You are Charlie Price of Price and Son of Northampton, England

(established 1890). You inherit your late father’s shoe factory and business, which produces 25,000 pairs of classic but unexciting men’s shoes per year. The shoes have a variable cost of £20 per pair. Retail shoe stores and chains in the United Kingdom sell them for an average retail price of £100 per pair and buy from you at a 40 percent trade discount. Your fixed costs of £1 million per year include depreciation but exclude interest expense.

a. What is your annual profit before returns, interest, and taxes?

b. On the premise that different is better than better, you consider changing your product from classic men’s shoes to kinky boots, under the brand “Lola’s.” You estimate the total UK market for kinky boots to be about 5,000 pairs per year, but growing at 40 percent per year, thanks to the popular musical hit of the same name and your quality boots in this previously underserved market. The boots have a variable cost of £60 per pair including shipping. Your total fixed costs would increase by £50,000 the first year and £25,000 per year thereafter to promote and market your new boots.

i. If you sell the boots directly for £500 per pair (no discounts), what share of the UK market do you need to achieve to breakeven in each of the first three years?

ii. If you believe you can produce only 2,000 pairs of boots the first year, at what price do you need to sell them to breakeven?

iii. How might you create an online community to build customer loyalty and advocacy for Lola’s Kinky Boots?

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