Hallstead Jewelers

1581 Words Dec 20th, 2010 7 Pages
Introduction, Background and Scope
Upon their father’s death, three siblings, Gretchen Reeves, Michaela Hurd, and James [Hallstead], inherited the Hallstead family jewelry business that has been in operation for the past 83 years. Hallstead Jewelers, located in the largest city of the tri-state region, has an established reputation for quality and selection and has grown into one of the largest jewelers in the United States. Nonetheless, since 1999, Hallstead Jewelers’ profits have been slipping and sales have stagnated.
Two years ago it was decided to move the business a couple of blocks to keep the store in the main shopping district of the city and to increase retail space. In 2005, the new location was found and renovated. The
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Assuming the miscellaneous charges will remain at the 2006 level and were not inflated by one-time expenses related to the move, Hallstead needs to formulate a plan to cover an additional $1,658,000 per year in fixed expenses. Thankfully, we have some ideas that will help Hallstead formulate such a plan.
Hallstead’s consultant has asked us to look into the feasibility of reducing prices 10 percent across the board. We have been told that the new pricing would generate new sales. If prices are cut by 10 percent sales tickets are projected to jump from 6,897 to 7,500 (an 8.7% increase). Without even running a scenario it is obvious that this pricing scheme would not work. With Hallstead’s current operating situation 7,505 sales are needed to break even. Reducing the prices will not even lift sales to this required threshold and worse yet, the sales dollars per ticket would be reduced, resulting in even more sales needed to breakeven. Nonetheless, the results of the scenario suggested by the consultant are shown in Table 4. As expected, the increase in sales would not be enough to offset the reduction in price. The result of such a move would be catastrophic. Hallstead’s losses would increase another $704k from this plan. In order to breakeven, 9,634 sales tickets would need to be realized (or $13,464,872 in sales). See Table 5 for additional breakeven data for this

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