BONNE CHANCE Harvard Case Solution & Analysis

BONNE CHANCE Case Solution

PROBLEM STATEMENT

The problem in this case, is the shortage of cash to stabilize the historical decline of Bonne Chance’ profitability. With the help of different options with their underlying impact on the overall cash flow, some recommendation can be made.

REVOLVING LOAN FACILITY (Mitchell, 2011)

The company can take the revolving loan facility by having the adequate amount of inventory, which can work as collateral. Due to the history, the bank requires Rolex inventory to be about 70% of its overall cost, 40% of other inventory cost as well 60% of receivables fewer than 60 days. The manager is required to have a strict control of inventory in order to stay with this revolving loan. With the increasing sales through the various different options available in the company, this covenant of inventory position can be maintained.

ROLEX TRADE IN OPTION (Emilios Galariotis1)

The company had the option of using the trade promotion, which could allow the increase of sales as well as new customers. However, this technique requires huge cost for the overall advertising budget. This option could be more favorable as compared to discounting the prices of watches, which could significantly affect the contract with the dealer of Rolex.

By replacing the previously taken advertising expenditure with this one of $6,000 in the first and second week of October, $4,000 in the third week, and $3,000 in the last week, the company could increase the sales of Rolex to $30000, $36,000, $36,000, and $30,000 in the four weeks of October respectively. In addition to this, with the help of increased promotion, the company could increase its sales of merchandise to about 5% of its projected sales in the first week and 10% in the other three weeks of October.

The overall situation could help resolve the issue, which the company is facing due to the tough competitive position. On the other hand, due to the increase in the trade promotion, the overall profitability would be reduced. After analyzing all the remaining options, some recommendation can be made.

OFF PRICE SALE OPTION

The other option available for company is to use the off price sale of the items of the company other than Rolex. This situation can lower the gross margin of the company to 25% due to the sale of Rolex on regular prices and sale of other merchandise on off price method. However, the company would be required to increase its advertising budget in order to promote its other merchandise sales. The company has the option to operate effectively by using the other merchandise sales through off price sales, which can provide the benefit of no further advertising expenses..................

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