Big Als Athletic Apparel annually sells 39,000 University of Florida branded cotton T-shirts through distributors who then
Question:
Big Al’s Athletic Apparel annually sells 39,000 University of Florida branded cotton T-shirts through distributors who then sell the shirts for $20 to retailers like Dick’s Sporting Goods who then sell them on to consumers for $30 each. Big Al’s costs of goods are $10 per shirt and they are required to pay a licensing fee to UF for $2 for every shirt that they sell via distributors. This fee is only charged on those shirts sold to the distributors. The distributors’ margins are 20%.
- Create a Value Chain for the shirts by filling in the blanks
Consumer Price | $30 |
Dick’s Purchase Price | $20 |
Dick’s Margin | $10 (30-20) |
Distributor Purchase Price | |
Distributor Margin | |
Big Al’s Gross Margin ($) | |
Big Al’s Gross Margin (%) | |
Big Al’s Contribution Margin ($) | |
Big Al’s Contribution Margin (%) |
- Big Al’s is adapting to consumer trends and developing a wicking, breathable T shirt made of polyester and elastane blend material to keep consumers cool on the hottest of days (especially important in Florida). The shirt will cost $20 to produce and Big Al’s expects Dick’s will be selling it for $48. First year sales of the new shirt are expected to be 25,000, with 30% of those sales coming from the existing T shirt. Distribution will remain the same. Distributors will be taking 25% (remember, they raised their margin requirements) and retailers will take the same percentage margin as they do on the base cotton T Shirt. Big Al’s will also have to continue paying UF a $2 licensing fee for every shirt sold to distributors. Based strictly on economics, would you advise Big Al’s to sell these shirts? Why or Why Not?
Sell or Not Sell?_______________________________________________________________
Why or Why Not? _____________________________________________________________
