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Traditions Ltd
The Company
Traditions Limited is a family-owned and managed, traditional department store situated in Breezyfield, a city in the North of England. The Store was established some sixty years ago by the current owners’ father, who passed on the business to his three sons on his death. All three sons are still deeply involved in the running of the business, even though they are now in their sixties, and none of them have children to whom to pass on the business. The Store occupies 100,000 square metres of the main shopping district in the city centre. The management team of Traditions Limited pride themselves on running a store which retains the standards of service and customer relationships usually associated with a bygone era.
The Store has four retailing departments (Furnishings, Kitchenware, Menswear and Toys) and a Restaurant. Each department is managed by a departmental manager and recently Samantha was appointed to the post of departmental manager of the Toy Department. She is in her early thirties and is studying on a part-time basis at Sheffield Hallam University for a degree in Accounting and Management Control (she is currently in her final year).
Albert is the departmental manager of Menswear and he is also Samantha’s great uncle. He used to be a Sergeant in the Police Force and will be celebrating his 65th birthday shortly. Samantha and Albert do not agree on many issues and often argue. Kitchenware is managed by Joseph and Furnishings is managed by Arthur. Joseph and Arthur joined the Store round the same year, beginning their careers in retailing as junior sales assistants and working their way up to their current management roles. Both are now in their middle fifties and pride themselves on knowing their regular customers by name.
Claude, who previously worked for Traditions for a number of years as a chef, was promoted to manager of the Restaurant some time ago. Claude achieved some fame a number of years ago when he entered and won a potato-sculpting competition. His prize was an all-expenses-paid weekend in Paris and he was interviewed by Yorkshire television. This attracted favourable publicity for Traditions Limited. However, Claude does have an explosive temper and has been known to ‘lash out’ at his two assistants, Tracy and Paul. He sets very high standards for the restaurant and will throw away cooked dishes which do not meet these standards. He spends the majority of his time in the kitchen and intensely dislikes ‘paperwork’, constantly complaining that it stifles his creativity. The ‘French Cuisine’ menu offered by the restaurant is extensive and creative, but it is generally felt within the company that the prices charged sometimes barely cover the food cost, although this cannot be substantiated because information is not collected.
Claude revises menus weekly, ordering food supplies from local suppliers on a daily basis. There is no stock control system in operation in the Restaurant. The kitchen equipment is quite old and has not been regularly maintained. For example, the dough mixer keeps breaking down and the safety catch on the steamer is missing.
Claude claims that, if he were given additional capital to refurbish and equip the kitchen, he would be able to generate even more business for the Restaurant. In addition, new European Union regulations concerning cook-chill facilities mean that Traditions Limited will soon have to spend a considerable amount of money in upgrading the kitchen’s food keeping facilities.
The storage of stock presents problems for Traditions Limited. Merchandise and stock is delivered to one store-room for all departments other than the restaurant, where deliveries are made directly to the kitchen area. Deliveries are not checked or counted in any way and items are placed on any shelves which are free. As a result, staff often find it difficult to locate products and thus customers are often left waiting for long periods. All staff are allowed into the stock-room and, on odd occasions, customers have been known to wander in by mistake. All records of the Store are maintained on manual systems.
Recent Events
In the past the Store has operated profitably. However, the most recent financial statements revealed a small loss for the previous trading period. This came as quite a shock to the owners and is causing great concern.
Prior to this news, and in a move which seems to have been totally unrelated to it, the family members decided to appoint a Managing Director in order to take some of the workload from their own shoulders. They appointed Vijay as the Store’s first Managing Director and when he takes up his appointment he will be the first ‘non-family’ member to be employed in a senior managerial role. He is well qualified for the job, having gained valuable retail experience with Sparks and Mention plc, a leading department store chain with a first class management training programme and an excellent growth and profits record. His first post with Sparks and Mention plc was as a graduate trainee and he progressed to store manager of one of the company’s stores in the affluent South East of England.
As a result of the reported loss for the previous trading period, the family members called a meeting of the Store’s employees to discuss the situation. This type of meeting was unprecedented in the history of the Store. Prior to the meeting, a suggestion box was set up and attendees were asked to put forward suggestions for improving the profitability of the Store.
One suggestion for improving the profitability of the Store was the closure of the Toy Department, another suggestion was the closure of the Restaurant and a third suggestion was an across the board price reduction of 5% in order to stimulate demand. In each case the source of the suggestion was not identified.
Unfortunately, when the family members asked for information to assist in evaluating these suggestions, this was hampered by the lack of management information produced within the company. Apparently, the recording systems were geared to maintaining records for government regulatory bodies, such as Customs and Excise and the Inland Revenue, and to assist the company secretary in the production of the year-end financial statements.
Since Samantha is studying for an accounting degree, she was asked to tackle the job of seeking out information which might be helpful. The information she produced is set out below. It identifies revenues and costs incurred during the previous trading period.
The family members were so impressed with the information she produced that they asked her to consider taking on the additional role of management accountant in the company.
Samantha has looked into the behaviour of these costs at different sales levels. Purchases of goods for resale in all departments varied proportionally with the level of sales. Additionally, due to the staffing policy of the company (see note on staffing policy below), so did the wages of non-management staff. Departmental expenses (for instance, wrapping paper for goods purchased, cleaning of staff uniforms) were also considered to vary with the level of sales, and there seemed to be a direct correlation between sales promotion costs in the departments and the increase in sales. Other costs totalling £412,000 (not included in the above schedule) were considered not to change with sales levels and some of these costs could not be directly related to individual departments.
Note on Staffing Policy
The company staffs all the Departments by using a core of full time staff to cover a minimum demand level and a flexible workforce of part time staff to work as and when required, with no guaranteed minimum or maximum number of hours for part-time staff.
Required:
b) Discuss briefly the financial and non-financial consequences of closing the Restaurant Department.
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