Topics: Inventory, Cost of goods sold, Revenue Pages: 7 (1541 words) Published: February 7, 2014

The Sports Guy is an independent sporting goods store located in a small town outside the Greater Toronto Area. About half the town's population lives in the older section of town; the other half consists mostly of younger families living in recently built subdivisions to the south of town. Nearly all of the residents of these subdivisions commute daily to their work in the Greater Toronto Area. The housing developer has placed before the Ontario Municipal Board proposals for considerably more housing development over the next ten years.

The Sports Guy is owned by Bob ("Rocky") Rhodes, age 32, who has for many years been a high-profile personality in the local sports community. Following in his father's footsteps, Rocky was a star player for the local high school football team and the town's Junior "C" hockey team that won the town's first (and only) provincial championship in 1998. He still plays for the town's Intermediate hockey team, which has a considerable following among the longer-term residents of the town. Rocky's life centres around sports -- he attends most sporting events in town, supports and participates in team and league fund-raising activities and is well-known to practically everyone involved in the local sports community.

Ten years ago, Rocky decided to go into the sporting goods business for himself. Family members and friends provided some equity capital and the new business was incorporated, with Rocky owning 60% of the shares and his family members and friends 40%.

With his start-up capital and a mortgage loan from the bank, Rocky was able to purchase a package of land on a major road near the south edge of town. The purchase of the land and construction of the store was financed in part by a $183,500 mortgage. Last year, the payments on the mortgage totalled about $18,400, of which approximately $8,000 was interest and $10,400 was principal.

After 2004, the town grew and the area around Rocky's store became built up into a quite prosperous neighbourhood. Strip malls developed, and The Sports Guy is now located in a busy commercial area. The store's property taxes are $12,000 per year.

The land package that Rocky bought consisted of two lots on a corner. The store was built on one lot; the other remained vacant. Rocky had originally thought of building a parking lot on the other lot but never did so. At first, this was because he already had considerable debt and was reluctant to borrow more in order to build a parking lot. Later, as time passed, he found he didn't need to use the lot for parking -- he had a few parking spaces beside his store and the development of a strip mall beside him provided more spaces. A hockey teammate who is a local realtor thinks the vacant lot could now be worth as much as $120,000.

About 70% of The Sports Guy's sales consist of equipment and uniforms bought by local teams. The largest customers are hockey and baseball teams associated with town and county leagues, but school volleyball, soccer, football and other teams account for a good proportion of sales as well. It was sales to local teams that formed the original basis for starting The Sports Guy, with Rocky's personal association with so many local sports people providing the key to these sales. While sales to teams still represent 70% of The Sports Guy's sales, they have not been growing much in recent years. In particular, kids' leagues, which were once a major aspect of the town's sporting scene, have not grown much over the past decade. In fact, league player registrations have been slowly declining, partly due to declining family size and partly due to competition from other activities for children.

About 30% of The Sports Guy's sales consist of regular ("walk-in") retail trade that consists of a wide range of sports and recreational merchandise. Its main retail competitor in town is the Canadian Tire store. This is an older store that is relatively small by modern...
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