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Consultancy Project for the Arcadia Group Ltd

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    Consultancy Project for the Arcadia Group Ltd

    Abstract

                Arcadia Group Ltd. is one of the UK’s leading clothing specialists.  Having been founded more than 100 years ago by entrepreneur Montague Burton, one of the forefathers of modern retailing, Arcadia Group Ltd. faces the challenges of selling its products to buyers all over the world while at the same time securing steady growth for its operations in UK, its country of origin.

                This report covers the core foundation of the Group: its origin, its management and the changes therein, its objectives, its products and the markets it serves.  This report also gives an analysis of the Group’s financial performance for the year ended September 1, 2007, then compares its numbers with those of a competitor in the industry to highlight the issues to be raised and addressed.

                With all these relevant information and data aforementioned, this report proceeds to tackle the strategies that the Group has been implementing.  It details the basis and rationale of each strategy to explain why Arcadia’s management believed that such move could bring in the needed growth and expansion of the Group’s market share and operations, both local and global.

                This report as well includes an analysis of Arcadia Group’s strategies as to the level of success and suitability to the prevailing situation in the various markets – the markets that the company already has tapped and the prospective ones.  Recommended additional strategies are as well discussed, taking into consideration the external and internal factors affecting the Group.

                On the whole, this report aims to give a clear picture of Arcadia’s current place in the industry and then to examine the principles and values that steer the Group’s overall affairs.  From there, this report further studies the strategic management of the Arcadia Group – the schemes and tactics it has employed in the past and present.

                All these were accomplished in this report in order to provide sufficient background for the recommendations as to how the consultancy engagement of Arcadia should be planned out and designed.  The engagement is aimed towards the actualization of the plans and targets of Arcadia’s management, which are currently focused on winning back the market it may have lost to its competitors during the recent years of its operations and then to access new markets abroad which has become easier to do, thanks to the marketing and selling tools made available by the internet phenomenon.

    Introduction

                As the United Kingdom’s largest privately owned clothing retailer, Arcadia Group Ltd. has all its seven brands found and proudly displayed in all of UK’s high streets and major shopping centers, as well as online.  Its brands are as well sold in countries across Europe and in other continents on the globe. (Arcadia Group Limited 2008).

                The Group’s origin lies in the Burton menswear business that was established in the year 1900.  The second brand of the Group – then called the Burton Group – is Topshop, which was launched sixty-five years later in 1965.  The five other brands of Arcadia are Evans, Dorothy Perkins, Topshop, Miss Selfridge and Wallis. (Arcadia Group Limited 2008).

                The Arcadia Group was formally born in 1997 out of the old Burton Group, after the latter decided to let of and divest its interests in the department store business so as to     focus its resources on the fashion industry.         In 2002, shares of the Arcadia Group was purchased by Sir Philip Green and his family, thereby becoming a part of the Taveta Investments.  (Arcadia Group Limited 2008).

                Today, all the seven brands marketed by Arcadia are well positioned to grow both in the domestic and international arena.  The management has to come up with concrete ways to improve the profitability of their company and the marketability of their products to catch up with the performance of its competitors.  The company, given its being the pioneer in the industry – albeit in a different name and under a different management – should be taking the lead in terms of market share and sales volume.  The fact that Arcadia does not take the lead as expected seems to denote that it has to shape up to equal and then later to exceed the current levels of margins and growth enjoyed by the other companies.

                Should Arcadia consider extreme cost-cutting measures like the laying off of people to minimize its expenses?  How can the company access cheaper sources of working capital?  Is the company’s performance up to par specifically when compared to that of another clothing retail company?  What other strategies must be presented to the management for proper implementation so as to generate better figures for the 2008 operations and thereafter?

                This report should answer those significant questions and should include how a consultancy engagement with Arcadia ought to be designed.  The set-up of the engagement, needless to say, should be crafted to perfectly suit the objectives of the top management for the company – the short-term objectives and the overall long-term plans.

    Literature Review

                The top management of Arcadia Group Ltd is composed of the following: Lord Anthony Grabiner QC as the Chairman, Sir Philip Green as the Executive Director and Proprietor, Ian Grabiner as the Chief Executive Officer, Ian Allkins as the Executive Director, and Paul Budge as the Finance Director. (Arcadia Group Limited 2008).

                When Sir Philip Green took over the Arcadia Group, he started right away to implement his strategies on how to improve the Group’s operations and standing in the retail market.  Foremost in his goals is bringing in happy years of further growth and expansion for the Group.

                The tabulation in the following page details the seven brands, the core ages of their target markets, the main products that they offer and the other products that they as well sell on top of their main ones:

    Fascia
    Core age target
    Product offer/brands
    Other products

    Womenswear

    Topshop
    15-30+
    Fast turnaround fashion with all the latest looks. Includes Tall and Petite ranges, and Maternity. Boutique – sophisticated and directional. Unique – key sub-brand, fashion directional.Designer collections include Celia Birtwell, Sophia Kokosalaki and Zandra Rhodes. Celebrity collections include Kate Moss. External fashion brands include Rare and Love.‘Green’ brands include People Tree.
    Accessories, footwear, hosiery, lingerie, jewellery (concessions)
    Wallis
    30-50
    Smart and sophisticated, strong on coats, and smart/ special occasion separates.W Limited Edition (more exclusive and higher prices, limited store distribution) launched spring 2007.
    Petite, footwear, jewellery, accessories
    Evans
    20-50
    Larger sizes 16-32, Tall and Petite, across all wardrobe needs. Sub-brand Essence changing to ‘e’. Designer Ann-Louise Roswald swim and beachwear launched summer 2006.Designer Georgina Goodman footwear range launched autumn 2005.
    Lingerie, jewellery, footwear, accessories
    Dorothy Perkins
    25-50
    Mainstream affordable fashion-contemporary collection. Includes Petite, Tall, Maternity.
    Accessories, lingerie, footwear, jewellery
    Miss Selfridge
    15-25
    Young ‘girly’ on-trend fashion. Less directional and more focused on feminine looks than Topshop.
    Accessories, footwear, jewellery

    Menswear

    Burton
    25-45
    Formalwear and casualwear in ‘safe’ styling. Premium smart/casual Black Label launches.
    Accessories, footwear

    Topman

    15-25

    Fashion contemporary core range orientated to casualwear with some suits/tailoring. Strong on ‘street’ trends such as Nu Rave. New cashmere knitwear line launched 2007. TM Design is more fashionable premium limited edition.Some designer capsule collections in flagships.

    Accessories, footwear, some jewellery
    Source: Arcadia Group Limited website

                With these products they offer, Arcadia aims to secure its position in the industry as the pioneering leader therein. The Group presently has more than 2,500 outlets in over 30 countries in Europe, the Far East and Middle East, and in Southeast Asia via 420 international franchise stores.  (Arcadia Group Limited 2008).

                Arcadia’s overseas expansion outside Europe is franchise-based. The seven brands that the products of the Group bear are now present across the globe, with a particularly strong presence in the Middle East with some 190 stores, including 100 stores in Saudi Arabia and 25 in the United Arab Emirates. (Arcadia Group 2007 Annual Report)

                The Southeast Asian operation is also quite well developed, with 25 stores in Malaysia and 22 each in the Philippines and Singapore. There are also eight stores operating in Chile. The group is also understood to be gauging opportunities in India and China. (Arcadia Group 2007 Annual Report)

                While it has yet to enter some of the major mature markets (eg France, Germany, Italy), the group has been fast to establish a presence in the rapidly developing markets of Central and Eastern Europe. It has a particularly well-developed store network in Turkey (29 stores) and Poland and Slovenia (15 stores each). (Arcadia Group 2007 Annual Report)

                The strategies that the new management of Arcadia Group Ltd has thus far been successful, basing on the small improvement in profitability, and the 2% like for like sales growth.  As announced by Sir Philip Green, these results represent a very creditable performance when set against a background of one of the worst “non summers” in many years. (2007 Annual Report of Arcadia Group Ltd.)

    Methodology

                To come up with sound strategies to further improve the results of operations of Arcadia, an analysis of the income statement for the year ended September 1, 2007 was conducted.  For the same purpose, a comparison between Arcadia’s income statement and that of another company’s in the same industry was undertaken.

                Some of the strategies currently pursued by management also have to be examined as to effectiveness.  The end goal is to point out specific doable ways to improve the profitability of the company, and to advise the management to have them implemented accordingly.

    Results

                It is clear from the materials gathered that Arcadia, instead of setting sights on much bigger sales and net profit, has been barely successful in sustaining positive income figures.  Indeed, it is altogether another company in the industry, NEXT plc, that has been reaping healthy profit figures year-on-year.  Like Arcadia, NEXT is intent on making its presence in the global markets felt by growing in terms of the numbers of its stores worldwide and in terms of sales.

                While Arcadia shares has ceased to be traded in the London Stock Exchange, NEXT happens to be actively traded in the bourse and therefore is monitored as to financial and operational performance by a greater number of investors and stakeholders.

    2007 Income statements of Arcadia and NEXT:

    Arcadia
    NEXT
    (In Thousands of Pounds)
    Amount
    % of sales
    Amount
    % of sales
    Sales
    1,858,707
    100
    3,283,800
    100
    Cost of Sales and Expenses
    1,595,523
    86
    2,776,300
    85
    Operating Profits
    263,184
    14
    507,500
    15
    Administrative and Finance Costs
    64,031
    4
    29,100
    1
    Profit before Taxation
    199,153
    10
    478,400
    14
    Taxation
    80,910
    4
    146,900
    4
    Net Profit
    118,243
    6
    331,500
    10
    Source:  2007 Annual Reports of Arcadia Group Ltd. and NEXT plc
    As compared to Arcadia, NEXT has the financial leverage of being a public company.  NEXT has gone through the Initial Public Offering (IPO) of its shares, thereby tapping a great source of additional working capital.  Thus, while the percentages – in reference to their respective sales figures – of the two clothing industry giants for most of their financial figures are basically equal, they differ considerably in their administrative and finance costs.  The specific proponent behind the big difference is the cost of financing or the interest costs.  This is because while Arcadia is laden with debts that it has to pay interests for, NEXT has no reason to avail of loans.  They instead issued stocks and then regularly pays out cash dividends for their stockholders.

                Probably because the small stockholders are among the most effective marketing agents of NEXT, its sales in 2007 is almost double that of Arcadia.  In terms of sales volume, Arcadia is yet to catch up with NEXT.  To accomplish this, Arcadia has to work harder on its currently undertaken strategies, as well as come up with new and effective ones.

                In their bid to improve the operating results of Arcadia Group Ltd., the management has implemented strategies and methods of development, as follows:

    Strategies
    Implementation procedures
    Privatization (in 2002)
    –          Buying back of shares sold to the public during the years when the Group was a listed company to gain full control of the company’s management
    Cost cutting and improved buying practices
    –          Streamlined buying practices to improve profits
    Change of management
    –          The proprietor brought in a complete new management team to run the company

    –          Each retail brand was given an individual management team
    Store expansion in U.K.
    –          This move meant more space and more products put up for sale for people to see

    –          This was meant to generate more sales
    Replacement of smaller, older stores with new regional flagships
    –          Change of image and massive campaign for the recently launched Kate Moss collection
    Strategies
    Implementation procedures

    Opening of stores worldwide
    –          Planned opening in the USA
    Repositioning of the Burton brand as “contemporary but safe”
    –          The design is to capitalize on the apparent reluctance of men to shop at clothing stores stamped as “value” retailers
    Expansion of Topshop and Topman by Autumn 2008
    –          Adding some 37,000 sq m of sales space for improving sales performance
    Price positioning changes
    –          Arcadia recently has been offering higher priced items; designer/celebrity and limited edition ranges for higher prices will be made available
    Improvement of speed of delivery and productivity
    –          Planning out of better ways to deliver the sold items at a faster pace to keep the online buyers satisfied
    All these strategies have been undertaken with only development and growth for the company in mind.  Thus, implementation of these might have been not easy – difficult decisions might have been made – for the concerned parties.  But focus on the goal of increasing sales volume, numbers of stores and eventual profits led the management on with these strategies of theirs.

    Discussion

                Being over a century old, Arcadia Group Ltd. has come to be a major icon in the clothing industry.  Having been through innumerable phases of retail and trading, Arcadia is an undisputed survivor and leader.  Based on these, one competitive strength of Arcadia is its being established in the market – and it has reached out beyond the borders of UK to as well cater to the demand for its products in many other countries.  Arcadia’s foothold on the market and its extensive network of marketing units ensure its place and share of buyers in the world market.  This is clearly manifested by Arcadia’s presence in 16 European countries. Arcadia also moved to set up stores in the other continents of the world only after it has been established in Europe for a number of years.

                For as long as there are countries identified as tapped markets for Arcadia, there will always be interested franchise-buyers therein.  In the light of the variety and style that Arcadia represents, there is no doubt that any country as a target market will welcome Arcadia.  This is to say that if Arcadia manages to improve its productivity and the marketability of its products, its growing presence in more and more countries will indeed constitute a distinct competitive advantage.

                Arcadia has proven to have an impressive portfolio of brands. Under the new management led by Sir Philip Green, these have developed clearer individual identities that allow relatively little overlap in the core shoppers from brand to brand.  Together, in view of the variety and diverse choices they offer, the brands definitely cater to the demands of an audience that is wider in terms of age and income.

                The range of brands – together with the availability of more options that it represents – offers the Group some insulation from the fickle fluctuations in fashion trends and demand. Meanwhile, the brands together form a sizeable organization or collection that creates a potential for scale benefits in support platforms as well as buying power.  (Arcadia Group Limited 2008).  Thus, another competitive strength of Arcadia is born out of their having all kinds of clothing for all kinds of users and user groups.

                The decision to delist the Group from the bourse somewhat narrowed its prospects and opportunities in terms of additional working capital and of growth in market value of the Group as a whole.  Still, the new management has to be given credit for fighting a good fight and still rendering positive income figures despite all the setbacks that occurred during the year, among which is the resignation of key people in the organization.

                There is some advantages, though, enjoyed by NEXT as a publicly listed company that Arcadia is not entitled to now that it has become a privately owned company.  Other than having the sale of shares as a handy source of additional operating capital, having a good number of small shareholders can help boost the company’s sales.  NEXT is one company whose management is well aware of this.  Thus, NEXT maximizes this marketing avenue by designing a package called “Shareholder Discount”.  As stated in the company website, “if you hold more than 500 Next plc shares, you could qualify for a discount voucher on Next merchandise.”  (Next website 2008)  Arcadia can study the option of enlisting again a number of its shares in the stock market.  For the sake of liquidity and increased sales, it might be wise to sell some shares to the public again.

                    Since Arcadia’s overseas expansion outside Europe is franchise-based, the opportunities for growth for the Group in the European Union countries are practically limitless.

                The Group is recommended to focus on doing more and more business online.  The internet has given everybody equal chances to grow a hundredfold, but this prize is deserved and won only by those who try and work hard on maximizing the facilities that the internet makes available.

                Moving forward, the Group has a lot to prove to their stakeholders and the financial world – the bankers, the financial analysts, etc.  Continuing designs for expansion and concretely carrying out each planned out new outlet, while at the same time working on boosting sales through the internet, will enable the Group to grow and to reclaim its lost place in the market as the pioneer and the leader.  More exciting years are in store.

                Through it all, a party should be dispatched to monitor Arcadia’s progress – projected goals versus actual accomplishments.  A consultancy engagement can serve as the instrument for the management to see flaws and problems in the system that usually are not visible to their eyes or worse, are simply not reported or relayed to them.  A great plan is nothing but a plan without an efficient party working on its execution.

    List of References

    Arcadia Group Limited (2008) Available from        <http://www.arcadiagroup.co.uk/about/index.html>

    Arcadia Group Limited (2008) Available from             <http://www.arcadiagroup.co.uk/about/group_history.html>

    Arcadia Group Limited (2008) Available from        <http://www.arcadiagroup.co.uk/about/brands.html>

    The 2007 Annual Report of Arcadia Group Ltd (2008)  Available from             <http://www.arcadiagroup.co.uk/assets/pdf/ArcadiaFinancialResults2007.pdf>

    The 2007 Annual Report of NEXT plc (2008) Available from             <http://www.nextpls.co.uk/nextplc/financialinfo/>

     

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