PLEASE ANSWER AND EXPLAIN IN DETAIL THE WORK ON THE GUIDE*** ALL THE QUANTITATIVE DATA IS IN THE CASE BELOW***

FOXY ORIGINALS: THE ONLINE EXPANSION

Upon Foxys expansion into the United States in fiscal 2005, Ger and Chemel continued to attend trade shows, but they also hired sales representatives to sell directly to boutique owners and run trade shows across the United States on the partners behalf, thereby promoting greater exposure for the Foxy brand. During the first fiscal year of U.S. sales, 10 per cent of Foxys overall sales came from the United States and 90 per cent came from Canada. By fiscal 2007, due to the significant number of boutiques carrying the Foxy line in the United States, U.S. sales accounted for 70 per cent of Foxys total sales. In 2009, in addition to their retail locations, Ger and Chemel began selling their products online directly to the end consumer. End consumers could purchase pieces from any Foxy collection online for the same price as the pieces were sold in retail locations. Online sales represented 15 per cent of overall sales in fiscal 2013.

TRADE SHOWS

Trade shows offered a one-stop marketplace for retailers to source products from wholesalers and importers. They were usually not open to the general public and were targeted to registered retailers only. Ger and Chemel focused on attending trade shows consisting of buyers from womens fashion accessories and giftware boutiques. These exhibitions historically attracted upwards of 75,000 buyers in attendance. Exhibitors set up booths to display their merchandise. Typically, the booths layout and its presentation proved to be very important in attracting a potential buyer; the more attractive and flashy booths appealed to a greater number of visitors. If interested, buyers selected the merchandise they wanted to carry in their stores and then placed their orders with the exhibitor.

Ger and Chemel founded Foxy with the notion that they wanted their business to be fun. During Foxys early years, the partners spent approximately 50 per cent of their working hours travelling to trade shows. Now that both partners were married with children, they wondered whether personally attending more trade shows was still viable, since both women believed in a healthy work-life balance.

In 2015, throughout Canada and the United States, there would be 10 potential trade shows that the partners would be interested in attending. Registration for each of these trade shows would cost on average CA$3,0003 and would need to be completed by November 2014. Preparation for each trade show would take five days, and each show would last three days. Both partners expected they would have to work nine hours a day at each event. The partners had attended trade shows in the past, and they recognized that it was time to create a new booth to display their collections. The booth would cost $4,000 and could be used for 30 shows. The booth would need to be shipped to each trade show at an average cost of $1,500. Travel costs would average $1,000 per show for each of the two partners, and promotional materials and product samples would cost $2,800 per show.

For 2015, based on past experience, the partners estimated that an average retailer order would consist of 25 necklaces and 12 pairs of earrings. All necklaces consisted of a chain, a pendant, a label, a clasp, and labour fees, for a total cost of $8.05 per necklace. A pair of earrings cost approximately $5.50 to manufacture. Retailers would purchase necklaces for $17 and earrings for $12 from Foxy, which they would mark up and then sell to their customers for $34 and $24, respectively. Shipping terms were FOB shipping point, and the average cost was $15 per order. All products would continue to be sold for the same amount in both the United States and Canada (i.e., a necklace that sold for CA$34 in Canada would be sold for US$34 in the United States).

The partners expected anywhere from 20 to 45 orders from each trade show. Historically, 50 per cent of the retail buyers at the trade show reordered products approximately two times a year.

ONLINE SALES

Since the introduction of popular online shopping websites like Amazon and eBay in the mid-1990s, online shopping had grown exponentially in popularity. In 2014, retail sales exceeded $22 trillion dollars worldwide, of which approximately 5.9 per cent related to online sales. Online sales were projected to increase to 8.8 per cent of total retail sales worldwide by 2018.4 Since launching Foxys online site, Ger and Chemel had seen tremendous growth in sales from the online store and now wondered whether it was the right time to place more focus on growing Foxys online purchases. By offering Foxy collections online, sales were no longer limited to the United States and Canada, allowing Foxy to reach customers worldwide.

While the online market was growing, Ger and Chemel wondered how likely it would be for a person who had never purchased a Foxy product to purchase an item for the first time online. Without having prior knowledge of the merchandise and its associated quality, first-time customers may not be as willing to purchase Foxy jewelry online as they would be to purchase it in a retail store.

By 2014, of all female Internet users, 76 per cent used some form of social media, increasing to 89 per cent for women between the ages of 18 and 49.5 In the past, Ger and Chemel had experienced success in advertising on popular social networking sites like Facebook, Instagram, and Pinterest using a variety of different methods, such as free giveaways and discount codes to be used on Foxys site. If the partners were to focus on increasing online traffic, any annual cash recurring costs that would have been incurred by attending trade shows would instead be spent on online promotions. However, placing more focus on this area would be insufficient to eliminate any time, effort, or expenses incurred for retail sales. The partners still planned to maintain existing retail relationships while growing online customer purchases.

In the past, the partners had used a cost per click model when advertising online, and they planned to continue using it in 2015. Using this model, Foxy was charged a specific amount per click (set by the partners) when the reader clicked on their advertisement.6 A daily budget was set and, once reached, the advertisement would no longer be shown that day. If the partners opted to devote more focus to online sales, Foxys annual budget would be equivalent to the amount of the annual recurring cash costs to attend the additional trade shows. Ger and Chemel estimated that Foxys competitive bid price per click would be $1.05.

If, instead of attending additional trade shows, they allocated all of the recurring annual cash costs of attending 10 trade shows toward an online marketing campaign, the partners estimated that between 3 per cent and 5 per cent of all website visitors would make a purchase. On average, each order would consist of one pair of earrings and two necklaces. Shipping terms were FOB shipping point and totalled $8 per order, regardless of the size of the order and its final destination. All items for sale online would be priced the same as they were in retail stores.

CONCLUSION Ger and Chemel had built their business on the principles of having fun, gaining exposure for Foxys new collections, and staying ahead of fashion trends. To date, they had been highly financially successful in doing just that. The partners were excited about the prospect of continuing to grow Foxy, but they wanted to ensure that whatever decision they made could be implemented in a way that would be good for both the company and their families. Regardless of their decision, the option chosen would be entirely financed internally (in-house). Based on the companys previous success and current stability, Ger and Chemel hoped their decision, when implemented, would increase Foxys overall profits by at least $100,000. They needed to make a decision quickly to prepare for a January 2015 launch.

***GUIDE QUESTIONS***

To work this case you need to know how to calculate Break-Even, Target Profit and Margin of Safety. The text provides the formulas, but how do you implement the formulas in a real-world situation?

There are two potential strategies to consider: Trade Show, and On-Line

Trade Show

Things you will need to consider or calculate:

Investment

They need a booth for their trade show presence; Cost; useful life; depreciation

Fixed Costs

Registration

Shipping Costs (for the booth)

Travel Expenses (for the two partners)

Promotional materials and samples

Depreciation expense (from the above investment)

Average trade show order

Necklace selling price and number of units

Earrings selling price and number of units

Contribution Margin ($ and %)

Necklace per unit and per order

Earrings per unit and per order

Total per order

Estimated orders per show

High estimate and low estimate

Reorders: 50% reorder twice a year

Total per order

Calculations needed

Break-even units (orders)

Break-even sales (dollars)

Target profit units (orders)

Target Profit sales (dollars)

Margin of safety (for high and low estimate)

Prepare a contribution margin format income statement

On-Line

Things you will need to consider or calculate:

Investment

Do they need a booth if they go on-line?

Fixed Costs

Assume the same budget as trade shows $93,000

Cost per click $1.05 (given)

Divide $93,000 by $1.05 to get number of clicks (visits to website)

3% to 5% of visitors will make a purchase

Calculate low estimate and high estimate of orders

Average on-line order

Necklace selling price and number of units

Earrings selling price and number of units

Total selling price and number of units

Contribution Margin ($ and %)

Necklace per unit and per order

Earrings per unit and per order

Total per order

Be sure to calculate the $ and the %!

Estimated orders on-line

High estimate and low estimate

Total per order

High estimate and low estimate of sales

Calculations needed

Break-even units (orders)

Break-even sales (dollars)

Target profit units (orders)

Target Profit sales (dollars)

Margin of safety (for high and low estimate)

Prepare a contribution margin format income statement

Decision

You have the quantitative data you need

Dont forget the qualitative data (read the case!)

Note: Doing both is not an option!

Support your decision with quantitative and qualitative data!