Richley Stores owns and operates five home improvement stores throughout Saskatchewan and Manitoba. Each store carries a
Question:
Richley Stores owns and operates five home improvement stores throughout Saskatchewan and Manitoba. Each store carries a large selection of general hardware, plumbing supplies, electrical supplies, lumber, and tools.
Stock for all five stores is purchased in a centralized manner to take advantage of bulk discounts where they exist. Typically, Richley works with large distribution companies based in Canada, the United States, and Europe. Orders are typically made monthly, and sales are made in the seller's currency.
Richley has two types of clients: individuals who make smaller purchases and pay upfront, and corporate construction clients whose orders can be thousands of dollars each. To increase customer loyalty, Richley allows these corporate clients to pay up to 30 days after the purchase.
The retailer's products can be bought through its physical stores and online shop. The company began as an in-person retailer only, but moved into online retailing last year after taking out a loan. After months of working with web developers, the online shop opened two months ago, and business is booming. The success is great news for the company, but there is some concern about whether they can continue to provide excellent supply and service with so much new demand.
The Richley corporate culture emphasizes entrepreneurship and accountability at the individual store level.
Managers are compensated based on performance, with store profitability being a key indicator. Hazard Risk Cost-Allocation System For years, Richley Stores has used a relatively simple hazard risk cost-allocation system. Hazard risk expenses are allocated evenly to each store, and insurance premiums have been split between stores based on value of inventory (see exhibits below). Richley insures its property and general liability exposures through guaranteed-cost insurance with a company-wide premium of $500,000.
Q3 How could capital market products help Richley? Suggest two ways each of the capital market products could help. So, you will make TWO (2) suggestions about insurance-linked securities, TWO (2) suggestions about insurance derivatives, AND make TWO (2) suggestions about contingent capital arrangements for a total of six suggestions. For each suggestion, make a connection with Richley's operations.