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5. Identify & discuss the pros and cons of having a bargaining department in the basement? (20marks)

5. Identify & discuss the pros and cons of having a bargaining department in the basement? (20marks)

You asked a question 23:16 PC as they all 30% PNS4020...nment 1 - Current situation Bob Reel is concerned about the sales performance of the men's suit line at H.L. Reed's. In 1995, Reed's sold 1445 suits, but in 1987, the number had dropped to 1208, and in 1999, suit sales were only 940. Results for 1990 look even less promising. On July 2000, Reel wrote a memo to John Cook, the general merchandise manager, about this slackening of demand. In the memo he noted that H.L. Reed's continues to hold its loyal patrons but not the transient, bargain-seeking shopper. He didn't felt that buying was the problem; rather it was simply because H.L. Reed's was not price competitive. Cook instructed Reel to put together relevant merchandising statistics for men's suits for the first six months of 2000 and also to develop hypothetical merchandising statistics based on his proposal price changes. These statistics are provided in Exhibits 1 and 2. After Reel, he had started to compile these statistics, he realized that H.L. Reed's did not have the selection he initially thought it had, especially in the moderate-to-low price range. In fact, Reed's currently had no suits price under $189. As a result, Reel proposed that two lower-priced lines be added, one at $129 and another at $98, and that the $189 line be reduced to $169. Neither of these lines was expected to be a best-seller, but Reel thought they might help to generate more traffic in the menswear department. Reel also suggested an increase level of advertising. Currently, advertising of men's suits had been averaging 19% of net sales. Reel proposed this be increased to 3.8% Most of the advertising would be directed at the $298 and $398 lines and the $98 and $129 lines. Some consideration was given to putting the $98 line in a new bargain basement department of the store, but Reel felt this would defeat the purpose of generating more traffic in the upstairs menswear department. Exhibit 1 Price Line $419 $329 $259 $189 Cost Range $200-240 160-199 125-159 90-124 Merchandising statistics for men's suits Jan-Jun, 2000 Average Unit Workroom Cash discount (at Markup Sales cost/per unit cost) $213 50 $21 2% 155 108 18 2 118 154 13 2 80 47 12 2 Retail reduction (at price line) 8.1% 9.8 18.1 19.4 Exhibit 2 Projected Sales performance on men's suits Jul - Dec, 2000 Price Line Cost Range Average Markup Cash discount (at cost) Planned Workroom cost/per unit $20 16 Planned Retail reduction (at price line) 3.1% 2% $192 124 Planned Unit Sales 140 312 420 164 140 116 2 $200-240 160-199 125-159 90-124 6.2 10.4 $398 $298 $219 $169 $129 $98 78 12 60 11 2 2 2 9.8 74-89 48 9 9 6.1 5.1 54-73 37 2 Questions 1. Why did H.L. Reed's wait so long to respond to its declining sales volume in men's suits? (10marks) 2. Will the price cuts be profitable? (40marks) 3. How will Reed's competitors react to H.L. Reed's price cut? (10marks) 4. What are the pros & cons of advertising both high & low-priced men's at one time? (20marks) o@ asemel 5. Identify & discuss the pros and cons of having a bargaining departn (20marks) III