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• Jasper Andrew Adjarani

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MAPLE TREE ACCESSORY SHOP Written Analysis of the Case Prepared by: Adjarani, Andalahao, Caguioa, Wee J., Wee, A. STATEMENT OF THE PROBLEM Given the unsatisfactory financial performance of Maple Tree Accessory Shop (the Business) in terms of maximizing revenue and managing costs, Ivan Ho (the Proprietor) has to come up with an immediate strategy to optimize his personal profit and long-term return. OBJECTIVES The primary objective of this paper is to formulate a recommendation that is in the best interest of the proprietor of the Business. Specifically, this paper aims to: a. Assess the current and projected financial situation of the business through differential cost analysis b. Provide possible courses of action along with an assessment of each alternative c. Identify potential problems that might arise from the recommendation AREAS OF CONSIDERATION THE BUSINESS Strengths

Weaknesses

Location – the Business is highly accessible  to the target market

significantly higher than that of other

Aesthetics – its unique interior design appeals to consumers Trendiness of the product – the product being offered has always been a part of the local culture Opportunities

Price – the price of the products is accessory shops in the surrounding area.



Marketing strategies – the lack of advertisement and differentiation most likely contributes to the low level of sales

Threats

Expansion – in terms of both scope and  product offerings

Competition – the abundance of similar businesses in the area makes competition

Change in business structure – shift from sole proprietorship to a partnership New markets – if it capitalizes on its high-

very tight, especially in terms of pricing 

Students’

purchasing

making

promoting

ineffective

product

to

high-end

–

the

primary market has low purchasing power,

end pricing strategy, it should invest in its

power

a

high-end

pricing

strategy

consumers as well

THE PROPRIETOR Strengths

Weaknesses

Passionate and determined – he has the desire to Lack of experience – it is the first time of the establish his reputation as an entrepreneur in

Proprietor to manage his own business

spite of the imminent challenges Talent – his work background as a marketing manager indicates that he has the raw talent to be a successful businessman. Opportunities

Threats

Partnering with another individual who is Time constraints – the Proprietor has to manage relatively more experienced than him to

and allocate his time to different priorities (i.e.

manage the business

the Business, his family and his full-time work

Learning and development – other than the

as a manager)

experience he can get from managing the Physical constraints – overworking might lead to Business, he can also enrol in seminars and

stress and other health problems

crash courses on accounting, business and financial management, etc. for his current and future ventures.

Estimated Monthly Income (Loss) of the Business

Sales Cost of sales Gross profit Operating expenses (excluding depreciation): Rent Salaries Commission (3% of sales) Utilities (water) Total operating expenses Monthly operating income *estimated annual income therefore is RMB 31,320

(in RMB) 18,000 _(9,000)_ 9,000 3,300 2,400 540 _ 150__ _6,390_ 2,610

Sunk costs (also represents the initial investment): Sublet fee Shop fitting Cash register Total sunk costs

58,000 25,000 500 83,500

Estimated current annual ROI ROI ROI

= =

Yearly income / Initial Investment 31,320 / 83,500 =

37.51%

Estimated monthly income if the Proprietor reverts to his online work Fee per hour Estimated number of online work hours per month Estimated monthly income from online work

RMB 200 x 50 hrs._ RMB 10,000

ALTERNATIVE COURSES OF ACTION ACOA #1: Continue operations as an accessory shop but change multiple aspects of the business, including but not limited to its pricing strategy and business structure as a sole proprietor Pros: 

The potential of the business to be successful is not foregone, especially in terms of increasing profits and improving its reputation in the market.



Improving operations, if effective, would attract more consumers and ultimately increase returns in the long run.

Cons: 

Modifying operations and the structure of the business require a significant amount of effort and resources.



There is the risk that the market will not be responsive to the changes, leading to more sunk costs not being recovered.



It would be difficult to undergo change especially if the location of the business is already filled with well-established competitors.

ACOA #2: Continue operations but shift to a different type of business that is not yet available in the location Pros: 

Shifting to a business that is not yet offered in the location greatly reduces the impact of competition on operations and sales



The proprietor is given the chance to choose a type of business that is more inclined to his interest and capability

Cons: 

This requires a lot of market research more than what is needed for ACOA #1 since it entails a full 180 degree swing from what has already been positioned in the market



The decision to shift to a different type of business means that the proprietor needs to invest again on interior design, staff training and inventory procurement. It also entails that whatever investment he had on these things from the previous business type is already foregone.

ACOA #3: Cease operations and go back to his online work Pros: 

Further losses and inconveniences from operating the business is avoided



In terms of the current financial returns, potential income from the online work is apparently higher than the income the proprietor earns from operating the business.



The online work is more convenient and less time-consuming, allowing the proprietor to have more time for his other priorities.

Cons: 

The opportunity to improve the business overtime, apply business knowledge and learn new ones while managing it is deterred



Ceasing operations is not in the best interest of the employees hired



Certain committed costs shall still be incurred, such as the 2-year rental contract

RECOMMENDATION ACOA #1: Continue operations as an accessory shop but change multiple aspects of the business, including its pricing strategy and business structure as a sole proprietor Rationale It is perfectly normal for a start-up business to experience financial and operational challenges at the onset, especially if it is also the first business venture of the proprietor. Managing a business will always require strenuous time management and compromise of other priorities. Ceasing operations just because status quo is not ideal is a weak stance for an aspiring entrepreneur. Even if relevant cost analysis is not in favor of continuing operations, the analysis only accounts for profits in the short term and does not consider opportunities of potential improvements that, if utilized effectively, will increase returns in the long run. The idea of changing the type of business the proprietor is engaged into may be logical, but it is a soft solution. Although heavy competition is a big threat to the current business, it is not the primary problem. The reason why the business is losing to competition is because of poor management of costs and a mismatch between the immediate market and the market strategy imposed by the proprietor. These things will still be at play in one way or the other, regardless of the type of venture. These factors may also be attributed to the proprietor’s lack of experience in managing his own business in spite of this existing skills and strong resolve.

Hence, what is needed as of the moment is an overhaul of how the business operates and possibly a partnership with people who are already experienced. The following are the proposed actions under this recommendation: 

Consultation with professionals who are experts in the field of starting a small start-up



Search for a business partner who share the same business goals as the proprietor but manifests more experience in managing a start-up



Respond to the market by studying consumer trends and modifying pricing, this can be done through o Lowering prices by 20% o Giving of discounts and promos for bulk purchases



Sell products other than accessories (such as food and snacks) for additional income



Increase marketing efforts to establish his brand and to improve competitive advantage



Modify the incentive package of the employees through lowering fixed salaries and increasing commission to encourage higher sales



Save on water and electricity



Search for a supplier or a group of suppliers that are closer to the location of the business. This also includes streamlining inventory procurement and delivery through entering into a contract with the suppliers.

POTENTIAL PROBLEM ANALYSIS