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McGregors Ltd. Department Store

Written Analysis and Communication-I

Submitted to- Mukul Vasavada

Kumar Abhishek PGPIM-2012-13 AIIM

To: Prsedent, McGregors Ltd department store From: Abhishek, Executive Assistant Date: 16/09/1996 Subject: Changing McGregor stores old-fashioned image

As requested I have done detailed analysis on how to change the McGregors image of being an old fashioned store. It can be achieved by changing some of the outdated H.R policies, trimming the top management structure and attracting younger employees as well as customers. After evaluating the options such as employees satisfaction, loss due to present discount policy, loyalty of staff, it is recommended to change the discount policy as per the structure we discussed for a start and then gradually move on to the other brand building measures, like cost cutting measures and change in top management structure.

Executive summary McGregors Ltd is considered as an old-fashioned and traditional store, because of its older sales staff, and hierarchical personal practices. There is an urgent need to change the stores image in order to prevent any chances of takeover. The store can change its image by recruiting younger staff, trimming top management structure and changing the outdated discount policy. After evaluating the criteria such as dissatisfaction among employees due to present discount scheme, failure to attract young sales force, loyalty of employees and loss due to present discount scheme, it is recommended to introduce the new discount policy. (Word count-97)

Table of Contents
Situation Analysis........................................................................................................................ 5 Problem ...................................................................................................................................... 5 Options ....................................................................................................................................... 5 Criteria for evaluation ................................................................................................................. 5 Evaluation of options .................................................................................................................. 5 Recommendation ....................................................................................................................... 6 Action Plan ................................................................................................................................. 6 Exhibit-1 ..................................................................................................................................... 7 Exhibit-2 ..................................................................................................................................... 7 Exhibit-3 ..................................................................................................................................... 7 Exhibit-4 ..................................................................................................................................... 8 Exhibit-5 ..................................................................................................................................... 8 Exhibit-6 ..................................................................................................................................... 8 Exhibit-7 ..................................................................................................................................... 9

Situation Analysis McGregors department store has a reputation of an old fashioned and tra ditional store. The generous and conventional policies such as free home delivery regardless of amount of purchase and generous credit terms to customers are not only eating into the profit but also creating a negative image in the minds of younger generation. Though the older people appreciate these policies, but over reliance on middle aged and older clientele may have serious implications on the stores future, as in the past it has been observed that the company that continued to do business as usual often had become a takeover target. Though the stores sales have increased by 7.5% (Exhibit-1), 2.9% more than the average 4.9% of retail stores, it is always better to prevent trouble than to wait until it comes up. The store has tried some promotions to attract younger customers but it has not achieved much success. Many young customers and employees still label the store old-fashioned. It is high time that the store needed some change in its traditional way of working in order to give signal to its employees, customers and competitors that it is no more old-fashioned and is trying to be in line with other department stores. Recruiting younger sales and managerial staff will not only help in changing the image but also will result in increase in efficiency, rapid turnover of goods and thus greater profitability. Problem The problem is how to change the stores Old-Fashioned image. Options 1) Changing the discount policy to be in line with the other Boston stores. 2) Recruiting younger sales and managerial staff. 3) Trimming McGregors top heavy management structure. Criteria for evaluation 1) Loss due to present discount scheme: The discount of more than 10% on low profit margin goods such as electrical appliances is leading to a loss of approximately $12141/annum(Exhibit-1). 2) Dissatisfaction among employees due to present discount scheme: The present discount scheme is like a hierarchical model, amount of discount depending upon the position of the employee and not on the amount of goods purchased, with the cleaning staff getting no discount. This has even led to some incidents of theft. 3) Dissatisfaction which may arise among managers because of new discount scheme : Managers and buyers who are receiving a discount of 33.33% and 25% respectively will lose their generous discounts and thus may not be in favor of the new scheme. 4) Loyalty of staff: Most of the executives and buyers have been with the store for many years and are devoted to its traditions. 5) Failure in attracting young staff: Despite the competitive wages paid by the store, it has faced trouble recruiting younger sales people. Evaluation of options: If the new discount policy is issued that would lead to reduction in loss incurred on low profit margin items by $12141/annum (Exhibit-2). Also the store would save about $23819 (Exhibit-3) by giving a discount of 15% to all managers, buyers, supervisors and sales-staff in place of 33.33%, 25%, 20% and 17% respectively. Also the new discount scheme will encourage most of the employees to spend more on high profit margin goods such as clothes and accessories where

discount offered is 20%. Even if we consider a 20% increase in clothes and accessories bill of maintenance workers and other staff due to the new discount policy where 20% discount is offered on clothes and accessories in place of 15% will amount to sales of $53234, $12285 more than the previous $40949 (Exhibit-4). The cleaners who were earlier not buying anything may be tempted to buy because of the discount offered to them. Even if we consider they expend on an average of $200 per person, the total sales will increase by $14000 (Exhibit-4). The incidents of shop-lifting and thefts of which the cleaning staff is the suspect may also die down saving the organization about $2000 per annum. Although not a lot of money is saved due to the new discount scheme as compared to our net sales, but it will signal a change in our traditional way of working and will also bring us in line with other department stores discount schemes. (Exhibit-5). The managers have been associated with the store for many years and thus are very much likely to understand the root cause of the change in discount scheme. The new policy will also abolish the hierarchical structure. Every employee would receive exactly the same treatment: the discount would vary according to the goods purchased, not the status of the purchaser. The dissatisfaction among employees will reduce leading to increase in their involvement in the store resulting in greater volume of sales. The store has faced trouble in recruiting younger sales people because of its hierarchical personnel practices. The change will attract younger sales staff to the store increasing the working efficiency. Younger sales staff would attract younger customers which will help in changing the stores label of being old-fashioned. McGregors cannot trim the loyal and devoted top management structure as that would affect the stores image adversely. Recommendation After evaluating all the options, in order to change the label of McGregors as a n old fashioned store, changing the outdated discount program is the place to start. It is quite evident that although the new discount policy is not profiting the store very much directly i.e. in terms of money(0.15%)(Exhibit-6), but the indirect benefits are manifold such as increased involvement of employees, greater job satisfaction, young and dynamic sales and managerial staff, younger customers, reduction in theft, image make-over in market etc.

Action Plan The president should write a memo (Exhibit-7) to all managerial staff, informing them of the new discount policy and explaining it in such a way as to gain their understanding and support, and then asking them to relay to their respective sales staff. Change in the discount policy will symbolize that the store is moving out of the traditional way of working and thus will also attract younger customers and employees. (Words: 998)

Exhibit-1
Last year sales $ 42,887,073 Current year sales $ 46,103,603 % increase 7.5

Exhibit-2
Total spending per annum Managers (33.33%) Buyers (25%) Supervisors Sales staff $ $ $ $ $ 53,856 91,520 88,774 17,864 145,376 Spending on appliance* (33.33%) $ $ $ $ $ 17,952 30,507 29,591 5,955 48,459 Appliance discount (33.33%) $ 5,984 $ 7,627 $ 5,918 $ 1,012 $ 20,541 TOTAL SAVING Appliance profit (10%) $ $ $ $ $ $ 1,795 3,051 2,959 595 8,400 12,141

*- Assuming 1/3rd expenditure on appliance

Exhibit-3
No. of staff 34 80 97 Old Discount 33% 25% 20% New discount 15% 15% 15% Per Person Average $ 1,584 $ 1,144 $ 915 Total discount old $ 17,950 $ 22,880 $ 17,755 Total discoun t new $ 8,078 $ 13,728 $ 13,316

Grade 1 2 3

Position Executives Buyers Supervisors Sales staff with more than 10 yrs. consecutive service

Total bill $53,856 $91,520 $88,774

Savings $ 9,872 $ 9,152 $ 4,439

29

17%

15%

$17,864

$ 616

$ 3,037

$ 2,680

$ 357

Total

$ 23,820

Exhibit-4
Present total bill Other sales staff cleaners $ $ 122,848 bill on clothes & accessories* $ 40,949 $ expected total bill $ $ 53,234 14,000 TOTAL Extra revenue due to new policy $ $ $ 12,285 14,000 26,285

*- Assuming 1/3rd expenditure on clothes and accessories

Exhibit-5
Filene's Jordon Marsh Lord and Taylor Sears, Roebuck & Co The Harvard Coop Bradlee's Employee discount schemes at other Boston stores 20% standard rate for all goods for all full time employees. 15%, some variation according to merchandise 20% standard rate on all goods for all employees 10% and 15% depending on type of goods. 5-30% depending on type of goods No discount.

Exhibit-6
current year sales $ 46,103,603 savings due to new discount policy $ 67,245 % of net sales 0.15

Exhibit-7

FROM: James McGregor DATE: 17 September, 1996 TO: All executives and buyers SUBJECT: Change in employee discount policy Dear McGregor s employees, This memo is to inform you of changes to our employee discount rewards program. Earlier, the discount policy at McGregors has been slanted towards benefiting executives with generous discounts while disallowing discounts to regular workers. The rationale behind this change is twofold: cost to the company and incentive for lower ranking employees. This is how our previous discount policy worked: Executives received up to a 35% discount to buy products which have a 30% or lower profit margin for the company; this caused inventories to clear out while leaving our buyers empty-handed and our departments short-changed. Lower ranking employees received discounts ranging from 0% to 10% on the same items. This inequality led to tensions among salespeople and cleaners who deserve more of a discount for working so hard to give our store a positive image. As this hierarchical approach is largely unfair and costly, we have devised an easier approach as follows: The new discount program: 1. 20% discount on clothing, fabrics, cosmetics, costume jewelry, purses, belts, and scarves. 2. 15% discount on books, records, stationary, household goods, clocks, toys, china, linens, sporting goods, small electrical appliances, and furnishings. 3. 10% discount on electrical appliances, calculators, typewriters, cameras, film, and food 4. No discount on candy or cigarettes Our new discount policy helps us compete with other retail stores while allowing better incentives for our salespeople, cleaners, and potential employees. Thank you for helping McGregor. Continue to cut its cost and bring quality products to its customers.