Defensive Strategies 2019

Summary

This video explores three defensive strategies for companies to protect their competitive position: retrenchment, divestiture, and bankruptcy. Retrenchment involves asset reduction, exemplified by Walgreens' 2018 restructuring plan. Divestiture is the sale of company parts, as seen with Bayer's decision to sell off its animal health business and other brands. Bankruptcy has two forms: Chapter 11, which allows for reorganization, like Sears' 2018 filing, and Chapter 7, leading to total liquidation and the company's dissolution.

Takeaways

• 🔒 Defensive strategies are employed by companies to protect their current competitive position rather than to grow or enhance it.
• 📉 Retrenchment involves asset reduction, which can include layoffs, warehouse consolidations, and store closures, as seen with Walgreens in 2018.
• 💡 The goal of retrenchment is to create a leaner operating model, which can help companies counteract margin pressure and invest in future growth.
• 💸 Divestiture is the act of selling a part of a company or a division to regain investor trust, as demonstrated by Bayer's decision to sell off parts of its business in 2018.
• 📉 Bankruptcy is a defensive strategy used when a company is unable to pay off its debts, with Sears filing for Chapter 11 in late 2018 as an example.
• 🏬 Chapter 11 bankruptcy allows a company to reorganize under court protection, while Chapter 7 leads to total liquidation and the end of the company.
• 🛒 The rise of online retail was a significant factor in Sears' financial struggles, highlighting the impact of digital competition on traditional retail.
• 🏠 Asset reduction can also involve selling real estate, which Sears attempted as part of its efforts to stay afloat.
• 🏢 Companies may close unprofitable stores to maintain profitability, as Sears planned to close 188 more stores by the end of 2018.
• 🌐 The script illustrates how companies use defensive strategies to adapt to market changes and financial challenges.

Q & A

What is a defensive strategy in the context of business?

A defensive strategy is a business approach where a company aims to protect its current competitive position rather than enhance or strengthen it. It is the opposite of a growth strategy.

What are the three types of defensive strategies mentioned in the video?

The three types of defensive strategies mentioned are retrenchment, divestiture, and bankruptcy.

What is retrenchment and how did Walgreens implement it?

Retrenchment is a defensive strategy that involves asset reduction or restructuring. Walgreens implemented it by announcing a $1 billion restructuring plan in December 2018, which included layoffs, warehouse consolidations, and store closures.

Why did Walgreens undertake the retrenchment strategy?

Walgreens undertook the retrenchment strategy to counteract margin pressure and create a leaner operating model to facilitate future investments and move the company forward.

What is divestiture and how did Bayer demonstrate it?

Divestiture is a defensive strategy where a company sells a part of its business or a division. Bayer demonstrated this by announcing the sale of its animal health business, Coppertone sunscreen, and doctor Scholl's footwear products in December 2018.

What was the reason behind Bayer's divestiture strategy?

Bayer's divestiture strategy was an effort to win back investors' trust after a series of setbacks, including a significant drop in their share price.

What are the two forms of bankruptcy discussed in the video?

The two forms of bankruptcy discussed are Chapter 11 bankruptcy, which involves court protection and a reorganization plan, and Chapter 7 bankruptcy, which involves total liquidation of the company's assets and cessation of its existence.

How did Sears Holdings respond to its financial challenges?

Sears Holdings responded to its financial challenges by filing for Chapter 11 bankruptcy in late 2018, due to competition from online retail and their inability to pay off a significant amount of debt.

What is the difference between Chapter 11 and Chapter 7 bankruptcy?

Chapter 11 bankruptcy allows a company to reorganize and create a plan to steer the company forward, while Chapter 7 bankruptcy involves the total liquidation of the company's assets and its eventual cessation of existence.

What steps did Sears Holdings take after filing for bankruptcy?

After filing for bankruptcy, Sears Holdings planned to keep profitable stores running but announced the closure of at least 188 stores by the end of 2018, teetering on the edge of Chapter 7 bankruptcy.

Why are defensive strategies important for a company?

Defensive strategies are important for a company as they help protect its current competitive position, especially during times of financial distress or when facing significant market challenges.