INTRODUCTION: Hallstead Jewelers is a family owned company that has been around for generations. After the death of their father Gretchen and Michaela resumed ownership of a business that had been very successful for many years. However, due to changes in the market related to competition, customer demand, and demographics, business has not been as profitable as the sisters hoped it would be upon taking over of (remove) the company. Michaela and Gretchen are now faced with the tough task of revitalizing the business. They must first determine the best course of action to take after a decision to move to a new location that has proven to not be a key place for foot traffic and jewelry buyers. Michaela’s and Gretchen’s challenge is to determine a way to return to profitably all while not eliminating commission based pay; a strategy that their father and grandfather were totally against.
RECOMMENDATION: The recommendation for the managers at Hallstead would be to perform a marketing analysis of their customer base to determine its buying power. It would also be a good idea for the managers to get a better understanding of who their competitors’ are to determine the types of items that are being sold, that are doing well in their stores, as well as online and develop a new marketing strategy.
Hallstead Managers should also reassess their decision to make a location change. By doing so, new ideas should be developed for re-attracting old customers and generating new ones to the new location. In addition, completely eliminating the sales commission may not be the appropriate thing to do either.
CONCLUSION: In order to operate an effective and profitable business, it is imperative that the business owners perform the appropriate business analysis’ (Remove) before making decisions. In this case, the sisters should take into consideration that any decision regarding the commission should be based on the company’s profit versus sales. If the company does not make a profit (or has poor profit), it would not be a good business decision to reward employees since the commission paid reduces the overall profit. The commission is an incentive to get employees to work harder. Therefore, removing it altogether could cause a less productive group of workers making already poor profit performance worse.
RESULTS: The goal of this analysis is to determine the best way to make Hallstead Jewelers profitable again while rebuilding the success and brand name of the company as its past owners. The statistics needed to help address the sister’s concerns are listed in the Appendix section.
Question 1: When determining how the margin of safety of change took place and the reason for which this changed occurred in the years 2003, 2004 and 2006, the calculations are as follows:
CM = S – V = Sales – Variable Costs
CM Ratio = S – V/S
Break-even Sales (Dollars)= Total Fixed Costs/Contribution Margin Break-even Sales (Units) = Profit + Total Fixed Costs/CM
Margin of Safety = Expected Sales – Break-even Sales
2003 2004 2006 Administrative Expenses 418
425 435 Rent
420 420 84 Depreciation 84 84 142 Salaries 2,021 2,081 3,215 Total Fixed Costs 2,573 3,010 4,632
Commissions 429 405 536 Advertising 254 250 257 Total Variable Costs = 683,000 655,000 793,000
CM for 2003 = 8,583,000 – 683,000 = 7,900,000
CM Ratio =...
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