Book Report

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The work is divided into two sections:  {Deadline: 01/12/2016} (total words 6000).

 

1)      Section one: Five years Business Plan Report (4500 words).

 

2)       Section two: Reflective piece (1500 words).

 

 

 

Section One Requirements

Five years Business plan report

Project: Case Study

(4,500 words)

 

 

RiverRocks: is a fictitious company created for the purpose of this work, all the necessary information about the company is provided in the following pages and in the supplied financial spreadsheet (Excel file).

 

The Business plan report should be suitable for consideration by the management team of RiverRocks in the context of the strategic challenges facing the company.

 

This report should include:

 

  1. 1.      Five year business plan report designed to enhance shareholder value.
  • You may use your own definition of shareholder value but must explain and justify it.
  • The plan may identify a range of strategies for consideration but should ultimately put forward your recommendation with evidenced justification.
  1. 2.      Identify, explore and evaluate alternative strategies for developing the RiverRocks business.  
  2. 3.      Research the relevant ‘real world’ industry, market and business environment for this case study RiverRocks is situated in.
  • You should use a combination of relevant ‘real world’ primary and/or secondary research to provide the basis upon which your strategic choices are made.
  1. 4.      Identify specific KPIs to assist in measuring to what degree shareholder value is being enhanced.
  2. 5.      Review your proposed plan, and identify and assess the key risks within it.

 

Notes:

  • You should include graphs, tables and figures within the main body of the report. You may wish to include extracts of your planning model results within your business plan report as part of your justifications and evidence.
  • This section is not just descriptive but also reflects analysis, evaluation, conclusions, and plans.
  • Harvard referencing system.

 

 

About RiverRocks:

 

  • RiverRocks is a national chain of bookstores with 47 branches across the UK and an active e commerce web site.
  • RiverRocks is unsure of where it is heading strategically in the near future and has contracted a consultant to provide guidance through a five year business plan report.
  • The company’s management team welcomes your identification of and insight into potential (and viable!) strategic options.
  • The management team is open to considering a range of strategies that may strengthen their core activities, and/or diversify their product range, and/or enter overseas markets, or and/or perhaps consolidate the company’s activities.

 

In order to complete this project you will need to

  1. 1.      Analyse the competitive environment,
  2. 2.      Research market trends.
  3. 3.      Examine the company’s financial position.
  4. 4.      Explore alternative strategies.
  5. 5.      Assess risk, and then
  6. 6.      Build your business plan, and present your plan in a report.

 

The market

 

The period from 2005 to 2012 was a tough time for bookstores. The combination of the rise of on-line retailers, notably Amazon, and the arrival of the e-book and e-book readers such as the Kindle seriously affected traditional stores, the biggest of which, Borders, closed all its stores and filed for bankruptcy in 2011.

 

However, the bookshops who survived the initial market turmoil have recovered well. So much so that Amazon is reported to be planning to open as many as 400 physical bookstores, initially in the USA.

Although e-books initially benefitted from very fast growth when launched on the mass market and there were fears in the publishing industry that they would rapidly replace hard copy books, these fears have not been realised.

 

In the UK after the initial surge up to 2012, there has been no significant growth in sales of this format, and as e-book sales slow, reader enthusiasm for print books remains strong both here in the UK and in the USA, where sales of printed books actually rose by 3% in the first quarter of 2015 in all major categories and a recent study found Gen Y readers (people between the ages of 18 and 34) are almost twice as likely to read a print book as an e-book. Nearly half of UK consumers claim they still prefer to shop on the High Street.

 

One of the brightest spots in the market is in children and young adult readers. In the UK last year, while overall book sales were flat, children’s grew by over 7%.

Around 45% of all print book sales are now made on line with Amazon dominating the market. However, the rise of on-line book shopping has also flattened out in recent years and traditional specialist bookshops still account for around 45% of sales, with UK supermarkets taking most of the remaining 10%.

Background

 

RiverRocks is one of Britain’s largest book retailers, with a chain of 45 shops in large city centres and at major rail terminuses and airports. The company is on the path to recovery with its first rise in sales under new ownership achieved in 2015.

The company was part of a large publishing group until 2010 when it was sold back to the chain’s original founder Charles Riverrock, in a leveraged deal financed by a combination of long term loan notes and part private equity. The company now has £32m of debt, secured against their property estate.

 

Since the buy-out, the company has invested in a redesign of its shop environment and in IT infrastructure to support the growing online trade, while closing a number of smaller unprofitable retail outlets. This investment, along with an improved range of books, resulted in overall sales volume growth of 2.5% in the year ending December 2015.

RiverRocks was relatively late in establishing an on line bookshop presence to compete with the market leaders Amazon, and Barnes & Noble. However, on line sales have grown strongly and now stabilised at around 14% of total book sales, and the company sees this as a major potential source of future growth and profitability.

 

The bookshop chain is also luring in more customers with its in-store River Cafés, which are now in 12 shops, and are helping to encourage readers to browse and buy more books. The café is a franchise operation.

Product range

 

The company sells four main product lines. These are:

  1. Adult fiction. This category represents around 60% of physical sales volumes, both in store and on-line, but only 50% of revenues. Most sales are paperback versions of current best sellers.
  2. Adult non-fiction. This category includes popular cookery titles, biography, travel, management, lifestyle as well as several smaller niche specialist categories. Around 18% of revenues come from sales of non-fiction, and average selling prices are around 30% higher than the fiction category.
  3. Children and teenage books. The Harry Potter phenomenon revitalised teenage interest in books, and this has continued, with Game of Thrones style fantasy novels being current best sellers. For younger children sales are also growing at a healthy rate.
  4. Gifts and Stationery. The company does not sell newspapers or greetings cards. This category consists of a wide variety of small low cost novelty gifts, along with notebooks, pens, print cartridges and other office requisites.

 

The table below shows sales volumes in SKUs (stock keeping units) last year.

 

The company can earn better margins on some lines than others but giving more shelf space to the higher margin products does not guarantee more sales unless the demand is there. Customers expect their bookshop to stock a wide range of each of the three main categories of books.

 

 

Distribution Channels

 

RiverRock’s core business is operating retail book shops, which generate 88% of revenues. The balance comes from the on line shop, where the company sells both eBooks and physical books. The physical web sales are sourced for next day delivery from the company’s central warehouse or from the stock at the nearest retail outlet. Company policy is to maintain inventory levels at the warehouse at a minimum level of 10% of anticipated web sales.

 

Because the company has to discount books heavily to compete with alternative web sellers, the gross margins on their on-line sales are lower, but this is before taking into account the overheads and marketing costs associated with the physical stores.

 

The company currently has 47 retail shops, with an average floor area of 23,000 sq. feet. A key factor in successful retailing is the efficient use of this space. Industry standards sales per sq. foot show that an efficiently run bookshop can expect to sell 12 adult fiction books per sq. foot, but only 8 non-fiction or 10 children’s books from the same space.

 

Staffing

 

Retail staff is relatively low paid. Many are on little more than the statutory minimum wage, with the average hourly pay rate including the local store manager only £12 per hour. The shops open 7 days a week, and a typical store has a total staff of 8 people.

 

The company expects its staff to be able to talk intelligently about the ranges of books in the store, particularly the current best sellers, take orders and handle the point of sales technology efficiently. Training is provided to achieve this aim, but it may be possible to improve staff morale and have a positive impact on sales with higher pay and better staff training, but the management are reluctant to increase the cost base.

 

The company also employs specialist buying staff and they negotiate with the major book publishers and logistics management for the warehouse and distribution system.

Inventory

 

Publishers and booksellers are assisted in inventory management by the “Industry returns initiative”. This requires booksellers to keep the books they have ordered for 3 months after publication, but for the 12 months after that overstocks can be returned to the publisher who reimburses the cost.

 

This process maintains a balance between the need (from the publisher’s point of view) for a book to be exposed for sale and the need (from the retailer’s) to replace slow-selling titles with more current and saleable stock. Returns will only be accepted if they comply with pre-agreed timing parameters. The main financial benefit to the RiverRocks business is that stock write offs are minimal.

 

Marketing and promotions

 

The business currently spends about 5% of its revenues on general marketing activities, including brand advertising, sponsorship, attendance at book fairs and trade shows. In addition, it reinvests 5% of web sales revenues in promoting its on line presence.

By far the largest part of the marketing budget is devoted to in-store promotions and special offers, including 3 for 2 and similar discount bundle offers, which run constantly throughout the year in all stores.

Coffee shops

 

Over the past three years the company has introduced in-store coffee shops in 12 retail outlets, branded as River Café.

Setting up a coffee shop requires the store to give up part of the selling space. The coffee shops are run by franchisees who pay the up-front space fitting costs, including chiller cabinets, tables and chairs, signage and of course coffee machines. They then pay an annual rent for the space.

The main benefits of an in-store coffee shop is not the rent, but the fact that they attract around 10% higher footfall to the store, and as a result can increase sales of books and other goods in the remaining store space.

 

Treasury management

 

RiverRocks has outstanding long term debt of £32 million. The company has a good relationship with its lenders and so long as the business remains profitable is under no pressure to reduce the debt.

Should the business wish to raise further funds for expansion then it may be able to raise further long term loans at attractive interest rates, and also has the option to raise more equity capital. In both cases, the executives will first need to prepare a convincing business plan to justify the new investment.

The business has cash to meet its short term working capital needs.

 

The Planning Spreadsheet

 

It is provided to help in building a 5 year financial plan, and to explore alternatives.

 

  • Dashboard Tab (it is part of the excel file, with much clearer figures)

The dashboard provides a summary of the business plan key figures.

 

 

  • Decisions Tab

 

On the Decisions Sheet, you can input prices for each of the product lines. These prices will be used on the “Curves” sheet to forecast the impact of price changes on demand for your products.

You can also input decisions to change the annual allocation of retail space. Currently the company uses 60% of its retail space for adult fiction.

 

The planning spreadsheet also forecasts the impact of the company’s marketing spend on demand (see “Curves” sheet). Use the Decisions sheet to input the % of previous year revenues that you want to invest in in-store merchandising and promotions, web advertising, and sponsorship and other marketing activities.

 

You can also use the Decisions sheet to open or close stores, change the number of stores with coffee shops, and to change the retail staff pay and training levels.

Again, the “Curves” sheet will then estimate the effect of these decisions on the business.

 

 

 

 

  • Curves Tab

 

The Curves sheet contains the models of the demand curves for the products as well as the effects of marketing spend and staffing decisions.

The shapes and range of the curves are based on past trends and independent market research. However, the past can only be a rough guide to the future, and so you are able to amend these curves to reflect your own research into the market and the anticipated impact of your business plans.

 

The example below shows the curve for the price sensitivity of adult fiction in retail stores. You can change the shape of the curve by amending the three parameters in the white box, which set the gradient and range for the curves. Try different values and observe the effects.

 

 

Note also that these curves will be less reliable for major changes in decisions. For example, if you were to double your prices you will probably sell nothing at all, whereas the mathematical curve may still show some residual sales. So, always apply your own judgement and common sense when interpreting the results.

 

  • Reports Tabs

 

The spreadsheet model contains a number of reports for the past three years and projected for the five years of the business plan. Including:

  • Financial statements – P&L, Balance Sheet and Cash Flow Statement
  • Sales analysis by product line
  • Demand by product showing the impact of pricing and marketing decisions on demand
  • Production statistics and inventory levels by product line
  • Economic and Market Trends

 

 

  • Parameters Tab

 

The Parameters sheet contains the base data on which your business plans are built, including the standard sales per sq. foot, base cost levels, benchmark prices, and past and forecast market trends. You will probably not wish to change these parameters, but you can do so for future years, so long as you can justify your changes in your business plan.

 

  • Calcs Tab

 

The Calcs sheet contains the main spreadsheet calculations, applying the information in the parameters and decisions sheets to create the business planning outcomes that are then reported on the Reports sheets.

 

Use the calcs sheet to drill down into the numbers and get a better understanding of how they are derived. The years 2013 to 2016 are of course past history and should not be changed, but you can amend and add to the calculations of the future numbers if you believe that is necessary to reflect your business strategy in full.

 

 

 

 

Section Two Requirements

 

Reflections regarding the case study business plan report. (1500 words)

 

Use is Gibbs’ Reflective Cycle or Model of Reflection (1988). This contains six categories.

Use these six categories as a departure point as you embark on thinking and writing the project.

Description

  • What happened during the research? 
  • What was the actual process that was applied to analyse information?
  • What were the aims of the report?

 

Feelings

  • What did you feel? How did you react or respond?
  • Why did you respond in such a way? Did your feelings affect your actions?
  • Identify and examine the reactions, feelings and thoughts at the time.

 

Evaluation

  • Look at the judgements and choices you made at the time about how things were going.
  • What was positive? Negative? What made you think this?
  • Try to stand back from the experience and be objective in your evaluations.
  • What made you think something was good or bad?
  • Examine your own judgements and what contributed to them. How do you feel about them now?

 

Analysis

  • Examine the experience in depth and identify an overarching key aspect of the experience that affected it greatly and as such needs addressing next time.
  • For example, an aspect of communication or time management or organisation or commitment that might have played a central part in the outcome.
  • How was it flawed this time? In what way? Why? How should it have worked in this situation?
  • What ideas or theories are you aware of which look at this? Does theory about this aspect help you make more sense of what happened?
  • Could you use theory to improve this aspect in the future? In this section, you need to fully examine and make sense of factors affecting the situation, and exploring ways to change and develop these.

 

Conclusion

  • What have you learned from each experience?
  • What would you change for next time?
  • Would such a change be possible?
  • You should also identify what to improve. These may be specific skills, or identifying new knowledge.

 

Action plan

  • What could you do differently next time and how could you prepare for this?
  • What areas need developing or planning for? What resources do you need, and where would they be found?
  • What steps will be taken first?

 

 

 

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