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Case 1 Newport Home

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Submitted By rita707
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1. Compare and contrast the operations and cost structure of the retail and DC channels. Describe the items included in cost of goods sold and SG&A costs and how they compare across channels. Do the differences described in the case make sense to you? Which of the categories of cost of goods sold and SG&A should vary with volume? Which should remain fixed?
The company Newport Home, Inc. a retailer that specializes in selling home furnishings through a retail channel and a direct-to-customer channel has many similarities and differences between the two channels regarding the costs and sales. The two channels are designed to center on quality, creativity, and style. The retail store opened its first store in 1960 and now operates 154 stores. The direct-to-customer channel started as a mail-order catalogue in 1968 and expanded in 2000 to include internet sales.
The operations of the two channels are very similar. They both carry the same merchandise and introduce their seasonal items at the same time throughout the year. The retail channel makes up for 58% of sales whereas the direct-to-customer channel makes up for 42%. The retail channel also includes the Marketplace which occupies 3% of the stores square footage. The Marketplace is overstock merchandise that goes on closeout for a couple weeks at the retail centers before it is liquidated to outside companies.
The two channels’ costs of goods sold include merchandise cost, freight cost, and distribution channel occupancy cost (rent, depreciation and maintenance). Merchandise cost for the retail channel requires a precise calculation to determine what will be the future needs of the products being sold. Usually the retail channel will achieve 80% sell-through whereas direct-to-customer channel has a 100% sell-through. This leaves an overstock in inventory for the retail channel. The retail channel’s highest

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