Maple Tree Accessory Shop

Summary of the Case

Owner

oIvon Ho had been working for a large-scale owned enterprise for 15 years.

oIvon Ho was a manager of the channel management office in the firm's marketing sector with an annual income of about 240,000.

oIvon Ho loves challenges and is adventurous.

oIvon Ho is a hardworking guy.

Location

oThe street was adjacent to a university with more than 12,000 students.

oIt is in line with small businesses, most of which were small shops. Shops were selling food, clothing, stationery and accessories.

oPreviously it was a takeout restaurant earning a profit of RMB 25,000 per month on average.

oAlong the commercial street, there were three or four accessory shops selling similar goods.

Business

oSublet fee was RMB 58,000 for the takeout restaurant.

oOn June 15, 2013, Ivon Hon signed a rent contract with the owner of the property. The rent per month was RMB 3,300 and the due date was June 14, 2015.

oBin, a friend of Ivon Ho, offered to make a design drawing for the shop for free. Thus, saving RMB 4,000 in design drawing fee.

oIn July 15, 2013, the design drawing was sent to Ivon Ho and immediately began its construction, which lasted for a month and cost RMB 25,000.

oIvon Ho bought a cash register, which cost him RMB 500.

oOn September 16, 2013, the shop was opened to consumers.

oMaple Tree Accessory sold shoulder bags, earrings, scarves, necklaces and stuffed animals. But what made Maple Tree Accessory Shop special was that its products followed the national style, which was difficult to find in the other stores.

oAnother advantage was that the quality of interior decoration was much higher than that of his competitors.

oFor similar types of products, Maple Tree charged a slightly higher price, about 15 percent over the average, which created a gross profit of 50 percent.

oIvon Ho hired only one full-time salesperson, Flower Chan, and paid a fixed salary of RMB 2,000, plus three percent of sales revenue as commission.

oIvon Ho also hired two part-time employees, which he pays RMB 10 per hour plus three percent of sales revenue as commission.

oShop opens at 11am and closes at 9pm.

oThe first day was a big day and the sales volume was RMB 1,200. But on the following days, the daily sales were about RMB 600, which could not make ends meet.

oIvon Ho received the first month's bill for water and electricity, which was RMB 150.

oOne day, Ho did a routine check of the shop and saw the worried face of Chan.

oFlower Chan and the other two part-time employees said the shop is attractive and many university students visit them, but few of them spend money on their shop. The reason for this is that other shops offer the same products but with cheaper prices. They prefer three items to two with the same amount of money.

oBut Mr. Ho was quite confident with the market positioning of his shop. He believed that as long as he kept higher price levels, the shop could attract high-endconsumers, which guaranteed a high gross profit rate.

oAs Ho had no business partner, he had to do the purchasing himself for the restocking of new goods. Thus, having no time for his family life.

QUESTION:

1. If the shop continues as is, what will be the profit/loss after two years of operation? (Assume that there are 720 business days; each year the shop will be open for 360 days.) (15 marks)