Hallstead Jewelers

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Introduction, Background and Scope
Upon their father’s death, three siblings, Gretchen Reeves, Michaela Hurd, and James [Hallstead], inherited the Hallstead family jewelry business that has been in operation for the past 83 years. Hallstead Jewelers, located in the largest city of the tri-state region, has an established reputation for quality and selection and has grown into one of the largest jewelers in the United States. Nonetheless, since 1999, Hallstead Jewelers’ profits have been slipping and sales have stagnated. Two years ago it was decided to move the business a couple of blocks to keep the store in the main shopping district of the city and to increase retail space. In 2005, the new location was found and renovated. The new store opened in 2006 and as expected, sales picked up. However, after a review of the preliminary fiscal year 2006 financial reports the sisters are not happy with what they see. The profits were not simply diminished, but rather non-existent. The business had experienced a significant and unexpected loss. The sisters want to understand what has happened since 2004 and what can be done to get Hallstead Jewelers back on track. It has been suggested that the new location has changed the economics of the company. Questions have been raised concerning the appropriate pricing, promotional, and compensation schemes needed to bring Hallstead Jewelers back into a place of success. This paper will answer those questions and bring up additional considerations.

To help the sisters understand the situation Hallstead Jewelers face and to make recommendations, we were provided with two supporting documents. The preliminary income statements for fiscal years ended 2003, 2004, and 2006 are shown in Table 1. Additional operational statistics are shown in Table 2. To help the Gretchen and Michaela understand what has changed between 2003, 2004, and 2006 a breakeven analysis (see Table 3) was performed on both sales...
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