Free Essay

The Sports Guy

In: Business and Management

Submitted By dropwizz
Words 1150
Pages 5
Key Events / Case synopsis
The Sports Guy is an independent sporting goods store located in a small town outside the greater Toronto Area. The store is owned by Bob (“Rocky”) Rhodes, age 32 who has for many years been a high-profile personality in the local sports community. Ten years ago, Rocky decided to go into the sporting goods business for himself. Family members and friends provided some equity capital and the new business was incorporated, with Rocky owning 60% of the shares and his family members and friends 40%. The land package that Rocky bought consisted of two lots on a corner, the store was built on one lot; the other remained vacant. After 2004, the town grew and the area around Rocky's store became built up into a quite prosperous neighborhood. Strip malls developed, and The Sports Guy is now located in a busy commercial area.

Problem Statement and Objectives

Problem Statement
The sales growth of the store is relatively slow and at the same time the level of debt is rising so are the inventory, Rocky is not sure what to do and is looking for suggestions as to how he can improve the financial performance of the business.
The main objective is to improve the financial performance of the business by increasing the amount of successful sales, which will lead to solid profits. The store also needs to implement more sophisticated purchasing techniques and a computerized inventory control system to increase the inventory turnover rate, thus reducing short-term debts and interest expenses. Rocky also wants to expand and grow his business with the town but to do so he will require external finance and investment, but to do so he needs to improve the stores profitability as mentioned earlier.

Situation Analysis

Current Business Situation
At the moment we believe The Sports Guy is not performing well with its declining inventory turnover which resulted in growing levels of inventory, which is causing increases in short-term debt and interest expenses. Apart from this, Rocky, the owner of the business has been a high-profile personality in the local sports community and is well-known to practically everyone involved in the local sports community, which gives his business credibility and reputation. Although his business is not profitable and currently a rather unattractive industry.

Porters Five Forces – Sports Good Industry 1. Supplier Power
In the sporting goods industry supplier negotiating power is possibly high, a main reason for this is because the market is regularly dominated by a few large suppliers rather than a disorderly source of supply. There is also reason to believe that the suppliers could carry out forward integration in order to obtain higher prices and margins as well as economies of scale. The suppliers could be identified as huge sport good manufactures such as Nike, Adidas, and so on. 2. Buyer Power
Buyer power is very likely to be high as at any given time a customer is able to switch to an alternative brand or store, they do not incur any cost in doing so. Buyers also have low margins and are price-sensitive, thus they look for the lowest prices and best quality. So therefore customers would tend to integrate backwards. 3. Threat of New Entry
The competition in a sports goods industry is relatively high due to the fact it is easier for other business to enter the industry. The lower barriers and high threat of new entrants could change major elements of the market environment such as prices and customer loyalty. This is bad for the industry as it could tend to not be stable and business who are already in and established in the industry may find this challenging at given times. 4. Threat of Substitution
There is a high threat of substitution in this industry as there are many possible substitutes such as the online stores, more established and well known stores, stores outside of the city and discount or wholesale stores. This again bad for the industry as smaller and unestablished business will be able to steal sales and customers from the bigger players, at the same time oversaturating the industry. 5. Competitive Rivalry
Competition between businesses in this industry is usually high. There are many companies who sell the same brands and goods, in other words there is not much differentiation between companies and their products, and therefore there is a lot of price competition. Players have similar marketing strategies such as selling products online, customers are able to purchase from other outlets or place orders over the phone.

Identification of Alternatives

1. Rocky could sell the other plot of land which he is not using, this piece is estimated to worth $120,000. 2. Rocky could also rent the piece of vacant land and earn a month fixed pay, the area is now rather developed and commercialized which means demand for that area is high. 3. Rocky should implement a more sophisticated purchasing and computerized inventory control system to help reduce expenses and interest. 4. He should hire more knowledgeable employees who are able aid him in the store by using more strategic business tactics to sell goods.

Analysis 1. If Rocky chooses to sell the piece of vacant land for the estimated price of $120,000 he would be able to invest this earned capital into his business, for example he could purchase goods that appeal more to the customers, as well as run promotional campaigns to increase awareness and attract more potential buyers to his store.

2. If Rocky chooses to rent out the plot of land for a profitable amount, he could use this extra income to further develop his business, not to mention he would be able to pay off the operational cost more easily. Furthermore the extra money could also be invested in himself, to educate him in more strategic and effective business procedures.

3. If Rocky decides to implement a more sophisticated purchasing and computerized inventory control system he would be able to maintain his financial statement in a more efficient and effective manner, which would improve his stores productivity. The computerized inventory system would help him keep track of items in the store, how much he has sold, and which items he needs to re-order, etc. Another effective improvement could be to implement an online store, which would enable customers to place orders online and know if specific goods are in stock. On the side he could also use social media to market his product.

4. Rocky could hire more knowledgeable employees and pay them a reasonable salary. By doing this he is improving the productivity of his store and eventually being able to sell more goods and earn higher profits. Not to mention that with time Rocky can learn from these knowledgeable employees and he would not need to re-educate himself in school.

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