- Industry
- Local competitors struggle for gross margins between 30 and 35 percent.
- There is a high threat for a local competitor to run a FDC in Cironi’s territory which could have a potentially large negative impact on Cironi’s Sewing Center (Example – Although Cironi’s share of Viking-White area sales was only 15%, if another dealer runs a FDC with Viking-White, it could wipe out Cironi’s sales and possibly make Cironi lose his franchise.)
- Firm
- Cironi’s Sewing Center is the largest and fastest-growing sewing machine dealer in the Akron area.
- Tony Cironi has positioned the store as a “category killer” by being the area superstore for sewing machines and carrying brands such as Baby Lock, Bernina, Pfaff, Elna, Singer, and Necchi.
- Cironi must sell specific brands, such as the Viking and White brand, to keep his reputation as a full-line, full-service sewing center.
- Marketing Strategy
- Heavy advertising and promotion campaign gave Cironi’s Sewing Center a 45% increase in dollars in 1988.
- Adding sewing machine lines (especially the higher-priced brands) has opened up new markets, fueled sales growth, and increased market share for Cironi’s Sewing Center.
Finance
- Cironi’s Sewing Center held an estimated 15% share of Viking-White’s 12% share of Akron area sewing machine sales prior to the Viking-White FDC.
- Though sales totaled $87,000, Cironi’s profit from the Viking-White FDC was only $5,750.
- Cironi’s Sewing Center’s total store sales from June 1988 to May 1989 are $431,176.
- Without a balance sheet for 1988 or 1989, I am unable to calculate any profitability, liquidity, or activity ratios for Cironi’s Sewing Center.
Strategic Alternatives and Discussion
- Cironi’s Sewing Center prepares and executes a FDC for Singer Sewing Machine Company.
Benefits of Alternative #1
- Singer will supply and deliver a large number of machines on consignment to the warehouse sale site without charge.
- The FDC could prove very profitable.
Costs of Alternative #1
- Cironi would have to make all the arrangements for renting the warehouse, advertising the sale, finding area dealers who were willing to work the sale on commission, setting up and dismantling the sale and whatever else needs to be done in preparation for the event.
- Fixed costs for warehouse rent, advertising, telephone, and sales expense would be the same as for the Viking-White FDC (this would total to $19,950).
- Singer has a smaller margins compared to the other brands, therefore Cironi runs the risk of having a big loss if he does not do better than what he did on the Viking-White FDC.
- A successful Singer FDC could destroy potential sales of Cironi’s other brands which give him higher profit margins.
- If Singer does not agree to take on after-sale service, Cironi could incur these costs as well.
- Cironi rejects Singer’s proposal and continues to do business as usual.
Benefits of Alternative #2
- Cironi does not run the risk of having a lower profit result than the Viking-White FDC.
- Cironi could use the $ 19,950 (fixed costs) to reinvest in company operations such as advertising.
Costs of Alternative #2
- Cironi runs the risk of having a competitor running the Singer FDC in his territory which could take away his Singer’s sales and cause Cironi to lose his franchise.
- Cironi’s Sewing Center diversifies into new merchandise areas including small appliances, ceiling fans, electronics, and stereo equipment.
Benefits of Alternative #3
- By penetrating these new markets, Cironi would increase his product assortment and reach a new consumer base, which could lead to a significant increase in sales.
Costs of Alternative #3
- The high cost of market research to see if this is a feasible option for Cironi.
- The start-up, maintenance, inventory, after-sale service, etc. costs incurred for these new product lines would be substantial.
Selection of Alternative
The risks and costs for associated with choosing Alternative #1 (Cironi’s Sewing Center prepares and executes a FDC for Singer Sewing Machine Company) are too overwhelming and are not worth it for the little profit that would most likely be earned. In addition, Alternative #3 (Cironi’s Sewing Center diversifies into new merchandise areas including small appliances, ceiling fans, electronics, and stereo equipment) would be far too expensive for Cironi to implement at this stage in his business. I do not think that Cironi has enough capital invested to venture out into a whole new line(s) of business.
Therefore, I recommend that Cironi chooses Alternative #2: Cironi rejects Singer’s proposal and continues to do business as usual. At this point, I think this is the safest option for Cironi’s Sewing Center. For one, because the Viking-White FDC had undesirable effects on overall sales and profits and because Singer has a smaller margin, it is only expected that the Singer FDC will do just as well as the Viking-White FDC or worse. In addition, Cironi does not want to have a successful Singer FDC that could devastate future sales of other brands that give Cironi higher profit margins. Cironi also has to think about the ethics involved with FDC’s and evaluate whether or not it is worth being scrutinized by the Independent Sewing Machine Dealers Association and possibly having a tarnished reputation in the industry. In my opinion, Cironi should stabilize volume and concentrate on improving profitability and cash flow with ALL the brands that he carries.
