Style Inc.: Fine Bespoke Tailoring

Description

In 2016, the owners of Styles Inc. (Styles), a bespoke tailoring company in Toronto, Canada, needed to decide whether to discontinue the least profitable of the company's seven clothing lines or to increase that clothing line’s retail selling price. Over the previous six years, Styles had been financially successful, and customer retention was a major factor in this success. However, competition was increasing and profits were shrinking. Should the owners drop the clothing line that had the lowest margin or increase its retail selling price? If they chose to increase the price, they would need to decide on the amount of the price increase. The owners wondered whether increasing the price would still enable them to meet their target contribution margin.

Learning Objective

This case is intended for undergraduate students in an introductory financial business course. After completion of this case, students will be able to ·understand the challenges of a niche business in the retail clothing industry; ·perform an in-depth qualitative analysis of industry trends, the competitive landscape, and corporate capabilities before making a future-oriented decision; ·calculate unit contribution and contribution margin rates for different products; ·calculate a weighted average contribution margin and determine how it can be of value to decision making; ·calculate and interpret multiple break-even points; and ·make a decision and support it based on their analysis.

Keywords

Break-even analysis contribution analysis Product Mix