S & H FOOTWEAR Hussein graduated from McGill University in 2006 with a degree in business. He has always had an interest in footwear, working part-time in high school at his parents’ shoe store in Midland, Ontario. After graduation, he got a job with a large Montreal-based retailer. In 2009, Hussein met Sally at a shoe exposition in Las Vegas, which he attends every year to see the introduction of new styles from around the world. Sally graduated from George Brown College in Toronto in 2007, and has been working in Toronto for a fashion show retailer with nine stores in Toronto, managing the Yorkdale store, the flagship of the chain. Sally and Hussein share a passion for footwear, especially fashionable footwear. After their first meeting, Sally and Hussein kept in touch, and often met at various footwear shows or when Sally was on buying trips to Montreal. The last time they met was in Milan, the shoe fashion Mecca of the world, and shared their plans for the future. It turned out that they were both tired of working in a large city and would like to move to a smaller town in Ontario. However, there were very few jobs available, and those that came up offered poor salaries compared to their Montreal and Toronto wages. Although neither saw themselves as entrepreneurs, they had what every entrepreneur needs; industry experience or what venture capitalists call “domain” experience. As well, both had managed to save some money since graduation. They also had another entrepreneurial trait, passion, in this case for everything to do with shoes. They discovered they had both been to the Bata Shoe Museum in Toronto several times, and they both loved Italian shoes. After many late night discussions, Sally and Hussein decided to team up and either start a shoe store or buy an existing one. Sally and Hussein incorporated a company called H & S Footwear Inc., and issued themselves 100 shares each. They each put $25,000 into the company, and arranged for a tentative bank loan of $50,000 from a major bank. They began looking at mid-size towns in Ontario. Their criteria also included a cosmopolitan culture and big-town amenities. They drew up a list which included London, Guelph, Kingston, and Windsor, all university towns with many amenities, relatively robust markets, and growing populations. Since Sally and Hussein are both avid kayakers and Kingston had the most appeal for water sports, they began to look around Kingston for a site for their shoe store or for a shoe store to buy. They found a shoe store for sale on Princess Street in downtown Kingston. The owner wished to retire and had purchased a condominium in Florida. Neither his son nor his daughter was interested in taking over the store, so he decided to sell his business as an ongoing concern. He started the store in 1985 and built it up to $500,000 in revenue (2011), with one full-time and two parttime employees. The premises are rented on a five-year renewable lease with two and a half years to go on the current lease. The store is 3000 square feet with a basement for storage, and caters to men and women with lines such as Ecco, Rockport, Adidas, Clarke, Geox, Hush Puppies, Cougar, and Sorel. Hussein and Sally were interested and began to carry out their due diligence to evaluate the opportunity and arrive at a value for the business and its future prospects. The owner provided them with a copy of the lease and informed them that the building owner would let them take over the current lease. In addition, they received 2011 income statements and the 2011 balance sheet (Exhibit 1 and 2). Sally and Hussein decided to split up the due diligence. Sally would look at the market, present and future, in Kingston, and Hussein would evaluate the financial statements and come up with a potential offer for the business. They would both evaluate the product line, the fixtures, and the look of the shop, not only to determine the investment necessary for sprucing up the shop, but also to evaluate the current product offering and the value provided for the consumer. 

Exhibit 1 Income Statement 2011 Industry Data (Benchmarks) 

Sales 600,000 100.00% 

Cost of Sales 330,000 

Gross Margin 270,000 42.00% 

Operating Expenses Salary 120,000 

Advertising & Promotion 4,000 Car 15,000 

Cleaning 5,000 

Entertainment 1,000 

Rent 36,000 

Insurance, Licenses, & Taxes 2,000 

Office Expenses 2,000 

Accounting & Legal 2,000 

Telephone & Fax 2,000 

Travel 1000 190,000 

Other Expenses Interest & Bank Charges 5,000 

Depreciation 10,000 

Total Expenses 205,000 30.00% 

Income Before Taxes 65,000 4.00% 

Notes: Salary: Owner 40K, 1 Full-time 40K, 2 Part-time 20K each Year End: December 31st 

Exhibit 2 Balance Sheet 2011 Current Assets Cash 50,000 Inventory 60,000 Prepaid Expenses 1,000 Total Current Assets 111,000 Fixed Assets 100,000 Total Assets 211,000 Current Liabilities Accounts Payable 50,000 Long Term Liabilities Bank Loan 70,000 Total Liabilities 120,000 Owners Equity 91,000 Total Liabilities and Equity 211,000 Notes: Industry Data (Benchmarks): Return on Assets (ROA) 7% 

Exhibit 3 5-Year Revenue and Profit Year Revenue Profit (Before Tax) 2011 600,000 65,000 2010 450,000 50,000 2009 430,000 45,000 2008 400,000 40,000 2007 450,000 50,000 

Case Questions 

1. List the competitors for S + H Footwear in Kingston. Include years in business, sales, and number of employees.

2. Map the location of competitors.

3. Review the websites of the top 7 competitors. Do a strengths and weaknesses analysis of each competitor. Draw conclusions.

4. Develop a perception map of the retail space for footwear in Kingston based on the website analysis.

5. Based on your analysis, come to some conclusions about the competitive environment in Kingston facing S + H Footwear’s venture.