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M&S 2 (Finance) IrisV2

14/10/98 10:04 am

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Financial Management in a Retail Setting


Introduction

Store management

Marks & Spencer is Europes most profitable retailer with a global brand
and global recognition. Its achievement largely depends on the effective use
of people. An organisation may have the latest technology and the best
physical resources, but it will never thrive if it does not value its people. Its
most valuable asset will always be its people and the work they do. For
Marks & Spencer, this means that the people who look after customers,
select and merchandise the products and run the operations, must aspire to
be the best qualified and equipped in retailing.

Management can be defined as getting


things done with or through other
people. It involves deciding on
objectives and making decisions to
ensure that objectives are met. It
involves planning, organising and coordinating activities. It involves
controlling - making sure that things
are going to plan and working with
people. It is necessary, through
effective communication, to make sure
that people are committed to activities
and the organisation.

GENERAL MANAGER

Marks & Spencers leading position in the highly competitive market-place


depends on its ability to stay one step ahead of other retailers, both in the
products and services on offer and how the business is organised to deliver
them. As an organisation which recognises the importance of innovation,
Marks & Spencer tries to nurture flexible and imaginative people. The
Company needs people who are good at planning and organising, who can
set objectives, establish priorities and allocate proper amounts of time to
activities.
This case study focuses on the challenging role of the Financial
Manager behind the scenes at every Marks & Spencer store. In doing
so, it highlights many of the qualities, such as leadership, adaptability
and analytical consideration, required by Financial Managers every
day in a busy retail environment.

Working for a retailer


Retailing is the practice of selling
goods in small quantities to the general
public. It is a business where
employees come face-to-face with
customers every day. Customers can be
very demanding - they enter a store and
expect their needs to be met
immediately, irrespective of whether
the lorries delivering bakery goods are
stuck in snow or that a key supplier is
having production problems.
Many businesses in different types of
environment are able to keep their
customers at arms length. If they need
to do some training or catch up on
paperwork, it is relatively easy to make
time. This is not the case in a Marks &
Spencer store. It is just not possible to
ignore customer demands. This may
often mean having to juggle many tasks
at once, such as an accident on the sales
floor, a customer complaint, a stock
problem or a till breakdown.
Retailing is renowned for its
unpredictability with every day
bringing new problems to solve. Good
management is all about using
managerial experience, instinct and
flair to make the best possible decision
to overcome the problem.

Everything a manager does in retailing


is in the public eye. Successes and
mistakes are there to see. And, of
course, there is also evidence - usually
in the form of increased or decreased
sales - by which to measure
performance.
Some people say that retail is detail it is about getting small things right,
without losing sight of long-term
objectives. Making the right decisions
ensures that customers come back
tomorrow - and the day after.

The task of running a Marks & Spencer


store is so broad-ranging that it has to
be divided up into a number of
different, closely co-ordinated, areas of
responsibility. Dividing up an
organisation is often referred to as
departmentation. Stores are divided
into broad sectors, each of which has its
own specialism or function. Although
the functions are separate, each
manager works together as part of The
Store Management Team.
The Store Management Team includes
a Commercial Manager, a Financial

COMMERCIAL
MANAGER

FINANCIAL
MANAGER

PERSONNEL
MANAGER

ASSISTANT
COMMERCIAL
MANAGER

ASSISTANT
FINANCIAL
MANAGER

ASSISTANT
PERSONNEL
MANAGER

Manager and a Personnel Manager,


who all report to a General Manager.
They have a common goal - to improve
the performance of their store by
motivating and leading other people in
the Store Team. Successful Store
Managers
come
from
many
backgrounds, but share a willingness to
move around the country - and
ultimately the world - in search of the
best opportunities.
Their roles are briefly as follows:
Commercial Manager
(selling and merchandising)

influences what is sold and finds


ways of selling it faster

manages, motivates and inspires


others to put their ideas into action

adds personal flair and imagination


to tried and tested methods.
Financial Manager
(influencing the profit)

influences the profitability of


multi-million pound stores

interprets information on store


performance
and
influences
business decisions

manages financial, computer and


security systems - and the people
who work with them.

Personnel Manager
(staffing and training)

ensures that staff are highly


motivated and their talents are used
in the most effective way

balances the commercial needs of


the store with the needs of its staff

implements and manages all


aspects of personnel policy from
appraisal systems to training.
This case study examines the role of the
Financial Manager.

Managing finance
In order to operate, a business needs
resources. Whether these resources
are physical resources, such as
property, equipment and materials, or
less tangible human resources,
money is required to pay for their use.
As a result, the management of
finance is inseparable from the
management of the business as a
whole.
Controlling costs is a key element in
the process of financial management.
It involves having a good knowledge
of the business and the costs involved
and enables managers to:

evaluate alternative courses of


action for business planning

measure, analyse and control


performance against objectives.

M&S 2 (Finance) IrisV2

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be a financial advisor, systems expert,


team-leader and retailer. Attention to
detail on a day-to-day basis is
important but they must also be a
strategic thinker with the ability to
plan ahead to shape the commercial
direction of the business.

The financial plan


The Financial
Manager
The Financial Manager has the most
varied role of all the Store
Management Team. In any one month,
the Financial Manager could be
dealing with issues as diverse as
planning
for
new
systems
implementation,
preparing
and
interpreting the quarterly profit
statement to influence the priorities of
the Management Team, or even
working with other retailers and the
Local Authority to help address
current security issues.
As a key player in the running of a
store, or region of stores, the role of
the Financial Manager is to develop
ways of making the stores more
profitable.
The Financial Manager is responsible
for providing timely and accurate data
to manage each store. Everything a
Financial Manager does will have a
direct impact on each store, although it
is less immediately visible to the
customer. They are actively involved
in the day-to-day management of the
store and need a good appreciation of
all aspects of its operation. For
example, in the same day, they may be
looking at the financial implications of
a new delivery schedule, discussing a
new store development, thinking about
the effects of opening on Sundays, as
well as assessing the costs and benefits
from the use of security cameras. It is
important that the Financial Manager
is able to discuss ideas, and using
various methods of analysis, to make
final recommendations on whether
they will improve profitability and
should therefore be implemented.
This type of practical, locally-based
financial management is for people
who are logical, analytical and
business-minded. In a commerciallydriven environment, they will need to

Everyone budgets to a greater or lesser


extent. A budget is a financial plan
developed for the future. Budgeting is
an important control mechanism for
every organisation and helps to predict
what the organisation thinks will
happen over the next accounting
period. Studying budgeting results is a
way of monitoring and controlling
performance. Comparing expected
results to actual results and then
finding out why differences have taken
place is called variance analysis.
The forecast financial plan or budget
for each store is known as the forecast
profit and loss account. At the
beginning of each year, the
Management Team for each store will
look back at the previous years sales
and the targets/objectives for the
whole organisation to predict their
sales for the store for the following
year. Anticipating what each store
expects to achieve is particularly
important as it takes account of local
circumstances, such as the activities of
competitors in the local shopping
environment. For example, the
opening of a large new shopping mall
will influence the performance of
other stores in the region. The profit
and loss account will also take into
account controllable costs. These are
locally-based costs on which the
Management Team of each store can
have an impact. They include staffing
costs (number of staff to achieve sales
targets), costs of refunds, lighting and
gas costs, stationery costs, staff
uniforms, as well as any other costs
related to each store.
Producing a forecast profit and loss
account enables each store to make
comparisons with the activities of
others. This is called benchmarking.
It enables each store to assess its
performance against the activities of
best-in-class similar stores. Making
comparisons through the investigation
of good practice and store
performance is common practice at
Marks & Spencer, enabling each store
to learn and benefit from the good
practice of others.

Marks & Spencer


profit and loss
template
The forecast profit and loss account
is the key element in the business plan
for each store. Having established the
objectives, it helps each store to know
where it is going, how it will get there
and the resources it requires. The
Financial Manager is responsible for
discussing various aspects of the plan
and its implementation with other
members of the Management Team.
The plan will also be reviewed by
Financial Management at Head Office.
For example, they might question
certain figures or identify areas which
might not have been considered by
the Store Management Team, e.g.
knowledge of a new system roll-out.
Once the plan has been agreed, the
Financial Managers role is to ensure
that the store performs to the targets
identified by the plan.

Monitoring and
controlling
performance
While the Commercial Manager is
generating enough sales to meet the
forecast, and the Personnel Manager is
controlling the agreed staffing budget,
the Financial Manager will monitor all
other costs. Costs are broadly broken
down into direct costs and indirect
costs. Direct costs are those clearly
identified with the sales volume. They
include carrier bags, food waste and
staffing costs. Indirect costs include
stationery,
telephone
expenses,
security and electricity. Making the
store more profitable means looking at
the large direct costs but also
examining smaller indirect costs.
(Savings in stationery in one store may
be small, but across the whole Marks
& Spencer Group, it may represent a
considerable sum.)

Some costs are easier to control than


others. For example, notices near light
switches may be a simple way to save
electricity by encouraging staff to turn
off unnecessary lights. The use of
stationery may simply be limited to the
amount ordered. Costs such as theft
and loss, however, may take up much
more time, involving maximising the
benefits of close-circuit television,
using security guards efficiently to
deter crime and deciding how to use
store detectives. With around 35 tills in
an average store, possibly being using
by up to eight to ten staff each day and
with large volumes of stock coming in
at the back door, it will also involve
close scrutiny of all areas of business
organisation.

Line Manager
The Financial Manager is also a
Line Manager with established
responsibilities for decision-making.
Every store has an administration
office comprising a team of people
dealing with expense-related issues.
The team may be between 2 to 25 staff
(depending on the size of store) and
may include a Finance Supervisor
reporting directly to either the
Financial Manager or Assistant
Financial Manager. The team will also
be responsible for security staff.
The
administration
office
is
responsible for various information
systems, such as Food Stock
Management, Textile Ordering and
Point-of-Sale information from the
tills. Although staff across the store
use these systems, reports from the
systems will be extracted by the
Financial Team for accounting
purposes. For example, information
from the tills provides key sales
information which feeds into staffing
costs. The Financial Manager will be
consulted when problems arise with
these systems and will take
responsibility for decisions which
have to be made. They will be
responsible for data protection and
computer security.
The team of managers within the store
are not there all of the time,
particularly when there is late opening.
From time-to-time, therefore, the
Financial Manager takes responsibility
for the whole store, dealing with
operational problems wherever they
arise within the store, such as a

customer problem, a distressed


member of staff or a stock issue. The
Financial Manager takes joint
responsibility for legal requirements
within the store, such as temperature
issues, pricing issues, hygiene and
waste disposal.

Problem solving
Problem solving is not just
about day-to-day issues. It also
involves understanding the complex
relationship between variables so that
the Financial Manager can respond
flexibly to locally-based issues and
problems as and when they arise. This
may include feasibility issues, such as
advising about the costs and benefits
of working on Sundays, which may
require considerable research and
planning. The Financial Manager may
also advise about general opening
times.

Acting as an auditor
The Financial Manager acts as an
internal auditor responsible for many
different areas within each store.
Every year, the store will be audited by
the Companys internal audit team
from Head Office. The Financial
Manager will therefore develop an
audit trail for key issues which show
the paperwork and procedures
followed in responding to a particular
problem to prove the integrity of the
Companys procedures.

TASKS & ACTIVITIES

List five qualities required by


somebody who would like a

Imagine you are the Financial


Manager of a Marks & Spencer

career in retailing. Explain why you

store. It has been suggested that the

have chosen each of these qualities.

store should open on Sundays and


you need to prepare a report for the

What is meant by the term


management? Describe one

example of a management issue.

Explain how the role of the


Financial Manager differs to that

of the Commercial Manager and

other managers about this issue. List


the information you would require for
your report.

Explain what is meant by the


following terms and phrases:

benchmarking

direct costs

till balances

of indirect costs.

point-of-sale information

pricing issues

forecast profit and loss account

departmentation.

Personnel Manager.

Provide two examples of direct


costs in a store and two examples

What is a financial plan? Explain


how the Financial Manager will

use this plan.

What is an audit trail? Who will it


help?

Summary
The Financial Manager has a vital role
which impacts directly on the
activities of the Commercial and
Personnel team. It is a very varied role,
involved in every area of operation.
Financial Managers are sometimes
called the conscience of the store.
Their work involves helping to
develop better practices and improving
the ways in which Marks & Spencers
stores serve their customers.

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