Question

Case Study: The Flower Shop

Anastasia owns a successful flower shop. She has been in business for four years and enjoys a good reputation in the community. She is a good marketer and good manager. The shop is in a prominent location with an ample parking lot which thus provides good foot traffic for the business. The shop is opened six days a week from 10am to 5pm. Recently, she has been thinking about extending the flower shop’s hours an extra three hours per opened day. She anticipates the cost to be consistent with historical averages and can forecast a realistic revenue stream.

The costs for the flower shop include the fixed cost of the building lease which is

$2,100 monthly along with interest on loans of $400 per month. The electricity and utilities on a monthly basis average $250. She views this cost as fixed as the heat and refrigeration systems are always on. The additional hours of lights are considered negligible.

The gross cost of compensation, which include wages and benefits, for an hour of labor is $15 per person. She is a good trainer which means she will not need to be on site for all extended hours. The average customer transaction in the store is

$56. She uses this number to estimate the per dollar average variable cost of bringing the raw flowers for sale per customer at 30 cents (.30). She further estimates the per dollar average variable cost of presentation (ex. Wrapping, vase, etc.) at 35 cents (.35).

She estimates that the additional revenue generated for the extended hours on an average basis will be as follows:

Additional Hours:	Average Hourly Revenue:
5pm to 6pm	$200
6pm to 7pm	$140
7pm to 8pm	$60

Q5: Describe the opportunities and challenges might encounter in extending the flower shop hours.

Answer 1

CHALLENGES:

1. The biggest challenge with extended hours of the flower shop is covering the extra cost that Anastasia will have to bear. It will be a big risk if the business does not pick up the extra pace needed to earn more profits. In this case, the extra cost might lead to loss of revenue rather than increase in profits. The cost will have to be covered from existing average revenues.

2. Loss of leisure time for the employees working extra hours. Some of the employees might not be willing to give up their leisure hours due to their personal reasons at the given wage rates. In this case, to motivate people to work for longer hours, wage rate will have to be increased by Anastasia.

3. Advertising about the increased working hours of the flower shop. The customers might not be aware about the increased working hours and so would not turn up to the shop and might go to other flower shops when needed that have already been open for longer hours. Thus, advertising costs might also get included to the extra costs.

4. Might need excess goods in stock. Anastasia will have to increase the quantity of stock in the shop. If business increases, the stock might get cleared. Otherwise the stock will remain in surplus and perishable stock i.e. flowers will get spoiled leading to another cost for Anastasia.

5. Working extra hours might lead to health issues for the employees. This will also be have to taken care of by Anasatasia. Or else workers might lose interest in working with her and it could lead to lose in credibility of as an employer.

OPPORTUNITIES:

1. Increased opportunities of gaining business.

2. Increased profits.

3. Increase in customer base. Earlier when working till 5 pm, many of the customers who might be free to visit the shop after 5pm would have been unaware of the existence of this shop. Thus, with increase in working hours, the customers would get to know about the shop leading to rise in the customer base.

4. More income for the emoployees.

5. More employement opportunities for people looking for work in a flower shop. Increase in business might demand more hands in the business.

6. Hold on customer trust by being available for them for longer hours. This will increase the credibility of the shop in front of the customers.

7. Opportunity to build a brand name by providing quality service for longer hours of the day.

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