Evaluate the potential sales and profit of expanding sales with entry level offering at Walmart.

How much do you estimate that RI-SUP could make in its first year from selling with a Chinese made entry-level paddle board at Walmart based on the data in the case (Walmart order, cost of boards, price?) Please write out your assumptions and your calculations.

Sales and distribution Many retail outlets sold paddling gear. Exhibit 3 lists the largest retailers by number of stores. Large retailers such as Dick's Sporting Goods shops and Walmart accounted for almost 80% of paddling equipment sales, but only about half of the paddle boarding equipment sales. Specialty stores (paddleboard shops) sold over 40% of paddleboard equipment. These stores are usually owned or staffed by knowledgeable paddleboarders who are trusted by avid paddleboarders to provide help in selecting the right equipment for them. The paddleboard shops usually had higher prices and higher margins on equipment than the larger retailers did. Many offered guided paddleboard expeditions and clinics to supplement their retail business further enhancing their expertise value to serious paddleboarders. Sales were mostly seasonal starting in the spring and extending through the fall although paddle boarding equipment was often purchased as gifts for Father's Day, Mother's Day and Christmas. Rl-SUP vice president of sales and the three regional managers who reported to A. Johnson oversaw 12 independent manufacturers' representative organizations [These organizations had reps who worked solely on commission sold in specific territories. They typically sold for a group of companies in related industries who were not direct competitors. They sold for smaller companies who could not afford or did not want to carry the expense of in house sales organizations. Reps typically had strong relationships with retailers. Rl-SUP reps carried other types of surfboards and paddling gear, but RI-SUPs were the only paddle boards they carried.] These reps received 5% commission on sales to paddleboard shops, in their assigned territories. The reps also serviced Rl-SUPs large accounts and received 3% commission for RI-SUPs sales to the major accounts stores within their territories. For example, if REI had ve stores within a reps territory, the rep would receive a 3% commission on sales tojust those stores. A rep typically called on a specialty store three or four times annually and visited major account stores as often as once a month. Calls with a specialty store might include inventory assessment, promotional product demonstration such as helping with an in-store paddleboard clinic, order-taking and other activities. Servicing major accounts usually consisted of working with in-store personnel, doing demos, taking inventory and ensuring stock was on the floor. The sales reps also staffed Rl-SUP's booth at industry trade shows in Hawaii and California. Reps had a mutually benecial relationship with a company; some worked with Rl-SUP since its inception and the beginning of modern paddle boarding. A. Johnson considered having a dedicated salesforce but felt that having most of the sales expense (commissions) as a variable cost was currently better for the company. Rl-SUP's vice president of sales and his regional managers were closely with the sales reps' organizations. They also called directly on major account buyers several times a year. Five in- house customer service staff assisted sales by handling telephone/email interactions with accounts, including order-taking and processing. Rl-SUP had developed close relationships with many paddleboard shops, which constituted approximately 60% of its dollar sales and about 45% of its unit sales. By 2018 Rl-SUP had 1,200 active specialty store accounts. In the early 20105 large outdoor retailers such as REI had begun taking considerable market share from the specialty stores. Although Johnson was initially reluctant to embrace these larger outlets, they concluded that many of RI-SUPs customers were attracted to the stores' huge selection formats and that Rl-SUP products had to be included. Rl-SUP also sold directly through an in-house website that was overseen by a manager of direct sales. The website had several dedicated customer service agents who handled customers' orders and answered their questions. RI-SUPs website accounted for 5% of its revenues. Pricing Rl-SUPs boards were priced between $800 and $3200 with an average retail price of between $1600 and $2000. This pricing was consistent with many of its competitors for a quality board, but the most prestigious and most protable brands had higher average prices. In 2010, the average Rl-SUP board sold for around $1600 then at the top of the range. RI-SUPs average retail price in 2017 was only slightly higher due to two strategic pricing decisions Johnson made to support the company specialty retailers in 2012. As larger retailers like REI became more important to all market segments, Johnson decided to offer RI-SUP's specialty stores the same pricing it provided to its largest retailers. If Rl-SUP gave REI a volume discount, for example, it gave that discount to a specialty store despite their much smaller volumes. This policy helped Rl-SUP strengthen its relationship with specialty stores. However, because this practice effectively discounted the price of its paddle boa rds the company's average price per unit sold decreased even as its total units sold increased. Rl-SUP was also reluctant to raise prices. Johnson and the sales force felt that maintaining lower prices enhanced its products' perceived value for consumers, and now Rl-SUP's average prices were noticeably lower than those of its top competitors. But because many consumers equate equality with price and higher priced items typically commanded higher margins, most of the specialty retailers had opted to focus more on selling higher priced lines from Rl-SUP's competitors. In 2018 avid paddleboarders still viewed Rl-SUP positively but now perceived its boards as medium to upper-medium quality relative to competitors more prestigious and expensive boards. Johnson felt uncertain how to communicate Rl-SUP value when it was unclear from research how consumers evaluated paddleboard gear apart from using price. In 2018, several of Rl-SUPs competitors, such as Sage and Threat Board were introducing and promoting even higher priced boards targeted at the avid paddleboarder. These products offered higher margins to specialty retailers; these retailers in turn gave the boards more prominent store displays and more attention from their sales staff. These boards were less likely to enjoy similar support of large retailers, further increasing the specialty retailer's ability to compete successfully at the high end. The differences in these products - such as titanium ns instead of stainless steel - were small, and performance distinctions were hard to demonstrate, but they allowed Rl-SUPs competitors to charge higher prices and enhance their brands among avid paddleboarders (and paddleboard shop owners) and increase the perception that the competition offered higher quality products. Johnson felt that the prestige of having the highest priced and \"best\" equipment was driving the sales as avid paddleboarders vied for bragging rights among their paddling buddies. Marketing communications Rl-SUP typically spent approximately 80% of its revenues on advertising and promotion. It's vice president of finance hoped to maintain this ratio in 2018, even if the company introduced a new line. In other words, a new product might necessitate a reduction in spending for existing programs. 70% of the spending occurred between May and September and most of the remainder occurred between Thanksgiving and Christmas (Table A shows the items in this budget). Johnson had noticed however that some of Rl-SUPs higher-end competitors appeared to use more advertising throughout the year. Table A RI-SUPs Advertising Budget 2016 2017 2018E Print $1,100,000 $900,000 $1,000,000 Co-op advertising $800,000 $900,000 $900,000 Sponsorships $100,000 $100,000 $100,000 PCS/sales sheets $25,000 $25,000 $25,000 PR $50,000 $50,000 $50,000 Search-based advertising $10,000 $15,000 $30,000 Total $2,085,000 $1,990,000 $2,105,000 Most of Rl-SUPs advertising was print in specialty paddleboard magazines such as SUPBoarder and Stand Up Journal. Ads targeted at serious paddleboarders mostly men between the ages of 18 and 40 and usually highlighted product features and distinctions and appeal of the brands to professionals. The ads usually referred to potential customers to the company website and customer service numbers to "nd a store near you.\" Measuring the effectiveness of the ads had been a constant problem for Rl-SUP, and some in the company wondered if print advertising was still relevant given the rise of digital advertising. Johnson was reluctant to move away from print. A new product might howeverjustify the use of a different approach, such as heavier use of social media and paid placements and search-based advertising. A change in distribution might also require a different communication approach. Johnson felt that the ads could address the prestige and bragging rights value of the avid consumer by promoting an aspirational lifestyle approach instead of the "great product with great features and benefits\" approach that Rl-SUP had used for years. Rl-SUP also engaged in various "behind-the-scenes\" efforts to deepen its relationship with retailers and end-users. First, it contributed up to 5% of the value of purchases of Rl-SUP's products towards the cost of retailer store advertisements that prominently featured Rl-SUP merchandise. Second, it sponsored several professional paddleboa rders who provide invisibility and credibility participating and paddleboard races and competitions around the country as well as local events with retailers like paddling clinics and outings. It also provided advertising specialty items such as bumper stickers to be distributed by sales clerks at the point of sales or during clinics and tournaments. Further and benefited from word of mouth by its customers and the support of its retail partners