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Hamleys, a flagship store located in London, is the personification of success when looking at business. The company is named after its originator, William Hamley, who in 1760 founded a toy shop. Over its long history, Hamleys has changed ownership a number of times due to innumerable of reasons, the very latest being by a toy retailer located in France. This paper will analyze the change in business environment for Hamleys in the last decade using the three sigma theory of business models. Special attention will be given to human resource development and management as well as the financial function at Hamleys. Finally, the paper will offer a conclusion on the ramification that the changes in business environment at Hamleys have had and the future prospects of the company.
Hamleys, a flagship store located in London, is the epitome of success when it comes to business. It boasts of a two hundred and fifty year long history with an ever evolving restructuring to make it the world’s biggest toy store. It is a major tourist attraction in the city of London. It receives an average of five million visitors annually through its seven outlets in the United Kingdom excluding other outlets in foreign countries.
The company is named after its founder, William Hamley, who in 1760 founded a toy shop. It has revolutionized itself over its long history. It has been awarded with two royal warrants by Queen Mary and Queen Elizabeth II of England due to its exceptional leadership in the world of toys and sports merchants. Over its long history, Hamleys has changed ownership a number of times due to innumerable of reasons, the very latest being by a toy retailer located in France.
This paper will analyze the change in business environment for Hamleys in the last decade using the three sigma theory of business models. In the analysis, the paper will capture any changes that might have emanated for external and internal forces and use the three sigma theory of business models to explain the implications of these changes to the business at Hamleys. The paper will also employ the use of apt illustrations in order to provide an in depth and succinct analysis.
Special attention will be given to human resource development and management as well as the financial function at Hamleys. Finally, the paper will offer a conclusion on the ramification that the changes in business environment at Hamleys have had and the future prospects of the company.
The Finance Function
Since the year two thousand and two, Hamleys has changed ownership thrice. Prior to this year, the toy chain store was owned by Baugur, an Icelandic investment giant that was the majority shareholder in the company. However, due to forces in the market an internal mismanagement, the investment giant collapsed in the year two thousand and nine. As a majority shareholder, the collapse of the investment giant set the company back financially. Shareholders lost money invested in the company.
Consequently, assets belonging to the investment group had to be auctioned to recover money owed to the shareholders as required the corporation business model. This paved way for acquisition at the company by new owners. Following the auction, the nationalized Icelandic bank, Landsbanki, took over ownership of the company until the year two thousand and twelve when the company was acquired by a French firm at a projected price of sixty million Great Britain pounds.
The acquisition of the company by the French firm brought more capital for investment into the toy chain store. The acquisition also brought new ideas since the French firm also dealt with the same line of products. Furthermore, the acquisition opened up more markets for Hamleys merchandise. The acquisition also increased confidence in the shareholders of the company on their investment. Where the shareholders were expected to pull out after the collapse of the previous majority shareholders, the acquisition by the new owners reinstalled the lost confidence in the flagship toy store. This could be one of the reasons why there was increased sales resulting into increased profitability in the years after two thousand and ten
The collapse of their biggest shareholder, the Baugur, caused a credit crunch in the company. This lost the company liquid capital to run its operations in its various branches. This resulted in s streak of low sales and loses. This cost the company a good deal of revenue and for a period of six years, the company posted very dismal results. However, after a restructuring that followed in the company in order to rescue the two hundred and fifty year old heritage, the company finally broke a duck (Ogilvie, 2009, 288).
In the year two thousand and ten, the company reported a rise amounting to five percent in the like-for-like sales. This helped Hamleys to a pre-tax profit amounting to a hundred thousand Great Britain pounds from the continuing operations. This was an increase for the previous year’s loss amounting to four million, one hundred thousand sterling pounds. This was an improvement especially when factoring in that the company had been on a downward spiral ( Wood, 2010, 1)
However, when the costs that were associated with restructuring the company in order to steady it on the path to recovery were factored in, the company made a loss amounting to six hundred thousand sterling pounds on sales commensurate to sixty million sterling pounds in the same financial year. In a more in depth analysis, the results posted on this financial year were not dismal ( Wood, 2010, 1)
Although the company made an overall loss of six hundred thousand sterling pounds, some of that money was committed towards getting the company back on profitable ways. Moreover, the company had made a profit before tax, something I had not been doing in the preceding six years. The company had also posted an increase in the sales in the financial year, an increase compared to the other financial years. Overall, this financial year marked the beginning of the turnaround for the company ( Wood, 2010, 1)
In the year two thousand eleven, Hamleys posted very impressive financial results for the financial year ending March two thousand and eleven. In this financial year, Hamleys financial results showed that the earnings before interest, taxes, depreciation and amortization rose by twenty one percent to a whopping five million, six hundred sterling pounds. The operating profit of the company in the financial year grew by an unprecedented forty percent to two million, three hundred thousand sterling pounds.
In the following weeks of the next financial year, the company continued to post positive provisionary results. For instance, there was a fourteen and half percent growth in the like-for-like sales posted in Ireland and the United Kingdom. There was a twenty eight percent growth in like-for-like sales in the international franchise outlets in the same period. By June of the year two thousand and eleven, the new management had completed the refinancing of the company affording the business a secure and string financial springboard to support its plan for growth and development in the future (Carysforth & Neild, 2002, 56). Presently, the company only has a senior debt to service that is less than one times its earnings before interest, taxes, depreciation and amortization.
Human Resource Management
After the credit crunch that faced the company after the collapse of its biggest shareholder, the new owners of the company instituted a restructuring that was aimed at getting the business back to profitability. The restructuring of the company encompassed its financial function and the human resource. The restructuring started with the top management of the company featuring the dismissal of two of its top directors in a cost cutting drive. The main objective of this restructuring of the human resource was to reduce the central costs ha were needed to improve the company’s operational model (Harrison & MacDonald 2009, 1)
Out of a staff of sixty in the head office, eighteen were deemed redundant and had to be dismissed. This was done as the economic climate was becoming tough and the operational model of the company needed to be aligned so that the company would be successful. The envisioned new structure was flatter, more flexible and simpler in order to place the company strategically on a path that would enable them to cope with a further meltdown in the economic situations (Worley, 2005, 304).
In order to avoid redundancy in the staffing of the company, the restructuring made sure that no two employees in the same area of work had similar skills. This applied even to the top management where some of the top executives had to step down in line with the envisioned operational model. Other international outlets owned by the company were franchised to other companies as part of the restructuring drive. For instance, the outlet in Denmark was franchised out. This passed on the operational costs to the franchisee thereby reducing the costs incurred by Hamleys in the operational model (Worley, 2005, 308).
Changes in the operational model
Hamleys name on the international market is synonymous with prestige and quality. With the new era of globalization and e-marketing, the company had been presented with anew and rare opportunity to own more stores. However, the attempts by the previous management to attain more stores had not gone well. Internationalization was the new avenue to achieve this. However, there was a main impediment to this plan; the resources behind the management were not sufficient to run the envisioned outlets in foreign countries.
The brilliant idea of franchising the company’s brand and design was coined by the new management. In so doing, the company would leverage the brand internationally at the same time minimizing the any risks that may occur. Additionally, the company would pass on the would be operational cost on the franchisee thereby saving on their profit margins. This was a viable option as it gave the company the international presence that the management wanted while at the same dissolving itself of the costs involved in running a branch profitably (Doole, & Lowe, 2005, 96).
The main problem during the internationalization of the company was finding an agreement that adhered to the laws of the various jurisdictions. However, Hamleys contracted a firm with an experience in drafting international franchise agreement. The form offered counsel in scrutinizing the laws and coining the agreements so that Hamleys interests were protected and the other party’s guaranteed. Under the counsel of the firm, Hamleys had a number of advantages; they had a world leading expertise in that they had a partner with a well established recording in preparing complex international deals.
The partner also boasted of strong relationship with law forms in their targeted markets. With the new commercial mindset, Hamleys coined a unprejudiced, commercial and practical approach that agreed on development schedules and multi-channel retail strategies to be used by the franchisees. The product was an overarching structure that set the platform for internationalizations. Owing to this structure, Hamleys has been successful on the international scene with outlets in the Middle East, America and other parts of Europe. Through flexibility, the company is able to consider the factors at play and come up with a franchise agreement that is agreeable to both parties, hence its broad international coverage (Coleman, 2008, 207).
Conclusion
The previous management exhibited some flaws in their styles of management. Firstly, they allowed a lot of redundancy in the company resulting in high operational cost which had an impact on the return margins of the company. This was by way of employing people with similar skills in the same position. They ought to have diversified the skills that they sought when employing the human resource. This would have benefited the company by providing a wide array of skills in a minimal number of people.
The management ought to have franchised some outlets in the international market in order to reduce on the operational costs. This would have prevented the closure of some of the outlets due to financial constraints, for instance the New York outlet. The manager also ought to have monitored the economic situation of the company better. This would have prevented the credit crunch that almost wiped the two hundred and fifty year old heritage when the majority shareholder collapsed.
Nonetheless, the positive change in the business environment courtesy of the new owners brought the company back to profitable ways.
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Nicola Harrison, George MacDonald (2009) Hamleys axes chiefs in cost-cutting drive.
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in-cost-cutting-drive/5003075.article [Accesses on 16september 2012]
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Zoe Wood (2010) Hamleys proclaims end to its six-year losing streak as sales rise.
http://www.guardian.co.uk/business/2010/jul/09/hamleys-ends-losing-streak. [Accesses
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