Home Retail Group Plc - Coursework Example

Home Retail Group Plc Executive Summary The report on Home Retail Group Plc, covers the analysis and critical evaluation of the company’s environmental audit, the strategic directions and critical assessment of its strategies using the SAFS framework (suitability, acceptability, feasibility and sustainability) (Home retail group 2014) The various analysis methods used to form the final opinion on the market position and competitive edge of the company are the SWOT analysis, PASTEL analysis and Porter’s five principle forces model. INTRODUCTION TABLE OF CONTENT 1.0 Executive summary 2 2.0 Introduction 4 2.1 Strategy direction 5 2.1.1 Financial risk factors 5 2.1.2 Credit risk 6 2.1.3 Capital risk management 7 3.0 Strategic Focus 7 3.1 Sustainability strategy 8 4.0 Group Strengths 10 4.1 Leveraging scale and infrastructure 10 4.2 Efficient cost base 10 4.3 Financial strength 10 5.0 Porter’s Five Forces model analysis 11 6.0 SWOT Analysis 13 7.0 PESTEL Analysis 16 8.0 Conclusion and recommendation 19 9.0 Reference 21 Introduction Home Retail group plc is a leading retailer of home and general merchandise. It was incorporated in 1973 and has over 1000 stores spread over the United Kingdom and Republic of Ireland. It has the two leading retail brands in United Kingdom Argos and Home-base. Their source for their product both locally and globally (Home retail group 2014). Argos deals with general merchandise, and it is the most popular. It has 40 retail stores spread over the United Kingdom. Some of the products that one can be able to shop for at Argos are toys, electronics, jewelry and housewares. Home base is the largest DIY store the people who frequent the store are home decorators and constructors. Financial services deal with offering financial advice to customers; it also operates as an insurance company (Home retail group 2014). Argos and Home base have variety of 80,000 goods provided under a portfolio of brands like Habitat, Bush, Alba, Chad Valley and Odina. Over 47,450 competent and efficient employees work in Home Retail Group plc. The establishment is directed by a panel of directors whose chairman is Mr. John Coombe. The Chief executive officer is currently Mr. John Waiden, and he leads a team of abled managers who manage the daily operations of the company. The establishment’s dream is to become the unsurpassed merchandising shop in Europe, and its mission is to answer quickly and satisfy the needs of their clients. The financial position of the company has grown over the years registering a net profit of 5.7 billion in 2013 and a market share of 190.40.The following is a detailed research on its market position using the SWOT analysis, Porters five forces model and the PESTEL analysis of the company (Home retail group 2014). The company continues to focus on operational excellence and further investment in multi-channel leadership that has delivered a solid performance that has enabled the hold of the market share in the business. Although still cautious about the consumer outlook over the short term, the company continues to invest and innovate in customer proposition and use the competitive advantage to deliver to their clients the paramount value and comprehensive choice in both home and general commodities. Home Retail Group is always looking forward to easing information attainment to its customers on their needs. This is achieved by making information available online, which also helps the organisation minimize its environmental impact and save cost (Home retail group 2014). The company’s websites comprise of a wealth of information in regard to Home Retail Group, and they’re updated throughout the year, so these are a good way of keeping the customers up to date. Strategy direction Financial risk factors Every organisation is faced with risks and uncertainties, the home base retail group would not be an exceptional. In this case there are a numerous financial risks and uncertainties that could influence the performance of home Retail Group: they include; Marketing risks Client Credit risk and Company’s Liquidity risk (Graham, 2014) Group’s management has put in place an organized risk management procedure which is responsible for the identification, evaluation and prioritization of risks and uncertainties as they arise in the organisation. The treasury function of the group is concerned with the reduction of exposures to foreign exchange, interest rate and other financial risks, affecting the company’s performance and ensures adequate liquidity is accessible to handle the foreseeable operations and to invest in cash assets securely and profitably(Graham, 2014).. The set policies and procedures are flexible and are subject to criticism and endorsement by the Board of Directors as well as internal auditors. The principal aim of the Group’s foreign exchange transaction exposure management is to bring down possible instability in proceeds that are likely to arise due to fluctuations in the market exchange rate. To realize the objective, the Group has planned to primarily pursue to hedge up to 90% of any foreign currency transaction risks predictable to arise due to uncertainties, but apparently, foreign currency cash flows up to one year. This will consequently increase to 100% as cash flows turn out to be definite. Credit risk The home base retail Group lacks significant deliberations of credit risk. Strategies have been established to ensure that the sale of financial services products is made to customers with a promising credit history (Graham, 2014). The company rates its customers through the use of external credit agency. Retail customers pay for their product in cash, by the use of major debit and credit cards or means of in-house or third party operated financial products. Capital risk management The company’s survival is a primary objective of the enterprise. Managing of capital is, therefore, a critical factor to the management in order to provide promising returns to the shareholders. This will also provide benefits for other stakeholders and to maintain an optimal and efficient capital structure. Inadequately manage the capital structure, the Group may regulate the aggregate dividends paid to owners, the returned capital or even issue new shares to the public. The Group operations and projects are financed from the retained profits, leasing of Group’s property or even from leading institutions where need be. Strategic Focus The company has developed highly successful internet and mobile channels to meet consumer demand. The company is also hoping to continue developing incorporated shopping platforms that incorporate the most recent technological advances and the new ways in which clients want to interact and shop. Argos has experienced a continued growth in its multichannel sales, which now represent £1.9bn or 46% of its sales. Argos recorded the second largest internet retailer company in the UK, with 400 million individuals visiting its web site in the year (Duddy, 2013). In May 2010 Argos launched its iPhone application; the app has gained continued growth having over 1.3m downloads to date. The application has been used to drive upward about 1% of Argos’ sales. The Group is focusing on future developments on introduction of TV shopping channels and mobile apps for iPad and Android (Duddy, 2013). The introduction of Reserve & Collect at Home base has aided in driving growth in its internet sales and also growth in traffic on the Home base website. Sustainability strategy In an effort to the continued survival in the market, Homebase has constantly been updating its customer by presenting enhanced product choices through a range of reviews that carry with them new and improved products in the market. Decorations of projects have continued to drive footfall to Homebase, and its planned range reports have promised to keep increasing the emphasis on affordable stylish decorating products that are appealing to the clients. In the course of the year, enhanced flooring and tiling offer was announced in about 100 stores. These measures brought with it an increased space allocation giving clients a variety of choices and increased quantities products. The organisation also undertook to review the lighting, with an additional 450 new product lines being introduced (Duddy, 2013). New Qualcast models have also been proposed in the gardening category of the company. Sustainability Home Retail Group also continues to improve its ranges through big ticket, including the Schreiber branded bedroom suggestion and another variety of new range of premiums, design-led kitchens, which are being tried out in four major stores. Customer retention is considered much cheaper than getting a new client. In is in that idea in mind that Homebase adopted the after-sale service of installation of products acquired from the stores. The service has experienced an overwhelming support from the customers. The company provides the customer with a complete home enhancement solution through a kitchen installation service (Duddy, 2013). The program that is independently certified by MORI has achieved a customer recommendation rate of over 90%. Learning from this experience the company has move on to expanded to include bathrooms and bedrooms installation services. The Group rolled out a nationwide bathroom installation program in the year 2011, a strategic time when the economy was recovering from the recession period and experiencing a trading peak era. The company rolled out the fitted bedroom furniture offer program under the Schreiber brand in over 100 stores in UK and has up to date been evolved in approximately 200 shopping destinations (Duddy, 2013). Acceptability Homebase management believes in the value of their products. The organisation has, therefore, continued to improve its value position; this is being done through the increased product range, best buys promotions, bulk buying deals and other promotional mechanisms. These actions have enhanced the customer perception of Homebase’s products value, with the company experiencing an increase in the number of clients who feel satisfied with the significant improvement in prices over the last few years. Homebase has lengthened its Value range of products to more than 500 lines, by offering essential merchandises at reasonably low prices in relation to its competitors. The introduction of bulk buy discounts program in the DIY classifications has continued during the year, giving more than 800 opportunities that will benefit from the competitive pricing purchasing goods in larger quantities (Duddy, 2013). Product promotions have continued to bring about value to clients; this has improved management targeting and segmentations during seasonal periods for appropriate classes. Feasibility of project strengths Leveraging scale and infrastructure The Group has invested to a large extent on support; this has, therefore, raised the creditability of the company. The high credit ratings, therefore, helps it leverage financial benefits and collaborations that would be challenging to replicate given the period it has taken and the level of investment. The provision of in-house financial services operation provides clients with promotional credit products and the benefit of home delivery service which supports the multi-channel proposition at both Argos and Home base. Efficient cost base Over the past few economic years, the Group has effectively delivered a number of substantial organisational and infrastructural changes. The changes have seen a reduction in costs by £125m and improved the flexibility of the business (Graham, 2014). This cost reduction has been achieved through the rationalization of the distribution network, store-based management restructuring programmes, headcount reductions in the head office and various other cost efficiency policies in conjunction with a lower level of unit volumes. Financial strength The Group’s robust financial position is set to continue supporting investment initiatives for growth of the company, and it, therefore, plans to continue investing in its initial retail arrangements by increasing the multi-channel retail offer and kept opening new retail shop stores all over the world. Porter’s Five Forces model analysis 1. Rivalry Among Current Competitors: High Currently, large DIY stores have occurred and impacted to Home Retailing market share. The primary competitors are the kingfisher Moreover; kingfisher is group of companies with same target customers with Home Retail, consists of two main companies name B&Q and screw fixed. B&Q Company is considered a major competitor because of they have many large stores that were covering in the UK and Ireland, there are also expanding into the China. B&Q is a market leader in china that included services in the design and decoration of homes and condos that contribute to increasing their sales and appealing high volumes of target client in china. M J Foster Claims that “The plans of B&Q (China) ‟s management to 2008 could not be said to have been badly wrong. They delivered positive, trading cash flows for a decent period and established the brand to be number 1 in China in their market.”(Foster, Tseng, 2010) 2. Power of Suppliers: Moderate Suppliers of Home Retail come from around the world, with approximately 60,000 of product lines and a turnover of approximately £6 billion. It shows that, bargaining power of suppliers will affect to Home Retail when the economic or monetary value has changed, because Home Retail had imported their products from abroad. On the other hand, Home Retail has a problem about the payment with their suppliers. According to its annual report, Home Retail takes 60 days to pay their supplier that is the longest time in the retail industry. (Graham, 2014) So, now they are still working to fix this issue According to A spokesman for Home Retail claims that "Our suppliers are a very significant to our operations. Payment of suppliers is made in harmony with pre-agreed terms and reflects the markets of our operations"(Graham, 2014) 3. Power of Customer: Moderate Currently, in the UK there are many retail stores and DIY stores like Home Retail. For example, B & Q and IKEA, so customers have plenty of options and the power to decide to buy, depends on whether the brand would be able to attract more and create a customer loyalty. One of the keys important of power of consumer is price B & Q and IKEA seems to be cheaper. This could be a critical factor in the clienteles considering buy our products. 4. Threat of Substitute Products or Services: High There are some companies that are providing products and services similar to Home Retail companies such as B & Q and IKEA; there are serving close to Home Retail and also their stores are larger and more comfortable. That makes direct substitutes for the goods and services of Home Retail are higher. 5. Threat of New Entrants: Low Currently in the UK, the competition in retail stores is very high. For example, IKEA has a delivery service and installation at home, while B & Q is adding branches to cover in the UK and to expand to China. This reason shows that why the opportunity for new investors in home and retail stores are low. SWOT Analysis 1. Strength 2013, total sales of Home Retail decreased by 0.3% from £ 5492m to £ 5475m, but the sales of the Argos with 72% of all sales increased by 1.5% from £ 3873m to £ 3913m. Also, Financial Services with 2% of total sales rose by 3.9% that occur £ 4m in a year. In opposition, sales of Home base decreased by 5.2% that occur £ 79m in total sales. (Annual Report and Financial Statements, 2013) It’s showed that Argos is the strength of Home Retail, so, Argos as a leader in the merchandising market because Argos has an active strategy. They provide their customers with an order by the Internet, while looking for opportunities to develop the business for generating an alteration and maintain a market share in the future. According to Duddy, he claims” Home Retail Group has remained in the front position of technology advancement that have brought with them necessary and long-lasting shift in the way consumers shop” (Duddy, 2013). 2. Weakness The business of Home Retail is determined by the economy of the UK while the economic downturn and lack of purchasing power; as a result that sales are decreased. Moreover, the storage of Argos is defective. For example, in some of the items is not sufficient to meet demand of customers that makes customers lose the loyalty to the brand. 3. Opportunity While Home Retail are expanding to cover the entire of the UK, and Ireland, the competitor as kingfisher is expanding their market to the Asia such as China and they are being a market leader in this industry.(Kingfisher website, 2014) 4. Treat Competitors more efficient Competitors such as B & Q, SCREWFIX, IKEA, WARWICK and TESCO were developing their potential for an increase the market share. For example discount, service delivery and installation. These are affected to Home Retail. Labour Costs According to reported by the Office for National Statistics shows that there is uncertainty in the labor rates in the UK that making it difficult to manage and plan for the future, ( trading economics,2014) PEST Analysis (Macro Environment) 1. Political Currently, United Kingdom have joined in the EU, one of the principal advantages is the company will be able to transport their goods between countries and reduced the cost, moreover, the company also can contact with suppliers in Europe easier. 2. Economy Behavior of labor productivity in the United Kingdom began recession in the early years, according to the Bank of England stated that the economic downturn in 2008, the growth rate of labor productivity decreased by approximately 0.6-0.7% per year in the short-term and decreased by approximately 0.84 to 1.1% per year in the long term. (Barriel, Oulton, 2013,) 3. Social Currently, most people choose to get the details of the product on the Internet rather than going to the store because it is easier and can be performed anywhere and anytime. So, that can attract high measurements of customers and Argos well done in this statement. 4. Technology One of the key advantages of using technology in business is that it is accessible to people of all ages and easy to change. For example, many companies have their website to communicate with customers, get feedback and activities on the Internet. Moreover, the technology also helps to facilitate the customers such as installation tablet in a restaurant for order food without thewaiter. Tows Matrix ANSOFF’S MATRIX Markets New Market development Home-based to be made a multi-channel home enhancement retailer Diversification Five brands portfolio Offers financial services to the customers Existing Market penetration Two major brands Argos and Home base Product development Argos has been made the leading online retail store Existing Products and services new Market development: High Risk The company is focused on making home based a multi-channel home enhancement retailer. Argos will also offer their customers with increased sore experience and innovative products. Diversification The company is currently operating five brands, but it is considering introducing mini-habitats in Home base and unique decorating centers. Product development: Low risk Argos has been made the leading online retailer with major marketing on Facebook, twitter, and integral Market penetration: Low risk The company has been able to make an influence in the market using its two influential brands that are Argos and Home base. BCG matrix Conclusion and recommendation Focus, the vision and mission of the company, is to construct successful enterprises that bring out value to their customers whether they are shopping from home or on the move. The recent actions of the organisation are focused to reducing energy and waste and to contribute to the community deliver benefits to our stakeholders. They improve our customers’, colleagues’ and suppliers’ experience of our business, as well as reduce our environmental impact. The basis of real business is about doing more of the things that deliver benefit both to our shareholders and our wider community. “These has been characterized with the 87% of waste from the business recycled, 43% reduction in waste sent to landfill, 20% reduction in packaging from own brand and direct sourced products (Duddy, 2013),” 55% of customers taking delivery of large appliances returned packaging for recycling, 7% reduction in paper used for publications and all paper used was from certified sources or recycled paper minimalizing cost and resources , 3% increase in carbon footprint, mainly attributable to changes in Government emission factors, 100% of direct source and direct import factories completed ethical audits (Duddy, 2013),” 91% of all timber products sourced from certified, and legal sources thus duly following the law, 94% of colleagues completed colleague opinion survey 75% responding as ‘engaged’ in the business and £2m raised by members and customers for charitable causes to support the social responsibility program (Duddy, 2013). As a result, the company’s audited financial statements have shown that the company is doing well financially. Never the less I would recommend that a lot of focus should be the placed on the evaluation of the business’s strategic plan. With the management focusing on outdoing its competitors, there is a need to focus on the cost of offering the after sale services such as the installation programs that have been introduced in the recent past. The cost incurred should be critically analyzed to ensure that the company does not end up reducing is profits and the overall shareholders wealth. Further investing in social responsibility is recommended; the management should put more emphasis on programmes that will bring about social involvement of the company in raising the needs of the clients. It is also recommend that improvements should be made in carrying the online functions to include pay-pal payments instead of cash on delivery, this will bring about safety of the and thus ease the accountability of any losses and audit evidence. With the many stores that the company has continued to open over time, there has been concern that some of the stores have become immaterial as no profits are realized from the. It is recommendable that the company should consider cutting on costs by reducing the number of ineffective shops. List of References Barriel, M. Oulton, N. (2013)”Long and short-term effects of the financial crisis on labour productivity capital and output” Bank of England (online) available from http://www.bankofengland.co.uk/research/Documents/workingpapers/2013/wp470.pdf. (January, 2013) Duddy, T. (2013) “Annual Report and Financial Statements 2013 HOME RETAIL GROUP PLC” (Online) Available from, http://www.homeretailgroup.com/media/154937/home_retail_group_annual_report_2013Pdf(2013) Foster, Tseng, MJ,CS.(2010) ”Kingfisher Attacks the China Market”.(online) availablefromhttp://hep.calis.edu.cn/fulltext/FBR_100008_MJF_CST.pdf(2012) Graham, R. (2014) “Argos and Home base demand rebate from suppliers”. The Telegraph (online) available from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10617384/Argos-and-Homebase-demand-rebate-from-suppliers.html (04 Feb 2014) Home retail group (2014) “Our story” (online) available from http://www.homeretailgroup.com/about-us/ (2014) Read More