Reference no: EM132911620

CASE STUDY

As a Fashion Design student, Gordon had won several awards. After graduation, he worked for two years as assistant manager in the costume department of the country's largest theatrical supply outfit.

Gordon is now ready to start his own business and he has decided to specialize in custom-designed business suits for wealthy women executives. He knows that this is a growing market segment and that most of his potential customers are on a tight schedule, have offices in the downtown area and drive their own cars.

The problem facing Gordon now is his choice of a site and he has narrowed it down to three very different options.

Option One is a small retail store (300 square feet) in the most prestigious mall in the city. Although the mall has the usual department stores, it also has many high-end clothing, jewellery and accessory stores. The mall is located at the junction of two major highways and is easy to reach from downtown as well as the rest of the city. Parking is plentiful and free and the mall provides a host of services (security, utilities, maintenance, snow removal, common advertising) included as part of the rent. The mall charges an annual rent of $100 per square foot plus 5% of gross sales. In Gordon's case this would work out to about $3,000 per month total rent. The mall is offering a 5 year lease with two additional 5 year terms available for renewal at a rent geared to inflation.

Option Two is a tiny store in the city's most prestigious shopping location. The area houses the most expensive hair salons, restaurants and boutiques. It is very close to the central business district (a ten-minute walk), public transit and the main downtown shopping area. There is no on-street parking in front of the store and only one spot is provided for use of staff at the back. There is a high-rise car park available one block away and the rates are the highest in the city. There is a lot of well-heeled pedestrian traffic in front of the store, especially at lunch times and in the evenings. The owner of the building is offering a flat rent of $2,000 per month for a 5 year term. He says he may sell the building at the end of five years, but if he doesn't, he is willing to rent for another five at terms to be negotiated then. The rent does not include heat, light, garbage fees or water and Gordon estimates that these will run about $400 per month. In addition, Gordon would have to remove his own snow and provide his own security systems and any minor maintenance.

Option Three is to run the business from his home. Gordon, a sister, and a brother jointly inherited the family home from their mother and all three of them live there. It is a large detached brick house in an older part of the city that is undergoing some urban renewal but is not quite considered a trendy area. Two accountants and a dentist conduct business from their homes on the street. The house itself is quite elegant with a ground floor parlour that could easily be turned into a studio/salon for Gordon. This would not be a problem for his brother and sister, who are both unmarried airline pilots and spend a great deal of time away. They would be happy to have Gordon at home most of the time "just to keep an eye on the place". The street is zoned for both residential and commercial uses. Parking is available for free on the street but spots are often hard to find. The house has a narrow driveway that is a little awkward to get into but will hold two compact cars. Rent would be free. Any minor costs would be offset by the tax deductions for using a portion of the home for business.

Gordon has identified a list of issues that are important to him in his selection of a site. These include overall cost, parking, the image presented to his customers, services, surrounding businesses, convenience for the customer and the length of time the site will be available for his use.

QUESTIONS

1. What is your first choice for a site? Give a single reason for your choice.

2. Work out a "points" system to quantify the suitability of each of the sites, taking into consideration the relative importance of each issue, and how each site ranks on each of the issues. Start by looking at the issues Gordon has listed and rank each on a scale of 1 to 10. Then look at each site and decide how well it meets each of the criteria on a scale of 1 to 10. How can you translate this into a single score for each of the sites, so that they can be compared objectively?

3. Discuss any differences in the outcomes using the different decision-making techniques.