GARDINER WHOLESALERS INCORPORATED (A) F. Mastrandrea wrote this case under the supervision of R.H. Mimick solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveypublishing.ca. Our goal is to publish materials of the highest quality; submit any errata to publishcases@ivey.ca. Copyright @ 1999, Richard Ivey School of Business Foundation Version: 2016-04-14 In early February 2013, Kathy Wilson, assistant credit manager of Gardiner Wholesalers Incorporated, sat at her desk reviewing the financial information she had gathered on two of her company's accounts - S.D. Taylor Jewellers Ltd. and Elegance Jewellers Inc. Gardiner Wholesalers Incorporated, a jewellery wholesaler located in Southwestern Ontario, had for many years followed a policy of thoroughly assessing the credit standing of each of its accounts about one month after Christmas. The assessment, which would be used to determine if changes in credit policy were necessary, had to be submitted to both the credit manager and the sales manager in one week. Wilson wondered what comments and recommendations concerning the two accounts should be put in her report. The retail jewellery trade was largely composed of national chain stores such as Birks, Peoples and Mappins plus smaller independent jewellers like S.D. Taylor Jewellers Lid. and Elegance Jewellers Inc. Most retail jewellers carried both jewellery lines, such as gold and diamond rings, and giftware items, such as silverplated items and crystal. Most jewellery chains purchased jewellery pieces from jewellery manufacturers, and mounted the finished products in-house. Independent jewellers were supplied by wholesalers, like Gardiner Wholesalers Incorporated, who received the jewellery and giftware from such manufacturers as Jolyn Jewellery Products, the French Jewellery Co. of Canada Ltd., the Royal Doulton Company, and Belfleur Crystal. The wholesalers distributed products to regional department stores, small regional jewellery chains, and independent jewellery stores. An independent jeweller would be supplied by at least five jewellery wholesalers. Jewellery store sales were lowest during the summer months and peaked during the Christmas season. The smaller, often family-owned, independent jewellers were much more affected by the seasonal pattern of jewellery sales than were the national chain-store operations. As a result, the independent jewellers relied heavily on their suppliers for financial support in the form of extended credit, in order to remain competitive with national chain stores. The competition among suppliers for the retail jewellery trade made credit terms and retailer financing necessary wholesale features. Factors that influenced the consumer purchase decision were style, selection, quality, and customer credit. In 2012, layaway sales accounted for 25 per cent of all retail jewellery store sales. Layaway sales were necessary in the jewellery business because people often balked at making large cash expenditures for luxury items. The layaway sales technique was also a powerful tool in influencing customers to purchase more expensive items.9A84J002 Page 2 S.D. TAYLOR JEWELLERS LTD. S.D. Taylor Jewellers Lid., located in London, Ontario, had been purchasing jewellery products from Gardiner Wholesalers for the last 25 years. The store handled a complete line of jewellery and giftware items. Peak periods of sales were traditionally Christmas, Valentine's Day, Mother's Day and graduation time. Seventy per cent of S.D. Taylor's sales were cash, and 30 per cent were on 90-day installment plans. Instalment terms called for a 10 per cent deposit and there were no interest charges or carrying costs on the remainder of payments made within 90 days. S.D. Taylor Jewellers Lid. had been established as a sole proprietorship and was later incorporated. The couple who owned and operated the business were noted for their friendliness and were well respected in the local business community. Taylor was a member of the Southwestern Ontario Jewellers' Association and had attended numerous courses offered by the Gemological Institute of America. On reviewing the company's file, Wilson found that payments on account had, for the most part, been prompt. ELEGANCE JEWELLERS INC. Elegance Jewellers Inc. was a comparatively new customer of Gardiner Wholesalers Incorporated, having switched suppliers in early 2011. No reason for the change was given in the files. Elegance Jewellers Inc. was owned by a small group of businessmen who had interests in four other unrelated businesses. The company owned and operated two small-sized jewellery stores, both located in Sarnia, Ontario. The Elegance jewellery stores carried mostly jewellery lines and very little giftware. Most of Elegance Jewellers' sales were for cash. Instalment plans were available and called for a 20 per cent deposit plus a one per cent per month carrying charge on the outstanding balance. Comments in the file indicated that Elegance Jewellers' account had been satisfactory through 2012. Both accounts were sold on standard terms of 1/10, net 30 and the terms were extended to net 90 during the fall. The sales manager felt that the extension of a fairly liberal credit policy to Gardiner Wholesalers' customers was necessary to remain competitive in a tough market. Prior to starting her report, Wilson investigated some pieces of economic information. She was aware that the Canadian economy was improving and that consumer spending was up in 2012. It was expected to increase at least two to three per cent in 2013. Wilson also had some 2012 financial information on the jewellery industry published by Dun and Bradstreet. She found that, on average, the age of receivables was 4.7 days; the current ratio was 1.6:1; and net worth was 41 per cent of total assets. With this information in mind, Wilson leafed through the available company files (see Exhibits 1 through 8) and prepared to write her report