2. a) Forecast Hollydazzle's operating income for the year ended June 30, 2000 if sales grow by 50% over forecasted sales for the June 30, 1999 year. Assume that Hollydazzle's prices and cost structure and relationships remain the same as in 1998, and as before, 1,200 new customers make purchases each month.
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In this situation, since initial costs are the same for both years, it leads to more operating income. In a normal business situation, we cannot expect an operating income during the first few years as one has to invest a thumping amount of initial cost. Even if a business can reach break even point at an early stage, it is a great achievement. As an etailer Hollydazzle has scope for increasing the volume with less effort and costs compared to any other retailer because customers are moving towards this direction faster than ever.
3. Hollydazzle can also consider outsourcing its warehousing and distribution function. It would have to pay MooV, a warehousing and distribution specialist who has worked with other etailers, 6% of total sales. Should Hollydazzle consider outsourcing its warehouse operations What other factors should Kristin, Eric and John consider in making this decision
This will enable a business ventures to diversifying the revenue sources. Of course it will look like an additional cost. But this approach will minimize the current expenses by reducing the risk, staff and other resources such as monitoring time. According to Andrew Neitlich (2004), it will 'also lets you take advantage of people you know who might refer you work, even if it is outside your core market'. This is also some kind of Marketing promotion as their word of mouth will also carry some weight in expanding the volume of transactions.
MooV seems to have experience in working with other etailers, which is good. Since the major concern of Holludazzle is the etailer than a land-based store business, they can relive from the hassle of land based activities if they could outsource this activity. However, it is at a price, which means they may have to pay 6% of their total sales to them. Instead of just passing it over to MooV, there are few aspects such as advantages and disadvantages Kristin, John and Eric have to consider before coming to any conclusions.
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