CIMA where business + finance meet
New store concept: potential IRR of 11-18%, revenue of £0.5bn The ‘CIMA Value’ was provided by the Finance Team’s deep understanding of the operating economics of the business and how these benchmarked externally…
Sharon Flood FCMA, ex Finance Director John Lewis department stores In 2008-2009 John Lewis undertook a strategic review of its home business. This was a key strength for the department store chain in terms of customer advocacy and revenue/profitability; however it was under constant attack from ‘value’ players and from retailers who offered a more ‘convenient’ proposition than John Lewis’s 29 department stores. The review was led by the merchandise director and the then finance director, Sharon Flood FCMA working in partnership. One of the key opportunities identified was to develop a stand-alone home format. Previous attempts had been hampered by the economics of the existing John Lewis operating model, which were based on the high footfall and sales densities associated with large catchments and destination locations. The lower footfall, more frequent visits of a smaller format would require a totally different operating and economic model. As Sharon explains, ‘The “CIMA Value” was provided by the finance team’s deep understanding of the operating economics of the business and how these benchmarked externally, together with their ability to work in close partnership with their colleagues throughout the project, from strategic idea to delivery in a real store format. They succeeded in delivering the target economics by working flexibly, using many management accounting
tools and techniques to trade-off the different risks and opportunities that emerged through the process.’ • Capital costs were rigorously controlled; expensive ‘bespoke’ solutions were avoided. • Staffing costs were scrutinised and, where possible, support services were delivered through service level agreements with existing parts of the business. • Square footage allocation was optimised with back of house space kept to a minimum. Each part of the assortment’s space allocation was reviewed both for its role in the customer proposition and its financial benefits. • The multi-channel opportunity was emphasised, particularly for ranges that would not be available in store, such as fashion. The first pilot store opened in Poole in late 2009, comfortably meeting expectations. A second store has now opened with further stores planned. Overall the format has the potential to deliver revenues in excess of £0.5bn with an IRR of 11 - 18%. The project has also provided many efficiency opportunities for the existing store base and has provided a key strategic plank for the growth of John Lewis.
CIMA value: John Lewis New store concept: potential IRR of 11-18%, revenue of £0.5bn T. +44 (0)20 8849 2251