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Page

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Written Analysis and Communication

Individual Assignment No 1
Case Analysis Report
On
WINSTON & HOLMES
Submitted by

Name

: SUMIT KUMAR

Roll No

: 141259

Section

:B

Institute of Management, Nirma University

Date of Submission: 14th November 2014

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EXECUTIVE SUMMARY:

Abraham (Bob) Landau, president of Winston & Holmes (W & H), a fine tobacco and mens
accessories shop contemplates over the issue of expansion proposition for Yorkville store.
The possible options are to go with the expansion plan or with expansion of mail order
division or to introduce diversification by introducing new products like wines to boost the
cigar sale. However, after analyzing all the cost and potential revenue it is advisable to go
with the expansion proposal as it is more likely to bring diversity in the products offered as
well as increase in profit.

Word Count: 96

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SITUATIONAL ANALYSIS:

W & H store was opened by Abraham (Bob) Landau in 1981 as a fine tobacco shop at 138,
Cumberland Street in the heart of Yorkville, Toronto. It was serving in niche market majorly
upper class gentleman with medium to high disposable incomes, ranging in age from 35 to
60.Due to its locational advantage of being situated in a posh area, at a high traffic avenue
and proximity to several luxury hotels, W & H was able to attract the target customers
including celebrities.
The USP of the business was customer satisfaction and Landau successfully executed his
experience in sales to stand on those unique selling proposition by providing personalized
service and quality management.
The growth of the business eventually included expansion of W & H store by addition of two
more stores, one at 207 Queens Quay West, York Street in 1987 and other at 130 King Street
West, York Street in 1990. In the process of expansion, Landau was joined by Martin Huck as
his business partner who acquired five percent of the share of W & H store. W & H also
started Mail Order Service in the subsequent year which serve the entire Toronto suburbs and
Europe with toll free telephone service, e-mail access and customer service consultant..
Landau also diversified his products offering to mens accessories, humidors, fine pens and a
broader range of tobacco products. He also targeted female clients by adding fine writing
instruments and leather accessories to product line.
In 1993, cigar industry showed a major boom which was powered by effective media
promotion and the frequent portraying of cigar use in Hollywood movies. Due to increased
flow of customer at W & H stores, sales grew substantially for both the tobacco products and
non-tobacco products and in 1996 the sales revenue for both segments were same which
depicts the success story of W & H store in other niche market.
The growth of W & H attracted a number of competitors with the same business strategy.
However, W & H remained unaffected by successfully meeting the changing consumer
demand through continuous innovation and distinct service. Although, due to health concerns
of cigar smoking, the sale was expected to decrease in the coming year so further innovation
and diversification was the need of the time.
In June 1996, Landau was suggested with an expansion proposition for the
most successful Yorkville store which accounted 58% of the total sales
revenue store by two of his managers (Doron Gold and Martin Huck).

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PROBLEM STATEMENT:

To decide whether to go with the expansion proposition of the Yorkville store

keeping in mind the financial stability of the company and potential benefits in
terms of cost, revenue and customer satisfaction.

OBJECTIVES:
1.
2.
3.
4.

Further expansion of the business.

Retention of Brand Image in eyes of existing and potential customer.
Increase revenue.
Maintaining financial stability.

OPTIONS:
Option A: - Landau can initiate with the Yorkville expansion proposal.
Option B: - Expansion of Mail order division to other countries.
Option C: - Restructuring the product line by introducing new products like exclusives
Wines which goes well with cigars and removing the products which are less profitable and
not in demand.

Evaluation of Options:

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OPTIONS

OBJECTVES
1

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Option A:
Pros:
-

Expansion of the business.

Increase in revenue (Exhibit 4).

Ambiance of the store will increase, thus better brand image.

Product diversification thus more footfalls in the store

Cons:
-

High cost of renovation and increase in maintenance and administration cost.

Core product, cigars can lose concentration.

Business loss during renovation.

Option B:

Pros:
-

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Increase in brand value, internationally recognized.

Increase in customer database.
Increase in revenue.

Cons:
-

High cost of management.

Nothing for granted, sales figure rise can only be predicted.

Option C:
Pros:
-

Expansion of the business by penetrating more customer.

Increase in cigar sale due to wine availability thus, increase in revenue.

Cons:
-

Licensing issue for the liquor.

Require specialized staff for sales promotion.

Space issue.

DECISION:
Landau should go for the expansion proposal as after analyzing all the
cost and potential revenues it can be clearly inferred that the decision
will increase in profit margin without affecting the financial stability and
can earn appraisal from the customers for better ambience.

ACTION PLAN:

Take customer suggestion on improvements through survey.

Manage required funds.

Renovate in part so as to minimize the time period of shutting down the store and

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take mail orders during those period.

Issue share if necessary to raise fund.

CONTIGENCY PLAN:
In case ,Landau failed to project this option he should be ready to diversify
his product line by introducing wine or food which goes well with cigar to
maintain the revenue earned and should adopt marketing strategy like
extensive advertisement to promote his offerings.

Word Count: 830

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To Whom It May Concern:

I, Sumit Kumar hereby declare that this assignment is my original work and is not copied
from anyone/anywhere. If found similar with any sources, I shall take complete responsibility
of action taken thereof by WAC Team.

Signature :
Name: Sumit Kumar
Roll No: 141259

Exhibit 1. Facts from the case

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Costs
Electricity (per sq. ft.) per month
Gas (per sq. ft.) per month
Water (per sq. ft.) per month
Rent increase (on overall rent)
Current Rent
Annual maintenance (option 1)

Advertising expense (current)

Advertising 1st year increase
Adv. Decrease in subsequent yrs. (up to 6 years)
Grand Opening

Inflation
CCA: Furniture & Fixture
Discount Rate
Tax rate

Exhibit 2. Yorkville Proposed expansion plan costing

Data

Investments

1
0.25
0.5
38%
176304

117500
= CCA
185502
100%
10%
$50,000.0
0

2%
20%
25%

Current Sales - 1996

10

1996 Contingency
510084
1 Furniture
Page

Starting Year

Yorkvilles sales

58% Total Investments

1st sales increase

45% F&F useful life

St. line
15% depreciation/yr.

2-4 yrs. sales increase

Full-time wage$/hr.
additional Full Time

12 Salvage Value
2

Part-time wage$/hr
Additional part time
employees
Yorkville increase sq.
footage
Yorkville hours of ops/week
weeks/yr.

10 Working Capital

store close for _____ days

Exhibit 3 Cost Accounting:

1 Gross Margin
Inventory Days of
1875 COGS
87 Decrease in days
52 New inventory days
5

$
100,000.00
$
1,200,000.00
$
1,300,000.00
$
10.00
$
117,500.00
$
25,000.00

46.50%
118
20
98

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Initial Capital

-1300000

12

Investment

Step 3

Page

Step 2
Initial Working
Capital Investment

-1200000
CCA
calculatio
n

Year
1
2
3
4
5
6
7
8
9
10

CCA Rate
Tax Rate
Beginning
UCC
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00

CCA

Ending
UCC
$

$
$
$
$
$
$
$
$
$
-

$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00
$
1,200,000.00

20%
25%

Year
NWC
Requirement
Change in
NWC

13
0
1200000

Step 5
Cost of
Capital
Year

1997

Page

Step 4

1998

1999

20004

1704000 1921176.47
-504000 217176.471

2166032.3

2123561

208

-244855.8

42471.22

416

15%
0

SC
D (= CCA)

1
1242564.8
7
185502
0
1057062.8
7
0

S-C-D
(S-C-D)*(1T)

1057062.8
7
1057062.8
7

(S-C-D)*(1T) + D

1057062.8
7

1233979.18

1429224.4

1413280

-504000

-217176.471

-244855.82

42471.22

416

1057062.8
7

1233979.18

1429224.4

1413280

Sales
V Cost
F Cost

Step 6
Year
Initial
Investment
Initial net
working
capital
Change in
NWC
Operating
Cash Flow
{(S-C-D)(1T)+D}
Working
capital release
Salvage value

1400930.98
166951.8
0

1579481
150256.62
0

1548511
135231
0

151
121

1233979.18
0

1429224.4
0

1413280
0

1233979.18

1429224.4

1413280

1233979.18

1429224.4

1413280

-1300000
-1200000

PVIF
Discounted
Cash Flow

1
-2500000

PV of Cash
Flow

1075824.24

0.8695652
2
480924.23
3

14

-2500000

1016802.71

1184368.6

1455751

143

0.75614367

0.6575162

0.571753

0.4

768848.928

778741.55

832330.4

714

Page

Cash Flow

553062.86
8

Note: Positive PV indicates, Landau should accept the expansion proposal.