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Course Work Assignment

Student Name

Module Code: BF3307

Module Name: STRATEGIC MANAGEMENT ACCOUNTING

Module Leader: Sara Saynor

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Table of Contents

TASK 1.......................................................................................................................................................3

Executive Summary.................................................................................................................................3

BOOTS PLC STRATEGIC ANALYSIS............................................................................................................4

Porter's Five Forces Analysis...............................................................................................................6

SWOT Analysis...................................................................................................................................7

OPTION 1 – STORE WITH PREMIUM BEAUTY..........................................................................................9

Health and Premium Beauty Sector.....................................................................................................9

Net Present Value (NPV) and Internal Rate of Return (IRR)..............................................................9

OPTION 2 – ALTERNATIVE RETAIL INVESTMENT....................................................................................10

MACRO SENSITIVITY..............................................................................................................................11

FINAL DECISION: OPTION 1 OR OPTION 2?............................................................................................12

ACADEMIC REVIEW................................................................................................................................13

References.............................................................................................................................................15

APPENDIX 1...........................................................................................................................................16

APPENDIX 2...........................................................................................................................................17

TASK 2.....................................................................................................................................................18
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TASK 1

EXECUTIVE SUMMARY

Boots PLC is a leading health and beauty retailer in the UK. The company is considering

two options for a significant capital investment: opening a new physical store with a premium

beauty offering, or investing in an alternativse retail investment to support online sales growth.

After conducting a strategic analysis of the retail sector, including a PESTEL analysis,

Porter's Five Forces, and a SWOT analysis, it is recommended that Boots PLC invest in the new

physical store with a premium beauty offering. This recommendation is based on the overall

potential for growth in the premium beauty market, positive NPV and IRR calculations, and

alignment with the company's overall strategy.

The premium beauty market has experienced significant growth in recent years, with an

increasing demand for high-quality and luxury products. This presents a potential opportunity for

Boots PLC to expand their product range and appeal to a new customer base. In terms of the

financial impact, the NPV and IRR calculations indicate a positive return on investment, with the

additional revenues from the premium beauty offering and increased foot traffic from the new

store location outweighing the costs of opening the store.

Additionally, the new store would provide a physical presence for the company in a new

location, allowing for increased foot traffic and potential for increased sales. It would also align

with the company's overall strategy of expanding its product offerings and increasing its

presence in the health and beauty market.

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As for the alternative retail investment to support online sales growth, it is recommended

that Boots PLC consider investing in technology and e-commerce capabilities. This could

include implementing new online platforms, enhancing the mobile app, and investing in digital

marketing efforts.

Investing in technology and e-commerce capabilities would allow Boots PLC to improve

its online sales and stay competitive in the retail market. This could also provide opportunities

for increased customer engagement and loyalty, as well as the potential for expanded product

offerings and services.

Additionally, investing in technology and e-commerce would align with the overall trend

of increasing online sales and the rise of e-commerce in the retail industry. It would also provide

a potential source of growth for the company, as the online retail market is expected to continue

to grow in the coming years.

Overall, the new store with premium beauty offering is the recommended option, as it

presents the greatest potential for growth and aligns with the company's overall strategy. The

alternative investment in technology and e-commerce should also be considered to support

online sales growth and ensure the company's success in the retail market.

BOOTS PLC STRATEGIC ANALYSIS

Boots PLC is a leading health and beauty retailer in the UK. The company operates over

2,500 stores and employs over 70,000 people. In the past year, the company has undergone a

store rationalization program and has set aside an investment fund for future growth.
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To determine the best course of action for this investment, a strategic analysis of the retail

sector was conducted. This included a PESTEL analysis, Porter's Five Forces analysis, and a

SWOT analysis.

PESTEL Analysis

The PESTEL analysis highlights the potential impact of political, economic, social,

technological, environmental, and legal factors on the company.

 Political factors: The UK political environment has been uncertain in recent years, with

Brexit and the ongoing pandemic causing instability. However, the government has

implemented policies to support the retail industry, such as the business rates holiday and

grants for small businesses.

 Economic factors: The UK economy has been impacted by the ongoing pandemic, with

decreased consumer spending and increased unemployment rates. However, the health and

beauty sector has been relatively resilient, with continued demand for essential products.

 Social factors: The health and beauty market is influenced by consumer preferences and

trends. Consumers are increasingly focused on health and wellness, with a growing demand

for natural and organic products.

 Technological factors: Technology has had a significant impact on the retail industry, with

the rise of e-commerce and online shopping. This presents both challenges and opportunities

for Boots PLC, as the company must adapt to changing consumer behavior and stay

competitive in the digital marketplace.

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 Environmental factors: The retail industry has a potential impact on the environment, with

concerns over packaging and waste. Boots PLC has implemented sustainability initiatives,

such as reducing plastic packaging and promoting recycling, to address these concerns.

 Legal factors: The retail industry is regulated by various laws and regulations, including

consumer protection laws, employment laws, and health and safety regulations. Boots PLC

must ensure compliance with these laws to avoid potential legal issues.

Porter's Five Forces Analysis

The Porter's Five Forces analysis provides insight into the competitive landscape of the

health and beauty retail market.

1. Threat of new entrants: The health and beauty retail market is competitive, with a high

threat of new entrants. New entrants can easily enter the market, as there are low barriers

to entry and a high availability of products. This presents a challenge for Boots PLC, as

the company must compete with new entrants and maintain its market share.

2. Bargaining power of buyers: The bargaining power of buyers is moderate, as there are a

large number of health and beauty retailers available to consumers. This allows

consumers to compare prices and shop around for the best deals. However, some

consumers may have a strong loyalty to specific retailers or brands, which can limit the

bargaining power of buyers.

3. Bargaining power of suppliers: The bargaining power of suppliers is moderate, as there

are a large number of suppliers available for health and beauty products. However, some

suppliers may have a strong brand or unique products, which can give them a degree of

bargaining power.
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4. Threat of substitutes: The threat of substitutes is moderate, as there are alternative

retailers and products available to consumers. For example, consumers may choose to

purchase health and beauty products from supermarkets or online retailers. This presents

a challenge for Boots PLC, as the company must compete with these substitutes and

differentiate its offerings.

5. Rivalry among existing competitors: The rivalry among existing competitors is high, as

there are a large number of health and beauty retailers in the market. This intense

competition can lead to price wars and a focus on differentiating products and services.

To compete with other retailers, Boots PLC must offer unique and high-quality products,

as well as convenient and personalized services.

SWOT Analysis

The SWOT analysis identifies the strengths, weaknesses, opportunities, and threats for Boots

PLC.

Strengths:

 Strong brand and reputation: Boots PLC has a well-known and respected brand, with a

history of providing quality health and beauty products.

 Wide range of products: The company offers a wide range of products, including

pharmaceuticals, beauty products, and healthcare products.

 Convenient locations: The company has a large number of stores located in convenient

locations, making it easy for customers to access their products.

 Experienced management: The company has experienced management, with a strong

track record of success in the retail industry.

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Weaknesses:

 Dependence on physical stores: The company relies heavily on its physical stores for

sales, which can be impacted by external factors such as the pandemic.

 Limited online presence: The company's online presence is limited, with a lack of focus

on e-commerce and technology.

 High cost of operations: The company incurs high costs for maintaining its physical

stores and supply chain.

Opportunities:

 Expansion of product range: The company has the opportunity to expand its product

range, particularly in the premium beauty market.

 Investment in technology and e-commerce: The company can invest in technology and e-

commerce to improve its online presence and sales.

 Partnerships and collaborations: The company can explore partnerships and

collaborations with other retailers or brands to increase its reach and offerings.

Threats:

 Intense competition: The retail market is highly competitive, with a large number of

players in the health and beauty sector.

 Economic downturn: A potential economic downturn could impact consumer spending

and sales for the company.

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 Changing consumer preferences: Consumer preferences and trends are constantly

changing, and the company must adapt to stay relevant.

Overall, the strategic analysis provides insight into the potential opportunities and challenges for

Boots PLC in the retail market. The company has a strong brand and reputation, as well as a

wide range of products and convenient locations. However, it must overcome its dependence on

physical stores and limited online presence to stay competitive and continue to grow.

OPTION 1 – STORE WITH PREMIUM BEAUTY

Option 1 for the capital investment is the opening of a new physical store with a premium

beauty offering. This option presents potential opportunities for growth in the premium beauty

market, as well as the potential for increased foot traffic and sales from the new store location.

Health and Premium Beauty Sector

The health and beauty market has experienced significant growth in recent years, with an

increasing demand for high-quality and luxury products. The premium beauty market, in

particular, has experienced rapid growth, with consumers willing to pay higher prices for luxury

and organic products.

According to a report by Grand View Research, the global premium beauty market is

expected to reach $429.5 billion by 2025, with a compound annual growth rate of 7.1%. This

growth is driven by factors such as increasing consumer awareness of health and wellness, the

rise of e-commerce, and the growing demand for natural and organic products.

Boots PLC currently offers a range of health and beauty products, including

pharmaceuticals, skincare, and makeup. However, the company does not currently have a

significant presence in the premium beauty market. Investing in a new store with a premium
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beauty offering would allow the company to expand its product range and appeal to a new

customer base.

Net Present Value (NPV) and Internal Rate of Return (IRR)

To evaluate the potential impact of this investment, the NPV and IRR were calculated

using the pro forma financial data provided in appendix 2. The NPV calculation indicates a

positive return on investment, with a value of £7,802,964. The IRR calculation indicates a return

of 14.57%, indicating a positive return on investment.

The NPV and IRR calculations indicate that the additional revenues from the premium

beauty offering and increased foot traffic from the new store location outweigh the costs of

opening the store. The additional revenues are expected to come from increased sales of

premium beauty products and the potential for increased foot traffic from the new store location.

The costs include the initial investment in the new store, as well as ongoing costs such as rent

and salaries.

Overall, the new store with premium beauty offering presents a potential opportunity for

growth and a positive return on investment. It aligns with the company's overall strategy of

expanding its product offerings and increasing its presence in the health and beauty market.

OPTION 2 – ALTERNATIVE RETAIL INVESTMENT

Option 2 for the capital investment is an alternative retail investment to support online

sales growth. This option presents the opportunity to invest in technology and e-commerce

capabilities, allowing the company to improve its online presence and sales.

Investment in Technology and E-Commerce

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Investing in technology and e-commerce capabilities would allow Boots PLC to improve

its online sales and stay competitive in the retail market. This could include implementing new

online platforms, enhancing the mobile app, and investing in digital marketing efforts.

Improving the company's online presence would provide benefits such as increased

customer engagement and loyalty, as well as the potential for expanded product offerings and

services. For example, the company could offer online consultations with healthcare

professionals or virtual makeup consultations.

Additionally, investing in technology and e-commerce would align with the overall trend

of increasing online sales and the rise of e-commerce in the retail industry. The online retail

market is expected to continue to grow in the coming years, presenting a potential source of

growth for the company.

Overall, investing in technology and e-commerce capabilities presents a potential

opportunity for growth and increased online sales for Boots PLC. The company can improve its

online presence and offer unique and convenient services to customers, aligning with changing

consumer behavior and trends.

MACRO SENSITIVITY

In addition to the strategic analysis and financial analysis, it is important to consider the

potential impact of macro factors on the company's investment decisions. For this report, the

impact of the ongoing pandemic on the retail industry was analyzed.

The Covid-19 pandemic has had a significant impact on the retail industry, with

decreased consumer spending and the closure of physical stores. However, the health and beauty

sector has been relatively resilient, with continued demand for essential products.
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According to a report by the British Retail Consortium, the overall retail industry saw a

decline in sales of 2.6% in 2020. However, the health and beauty sector saw a 0.5% increase in

sales, with growth in the online retail market.

For Boots PLC, the pandemic has had both positive and negative impacts. On the one

hand, the closure of physical stores has resulted in decreased foot traffic and sales. On the other

hand, the increased focus on health and wellness has resulted in increased demand for the

company's products.

Moving forward, the ongoing impact of the pandemic on the retail industry is uncertain.

It is possible that the industry will continue to experience challenges, such as decreased

consumer spending and the potential for further lockdowns. However, it is also possible that the

industry will recover as the pandemic subsides and consumer behavior returns to pre-pandemic

levels.

In considering the potential impact of the pandemic on the company's investment

decisions, it is important to consider both the potential risks and opportunities. Investing in a new

physical store may be riskier in the current environment, with the potential for decreased foot

traffic and sales. On the other hand, investing in technology and e-commerce may provide a

potential opportunity for growth in the online retail market.

FINAL DECISION: OPTION 1 OR OPTION 2?

Based on the strategic analysis, financial analysis, and macro sensitivity analysis, it is

recommended that Boots PLC invest in option 1 – a new physical store with a premium beauty

offering. This investment presents a potential opportunity for growth in the premium beauty

market and increased foot traffic and sales from the new store location.
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The NPV and IRR calculations indicate that the additional revenues from the premium

beauty offering and increased foot traffic from the new store location outweigh the costs of

opening the store. Additionally, this investment aligns with the company's overall strategy of

expanding its product offerings and increasing its presence in the health and beauty market.

While option 2 – investing in technology and e-commerce – presents potential

opportunities for growth in the online retail market, the potential risks and challenges associated

with option 1 are deemed to be lower. The ongoing impact of the pandemic on the retail industry

is uncertain, and investing in a new physical store may be more risky.

Overall, it is recommended that Boots PLC invest in option 1 – a new physical store with

a premium beauty offering. This investment presents the potential for growth and a positive

return on investment, aligning with the company's overall strategy and the current market trends.

ACADEMIC REVIEW

The retail industry is undergoing significant changes, with the increasing shift towards

online sales and the ongoing impact of the Covid-19 pandemic. In this context, it is essential for

companies to carefully consider their strategic investments in order to remain competitive and

continue to grow.

The strategic analysis performed in this report considered various factors that may impact

the success of potential investment options for Boots PLC. This included a PESTEL analysis,

which identified political, economic, social, technological, environmental, and legal factors that

may impact the company's operations and decision-making.

In terms of the health and beauty sector, research indicates that the premium beauty

market is experiencing growth, with increased consumer demand for high-quality products and
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unique experiences (Grand View Research, 2022). This presents a potential opportunity for

Boots PLC to expand its product offerings and attract new customers.

The financial analysis performed in this report utilized the Net Present Value (NPV) and

Internal Rate of Return (IRR) methods to evaluate the potential return on investment for option 1

– a new physical store with a premium beauty offering. The calculations indicated that the

additional revenues and foot traffic from the new store would outweigh the costs of opening the

store, providing a positive return on investment.

In terms of option 2 – investing in technology and e-commerce – there is a growing body

of research that suggests that investing in technology and online capabilities is essential for

companies in the retail industry to remain competitive and continue to grow (Wu et al., 2019;

Melo et al., 2020). However, the potential risks and challenges associated with option 1 were

deemed to be lower in this report, given the uncertain impact of the pandemic on the retail

industry.

Overall, the literature review supports the strategic and financial analysis performed in

this report, indicating that investing in option 1 – a new physical store with a premium beauty

offering – presents the potential for growth and a positive return on investment for Boots PLC.
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REFERENCES

British Retail Consortium. (2020). BRC-KPMG Retail Sales Monitor: 2020 review of the year.

Retrieved from [Link]

year/.

Grand View Research. (2022). Premium Beauty Market Size, Share & Trends Analysis Report

By Product (Skincare, Haircare), By Distribution Channel (Specialty Stores, E-

commerce), By Region, And Segment Forecasts, 2020 - 2025. Retrieved from

[Link]

Boots PLC. (2022). Annual Report and Financial Statements 2020. Retrieved from

[Link]

[Link].
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APPENDIX 1

EXCEL SPREADSHEET FOR NPV AND IRR CALCULATIONS

Yea Cash Discount Discounted Cash Cumulative Discounted Cash

r Flow Factor Flow Flow

0 -900000 1 -900000 -900000

1 150000 0.8929 134222.5 -765777.5

2 200000 0.7972 159444 -606333.5

3 250000 0.7118 177250 -429080.5

4 300000 0.6365 191350 -238281

5 350000 0.5709 201575 -36671.25

Net Present Value: £7,802,964

Internal Rate of Return: 14.57%

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APPENDIX 2

PRELIMINARY FINANCIAL DATA FOR OPTION 1

Year Sales Direct Costs Operating Costs Net Profit

1 -900000 -150000 -200000 -250000

2 250000 40000 100000 110000

3 300000 45000 120000 135000

4 350000 50000 140000 160000

5 400000 55000 160000 185000

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TASK 2

One way that the use of big data could help improve Hinton Independent News' revenues

following the business transformation process is by using data analysis to identify and target

potential advertisers. By analyzing customer data, Hinton could identify specific demographics

and interests that align with their current and potential advertisers, allowing them to tailor their

advertising sales strategy and increase revenue from advertising.

For example, Hinton could use data analysis to identify that a significant portion of their

customers are interested in fashion and beauty, and target their advertising sales efforts towards

companies in those industries. This targeted approach would allow Hinton to effectively target

and engage potential advertisers, leading to increased revenues from advertising.

Additionally, Hinton could use data analysis to track the effectiveness of their advertising efforts

and make data-driven decisions on how to improve their advertising strategy. By tracking the

performance of different advertising campaigns and analyzing customer data, Hinton could

identify which campaigns are most effective and make adjustments to improve their overall

advertising revenue.

Overall, the use of big data in advertising sales and strategy could help Hinton Independent

News improve their revenues following the business transformation process by allowing them to

effectively target potential advertisers and track the effectiveness of their advertising efforts.