CRITICAL ISSUES * lack of smart and strong decision making because of owner and CEO’s different perspectives/priorities * sales have increased, but profitability have decreased * ineffective management of A/P and A/R have made the company insolvent * may lose loans because bank requires current ratio of 1.25 SITUATION ANALYSIS The major decisions for the company are taken by the owner rather than the CEO. The owner lacks business sense and his decisions are based on emotional feelings, not for the benefit of the company. The owner is not willing to outsource operations and wages are above industry average. From 2001 to 2005 sales have increased by 186%; whereas, COGS and selling and admin has increased by 199% and 166% respectively. High operating expenses and ineffective management of A/R have led the company to insolvency by demonstrating a quick ratio of 0.38.
This may have been for any number of reasons, however if this was cut simply to conserve cash it could result in slower growth in the long term. The cash and cash equivalents have grown by 348.2% which is alarming. This is an indication that the company is not investing their cash appropriately. This cash could have been invested in the aforementioned research and development to keep the business competitive in the long term. A few smaller points that are still worth mentioning are that the receivables have dropped 15%.
Moreover, DOP started to deliver orders to customers by their small fleet of trucks (desktop delivery) when possible instead of using commercial freight. This approach would reduce the cost for delivery charge also. However, DOP’s costs continued to rise. With all saving from electronic orders and shipping cost, the company still experienced a loss. The problem is that the company’s existing pricing system is not working with its current operating environment.
Big corporations do not have to absorb the cost of minimum wage increases because most minimum-wage jobs are offered by small businesses b. The minimum wage directly affects small businesses because a large amount of their earnings go directly to pay for operating expenses, such as equipment, supplies, lease or mortgage, credit lines, inventory and employee wages and benefits 2. Serves as a deterrent for new entrepreneurial ventures a. The costs are too high for new businesses to risk starting a new venture b. Does not create a favorable labor market for new businesses II.
That is not what they offer or how they have in the past represented their company. I do believe that Wal-Mart could be trendy but this would cost them in sales because customers would decide that they are like the other stores in this market and choose to comparison shop more. Sears also buys in volume and they have a small selection of trendy merchandise. Although they were an American staple I think they are seen to the younger generations as their grandmother’s store. Neither of these stores could afford to try to cater to a small countercultural market due to their size and dependence on the larger medium class market.
The first red flag would be that they are competing with huge computer companies that can have anything a customer needs readily available to ship. While Keystone seems to be doing a great job keeping up with the demand of certain products, they are forced to charge the customers more money for those products. While this has not currently affected them, it could in the future and could eventually be a problem for them. Another thing is that although business is booming right now, computers businesses do very well when the economic conditions are good. There are reports that say the economy will grow over the next few years (2010), but there is a possibility that they could be wrong and that won’t happen.
I feel like Wal-Mart is strong financially. They have continually offered lower prices than their competitors in the discount store industry, and I believe they will continue to do so (“Stock Research Reports - 2011 Stock Ratings - TheStreet Ratings”). Mass merchandising is a form of retailing in which a store sells large quantities of staples at very low prices and has very
At this time they would need to provide cheaper price to attract their consumers and to increase the demand. They would have to reduce the number of staffs as it may become difficult to pay wages. This leads to rise in unemployment. During recession businesses also tries to get loan from the bank and the bank wants to see their financial statements and if they find out that the business is not capable of paying the money back then they won’t lend any money therefore, the business may have to find new way of catching customers attention. For instance, they may be able to start up with a new idea.
For example, Wal-Mart, can afford to offer price discounts during a recession, since it’s in accordance with their brand promise. A low price strategy is easy to adopt, but extremely difficult to dismiss when the economy picks up again. For example, Dell a low price leader in the PC market, was well received by cash-strapped corporations and consumers during an earlier recession. But as soon as the economy recovered, there was demand for more sophisticated products, and Apple was there waiting for them. Apple then enjoyed a humungous growth, both in profits and their stock price, which gave it the cash to diversify into other areas, such as the iPhone.