Coursework Assignment

Academic Year 2024/25

Module Code:BF3307

Module Name: Strategic Management Accounting

Module Leader:Becky Bate

Task Details/Description

Your coursework has 2 tasks.

Researching a sector, analysing data and writing a formal report are very common requirements for graduate roles. Previously a student used this coursework to support an assessment centre for a major travel company which involved assessing whether to open a new retail shop outlet.

Module Learning Outcomes Assessed

1. Implement and evaluate the use of management accounting tools from a strategic perspective in a variety of organisational contexts
2. Analyse and communicate management accounting information using a range of appropriate mediums and language to decision makers in organisations. 

Presentation Requirements

Format: An appropriate professional report format must be used.

Word Count: 3,000 words maximum (+/- 10%)

Font Style / Size:Arial, size 11 or 12

Line Spacing:1.5 lines

Additional Note re Word Count

This refers to your main discursive sections (excluding headings, financial analysis, calculations, tables, and appendices). The balance of words should be pro-rated between Tasks 1 and 2 in proportion to their mark allocation.

Submission Date & Time

By 12pm (midday) on Friday 13th December 2024. 

Assessment Weighting for the Module

The coursework makes up 40% of the overall module mark. 

Assessment Criteria

Detailed assessment criteria are provided in a separate document 

Ethical Requirements

No primary data will be required for this report. All data will be secondary, obtained from information freely available in the public domain.

Essential Reading

It is expected that you will draw on information in the case and carry out additional research conducted around the industry and the techniques in the case. 

You have been hired as a consultant to Boots Plc to advise senior management on whether the company should undertake a significant capital investment. Despite Covid-19 and the recent store rationalisation programme, Boots Plc has set aside an investment fund.

Boots plc currently uses Net Present Value (NPV) and Internal Rate of Return (IRR) to make their project capital investment business decisions.

They have two options:

Option 1

Refurbish and refit an existing store to achieve two objectives; to reduce the product lines, rebranding to a speciality Boots store only selling premium beauty, and to create excess floor space. The additional space would be used to invite in a concession from another brand, a practice known as ‘retail in retail 

Option 2

Invest in an alternative retail investment to support online sales growth. This must not include the opening of a new store.

You are required to:

Prepare a formal strategic report for the senior management of Boots Plc, making recommendations as to which option they should invest in.

Your recommendations will be based on:

• your own strategic analysis of Boots and the retail sector (you can use any tool

i.e. PESTEL, Porters, SWOT etc)

• a detailed evaluation of Option 1, including calculations of the net present value (NPV) and internal rate of return (IRR) for Option 1.
• a detailed evaluation of Option 2, an alternative investment of your choosing, which does not include the opening of a new store. Your alternative investment can be any investment in retail that you feel is appropriate to improve online sales. There is no requirement to prepare a financial investment appraisal calculation for Option 2

Detailed Report Structure

Your business report should follow the format given below. Blackboard (Turnitin) will only accept one document for submission so please use Word for your report format. You should ensure any financial data is included in appendices in an appropriate manner and is visible to the reader.

Important! there is no right answer, and your report will be marked on the basis of the quality of your financial analysis, valid sector research and justification for your final investment decision. Your report will also be assessed on the quality of your communication i.e., appropriate style, language, organisation and clarity as this is a key graduate skill.

Section 1 – Executive Summary

This short overview should include which option you would recommend:

Section 2 – Strategic Analysis

A strategic analysis of Boots Plc in the retail market in the UK using appropriate strategic tools. In this section you will present a high-level analysis of Boots which sets the scene for your investment decision.

Section 3 – Critical Evaluation of Option 1

For this option only, provide financial analysis (in your appendix) and then state and justify any assumptions you have made when calculating the NPV and IRR. You should also assess the attractiveness of this option by conducting research on the investment opportunity. This will include drawing on any relevant published sector and business articles, and industry and academic reports.

Section 4 – Critical Evaluation of Option 2

This option does not require you to do NPV/IRR calculations and will focus on the quality of your research, written arguments, and justified consideration of your investment idea. You can analyse any relevant idea here. More convincing ideas will be anchored in published sector and business articles, industry and academic reports and will state and justify any assumptions made.

Section 5 – Macro-economic Consideration

Identify and fully explain one significant macro-economic / retail sector factor you think should be considered by Boots senior management before a final investment decision is made. You must relate your macro factor to both Options 1 and 2 in your explanation. Draw on your retail sector research here and consider the economy in the UK, world events and retail trends.

Section 6 – Final Recommendation

Make a recommendation for the final investment decision and provide a persuasive justification for your decision. Your recommendation should draw on your analysis and findings in Sections 2 to 5. 

Section 7 – Literature Review of Investment Appraisal Techniques

Boots plc currently uses Net Present Value (NPV) and Internal Rate of Return (IRR) to make their project capital investment business decisions. The senior management would like you to produce an evaluation of the appropriateness of these tools supported by a critical consideration of suitable published evidence. 

Appendices

Appendix 1 should contain your detailed NPV and IRR calculations for Option 1. You should also state any adjustments and/or assumptions that you have made. Please use Excel to prepare your calculations – a proforma has been provided - and ensure they are included in your final Word document in an appropriate manner.

Throughout your report you should refer to relevant professional and academic literature and use Harvard style referencing.

Boots Plc – Case Study Data

Option 1: Retail in Retail at Boots Plc

Boots Plc has an opportunity to refurbish and refit one of its less profitable stores, with a view to achieve two objectives; to reduce the product lines, rebranding to a speciality Boots store only selling premium beauty, and to free up floor space. The space created would be used to invite in a concession from another brand, a practice known as ‘retail in retail’.

Boots has identified the store that will be refurbished and will be ready for work to begin on 1st September 2025 and to benefit from winter trading it will aim to commence trading on 1st December 2025.

Preliminary analysis has identified a total project investment cost which is made up of the following items: 

Strategic rationale

The store is located on the high street of the local town centre. Shopping in the town centre is difficult due to the heavy traffic congestion and parking charges. Refurbishing this store potentially creates an opportunity to revitalise the store and support a return to a healthier profit level. This proposal assumes an opening date of 1st December 2025. 

Catchment

The proposed refurbishment project is based on attracting people within a 15-minute drive time to the high street. This can however vary depending on traffic conditions, as the traffic levels can be moderate to high, particularly at the weekend. Although there is parking nearby, this is typically full at the weekends, and wait times can exceed 30 minutes. The town has a total resident population of 260,000. The demographic of this store’s catchment is weighted towards the lower-income demographic group. In the proposed catchment area 57% of potential customers are in this group compared to the UK average of 40%.

Market share

Boots currently has a 15% market share of the personal care and toiletries retail market within the local catchment area which is below their national average market share. 

Competition

Preliminary market research has identified that there is no established store offering premium beauty services within the immediate vicinity of the high street.

Sales of standard items

The table below shows typical monthly sales takings for the high street store.

The sale of standard items typically generated a 50% gross margin.

Sales of premium beauty

You need to research the premium beauty (e.g. Clarins, Clinique, Dior) sector using the university databases and your own research to work out whether this is a growing or declining market. You will then include your best estimate of forecast sales for premium beauty using the following sales revenue forecasts with an average gross profit margin of 75%.

For example, if you identify that this is a declining market then you would not be able to justify the highest level of sales £4,600 per week as this is unlikely to be achieved.

There would be additional capital investment costs to add high quality beauty counter units which cost £30,000 in total 

Store detail

Operationally the new speciality store:

• will cease to sell all product lines that fall within the ‘standard items’ category
• will have an average gross margin of 75% on premium beauty sales
• will benefit from the following extra annualised store operational fixed cost savings (stated at Year 1 values) because of the new speciality store approach 

Retail-in-retail concession

In a move to boost the store profitability, a small independent café has been invited to rent the excess space in the store. Boots Plc expected to generate additional income from rent, while also benefiting from the aforementioned running cost savings. Boots Plc could expect to earn around £180,000 per year** in net rental income from a concession.

**Inflation for these cashflows is 5% per annum which should be applied for Year 2 values onwards.

The Year 1 trading period for the refurbished store will be 39 weeks rather than 52 weeks so needs adjusting in your financial analysis.

Tax rate

The average tax rate applicable to Boots Plc is 20% and is assumed to be paid in the year to which it relates. 

Depreciation

Assume that all preliminary project costs of £800,000 are eligible for accounting capitalisation and depreciation is based on this. The project will be depreciated over 10 years on a straight-line basis.

Benchmarking

Boots typically have a real cost of capital of 4.7% and average inflation in the economy is approximately 7%. The internal rate of return (IRR) benchmark minimum for similar stores is 14%

Cannibalisation of existing business at other locations

There is another Boots store (Store X) which is located 4km from the high street. There are two further Boots stores which might also be affected. These are Store Y and Store Z as although they are over 10km distance from the proposed new store, their core catchments do overlap with the high street catchment. All three of these stores sell premium beauty lines. The estimated cannibalisation of sales from these neighbouring stores is gross sales of £1,000 per week in total 

Milestones

Investment date 1st September 2025 Completion of refurb and refit    30th September 2025 Completion of snagging and handover 1st November 2025 Target opening date 1st December 2025

Excel proforma provided

You will update this spreadsheet to calcu late the NPV and IRR of Option 1 and include it as an appendix to your report.

Option 2: An alternative retail investment to support online sales growth 

There is no financial data available for this option as the aim is that you research this option yourself using the library databases, quality news and your own findings on the online retail sector and its development in recent years and post covid times.

Remember to back up your discussions with evidence, quality information and data sources. Although there is no right answer, we will be considering whether your suggestion is relevant and feasible and would potentially lead to more online sales for boots.

Please refer to the CIMA Hinton Case Study on Blackboard and answer only this requirement.