7-Eleven Faces Profit Crunch with Strategy

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Apr 26, 2002
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Several analysts are highly critical of 7-Eleven’s aggressive plans to invest in technological initiatives, staff training and a ramp-up of its fresh-food program, expressing concern about increased spending in a weak retail climate, competitive pressures and the continued uncertainty of oil prices. Several immediately downgraded the stock, and Moody’s Investor Services Inc. downgraded its debt, according to The Wall Street Journal.

The volatile gas prices of last quarter compressed the convenience-store chain’s profit margins to the lowest level in more than a decade. And, during the next two years, its largest shareholder, IYG Holding Co., is reducing royalty payments to license the 7-Eleven name in Japan by 70 percent, slicing $44 million from its bottom line.

Though Jim Keyes, 7-Eleven’s chief executive, says he is stung by criticism from Wall Street and investors, he is certain the new initiatives will pay off for the company in the long run. The planned technology initiative will allow each store to order merchandise directly from suppliers, where currently a large portion of each store’s ordering falls to suppliers’ route drivers.

Moderator Comment: Do you side with the critics on Wall Street or 7-Eleven’s management on the direction the convenience store chain is taking?

Some DSD suppliers are probably not altogether happy
with the direction 7-Eleven is headed. The company plan is to let each store
order merchandise from suppliers instead of leaving that up to the DSD route
drivers.

By this empowering act, 7-Eleven believes that it can
realize the full entrepreneurial potential of its store management. The chain
is not oblivious to the risks, however. Jim Keyes, chief executive of 7-Eleven,
said, “This is a big challenge, because it means stores interfacing with thousands
of suppliers. It’s a huge shift. We’re taking back responsibility, because we
know better what each store needs.” [George
Anderson – Moderator
]

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