It was a cold day in February 1986 when Colin and Ed Power of Grand Falls ' Newfoundland were out for their daily training run. During these runs the brothers often discussed possible business ventures and the decisions they would face. This day the topic was whether they should open a quality sports shoes and clothing business and, if yes, where it should be located.
Colin Power, 30, was educated as a Physical Education teacher. He had competed on the Memorial University of Newfoundland track team and at one time held the Newfoundland record for the marathon. After teaching for a few years, Colin had continued his education and in 1982 returned to Newfoundland from Ottawa where he had completed the course work leading to a Ph.D. in Physical Education. He accepted a position as a Physical Education teacher at St. Michael's High School in Grand Falls. Through supplier contacts he had initiated while at the University of Ottawa, he also began to supply jackets, uniforms, skis and ASICS running shoes on a wholesale basis to a number of the schools in the Central Newfoundland area.
His brother Ed, 46, was also athletic having played goal for the Grand Falls ANDCOS in the Newfoundland Senior Hockey league. Since he finished with hockey, Ed had taken up running and was an accomplished runner in the master's (over 40) category. Ed was employed as a papermaker by the Abitibi-Price mill in Grand Falls.
In addition to teaching, Colin, with Ed's help, organized a local track club in the fall of 1982. The purpose of the club was to encourage young people from all of the schools to participate in track and field and to offer coaching in various events.
This case was adapted from a case prepared by Bill Howse for the Atlantic Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management.
Copyright © 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.
Although Colin enjoyed the coaching aspect of teaching he quickly became disillusioned with other aspects of the job. In January 1983, he left the profession to become the Executive Director of the Grand Falls YMCA. At the same time he continued selling sporting goods to various schools and coaching through the track and field club.
In August 1984, Colin and Ed opened their first sporting goods store called Athlete's Warehouse in Corner Brook where Colin was living at the time. Colin managed the operation while his brother-in-law took care of the day-to-day running of the business. The following September 1985, in Grand Falls, Colin opened The Fitness Factory, a fitness centre which concentrated on weightlifting and aerobics. As a sideline, the business sold a limited line of sports shoes and clothing. In December 1985, Colin returned to Grand Falls and immersed himself in the operation of The Fitness Factory to try and reverse its poor performance.
The Athlete's Warehouse store in Corner Brook closed in early January 1986, primarily because Cohn was no longer available to provide management. Cohn wanted to establish a sporting goods store in Grand Falls because he was certain that an adequate market existed. However he needed Ed's support to finance the business. The venture was important to Colin because it allowed him to work for himself rather than for others. To Ed the decision involved tying up money he was saving for retirement which possibly could come within nine years.
During discussions on earlier training runs, the brothers tentatively discussed the proposed business. The store, which would be named Athlete's Warehouse, would specialize in good quality athletic footwear and athletic clothing. Its target market would be people between the ages of 13 and 34 who were involved in some type of athletic endeavour from school sports to adult recreational activities. None of the other stores in Grand Falls offered a similar mix and none had knowledgeable staff to assist in the purchase of proper shoes and clothing. Colin and Ed agreed these two factors were important to many buyers and would be the store's key competitive advantage. Colin would provide full-time management and Ed would work in the store as his shift schedule allowed. Both would be able to provide expert advice to customers with regard to the purchase of athletic goods, especially running shoes.
To open the store they estimated they would need to invest $10,000 in renovations and display racks and about $20,000 in inventory. At present they had $12,000 of the inventory and an old cash register from the Corner Brook store. While Colin had established a credit rating with some suppliers, the newer ones with the bigger names, NIKE for example, required COD for the first order.
Recognizing the urgency in securing employment for Colin, the brothers began to review the various factors which would influence their decision.
Economically, things were looking up for the Town of Grand Falls and the neighbouring Town of Windsor. The main employer, Abitibi-Price Paper, was working to capacity with no downtime scheduled during the year. In addition, major renovations were scheduled at the Central Newfoundland Regional Health Centre.
Grand Falls was the primary service centre for a retail trading area of at least 50,000 people. Many shoppers came to the town from Springdale and Baie Verte to the west and Gander to the east.
The primary competition for Athlete's Warehouse would be the three sporting goods stores in Grand Falls and Windsor (Exhibit 1). As well, Woolworth's and other clothing and shoe stores had some lower quality and lower priced lines similar to the selection proposed by Colin and Ed. The brothers felt, however, that their product quality and knowledgeable staff would provide a competitive advantage.
B & B Sports:
B & B Sports had been in operation for well over 15 years, and until 1983 had been the only sports store in town. This approximately 2,000 square foot store was located in a strip mall on Lincoln Road away from both the downtown area and the Exploits Valley Mall. B & B carried a full line of athletic hard goods such as hockey equipment, softball and baseball equipment and equipment for the hunting and fishing enthusiast. The store did not have a large selection of athletic shoes and clothing.
Sports Experts, a nationally franchised store, was located upstairs in the same building as The Fitness Factory. The store offered a full line of sporting equipment, hard goods and soft goods, but the brothers did not believe the manager or the sales staff were capable of offering expert assistance with the selection of the goods.
Located in a stand alone location in Windsor, Sportstop had about 1,000 square feet of floor space. Recently opened by a local businessperson, it offered a variety of goods similar to that proposed by Athlete's Warehouse. Again, it had no salesperson capable of offering expert assistance with the purchase of the running shoes. Colin also believed that the store was poorly located and thus would not provide much competition.
After reviewing the available locations, Colin and Ed had narrowed their choice to two possibilities. One was a 2,000 square foot space in the Great Eastern Oil building downtown at $5.40 a square foot. The other was an 800 square foot space in the Exploit's Valley Mall. The cost there would be $20 per square foot for a 5 year lease, $23 per square foot for a 3 year lease, or $25 per square foot for a 1 year lease.
Drawing on his experience and some information from Statistics Canada, Colin estimated first year sales to be between $100,000 and $150,000 depending upon the location selected and the average sale per customer. From Statistics Canada, he discovered that 36% of the population was age 15 to 34 - the group he had determined to be his primary target market. Thus he estimated that the trading area contained about 18,000 prospects (50,000 X 36%). Based on experience and estimates of pedestrian traffic he further estimated that about 3,000 of the prospects would become customers at the Exploits Valley Mall location and about 2,500 at the downtown location. At $40 to $50 per customer -- another estimate -- Colin projected first year sales at the Mall to be between $120,000 ($40 x 3000) and $150,000 ($50 x 3000) and downtown to be between $100,000 ($40 x 2500) and $125,000 ($50 x 2500).
In the Corner Brook store, an average gross margin (sales less cost of sales) of 50% was obtained and because of the similarity of markets, the brothers were sure that the Grand Falls store could expect the same gross margin. The major costs would be rent and labour. Regardless of the location Colin figured each store would require two people working at all times. Colin would be able to put in 30 hours a week which would allow him time to follow up on his high school contracts. Ed would work an average of 10 hours a week for 50 weeks but would not collect any salary. Part-time staff would have to be hired to ensure there were adequate staff in the store. The major difference in labour costs at each location would reflect the requirement that the stores in the Mall observe set hours (Exhibit 2). Other costs included 5% of sales for advertising, $100 per month for a telephone, $1,000 a year for insurance and $500 a year for office and bookkeeping. All of the other major operating costs were included in the rent.
As they sat in the locker room of the Fitness Factory after their run, Colin, who was the aggressive one, was trying to convince Ed of the viability of the plan. "Listen Ed," said Colin, "according to my estimates there are at least 3000 people in this market area who are willing to pay good prices for good quality merchandise. These people are not being serviced by the existing businesses. If we stick with quality lines of shoes and athletic clothes I'm sure we can make it."
Ed replied with uncertainty, "I think you're right but I don't want to lose my retirement money."
- What entrepreneurial traits are exhibited by Colin and Ed?
- Calculate forecast income at each location for high and low sales projections and for each of the lease alternatives, using the format in Exhibit 3.
- Assess the possible locations of Athlete's Warehouse and the location of the competition. Include in your discussion the different consumer behaviour for different types of goods.
Towns of GrandFalls and Windsor
Comparison of Locations