DAMN HEELS (B) EXECUTIVE SUMMARY Ms. Coleman launched her first product in December 2009, selling online and in hair salons and restaurants where family and friends worked. Her shoes – priced at $20 – were must-have Christmas gifts. She won a business plan competition that month and another the following March, netting $32,000 and lots of attention from the media, investors and entrepreneurs. In September, she appeared on Dragons’ Den and accepted a $50,000 deal from Arlene Dickinson. She is now weighing all distribution offers that have been coming in. She also fit in a visit to China. But the next Move is going to be tricky. She has to take a calculated stand as to which approach she shall undertake and whether expanding into joint ventures and new scheme of products is advisable. this case subtly aims to look into and devise numerical methods to determine the validity of future course of action on the part of Damn Heels.
Transcript
DAMN HEELS (B)
EXECUTIVE SUMMARY
Ms. Coleman launched her first product in December 2009, selling online and
in hair salons and restaurants where family and friends worked. Her shoes –
priced at $20 – were must-have Christmas gifts. She won a business plan
competition that month and another the following March, netting $32,000
and lots of attention from the media, investors and entrepreneurs. In
September, she appeared on Dragons’ Den and accepted a $50,000 deal
from Arlene Dickinson. She is now weighing all distribution offers that have
been coming in. She also fit in a visit to China. But the next Move is going to
be tricky. She has to take a calculated stand as to which approach she shall
undertake and whether expanding into joint ventures and new scheme of
products is advisable. this case subtly aims to look into and devise numerical
methods to determine the validity of future course of action on the part of
Damn Heels.
TABLE OF CONTENTS
CALCULATION OF CONTRIBUTIONS PER UNIT PAGE 3
CALCULATION OF DIFFERENT EXPECTED COSTS PAGE 4
ANALYSIS OF CURRENT PROFITS WITHOUT ANT ADDITIONS PAGE 5
EXPANSION PLANS IN CANADA
THROUGH COAT CHECKS
PAGE 6
EXPANSION PLANS IN CANADA
THROUGH DH SALES STAFF
PAGE 7
ANALYSIS OF EXPANSION IN CANADA PAGE 8
NEW VENTURE:BEAUTIFUL VENDING PAGE 9
ANALYSIS OF BEAUTIFUL VENDING PAGE 10-11
CONCLUSION PAGE 12
NUMERICAL ANALYSIS
CALCULATION OF CONTRIBUTIONS PER UNIT
SELLING PRICE PER UNIT = $ 20
LESS
HST @ 13% = $ 2.60
= $ 17.4
LESS
VARIABLE COSTS
a) weighted average shipping cost p u = $.35 ( for flats & bag)
b) manufacturing cost $3.05 for flats and $ 1.89 for bag
c) packaging and brand labels $ .33 per unit
total variable costs = $5.62 per unit
CONTRIBUTION PER UNIT = $ 11.78
HARMONISED SALES TAX:
PROVINCIAL SALES TAX @ 8%
FEDERAL GOODS AND SALES TAX@ 5%
CALCULATION OF DIFFERENT EXPECTED COSTS
SALES UNITS ESTIMATED = 10,000 PAIRS
TRADE SHOW AT YOUNGE DUNDAS
COST FOR THE DAY = $ 125
CLOTH SHOW
COST FOR THE SHOW ( 3 DAYS) = $ 270
NIKI BEACH
PAYMENTS TO NIKKI BEACH = 25 (10)($20) X 10% = $ 500
150 PAIRS TO BE GIVEN AS SALES PROMOTION = 150($5.62) = $ 843
PR FIRM COSTS
$ 1900 FIXED COSTS
TOTAL FIXED COSTS =
ANALYSIS OF CURRENT PROFITS WITHOUT ANT ADDITIONS
SALES 10000 UNITS @ $20 $2,00,000
LESS HST @ 13% = $ 2.60 $ 26,000
NET OF HST $ 1,74,000LESS VARIABLE COSTS @$5.62 per unit $ 56,200
NET OF HST $ 34,800LESS VARIABLE COSTS @$5.62 per unit $ 11,240
= CONTRIBUTION $ 23,560
LESS ADDL FIXED COSTSSALARY OF STAFF $ 7,500= PROFIT $16,060
SALARY OF STAFF @ 15 PER HOURFIVE DAYS PER WEEK AND FIVE HOURS PER DAY.$15 X 5 HOURS X 5 DAYS X 4 WEEKS X 5 MONTHS = $ 7,500
ANALYSIS OF CANADIAN EXPANSION DETAILS
CLEARLY THE DH SHALL GO FOR OWN STAFF AS IT IS ADDING MORE PROFIT TO THE BOTTOMINE THAN GOING FOR THE COAT CHECKS ASSISTANCE EVEN IF IT MEANS
HIGHER STAFF SALARY. THIS WOULD ENSURE MORE MARKET PRESENCE IN THE LONG RUN AND ADD MORE MARKETING BUZZ TO THE IMMEDIATE TERM.
it is highly advised that the company must adopt the strategy of installing new sales staff even if it is costly as selling through others entails supplying at heavy discount. the discount far outstrips the salary component.
further it must be understood that setting up STAFF will help bringing more customers to the fold and help retaining old ones. But selling through others will not ensure that in the Long Run.
so Selling through Staff is advisable as it will help the company to expand its market and also help expanding its bottomline in the LONG RUN.
PAYMENT OF EMI'S AND DEPRECIATION COSTS ARE FIXED COSTS.
ATTENDANT COSTS ARE VARIABLE IN NATURE.
NET INCOME GENERARED FOR A 20 WEEK PERIOD IS SUMMARISED AS BELOW:
GROSS REVENUE $ 20,000LESS SHARE OF CLUB OWNERS@ 20% $ 4,000= NET REVENUE $ 16,000
LESS DEPRECIATION OF MACHINES @34.61 $346.1ATTENDANT COST FOR 20 WEEK @$183.75 PER WEEK
$3675
= NET INCOME BEFORE TAX $11978.9EMI TO BE PAID FOR THIS PERIOD @$461.4166 $2307
ANALYSIS OF NEW VENTURE
it is apparent from the calculations that Damn Hills would benefit a great deal from entering into the joint venture if they intend to do so.
this venture has great potential for revenue enhancement and provided that the machines would last for 10 years from the date of acquisition, it will be highly lucrative and value addition to the already finely balanced business.
For a 20 week period DAMN HEEL'S can add $11978.9 to its profits before tax and its a sure way of enhancing product portfolio.
CONCLUSION
There was the consideration of entering into the US market but there is no hard evidence what kind of immediate impact DAMN HEELS can have in there. Even if the market is lucrative in the look of it, it has to be explored and researched before going in and therefore its a foregone conclusion that local market must be explored and expertise be developed before venturing outside.
one more aspect which is worth exploring is that the type and kind of capital it will require to be invested in the US market. the source and availability of the capital to
be invested has to be looked into and the cost of maintaining it must also pass general availability in the market.
So it is advisable right now to take control of the local market and make inroad into it and then consider expanding into the Foreign Market.
