john lewis partnership - mbacasecomp.comnupur. challenge how can j.l.p navigate the uncertainty...
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JOHN LEWIS PARTNERSHIP Rutherford Consulting
University of Alberta
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INTRODUCTION
Mackenzie
Morgan
Abby
Nupur
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CHALLENGE
How can J.L.P navigate the uncertainty presented by recent political changes in the U.K.?
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RECOMMENDATION
Acquire a grocery store in Australia to diversify markets, while taking domestic steps to prepare for Brexit.
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ANALYSIS Rutherford Consulting
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JLP’S BUSINESSES
34 Department Stores
Other (eg. Home store)
353 Waitrose Supermarkets
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JLP’S FINANCIALS
❖Growth in both grocery and department store businesses
❖Margins have been acceptable in grocery store but department store margins weak
❖Partnership bonus’ have been decreasing
❖Overall profit has increased from 2013- 2017
❖Borrowings have been stable
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SWOT
Strengths
• Strong culture
• Democratic in Partnerships
• Unique governance structure
• Local presence
• Diversity of businesses
• Knowledge and expertise in retail
Weaknesses
• Lack of diversity in supply chain
• Dependence of labour from non UK resident
• Slow to establish online presence
• Need governance process (hinders quick decisions)
Opportunities
• Utilize UK suppliers
• Leverage expertise in retail internationally
• Strong relationships with commonwealth nations
Threats
• Online shopping
• Technology replacing jobs
• Competitors with international presence – less exposed to pound
• Brexit (discussed above)
v
Unlike competitors you are not geographically
diversified – with Brexit uncertainty
v
v
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BREXIT
Potential Currency Fluctuation
Cost of imported goods – supply
chain
Loss of unskilled workers – HR issues
**Need to focus on stabilizing business
– not large growth
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ALTERNATIVES Rutherford Consulting
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ALTERNATIVES CRITERIATIME
Cost
Brexit: Human Resource issues?
Brexit: Supply Chain issues?
Ease of implementation
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SELL ALL DEPARTMENT STORES
Advantages
• More effected by Brexit
• Focus efforts in one areas
• Poor margins
Disadvantages
• Less diversified
• Large portion of the business
• Huge hit on culture –firing employees
• Who will buy acquisition of that size
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ACQUIRE A SERVICE ORIENTED BUSINESS WITHIN THE UK
Advantages
• Diversify business type
• Fixes supply chain issues
Disadvantages
• Will not solve labour issues
• Unknown businesses
• Further investing in the UK
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INTERNATIONAL MERGER
Advantages
• Less exposed to pound
• Diversify markets
Disadvantages
• Hard to find partner quickly
• All partners have to be on board
• No relationships
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INTERNATIONAL ACQUISITION
Advantages
• Less exposed to pound
• Diversify markets
• Full control
• No rushed relationships
Disadvantages
• Tight timeline
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RECOMMENDATION
International acquisition of a chain of stores, while taking domestic steps to combat potential Brexit threats.
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IMPLEMENTATION Rutherford Consulting
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RECOMMENDATION
Acquire a grocery store in Australia to diversify markets
Free up capital by closing 6 department stores
Take domestic steps for labour and supply chain to prepare for Brexit
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WHY AUSTRALIA?
Similar cultural fit
Potential of “Canzuk” in light of Brexit
Freedom of movement organization between Canada, Australia, New Zealand, UK
UK and Australia likely to be first
Australia dollar low right now – could enter market at a good price
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CRITERIA FOR ACQUISITION
CultureAustralian culture – good fit with the partnership
Australian “everyone deserves a go”
Higher wages/benefits
Commonwealth connection
Stores actively looking for purchases (i.e. Broger)
Small enough that its not too big
No capital to buy similar size
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EXAMPLE: BROGER IN AUSTRALIA
Small to mid sized grocery
20 grocery stores in Queensland and NSW
Sourced with Australian and SE Asian goods
Fairly paid employees
Local connections – similar to J.L.P
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IMPLEMENTATION – STEP 1
• Get consensus on international expansion and store closures
Call a partnership council and board meeting immediately
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HOW TO PROMOTE IDEA WITH PARTNERS?
Emphasize need to
diversify to other markets
Brexit could pose a sudden
and serious threat to all
partners in the UK – emphasize
all threats
Have a backup plan – another
source of income if Brexit hurts sales in the UK
through currency devaluation
(rising prices)
Australia has strong
protections for workers and passionate
about community development so
this fits with culture of
partnership
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IMPLEMENTATION – STEP 2 AND 3
2) Hire an Australian consultant to get background information and evaluation of Brogers
3) Create an acquisition proposal and approach Broger
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IMPLEMENTATION – STEP 4
4) Negotiate the terms of acquisition with Broger and create a change management process
• Workforce
• Culture
• Supply Chain
• Exchange Range
• Communication
• Project champion
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TIMELINE FOR ACQUISITION
18 months
16 months
1 year6 months4 months0 months
Now:Council and board meeting
2 months: Get board and council
Approved
4 months: Finalize
Acquisition proposal
6 months: approach
Broger and start negotiations
1 Year: Finish Negotiations
And acquire
16 Months: Streamline
Operations in Australia
***Simultaneously taking domestic actions
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DOMESTIC ACTIONS – SUPPLY CHAIN
With 6 stores closing, less dependence on EU suppliers –helps mitigate threat from Brexit
Start partnering up with UK based suppliers – UK wants more “local”Less disrupted by currency fluctuations
Combat further domestic problems:In the long run, leverage your presence into the Asian market, due to the new acquisitions from relationships with potential suppliers
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DOMESTIC ACTIONS – LABOUR CONSIDERATIONS
Phase out 6 shops across the UK
Unskilled labour loss as they are affected by Brexit
Funnel remaining staff into positions in still open stores and is not online logistics
Less unskilled labour needs – which are currently being filled by out of countryBrexit will not hurt
Highly skilled people can transition into logistics and IT needs of online commerce
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FINANCIALS Rutherford Consulting
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TOTAL OPERATING PROFITS
390
400
410
420
430
440
450
460
470
480
490
2013 2014 2015 2016 2017
in m
poun
ds
2017 was
a strong
year
Revenues
from
Waitrose
and JL
dept
stores
increased
in 2017
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MARGINS
0
1
2
3
4
5
6
2013 2014 2015 2016 2017
%
Overall
margins
have
decreased
Acquisition
have
margins of
5.5%
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COST ASSUMPTIONS
- Sale of 6 JLP department stores: total value of £97 million, based on expected land value in key locations
- Value of Australian acquisition £120 million, based on exchange rates and expected land value in Australian locations
- Partnership bonuses recommended to decrease to 3% in 2017 to assist in financing acquisition
- Will require borrowing £17 million
- Cost of hiring company to assist in acquisition: £500,000
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FINANCIAL OUTLOOK
2016 2017 2018
£(966.6) million £(983) million £(967) million
Recommended that debt from acquisition be paid back immediately in 2018
Borrowings
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FINANCIAL OUTLOOK
2016 2017 2018 2019
£353 million £336 million £341 million £350 million
- Acquisition will stabilize the company through Brexit
- Profit doesn’t jump back to 2016 levels as it is recommended debt by paid
back immediately and continue to be paid back going forward
- Recommend 6% Partnership bonus be sustained in 2018 and 2019
- Longer term, company will be able to utilize supply chain connections in
Southeast Asian countries in order to shift some of their supply chain from EU
based countries
Profit for the year
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KEY PERFORMANCE INDICATORS
Within the first year of operations in
Australia, revenue from Australia – 6%
of total revenue
Borrowings of less than €900 M by
2019
Partner approval rate for the
strategy of 75% or more
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RISKS AND MITIGATIONS Rutherford Consulting
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RISKS AND MITIGATION
Risk Mitigation
Cannot sell 6 department
stores
Look at other forms of financing
Partnership does not vote to
acquire
Continue with domestic plan – value your
governance structure
Acquisition does not go
through
Still take domestic action, investigate options
elsewhere eg. Canada, India
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CONCLUSION Rutherford Consulting
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CONCLUSION
Mitigate Brexit Threats
Geographical diversification
Keeping partners happy
More international partnerships
International Acquisition