WELLWORTH

A Case Study of Analysis of SIAL’s failed Joint Business Venture

Dutosme, Cristene Almae G.

Indino, Dorothy M.
Mendez, Marianne Joy M.

AN OFFICIAL ENTRY OF CENTRAL MINDANAO UNIVERSITY – BMAP (JMA)

FOR JUAN BIG IDEA’S CASE STUDY ANALYSIS

March 2018
Introduction:
Wellworth, a department store under SIAL – a joint venture of ALI which stands for
Ayala Land Inc. and SSI (Stores Specialists, Inc.) is primarily located at Fairview
Terraces Mall. The second branch was launched on April 2014 and at UP Town Center
on May 2015, just before it reach it second anniversary SIAL, sold the Wellworth’s fixed
asset to Metro Retail Stores Group Incorporated on 2016. What was really the reason for
the acquisition of the young Wellworth department stores?

Background:
SIAL decided to focus their business venture in providing the needs of the middle class
customers also known as the “mid-market” concept – neither as cheap as, say, SM nor as
expensive as Rustan’s. What are these middle class customers? These are the social
group between the upper and working classes including professional and business
workers and their families. “The middle income class is said to earn an average of
P36,934 per month,” according to an article published by PINOYMONEYTALK in
Business and Economic News entitled Socioeconomic classes (SEC) ABCDE explained.

John W. Mullins et, al., also states in his book, Marketing Management: Strategic
Decision-Making approach in identifying the right market, we must first find a market
segment with unmet or poorly met needs and then develop innovative goods or services
that meet the needs of the targeted segment, it will then provide entrée into a market
niche and serve as a foundation for subsequent expansion that can revolutionize a market
or industry. That is what SIAL did, in fact during the launch of Wellworth’s first store,
Anthony T. Huang, president of SIAL, said that Fairview is a great market. He said that
SIAL believed Filipino middle-class consumers have evolved to become more
sophisticated, more discriminating and more demanding of their chosen retail stores. And
to serve the growing needs of the middle-class Filipinos, they hired Blocher- Blocher
Partners, which is an internationally renowned and award-winning architectural and
design firm, in collaboration with Sonia Santiago- Olivares and associates as the local
interior design. They hired high caliber interior designers to make the department store
sophisticated and elegant in the eyes of the customers. They even provided high quality
foreign and local products like Red Herring by Debenhams, F&F, Bayo and Kamiseta,
but a question arises, are the middle-class Filipinos in their locations like UP town center
and Fairview, Quezon city underserved?

Wellworth department store in Fairview is located in Quirino Higway, Novaliches,

Quezon City which is just in front of SM City Fairview and SM City Fairview Annex 1
& 2. SM City Fairview has a very large land area of 202,000 square meters and a total
gross floor area of 188, 681 square meters which is considerably larger compared to
Fairview Terraces Mall with floor area of 114,000 square meters area. Its Annex 3 is now
under construction and is expected to add another 140,000 square meters. SM City
Fairview opened in October 24, 1997 and underwent expansions in 2004 and 2009,
serving the mass customers for more than 20 years. “We want to provide affordable
luxury products,” this is what SM offers. SM Supermalls have SM Department Store
primarily while Fairview Mall also has Wellworth as its department store.
In addition, Robinsons Place can also be found in the area, Robinsons
Novaliches (previously known as Robinsons Place Novaliches and Robinsons Nova
Market) is a shopping mall in Fairview operated and owned by Robinsons Malls, and this
mall was opened in November 9, 2001. It is the second mall by Robinsons Malls in
Quezon City after Robinsons Galleria. It has a total floor area of 62,893 square meters.
Robinson’s is known for its reasonable prices of its products.

Issues:
On the first launch in April 2014, losses was raised not just on Wellworth but also on
Family Mart. Family Mart is a Japanese convenience store franchise chain which is
operated by Family Mart CVS Inc. - a joint venture between SIAL and Itochu Corp.
During 2015, SSI Group told the Philippine Stock Exchange that its share in the net
losses of convenience store Family Mart and Wellworth increase to 228.3 million last
year compared to 144 million in 2014. Why is there a loss as such? We think that SIAL’s
Wellworth failed to grow the business venture and failed to grow and reach a larger
market. Given from the previous details, Wellworth is purely focusing on the middle
class customer which they thought were underserved and which they thought can lead
them to a bigger scope of market.
Here is a record of demographics in Quezon City:

600000

500000

400000
Probable Working Citizens
300000
Disabled, Toddlers, Infants,
Seniors
200000

100000

0
District 1 District 2 District 3 District 4 Distict 5 Disctrict 6
It shows that within Quezon City, District 2 wherein Novaliches is located has the highest
rate of population with 23.75% equivalent to 562,328 estimated citizens who are
probably working and 170,436 who belonged to either disabled, toddlers, infants or
seniors. Fairview Terraces Mall really has a wider scope compared to other districts in
Quezon City. On the other hand, District 4 wherein UP Town Center is located has
17.96% equivalent to 353,151 probable working citizens with 106,998 who belonged to
the non-working group. This computed number of possible working citizens cannot be
further identified as to how many are working and earning income that will make them
qualified and considered as the middle class customers. We can infer that there are
numerous probable middle-class customers in the area. But considering their competitor’s
wide product offering, the number of middle class citizens in that area doesn’t give them
a competitive edge to their competitors especially when their competitors are not just
putting the spotlight to a specific segment in the market but rather the market as a whole.

Relevant Facts about the Acquisition of Wellworth by MRSGI:

Newly listed Metro Retail Stores Group Inc. (MRSGI), the largest retailer in Visayas
region said its net income in 2015 rose 20 percent to 758.6 million with 629 million in
2014. “The year 2015 was an exception for MRSGI, marked by several milestones for the
33-year-old company. It saw the expansion of MRSGI’s store network nationwide, with
MRSGI now having 46 stores composed of 24 supermarkets, 12 hypermarkets, and 10
department stores, with a gross floor area of approximately 400,000 square meters by
December 2015,” the company said.

Reason of sale:
Based on the background of the study that by 2015, Family Mart and Wellworth faced a
great challenge as sales are declining by that time, we can now see since Wellworth is
failing and is not contributing in the growth of the business and here comes MRSGI
which is currently thriving and wanting to expand its location and business endeavor in
Metro Manila, it will then be a great opportunity for Fairview Terraces to revive its losses
from wellworth by selling its fixed assets to MRSGI and have Metro Department store
operate inside their mall. Metro Department Store is known for their affordable products
that will cater the needs of the mass market, it will then be an answer to the problem of
the wrong market targeting of Wellworth and a solution to let Fairview Terraces grow its
venture into a wider market which is now focused not just on Middle Class customers but
rather for all classes of customers.
On the other hand, it is also the right decision of MRSGI for a great
opportunity to break into Metro Manila. They now no longer need to find or to acquire
lands and build buildings for their store locations. They will no longer wait for how many
years or months to build a building because Fairview Terraces is already established. By
this scenario, SIAL or ALI itself can focus on their resources on its specialty in property
development and leasing; Metro Department store can also help their Fairview Terraces
and U.P Town Center boost and increase their profits and earnings if Metro Department
store could really attract great number of customers.
MRSGI recently partnered with Ayala Land Inc. for its wider establishment in different
span locations. We can actually say that indeed, ALI is really fascinated and satisfied
with MRSGI’s performance because MRSGI partnered with Ayala Land, Inc. for the
establishment of its stores in four new Ayala commercial developments that was recently
reported in Manila Times March 16, 2016.

Conclusion:
1. What do you think led to the acquisition of then young Wellworth department
stores?
Wrong target market is equal to low sales and number of losses, it means to say that
Wellworth fails to grow its business venture and reach a larger target market. The
declining market standing of SIAL led to a decision to shift its focus on targeting the
mass market by selling Wellworth and letting MRSGI’s Metro Department Store have
their operations inside the mall premises. By that, they can now compete with SM
Department Store and Robinson’s Department Store reaching the same scope of
customers.
2. Did its business model fit the consumer market targeted by SIAL in launching
Wellworth?

The business model fit the consumer market targeted by SIAL through their efforts to
innovate their services, products and even their interior organization and design to really
serve Middle Class customers’ demands. But unfortunately, their business model
designed to serve the mid-market failed to suffice the growth of Wellworth and failed to
contribute increase of sales in SIAL partnership. It rather resulted to losses, making the
partnership burdened with the outcome.

3. How do you think did the competition against more established department store
affect SIAL’s decision to sell the business?

The competition against more established department store is really one of the factors as
to why SIAL made the decision to sell Wellworth.

SM department stores and Robinson’s Department Stores being their primary competitors
are operating for many years already. The former is operating since 1997 and the latter is
performing since 2001. They are serving the customers for many years and have already
captured the taste, choice and loyalty of the customers in those particular areas.

4. What good marketing strategy/ strategies should have been implemented to grow
the business venture?

SIAL should have implemented Strategic fit which means they should have match their
resources and capabilities with the opportunities in the external environment.
SIAL should have had not focused their target market plainly on the middle class
customers. They should have considered their strongest competitor which is just in front
of them - SM Supermall is offering to the customers.
If SIAL decide to put up a mall near other competing malls, they should have imitated the
target market of SM and perform strategies to make their department store better just like
the literature stated in Mullin’s book about Microsoft’s business venture wherein even if
they aren’t the first user-friendly in the market they took advantage of the pioneers
marketing mistakes. It formed alliances with original equipment manufacturers (OEMs)
in the personal computer industry to encourage them to install Windows on their
machines and engage in extensive licensing and cooperative agreements with other
software developers. They didn’t make their target market different but rather they
targeted the same market of their competitors and prove that their operating system is
better than any other operating system. As to Wellworth if they targeted the same class of
customers as what SM is targeting, their interior design could have given them a plus
factor as to why customers would rather go in Wellworth than going to the usual SM
Department Store and Robinsons Department store. That is on the perspective of
Fairview area.

On the side of UP Town Center, they should also have lowered their prices making it
student friendly since their location is surrounded by universities thus making students
their prospect customers. According to HW.Boyd Jr., in the book Marketing
Management: A Strategic decision-making approach, “Most successful fast followers had
the resources to enter the new market on a larger scale than the pioneer. They could
quickly reduce their unit costs, offer lower prices than incumbent competitors, and enjoy
any positive network effects. These followers won customers away from the pioneer by
offering a product with more sophisticated technology, better quality, lower prices and
superior service.”

Wellworth should have also conducted extensive promotional strategies, through

advertising or any other promotions. Extensive promotions would have helped them
stimulate awareness and primary demand for their specific brands and products, build
volume and reduce unit costs. They should pursue a single competitive strategy – one that
best fits their market environments and competitive strengths – across all or most of the
product-markets in which they compete.
5. Was MRSGI made the right decision to take over the Wellworth given its failure
to grow and reach a larger market?
It is a right decision of MRSGI for a great opportunity to break into Metro Manila. They
now no longer need to find or to acquire lands and build buildings for their store
locations. They will no longer wait for how many years or months to build a building
because Fairview Terraces is already established. By this scenario, SIAL or ALI itself
can focus on their resources on its specialty in property development and leasing; Metro
Department store can also help their Fairview Terraces and U.P Town Center boost and
increase their profits and earnings if Metro Department store could really attract great
number of customers.
MRSGI recently partnered with Ayala Land Inc. for its wider establishment in different
span locations. We can actually say that indeed, ALI is really fascinated and satisfied
with MRSGI’s performance because MRSGI partnered with Ayala Land, Inc. for the
establishment of its stores in four new Ayala commercial developments that was recently
reported in Manila Times March 16, 2016.

BIBLIOGRAPHY:
Mullins, J., Walker, O. Jr., Boyd, H. Jr.; Marketing Management; A strategic
Decision- Making- Approach (2008). McGraw Hill Irwin. ISBN: 978-0-07-352982-0

PinoyMoneyTalk (October 2017); www.pinoymoneytalk.com; Cited on March 9,

2018