Foxy Originals free essay sample

Van-de-lay Industries Ruwanthi Herath, Manasa Varalakshmi, Gabriela Chassagne, James McDougall, Aaron Layden Executive Summary Foxy Originals hopes to gain successful market entry into the United States within six months. The U. S. market is significantly larger than the Canadian market that Foxy currently operates in and has substantially less brand loyalty and demand for classic jewelry. Foxy’s two potential methods of market entry are: (1) Tour their products at ten U. S trade shows and make direct sales to retailers or (2) Hire four sales representatives in fashion hubs across the U.S. We, Vandelay Industries, recommend Foxy implement the first alternative. The contribution margins for the sales representative method is $216 per order, with a break-even point of 118 orders. The trade show’s contribution margin, $302, and break-even point, 313 orders, are significantly higher because of their fixed costs. To reach Foxy’s $100,000 target profit, the sales metho d would require 581 sales, while the trade show method would require 645 sales. We will write a custom essay sample on Foxy Originals or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page This shrinking disparity in the number of orders necessary to reach the $100,000 target profit highlights the power of the contribution margin over time. Jen and Suzie have tremendous product expertise and relationship building abilities. These core competencies would be put at significant risk if sales responsibilities were shifted into the busy schedules of sales representatives handling 15 different brands at once. Turning their brand and product presentation over to sales representatives has unjustifiable risk. We recommend that Foxy choose the trade show method, reduce its classic jewelry inventory to 15% at their booth, and target the â€Å"Chain Lovin’ Ladies† demographic in the four major fashion hubs of the U. S. The contribution margin of trade shows and the specificity of their efforts with retailers will result in sustainable growth in a new market. Case Background: Jen Kluger and Suzie Orol are the co-founders and owners of the popular Canadian jewelry brand Foxy Originals. Both Jen and Suzie have a family background in the jewelry industry and upon meeting at The University of Western Ontario, developed some of the early designs for Foxy. As the brand became popular through sales at outdoor festivals and concerts, the founders decided that upon graduation they would continue developing Foxy Originals and launch into retail. Sales to retailers were natural for Jen and Suzie because of their collective knowledge and charisma and subsequently, sales doubled for each of the first three years. As relationships with retailers strengthened, the brand grew in popularity in Canada and reached over 250 boutiques. Jen and Suzie sold the jewelry, managed the inventory, and ran every aspect of the company. In doing so, they cultivated a unique brand that was affordable without sacrificing boldness and trendiness. In June of 2004, Sarah Gibson, one of Foxy’s early retail customers, called and complained to Jen and Suzie that many of her competitors now carried the Foxy brand. Jen and Suzie realized the significance of this complaint; the organic business they had cultivated was now at risk for becoming saturated in the relatively small Canadian jewelry market. With a strong entrepreneurial spirit and acknowledgement of the opportunity for Foxy, Jen and Suzie decided this was a time to expand to the United States, whose jewelry industry is 10 times larger than Canada’s. Issue: Jen and Suzie’s goal is to launch Foxy Originals in the U. S market by January of 2005, a fast approaching deadline. The owners will either (1) tour their products at ten U.S trade shows and make direct sales to retailers or (2) hire sales representatives in the key fashion hubs of the U. S. We, Vandelay Industries, have been hired to consult Foxy on market entry analysis to the U. S. Alternatives: Trade shows undoubtedly play to the core competencies of both Jen and Suzie. Foxy has grown their brand through dynamic relationship building with retailers and with an avera ge of 75,000 retailers in attendance per trade show, the opportunities to capitalize on their skills will abound. The relationships with trade show retailers are highly valuable in that they often prove to be long term. Re-orders by retailers from trade shows occur at a 50% clip, and they will re-order twice per year. With an average order from a retailer being $569 (Table 1), and the direct material and labor cost fixed at $267, the contribution margin per order at trade shows will be $302 (Table 2). The U. S. trade show circuit requires substantial overhead. The fixed cost of purchasing and regularly shipping of the booth, travel, promotional materials, and registration would be $94,300. Dividing that overall fixed cost by our contribution margin per order via trade shows gives us our breakeven order number of 313 orders. However, this is not a figure that would satisfy Foxy Originals. Considering the high fixed cost and risk of touring products in a market that does have a penchant for classic jewelry (50% of Foxy’s inventory) or much brand loyalty, the owners would like to know the sales that would need to occur to hit their target profit of $100,000. To exceed their fixed costs by a margin of $100,000, Foxy would need 645 sales on the trade show circuit. At the forefront of Foxy’s market entry plan to the U. S is expedition and exclusivity. The products need to be in the key fashion hubs (Dallas, Los Angeles, New York, and Chicago) of the United States by January, satisfying both timing and specificity needs for Jen and Suzie. Hiring a sales force in those premier markets would do just that. With sales numbers, cost of goods sold, and labor cost remaining constant between the two methods of entry, the only additional factor affecting contribution margin of sales representatives would be the 15% sales commission they will receive. Therefore, factoring out $85. 35 in sales commission per order would bring the contribution margin per order to $216. Compared to the trade show contribution margin, this is a 30% decrease. Compensating for the decrease in contribution margin is a significantly lower fixed cost and break even number of orders. In this case, the risk lies within the fixed costs of trade shows, while the risk with sales representatives lies in undefined brand management ability and loyalty. Including boards, promotional materials, and a book keeper, the total fixed cost for hiring the sales force is $25,520. Dividing the fixed cost by the contribution margin per order, we see that the sales force method presents a significantly lower break even number of orders, 118 (Table 3). To reach a six-figure profit as Foxy Originals desires, we would need to achieve $125,520 in sales via a contribution margin of $216 per order. The sales force would need to sell 581 (Table 3) orders in their respective regions to justify market entry. This breaks down to an average of 145 orders per sales rep, or 12 per month per rep. Recommendation: Upon extensive quantitative and qualitative consideration of both market entry strategies, we recommend that the owners of Foxy Originals, Jen Kloger and Suzie Orol, make the necessary arrangements to attend all 10 U. S Trade shows in 2005. This method of business expansion serves their company model more effectively and will lead to longer, more sustainable development. The key aspects of Foxy’s initial success were organic growth, enthusiastic relationship building, and product expertise. These business building elements would all be put at significant risk when transferred to the busy schedules of sales representatives handling as many as 15 different brands at once. Considering that Jen and Suzie would effectively turn their brand management and product presentation over to new sales representatives has unjustifiable risk. On a quantitative scale, we believe the power of the contribution margin of trade shows makes it more favorable than a low fixed cost, low margin model. If Jen and Suzie are able to sale a higher than average number of sales (range of 20-45 per show) the results will be profound (Chart 2). Additionally, we advise that Foxy’s classic jewelry styles be reduced to 15% of inventory for the trade show booth, as the U. S market will not be responsive to these products. The â€Å"Reversible Enamels Ladies† is a consumer group that has been profitable for Foxy in Canada.