GM Stores is a retail company that specialises in selling household and electronic goods. GM Stores also started offering cloud computing services and has invested a lot in these technologies in recent years. Cloud computing is a service where customers store data on the web as opposed to storing them in their personal computers. It has the advantage that customers are likely not lose their information should their computers crash.

GM also offers VIP membership to customers who prefer faster deliveries when they order. The membership fee is N$40 per year. Most of the logistics for the company are done in house.

Since last year there has been a 20% growth in electronic goods demand in general owing to the pandemic and lock downs requiring people to stay at home most of the times. On average, other companies in the cloud computing sphere have recorded growth rates of about 50% and gross profit margins of about 80% in the past year. GM stores operates in a market that is highly price competitive and have successfully manage to keep their price stable over the years.

This has been facilitated by its ability to source household goods from South Korea where labour costs are considered low.

You have been provided with the financial information for GM Stores for the past two years as follows:

Notes 31-Dec-20 31-Dec-19 N$000 N$000

Revenue 1 94 660 82 320

Cost of sales 2 (54 531) (51 708)

Gross profit 40 129 30 612

Administration costs 3 (2 760) (1 720)

Distribution costs (13 420) (13 180)

Other operating costs (140) (110)

Net profit 23 809 15 602

Notes:

1. Break down of revenue

31-Dec-20 31-Dec-19

N$000 N$000

Household goods 38 990 41 160

Electronic goods 41 870 32 640

Cloud computing services 12 400 6 520

VIP membership fees 1 400 2 000

94 660 82 320

2. Break down of cost of sales

31-Dec-20 31-Dec-19

N$000 N$000

Household goods 23 394 28 812

Electronic goods 26 797 21 216

Cloud computing services 4 240 1 580

VIP membership fees 100 100

54 531 51 708

3. Administration The cost of running the customer services department is included in the administration costs above. This is a department works with disgruntled customers. The costs of customer service was N$860 000 in 2019 and N$1 900 000 in 2020.

4. Non-Financial data

31-Dec-20 31-Dec-19

Percentage of orders delivered on time 74% 92%

Number of customer complaints 1 400 000 320 000

Number of customers 7 100 000 6 500 000

Percentage of late VIP members delivery 14% 2%

Required: Assess the performance of GM Store for the year ended 31 December 2020. Your answer should include both financial and non-financial measures of performance. You will be marked as follows: Calculations - 15 marks Discussion and application 15 marks