Financial Management - WHSmith PLC Essay Example | Topics and Well Written Essays - 2500 words

Financial Management - WHSmith PLC - Essay Example However, WHSmith Retail sales fell by 1% to 1,453m from last year's 1,463m, driven mainly by a 2% loss in its High Street Retail business. This loss in high street retail was only mildly offset by the excellent performance in travel retail characterized by an 11% increase in profits to 21m from 19m in the previous year, and a 3% increase in sales. Reasons for the overall profit loss of the group were attributed to a significant decrease in sales due to unsuccessful marketing and promotions and the continued sale of products with decreasing demand; and an unsuccessful investment in technology, which contributed to the company's increased costs. Another aspect of the retail business is WHSmith Online. Launched in 2000, the retail website, www.whsmith.co.uk, has not been utilized by the company to its potential and is not integrated with the rest of the retail business. It experienced a loss of 2m in profit, similar to the previous year and sales of 7m. In order to turn the company around and increase retail sales, the company will focus on developing a multi-channel retail strategy, taking advantage of WHSmith Online's full potential to increase online sales, as well as sales in high street and travel stores. Shank and Govindarajan (1991) defines strategic cost management as "the process through which a sophisticated understanding of an organization's cost structure is developed and used in the search for sustainable competitive advantage." They argue that blending the three themes of value chain analysis, cost driver analysis, and competitive advantage analysis represents the most powerful way to determine which strategic direction will be most beneficial for an organization (Shank and Govindarajan, 1992). By applying Shank and Govindarajan's framework, one can understand why implementing a multi-channel strategy will benefit WHSmith's retail business in the long run. WHSmith Value Chain Analysis A value chain is "linked set of value-creating activities" (Shank and Govindarajan, 1992). Based on WHSmith's value chain, one can see that a multi-channel retail strategy is most profitable for the company. First, by analyzing WHSmith's internal value chain, one can infer that WHSmith Online has developed as a separated business division that is not integrated into the WHSmith Retail since its launch in 2000. WHSmith Online does not support any of the value chain activities of the group and its potential was not fully explored. Thus, it remains to be a traditional retail business. In the purchasing stage, products are purchased from its distributors based on the demand forecasted by the company. These products are then shipped to warehouses, which deliver them to the respective high street retail stores in the distribution and merchandising stages. High street retail stores then arrange these products, utilizing the available spaces and conduct marketing activities as directed by the central office in the store operations and marketing stages. At this stage, the point of sale is situated at cash registers in each store and mails received by the company from its loyal customers. Figure 2. WHSmith Internal Value Chain Analysis Based on the existing internal value chain and the performance during the previous year, the following improvements need to be employed (WHSmith, 2004): Purchasing: Discontinue purchase