Free «Home Retail Group: Annual Report and Financial Statements 2014» Essay Paper

Home Retail Group: Annual Report and Financial Statements 2014

Home Retail Group is the UK’s primary merchandise retailer that represents the two famous British brands, Argos and Homebase. This company endeavors to maintain its sustainability by studying the needs of the today’s buyers and arranging its business performance accordingly. This paper will outline the major organization’s achievements, as well as discuss the challenges and issues faced by this business in 2014. Moreover, it will compare the performance of Home Retail Group with one of its main rivals, Marks and Spencer, and provide the relevant recommendations aimed at maximizing company’s competitiveness and profits.

The Main Achievements of 2014

Fruitful Collaboration with Stakeholders, Suppliers and Complementors

Home Retail Group establishes strong logistics infrastructure, which enables providing sufficient delivery of products using convenient location of supply chains. This business collaborates with a number of easily recognizable brands, such as Habitat, Bush, Alba, Chad Valley, and Odina (Keynes, 2014, p. 4). Moreover, in order to minimize the suppliers’ pressure, Home Retail Group also proposes its own brands.

Besides, this retailer successfully maintains and increases its competitiveness by using complementary businesses. For instance, acknowledging the immense role of technology in the modern world, the company uses various devices in order to advertise and deliver their products to customers. Furthermore, Home Retail Group strives to display constant care about the clients’ needs by all the time enhancing the diversity of products, shopping options (stores and e-commerce), and providing financial services (credits).

The Diversity of Products and Shopping Possibilities

The company proposes about 80,000 products to its buyers, which accentuate the differentiation competitive strategy aimed at expanding a client base. Home Retail Group positions itself as a multi-channel retailer that excels in establishing the connection between the Internet, mobile devices, and “national network of over 1,000 stores” (Keynes, 2014, p. 4). This approach is one of the main advantageous strategies implemented by the organization in order to strengthen its position of a digital leader. Simultaneously, it works at developing the local presence, a part of which is the improvement of the delivery service that currently includes home delivery or store pick-up (Keynes, 2014, p. 4).

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Constantly Growing Cyber Presence

Home Retail Group endeavors to enhance its cyber presence because of the shift in the customers’ buying habits. Specifically, in the modern world, the tendency to shop online is getting stronger. Therefore, creating the brand of a digital leader is rather beneficial for the future sustainability. That is why, in 2014, Argos continued enhancing its Internet sales up to 44% of the total company’s sales, which is two percents more than in 2013(Walden & Ashton, 2014, p. 4).

In particular, growing cyber presence enables to advance the connection with clients by improving the accessibility of goods and building customers’ loyalty. Besides, it allows customers to obtain experience in online or mixed (online/in-store) shopping. In addition, using Internet is an effective means of advertising that can help this retailer to gain the world-wide popularity. Finally, the advancement of e-commerce supports effective cost management, which assures an increase of client base and strengthens customers’ loyalty.

 
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Costs Management

The successful cost management is one of the major competitive advantages of Home Retail Group. Providing a great variety of products for reasonable prices is possible due to the following accomplishments. Firstly, the retailer utilizes its well-elaborated distribution chain in order to maintain competitive prices. Secondly, the development of e-commerce enables managing the costs of products. In general, The Annual Report and Financial Statements reveals that this company adheres to ongoing cost-reduction programs and continues to reorganize the store estate (Keynes, 2014, p. 5). The generation of saving initiatives implemented by Argos and Homebase is a vivid evidence of strong and wise leadership.

Effective and Transparent Leadership

Home Retail Group is characterized with a sophisticated administrative structure, in which every manager possesses the proper balance of “skills, experience and knowledge, ideally enhanced by a diverse range of backgrounds” (Keynes, 2014, p. 34). Besides, both the executive and non-executive chiefs maintain constructive communication aimed at assuring the anticipation of problems and organization of productive workflow. The chairman claims that the diversity of directors’ backgrounds enables openness in communication and enhances creativeness. Similarly, each executive has the strictly defined tasks and responsibilities (Keynes, 2014, p. 35). In overall, the board of directors is responsible for “strategy; approval of any major acquisition; disposals; significant capital expenditure; financial results; and overseeing the Group’s systems of internal control, governance and risk management” (Keynes, 2014, p. 35).

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Environmental Sustainability

Home Retail Group demonstrates significant environmental sustainability In particular, the company utilizes eco-friendly techniques, such as recuing waste and recycling. For example, the relevant statistics claims that in 2014 the release of CO2 decreased for 33 % comparing with 2006 (Keynes, 2014, p. 22). The Group also concerns about its Greenhouse gas footprint; and, thus, the release of carbon reduced for 5 % in 2014. Besides, up to 92 % of waste is being recycled. In addition, the retailer employs the programs sourcing with care, which allow wistful use of natural resources (Keynes, 2014, p. 22). These accomplishments support the company’s endeavor to position it as an environmentally responsible retailer.

The Issues and Challenges

The identification and discussion of the current and potential risks is critically important for the risks management and mitigation of undesirable factors. These ones may negatively impact the organization’s sustainability. Firstly, the costs of materials, manufacture and delivery are changeable; and, thus, this uncertainty creates a moderate pressure on Home Retail Group. Moreover, despite being a leader in retailing, this company operates in a red zone. Therefore, it experiences the moderate pressure on new entries as well as medium to high pressure from existing rivals. Apart from that weather (seasonality) conditions create a significant uncertainty. In particular, it is connected with the unequal and hardly predictable annual distribution of profits.

Moreover, both businesses, Argos and Homebase, experience a constant deadline pressure. This demanding schedule is predefined by the necessity to meet the expectations of all stakeholders and maintain the position of the leading retailer. What makes the things even worse is that third-party suppliers may cause delays or even interruptions in delivery and manufacturing processes. Consequently, there is a constant risk of missed deadlines and, as a result, lost profits. 

Continuing to detect the risks connected with the failure to fulfill the demands of stakeholders, one should point to a great changeability in demographics. Undoubtedly, it is a concern that enhances the company’s risks and the level of uncertainly since even seemingly insignificant societal changes may lead to the shifts in buying capacities and habits.

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Furthermore, the uncertainly is increased by the need to operate with different currencies apart from domestic sterling. In addition, Home Retail Group is supposed to anticipate and address the issues connected with political risks management. Specifically, the changes in domestic or/and overseas laws and policies may negatively affect the company’s performance. For instance, to such regulations one can attribute some “changes in UK fiscal/ employment policy” as well as “changes in regulation of the financial services industry” (Keynes, 2014, p. 25). Without a doubt, sudden changes in the legal framework require the company’s fast and adequate actions aimed at aligning its business performance with the laws. Under such circumstances, the risk to lose profits significantly increases.

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Comparison of Home Retail Group and Marks and Spencer

It is reported that in 2014 the Group’s return on net assets was 31 % comparing with 33% for the former 2013. Similarly, Marks and Spencer reveals the following statistics: 11, 23% in 2014 and 10, 78% in 2013. Furthermore, comparing the company’s efficiency, it is appropriate to point to the Group’s net asset turnover being 63, 24% in 2014 and 61, 01% in 2013. Meanwhile, the rival retailer possessed 183% in 2014 and 184,7 % in 2013. Moreover, in 2014, the stock turnover of Home Retail Group was 39, 6% versus Marks and Spencer’s 29, 9% for the same year (Financial summary, 2015).

Assessing the solvency of these two retailers, one can detect the next statistics. The Group’s interest cover reduced to 315% in 2014 comparing with 412% for 2013. Meanwhile, its rival’s interest cover was 129, 35% in 2014, which was almost 30% bigger than in 2013, i.e. 97, 9%. Moreover, the statistics of the companies’ liquidity is the following one. The Group’s current assets/current liabilities x100 were 1, 53% in 2014 being a bit smaller than in 2013, i.e. 1, 63%. Simultaneously, the Marks and Spencer’s liquidity had grown from 56, 6% in 2013 up to 58, 23% in 2014. In general, the Group’s capital was 2618, 9 in 2014 and 2687, 5 in 2013, which in percentage was 2, 55 %. Meanwhile, Marks and Spencer’s capital was 408, 1 in 2014 versus 403, 5 in 2013 being percent as 1, 14% (Financial summary, 2015).

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The Recommendations Aimed at Increasing Profits

In order to effectively manage the company’s risks and, by this, improve earnings, it is necessary to consider the following approaches. Firstly, one should be sure that the prices are competitive and reasonable and meet the retailer’s public claim regarding a low cost competitive strategy. The Group should continue price tracking (Keynes, 2014, p. 25). Secondly, the company must be engaged to increase the customer’s choice as well as buying and delivery options. Thirdly, to remain the digital leader, the Group is recommended to develop partnership with a number of strategic technology businesses. Fourthly, in order to mitigate the risks connected with suppliers and the costs of materials/delivery, it is necessary to broaden the supplier base. This approach will help to limit the supplier’s pressure.

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Fifthly, the retailer should establish and adhere to uniform standards of all deliveries. They will help to set clear, reasonable and fair expectations towards every supplier. Sixthly, in order to be sure in the high quality of products, it is advised to implement strict quality control programs. It will help to maintain a good reputation and fulfil the needs of buyers. Seventhly, to expand the amount of provided services, it is suggested to improve lending opportunities aiming to satisfy the client’s needs and build strong customer loyalty. Eighthly, the Group should continue tracking demographic changes as well as it should detect the new trends and their potential impact on buying habits. This approach will align the company’s performance with the public demands.

Summing up, it is appropriate to stress that Home Retail Group is one of the leading British franchising companies. It is specialized in both e-commerce and in-store trades. This retailer positions itself as a digital leader by means of implementing the Internet and mobile devices aiming to provide various and convenient shopping to its clients. In this way, the organization strives to meet the demands of the today’s humanity and maintain the leading position. Moreover, it constructs the effective administrative structure in order to productively manage current and potential risks and lower the uncertainty. One of the most important approaches of the Group is to operate in frames of business ethics and environmental sustainability. The comparison of financial facts with its main competitor, Marks and Spencer, displays that Home Retail Group experiences moderate to high pressure from existing rivals.

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