CRME COUTURE BRIDAL INC.

Crme Couture was located inside the Old Quebec Street Mall, in the heart of Guelph, Ontario (see Exhibit

3). Positioned as an upscale bridal operator, Crme Couture provided alteration services21 as well as a

diverse portfolio of wedding-related products including bridal gowns, bridesmaid dresses, social occasion

apparel, prom dresses, and accessories (see Exhibit 4). Sandra was selective as to where she sourced her

inventory, independently selecting and curating fashion designers from all over the world. To remain up to-

date with fashion trends, she attended annual fashion conventions throughout Europe and North America.

Sandra made it a priority to meet with each designer to maintain a positive working relationship and secure regional exclusivity rights for the apparel. The average Crme Couture wedding dress sold

for approximately $1,500. Any inventory that could not be sold after several years was passed along to a

consignment store.22 Due to the logistical complexities associated with retailing online, Crme Couture sold

inventory in-store only.

One of Crme Couture's longstanding goals was to be renowned for its customer service. Sandra strongly

believed that although the product was important to the consumer, the purchasing experience was what really

drove sales. Many brides had noted that there was a societal standard to achieve "the perfect wedding," creating

unnecessary pressures during the wedding planning process.23 With this in mind, Sandra invested a large amount

of capital in establishing an elegant, comfortable, and relaxing atmosphere. Among other amenities, Crme

Couture offered private one-on-one bridal consultations, conducted all apparel appointments on a first-name

basis, provided sparkling water during appointments, and celebrated all purchases with complimentary bridal

gift bags. Crme Couture also prioritized giving back to the community by participating in local charity

fashion shows and frequently donating wedding dresses to those in need.

In addition to the community outreach, Crme Couture utilized a variety of advertising media. Radio,

Facebook and Instagram were used to promote in-store products, while popular wedding magazines

featured many of Crme Couture's current fashion lines. Sandra also coordinated an annual fashion show

within the Old Quebec Street Mall to highlight the new prom dress inventory. Expenditures for the FY 2018

prom fashion show totaled $6,045. Finally, Sandra advertised her wedding dresses at 14 bridal conventions

throughout the year. Each bridal convention spanned over two days and allowed brides-to-be to browse the

many different bridal retailers and fashion lines.24 All other advertising expenditures would be allocated as

a proportion of total applicable revenues.

Nevertheless, many operational issues plagued the business. Clothing racks were cluttered with an

excessive amount of inventory and as a result, staff struggled to locate dresses. Additionally, the bridal

boutique was not as efficient as Sandra had hoped, operating at a 15 percent utilization rate and servicing

approximately 500 brides per year.25 Sandra knew that something had to be done to free up space,

increase the bridal utilization rate, and ultimately achieve her long-term growth goals.

FINANCIAL ANALYSIS

Sandra wanted to evaluate the performance of each revenue segment before creating her expansion strategy.

She needed to determine which expenditures were direct and which were indirect to identify expenditures that

should be allocated to the consignment sales segment. To do so, she gathered information about the

company's financial performance (see Exhibits 5 and 6). Sandra concluded that any expense that could not be

easily traced to a specific revenue stream would be spread evenly among all application segments.

The travel expense included Sandra's purchasing excursions and the cost to transport equipment to

and from the bridal conventions. Transportation to and from the bridal conventions costs a total of $6,478.

Sandra also traveled to Atlanta, Georgia once a year to browse new prom fashion lines and designers,

which cost a total of $1,500. The remaining purchasing excursion costs could not be allocated to a specific

segment and thus were divided among all product segments, except prom dresses, in proportion to the cost

of goods sold for each product segment.

In addition to Sandra, Crme Couture employed two bridal sales consultants and two general sales employees.

Sandra oversaw and indirectly worked on all components of the business. The bridal sales consultants worked

on an as-needed basis and focused exclusively on fitting and altering all bridal and bridesmaid dresses,

whereas the general sales employees oversaw the remaining in-store apparel segments. In fiscal 2018, the

bridal sales consultants earned a total of $40,534, $6,982, and $9,406 for the bridal gowns, bridesmaid dresses,

and alterations segments, respectively. Similarly, the general sales employees were paid a total of $19,394 for

the social occasion dress segment, $8,436 for the prom dress segment, and $9,891 for the accessories segment.

All salaries and wages were allocated as a proportion of total applicable revenues.

The insurance policy pertained to all inventory and equipment that Crme Couture owned. Sandra estimated

that 50 percent of the total insurance policy would be allocated to the bridal gown segment, whereas the

remainder would be split evenly among the remaining product segments. Rent and utilities were allocated

based upon square footage. The bridal boutique occupied 950 of the total 1,900 square feet, whereas

bridesmaid, prom, and social occasion apparel each occupied 200 square feet. The rest of the rent

expenditure was split evenly between the remaining in-store revenue segments.

Sandra did not believe that office supplies, telephone, and Internet expenditures should be allocated to

consignment sales and therefore spread them evenly among all in-store revenue segments. Finally, Sandra

had taken out a bank loan to purchase Crme Couture in 2013, and the interest and bank expenses could be

spread evenly among all segments.

FUTURE EXPANSION

As she examined the company's current state, Sandra began to establish a detailed expansion strategy that

would best position Crme Couture for future growth. Specifically, she wanted to understand which revenue

segments were most and least profitable, and as a result, which warranted further investment. She wanted

her expansion strategy to align with her goals of freeing up inventory space, attracting more clientele,

providing exceptional customer service, and increasing net profit.

Question

1. Quantitative analysis: Calculation of profit by operating segment (as identified by Ms. Sandra) and analysis/implications of the calculations?

2. Detailed consideration of a minimum of three alternatives (should include pros/cons of each

based on established criteria)

EXHIBIT 4: PRODUCT AND SERVICE REVENUE SEGMENTATION 2.4%, Consignment Sales 9.7%, Alterations 10.2%, Accessories 41.8%, Bridal Gowns 8.7%, Prom Dresses 20.0%, Social Occasion Dresses 7.2%, Bridesmaid Dresses Notes: Accessories included outfit-related items as veils, jewellery, purses, headpieces, belts, and shoes. Source: Company files.EXHIBIT 5: STATEMENT OF EARNINGS FOR THE YEARS ENDING JULY 31 (CA$) 2018 2017 Revenues 765,781 851,500 Cost of goods sold 410.538 387,295 Gross profit 355,242 264,205 Operating expenses Advertising 28. 135 20.379 Depreciation 8,258 9.283 Insurance 2,390 1,307 Interest and bank charges 22.848 19,803 Office supplies 10.824 14,605 Accounting fees 9.324 10,154 Rent 58,531 81,642 Repairs and maintenance 5,772 4.235 Telephone and Internet 7.284 6,848 Travel 15,938 16,676 Wages and benefits 159,643 144.194 Total operating expenses 328.045 309,126 Net income before tax 26,297 (44.921) Income tax Net income (loss) 28.287 144 921) Notes: All financial data has been modified to maintain business confidentiality. Income tax No income tax was incurred due to loss carryforwards from prior years. Source: Company files. EXHIBIT 6: FISCAL YEAR 2018-COST OF GOODS SOLD AS A PERCENTAGE OF SEGMENT REVENUES Segment Cost of Goods Bridal gowns 43.4% Bridesmaid dresses 55.9% Social occasion dresses 58.9% From dresses 55.2% Accessories 48.1% Alterations 59.8% Consignment sales 180 8% Notes: Social occasion apparel included mother-of-the-bride dresses and formal eveningweal Source: Company files.EXHIBIT 1: ONTARIO MARITAL STATUS SUMMARY Marital status (persons) 2013 2014 2015 2016 2017 Legal marital status, single 5,969, 176 5,981,970 5,989,081 6,049,921 6, 132,543 Legal marital status, married 5,588, 112 5,663,956 5,732,541 5,821,423 5,917,071 Legal marital status, divorced 1,318,670 1,333,604 1,346,592 1,362,629 1,379,456 Legal marital status, widowed 679,796 700,895 721,383 742,347 764,314 Total legal marital status 13,555,754 13,680,425 13,789,597 13,976,320 14,193,384 Source: Created by the case authors using data from Statistics Canada. EXHIBIT 2: GUELPH ECONOMIC INDICATORS 2015 2016 2017 2018 2019 2020 2021 2022 Real GDP (000s) 8,070 8,340 8,639 8,829 9,011 9,198 9,329 9,595 Total employment (000s) 90 91 91 92 93 94 95 97 Unemployment rate (%) 4.0% 4.8% 5.4% 5.1% 5.0% 5.0% 4.9% 4.9% Household income per 47,445 46,692 48,682 50,082 50,939 52,442 53,917 55,478 capita ($) Population (000s) 154 156 158 160 162 164 166 168