case analysis

the cases are listed below, choose any two from them. detailed case file will be provided

the submission provided must be your own original work. If outside resources are usedyou are expected to use proper citations and references using APA or MLA formats. Use the questionsrelated to your chosen cases as a guide in preparing your case analysis. Your analysis should be between2-3 pages, typed, and double spaced using a minimum 11 point font. Exhibits do not form part of thepage count. (Note: please submit in only Word or Excel formats)

Master DeckerPerform a business size-up of Master Decker by completing the following:1. Analyze the expansion opportunities of service offerings – deck building, selling exclusive stains,and selling manufactured cleaning chemicals – from a qualitative strategic perspective.2. Using the excel template file, identify which of the cash flows associated with the opportunityare relevant. If the cash flow item is relevant, identify if the item is recurring or a one-time cashflow.3. Prepare a 1 year differential analysis to determine return on investment for each alternative.(Hint: if the cash flow item is relevant and recurring, it should be included in your analysis todetermine incremental net cash flow. ROI would be your incremental net cash flow divided byyour total of one-time cash flow items.)4. Which expansion opportunity would you recommend? Explain.

Style Inc.1. Analyze the custom tailoring industry in Canada. What implications can be drawn?2. Analyze Style’s current operations. What implications can be drawn?3. Calculate the unit contribution, total contribution, and contribution margin ratio for each of the7 clothing lines. Do any product lines earn a contribution margin ratio lower than either thecompany’s target contribution of 35% per clothing line or the annual total target contribution of$25,000?4. Should Style discontinue the lowest contribution margin product line? Or should Style increaseits retail selling price of this line? Explain.

Good Night Hotel:1. Should Justin McGregor accept the offer to fill his motel for the two weekend nights in Octoberat half the room rate? Consider both qualitative and quantitative factors in your analysis.Provide calculations to support your answe

UW BUS-2010 W2024
Lori Novak; Dennis Ng
January 8, 2024 – April 5, 2024
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Table Of Contents
Strong Tie Ltd.
4
Farmacy Inc.: Harbourfront Guardmedics Pharmacy
9
Master Decker: Expansion Opportunities
13
Style Inc.: Fine Bespoke Tailoring
18
The Good Night Motel
22
S
w
9B11N021
Dan Thompson wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective
or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to
protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written
permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies
or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University
of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2012, Richard Ivey School of Business Foundation
Version: 2012-02-03
In early January 2009, David Johnstone received the draft 2008 financial statements for Strong Tie and
began to question the company’s performance when compared to previous years. How were profits holding
up, given the intense price competition in the industry? Were attempts to lower costs through more
automation paying off? Were the current problems in the U.S. housing market going to continue to reduce
demand for connectors? How would lenders react to this poor performance? Was the company’s financing
in danger?
After discussing the matter with company accountant Audrey Johnstone, it was decided that an outside
consultant should be hired to provide an independent analysis of the company’s recent performance and to
provide suggestions for future action.
COMPANY BACKGROUND
Strong Tie Ltd., located in Winnipeg, Manitoba, designed and manufactured the standardized and
customized structural connectors used to reinforce wood joints in the construction of decks, fences, houses
and other structures. Strong Tie was a family-owned corporation founded in 1946 by Bill Johnstone to
capitalize on the high demand for housing as returning World War II veterans married and began families.
Bill Johnstone died in 1975 but passed the business on to his son David, who continued to operate the
business along with his three daughters, Ellen, Elizabeth and Audrey. David served as CEO, while Ellen
Johnstone, P.Eng, was responsible for product design and production; Elizabeth Johnstone, CSP, managed
marketing, sales and distribution; and Audrey Johnstone, CA, managed the company’s finances. The
Johnstone family was a pillar of the Winnipeg business community, making sizeable donations to local
charities and sport teams.
The standardized connectors were designed in Winnipeg based on input from architects, draftsmen and
builders. The production process was highly automated with metal cutting, stamping and drilling machines
completing most of the tasks. Human intervention was required to transfer work-in-process between
stations, to feed machines and to pack, store and distribute the end products. This automation had allowed
production to remain in Canada to date despite fierce competition from low-wage countries, particularly
China. Customized connectors were produced based on specifications provided by the customer.
Page 4 of 26
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STRONG TIE LTD.
Page 2
9B11N021
Strong Tie prided itself on its product design capabilities. Designers in Winnipeg consistently generated an
array of new standardized connectors that improved on existing products or addressed newly identified
industry needs. These products were described in detail in terms of dimension, strength (load-bearing
weights and steel gauge) and installation on the company’s website or in a paper catalogue located in stores
— both were of very high quality. Strong Tie also had a reputation among construction professionals as
providing innovative solutions to unique design requests and being able to produce customized products in
a timely manner at a reasonable price.
Standardized products were distributed through all national home improvement chains in North America
including Home Depot, Lowe’s, Rona, Home Hardware, Eagle and Sears. Most local chains catering to
contractors also carried the standardized products and accepted requests for customized connectors, which
they then forwarded to Strong Tie. Strong Tie was estimated to have a 60 per cent market share, which had
fallen from 70 per cent in recent years. Universal Connector, a U.S. firm based in Ohio, was estimated to
have a 30 per cent and growing share; it offered a similar array of standardized products and customized
design services. The remainder of the market was served by five Chinese producers whose market share
had grown considerably in the last five years, although they had yet to enter the customized product
segment. Universal Connector had closed a number of its U.S. manufacturing facilities in recent years and
replaced them with new facilities in China, which put considerable downward pressure on industry prices.
Currently, Strong Tie priced its products at a premium to its competitors because of its industry leadership.
All sales were on terms Net 60. Large accounts such as Home Depot had a reputation of stretching their
payments past the due date because of their buying power, while contractors frequently delayed payments
due to cash flow problems. All purchases, which were primarily steel, were on terms 2/10, Net 60. Metal
prices varied considerably, and the trend over 2006 to 2008 was for these prices to rise due to increasing
demand from emerging market countries, particularly Brazil, Russia, India and China. Strong Tie had
attempted to adopt just-in-time inventory practices to help reduce its raw material, work-in-process and
finished goods inventory levels.
The Johnstone family maintained excellent relations with its unionized workforce, which was represented
by the United Steel Workers of America. They prided themselves on paying generous wages and providing
their workers with excellent health care, disability and pension benefits. The company had never had a
strike and was currently negotiating a new collective agreement to take effect in three months on April 1,
2009.
In recent years, Strong Tie had been investing heavily in factory automation to improve its
competitiveness. Automatic feeders and packaging equipment had been purchased to further reduce labour
costs, and new computers and software had helped to speed up the design of high-margin customized
connectors. A new, more automated warehouse had also been constructed.
FINANCIAL STATEMENTS
Exhibits 1 and 2 contain the income statements and balance sheets for Strong Tie for the last three years.
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Production of these units was more labour-intensive, but margins were still significantly higher as
contractors were prepared to pay a premium to have their special needs met.
Page 3
9B11N021
FINANCIAL BENCHMARKS
Reliable industry average information was not available for Strong Tie’s Chinese competitors, but
comparable ratios were available for Universal Connector, a public company, in 2008. These ratios are
contained in Exhibit 3.
Strong Tie had a $2,000,000, five-year, revolving credit agreement with the Bank of Nova Scotia, which
was used to finance the company’s working capital requirements as well as a number of individual term
loans to finance fixed assets.
The revolving credit agreement was committed, so as long as the loan conditions were met, financing was
guaranteed. The loan had to be secured 100 per cent by accounts receivable and inventory. The receivables
were primarily with large retail chains that were in good financial health, so the Bank of Nova Scotia was
prepared to lend 90 per cent of their value. They were also willing to lend 60 per cent of the value of the
finished goods and work-in-process inventory because of a strong re-sale market and the short production
process. The bank would only lend 40 per cent of the value of raw materials inventory due to general
instability in the commodities market. The revolving credit agreement had to be paid down to zero at least
once per year.
All loans required that the company maintain a Current Ratio of 1.5 or higher, a Cash Flow Coverage Ratio
of 1.0 or higher and a Long-term Debt to Total Capitalization Ratio of 40 per cent or less. Audited
quarterly and annual financial statements also had to be provided to the bank each quarter.
As the sole owner of the corporation, David Johnstone did not take a salary, but his three daughters
received over $1,000,000 in salary and bonuses each year. Preferred dividends of $500,000 were paid out
to Mr. Johnstone’s sister Katherine, who chose not to participate in the management of the business but
was promised a regular income by her late father in lieu of receiving a share of the business. These
dividends had to be paid unless the company entered bankruptcy.
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FINANCING
Page 4
9B11N021
Exhibit 1
Net Sales
Cost of Goods Sold
Gross Profit
Selling and Administration
Depreciation
Operating Income
Other Income
Interest Income
Other Expense
Interest Expense
Income Before Taxes
Income Taxes
Net income
2006
$16,200
10,445
$5,755
3,054
396
$2,305
2007
$17,450
11,956
$5,494
3,130
720
$1,644
2008
$16,500
11,950
$4,550
3,379
756
$415
21
10
2
246
$2,080
624
$1,456
291
$1,363
409
$954
407
$10
3
$7
Exhibit 2
BALANCE SHEETS
Current Assets
Cash
Temporary Investment
Accounts Receivable, Net
Raw Materials Inventory
WIP Inventory
Finished Goods Inventory
Prepaid Expenses
Total Current Assets
Fixed Assets
Land , Plant, and Equipment
Less: Accumulative Depreciation
Net Land, Plant, Equipment
Total Assets
Current Liabilities
Accounts Payable
Income Taxes Payable
Current Portion of Long-term Debt
Total Current Liabilities
Long-term Liabilities
Shareholders’ Equity
Common Shares
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
Page 7 of 26
2006
2007
2008
$234
1,034
3,250
1,025
200
2,030
182
$7,955
$122
488
3,450
1,350
138
1,700
143
$7,391
$61
99
2,854
1,395
42
1,200
188
$5,839
$4,893
1,380
3,513
$11,468
$7,076
2,100
4,976
$12,367
9,590
2,856
6,734
$12,573
$534
54
1,000
$1,588
3,190
$543
35
1,145
$1,723
3,500
500
23
1,340
$1,863
4,059
1,350
5,340
$6,690
$11,468
1,350
5,794
$7,144
$12,367
1,350
5,301
$6,651
$12,573
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INCOME STATEMENTS
Page 5
9B11N021
Exhibit 3
Ratio
Current Ratio
Cash Ratio
Raw Materials Turnover in Days
WIP Turnover in Days
Finished Goods Turnover in Days
A/R Turnover in Days
A/P Turnover in Days
Cash Conversion Cycle
Fixed Asset Turnover
Total Asset Turnover
Long-term Debt to Total Capitalization
Cash Flow Coverage
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
ROA
ROE
Page 8 of 26
Industry
Average
4
.5
31 days
3 days
51 days
63 days
11 days
137 days
4.1
1.7
35%
2
32%
16%
10%
17%
28%
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BENCHMARK RATIOS
9B13B010
Karim Mashnuk wrote this case under the supervision of Elizabeth M.A. Grasby solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2013, Richard Ivey School of Business Foundation
Version: 2014-04-29
Moira Lafort, entrepreneur and owner of Farmacy Inc., was investigating opening a GuardMedics
franchise in Toronto, Ontario, Canada. In the summer of 2012, Lafort had spoken to Luke Amrit, the
franchiser, about the financial investment required and the return that she could expect from her
investment. In an effort to accurately estimate projected revenues and expenses, Lafort had also spoken
with other friends who currently owned a GuardMedics or another brand-name pharmacy in the vicinity.
Lafort wanted to project the cash flow and profitability of opening the franchise before deciding on
whether to purchase the franchise.
THE PHARMACY INDUSTRY (IN ONTARIO)
The pharmacy industry in Ontario was a very large and saturated industry containing two main types of
businesses. The first was the pharmaceutical companies. These were businesses such as GlaxoSmithKline
Inc., AstraZeneca and Novo Nordisk, companies that primarily manufactured and distributed their various
medications. The second type of business in the industry was the pharmacies themselves. A few major
players, including Shoppers Drug Mart and Rexall Pharmacy, dominated this side of the industry, which
was responsible for the retail side of the business. These retail stores provided the public with basic overthe-counter (OTC) medical needs (e.g., medications like Advil) and with prescription medications written
by their doctors. Pharmacies were very heavily regulated by the government, and, as such, standard
business practices applied to each pharmacy.
MOIRA LAFORT
Moira Lafort was a 50-year-old mother of two who had worked in the pharmaceutical industry her entire
adult life. Having received her bachelor of pharmacy degree in 1989, she chose to begin her career in the
corporate world. Her first job was at a major pharmaceutical firm, where she spent 10 years furthering her
career goals. After 10 years, she moved to another major firm in a managerial capacity. By 2008, Lafort
grew tired of the corporate world and decided to work as a pharmacist. In order to do so, she first had to
pass her Ontario pharmacy exams. Having successfully completed her exams by mid-2009, she created
and incorporated Farmacy Inc. for the sole purpose of offering her services as a relief pharmacist
Page 9 of 26
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FARMACY INC.: HARBOURFRONT GUARDMEDICS PHARMACY
Page 2
9B13B010
throughout Southwestern Ontario. By 2012, and after speaking with friends, Lafort had decided that she
wanted to own and operate her own pharmacy. She believed she would be capable of doing so due to her
extensive experience in the industry.
GUARDMEDICS FRANCHISE
GuardMedics was a full-service pharmacy, offering prescription services as well as OTC products. OTC
products ranged from Advil, toiletries and first aid products to candy bars and batteries. GuardMedics was
a highly successful and well-known brand. To date, there was at least one GuardMedics in every
neighbourhood in Canada, ranking it among the premier pharmacy brand names in the country. The
prescription and OTC revenue varied with each franchise; however, the overwhelming opinion was that a
pharmacy could be a highly successful and profitable venture.
Investment Details
Amrit listed all the investments required to open Lafort’s GuardMedics franchise. The first would be a
franchise fee of $300,000 1 to be paid on the first day of operations. Lafort would also need to make a
$210,000 investment in various fixed assets for the business. 2 An ongoing inventory of prescription and
OTC goods would also have to be maintained in order to meet minimum operational levels. This inventory
would amount to $60,000. Amrit recommended that Lafort keep an additional $7,000 cash float 3 to meet
any short-term emergency needs for cash.
THE HARBOURFRONT PHARMACY
Location
The 4,800-square-foot space available to Lafort was located on the lakeshore in Toronto. Lafort could rent
the main floor building space for $25 per square foot for the first year, with a three per cent increase in the
price per square foot in every successive year. The lease would be signed for a 10-year period. No rental
deposit would be required, and payment would be due at the beginning of each month.
Projected Sales
If Lafort decided to go ahead with the venture, she planned to begin operations on September 1, 2012. A
pharmacy’s sales revenue was generated primarily from three sources. The first source was revenue
generated from the sale of all OTC goods. Based on historical numbers of pharmacies of similar size in the
surrounding area, OTC sales were projected to be $1.2 million in the first year of operations. The second
source of revenue was generated from dispensing fees on all prescriptions. The current prescription
dispensing fee was $4.66 per prescription per customer, (i.e., if a customer had six prescriptions to fill at
once, the customer would be charged $27.96). Lafort estimated that there would be 4,500 prescriptions in
1
The fee was amortized over 15 years.
The fixed assets were depreciated using the straight line method over six years with no residual value.
3
Cash put into the register to maintain sufficient cash needs for operations.
2
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Overview
Page 3
9B13B010
the first year of operations. The third source of revenue was from prescription sales. Lafort estimated
these to be $1 million in the first year of operations. For the second year of operations, Lafort projected a 3
per cent increase in OTC revenue, an increase to 5,200 prescriptions and a 5 per cent increase in
prescription sales.
Sales to customers were paid with cash, debit cards or credit cards. Any sales made with credit cards (such
as Visa and MasterCard) would be treated like a cash sale since the credit card drafts could be deposited
directly into the company’s bank account. The credit card fee was estimated at 2.3 per cent of total sales.
All OTC sales and dispensary fees would be collected immediately; however, from previous experience,
and after talking to her colleagues, Lafort deduced that prescription collections would be received from
various insurance companies (many customers’ prescription costs, or a portion of the prescription costs,
were covered under an employee benefit plan or a personal benefit plan) approximately one month after
the store’s sales.
Projected Costs
All OTC product costs would average 30 per cent of total sales, and all prescription inventory costs would
average 37 per cent of total sales. These costs included the cost of the product, labour costs and cleaning
costs for the store. In addition, franchise owners were required to pay a royalty fee of 1.5 per cent of sales
to GuardMedics and to budget for a cash short 4 of 0.5 per cent of sales.
While unable to provide exact costs of the business, Amrit did provide Lafort with some direction. Amrit
knew that other franchise owners experienced utility costs of around 80 per cent of their annual rent.
Utilities would be paid in two lump sums during the months of September and March. Due to the nature of
the business, insurance costs would be quite high, at $48,000 in the first year with a three per cent increase
in the second year of operations. Insurance was due in September, and legal fees would be due in October.
Marketing costs and phone and Internet expenses were estimated at $8,000 and $1,320, respectively, each
with a three per cent increase in the second year of operations. Marketing would occur evenly throughout
the year and would be paid in the month after the expense was incurred. Phone and Internet expenses were
expected to be incurred evenly throughout the year. At an additional cost of $5,100 per year, Lafort would
continue to use her current legal-services firm for all activities relating to the GuardMedics franchise.
Income taxes were calculated at 25 per cent of net income before tax, payable six months after the end of
the fiscal year.
Under the agreement outlined by Amrit, Lafort, as manager and owner, would be able to pay herself a
$60,000 salary in the first year of operations and a $70,000 salary in the second year. Salary payments
would be made monthly, on the last day of each month. In addition, Lafort could pay out all cash in excess
of the $7,000 float as a dividend. The dividend would be declared on the last day of the year’s annual
operations, to be paid on the first day of the following fiscal year. If she wanted to, Lafort could also give
employees raises in the second year.
4
Amount by which cash was short due to incorrect change being returned to customers and due to unexplained
circumstances.
Page 11 of 26
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While prescription sales and dispensary fees were split equally over the 12-month period, OTC sales were
seasonal. Twenty-five per cent of all OTC sales would be made in each of June and July. Fifteen per cent
of all OTC sales would be made in each of May and August. The remaining 20 per cent of sales would be
split equally amongst the remaining months of the year.
Page 4
9B13B010
Since Lafort had only $120,000 of her own money to invest in the pharmacy, she was going to need
additional financing. 5 She hoped to obtain a bank loan to supplement the balance of the financing
requirements. Lafort believed this would be the major hurdle to starting her business, and she wondered
whether the bank would approve her request for the loan. For her projections, Lafort decided to calculate
interest, estimated at a rate of prime 6 plus three per cent, on the opening balance of the bank loan each
year. All funds would be borrowed as of September 1, 2012, and the projected annual interest payments
would be made in equal amounts on a monthly basis. Lafort hoped to pay off $150,000 of the bank loan at
the end of the year in each of the first and second years of operations. If the bank rejected her loan request,
Lafort wondered what other sources of financing might be available to her.
SUMMARY
Lafort sat down to project a cash budget, income statement, and statement of financial position for the first
two years of operations, based on her assumptions and estimates. After projecting the statements, Lafort
would analyze the results and assess the risk of the venture, based on her return on investment and the
margin of safety. Once these projections were completed, Lafort believed that she would have enough
information to comfortably make a decision from a financial point of view.
5
6
Lafort’s investment would represent 1,000 shares of common stock.
The prime rate was three per cent.
Page 12 of 26
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FINANCING
9B18B010
Eleni Petrou wrote this case under the supervision of Professor Ian Dunn solely to provide material for class discussion. The authors
do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2018, Ivey Business School Foundation
Version: 2018-07-11
In May 2017, Matthew Druzcz was contemplating expanding his deck restoration business. Master
Decker was entering its fourth year of operations, and Druzcz thought it was the right time to focus on
growth. He was considering three expansion alternatives: offering deck building, marketing an exclusive
line of stains, and manufacturing deck cleaning chemicals. Druzcz wondered which option would provide
the best return on investment.
COMPANY BACKGROUND
Druzcz had started restoring decks in London, Ontario to generate income in the summer of his second
year of studies at Western University. He quickly realized that the demand for a company that would seal,
stain, and repair decks and other wood structures was significant. Druzcz incorporated Master Decker in
2014 and developed a specialist restoration system by researching the methodology used by Australian
and American deck-servicing companies and modifying it for the Canadian climate. Druzcz continued to
operate and manage Master Decker while completing his bachelor’s degree at the Ivey Business School at
Western University. After graduation, Druzcz, an entrepreneurial individual, balanced operating Master
Decker and a couple of other business ventures with his work in data analytics.
Druzcz was born and raised in London, Ontario, and he had a history of involvement in community and
social initiatives. As a result, he was well connected, and Master Decker drew a lot of business purely
because of Druzcz’s relationships. Many clients were also referred to Master Decker through word of
mouth from past customers who had been satisfied with the service they received. Druzcz secured an
office location in Zorra, Ontario, which enabled Master Decker to better serve the company’s main
markets of London, Kitchener, and Hamilton. The company also had a number of clients in Guelph.
Master Decker sometimes serviced smaller cities and townships in the surrounding area such as Sarnia,
St. Thomas, and Windsor.
As the company grew over the years, Master Decker started to rely more on marketing tactics such as the
company website (see Exhibit 1) and Google AdWords. Google reviews, where Master Decker had a
five-star rating, also contributed to Master Decker’s positive brand image.
Page 13 of 26
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MASTER DECKER: EXPANSION OPPORTUNITIES
Page 2
9B18B010
THE DECK-BUILDING INDUSTRY
With residential real estate at an all-time high and with a shortage of new builds, the housing market in
Southwestern Ontario was booming. The deck industry was tied closely to the housing market. For every
new house that had been designed with a deck, developers had to hire deck builders. In addition, the high
volume of transactions in the housing market generally resulted in more homeowners looking to restore
existing decks.
The deck building industry was fragmented, and many small businesses with varying levels of expertise
operated in the region. Individuals who were considered “jacks-of-all-trades,” with no particular expertise
in building decks, would offer the service. The larger and better-known names included franchises and
family-owned companies such as Hickory Dickory Decks, Forans Fence Deck & Spa, and Creative
Custom Decks. No one player was dominant.
Many companies offered deck-building services in London, Kitchener, Hamilton, and the surrounding
area. However, none of these companies specialized in deck restoration services. In fact, Druzcz had
developed good working relationships with the owners of many of these companies, who would refer
their customers to Master Decker for maintenance and refurbishing.
Do-it-Yourself (DIY) consumers were individual homeowners who liked to do outdoor projects on their
own. Building a deck was a labour-intensive process, and the DIYers had access only to stains and
products available at big-box retail stores. Most products carried in these chain stores were not high
quality, and they would typically result in the need to re-sand and re-seal the deck every season.
POTENTIAL EXPANSION OPPORTUNITIES
As Druzcz was working and operating other businesses in addition to Master Decker, he started to realize
the limits of his personal capacity. If he were to continue operating Master Decker, Druzcz wanted to
expand operations such that he could justify his time investment in the company. He was attached to the
business that he had started as a student and wanted to grow it to its full potential. In addition, he wanted
Master Decker to continue to provide excellent service and quality workmanship, considering that his
name would be tied to the company as it grew.
Druzcz was considering three options for the expansion of company operations: providing deck-building
services, selling exclusive stains, and manufacturing cleaning chemicals. Though he was curious as to
which option would provide the greatest return on investment, Druzcz was open to pursuing one, two, or
all three of the options. He did not have a set timeline in mind but wanted to move forward with at least
one of the options immediately.
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Druzcz believed that a job well done was the best advertisement; therefore, he focused on quality work
and good service. He advertised a four-step process (see Exhibit 2), which included a free estimate, an onsite evaluation prior to beginning the project, and project completion to full satisfaction. Restoration
services included stripping, cleaning, brightening, sanding, staining, and board replacement. The
extensive process employed by Master Decker, as well as the use of high quality supplies and stains
meant that restoration projects would remain in good condition far longer than the one season that was
typical of the industry. On top of the promised quality, results, service, and expertise offered by the
company, Master Decker also provided warranties guaranteeing customer satisfaction with each job.
Page 3
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Druzcz had started thinking about expanding Master Decker’s offerings to include building decks, as this
would be in line with the company’s current service offerings. Many of Master Decker’s customers would
inquire as to whether the company built decks, and Druzcz had noticed a sharp increase in client requests
for the company to expand its existing service offerings. Though Master Decker’s perceived expert status
in deck restoration could possibly be compromised, Druzcz was not convinced this risk was real. Based
on Druzcz’s conservative projections, Master Decker could build at least 10 decks over the course of the
fiscal year. Considering the market demand and the willingness to pay for quality builds, Druzcz figured
that he would have no trouble charging CA$10,000 1 per deck. Decks were to be sold on credit with the
same terms as his existing service offering of net 9 days.
The deck-building season in Southwestern Ontario lasted around eight months, and Druzcz knew that he
would have to hire an additional experienced carpenter. He planned to pay a competitive rate of $40 per
hour, and expected that he would need the carpenter for 20 hours per week for the first half of the season,
and 40 hours per week for the second half of the season. This carpenter would be accompanied by one of
Druzcz’s existing and previously trained employees, who was currently paid a salary of $600 per week.
Druzcz estimated that lost referrals resulting from moving into the deck-building business would cost him
about $2,500 in foregone restoration sales. He also calculated that he would need $15,000 worth of
building materials to construct 10 decks. Master Decker kept 80 days’ worth of inventory on hand at all
times. 2 Druzcz knew that if this option were pursued, he would have to purchase insurance costing $2,000
annually. He was also considering opening a line of credit for $20,000 at an annual interest rate of 4 per
cent to help finance his expansion plans.
Exclusive Master Decker Stains
Master Decker used top-of-the-line deck stains manufactured by a supplier called DFM. These stains
were not widely available to DIYers through the big-box retailers, and Druzcz saw an opportunity to
market and sell his stains to these consumers. He thought that having exclusive stains would add to the
company’s value proposition and selling them would diversify Master Decker’s revenue stream. Druzcz
estimated that Master Decker would be able to sell 500 gallons of stain each year at $71 per gallon, and
planned to keep 60 days of inventory on hand at all times. The stain wholesale business was one of thin
margins; Master Decker would have to purchase the stains from the supplier at $41 per gallon. Master
Decker would purchase the stains on credit, with terms of net 30 days. The credit terms also applied to the
packaging, which cost an additional $3 for each gallon of stain.
Druzcz thought that the most convenient sales channel, at least at the beginning, would be online sales
through Amazon. This would allow Master Decker to send inventory to one destination at Amazon, and
then Amazon would take care of shipping the stains to individual buyers. The average deck-owner would
need between one and two gallons of stain for one deck. Shipping fees on Amazon were based on weight,
so an order of one gallon would cost Master Decker $6.75 to ship, and an order of two gallons would cost
$9.90. Druzcz estimated that 100 people would purchase one gallon of stain in a single order, and 200
people would purchase two gallons. To deal with the supplier purchasing and shipping to Amazon,
Druzcz figured that it would take 10 per cent of his time. He did not plan to hire any additional workers
for this option.
1
2
All currency amounts are in CA$ unless specified otherwise.
Inventory consisted of deck-building materials.
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Service Expansion: Deck-building
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To ensure a viable stream of revenue, Druzcz would require an exclusivity agreement with DFM,
ensuring that Master Decker would be the only company able to purchase these particular stains at
wholesale prices. Druzcz had nurtured a good working relationship with DFM and did not expect any
difficulty in coming to an agreement. However, the initial agreement, drawn up by a lawyer, would cost
an estimated $1,800.
Over the course of a couple months, working out to about $4,000 worth of his salary, Druzcz had figured
out how to mix chemicals to create his own deck cleaning formulas. This formula ensured Master Decker
had the highest quality cleaning chemicals for the lowest possible cost. Druzcz estimated that he could
easily sell this chemical formula to consumers through the existing website for $30 per chemical package.
He anticipated selling 400 packages per year and calculated that, at current rates, the raw material cost
would be $7.50 per package. Master Decker would not incur any additional labour costs for this option.
Company employees already mixed the chemicals for Master Decker’s own use, and additional time
dedicated to packaging and shipping would be negligible.
Since Druzcz would be buying the chemicals in much greater quantities, Master Decker would benefit
from a 10 per cent purchasing discount from the supplier, applicable to these additional quantities only.
Master Decker would incur a $6 packing cost, a $2 labelling cost, and a $5 shipping cost per cleaning
package. The company had to keep 60 days of inventory on hand at all times. 3
This option would be easy for Druzcz to execute and would cause little disruption to Master Decker’s
current operations. However, he did not think this option would provide significant revenue for the business.
CONCLUSION
Druzcz was pleased with Master Decker’s success so far, and he was looking forward to expanding the
business. With no concerns about demand for services, Druzcz was curious as to which direction to move
his company. He wanted to determine the profitability of expanding services to include deck building,
selling exclusive stains, and selling cleaning chemicals, to decide whether the benefits of expanding
operations would be worth the additional costs of implementation. Depending on his analysis, Druzcz was
open to implementing more than one option.
3
Inventory was calculated using differential costs of goods sold.
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Manufactured Cleaning Chemicals
Source: Company files.
EXHIBIT 2: THE MASTER DECKER FOUR-STEP PROCESS
Source: Company files.
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Page 5
9B18B010
EXHIBIT 1: MASTER DECKER WEBSITE
9B17B018
Richard Bloomfield wrote this case under the supervision of Elizabeth M. A. Grasby solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have
disguised certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2017, Richard Ivey School of Business Foundation
Version: 2017-08-22
In July 2016, Josh Gavidia and Rae Dineda, co-owners of Style Inc. (Style), a fine bespoke tailoring
company, wondered how to increase the company’s profitability. Over the past six years, the Toronto,
Ontario-based company had enjoyed modest financial success, but the industry was becoming increasingly
competitive; profit margins had been shrinking on some of Style’s clothing lines. Although the co-owners
were proud of their diverse selection of bespoke tailored products, they wondered whether offering seven
different clothing lines was overextending their resources. They set out to consider dropping their lowestmargin clothing line or increasing its retail selling price.
TORONTO, ONTARIO
Toronto was the largest city in Canada, with a population nearing six million. The city had grown at a rate
consistently above 9 per cent between each census date, making it one of the fastest-growing cities in
Canada. 1 At the centre of the city was the historic Financial District of Toronto. The Financial District was
home to the Toronto Stock Exchange, as well as corporate head offices for several businesses and all major
Canadian banking institutions, justifiably supporting its recognition as the financial centre of Canada.
Furthermore, more than 100,000 commuters, including many business executives and professionals,
travelled through Toronto’s Financial District every day, establishing an important shopping base in the
district (encompassing five blocks between Front Street West and Queen Street West, and three blocks
between University Avenue and Yonge Street).
CUSTOM TAILORING IN CANADA
Several new custom bespoke tailoring companies had launched over the past decade, including the online
giant Indochino that boasted over CA$10 million 2 in annual revenues and more than 100,000 global
1
Statistics Canada, “Population of Census Metropolitan Areas,” accessed July 24, 2017, www.statcan.gc.ca/tablestableaux/sum-som/l01/cst01/demo05a-eng.htm.
2
All currency amounts are shown in Canadian dollars unless otherwise indicated.
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STYLE INC.: FINE BESPOKE TAILORING
Page 2
9B17B018
customers. 3 Other successful custom bespoke tailoring companies with global sales included J. Hilburn,
Knot Standard, and Modern Tailor. Locally, Style’s owners considered Garylin Tailoring (Garylin) and
Phillip Thomas (Thomas) their closest competitors.
Garylin focused on high-quality bespoke tailoring. Garylin’s retail location in Toronto was less than one
kilometre from the core of the Financial District. Garylin had been recognized by numerous major fashion
media outlets (e.g., GQ, Toronto Life, and Sharp Magazine) for its superior quality and niche product
offerings. An example of its high level of customization was its state-of-the-art, $20,000 bulletproof suit. 4
Custom dress shirts sold from $100–$170, and suits and jackets were priced from $500–$1,200.
PHILLIP THOMAS
With over 20 years’ experience and nine retail shop locations in major cities across Canada, Thomas was
well-established in the custom bespoke market. Thomas sold a variety of custom dress shirts, as well as suits
and jackets with retail selling prices from $70–$130 and $400–$850, respectively. In Toronto, Thomas was
located at the corner of King Street West and Bay Street, in the heart of Toronto’s Financial District.
STYLE INC.
History
In 2006, after graduating with a business administration degree with a major in finance from the Ivey
Business School (at Western University), Gavidia worked as a financial analyst for Richardson Partners
Financial Limited and then as a business analyst for CIBC Wealth Management. Dineda completed her
undergraduate degree at the University of Victoria with a major in health informatics and then a master’s
degree in business administration from the Ivey Business School (at Western University) in 2011. Dineda
then worked in sales, marketing, and consulting positions. Gavidia and Dineda launched Style in 2010,
while Dineda continued to work on a full-time basis elsewhere.
Style focused exclusively on personalized custom-made suits and dress shirts for men. Since incorporation,
sales had grown each year. Style earned $600,000 in revenue for fiscal year 2015. See Exhibit 1 for Style’s
product line pricing and costs. One of the biggest success factors for Style was strong customer retention; a
vast majority of customers continued to buy dress shirts and suits from Style each year. Gavidia and
Dineda attributed this customer retention to their personalized service for each customer and their diverse
product offerings.
With no retail storefront, Style kept its fixed costs low at between 5 and 8 per cent of revenues. The most
significant fixed cost was a $78 per square foot annual rental expense for 400 square feet of storage space
needed to hold inventory. This cost control was responsible for Style’s higher-than-average industry profit
margins and sufficient cash flow to pay the owners healthy dividends annually.
3
Akash Patel, “Indochino: Transforming the Custom Suit Industry,” Technology and Operations Management: A Course at
Harvard Business School, December 8, 2015, accessed July, 13, 2016, https://rctom.hbs.org/submission/indochinotransforming-the-custom-suit-industry/.
4
Jian Deleon, “A Stylish Bespoke Bulletproof Suit Will Cost You $20,000,” GQ: Style, November 13, 2013, accessed
January 25, 2017, www.gq.com/story/bulletproof-suit-garrison-bespoke.
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GARYLIN TAILORING
Page 3
9B17B018
Operations
Typically, customers would meet Gavidia and Dineda on location to discuss their formal attire needs.
Based on the conversation, style preferences, and personal budget, the partners would then recommend a
number of different fabrics for the desired clothing. Each fabric booklet 5 had more than 200 fabric options;
therefore, the owners’ expertise was critical in narrowing down the selection appropriate for each
customer. Once the order was placed, it typically took two to three weeks for the finished product to be
assembled and shipped from Style’s overseas supplier. Gavidia and Dineda would then arrange a pick-up
date for their customers to try on and take home the finished product at the same location as the initial
fitting. Style had local designers and tailors for special alterations and worked closely to ensure 100 per
cent customer fit. In some situations, customers could submit a receipt for alterations if they were not
completed by Style.
Style aimed for a contribution margin above 35 per cent on all its clothing lines. Gavidia and Dineda knew
that sales volume made a significant impact on the contribution each clothing line earned for the company.
Considering these factors, Gavidia and Dineda set a total target contribution of $25,000 annually from each
clothing line.
THE FUTURE
Gavidia and Dineda were considering whether to stop offering their least profitable product line. If a
clothing line were discontinued, the owners would need to recover that line’s lost contribution from
elsewhere in the business. They were prepared to spend an additional $5,000 on advertising to increase the
revenues earned on the remaining clothing lines. Gavidia and Dineda believed that a weighted average
contribution margin for each of its seven clothing lines would be the best way to evaluate this decision’s
feasibility. They expected sales of the remaining clothing lines would remain at their same proportions of
total sales.
Another option under consideration was to increase their clothing line prices to improve profitability. If the
owners decided to increase the retail selling price on their lowest-margin clothing line, they thought it
would be unlikely that they could sell this line at a price point above Garylin Tailoring without losing
significant sales volume. Was it feasible? Would it be possible to increase prices while simultaneously
meeting their target contribution margin?
CONCLUSION
With the busy fall season fast approaching, Gavidia and Dineda wanted to capitalize on current consumer
trends while maximizing Style’s profitability. They planned to make any decisions before the end of July
so they would have enough time to implement a new marketing plan for the adjusted clothing line offering
or to inform their customer base of pricing updates.
5
Style had 10 booklets that contained small two-by-four-inch (five-by-10-centimetre) fabric swatches as physical examples
of the different materials available.
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In lieu of a retail storefront, Gavidia and Dineda arranged for specific sizing days at locations with a high
density of business professionals. For example, First Canadian Place and Toronto-Dominion Centre were
major destinations in downtown Toronto for Style. Additionally, twice a year, Gavidia and Dineda set up at
Western University, targeting upcoming graduates recruiting for full-time positions, many of whom were
located in Toronto.
Page 4
9B17B018
EXHIBIT 1: STYLE INC.’S PRODUCT LINE PRICING AND COSTS
DRESS SHIRT PRODUCT LINES
Classic Shirt
$75.00
5
$7.50
$48.50
Premium Shirt
$95.00
15
$9.25
$58.75
Executive Shirt
$125.00
15
$10.75
$69.25
SUIT PRODUCT LINES
Retail selling price
Per cent of total sales
Tailoring costs
Shipping costs
Coat
$395.00
10
$28.35
$181.65
Classic Suit
$475.00
15
$25.50
$163.50
Source: Company files.
Page 21 of 26
Premium Suit
$625.00
15
$29.00
$186.00
Executive Suit
$850.00
25
$33.10
$211.90
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Retail selling price
Per cent of total sales
Tailoring costs
Shipping costs
9B12B014
Dave Shaw and Elizabeth M.A. Grasby revised this case (originally titled “Bates’ Motel Ltd.” written by Raymond Leduc under the
supervision of Professor Richard H. Mimick) solely to provide material for class discussion. The authors do not intend to illustrate
either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2012, Richard Ivey School of Business Foundation
Version: 2013-04-12
On Monday May 14, 2012, Justin McGregor, owner and manager of the Good Night Motel (Good Night),
located at the north end of Grand Bend, Ontario, received a visit from George Alward. Alward was seeking
accommodation for the delegates to a church convention on Friday and Saturday nights, October 26 and
27, respectively. The number of rooms needed would fill Good Night for both nights. The idea of a full
house at that time of year was exciting, but when Alward proposed a room rate of half the regular room
rate, McGregor was taken aback and very reluctant to accept the business. Alward said he would be in the
area for the next two days and would return tomorrow for a decision. He said the church convention was
being held in Grand Bend at that time of year intentionally, because the motel and hotel business was so
seasonal and rates would be much lower at this time of year. The church conference operated on a very
limited budget and several attendees were being billeted in private homes and summer cottages.
GRAND BEND
Grand Bend was a summer resort town bordering Lake Huron, wherein all businesses in the area were
exposed to highly seasonal business patterns. As such, many retail shops closed around the first of October.
In the summer, it was estimated that 10,000 people lived in Grand Bend and many others arrived daily to
enjoy the beach, the sun, the water and all the “action” offered with that environment. Grand Bend had a
reputation as a party town, attracting primarily the 15- to 30-year-old demographic, who resided within a
one to 1.5 hour drive to the town.
THE MOTEL
Location
Highway 21 and Highway 81 intersected at Grand Bend’s primary retail shopping district. The Good Night
Motel was located on Highway 21, three kilometers north of this main intersection. The motel was 15 years
old, had 30 units, and was within walking distance of a family style restaurant that was open all year. The
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THE GOOD NIGHT MOTEL
Page 2
9B12B014
Good Night was a family-style motel, careful about its reputation in a town that loved to party. Several
other motels were located in Grand Bend.
For many years, Good Night operated almost at capacity from June 15 to September 15. While May 16 to
June 15 and September 16 to October 15 were not fully occupied times, weekends were half to three
quarters full. October 16 to May 14 was always slow, rarely more than a quarter full at any time. The
motel was closed the month of February for paid staff holidays.
Occupancy Rates 2008-2012
Over the past four years, Good Night’s occupancy rates had dropped seven to 15 per cent across all seasons
of the year, resulting in lower annual revenues and increased competition for guests. There were two
reasons for this sales decline and increasing competitive environment. One was the 2008 U.S. financial
crisis and the resulting U.S. (and eventually North American) economic recession. Secondly, the Canadian
dollar had strengthened considerably against the U.S. dollar, making it less attractive for U.S. tourists to
travel to Canada. Consequently, the number of tourists had dropped significantly and more of those who
travelled to the area “shopped around” for the best value in accommodations.
Good Night’s fiscal 2012 revenues had improved, but had not yet returned to pre-2008 levels. In fact, 2012
was the first time in the last five years that Good Night had earned a profit. Based on what he had read
about the uncertainty of the future economy’s recovery, McGregor believed revenues would remain flat for
the next two years.
Operations
McGregor managed the motel with the help of his wife, Marie. The critical tasks were room registration,
supervision of services, payroll, bookkeeping and inquiries. The motel employed a full-time maintenance
man on an annual salary, two women (Mary Driscoll and Sheila O’Toole) who worked on a part-time
basis, and two students during the busy summer season to clean the rooms and the common areas.
The maintenance man, Jack Snelgrove, worked Mondays to Fridays from 10 a.m. to 8 p.m. and on the
weekends from 10 a.m. to noon. His job was to maintain, clean and add chemicals to the pool seven days a
week from June 15 to September 15, and to keep the gardens tidy, the grass cut and the snow shovelled
throughout the year. Snelgrove was also responsible for the room technology, the plumbing, the internet,
the TV and the coffee maker, and he was on call on weekends for any problems that arose with these
services.
Driscoll and O’Toole cleaned rooms and performed routine maintenance such as replacing light bulbs and
batteries, and identifying problems that required either more complex maintenance work, plumbing
problems or electrical concerns. Mary Driscoll had been with the McGregors from the outset. She worked
Mondays to Fridays 8 a.m. to 1 p.m. and was considered to be a mainstay in the organization. Sheila
O’Toole worked the same hours on weekends and performed the same functions.
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Occupancy Rates Pre-2008
Page 3
9B12B014
Check-out time was 11 a.m., but many times the rooms were vacated before 8 a.m., so Driscoll and
O’Toole could easily spread the work over their shift. On rare days when everyone checked out close to 11
a.m., Driscoll and O’Toole were paid at a rate of one-and-a-half times their regular hourly rate for the extra
time needed to clean and prepare the rooms for the next guests. When the motel was exceptionally busy,
Driscoll would help with the laundry. On occasion, when the motel had an exceptionally good night in its
off season, Driscoll and O’Toole were available to help each other out with the cleaning
The motel’s employees were paid as follows:
Jack Snelgrove
Mary Driscoll
Sheila O’Toole
Student summer employees
$36,000 per year
$16.00 per hour
$16.00 per hour
$10.00 per hour
THE DECISION
A proposed rate of half the regular rate at Good Night, or $40 a night, was almost a clear “no thank you”
decision from the start, especially since Good Night had operated slightly above its break-even point in
2012. Good Night’s room rates and those of its competition are shown in Exhibit 1. See Exhibit 2 for the
motel’s income statement for fiscal 2012.
Although McGregor knew Alward only slightly, he did know him to be a good man who was well
respected in the community, and McGregor wanted to give the proposal, and to be seen to give the
proposal, a fair evaluation. McGregor was also reluctant to accept such a proposal because of the precedent
it might set for future operations.
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During the summer months (June 15 to September 15), Good Night hired students from the nearby
community college to take on the additional cleaning work — again, one student worked during the week
and the other student worked on weekends, with the same hours and responsibilities as Driscoll and
O’Toole.
Page 4
9B12B014
Exhibit 1
June 15 to
September 15
Balance of the
Year
$ 95.00
$ 80.00
95.00
80.00
69.95
119.95
80.00
69.95
49.95
99.95
Good Night Motel
Other Independent Motels
High End
Mid Range
Low End
Major Motel Chains
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MOTEL RATES IN GRAND BEND
2012
Page 5
9B12B014
Exhibit 2
INCOME STATEMENT
For the year ended March 31, 2012
$ 389,150
Operating expenses
Management salaries
Maintenance salaries
Cleaning wages
Employee benefits
Cleaning and laundry supplies1,2
Depreciation
Pool chemicals
Maintenance supplies and expenses
Utilities including internet3
Insurance and property tax
Interest expense and bank charges
Total operating expenses
Net Income
1
100,000
36,000
34,180
17,953
12,070
54,700
2,350
11,890
74,850
22,800
19,180
385,973
$ 3,177
Cleaning and laundry expenses varied directly with room rentals. The cost for these cleaning supplies averaged $2.74 per
room per night.
2
For fiscal 2012, the motel had 4,410 rental nights.
3
Each room had its own heating and air conditioning system. McGregor estimated that the incremental cost to heat a room
around the end of October would average $5 per room per night.
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Room rental revenues