Jessops Case Study

Task 1:

Build up a picture of the business and to understand where it has come from.

Jessops is the largest photographic retailer in the UK. It was founded in 1935, so a lot has changed since then, but one thing has remained constant: the exceptionally high standard of customer service. In fact, recent research found that 94% of customers rated the service they received as excellent (67%) or good (27%).

That's been the cornerstone of the Company's success, and its phenomenal growth proves that the approach is working. The store portfolio now includes over 230 stores nationwide and the whole group turned over £350 million in the year to 30 September 2006.

The emphasis in store has always been on the customer, now more so than ever. As the popularity of digital imaging continues to grow, the Company's Spacemix system lays out stores with four distinct areas to more accurately reflect customer demand:

* Camera hardware, which includes cameras, camcorders and camera phones
* Accessories, where customers can find many of the extras they might need for their equipment
* Digital Photo centre, which gives every customer a comprehensive range of digital photo printing options, plus enough kiosks to virtually eliminate waiting. It also includes printers and scanners
* Customer Service, an area where the customer can get any help they might need. Of course, help is on hand throughout the store but this area is dedicated solely to service.

Whatever they're looking for, customers have a huge range of cameras, camcorders, camera phones and accessories to choose from. And if they can't find what they need in store, they can have it ordered.


Task 2 (A):

What does it mean for a company to 'float' on the Stock Exchange?

Flotation refers to the act of a previously private company to be publicly traded by issuing shares and soliciting the public to purchase them (in business terms, also called as “going public”). By this process, the company engages in an IPO or Initial Public Offering, which consists of its preliminary issuance of stocks and bonds available to the investing public with the aim of intensifying their resource funding.


How does this help a firm achieve growth?

Being listed in the Stock Exchange gives the company/firm several benefits such as:
- Tax Benefit
If your company is listed it pays less tax.
- Outreach to investors for future finance need
By doing an IPO (Initial Pubic Offering), the company may obtain sufficient funds to finance their projects for the future. This is because it is now publicly traded which means that the company’s ownership or interest is now made available to investors in the form of stocks and bonds. Raising funds and acquisition of additional assets will now prove to be an easier task for the company since its stakeholders now consist of investors who definitely have a share of the company’s interest.
- Increased visibility
Since the company is now publicly traded, it is most likely and reasonable to say that it will be regularly advertised in the most common means of communication. This is for the reason that strengthening the visibility of the company will enable it to attract potential investors who may provide additional resources for the firm.
- Liquidity
Listing on the Exchange generally increases the liquidity of the listed securities. Entrepreneurs may love to develop one project successfully, run it in a transparent way and then change it into cash when needed for the sake of developing another one.
- Attract Foreign Investment
Being a listed company can help attract foreign investment in the firm, opening up opportunities for business expansion and modernization.
- Prestige
Being listed in the stock exchange raises the prestige of a company immeasurably. A listed company presents a positive public image. This image plays an important role in boosting the company’s credibility.

Task 2 (B):

What process would Jessops have had to follow in preparing for its flotation on the stock market?
During flotation, the following steps are advised to be followed for more efficiency and effectiveness:
1. Choose the right advisers to guide you through the process. Advisers give you a glimpse of future scenarios which may include possible setbacks and advantages. Choosing the right advisers proves itself to be a critical part of the decision to do public since failure to recognize threats and inability to adapt to such will only bring business failure.
2. Make sure your accounts and legal structure comply with the rules and regulations of the market you're joining.
3. Nominate someone in the company - typically the finance director - to take responsibility for the process. The finance director is probably the most competent person in the company to take charge of the flotation process since he is highly knowledgeable of the financial status of the company as well as the sources of its fund, outstanding debts, solvency, liquidity and profitability figures. Having him take responsibility will enable the company to move in the most objective manner.
4. Decide what type of flotation you want:
An introduction is the easiest and cheapest option, and is used if enough of a company is already in public hands - perhaps for a move from Alternative Investment Market to the Main Market, for example.
In a private placement your shares are offered to selected institutional investors. This allows you to raise capital with lower costs - but the reduced shareholder base could mean a reduced market in your shares further down the line.
In an initial public offer (IPO) shares are offered to the public and investing institutions. This can help you raise more capital but is the most expensive route to market.
5. Prepare a prospectus which will contain the key information about the company and the share offering. Remember that you're legally responsible for the accuracy of any information within this document. This will prove the credibility of the company to its target investors and so it follows that information must be true and reliable.


Task 3:

What has happened to Jessops share price since flotation?

Jessop’s share prices experienced a boost in sales after its flotation probably because of the increasing demand for digital cameras. However, after some time, the company experienced a decline in performance as evidenced by their issuance of profits warning. This can be attributed to following problems they may have encountered due to their decision to float in the market (listed in Task 4).

Task 4:

What problems are likely to have faced Jessops in taking this step in its growth?

Assess the measures which the company could have taken to avoid these problems.
1. The most apparent reason is that when a company decides to float in the market, it will probably become vulnerable to market fluctuations beyond the company’s control. Unlike a private company, publicly traded corporations’ worth is dictated by current market trends. If, for example, the demand for digital cameras decreases, then the company’s worth also decreases relative to that demand, therefore this particular decrease in their worth (or the perceived value of the company) shall make their company less attractive to investors since the pubic may not see their operations profitable given the scenario.
2. Another problem that could have faced Jessops is the “internal control” of management. When a company decides to issue stocks or bonds for ownership in the interest of the company, stockholders are likely to interfere in the company operations to protect the investment they have allocated in the firm. This interference may have caused conflict on which decision to follow since each stockholder has their own personal interest. Management control is the primary issue when a company goes into flotation since the previously private company may give up some management control to the point that it might risk being taken over. This change in control adversely affects the company since the goals and objectives will be re-aligned.
3. The cost of flotation could have been substantial to the company that it’s enough to affect their operations. Their expenses regarding the flotation process could have re-aligned their financial structure in a manner they have not predicted before the flotation considering that the expenses a firm encounters during flotation doesn’t end with the public offering since it also entails added professional costs to hire competent financial advisers and top management executives to oversee their company’s financial status.
4. Public companies will have to comply with additional requirements which may have been a burden for Jessops. This would include a minimum financial requirement, legal requirements and other documentations which can be a big challenge for a company that is still in thed beginning phases of being a publicly traded firm. Failure to comply with regulatory requirements may even cause a company to file for bankruptcy.
5. Employee Relations can also be an issue. Since flotation involves a change in management style, employees may be demotivated with the people who are currently running their operations.
6. Business Managers may have been distracted with the flotation process that they find it hard to deal with investors afterwards. The flotation process may have taken a lot of their focus that they failed to bring in additional resources to the company by attracting investors who can finance their projects. This lack of focus will certainly have its repercussions in the overall standing of the company since a publicly traded company heavily relies on their investors to gain sufficient funding resources.