A REPORT ON REFURBISHING AND REBRANDING THE FOOD HALL OR

REPLACING IT WITH A TOYS AND GAMES DEPARTMENT IN NOTTINGHAM

The purpose of this study is to assist The Business's Senior Executive Group
(SEG) at Head Office in deciding whether to shut the Nottingham shop and
replace it with a new toys and games department or to refurbish and rebrand the
store. This is done to keep the company's sales from declining year after year.

For the attention of: Anati Laone

Manager, Nottingham Store

Authors:

Date: 15 November 2021

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Table of Contents
1 Introduction.........................................................................................................3

2 Methodology.......................................................................................................3

3 Results................................................................................................................4

3.1 Initial Findings..............................................................................................4

3.2 Sensitivity Analysis......................................................................................5

3.3 Environment.................................................................................................7

4 Final Conclusion and Recommendations..........................................................9

5 References.........................................................................................................9

6 Appendices.......................................................................................................10

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1 Introduction

The goal of this paper is to look at the future of Nottingham's food halls
considering increased competition from big supermarket chains and city center
convenience stores. These stores compete directly with us for the market for
the items we sell in the Food Hall. This fierce competition for potential
customers has had a significant impact on our revenues, which have
decreased significantly in recent years; as a result, we need to evaluate options
for the business, such as refurbishing and rebranding the store or completely
replacing it with a different department of toys and games.

2 Methodology

To anticipate income for the food hall, various methodologies were applied.
Forecasting analysis, cashflow forecasting, sensitivity analysis, and market
research are all examples of this. To begin, I used the forecasting template
(see appendix 1, forecasting template) to calculate the expected future values
from 2022 to the first quarter of 2024 using the additive time series. A moving
average was created by averaging every four quarterly revenues from 2017 to
2021, and then continued to make a centered moving average by averaging
every two moving averages. The centered moving average was subtracted
from the revenue to make the seasonal component. Next, I calculated the
average seasonal component which were the same figures every 4 quarters.
The de-seasonalized trend was then calculated from subtracting average
seasonal component from the actual revenue. We then found the trend by
applying the equation of the trend line from the first quarter of 2017 to the last
quarter of 2021. From here I was able to find the historic forecast and the future
forecast by adding the seasonal component to the estimated trend. The
forecasting error was also calculated by subtracting the historic forecast from
the revenue and later squared to finally finish the future forecast revenue. I also
calculated the mean average deviation (MAD) (see appendix 7) which is 2.9%

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 or £26000 and the root mean square deviation (RMSD) (see appendix 7) was
4% or £36000 to see how far on average the revenue will be from the mean
revenue or just to get the forecasting error.

Using the data in the forecasting template from appendix 1 two graphs we
made showing the de-seasonalized trend and sales revenue against quarter
numbers (see appendix 2) while the other one was showing sales revenue,
historic and future forecast against the quarter numbers (see appendix 3).

I made cashflows for refurbishment of the food hall (see refurbishment option,
appendix 4) and for the replacement of the store with a new toys and games
department (see replacement option, appendix 5). The future forecast revenues
from the forecasting template for the upcoming quarters were multiplied with a
percentage increase in quarterly revenue to make the total future forecast
revenue for each quarter. Total costs were computed by first adding
management costs, other costs, and staff costs, which are all consistent across
the quarters, and then subtracting the cost of sales, which varies among the
quarters. Management costs were taken as they are, but other costs and staff
costs were estimated by multiplying the cost by the amount of available retail
floorspace. Cost of sales were calculated as a percentage of the total future
forecast revenue and all the cost were added together to make total costs. We
calculated the net cashflows by subtracting the total costs from the total future
forecast revenue and they were multiplied by the discount factor to find the
Present value of net cash flows. Finally, the net present value (NPV) of
£2,447,418 was found by subtracting the net cash flow from the initial
investment column from the sum of all present values of cashflows.

For the replacement option a buildup factor and Maximum potential revenue
was used to calculate revenue for the new department and a similar approach
to the one above was used thereafter to calculate the net present value for the
replacement option.

3 Results
3.1 Initial Findings

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The refurbishment option shows that with an initial investment of £50,400 the store
would make the net present value of £2,447,418, total costs of £6,386,346 and a net
cash flow of £2,575,312 during the period of eight quarters (See Appendix 2,
Refurbishment net cash flow model). This demonstrates that the refurbishing option
will generate less income than it spends on paying the overall expenditures of the
firm, and because it will spend more on costs, high profit margins will be impossible
to achieve. This option also demonstrates that expected revenues would be
seasonal, peaking in the fourth and first quarters of each year.

With the replacement option, the toys and games department is predicted to make
NPV of £2,457,595 with an initial investment of £108,000 (See Appendix 2,
Replacement net cash flow model). The NPV is a little more than the refurbishment
option with a difference of £117,717 and the investment is 2.1 times the investment
made in the refurbishment. However, the estimated overall costs for all quarters for
the refurbishment option are higher than for the replacement option of £3,704,600.
This is a difference of £2,681,746 which could be used for other things in the store.
This also shows that the refurbishment option is a lot risky than the replacement
option. The net cash flows and NPV for replacement are higher than for
refurbishment therefore it will be beneficial for the management to choose the
replacement option since it brings higher profit margins with a lot less money spent
in the business as compared to the refurbishment option.

3.2 Sensitivity Analysis

Under a given set of assumptions, sensitivity analysis evaluates how alternative

values of an independent variable influence a certain dependent variable (Kenton,
2021). In other words, sensitivity analysis is looking at how different sources of
uncertainty in a mathematical model affect the total uncertainty of the model. The
additive time series model was appropriate for our analysis because the data spans
a lengthy period and as the trend level increases or decreases and the seasonal
variation is relatively constant over time. The model identified repeating patterns of
revenue for replacement in quarter 1 and 4 of every year. The revenue was
consistently showing an increase of the same frequency around this time. We didn’t

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use the multiplicative model because our data was not scattered. However, the
figures on our findings are just predictions which might not be taking some factors
into consideration e.g. With the ongoing Covid 19 pandemic the revenues might
differ with our predictions because of the impact of the pandemic on supply chains.
The business may take a longer time than usual to receive inventory from suppliers.

Based on the analysis below, it appears that if the food hall were to be refurbished
and rebranded, the business would require a lower percentage of revenue to
breakeven due to uncertainties, whereas the replacement requires a higher
percentage of revenue to breakeven due to the uncertainties that could occur in the
business. Now because we are choosing to replace the store with a new department,
revenues would need to be closely monitored so that they do not fall. (Appendix 6,
see formula for sensitivity analysis)

Refurbishment option

Table 1

Factor Outcome Comment

Revenue Revenue should decrease NPV is sensitive to
by 28.6% for NPV to revenue therefore
become zero. revenue is a critical factor.
Initial investment Initial investment should NPV is insensitive to
increase by 4856% for initial investment
NPV to become zero. therefore initial
investment is not a critical
factor.
Management costs Management costs NPV is not sensitive to
should increase by management costs
9138.7% for NPV to therefore management
become zero. costs are not a critical
factor.
Staff costs Staff costs should NPV is not sensitive to
increase by 987.2% for staff costs therefore staff
NPV to become zero. costs is not a critical
factor.
Other costs Other costs should NPV is not sensitive to
increase by 126.9% for other costs therefore
NPV to become zero. other costs is not a critical
factor.
Cost of sales Cost of sales should NPV is sensitive to cost of
increase by 63.6% for sales therefore cost of
NPV to become zero. sales is a critical factor

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Replacement option

Table 2

Factor Outcome Comment

Revenue Revenue should decrease NPV is sensitive to revenue
by 41% for NPV to become therefore revenue is a
zero. critical factor
Initial investment Initial investment should NPV is not sensitive to
increase by 2275.6% for initial investment therefore
NPV to become zero. initial investment is not a
critical factor
Management costs Management costs should NPV is not sensitive to
increase by 12487.4% for Management costs
NPV to become zero. therefore Management
costs is not a critical factor
Staff costs Staff costs should increase NPV is not sensitive to
by 2049.6% for NPV to Staff costs therefore Staff
become zero. costs is a not critical factor
Other costs Other costs should NPV is not sensitive to
increase by 165.2% for Other costs therefore Other
NPV to become zero. costs is not a critical factor
Cost of sales Cost of sales should NPV is not sensitive to
decrease by 136.8% for Cost of sales therefore
NPV to become zero. Cost of sales is not a
critical factor

3.3 Environment

The food hall has experienced a rapid growth in the provision by the large
supermarket chains, of city centre convenience stores over the last years and
was not able to cope with this increasing competition therefore a decision was
made to either refurbish and rebrand the food hall or replace it with a new
department. If a decision was to be taken to refurbish and rebrand the store
new retail trends in specialist foods and wines should be implemented to out-
perform our competitors which are Siva food & wine and Naresh food & wine.

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 These stores are near to the food hall and provides the best quality food and
wines. Today's customers are increasingly doing things for social media
(Nicasio, 2018) therefore the store should be refurbished nicely to attract
customers so that they can take images and document their experience on
social media in a lovely retail setting. With the impact of Covid 19 pandemic the
store can also introduce mobile ordering and delivery services to increase their
sales. Healthy food for our wellbeing is also a trend that we have discovered
therefore we should consider food, drink, wines and foodservice decisions that
is excellent for customers health. Research carried out by Mintel shows that
consumers are now moving to organic food therefore fresh produce, meats,
and dairy products should be sold to customers (Mintel, 2021).

Replacement option would bring a massive growth to the business because the
global toy and games industry was valued at 275.75 billion in 2020 and is
expected to expand at a growth rate of 5.0% from 2021 to 2028 (Grand View
Research, 2021). This shows a faster market growth and a potential for the
toys and games department to gorge income from this industry. Gaming
emerged as one of the most popular activities during the initial outbreak of the
global COVID-19 pandemic (Clement, 2021). User engagement and spending
in games surged in 2020 hence why Gen Z and Millennials spent more time on
gaming as it was a convenient way to spend time. This is good news for our
shop because Nottingham is expected to have a population of 729,977 people
in 2021 (World Population, 2021) with children and young adults accounting for
36% of the population who enjoy toys and video games. However, Nottingham
has the lowest disposable income of any UK city, according to government
figures (David Whitfield, 2019) This is mainly because the city has a large
student population. Office of National Statistic's data shows that gross
disposable income is £12,445 per head - the lowest in the UK. Our product line
includes consoles, PlayStation, licensed toys, disk games, subscription for
online games, kart racing and others. The industry of toys causes increasing
environmental costs of excess plastic consumption and waste while online
games usually lead children of young age to neglect their schoolwork
concentrating only on playing games. Our competitors will be The Entertainer
and Smyths toys & games which are in the same mall as the food hall and also

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 giants like Sony and Nintendo. It will be critical to select products with the
highest performance, such as peripheral devices, and to strive to find a slot with
the best levels of competition and demand. Reaching arrangements with
suppliers to sell your product with special features, such as collector's editions
or gifts that come with the video game, is a smart way to stand out from the
competitors.

4 Final Conclusion and Recommendations

Both these projects are predicted to give higher yields for the money invested
in them. Refurbishing the food hall would yield an NPV of £2,447,418 with high
expenses of £6,386,346 (see appendix 4) but replacing the shop would be
beneficial with an NVP of £2,457,595 which is greater and lower overall costs of
£3,704,600 (see appendix 5). I suggest to replacing the store because the toys
and games market was valued at 275.75 billion in 2020 and expected to grow
by 5% annually until 2028, the business would be able to benefit from this fast-
growing industry. The management should consider allowing online shopping
and delivery services since we are in a pandemic and people don’t go to malls
more often. Promoting the e-commerce site may help to boost conversions and
is one of the most effective strategies to attract customers. keeping track of our
rivals' products might help to detect behavioral patterns and change our
approach accordingly.

5 References

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Clement, J. (2021, June 4). COVID-19 impact on the gaming industry. Retrieved
November 13, 2021, from https://www.statista.com/topics/8016/covid-19-
impact-on-the-gaming-industry-worldwide/#dossierKeyfigures

David Whitfield, H. M. (2019, June 10). Why is Nottingham the UK's poorest city.
Retrieved November 06, 2021, from nottinghamshire news:
https://www.nottinghampost.com/news/nottingham-news/nottingham-uks-
poorest-city-family-2958364

Grand View Research. (2021, August). Toys And Games Market Size, Share &
Trends Analysis. Retrieved November 06, 2021, from Grand View Research:
https://www.grandviewresearch.com/industry-analysis/toys-games-market

Kenton, W. (2021, October 5). Sensitivity Analysis. (D. Kindness, Editor) Retrieved
November 12, 2021, from Investopedia:
https://www.investopedia.com/terms/s/sensitivityanalysis.asp#:~:text=Sensitivi
ty%20analysis%20determines%20how%20different,to%20the%20model's
%20overall%20uncertainty.

Mintel. (2021, January). 2021 Global Food & Drink Trends. Retrieved November 13,
2021, from Mintel:
https://dtiwebfiles.s3-ap-southeast-1.amazonaws.com/EMB+Microsite//
Publications/Mintel+Digest/2021/Mintel+Digest+2021-02+-+January.pdf

Nicasio, F. (2018, August 23). Retrieved Novembetr 13, 2021, from

https://www.vendhq.com/blog/food-beverage-trends/

World Population. (2021). United Kingdom Population 2021. Retrieved November

13, 2021, from World Population review:
https://worldpopulationreview.com/countries/united-kingdom-population

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6 Appendices

Appendix 1 forecasting template

Appendix 2 Sales revenue and de-seasonalized trend

Appendix 3 Sales revenue, historic and future forecast

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Appendix 4 refurbishment option

Appendix 5 replacement option

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Appendix 6 formula for sensitivity analysis

NPV of project
sensitivity= uncertainty ¿ 100
PV of cashflows subject ¿

Appendix 7 Summary Data

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