Case Analysis of Zayre Corp.

The time frame of this case is late1978. By this time, Zayre Corporation, once an industry leader in the general merchandise subsegment of the discountsegment of the retail industry, had fallen on hard times.

The Zayre Corporation had not only slipped in relation to its major competitors in its market subsegment and segment, but had also experienced substantial deterioration in an absolute context with respect to sales, profitability, and the condition of the company's physical plant.

Zayre Corporation was founded and largely operated as a familyowned and familyrun business through 1969. An outgrowth of a study by an outside consultant in that year was a substantial expansion of the company's managerial structure, a major revision of the company's organizational structure, and a revision of the company's decisionmaking structure. In mid1978, the first non family member president of the firm was appointed.

Under the Zayres name, the company operated over 250 selfservice, general merchandise, discount retail stores. Zayres stores were located in most states east of the Mississippi River. In the wake of the 1969 consultant's study, Zayres expanded from lowincome market areas into upscale suburbs, and increased the average size of the new stores to 80,000 square feet from the 65,000 average for the older stores. In both the new and the old stores, however, the primary marketing e

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that was consumed by overhead. Expanding into upscale suburbs with store plans and merchandise mixes developed to target lowincome consumers also contributed to the problems experienced by the Zayres chain. Residents in upscale suburbs can be successfully targeted by discount chains, but not if they are led to believe that such stores are competing directly with the general merchandise retailers in the area on the sole basis of price, while excluding considerations of quality and value. In order to compete effectively in either lowincome markets or upscale markets in the late1970s and early1980s, however, it was necessary to restore the physical plant at the Zayres chain. The deterioration in the chain's profitability compromised the company's capability to adequately fund such restoration. At the gross profit level, Zayres compared favorably with industry norms, with gross margins typically above 30 percent of net sales at the company compared to between 28 and 29 percent for the industry as a whole. Selling, general, and administrative expenses at Zayres, however, were substantially above the industry norms, running between 28 and 29 percent of net sales at the company, compared with 25 to 26 percent for the indu
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Approximate Word count = 1388
Approximate Pages = 6 (250 words per page)