Case Study 3 Contemplating New Direction at "The Mad Hatteras"

Lauren Asbury is the owner of an upscale women's boutique, The Mad Hatteras, in Wilmington, NC. She worked at The Mad Hatteras throughout college and then lurchased the boutique four years ago when the previous owner retired. She has spent a lot of time learning about, and understanding the current customers and her shop, listening to their wants and concerns, as well as staying vigilant to the current cost and expenses of running a business in the resort town. The boutique has been very successful over the past three years, which means that Lauren is looking to expand. Last year, gross sales were $220,000, with customer returns totaling 8.7% of gross sales. Expenses in the current space, which is 1500 square feet, were 42%. The current cost of merchandise sold is 48% for the boutique.

given the situation, she is thinking about two different options. Lauren's first option is to carry a sustainable, eco-friendly, apparel line for men, women, and children. The product mix offers, mainly activewear, but has recently expanded to include swimwear, and a performance line. Lauren is passionate about sustainability in her community, and feels very strongly about buying eco-friendly products. Many of The Mad Hattera's customers are asking for the popular sustainable, eco-friendly products, as no other shops in town carry the line, and the vendor has done a great job of promoting the line via social media. In order to carry the line, the vendor asked Lauren to expand the current space by 500 square feet for a dedicated "shop-in-shop" concept. Lauren would also have to invest approximately $10,000 and fixtures and marketing and promotional materials. If Lauren were to choose this option, she would have to take over an adjacent space. The cost of merchandise sold would decrease to 44.5%. However, her expenses would increase by 2%. She expects sales to increase to $270,000 and customer returns to remain the same.

The second option she is considering is to begin expanding her product offerings for women to begin carrying shoes and other accessories. Most of the products that she currently carries are dresses for social occasions and professional dress for women. The second option would mean that The Mad Hatteras could stay in the current space with expenses staying stable, but the cost of merchandise sold would increase to 49%. with this option, the sales are expected to increase to $252,000 and she assumes that customer returns will increase by 1.5%. Lauren would like to be the first in the area to carry the line, but must also make prudent decisions for her business.

Discussion Questions for Case Study 3

1. Develop a skeletal statement for the current and new options.

2. Calculate sales per square foot for all three scenarios (The current state, and for the two options.)

3. What points would you raise with Lauren to help her make the appropriate decision?

4. What recommendations would you make to Lauren if she were to choose the eco-friendly line?

5. What choice would you make? Explain your answer fully.