Question

Assume you work for Bass Pro Shop, and your manager requests that you outline the pros and cons of discontinuing its Golf department. That department appears to be generating losses, and your manager believes that discontinuing it will increase overall store profits, What should management consider when trying to decide whether to discontinue its Golf department?

Answer 1

Deciding whether to discontinue a particular product/department involves a lot of analysis and one needs to consider several factors before taking such decision. Some of the important factors which management of Bass Pro Shop should consider when trying to decide whether to discontinue its Gold department or not are:

1. Total Costs:

An analysis of the total costs incurred for running the department is essentially important. It is not just an analysis of the total costs but the analysis of the break-up of total costs such as variable costs, fixed manufacturing overheads etc. Such total costs needs to be compared with the expected revenue generation to derive at the expected outcome out of the department. Proper bi-furcation of expenses is also important as fixed costs which are relevant for the whole company and are just allocated will not be relevant while taking such a decision.

2. Future Projections:

Every business/product is expected to have loss at the beginning and every product has its own life to break-even and start generating profits. Hence management should carefully analyse the future projections of the product. The golf department might be generating losses now, however, future projections give a different picture.

3. Cross-selling opportunities:

Often one department is responsible for providing very essential products/services to its intra-group entities. Hence even though the department might be in a loss, they may be essential for the company as a whole and hence it is not just the loss of the golf department which should be looked at but an analysis of the overall impact of golf department on the whole company including other departments.

4. Employee security/morale:

Shutting down the gold department will also lead to a huge layoff of the employees. This can turn out to be highly demotivating for the other existing employees and might even affect the image of the company in public. Hence the management of Bass Pro Shop also need to factor in the employee morale before making such a decision.