Reference no: EM133055411

Planning Your Own Entrepreneurial Retail Business

After graduation from college, you opened a swimwear store called Zig Zag on South Padre Island. The building you located is 400 square feet and had been vacant for 18 months. Because of the limited amount of start-up capital you had to invest in the business, you moved into the building without remodeling either its exterior or its interior.

During the first year, Zig Zag had 13,400 visitors, of whom 3,350 made a purchase. The average transaction size was $38. Zig Zag operates on a gross margin of 55 percent and has annual fixed operating expenses of $30,000. Variable costs were 15 percent of sales. The two primary fixed expenses are rent of $1,100 a month and salaries of $1,200 a month. You keep all profits in the business to reinvest in inventory and other immediate business needs.

Because your first year was profitable, you are now considering remodeling the store. Your landlord will not help with these expenses. To paint the exterior would cost $1,400. For the interior, you are thinking of tiling the floor in a zigzag pattern, which will cost $1,600. In addition, new lighting and some new fixtures would cost $4,000.

You believe these changes will increase traffic by 10 percent and that your closure or conversion rate will increase to 30 percent. Will your proposed changes pay for themselves the first year?