Date: November 4, 2013 To: Board of Directors, Ross Stores From: Mary Z. Afuso CC: Dr. scott Sherman, TAMUCC Internal Analysis Ross Stores Inc. (ROST) is the largest retailer in the specialty apparel market. The industry includes Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), Urban Outfitters (URBM) and Aeropostale (ARO). The comparative firm in the internal analysis is Abercrombie & Fitch. Value Chain Analysis The elements that add value are Inbound Logistics, Marketing & Sales, Organizational Infrastructure, Human Resource Management and Procurement.
The neutral lements are Outbound Logistics, Culture, and Technological Development. The elements that subtract value are Operations, Service, and Financial Management. Added Value Elements Inbound Logistics are strong because Ross Stores carries a large inventory that sells quickly. Ross’ inventory is 64. 69% larger than Abercrombie & Fitch’s. (ROST, 2013; ANF 2013). Ross keeps a large inventory on hand at their warehouses to take advantage of aggressive discounts offered by manufacturers. (ROST, 2013) Average daily sales are 53. 6% higher than Abercrombie’s. ROST,2013; ANF 2013) Ross Days Inventory Outstanding is 62. 5 days compared to Abercrombie’s 91. 99 days. (ROST, 2013; ANF 2013) Abercrombie & Fitch has a better inventory turnover at 10. 56 verses Ross’ 8. 04. (ROST,2013; ANF 2013) In all other aspects, Ross is clearly the Inbound Logistics leader. Ross takes the lead in Marketing & Sales. Ross creates a “treasure hunt” experience by offering brand name products at discount prices. (ROST, 2013). Marketing & Administration expenses are 14. 79% of sales compared to Abercrombie’s 10. 5% investment. (ROST, 2013; ANF, 2013).
Abercrombie & Fitch use the in-stores experience as their primary advertising vehicle. (ANF 2013). Ross invested $67. million in advertising on top of their Marketing & Administration expense. (ROST, 2013) Organizational Infrastructure is strong due to the strong growth during the average tenure of Ross leadership. The average tenure of Ross executives is 5. 14 years compared to Abercrombie’s 6. 4 years (ROST, 2013; ANF, 2013). Sales growth for Ross was 8. 43% CAGR over the past 5. 14 years. (ROST, 2013). Sales growth for Human Resource Management is very strong for Ross. Ross has 66. % fewer employees than Abercrombie, yet the employees are much more productive (ROST, 2013; ANF, 2013). Sales per employee are 72. 15% higher at Ross than Abercrombie ROST, 2013; ANF, 2013). Procurement is the final added value element for Ross. Ross has a network of 7900 suppliers who work with Ross to provide inventory in the stores. Abercrombie & Fitch work with only 155 vendors. (ROST, 2013; ANF, 2013) Manufacturers and high end retailers work with Ross because Ross waives promotional and advertising allowances, return privileges, and other standard concessions required by high end retailers. (ROST, 2013).
Neutral Elements Outbound Logistics are not mentioned in the 10Ks of either Ross or Abercrombie & Fitch. There are no notes regarding firm culture. The lack of data suggests eutrality in these elements. Technological Development expenses are less than 1% of sales revenue for Ross Stores. Abercrombie & Fitch includes Information Technology expenses in the line items with home office and distribution centers. (ROST, 2013; ANF, 2013) The lack of data indicates neutrality in regards ot technological development. Subtracted Value Elements Operations for Ross are negative compared to Abercrombie & Fitch.
Ross has 148 more stores than Abercrombie. (ROST, 2013; ANF, 2013) The revenue per square foot for Ross is 36. 6% lower than for Abercrombie (ROST, 2013; ANF, 2013). Ross’ operating margin is 27. 7%, while Abercrombie & Fitch reported an operating margin of 62. 44% (ROST, 2013; ANF, 2013). Service metrics are not strong for Ross. Abercrombie & Fitch reserve 22. 9% higher return allowance than Ross. The percentage of return allowance compared to sales is 64% higher for Abercrombie. (ROST, 2013; ANF, 2013). Financial Management data indicates that Ross is not as strong as Abercrombie & Fitch. The current ratio for Ross is 1. 28 verses 1. 893 for Abercrombie & Fitch. The quick ratio is 0. 58 for Ross and 1. 28 for Abercrombie. (ROST, 2013; ANF, 2013). Abercrombie has no long term debt, where Ross carries 150 Million long term debt. (ROST, 2013; ANF, 2013). Resource Analysts Resource o Competitive Consequence Performance Implication Productive Employees Sustainable Competitive Advantage Above Average Returns Relationships with Suppliers Information Technology System Competitive Parity Average Return 1199 stores Temporary Competitive Advantage Average/ Above Average Returns Productive employees Ross has 57500 employees.
Abercrombie & Fitch has 95,800 employees, American Eagle Outfitters employs 44,000, Urban Outfitters employs 20,600, and Aeropostale has 26,279 employees. (ROST, 2013; ANF, 2013; AEO,2013; URBN, 2013; ARO, 2013). Ross employees generate $169,062. 00 per employee. Abercrombie & Fitch employees generate $47,085. 00, American Eagle Outfitters generate $78,995. 00, Urban Outfitters generate $135,676. 00, and Aeropostale employees bring in $90,802. 00. (ROST, 2013; ANF, 2013; AEO,2013; URBN, 2013; ARO, 2013).
ROSS has a reasonably high number of employees per store at 48. Abercrombie & Fitch stores have an average of 91 employees per store. American Eagle Outfitters have 40 employees per store, Urban Outfitters average 43 employees per store and Aeropostale keeps only 24 employees on hand. (ROST, 2013; ANF, 2013; AEO,2013; URBN, 2013; ARO, 2013). Productive employees give Ross a sustainable competitive advantage. Ross works with 7900 suppliers. Urban Outfitters buys from 4100 vendors. Abercrombie works with 155.
Aeropostale sources mainly from 5 vendors and American Eagle Outfitters does not list the number of suppliers. (ROST, 2013; ANF, 2013; AEO,2013; URBN, 2013; ARO, 2013). ROSS leverages vendor relationships to obtain inventory at a deep discount (ROST, 2013). Ross works with suppliers to unload their excess inventory without burdening the supplier with promotional allowances, return clauses and other contingencies. (ROST, 2013) The unique Technology System Ross uses Information Technology for inventory management, point of sale transactions and other transactional functions.
Ross maintains as web presence as well. All of the firms in the industry use information technology systems in a similar fashion. (ROST, 2013; ANF, 2013; AEO,2013; URBN, 2013; ARO, 2013). Information Technology is a competitive parity for Ross. 1199 Stores Ross has the most stores in the industry. Ross has 1199 stores, Abercrombie & Fitch have 1051 stores, American Eagle Outfitters has 1093 stores, Urban Outfitters has 476 stores and Aeropostale has 1084 stores. (ROST, 2013; ANF, 2013; AEO,2013; URBN, 2013; ARO, 2013)