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Team Name
CASE CRACKERS
Report Title
CeeCee in the next 5 years
University
Nanyang Technological University
Team members
Chen Xinyi
Lee Wai Hon Gabriel
Liu Xinyi
Yeo Shi Yuan
2
TABLE OF CONTENTS
Page
1. Executive Summary ………………………………………..3
2. Introduction ……………………………………………….. 4
3. Strategic Analysis…………………………………………..5
3.1 Company Analysis
3.2 Industry Analysis
3.3 SWOT analysis
4. Financial Analysis…………………………………………..8
4.1 Financial Ratios
5. Issues Analysis and Recommendations………………..10
5.1 Prioritization of Issues
5.2 Core Competencies Issues
5.2.1 Distributor‟s Strike
5.2.2 Failure of the New Online IT System
5.3 Diversification and Marketing Plans
5.3.1 Celebrity Marketing
5.3.2 Expansion into Jewellery Range
5.4 Child labour accusations
6. Achievability of the five-year plan………………………..22
7. Summary of Issues and Recommendations …………... 23
8. Appendices…………………………………………………24
3
This report aims to prioritise, analyse and evaluate the current issues plaguing
CeeCee. The report begins with a strategic and financial analysis of CeeCee and
the industry. The 4 main issues CeeCee face have been categorized into 2 broad
categories, namely issues that threaten core competencies and plans relating to
expansion and marketing. The issues that threaten core competencies are more
pressing issues that CeeCee should address, given the highly tangible impact
and risks present which will threaten business profitability.
For the first issue regarding the distributor‟s strike, the team recommends that in
the short run, CeeCee should engage an alternative distributor and re-evaluate
their distribution model in the long run. The second issue - failure of the online IT
sales system, can be dealt with by employing an external agency to recover the
debts and improving the controls inherent in the system.
With regards to diversification and marketing plans, CeeCee should implement
the celebrity marketing proposal as the expenses are not substantial in relation to
their sales. However, Kool may not be the best spokesperson for CeeCee. Next,
CeeCee should reject into the second proposal of expansion into the jewellery
range as the proposal is not operationally feasible despite the positive net
present value and the small capital outlay required. The final issue is the ethical
implications from child labour accusations. A moral analysis utilizing the beliefs of
the 6 major ethical systems demonstrated that CeeCee should abide by the law
and discontinue the use of child labour.
Finally, the achievability of the five-year plan is evaluated. After taking into
account the issues plaguing CeeCee, the ending cash balance is positive. Thus,
the five-year plan is feasible. The excess cash balances that CeeCee has can be
further utilized for expansion or other proposals.
1.0 EXECUTIVE SUMMARY
4
CeeCee, founded in 1989, is a high street fashion retailer specializing in trendy
and affordable female fashion. By adopting a just-in-time system for fast
turnarounds with short production runs and limited inventory, CeeCee positions
itself as a trendy and exclusive fashion retailer. Though it only has a market
share of about 15%, it has the highest gross margin at 60.1% compared to its
main competitors.
CeeCee has devised a five year plan that will aim to achieve the following
milestones by 2014:
- Number of shops – Increase by 30% to 800 in 2014
- Sales revenue – Increase by 85% to €5156m in 2014
- Operating Profit – Increase by 95% to €1237m in 2014
2.0 INTRODUCTION
5
3.1 Company Analysis
CeeCee has adopted the „fast fashion model‟ to differentiate itself from other
high-street retailers, departmental stores and value retailers and has built a
strong customer base. This model was possible as CeeCee possess core
competencies in the form of short product life cycles and fast creation of new
designs. The model also relies on having a sophisticated IT system and also
remaining in close contact with suppliers.
3.2 Industry Analysis
CeeCee competes in the fashion industry, or more specifically, the high street
fashion retail market.
The European women‟s fashion market grew by 0.4% in 2009 to reach €207b.
The market is forecasted to grow by 8% to reach €223b in 2014.1 Clothing
retailers make up almost 64% of the market with total revenues of almost €132b.
Whereas sales made through supermarket retailers and “value retailers” make up
only 7.1% of the market‟s aggregate sales.
1 Data Monitor. (2010). Womens' wear in Europe, Data Monitor, May.
0
1
2
3
4Buyer Power
Supplier Power
RivalryNew Entrants
Substitutes
Degree of Threat ( 1= Weakest, 5 = Strongest)
Threats to the European Womens' Wear Market
3.0 STRATEGIC ANALYSIS
6
Although the European women‟s fashion market is large, it is rather fragmented.
This, combined with the slow growth in 2009, has resulted in strong rivalry
among firms and lowered CeeCee‟s revenue growth to 3%
Buyer’s power – Moderate: Despite fairly low switching costs among retailers,
buying decisions are easily influenced by factors such as social status, branding
and advertising. Hence, this indicates a need to create strong brand awareness
and run intensive advertising campaigns to erode the bargaining power of buyers
and maintain market share.
New entrants and rivalry – Strong: The threat of new entrants is high because
of the lack of barriers of entry. Given that the market is growing, new entrants are
expected to enter and compete on similar products. As existing players are also
increasingly aggressive in their product offering and branding, the rivalry in the
industry is definitely strong.
3.3 SWOT Analysis
SWOT Analysis
Strengths
- Fast turnarounds of fashion designs
- Close contact with manufacturers
- Sophisticated IT systems
- Short product life cycle
- Prime location of shops
- Visually appealing store and
window layouts
- Brand loyalty
- Good Management staff
Weaknesses
- Heavily focused on ladies fashion
- Does not engage in aggressive
marketing and advertising
- Short term financials
- Large number of suppliers
- Moderately high amount of unsold
goods
7
Opportunities
- High gross margins for accessories
- Fast growing markets in Eastern
Europe and Asia
- Online shopping market
Threats
- Increased competition from „value
retailers‟
- Price sensitive customers
As CeeCee has numerous strength and opportunities especially in the area of
accessories, a diversification strategy which entails offering new and different
products could be employed.
However, CeeCee also needs to carefully balance the potential threats to its
current business. Since the women‟s fashion business constitutes the majority of
its revenue, it should build up its strength to reduce its vulnerability to external
threats. It should seek to enhance brand consciousness and loyalty in order to
retain market share as it faces stiff competition.
Therefore, CeeCee‟s priorities would be to be first focus on strengthening its
current women‟s fashion business, and at the same time, explore ways to
diversify its product offerings.
8
4.1 Financial ratios
Profitability and Operating Margin
Ratios 2008 2007
Operating Return of Assets (ROA) 36.9% 38.7%
Financial Leverage Gain 4.4% 6.1%
Return of Equity 41.3% 44.8%
NOPAT Margin 15.4% 15.1%
CeeCee‟s ROA ratio indicates that it has high profitability in its operations. Its
high ROE ratios are mainly contributed by its profitable operations rather than
from the financial leverage gain. This high profitability is likely due to their low
manufacturing cost established through strong manufacturing networks and
distribution channels. The NOPAT margin of about 15% reflects that CeeCee has
performed well in terms of its operations.
Investment Management
Ratios 2008 2007
Operating working capital -€323m -€317m
Operating working capital turnover -8.36 -7.44
CeeCee‟s operating working capital is negative, highlighting a large amount of
current liabilities (exclude current debt) compared to current assets. Even when
cash holdings are included, CeeCee still falls short of fulfilling their short term
obligations. Hence, there is high likelihood that CeeCee will face cash flow
problems.
4.0 FINANCIAL ANALYSIS
9
Financial Management
Ratios 2008 2007
Current Ratio 0.98 0.75
Quick Ratio 0.53 0.34
Cash Ratio 0.49 0.30
Interest Coverage 19.6 16.9
From the current and quick ratios, CeeCee may face short term liquidity
problems. However, the interest coverage is more than 1.0. Hence, it is likely for
CeeCee to meet its interest expense obligations from the loans.
10
5.1 Prioritisation of Issues
The 4 main issues plaguing CeeCee may be broadly categorized as:
Given the highly tangible impact of the issues which threaten business
profitability, the team has chosen to prioritize them over expansion or marketing
plans. Within the issues that threaten the core business or profitability, the
distributor‟s strike poses a greater risk because in addition to financial losses, the
window for action is very short. Collections due to IT failure, on the other hand,
could take place over a longer period of time. Therefore, management would
need to act quickly to stem losses from the distributor‟ strike, before engaging in
collections.
Amongst the expansion and marketing plans, the celebrity marketing proposal
takes precedence as it involves CeeCee‟s core business. An additional
consideration here is the possible resignation of CeeCee‟s marketing director
should the proposal be rejected. A resulting loss of leadership will negatively
affect branding activities currently in place. Though expansion into a jewellery
range could provide the diversification strategy CeeCee requires, its effect on
sales is limited. The celebrity marketing proposal will be the main driving force in
sales growth and should therefore take precedence.
Issues that threaten core business or
profitability
Distributor's Strike
IT Failure
Plans relating to expansion and
marketing
Celebrity Marketing
Expansion into jewellery
range
5.0 ISSUES ANALYSIS AND RECOMMENDATIONS
11
5.2 Core Competencies Issues
5.2.1 Distributor’s strike
Financial impact
Due to the union-led strike in EIT, severe disruptions of deliveries to stores are
expected. Sales revenue and profits for 2010 is expected to be reduced by 6.73%
as a result of the lost sales from lack of deliveries to CeeCee shops2.
Strategic impact
The distributor‟s strike will affect CeeCee‟s fast fashion concept, which relies on
the fast creation and supply to shops. This highlights the dependence of CeeCee
on a single distributor which may expose CeeCee‟s business model to
uncontrollable risks. Furthermore, the fact that EIT is a unionized business in the
European sphere, which has pro-labour laws, also raises concerns about future
disruptions to deliveries.
Reputational impact
The lack of new goods delivered to CeeCee stores may affect its reputation as
one of the fastest retailer of trendy styles. Customers may be disappointed when
expectations of new styles appearing in CeeCee stores are not fulfilled. This may
lead to a reduction in customer base as customers turn to other fashion stores for
trendy designs.
Assessment of Potential solutions
Engaging an alternative Distributor temporarily
CeeCee should source for and engage an alternative distributor immediately to
deliver product from the large distribution centre in Northern Europe to the
various shops. A short term contract for the deliveries can be signed for the
duration of the ten weeks in which the strike occurs to prevent further disruption
of deliveries.
2 Refer to Appendix A
12
The company should be prepared for higher costs of distribution due to the
immediate need of a new distributor and be prepared for slower delivery time as
the new distributor may not be as familiar with CeeCee‟s model.
Re-evaluate distribution model and change to a new distributor
CeeCee can also re-evaluate its distribution model and consider changing to one
or more new distributors permanently. CeeCee can try to reduce its dependency
of its distribution on EIT by sourcing for other more reliable distributors in the
region. This will reduce the risk of disruption to deliveries due to the disruption of
operations of any one distributor.
CeeCee should be prepared to take some time in sourcing for new distributors
and do a cost-benefit analysis.
Develop In-house distribution capabilities
Another option for CeeCee is to build its own distribution capabilities instead of
outsourcing. This can reduce CeeCee‟s dependency and increase efficiency.
However, this may be time consuming and requires expertise that CeeCee does
not currently have. High startup costs may be required (to acquire delivery trucks)
and develop its distribution and logistics IT system.
Recommendations
Short-term
To solve the immediate problem, CeeCee should engage a reliable alternative
distributor for the ten weeks. The Head of Logistics, Jim Bold, should be
responsible for sourcing for a temporary distributor immediately, together with the
Finance director. A suitable distributor with the relevant experience and capacity
and the most reasonable quotation should be identified and contracted within the
first week of the strike.
13
Long-term
During the ten weeks, a thorough evaluation of EIT should be done to determine
if CeeCee should continue its partnership with EIT, select new distributors or to
build in-house distribution capabilities. A special task team should be set up to
evaluate this issue with the Head of logistics, Jim Bold, and the Finance director,
Diane Innes, to lead the team. A cost-benefit analysis of using new distributors or
creating its own distribution function should also be done to aid the decision. If a
decision to use a new distributor is made, the team should be tasked with
sourcing for new distributors and negotiating the new contracts.
5.2.2 Failure of the new online IT sales system
Financial Impact
As the issue had gone on for 3 months before detection by the external audit
team, the total estimated loss in revenue stands at €6,000,0003 before taking into
account the amounts that CeeCee may be able to recover.
Strategic Impact
As CeeCee seeks to tap on growing market opportunity and trend towards online
retail, it is crucial for it to have an efficient online sales system that provides
customers with a smooth-sailing shopping experience. Failure to collect
customers‟ payments may deter CeeCee from moving towards online retail. This
may cause CeeCee to lose out on opportunities of direct Internet selling as more
customers prefer shopping in the comfort of their homes, as with the case in
Levis Strauss when they discontinued their online sales in 1999, with one of its
reasons being the complications arising from payment processes.
Assessment of Potential solutions
Collection of amounts by external collection agency
One of the potential solutions is to employ a collection agency to recover the debt
amounts at a charge of €14 per customer and a success fee of 5% of the 3 Refer to Appendix B
14
amounts recovered. CeeCee anticipates that a higher percentage of the money,
60%, will be recovered by using an external collection agency.
By looking at the financial figures, it seems that CeeCee should employ an
external agency to recover the amounts, given that the net amount collected after
deducting charges is €20,000 higher than via the finance department.
However, considering a broader view, factors like reputation might be important
to CeeCee as it seeks to establish its brand name. The external agency will be
establishing relationships with CeeCee‟s customers and it could be potentially
harmful if they sour that relationship by not dealing with invoices in a courteous,
diplomatic and professional manner which protects customer private information.
Therefore, it is important that CeeCee selects a reputable collection agency
should it decide to outsource the collection.
Collection of amounts by CeeCee’s finance department
An alternative solution is for CeeCee‟s finance department to collect the money
itself. However, the department reckons that only 45% of the money will be
recovered by its already overstretched staff. We recommend CeeCee‟s
management to not take this figure at face value and investigate whether it is
indeed the case that the department is overstretched given the large gulf (25%
lesser compared to external vendor) between the success rates.
Nevertheless, based on the facts of the case, using an external agency would be
the superior solution.
Recommendations
Short-term
In the short run, CeeCee would want to recover as much money as possible. The
finance department should be responsible for sourcing for a reputable collection
agency that charges lower collection fees than costs incurred if CeeCee collect
15
the amounts itself. This ensures cost efficiency and allows CeeCee to
concentrate her resources on her other proposals.
Long-term
The more pertinent issue in the long run is the implementation of controls to
prevent future system lapses. CeeCee and ProveIT should conduct a meeting to
review its payment and processing controls. The IT director, Roberta Downs,
should review the contract and establish a Service Level Agreement with ProveIT,
with specific terms to ensure CeeCee will not succumb to such errors again.
CeeCee should include the amount of compensation it will receive from ProveIT
should there be any amounts uncollected. Downs can also implement more
robust error handling and reporting systems. As Downs only intends to stay in
CeeCee for no longer than five years, the IT team should be involved in the
contract discussion and control processes should be documented thoroughly to
prevent any loss of information should Downs eventually leave CeeCee.
5.3 Diversification and Marketing Plans
5.3.1 Celebrity Marketing
Background
Juliette Lespere (Sales and Marketing Director) is considering using celebrity
marketing. She has strong belief celebrity endorsements will create a more
visible CeeCee brand. She proposes that CeeCee engages with Kool, a popular
European singer of rock music.
Factors Proposal Intends to Achieve
Increased visibility of CeeCee’s brand
With links to an iconic artist, more people will be convinced that CeeCee is
indeed a brand that celebrities endorse and purchase. Given that clothing is
easily influenced by factors such as social status, branding and advertising, this
will convince more people that CeeCee is an iconic high street brand.
16
Meet sales forecast
In order to meet the sales forecast for next five years, intensive marketing and
advertising will be required. By 2014, CeeCee expects sales growth to increase
by 85% to €5,156m. Such targets can partly be achieved by the use of more
visible marketing.
Endorsement of Juliette’s work
Compared to many high street retailers which have a marketing budget of about
3-4% of sales revenue, CeeCee‟s budget was only 0.5%. Juliette may feel rather
disgruntled that she does not have a large enough budget to spend on marketing
programs. Thus, Juliette may use this proposal to test whether she has the
support of Carla Celli.
Factors affecting the proposal
Dilution of CeeCee’s brand
CeeCee has long been considered a brand offering trendy and affordable
clothing. As it is the first time that CeeCee is engaging in celebrity marketing, it
has to be careful that the marketing message is well positioned. There will be a
message incongruence given that Kool‟s “rock star” image does not fit well with
CeeCee‟s young, female consumers. Therefore it is proposed that CeeCee
instead engage trendy female celebrities such as Kiera Knightley and Emma
Watson.
Cost of implementing proposal
Incremental Sales Payment Method 1 Payment Method 2
€1,000,000
(Breakeven sales value)
€50,000 €50,000
€1,200,000 €50,000 €60,000
€1,400,000 €50,000 €70,000
€1,600,000 €50,000 €80,000
17
€1,800,000 €50,000 €90,000
€2,000,000 €200,000 €100,000
Expected Value €65,000 €73,000
Acceptance of proposal
One of the advantages would be that CeeCee will be able to increase its brand
awareness among customers. This would have a huge impact in term of brand
recognition and brand loyalty. If customers are able to relate to the marketing
message, it is likely sales and market share will increase. Thus, it would certainly
be an initiative that is worth implementing as the overall cost would be only 3.25%
of the sales (if sales are at €2,000,000). Given the expected payment of the two
plans, the first payment should be chosen as it is cheaper than the second plan.
It would be necessary to track the incremental sales during and after the celebrity
advertising period to measure the effectiveness of the campaign. Furthermore,
given that Juliette considers this her last attempt to change the marketing
strategy of CeeCee, it will be vital to accept this proposal as she might leave
CeeCee if it is not accepted.
5.3.2 Expansion into Jewellery Range
Suitability Assessment
Supporting factors
CeeCee is expected to generate 95% gross margins on accessories and
jewellery.
The resilience of the jewellery during downturns will reduce revenue volatility.
Competitor department stores and mid-range jewellery retailers, have lagged
in terms of shopping experience vis-à-vis CeeCee, which invests greatly in
the stores aesthetic appeal.
Potential competitors have also not renewed their jewellery inventories with
new designs – given CeeCee‟s brand reputation for new and exciting designs,
CeeCee would be able to extend its brand value into this line of business.
18
Within consumer discretionary goods, exclusivity is an important buying
consideration – CeeCee‟s tradition of only producing limited numbers of a
certain design will allow the firm to provide higher markups for its jewellery
pieces.
Carla Celli and Juliette Lespere are both keen on expanding the jewellery line.
Should the proposal for celebrity marketing not be implemented, Carla may
suggest for Juliette to focus instead on launching this business line in order to
retain her interest in working for the firm.
Risks/Costs Factors
One risk is that precious metal prices are expected to increase due to excess
liquidity in a low interest rate environment. This would increase costs of
manufacturing beyond budgeted. In addition, reduction in discretionary spending
amongst consumers as Europe emerges from the global financial crisis may
negatively affect projected revenues.
Acceptability Assessment
To assess the returns project, we utilize the NPV method by projecting cash flow
for the project lifespan.
Given that NPV, €62,753,6024 > 0, it may be concluded that the project is worth
undertaking. Shareholder risk is minimized as project is expected to start
internally financing itself in the T+1 years.
Feasibility Assessment
Given CeeCee‟s large cash reserves, it is expected that the jewellery expansion
project will be financed from cash holdings. As it stands, the capital outlay
required is 0.6% of cash reserves, which will not significantly impact CeeCee‟s
short term liquidity.
4 Refer to Appendix C
19
However, it is recognized that the proposal is operationally difficult to implement
and risky:
1. Disruption of CeeCee‟s business due to renovation
2. Insufficient transferrable competences to ensure business survival –
particularly in the areas of design, logistics and branding.
Recommendation
Based on the above assessments, this proposal should be rejected. This is due
to the poor business viability that a jewellery line has for CeCee.
However, should CeeCee choose to pursue this business, we believe the best
method would be to acquire a jewellery chain, financed from CeeCee‟s large
cash reserves, to acquire required competences.
5.4 Child labour accusations
Background
CeeCee‟s Asian suppliers have been using child labour to manufacture garments
for CeeCee. The agent believes that the issue is commonly reported that
newspapers have grown bored and CeeCee would not be able to do much.
Dilemma
CeeCee faces an ethical tradeoff between severing the contract with Asian
suppliers using child labour – potentially costing the children‟s families who face
financial difficulties, or violating child labour laws – which represent the moral
consensus of society at large. To perform this moral analysis, the beliefs of the 6
major ethical systems is utilized.
20
Ethical System Application
Eternal Law – Act in accordance with
the interpretation of the Law.
Given that this system advocates that
everyone acts in accordance to the Law,
CeeCee should abide by the law and
discontinue the use of such errant
suppliers.
Personal Virtue – Act in a way in which
they can be open, honest, truthful and
proud.
By rejecting child labour, CeeCee would be
able to be open, honest and truthful about
its labour policies without fear of
repercussions.
Utilitarian Benefits – Act to generate
the greatest benefits for the largest
number of people.
Should CeeCee terminate the services of
such suppliers, the loss of jobs could
severely impact the livelihood of the
already struggling families which rely on
their children to earn income.
Universal Duties – Act to ensure that
similar decisions would be reach by
others, given similar circumstances.
Given similar circumstances, most
companies would likely defer to the Law
and terminate the services of the errant
suppliers.
Distributive Justice – Act to ensure a
more equitable distribution of benefits,
for this promotes individual self-
respect.
Once again, the loss of jobs could severely
impact the livelihood of the already
struggling families which rely on their
children to earn additional income.
Contributive Liberty – Act to ensure
greater freedom of choice, for this
promotes market exchange.
Both decisions here do not promote
greater freedom of choice – stopping the
use of child labour does not provide
opportunity for those who need to work,
21
while continuing the use does not allow
children to choose their working conditions.
Recommendations
Based on the above moral analysis, CeeCee shoud abide by the law and
discontinue the use of child labour. To mitigate the ramifications of this decision,
CeeCee can choose to:
Make contributions to humanitarian organizations specializing in helping
children born into poverty
Demand the suppliers stop utilizing child labour and employ able relatives
of the children instead
22
Based on the cash flow position derived from the forecasted figures for 2011 to
2014, the five year plan is financially feasible. CeeCee ends on a net positive
cash flow position at the end of each year and the cash flows increase as
forecasted profits increase. The cash flow position is net positive even when
basic costs for the short term recommendations of the five issues are included5.
The year on year growth rates forecasted increases from 7.34% to 17.45% for
revenues and 7.14% to 18.49% for operating profits, with operating margin
remaining relatively constant. This gradual increase in revenue and profit growth
is consistent with past trends. Sales revenue grew 14.5% in year 2008 and
decreased drastically to 3% in 2009 due to the financial crisis. We expect the
economy to gradually recover till it exceeds its previous levels in the next five
years as we proceed with the marketing plans for CeeCee.
Nevertheless, CeeCee should be prepared for unforeseen events which may
depress its earnings and affect its cash flow positions. With its low current ratios,
CeeCee would be more vulnerable to cash flow fluctuations. CeeCee should
maintain a monthly cash flow forecast to ensure that its cash positions remain
viable in each individual month and be prepared for any contingencies.
5 Refer to Appendix F
6.0 ACHIEVABILITY OF THE FIVE-YEAR PLAN
23
Order of
priority
Problems Decisions for the short
term
Long term
recommendations
1 Distributor‟s
strike
Employ another distributor
to deliver its products for
the ten weeks when EIT is
unable to operate
Decide on the following
alternatives based on a cost-
benefit analysis
Retaining EIT
Engaging a new
distributor
Creating own distribution
function
2 IT failure Source for lower rates by
external collection
agencies
Improve controls to IT
collection system
3 Child
labour
accusation
Discontinuing the use of
child labour
Make contributions to
humanitarian
organizations
Demand the suppliers
stop utilizing child labour
and employ able relatives
of the children instead
Order of
priority Proposals Accept/ Reject
4 Celebrity Marketing Accept, with reservation
5 Expansion into Jewelry range Reject
7.0 SUMMARY OF ISSUES AND RECOMMENDATIONS
24
Appendix A: % of Lost Sales due to Distributor’s Strike
Week % sales lost per shop Total sales lost per shop Total Sales lost Profit lost
1 10% 8969.350962 € 5,740,384.62 € 3,449,971.15
2 20% 17938.70192 € 11,480,769.23 € 6,899,942.31
3 30% 26908.05288 € 17,221,153.85 € 10,349,913.46
4 40% 35877.40385 € 22,961,538.46 € 13,799,884.62
5 50% 44846.75481 € 28,701,923.08 € 17,249,855.77
6 60% 53816.10577 € 17,221,153.85 € 10,349,913.46
7 70% 62785.45673 € 20,091,346.15 € 12,074,899.04
8 80% 71754.80769 € 22,961,538.46 € 13,799,884.62
9 90% 80724.15865 € 25,831,730.77 € 15,524,870.19
10 100% 89693.50962 € 28,701,923.08 € 17,249,855.77
Total
€ 200,913,461.54 € 120,748,990.38
% of revenue/profits
6.73% 6.73%
8.0 APPENDICES
25
Appendix B: Amount of Debt Recovered from IT System Failure
Outside
agency Unit overall
Charge € 14.00
per
customer € 700,000.00
Success Fee 5% Amt € 180,000.00
Total Cost
€ 880,000.00
Success Rate 60%
per
customer € 3,600,000.00
Net
€ 2,720,000.00
Net amount
loss
€ 3,280,000.00
Self
collection Unit overall
Success Rate 45% Amt € 2,700,000.00
Cost
26
Appendix C: Cashflows Table and NPV for Proposal of Expansion into Jewellery Range
Cashflows Table (in €‘000s)
Year 0 1 2 3 4 5
Investment -€6,720,000 -€2,080,000 -€320,000 -€320,000 -€320,000 -€320,000
Sales €0 €1,920,000 €8,320,000 €8,320,000 €8,320,000 €8,320,000
Net COGS €0 -€96,000 -€416,000 -€416,000 -€416,000 -€416,000
Net Lost Profit €0 -€288,480 -€1,250,080 -€1,250,080 -€1,250,080 -€1,250,080
Value for Year -€6,720,000 -€544,480 €6,333,920 €6,333,920 €6,333,920 €6,333,920
discount 1.00 1.12 1.25 1.40 1.57 1.76
PV -6,720,000 -486,143 5,049,362 4,508,359 4,025,321 3,594,036
NPV Calculation (in
€‘000s)
Terminal Value 52,782,667
NPV 62,753,602
27
Appendix D: Pre-forma Income Statement
2007 2008 2009 2010 2011 2012 2013 2014
No of shops
(end of year)
570 610 630 650 672 702 750 800
Average for year 547 590 620 640 661 687 726 775
Sales area for all shops
(sq m) average for year
532,400 600,000 648,000 680,000 713,200 752,400 808,800 879,600
Sales Revenue (in
millions)
2358 2700 2781 2985 3319 3781 4390 5156
Operating profit (in
millions)
534 616 634 690 780 896 1045 1237
Operating Profit Margin 22.65% 22.82% 22.80% 23.12% 23.50% 23.70% 23.80% 23.99%
Long term liability 300 300 300 300 300 300 300 300
Finance Cost (in
millions)
26 22 32 32 32 32 32 32
Tax Expense -30% 152.4 178.2 180.6 197.4 224.4 259.2 303.9 361.5
Net Profit 355.6 415.8 421.4 460.6 523.6 604.8 709.1 843.5
Net Profit Margin 15.08% 15.400% 15.15% 15.43% 15.78% 16.00% 16.15% 16.36%
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Appendix E: Segmental Analysis
Segmental
Analysis
Gross
margin
2007 2008 2009 2010 2011 2012 2013 2014
Clothing 58%
Revenue: assume
70% of total revenue
1650.6 1890 1946.7 2089.5 2323.3 2646.7 3073 3609.2
Gross profit 957.35 1096.20 1129.09 1211.91 1347.51 1535.09 1782.34 2093.34
Accessories 75%
Revenue: assume
26% of total revenue
1768.5 2025 2085.75 2238.75 2489.25 2835.75 3292.5 3867
Gross profit 1326.38 1518.75 1564.31 1679.06 1866.94 2126.81 2469.37 2900.25
Home Furnishing 72%
Revenue: assume
4% of total revenue
94.32 108 111.24 119.4 132.76 151.24 175.60 206.24
Gross profit 67.91 77.76 80.09 85.97 95.59 108.89 126.43 148.49
29
Appendix F: 5-year Plan Cash flow Projection
2007 2008 2009 2010 2011 2012 2013 2014
No of shops (end year)
570 610 630 650 672 702 750 800
Average for year
547 590 620 640 661 687 726 775
Sales area for all shops (sq m) -average for year
532,400 600,000 648,000 680,000 713,200 752,400 808,800 879,600
Sales Revenue (in millions)
2358 2700 2781 2985 3319 3781 4390 5156
Issue 1: Celebrity Marketing expense6
-0.2 -0.2 -0.2 -0.2 -0.2
Issue 2: Jewellery expansion
-7.26 -6.33 -6.33 -6.33 -6.33
Issue 3:IT failure (bad debts)7
-3.28
Issue 4: Distributor's strike8
0.00
Operating profit (in millions)
534 616 634 679.25552 773.46608 889.46608 1038.4661 1230.4661
Operating Profit Margin
22.646% 22.815% 22.798% 22.756% 23.304% 23.525% 23.655% 23.865%
Long term liability
300 300 300 300 300 300 300 300
Finance Cost (in millions)
26 22 32 32 32 32 32 32
Tax Expense @ 30%
152.4 178.2 180.6 194.17665 222.43982 257.23982 301.93982 359.53982
Net Profit
355.6 415.8 421.4 453.07886 519.02626 600.22626 704.52626 838.92626
Net Profit Margin
15.081% 15.400% 15.153% 15.179% 15.638% 15.875% 16.048% 16.271%
6 First method of fixed payment of €50,000 + €150,000 bonus is used 7 External agency was employed to recover bad debts 8 Alternative distributor was sourced for and thus any costs were allayed. There may have been other costs incurred in sourcing for new distributors and making changes to distribution system but these costs are not included above.
30
Period ending 2008 2009 2010 2011 2012 2013 2014
Net income
416 421 453 519 600 705 839
Operating activities, cash flows provided by or used in:
Depreciation and amortization
151 121 148 179 218 273 332
Adjustments to net income
Decrease (increase) in accounts receivable
-4 - - - - - -
Increase (decrease) in liabilities (A/P, taxes payable)
36 - -
- -
- -
Decrease (increase) in inventories
-52 - - - - - -
Increase (decrease) in other operating activities
Net cash flow from operating activities
547 542 601 698 818 978 1,171
Investing activities, cash flows provided by or used in:
No. of new shops
40 20 20 22 30 48 50
Capital expenditures (new shops)
-200 -100 -100 -110 -150 -240 -250
Investments (refurbishment)
-70 -88 -107 -125 -144 -162
Net cash flows from investing activities
-200 -170 -188 -217 -275 -384 -412
Financing activities, cash flows provided by or used in:
Dividends paid
-208 -211 -227 -260 -300 -352 -419
Increase (decrease) in debt
0 - - - - - -200
Net cash flows from financing activities
-208 -211 -227 -260 -300 -352 -619
Net increase (decrease) in cash and cash equivalents
139 162 186 222 243 242 139
Beginning balance 174 313 475 661 882 1,125 1,367
Ending cash balance 313 475 661 882 1,125 1,367 1,506
31
Appendix G: Resource Based View (RBV)
Resources
Brand name and reputation- favourite with European young professional shoppers
Prime locations of stores
Excellent service personnel to provide high quality customer service
Fast Fashion Model
Capabilities
Fast turnaround on fashion designs
Sophisticated IT system with feedback sales data
Close contact with manufacturers, long term working relationships
Swift sale of inventory items, short product life cycle
A Framework For Analysis : VRIO
Resources Valuable? Rare? Costly to Imitate?
Exploitable by Organization?
Competitive implications
Economic performance
Strengths or Weaknesses
Brand Name
Yes- increase revenue
No -competitors have brand name as well
No- but difficult to imitate
No Competitive Parity
Normal Strength
Prime locations
Yes- increase accessibility
No information on competitors
No- competitors can set up shops in prime area
No Competitive Parity
Normal Strength
32
to form valid conclusion
Excellent Service Personnel
Yes- increase revenue
Yes- quality of service higher than competitors
No- can be imitated
No Temporary competitive advantage
Above normal
Strength and distinctive competence
Fast Fashion Model
Yes- increase revenue
Yes-uncommon among competitors
Yes-require sophisticated supply and distribution system
Yes- complementary resources and capabilities in place
Sustained competitive advantage
Above normal
Strength and sustainable distinctive competence
Capabilities Valuable? Rare? Costly to Imitate?
Exploitable by Organization?
Competitive implications
Economic performance
Strengths or Weaknesses
Fast turnaround on designs
Yes- increase revenue
Yes- competitors are slower
No- can be imitated
Yes Temporary competitive advantage
Above normal
Strength and distinctive competence
Sophisticated IT system
Yes- reduce costs
No information on competitors to form valid conclusion
No- outsourced system
No Competitive Parity
Normal Strength
Relationship with
Yes- reduce
Yes- close relationship
Yes- difficult to
No Temporary competitive
Above normal
Strength and distinctive
33
manufacturer costs for JIT system
imitate advantage competence
Short product life cycle
Yes- increase revenue
Yes-uncommon among competitors
Yes-competitors may lack capabilities
Yes- key business process
Sustained competitive advantage
Above normal
Strength and sustainable distinctive competence
34
