Management Economics

This document discusses the concepts of managerial economics in the retail industry through a case study of B&Q. It covers the historical background of B&Q, market analysis, market structure, and government intervention. The document provides study material and solved assignments on management economics.

Management Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Historical background of B&Q with overview on its products or services.............................1
2. Market analysis of B&Q to explore its competitive image in retail industry..........................1
3. Market structure of B&Q.........................................................................................................4
4 a) Critical discussion on different types market structure including optimal structure for
B&Q.............................................................................................................................................6
4b) Key discussion on interferences of lesser or greater government interventions on B&Q
operations.....................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
In today’s business environment, managerial economics refers to one of the main concept
that helps in keeping track of benefits and getting idea of opportunity cost to run operations
profitably. It plays a vital role in companies, in determining success or failure of their businesses
(Adams and Williams, 2019). A study is conducted on retail industry to understand importance
of economic management in firms, by taking case study of Block & Quayle (B&Q) Limited.
Exploring its historical background aid in analysing its market position and journey it has taken
to achieve the same. In addition, in which market structure chosen company is operating its
business, with key suggestions to switch is also being made. Furthermore, discussion is also
made on analysing the interference of government intervention on its operations.
MAIN BODY
1. Historical background of B&Q with overview on its products or services
Retail industry plays a crucial role in developing economy of a nation, where in 2018, it
has generated worth sales of £381 billion. It has also given a range of employment opportunities
to both highly and less skilled people, which lead further to society development also (Loury-
Okoumba and Mafini, 2018). B&Q is one of the perfect example of retail industry, which is a
subsidiary of retailing giant firm – Kingfisher Plc. It offers a range of 40,000 home improvement
DIY products, gardening supplies and plants on competitive price rates (Gong, Liu and Zhu,
2019). It has founded 51 years before i.e. in 1969 by Richard Block and David Quayle in
Hampshire, UK. Currently, it has more than 330 retail stores across the UK and Ireland, which
includes large warehouses as well as small super centres. In overseas market, where B&Q
operates its business includes China with 40 stores, including the biggest stores of the world in
Beijing. On these stores, it also offers tools, insulation, lumber and other building repairing
products, including home décor items also, like flooring, paint, wallpaper and hardware.
2. Market analysis of B&Q to explore its competitive image in retail industry
Block & Quayle is one of the leading brand in retail industry of UK where, its market size
is almost twice of its competitor, i.e. approx. £31bn near about 14% of total market share. This
share includes size of repair, improvement and maintenance home products (Verma, Malhotra
and Singh, 2020). Having the highest position in UK era, B&Q has always ahead of its rivals.
Along with this, it has strong reputation that aid in attracting and retaining loyal customers
1

towards its products more easily. To retain its position, B&Q gives its commitments to continue
to grow within home improvement as well as in garden sector (Kim and LEE, 2019). This would
help further in increasing its market share, which refers to a key to its success which ultimately
lead to boosts business reputation, profit and organisational value in given sector. Its’ financial
condition can be determined through its 5-year accounting data as given below –
5-Year Income statement of B&Q
GBP FY, 2015 FY, 2016 FY,
2017
FY,
2018
FY,
2019
Revenue 3.7b 36.4m 36.4m 3.4b 3.3b
Revenue growth, % 0%
Cost of goods sold 2.2b 2.1b 2.0b
Gross profit 1.5b 1.3b 1.3b
Gross profit Margin,
%
40% 39% 38%
General and
administrative
expense
5.7m 3.8m
Operating expense
total
5.7m 3.8m
Depreciation and
amortization
77.2m 53.3m 58.4m
EBIT (16.7m) 35.1m 48.5m 108.8m 52.2m
EBIT margin, % 0% 96% 133% 3% 2%
Interest expense 37.6m 2.5m 3.5m
Interest income 1.3m 98.7m 105.7m
Pre-tax profit 19.6m 37.7m 52.8m 205.0m 154.4m
Income tax expense 30.0m 3.9m 7.4m 40.8m 32.2m
Net Income (10.4m) 33.9m 45.4m 164.2m 122.2m
2

5-Year Income statement of B&Q
GBP FY, 2015 FY, 2016 FY,
2017
FY,
2018
FY,
2019
Cash 52.5m 7.1m 18.5m
Accounts Receivable 54.2m 96.8m 140.3m 24.2m 14.4m
Prepaid Expenses 903.0k
Inventories 735.0m 723.8m 613.2m
Current Assets 2.4b 100.2m 141.2m 1.9b 3.6b
PP&E 374.1m 470.2m 478.6m 320.8m 306.9m
Total Assets 5.6b 571.7m 620.8m 5.8b 5.9b
Accounts Payable 471.3m 21.2m 26.3m 431.1m 425.0m
Short-term debt 27.9m 2.0k 7.0k 84.1m 65.2m
Current Liabilities 787.7m 32.8m 37.7m 786.5m 682.1m
Long-term debt 31.0m 16.4m 13.5m
Non-Current
Liabilities
239.9m 29.1m 28.0m 260.5m 251.3m
Total Debt 58.9m 2.0k 7.0k 100.5m 78.7m
Total Liabilities 1.0b 61.9m 65.7m 1.0b 933.4m
Common Stock 680.7m 582.2m 582.2m 680.7m 680.7m
Retained Earnings 2.0b (72.4m) (27.0m) 2.3b 2.4b
Total Equity 4.5b 509.8m 555.2m 4.8b 4.9b
Financial Leverage 1.2 x 1.1 x 1.1 x 1.2 x 1.2 x
From the above mentioned financial data, it has interpreted that from last five years i.e.
from 2015 to 2019, B&Q has retained its good position in the market (B&Q Financials, 2019). It
sales is continuously growing with increase in its market share, which is enough to gain
competitive image over its competitors. For further enhancing its financial performance,
employers and key stakeholders of B&Q rigorously focus on generating the improved cash flow
from its entire operations, by reducing more investment within working capital (Doğan, Ayçin
and Bulut, 2018). It also concerns on tightening its controls over the capital expenditure, that
yield a significant reduction within its financial net debt.
3

3. Market structure of B&Q
Retail market structure mainly consists a number of organisations that offer similar or
identical type of products within same geographical area. Therefore, this characteristic resembles
with an oligopoly market structure, that defines how small group of companies collude for
changes in prices of their products for excessing the demand (Hanaysha, 2018). But it limiting
the retail completion that demonstrates temporary for companies at cost of harming the society
on national or local scale. In this free market, oligopolies rarely face any kind of threat from new
firms in retail markets, but they can sustain their business easily by offering same products on
attractive discounts. Therefore, such kind of characteristics resembles to the prisoner’s dilemma,
which limits the time of an oligopoly to exist because whether old or new firm in this market, has
incentive to cheat through lowering its prices for attracting more new customers to enhance
sales. In context with B&Q, to gain competitive advantages from its rivals – The Home Depot,
Wayfair, Kent Building Supplies and more, relies mainly on introducing new technologies in its
stores, to enhance shopping experience of customers (Pantano, Priporas and Stylos, 2018). For
example, B&Q has its own website www.diy.com, which facilitating e-commerce and gives
advantages to its customers to shop on line. Along with this, intranet facility of respective firm
also aids in improving the internal communication system, under which its policy and procedures
can be easily accessed to all staff members. Furthermore, B&Q has also introduced its first iDIY
APPS that gives benefits to its customers in terms of ‘get the job done’ through its experts, which
available for them at the time of needed. This app is new at apple store, where users can free
download in iPhone or iPad. In addition to this, a range of green technologies also have
incorporated within into new stores at B&Q (Loury-Okoumba and Mafini, 2018).
Today, more than 3million of customers come used to come at stores of B&Q every
week, which shows an extensive base of its customers. This factor indicates major strength of
this retail firm regarding its exclusive sales and profitability. In addition, B&Q also retain its
loyal customers by providing them opportunity for creating and designing their own home décor
product, as per their taste and preferences (Bombaij and Dekimpe, 2020). Besides, long-time
customer retention, strategy made by B&Q is its different types of discount that offers for regular
shoppers, such as Trade Discount Card for online trade, Diamond card that offer 10 % off to
its selected buyers, Wednesday off on some particular products, Corporate Gift Cards on bulk
spending etc. In addition, to improve organisational efficiency, B&Q also concerns on reducing
4

the wastages including commitment to reduce carbon emission from its production (Warnaby
and Shi, 2018). For this purpose, it has majorly tried to manage its production and entire business
operations in a systematic way via usage of green technology. This would also help in
encouraging the customers towards replacing the old products for recycling the same.
Conducting more competitive analysis, it has been evaluated that B&Q has highly skilled and
experienced workforce, that helps in driving the organisation with expertise and knowledge. To
increase job satisfaction for long time retention of productive employees, its management mainly
applied “soft” side human resource practices in workplace policies. To develop skills in
employees and make them more productive, B&Q have made investment in organising
communications and training, including leadership technique to create a good team (Adams and
Williams, 2019). This firm has flatter organisational structure that reflects its culture and the
way, workers are empowered by giving them opportunity to freely express their new ideas.
Therefore, all these evidences have shown that for operating business in oligopoly market
structure profitably, strategies used by B&Q are much effective. This would also help in
attainment of high competitive advantages from other oligopolies efficiently (Verma, Malhotra
and Singh, 2020).
Figure 1: Competitor Analysis between B&Q and Kingfisher, 2019
5

From this figure, it has been interpreted that however, B&Q is a subsidiary firm of
Kingfisher but still both are considered as major competitors of each other, in retail market
(B&Q Financials, 2019). As compared to Kingfisher, both revenue and net income ratio of B&Q
fluctuates highly over last few decades, but still its retains competitiveness over others.
4 a) Critical discussion on different types market structure including optimal structure for B&Q
Market structure can be defined as organisational and various characteristics of area where
a company operates its business. It affects highly on nature of competition and pricing policies of
business, therefore, to run organisation effectively. It also shows extent of dependency and
interconnectedness among firms’ operations, in terms of identical (homogenous), differentiated
product category, relative strengths of purchasers and sellers, various forms of competition,
barriers for entry and exit of companies etc. (Gong, Liu and Zhu, 2019) . In this regard, market
structure can be classified into various categories such as Oligopoly, Duopoly, Monopoly,
Monopolistic and Perfect Competition, where each possess different characteristics. Within
perfect competition, all firms offer identical or similar type of product, but they are actually
known as price takers. Relatively, they gain small share which gives advantages for new
entrepreneurs for easy entrance or exit business options. While, monopoly kind of market
structure depicts about single producer or seller in market, therefore, there is a strict restriction
for entry to new firms due to requirement of high cost investment (Kim and LEE, 2019). On
contrast, monopolistic indicates imperfect competitions, because companies operated in this
sector offer differentiated products which have no substitutes or alternatives. It includes shoes
producing companies, where to purchase the same, consumers instead of price, concern on brand
name and quality of such products. Therefore, there is not perfect competition among firms who
offer same product within same demographic area.
In context with Duopoly type of market structure, it refers to particular type of oligopoly
where minimum or only two kinds of companies exist that operate business within same sector
(Doğan, Ayçin and Bulut, 2018). Pepsi and Coca Cola is perfect example of this type of market
structure, who have captured larger share market area. Oligopoly indicates market having fewer
organisations of same sector, where each oligopolists aware about price and other actions of
other oligopolies and make policies accordingly, to retain their customers. Therefore, decision or
actions of one firm highly influence others also, but it gives advantages to consumers to purchase
products on attractive discounted rates due to high competition among firms (Hanaysha, 2018).
6

Thus, concerning on characteristics of each type of market structure, it has been suggested to
B&Q to operate in existing market structure only i.e. oligopoly. Because this market has given
advantages to this firm to take number of actions and strategies plan for sustaining competitive
image of its business, for longer period, which is seemed to be difficult if it switches or shifts its
market structure into other ones.
4b) Key discussion on interferences of lesser or greater government interventions on B&Q
operations
As consumers always willing to purchase retailing goods on discounted offers, especially on
daily consuming goods. Therefore, they raise demand from government to fulfil their basic
necessities. Due to such pressure, government make interference in pricing and trading policies
of retailers, to meet demand of public (Pantano, Priporas and Stylos, 2018). For this purpose,
interventions that impact on such operations of retail industry include tariffs on the optimal
decisions related to pricing of goods, by taken into account their retailing services such as cost of
production, labours and more to set prices accordingly. Including retailer service, another main
concept includes revenue-seeking policies and public or society welfare, that are being
considered by government for setting rules for retail industry on their product price. The benefits
of greater interventions on retail operations include regulations that product negative impact of
production on environment, consumers and workers; protection against long-term interest,
limiting monopoly power and more (Athey and Luca, 2019). While reducing market powers to
set price in own manner, refers to be drawbacks of the same. But considering the society
benefits, it is recommended that interference of interventions of government on retail operations
must be high. Moreover, to overcome from disadvantages of same, management of B&Q needs
to make strong policies and take efficient actions, that lead to sustain business for longer period
effectively.
CONCLUSION
It has been concluded from all over report that applying economic concepts and theories on
any industry, aid to determine characteristics of market and way they operate their businesses for
running successfully. It also helps in analysing how strategically firms take actions to gain
competitive advantages from their rivals. Through overall analysis on retail industry, it has
7

evaluated that companies dealing in this sector, are required to be operated in oligopoly market
only, as it gives them benefits to avail intense competition with high margin of profitability.
8

REFERENCES
Books and Journals
Athey, S. and Luca, M., 2019. Economists (and economics) in tech companies. Journal of
Economic Perspectives. 33(1). pp.209-30.
Pantano, E., Priporas, C. V. and Stylos, N., 2018. Knowledge Push Curve (KPC) in retailing:
Evidence from patented innovations analysis affecting retailers' competitiveness. Journal of
Retailing and Consumer Services. 44. pp.150-160.
Hanaysha, J. R., 2018. Customer retention and the mediating role of perceived value in retail
industry. World Journal of Entrepreneurship, Management and Sustainable Development.
Doğan, O., Ayçin, E. and Bulut, Z. A., 2018. Customer segmentation by using RFM model and
clustering methods: a case study in retail industry. International Journal of Contemporary
Economics and Administrative Sciences. 8(1). pp.1-19.
Kim, S. S. and LEE, J. H., 2019. Corporate social responsibility and financial reporting quality:
Evidence from Korean retail industry. Journal of Distribution Science, 17(6).
Gong, Y., Liu, J. and Zhu, J., 2019. When to increase firms’ sustainable operations for
efficiency? A data envelopment analysis in the retailing industry. European Journal of
Operational Research, 277(3), pp.1010-1026.
Adams, B. and Williams, K. R., 2019. Zone pricing in retail oligopoly. American Economic
Journal: Microeconomics, 11(1), pp.124-56.
Warnaby, G. and Shi, C., 2018. Pop-up retailing: Managerial and strategic perspectives.
Heidelberg: Springer.
Bombaij, N. J. and Dekimpe, M.G., 2020. When do loyalty programs work? The moderating role
of design, retailer-strategy, and country characteristics. International Journal of Research in
Marketing. 37(1). pp.175-195.
Loury-Okoumba, W. V. and Mafini, C., 2018. Buyer-supplier relationships and firm
performance in the fast moving consumer goods retail industry. Journal of Contemporary
Management, 15(1), pp.850-878.
Verma, N., Malhotra, D. and Singh, J., 2020. Big data analytics for retail industry using
MapReduce-Apriori framework. Journal of Management Analytics, pp.1-19.
Online
B&Q Financials. 2019. [Online] Available Through: < https://craft.co/b-q/metrics>.
9