Clothing boutique case study

Cases EXHIBIT 2 SECTION V 553 Strategic Profit Model Net Sales Gross Margin Cost of Goods Sold – Net Profit Operating Expenses Total Expenses / Net Profit Margin Interest Expenses Net Sales Taxes Return on Assets Cash Net Sales Accounts Receivable / Current Assets + Inventory Asset Turnover Total Assets Fixed Assets Other Current Assets C ASE 13 Choosing a Store Location for a Boutique Stephanie Wilson must decide where to open a ready-towear boutique she’s been contemplating for several years. Now in her late 30s, she’s been working in municipal government ever since leaving college, where she majored in fine arts. She’s divorced with two children (ages five and eight) and wants her own business, at least partly to be able to spend more time with her children. She loves fashion, feels she has a flair for it, and has taken evening courses in fashion design and retail management. Recently, she heard about a plan to rehabilitate an old arcade building in the downtown section of her midwestern city. This news crystallized her resolve to move now. She’s considering three locations. THE DOWNTOWN ARCADE The city’s central business district has been ailing for some time. The proposed arcade renovation is part of a master redevelopment plan, with a new department store and several office buildings already operating. Completion of the entire master plan is expected to take another six years. Dating from 1912, the arcade building was once the center of downtown trade, but it’s been vacant for the past 15 years. The proposed renovation includes a three-level shopping facility, low-rate garage with validated parking, and convention center complex. Forty shops are planned for the first (ground) floor, 28 more on the second, and a series of restaurants on the third. The location Stephanie is considering is 900 square feet and situated near the main ground-floor entrance. Rent is $20 per square foot, for an annual total of $18,000. If sales exceed $225,000, rent will be calculated at 8 percent of sales. She’ll have to sign a three-year lease. TENDERLOIN VILLAGE The gentrified urban area of the city where Stephanie lives is called Tenderloin Village because of its lurid past. Today, however, the neat, well-kept brownstones and comfortable neighborhood make it feel like a trendy enclave. Many residents have done the remodeling work themselves and take great pride in their neighborhood. About 20 small retailers are now in an area of the village adjacent to the convention center complex, along with some vegetarian and nouveau cuisine restaurants. There are also three small women’s specialty clothing stores. The site available to Stephanie is on the village’s main street on the ground floor of an old house. Its space is also about 900 square feet. Rent is $15,000 annually, with no extra charge based on the level of sales. The landlord knows Stephanie and will require a two-year lease. APPLETREE MALL This suburban mall has been open for eight years. A successful regional center, it has three department stores and 100 smaller shops just off a major interstate highway about 8 miles from downtown. Of its nine women’s clothing retailers, three are in a price category considerably higher than what Stephanie has in mind. 554 SECTION V Cases Appletree has captured the retail business in the city’s southwest quadrant, although growth in that sector has slowed in the past year. Nevertheless, mall sales are still running 12 percent ahead of the previous year. Stephanie learned of plans to develop a second shopping center east of town, which would be about the same size and character as Appletree Mall. But groundbreaking is still 18 months away, and no renting agent has begun to enlist tenants. The location available to Stephanie in Appletree is two doors from the local department store chain.