StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

The Plan of The Shoe Shop in Opening a Retail Outlet - Case Study Example

Cite this document
Summary
From the paper "The Plan of The Shoe Shop in Opening a Retail Outlet" it is clear that the launching of The Shoe Shop opens the company into profitable opportunities. If everything goes as expected, the business organization will be posting huge profits because of its high margin of safety…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER96.4% of users find it useful
The Plan of The Shoe Shop in Opening a Retail Outlet
Read Text Preview

Extract of sample "The Plan of The Shoe Shop in Opening a Retail Outlet"

Running Head: THE SHOE SHOP: A PRELIMINARY REPORT The Shoe Shop: A Preliminary Report in Harvard Format by Course Name University I. Executive Summary In relation to the plan of The Shoe Shop in opening a retail outlet, this report presents an analysis of the costs and the projected income of the company in the medium term. Based on the analysis, The Shoe Shop will be a profitable venture with a relatively low break-even point and very high margin of safety. At the end, the paper recommends stimulating overall demand in order to enhance the utilization of resources. II. Introduction With the ever increasing disposable income in the London area, the proliferation of shoe manufacturers which compete with the more established players is warranted by the huge profit opportunities (BFA 2007). The shoe industry, together with the apparel and accessories sectors posts increases in total turnover in the past year which shows the increasing demand and market for these products. The creation and operation of The Shoe Shop which will commence on January 2008 is another quest to provide products for this profitable market. The price of shoes in London is highly dependent on the strategies employed by the different industry players (BFA 2007). Business organizations which employ differentiation and niche strategies enhance the image of their brands by putting a high margin in their shoe products. A good example of this is Russell and Bromley where a pair of women's shoes can cost up to '200.00 (Russell and Bromley 2007). On the other hand mid-priced companies charge from '40 to '90 for a pair of shoes. Shoe manufacturers who are utilizing cost leadership strategies can price more competitively at less than '30. Ben Sherman can price as low as '15 for a pair of women's shoes. These pricing strategies of the competitors in the market together with the survey conducted to determine the target consumers' preferences become the primary bases of The Shoe Shop's proposed pricing strategies. Proposed Pricing Strategy The pricing strategy of a business organization is one of the key elements to its success and even mere survival in the industry where it operates (Kotler 2005). In this consideration, The Shoe Shop formulates its pricing strategy as a way to efficiently generate the maximum profit available. The main aim of the pricing strategy is to cover all the company's efforts in production and other activities, provide ample margin for profits, build the hip image that the company desires, and generate enough demand by pricing competitively and at par with other industry players. In order to determine the pricing strategy, the market research department of the shoe shop conducted a survey which is geared in appropriate rice for a pair of shoes. Considering the target market of The Shoe Shop, the survey was participated by both men and women whose age ranges from 18-35 years old. The market research department concluded that within this age range, consumers are very much concerned about their image and prefer products which express what is hip and trendy. They are willing to pay more for image but most will not spend more than '92.00 for a pair of shoes. Thus, with this consideration, The Shoe Shop will price a pair of shoes in its product line for '70.00. III. Per Unit Cost Statement The costs associated with the production and marketing of the company's shoes generally has a variable and fixed component. The variable costs are direct materials and direct labor both of which can be directly traced to the individual shoes being manufactured. Even though the sizes and design of the shoes vary, the company's direct material cost '27.25 for each pair. Direct labour is 1.25 hours and employees are paid '15.00 per hour of labor. In terms of indirect costs, The Shoe Shop pays a monthly overhead of '7,500. The manufacturing department together with other functional areas, is serviced by the administrative and marketing department. The Shoe Shop allocates a monthly overhead of '3,000 for the manufacturing and '2,500 for the manufacturing department. Thus, shoe production has a total fixed cost of '13, 500. The current resources and facility of The Shoe Shop has a maximum production capacity of 1,500 pair of shoes per month. Thus, each pair of shoes is allocated a total overhead of '9. Table 1 below shows the company's per unit cost statement concluding that with the present capacity, a pair of shoes will utilize '55.00 to manufacture. Table 1. Per Unit Cost Statement Cost Amount Direct Material '27.25 Direct Labor '18.75 Indirect Costs '5.00 Manufacturing Overhead '4.00 Per Unit Cost '55.00 IV. Annual Statement under Marginal Costing This portion shows the company's income statement for the first three years of operation through the use of marginal costing. Marginal costing assumes that the company's level of indirect costs will remain the same for the entire period (Osborne 2007). This is true if The Shoe Shop operates within its current maximum capacity of 1,500. For most business organizations, the first year of operation presents the most challenging period because the product is relatively new in the market. The volume of sales during the first year is expected to be at minimum. However, The Shoe Shop expects that during the second and the third years, total demand will eventually increase. The three year sales are as follows: 10,000 units; 12,000 units; and 15,000 units. Table 2. Annual Income Statement for Years 2008-2010 V. Break-even Analysis and Margin of Safety The Shoe Shop's profitability in its operation is highly dependent on its volume of sales. Break-even analysis will show the total unit sales that the company needs in order to have zero profits. Thus, The Shoe Shop needs to sell shoes which is more than or equal to its break-even point. In order to get the break-even in units, The Shoe Shop will divide its total fixed cost with it per unit contribution margin. The computation is as follows: Contribution Margin = Fixed Cost / Contribution Margin per Unit = '13,500 / '24 = 563 units The business organization is required to sell 563 units per month or 7,656 units annually to break even. Margin of safety is defined as the difference between a business organization's expected sales volume to its break-even point. The margin of safety represents the level of insulation from losses. This measure indicates the potential financial health of a business organization. If the margin of safety is positive, the company reaps profits. However, when it is negative, the firm incurs losses. The Shoe Shop's margin of safety is computed from its presented financial statements and calculated break-even point. Since, the concern of the company is its financial health for the next three years; margins of safety are computed for the fiscal years 2008, 2009, and 2010. Table 3. Margins of Safety from 2008-2010 (in units) 2008 2009 2010 Expected 10,000 12,000 15,000 Break-Even 7, 656 7, 656 7, 656 Margin of Safety 2,344 4,344 7,344 VI. Conclusion and Recommendation Based on the calculations and financial analysis presented in the report, the launching of The Shoe Shop opens the company into profitable opportunities. If everything goes as expected, the business organization will be posting huge profits because of its high margin of safety. The company's break-even point is only half its maximum capacity. It is therefore recommended that The Shoe Shop stimulate demand through marketing aggressively. It should be noted that operating far below the maximum manufacturing capacity will result in having a large portion of idle resources and underutilization. References British Footwear Association 2007, Retrieved 5 August 2007, from http://www.britfoot.com/ Kotler, P. 2005, Marketing Management, New Jersey: Prentice-Hall Marginal Costing 2007, Osborne Books, Retrieved 5 August 2007, from http://www.osbornebooks.co.uk/pdf/active_accounting_22.pdf Russell and Bromley 2007, Retrieved 5 August 2007, from http://www.russellandbromley.co.uk/page.pl'id=1 Read More
Tags
Cite this document
  • APA
  • MLA
  • CHICAGO
(The Plan of The Shoe Shop in Opening a Retail Outlet Case Study, n.d.)
The Plan of The Shoe Shop in Opening a Retail Outlet Case Study. Retrieved from https://studentshare.org/marketing/1512353-the-shoe-shop
(The Plan of The Shoe Shop in Opening a Retail Outlet Case Study)
The Plan of The Shoe Shop in Opening a Retail Outlet Case Study. https://studentshare.org/marketing/1512353-the-shoe-shop.
“The Plan of The Shoe Shop in Opening a Retail Outlet Case Study”, n.d. https://studentshare.org/marketing/1512353-the-shoe-shop.
  • Cited: 0 times

CHECK THESE SAMPLES OF The Plan of The Shoe Shop in Opening a Retail Outlet

Business Plan for the coffee shop

Despite retaining their outlet growth, this has resulted to downward pressure on sales and increased competition.... This research aims to evaluate and present the purpose of opening more coffee shops in London that is to save it from mediocre milkshakes and coffee shops through the control of the entire coffee-milkshake making process from the beginning to the end.... The year 2004 witnessed key coffee shop brands picking off major high traffic sites thus leveraging their powerful brands to compete with other independents and formats....
6 Pages (1500 words) Coursework

Opening a New Sports Shop

opening a NEW SPORTS SHOP Introduction This case study centers on prospective entrepreneur Scott McPherson and his dream to own a business.... Finally, sports activity is usually complemented by a desire for healthy and nutritious A comprehensive analysis of the sports retail sector follows: SWOT ANALYSIS The SWOT analysis is a helpful tool for formulating the strategic plan of a business.... He is keen on establishing a chain of retail stores across the south of England, bearing his name....
15 Pages (3750 words) Essay

Strategic Marketing Plan Starbucks in Asia

retail results.... The company plans to continue to expand its outlets all over the world, grow its retail sales, introduce new products and develop new distribution channels in order to achieve its objective.... Internal OperationsStarbucks' internal operations can be divided into two parts: retail and Specialty.... The retail division is governed directly by... hellip; It by now had more one thousand and five hundred stores in North America and the Pacific Rim as well as was opening new ones at a speed of more than one each day....
20 Pages (5000 words) Case Study

Strategic Audit of Wal-Mart & Kmart

When the firma became successful in opening more than 279 stores by the end of the year 1979, the next focus was on designing strategies for expanding the firm aggressively.... The firm also focused on the transportation time needed for a customer to reach the outlet.... al-Mart is the largest retail chain in the world and the largest corporation in the world.... By the year 2002, Wal-Mart became the world's largest retail giant with sales of $218 billions....
6 Pages (1500 words) Case Study

Marketing Strategies Used Starbucks Corporation

(Michelli, 2006) Within the company-operated segment, sales growth has been driven by outlet expansion, but comparable-store sales have also been positive, with global comparable store sales for company-operated outlets increasing by 7% in 2006, marking the 15th consecutive year with comparable-store sales growth of 5% or greater.... discusses two operating segments: company-operated retail and specialty.... While the company does sell its Starbucks brand coffee through retail outlets, the brand operates solely as a coffee specialist in consumer foodservice....
10 Pages (2500 words) Case Study

Retail Store Expansion Programme

He has a plan of delivery of products at home points after three years of its operation in the new location to boost the sales and build the client base further.... arsh Jones has managed retail stores for years successfully.... His experience prompted him to plan for expansion of He considered today's emerging potential for retail business and the customer orientation towards buying a product after seeing, touching and try them.... Jones employs two workers considering their professional outlook in managing retail stores, their qualification and their attitude for adjusting to the changing environment....
19 Pages (4750 words) Essay

Railway Stations Management in the UK

nbsp;… We could debate that the infrastructure in the smaller railway stations is not adequate to handle the retail shops.... Network Rail has been investing billions to provide modern facilities to the commuters and to encourage investment from the retail and service sector.... The advent of software designed specifically for the railway network by companies like Fujitsu, has provided an edge to retail railway in a competitive and aggressive way....
12 Pages (3000 words) Essay

The Working Culture of Big Organizations

hellip; The author states that once the retail outlet gets going, it will also generate wide publicity.... He would strongly recommend, MIGROS conduct a test launch by creating a sample outlet at Faridabad itself.... In the initial stages, it is desirable to take on rent the premises for each district level outlet.... His suggestion to MIGROS is to build a premier, upscale outlet shopping center.... In the paper “The Working Culture of Big Organizations” the author describes the practical experience in retail management for over 50 years....
15 Pages (3750 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us