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9B11B020
Nadine Ramrattan wrote this case under the supervision of Elizabeth M.A. Grasby solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
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Copyright © 2012, Richard Ivey School of Business Foundation Version: 2012-07-24
The first quarter of 2010 had been extraordinarily eventful for fledgling company Damn Heels (DH) and its founder and sole owner, Hailey Coleman. On May 30, 2010, as Coleman looked back on the months of media blitzes, soaring sales, $55,000 in additional equity and a potential business venture to consider, she was well aware that several decisions had to be made to ensure the company’s continued growth. Coleman believed that her newly acquired funds would be best spent on marketing her product and expanding the distribution line. Although the American market was an attractive expansion opportunity, she decided to expand in Canada, selling through coat checks or salespeople. In addition to this decision, Coleman had stumbled across a business idea that she believed would contribute to building a strong brand, but was it the right time to launch a second venture?
COMPANY LAUNCH
After several months of work on the design and manufacture of the foldable flats
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for women to change into after wearing their high heels, in August 2009, Coleman registered her business as a sole proprietorship. In December 2009, Coleman received a $7,000 grant from the Ontario Partnership for
Innovation and Commercialization. She invested this money into public relations services and other promotions.
On December 18, 2009, the first shipment of 2,000 pairs of flats, ordered four months earlier, arrived from
Coleman’s manufacturers in China.
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The shoes and bags
3 were exactly as Coleman had envisioned; the manufacturers had adhered to her material requirements, and the company’s logo was included on the interior of the flats (Exhibit 1). Although the manufacturing cost of the shoes and bags came as no surprise, the transportation costs were unexpectedly high. Coleman had originally been quoted shipping costs by air for one carton (to hold the 2,000-unit order) from China; however, the 2,000 units required 10 cartons,
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Footwear with no heel or a very low heel.
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December 1, 2009, was the start of the company’s fiscal year.
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The bags, which folded into compact pouches to carry the flats, unfurled into a larger bag to store the high heels.
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Page 2 9B11B020 substantially increasing the transportation cost. She quickly concluded that shipping by air was too expensive, so her second order of 2,000 units, placed in late January 2010, was shipped by sea and arrived in mid-May. The company’s third order for 5,000 units had been placed in May and was scheduled to arrive in September 2010.
EARLY SUCCESSES
In April 2010, Coleman entered the Ryerson Slaight Communications Business Plan Competition and placed first, winning $25,000 plus an additional, optional $15,000 loan from Canadian Youth Business
Foundation (CYBF). Shortly thereafter, Coleman was approached by the producers of Dragons’ Den to pitch her idea to the team of entrepreneurial business experts. Dragons’ Den, a popular venture capitalist television program in its sixth season, aired on Canada’s Canadian Broadcasting Corporation (CBC) television network. Auditions were held in early April, and the taping of Coleman’s pitch took place on
April 27, 2010. Coleman signed a confidentiality agreement that stayed in effect until the show’s air date, which was scheduled for the fall of 2010. According to the show’s producers, Coleman could expect approximately 100,000 hits to DH’s website on the night the show aired. Coleman estimated that if five per cent of those hits materialized into sales, she would likely be out of stock that night.
PLACEMENT
Website
In December 2009, Coleman hired a freelance web designer to create DH’s corporate website. This website was meant to provide a platform for online sales, both locally and internationally. Due to the unit’s low selling price, American customers purchasing a single order online would not be subject to customs and duty taxes. The website was completed at a cost of $1,600 and was fully functional by January 2010. Since the website’s launch, Coleman had identified a few shortcomings, which she was able to rectify with a
$2,000 upgrade to the company’s website. The upgrade increased the website’s user friendliness and altered the interface to draw customers more effectively to the shopping page.
Retailers
Coleman envisioned her product being sold in salons, restaurants, bars and clubs. She had met with multiple retailers in the Toronto area, demonstrating the versatility of the flats and its packaging with samples taken from the first shipment. In March 2010, DH’s foldable flats went on sale in Blo Blow Dry
Bars (Blo) across five locations in Toronto: Oakville, Bloor West Village, The Four Seasons, Yonge Street and King West. Blo was a rapidly expanding, Vancouver-based hair washing and blow-dry service with locations in British Columbia, California and Ontario and a new location planned in Alberta.
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Coleman was hopeful that DH’s flats would one day become a mainstay in all current and future Blo locations.
Madison Nails Beauty Bar (Madison Nails) and Le Papillon on the Park (Le Papillon) also signed on as retailers. Madison Nails was an affordable luxury beauty bar located in Midtown Toronto and prided itself on emulating a New York City style. Le Papillon was located in Toronto’s east end and had been pegged
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www.blomedry.com, accessed September 27, 2011.
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Page 3 9B11B020 as one of Toronto’s premier restaurants. Coleman sold to retailers on consignment
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, providing $4 to the retailer for each pair sold. As of April 2010, 150 pairs had been sold on consignment.
Promotion
Coleman hired a public relations (PR) agency for the months from February through April at a total cost of
$1,900. The PR firm was given the task of preparing DH for its first public launch at a Motionball
6 event on February 10, 2010. At this event, DH gave away 600 packaged foldable flats as part of its promotional plan. Throughout April, Coleman was featured in several publications and in the media, including The
Eyeopener, The Wedding Planners Institute of Canada, The Hamilton Spec, Reuters, and Breakfast
Television. The most prominent publication appeared in The Toronto Star newspaper on April 16, 2010, and resulted in more than 170 sales that day and more than 3,000 hits to the company’s website.
SALES
Regardless of the distribution channel, Coleman remained committed to her retail price of $20,
7 which included the Harmonized Sales Tax (HST), which was a combination of Ontario’s Provincial Sales Tax
(PST) of 8 per cent and a federal Goods and Services Tax (GST) of 5 per cent.
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Coleman anticipated that an additional 20 retail locations would begin selling DH’s flats over the summer months, bringing the total number of retailers to 27. All retailers sold on a consignment basis. Since 150 pairs had already been sold by retailers, Coleman projected that a further 5,000 pairs would be sold through retailers by November 30,
2010. She also anticipated that website sales (including those resulting from her appearance on Dragon’s
Den) would total 11,000 for the entire fiscal period.
COSTS
Coleman predicted that she would order 2,000 gold and silver pairs in August 2010; the coloured pairs would cost the same as the black pairs. Considering the potential impact of the Dragons’ Den episode,
Coleman estimated that her final order for fiscal 2010 should be 10,000 pairs. This order would arrive in early November 2010. Based on the substantial shipping costs for the first order, Coleman thought it best to predict a weighted-average shipping cost of $0.35 for the set (i.e., a pair of flats and the bag) for fiscal
2010. She also anticipated that manufacturing costs would average $3.07 per pair of flats and $1.89 per bag, and product packaging and brand labels would remain constant at $0.33 per unit.
FUTURE PROMOTION OPTIONS
Trade Shows
Trade shows represented a popular choice for retailing entrepreneurs, yet Coleman had never attended one.
Two shows were scheduled for September 2010, and she was contemplating whether to attend one or both.
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Seller provided the goods to the retailer who paid the seller for these goods only after they were sold. The seller retained ownership of the goods until the goods were paid for by the retailer.
Motionball was a not-for-profit organization that built awareness and raised funds for the Special Olympics Canada
Foundation (SOCF).
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Canadian dollars unless stated otherwise.
On July 1, 2010, the Harmonized Sales Tax of 13 per cent was introduced.
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