THE EXCHANGE TOWER STORE

In mid-2019, Thursdays had opened its second brick-and-mortar location in the concourse level of the Exchange Tower, located in downtown Toronto's financial district. The Exchange Tower, home to the Toronto Stock Exchange, was a 36-storey corporate building that provided Toronto's financial services industry convenient access to an array of shops and services.6 The tower linked to several neighbouring properties and transit via the underground PATH system, a walkway that accommodated more than 200,000 commuters, residents, and tourists each day.7

After the opening of their second location, Piltz and her co-founders began facing difficulties allocating inventory between their now three distribution channels. With no prior experience operating an online shop, Piltz struggled to find a system that would effectively transfer inventory between the two physical stores and the online store in an attempt to optimize sales.

COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 to be a global pandemic. By the end of May 2020, nearly 5 million positive cases of COVID-19 had been confirmed worldwide, 83,000 in Canada.8 The virus was spread through respiratory droplets from coughs and sneezes within a six-foot (two- metre) range.9 The quickened increase in the number of Canadian cases and the ease of transmission triggered companies across Canada to mandate work-from-home protocols to keep employees protected.10 On March 24, 2020, Doug Ford, the premier of Ontario, ordered all non-essential stores and services to close down.11 As such, Thursdays closed both its Yonge Street and Exchange Tower locations and resorted to its online store for all sales.

THE CANADIAN WOMENSWEAR RETAIL INDUSTRY

Before the COVID-19 pandemic hit Canada, many high-end women's clothing stores were expected to benefit from an increase in the number of high-income households that demanded premium clothing brands.12 As more Canadian women relied on online channels for their purchases, more clothing stores were expected to increase their online presence as a complement to their brick-and-mortar stores.13

The global pandemic caused the entire world's economy to shut down, dramatically increasing the Canadian unemployment rate to 13 per cent as of April 2020.14 Retailers that had stayed engaged with their clients in a personalized way were able to establish a base of loyal customers who would continue to spend, even in an economic downturn.15 Discounts, promotions, and other marketing incentives were expected to significantly impact consumer spending during and after the global pandemic.16

Once the Canadian economy reopened, many consumers were expected to be hesitant to physically interact after having been socially distanced for long periods of time.17 To lure in these hesitant consumers, retailers would need to offer high levels of health and safety precautions. Low-cost or free delivery options for online purchases were also crucial to maintain consumer spending in the retail environment during the pandemic.18

INFLUENCER MARKETING

Influencer marketing had quickly become one of the most important and cost-effective online marketing channels for businesses in the womenswear retail industry. A study by IZEA Canada found that 75 per cent of Canadian fashion businesses had dedicated budgets for influencer marketing, with 20 per cent having budgets between $1 million and $3 million.19 Another study found that 89 per cent of marketers said that Instagram was critical to their influencer marketing strategy.20

Thirty five per cent of Canadians between the ages of 18 and 36 had purchased an item because of an influencer's endorsement.21 More specifically, 86 per cent of women used social media for purchasing advice.22 The average return on influencer marketing was $6.50 for every dollar spent.

Businesses could choose from a variety of influencer marketing strategies. One of the most popular strategies was sponsored social media content, whereby the influencer received a set of guidelines around the type of content that the business expected to be created and promoted. The influencer then created and posted content that complied with those guidelines and was rewarded in the form of either monetary compensation or discounted products.

MOVING FORWARD

Before the pandemic began, most of Thursdays' customers were located in the Greater Toronto Area (GTA), Canada's most populous metropolitan area. As operations shifted exclusively online amid the COVID-19 outbreak, Thursdays began receiving orders from customers all over Canada, including many from the provinces of Alberta and British Columbia. Thursdays even began processing overseas orders from customers in China. This fast growth in the number of online orders had strained Thursdays' resources and led to an increase in order errors. Piltz wanted to focus more of her time on the online shop, both to minimize the order errors and to grow this promising segment's profitability.

Given the nature of the economy and the continued closure of Thursdays' Exchange Tower location, Piltz wondered whether closing this store permanently would be a strategic way to generate additional funds to put toward online advertising. If the Exchange Tower store were to close, Piltz planned to use 15 per cent of the store's annual recurring cash costs to finance partnerships with micro-influencers on Instagram (see Exhibit 2). Micro-influencersthat is, Instagram influencers who had between 1,000 and 100,000 followerswere known to have the highest engagement rates of all influencer types.24

Using the influencer budget, Piltz was willing to offer participating micro-influencers $1,500 each to recommend Thursdays to their respective followers in the form of a sponsored post. Piltz would also provide each influencer $150 worth of merchandise to wear when creating their posts. Additional details of the partnerships were to be determined at a later date. Piltz planned to offer this partnership opportunity only to influencers with an average of 50,000 followers. To ensure a wide geographic reach, Piltz would hand- select influencers from a variety of different cities across Canada and parts of the United States.

EXCHANGE TOWER STORE SALES

If the Exchange Tower store were to reopen for the 2021 fiscal year, it was estimated that the number of daily customers would drop significantly from the previous fiscal year, due to reduced commuter foot traffic. Piltz expected five to 10 customer orders each day the store was open in the fiscal period.

Piltz had identified that the Exchange Tower location serviced two types of shoppers. The first type was a busy professional on lunch break who was looking for a quick purchase. The second was a business professional who visited the store after work hours to take advantage of Thursdays' personal shoppers. For lunchtime shoppers, their average purchase was one shirt and one pair of pants, whereas the after-work shopper purchased, on average, one cashmere set, one dress, and one pair of pants. Piltz estimated that the Exchange Tower store would be open for 250 days in the 2021 fiscal period. Of the estimated customer purchases each day, 20 per cent would be for after-work shoppers.

ONLINE SALES

Piltz grouped Thursdays' online customers into two types: first-time customers and return customers. To entice first-time customers to make an online purchase, a 10 per cent discount was applied at checkout. First-time orders tended to be lower in value, as customers wanted to assess the quality of the clothes before making a bigger purchase. On average, a first-time customer order comprised one shirt and one dress, while the average order from a return customer comprised one pair of pants and one non-cashmere lounge set. (Cashmere lounge sets were rarely purchased online, as consumers preferred to feel the quality of the cashmere before making a purchase.)

Piltz projected that the online store would generate between $650,000 and $850,000 in revenue for the 2021 fiscal year without any additional marketing. This figure would be split evenly between first-time and return customers. If the Instagram partnership opportunity was pursued, it was estimated that anywhere between 2 per cent and 4.5 per cent of all followers reached would visit Thursdays' online store. Piltz believed 2 per cent of these visitors would make a first-time purchase and 20 per cent of these first-time purchasers would make a second purchase in the 2021 fiscal period.

Thursdays incurred a flat $7.14 fee for every online order shipped out. On orders of $60 or less, Thursdays would charge the customer a $10 delivery fee, down $5 from the pre-pandemic charge of $15. No shipping charge was passed onto the customer on orders over $60.

CONCLUSION

Piltz was thrilled with Thursdays' past success but was eager to work alongside her mom and uncle to continue to reach consumers across Canada and internationally. With the lease renewal date of July 1, 2020, for the Exchange Tower store, Piltz needed to come to a decision quickly. Based on the current economic environment and the unknowns surrounding the COVID-19 pandemic, Piltz hoped that whether she chose to focus on the online store with influencer marketing or maintain the Exchange Tower location, her decision would result in a profit of at least $300,000.

EXHIBIT 1: SHOP THURSDAYS' SELLING PRICES AND WHOLESALE COSTS BY PRODUCT TYPE (IN CA$)

Item Type Selling Price Wholesale Cost

Cashmere Lounge

Set $670.00 $255.00

Non-Cashmere

Lounge Set $195.00 $90.00

Pants $150.00 $70.00

Dress $140.00 $65.00

Shirt $90.00 $45.00

Source: Company files.

EXHIBIT 2: SHOP THURSDAYS' ANNUAL PROJECTED COSTS, 2021 FISCAL PERIOD

Exchange Tower Store

Store Rent $ 78,000

Salaries and Wages 122,320

Utilities 1,440

Depreciation 1,615

Internet/Phone 1,140

Insurance 2,210

Other Tenant Fees 1,255

Point-of-Sale System 1,236

Health and Safety 1,400

Online Store

Online Manager $ 40,000

Website Hosting Fees 13,100

Insurance 2,500

Warehouse Rent 28,000

1.Calculate and analyze Thursday's Breakeven for the influencer marketing strategy.

2. Calculate the total annual fixed costs of operating the Exchange Tower store and Online store. If the Exchange Tower store were to close, how much funding could then be allocated toward's influencer marketing for 2020/21 fiscal year.