Hallstead Jewelers was one of the largest jewellery and gift stores in the United States for 83 years. Customers came from throughout the region to buy from extensive collections in each department. Any gift from Hallstead’s had an extra cache attached to it as they were known for having the best. Even though the principal retail shopping areas shifted two blocks west, Hallstead’s reputation and selection still brought in customers. In 1999 however, sales became stagnate and profits were starting to slip. The owners (two sisters, Gretchen and Michaela) made several changes in an effort to revitalize the store back to its full glory. The largest decision they made was to move the stores location, expanding it by 50% more space and selling staff. This move resulted in a five-year lease as well as extensive and expensive renovations.
They also made some changes in product offerings and offered more sales potential at the cost of minor reductions in margins. During the year it took to complete the Hallstead’s renovation the industry started showing major changes toward internet based jewellery sales. Tiffany & Company, a business with an origin much like Hallstead Jewelers, grew into an international powerhouse. At the same time, a start-up internet seller, Blue Nile, became the second largest diamond seller in the U.S. While Hallstead’s was growing their fixed costs by doubling their rent payments, Tiffany and Blue Nile were increasing their revenue with “virtual” storefronts allowing them to increase sales with very little increase in expense. In an effort to explore ideas in strategy that would return the business to profitability, the sisters compiled some questions for their accountant to analyze using some additional operating statistics.
2.0 SIGNIFICANCE OF THE CASE
Inherited business tradition.
Changing in management style.
Reduce in sales and profit from year 2003 – 2004.
In 2004, moving stores location, expanding it by 50% more space and selling
staff. Greater loss in year 2006.
Changing in market demand and growing of new competitors.
3.0 CASE SOLUTIONS & ANALYSIS
Question 1 – How has the breakeven point in number of sales tickets (number of customer orders written) and breakeven in sales dollars changed from 2003, to 2004, and to 2006? Haw has the margin of safety changed? What caused the changes? The total variable and fixed costs have been categorised in the following income statement of Hallstead Jewelers: Hallstead Jewelers