The Remington acquisition is a critical component to grow the company stock price as men's grooming is an inelastic market where Remington brand products are prime to increase market share.
The distribution channel for its pet supplies is a major advantage when speaking to the cost for the shelving space and the location of the shelves to which the products are aligned.
Pet & Lawn Care comprise the co-primary growth markets for the company going forward.
The fiscal operations of the company are rather strong. Reinvesting the retained earnings into the firm via paying down long-term debt and investing into R&D enables the company to grow its operations and increase the sales revenue.
The operations have not entered into Asia as a function of the company strategic planning operations. The goods are sold in Asia however the company does not maintain an active global operation that focuses on Asia in a manner similar to that of the Americas.
The company's expenditures on R&D have yielded a decreasing marginal return from 2002 to 2006 as a function of net sales. The marketing strategy has not effectively created the inelastic demand curve sufficient to identify these new products as innovative to the extent of being superior to the current product offerings available from rival competitors.
The inability for the company to achieve an increasing marginal return on its R&D investment from 2002 to 2006 resulted in a lost opportunity to declare a dividend in the amount of the R&D expenditure increase above that of 2001.