In June 2004, Jen Kluger and Suzie Orol received a phone callfrom Sarah Gibson, one of their retail customers, in Winnipeg,Manitoba. Gibson called with a complaint about how many of hercompetitors now carried Foxy Originals jewelry. Gibson’s store hadbeen the exclusive carrier of Foxy Originals jewelry in theWinnipeg area for a number of years. With the growing popularity ofits designs, many stores in the area now carried the Foxy Originalsline. Kluger and Orol, owners and partners of Foxy Originals, wereworried. If they continued to saturate the Canadian market, theywould be faced with similar concerns from customers across Canada.The partners realized that it was time to grow the outside Canada,and they were excited about the possibility of selling theirjewelry in the United States. Their goal was to enter the U.S.market by January 2005, but they would first have to decide on thebest method of distribution attending trade shows or hiring salesrepresentatives.

Jen Kluger and Suzie Orol believed that life should be fun andfull of excitement, and they founded Foxy Originals based on thesebeliefs. These two young jewelry designers met while attending TheUniversity of Western Ontario, and they set out with a vision tomake high style fashion jewelry accessible to young women. Bothpartners had experience in the jewelry industry. Orol’s parentsowned a metal manufacturing company that focused on making jewelryand medals for companies and community groups. Orol was involved inthe family business from a young age. Kluger had been designing andselling her own line of necklaces since she was in Grade 11.Klugerand Orol started their business, Foxy Originals (Foxy), in 1998.They sold a modest line of jewelry to friends and acquaintances oncampus while attending university. In the summers beforegraduation, the partners took Foxy on the road to various outdoorfestivals and summer concerts. The results were very positive. Upongraduation, with business degrees in their back pockets, Kluger andOrol left corporate job offers behind to work full time at Foxy.The partners spent their time designing new product lines andpromoting Foxy in new markets. As the company grew and the jewelrythat sold at festivals and summer concerts became more popular,Kluger and Orol began selling their jewelry to retail stores. Eachretail account took a significant amount of time to develop, withthe partners personally contacting and meeting with each store’sproduct buyer. The partners were very successful at selling toretailers due to their high energy, enthusiasm and knowledge of theproduct. As a result, in the first three years of operations, thecompany’s sales had doubled every year. Sales were continuing togrow at a rapid pace. Kluger and Orol were always very enthusiasticabout their designs, and Canadian retailers began placing ordersfor Foxy jewelry after meeting these dynamic founders and learningabout the products. It wasn’t long before Foxy jewelry could befound in 250 boutiques across Canada. Kluger and Orol personallysold (i.e., they had no sales representatives) their product linesto every retailer in Canada and managed all operations. Kluger andOrol described Foxy as a company that managed to stay two stepsahead of the latest trends: In doing so, our collections remainfresh, fun and funky. We realize that in this day and age, beinghip and trendy comes at a high cost; not so with Foxy. We are ableto provide a selection of necklaces, earrings, bracelets and ringsthat are truly fashion-forward, at a reasonable price.

Foxy jewelry offered high style and high quality at anaffordable price point and targeted women between the ages of 18 to30 who were style- and price-conscious. The jewelry was designedfor three groups of women: The Reversible Enamels Ladies, TheBridge Ladies and The Chain-lovin’ Ladies. Kluger and Orolexplained each customer group: The Reversible Enamels Ladies:Reversible necklace enthusiasts are usually the very dedicated Foxycustomers who have been following our company since Day 1. They areslightly more conservative with their style and use Foxy jewelry toadd a little something special to their outfits. They love the ideathat they are getting two necklaces for the price of one. (SeeExhibit 1 for sample product preferences for this group.)The BridgeLadies: These customers consist of young, suit-wearingprofessionals. They want to add a little accent to their suits, butthey need to be careful how much they add. These customers go forthe leather necklaces with the bigger pendants. (See Exhibit 2 forsample product preferences for this group.)The Chain-lovin’ Ladies:These customers are more fashion savvy and trendy. They read thefashion magazines and seek out “that look.” These ladies collectour big earrings and long necklaces. They layer the Foxy necklacesand try the newest collections as soon as they are in the stores.(See Exhibit 3 for sample product preferences for this group.)

Foxy jewelry was designed and produced in Toronto, Canada.Kluger and Orol designed all the jewelry, releasing two newcollections every year. A collection or product line consisted of anumber of different styles of necklaces, earrings and rings, whereall styles were associated with a central theme such as “RoyalSafari.” The designs were assembled by a small production team ofprofessional crafts people.

All Foxy jewelry was made from pewter and coated in sterlingsilver, matte gold or bronze with a matte finish. Each item wasthen stamped with the Foxy signature to authenticate the designs(see Exhibit 4 for the Foxy signature tag). From this commonstarting point, the pieces were transformed into original worksthrough the integration of enamel, stones, leather andultrasuede.

Kluger and Orol had established a strong Foxy presence in theCanadian market, and they were now ready to expand into the UnitedStates. Financially, Foxy was healthy so any distribution costsrelated to the U.S. expansion could be financed from internaloperations (i.e., no funding was needed). The key fashion hubs inthe United States were New York, Los Angeles, Chicago and Dallas.Kluger and Orol did not want Foxy to be available on every streetcorner in every city. Instead, they preferred selling to reputablestores that suited the brand. Kluger and Orol decided to charge thesame price for their products in the United States as they did inCanada (i.e., a necklace sold for Cdn$34 and, in the United Stateswould sell for US$34). The U.S. jewelry market was more than 10times larger than the Canadian jewelry market, offering a muchgreater opportunity for product exposure. Based on the success theyhad achieved in Canada, Kluger and Orol believed in their product,but they worried about how responsive the U.S. market would be totheir jewelry designs. The partners believed that Canadianssupported Canadian businesses and were brand loyal to companiesthat manufactured locally; however, they suspected that Americanspreferred the latest trends regardless of the product’s origin.Classic jewelry (currently 50 per cent of Foxy merchandise inCanada) was also not as popular in the United States. Kluger andOrol would need to stay on top of Foxy’s fashion-forward designs tocompete effectively.

Trade shows were one-stop marketplaces for retailers to sourceproducts from wholesalers and importers. They were positioned forregistered personnel only, usually consisting of buyers fromfashion boutiques, accessories, jewelry, gift, fashion chain,department and other specialty stores. These exhibitions were notopen to the general public. U.S. trade shows were very large, oftenwith over 75,000 buyers in attendance. Kluger and Orol planned toset up a booth at several trade shows in order to showcase Foxyjewelry to prospective buyers. Buyers would select what merchandisethey would like to carry in their stores and would then place theirorders with the exhibitor. The partners had plans to attend tradeshows devoted to women’s fashion accessories, surf apparel andgiftware. There were 10 potential trade shows for 2005 where Foxycould showcase its products. Registration for all shows needed tobe complete by November 2004, at an average cost of $3,000 a show.The average trade show lasted three days, wherein Kluger and Orolwould require five days of preparation and both would work ninehours a day at the trade show. Kluger and Orol were excited aboutattending the shows to learn about the U.S. jewelry market and toget ideas for new product innovations. Trade shows were a great wayfor the partners to personally sell their merchandise and tonetwork with key people in the industry. The partners also loved totravel, and they looked forward to visiting the big U.S. fashionhubs. Because of the diverse attendance at these shows, it wasdifficult for the partners to predict at which retail stores theirmerchandise would be sold. Ideally, they preferred that all majorfashion-forward stores within a geographic area would supportFoxy’s merchandise; however, sales would likely be scattered acrosslocations that were diverse in geography and brand image. One ofthe principal selling factors at trade shows was the exhibitors’booth layout –– the more exciting and flashy the booth, the greaterthe number of visitors. The partners researched a number of boothsand settled on one that would cost $4,000 and could be used forapproximately 30 trade shows (see Exhibit 5 for booth display). Thebooth would have to be shipped to each trade show at an averagecost of $1,500 a show. Plane tickets and related travel costs wouldaverage $2,000per show, and product samples and promotionalmaterials would cost $2,800 per show. Kluger and Orol had friendsin many U.S. cities, so they planned to stay overnight with themwhen visiting the shows.

The partners had estimated that an average retailer order wouldconsist of 25 necklaces and 12 pairs of earrings. Retailers wouldpurchase necklaces for $17 and earrings for $12 from Foxy, whichthey would then sell to their customers for $34 and $24respectively. Shipping terms were FOB shipping point and cost anaverage of $15 an order. All necklaces consisted of a chain, apendant, a label, a clasp, and labor fees for a total cost of $8.05for each necklace. A pair of earrings cost approximately $5.50 tomanufacture. The partners expected anywhere from 20 to 45 orders ateach trade show. Historically, 50 per cent of retail buyers at thetrade shows would reorder product approximately two times ayear.

An alternative method of distribution would be to develop asales force in the key fashion hubs in the United States. Salesrepresentatives would carry 10 to 15 different brands, usuallywithin the same category of products (i.e., accessories), and wouldsell to retailers in designated geographic zones. Kluger and Orolwanted to hire people who would be loyal and who could representthe appropriate Foxy brand attributes. Kluger and Orol noted: “Themost important characteristics in sales representatives are thatthey believe in your product, and they are willing to get on theroad or travel to show it well.” Kluger and Orol knew having asales force would be a much faster way for Foxy to enter the marketbecause of the sales representatives’ contacts in the industry,their relationships with existing retailers and the minimum amountof training they would require. They also knew it could bedifficult to find the right people with the right characteristicsto make this alternative work.

Sales representatives would be compensated with a 15 per centcommission on all sales.

They would also receive $200 a month towards rental space intheir jewelry showrooms5(see Exhibit 6 for showroom display), twosets of sample boards6a year for a total cost of $2,900 andcatalogues and promotional materials averaging $600 a year. Foxywould have to hire a part-time bookkeeper to pay the salesrepresentatives because calculating sales commissions would betime-consuming and complicated. The bookkeeper’s fee would be $40an hour, and this person would be required for 48 hours a year.Travel expenses, such as gas and mileage were not covered by Foxy.Production costs and retailer order size were the same for thisoption as for the trade show option. The average salesrepresentative would sell between 10 to 15 orders each month. The10 to 15 orders included both new account sales and reorders fromexisting customers. If this option was chosen, Kluger and Orolplanned to hire four sales representatives, one in each of themajor cities of New York, Los Angeles, Chicago and Dallas.

Ideally, Foxy preferred to enter the U.S. market by attendingtrade shows and hiring a sales force. The problem with thisalternative was territory ownership. For example, if Kluger andOrol attended a trade show in New York, and had hired a New Yorkbased sales representative, it was an industry norm that the salesrepresentative would expect a 15 per cent commission from salesmade at the New York trade show. Kluger and Orol investigatedstructuring the sales representatives’ commission package based onsales they made personally rather than on all sales made withintheir geographic location. Sales representatives were unhappy withthis alternative because not only would competition be createdbetween sales representatives, but also between the salesrepresentatives and Foxy. For example, sales representatives workedhard to establish contracts, and many times, contracts were signedwith one store, and as a result, other stores would see the productand would want to carry it themselves. Sales representativesbelieved they should be compensated for these spillover sales, andthey were concerned that the new retail stores could order directlyfrom Foxy. To combat the issue of internal competition, thepartners thought about attending trade shows in the major citiesand having their sales force work in the smaller cities; however,smaller cities were not as fashion-forward, and would not help toestablish the Foxy brand presence in the United States, the waysales representatives could in major cities. In the short term,Kluger and Orol decided to focus on just one of the distributionchannels in order to limit the complexities of the U.S. expansion.If the partners decided to pursue both trade shows and salesrepresentatives, it would be a longer-term strategy.

Kluger and Orol were excited about the U.S. opportunities, andthey wanted to ensure they were entering the market with a solidstrategy. The partners had built the business on the principles ofhaving fun, gaining exposure for new product lines and stayingahead of fashion trends. To date, they had been highly financiallysuccessful in doing just this. Knowing the additional workload thatthe U.S. expansion would create, they hoped their profit would growby at least $100,000. Both options appeared promising but notwithout risks. Kluger and Orol had to make a decision quickly toprepare for a January 2005 launch.

WITHOUT USING EXCEL:

1. Calculate the number of orders at a target profit of$100,000