MR PRICE CASE STUDY
Mr Price: resilient and determined to become the most valuable retailer in Africa
Like many retailers in South Africa, Mr Price experienced devastating civil unrest in July 2021 in KwaZulu-Natal and in parts of Gauteng that resulted in the looting of 111 of the group's 1,592 stores (Gernetzky, 2021). The unrest cost the business an estimated R320million in lost sales and margins came under pressure amid inventory write-offs of R151.5million from the civil unrest. The claims for business interruption losses relating to the unrest are still being assessed and Mr Price expects to receive the proceeds in the 2023 financial year (Areff, 2022). Mr Price has since re-opened 96 of the 111 looted stores as of November 2021 with the remaining 15 stores only opening in 2022 and 2023 due to extensive structural damage (Gernetzky, 2021). 

Fortunately, the business recovered and upped its interim dividend by more than a third amid market share gains towards the end of 2021. Group revenue rose 35.2% to R12.4billion by October 2021 and group retail sales were 17.4% higher than pre-pandemic levels. Mr Price Apparel, its largest division, gained market share for 19 consecutive months in 2021, with Mr Price attributing this to its value proposition for customers, adding that it highlights the defensive and resilient nature of its business (Gernetzky, 2021). 

Speaking about the lucrative and resilient nature of the Mr Price business model and value proposition, Mr Price Group chief executive Mark Blair said; "our fashion-value merchandise, fiscal discipline and highly cash-generative business model has helped us to trade through some difficult circumstances and emerge in a position of strength" (Gernetzky, 2021). 

Mr Price eyes further growth opportunities despite tough SA climate 
After nearly 30 years without any acquisitions, Mr Price acquired 100% of Yuppiechef for about R470 million in August 2021, representing 1% of the retailer's market capitalisation. As part of the cost of the acquisition, Mr Price paid for the goodwill of Yuppiechef which is attributable to the value of expected future omnichannel growth opportunities of the business (myBroadband, 2022). Mr Price Group acquired Yuppiechef to gain access to a higher LSM customer base and to bolster its online presence and premium offerings. Yuppiechef, which was founded in 2006, has two primary operations. These include Yuppiechef Online and a wholesale division that develops and imports branded goods for wholesale distribution. Mr Price intends to grow Yuppiechef by broadening its product assortment and expanding its physical presence beyond the existing limited number of stores. Yuppiechef currently has 8 retail stores — four in Cape Town, two in Johannesburg, one in Somerset West, and one in Umhlanga. Mr Price revealed that Yuppiechef contributed R296.2 million in revenue to Mr Price and R19.9 million in operating profit between 1 August 2021 and 2 April 2022 (myBroadband, 2022). 

 
In addition to adding Yuppiechef to its portfolio, Mr Price launched its new e-commerce platform and acquired the budget retailer Power Fashion in 2021. Power Fashion was founded in the 1950s and is a high growth, family-owned apparel retailer based in Durban, South Africa. It is value-focused and cash-based, servicing low to middle-income households (Thukwana, 2020). Power Fashion offers merchandise for the family, retailing largely apparel merchandise but also offering cellular products, basic household items, value cosmetics, electricity, and other opportunistic products (Sibeko, 2022).
 
The alignment between Mr Price and Power Fashion's core competencies caught the attention of Mr Price's management (Sibeko, 2022). After which, the Mr Price Group was given the green light to acquire value-focused and cash-based retailer Power Fashion after meeting all the regulatory conditions in South Africa and eSwatini (Sibeko, 2022). CEO Mark Blair said that the "Power Fashion fits in well with the group as both companies share a similar entrepreneurial culture." This sentiment was echo' d by Power Fashion's CEO Noel Otto who sees the acquisition as being one with "kindred cultures and a shared entrepreneurial spirit" (Thukwana, 2020).

 
Mark Blair expressed that he was "really excited about the opportunities that exist for Power Fashion, which is a quality business and for the welcoming of the new associates to the Mr Price Group" (Sibeko, 2022). Mark Blair confirmed that both Mr Price and Power Fashion enjoy a similar culture, "and the fit is excellent" (Businesstech, 2020; Sibeko, 2022). There is an expectation that the integration of Power Fashion into Mr Price will be a smooth one (Thukwana, 2020). Power Fashion operates across Southern Africa, and it focuses on the deep value segment of the market. Its price positioning is strongly aligned to its target customer base (Sibeko, 2022). While Power Fashion's merchandise is fashionable, it is not fashion forward like Mr Price and the business is focused on value for money items. Power Fashion competes with Pep in the low to mid income segment of the market. Most of Power Fashion's products are priced under R100, typically bright coloured with busy patterns. Mr Price identified the price-value market in the apparel segment in which Power Fashion operated was one such segment with attractive growth potential (Thukwana, 2020).

   
Power Fashion was started by the Otto family in the 1950s in Swaziland, where it traded in clothing, footwear, and food and has grown to 173 stores with significant coverage across southern Africa. Power Fashion stores are typically found on community main streets and community malls, as opposed to regional and super regional locations and malls like Mr Price.  CEO Mark Blair indicated that Mr Price and Fashion Power both have sufficiently differentiated business models and target customers which will enable strong positioning in both the deep-value (Power Fashion) and fashion- value (Mr Price) segments of the market (Thukwana, 2020).  
The acquisition of Power Fashion comes after Mr Price undertook strategic research in 2020 and identified opportunities for growth in South Africa, both organic and via acquisition. Mr Price opted for the Power Fashion acquisition after having considered several opportunities. The Power Fashion group met each of the closely researched criteria determined in strategic research conducted by Mr Price, which includes (Businesstech, 2020):
1.  a value focused business that predominantly trades in cash and is aligned to the group's core competencies; 2.  a business which fits within the group's capital allocation strategy and is bolt-on in nature (the size of the transaction is approximately 4% of market capitalisation); 

3.  a high performing business with a strong track record, eliminating the need for any turnaround strategy and avoiding the associated management distraction and integration costs; 

4.  an existing business of attractive scale which is available at a reasonable valuation; 5. opportunity for significant future growth in footprint and categories; 6. low risk as opposed to acquiring an unknown territory with additional foreign exchange risk; and 7. strong management and a skilled team to prevent distraction and ensure continuity.
Mr Price believes that with the acquisition of Power Fashion, the business will provide immediate returns to their shareholders, as well as continue to deliver on their respective promises to their customers (Sibeko, 2022). Mr Price said the acquisition also fit within the group's capital allocation strategy and its bolt-on in nature, with the size of the transaction currently 3 to 4% of market capitalisation. Mr Price values Power Fashion as a high performing business with a strong track record, eliminating the need for any turnaround strategy and avoiding the associated management distraction and integration costs (Sibeko, 2022). 

Mr Price will inherit Power Fashion's customers while entrenching its foothold in the value segment and among lower to middle income consumers in the market. The deal offers Mr Price significant growth opportunities in a territory it is already familiar with. Prior to being acquired by Mr Price, Power Fashion was completely unknown and was one of those names that have gone completely under the radar yet, it is a high-performing business even before Covid and it's not a Covid casualty nor is it a fixer-upper (Thukwana, 2020). 

 
Strong retail sales growth and the acquisitions of kitchenware company Yuppiechef and value retailer Power Fashion are major factors in the accretive earnings experienced by Mr Price (MyBroadband, 2022). There is an expected further jump in earnings for Mr Price with the most recent purchase of the majority of Studio 88 Group. This purchase is part of Mr Price's strategy to tap into a new customer base (MrPriceGroup, 2022). The value fashion and homeware retailer, Mr Price, acquired 70% of the ownership of Studio 88 Group, which includes the SideStep, John Craig, Skipper Bar brands, for R3.3 billion.

 
Mr Price described their partnership with the Studio 88 owners as the ideal entry for Mr Price to enter the high growth urban wear and athleisure segment of the market which presents Mr Price with another channel for revenue that does not compete with what Mr Price currently offers (Areff, 2022). Studio 88 operates over 700 stores, as the "largest independent retailer of branded leisure, lifestyle and sporting apparel and footwear in South Africa". The 21-year-old Studio 88 group generated R5.6 billion in revenue for the financial year ended 30 September 2021 (Areff, 2022). 

 
Mr Price management were attracted to Studio 88 group by the business's deep understanding of trend conscious South African consumers and their ability to address their needs via their various trading formats. The Studio 88 merchandise range is a mix of international brands, some under exclusive license agreements, as well as private label ranges (Areff, 2022). Studio 88 founder Laurence Wernars will continue running the business with his management team after the majority share purchase by Mr price. The purchase of the stake in Studio 88 was successful and will likely increase Mr Price's annual revenue to over R28 billion, and its footprint to more than 2 400 stores. The Mr Price group would also then end up employing over 25 000 people (Areff, 2022). 

The deal between Studio 88 and Mr Price is being funded through Mr Price's existing cash resources with Mr Price acquiring 100% of RMB Ventures' shareholding in Studio 88. The previous owner Blue Falcon and management disposed of 50% of their shareholding thereby allowing Mr Price to pick up the shares and obtain majority stake in Studio 88. The plan is for Mr Price to eventually purchase the rest of management's shareholdings over the next four years and takeover the Studio 88 business completely (Areff, 2022).
The positive momentum evident in Mr Price's performance can be attributed to the strong execution of their growth strategy by management. Mr Price's management invested in building a diversified and differentiated, fashion-value business model despite various macro environmental external challenges such as civil unrest and the loss of trading due to many hours load-shedding. Through their targeted growth strategy, Mr Price aspire to become "the most valuable retailer in Africa" (Areff, 2022). 

2. Discuss the strategic importance of the macro-environment on an organisation's situation. As part of your discussion, identify and describe the specific macro-environmental factors/forces that affected Mr Price. You need to support your discussion by integrating the relevant theory in your discussion with practical examples from the case study.
 
 

Question 3:
3. Introduce the concepts of "threshold capabilities" and "distinctive capabilities" and discuss how they contributed towards Mr Price's competitive advantage. You need to support your discussion by integrating the relevant theory in your discussion with practical examples from the case study.
 
 

Question 4:
4. Identify and critically discuss the business level strategies evident in the four (4) businesses mentioned in the case study, namely: Power Fashion, Mr Price, Studio 88 and Yuppiechef and explain how each of their business level strategies facilitate competitive advantage in their markets. You need to support your discussion by integrating the relevant theory in your discussion with practical examples from the case study.

Question 5:
5. Identify and critically discuss two corporate growth strategies evident in the Mr Price case study. Conclude your discussion by describing how their strategies contribute to Mr Price becoming "the most valuable retailer in Africa". You need to support your discussion by integrating the relevant theory in your discussion with practical examples from the case study.
In addition to incorporating and referencing theory from your prescribed material into your answer for Question 5, you must locate, incorporate and reference 1 (one) applicable academic article of your choice (published after 2017) from the Unisa library into your discussion.