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

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 proprietors 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