Foxy Originals - Expansion into the U.S. Market

Foxy Originals-Expansion into the U.S. Market

Summary

Foxy Originals was founded in 1998 by recent university graduates Jen Kluger and Suzie Orol, it is a Toronto-based jewelry that grew to be one of strongest high end jewelry companies in the Canadian market (over 250 Canadian boutiques). The company’s main age group is women between the ages of 18 and 30 years old. One of the reasons why Foxy was so successful is because of its ability to satisfy huge demand for low-priced high-end jewelry and also the fact that catered to low-income young women. As a result, Foxy Originals had a remarkable 400% growth (Exhibit 1) in its first three years of business, and it continues to grow at a rapid pace. Looking to expand, Foxy Originals decided to put the U.S. as one of its customers. However, the U.S. market is has a relatively different taste of jewelry. With that being said, it might take Foxy some time and there might incur some launching costs such as SGA expenses for the company bridge a gap of difference between U.S. customers and Canadian customers.  to the different appreciation between the American and Canadian customers. Based on the analysis of the pros and cons, set aside the manufacturing capacity issue to future, the partner believed it’s worthwhile taking the risk to enter into the U.S. market.

Key Problem (s)

With the Canadian market becoming over-saturated, Foxy Originals is trying to decide on the best strategy for expanding into the US market. The company must overcome its newness with the US jewelry market, its absence of a solid advertising and distribution strategy, and the high costs of acquiring new retail accounts. Time is an important factor, because Foxy Originals plans to enter the US market by January 2005. The company has a short time (6 months) to develop a compact plan for the U.S. expansion. In other words, their goal of launching by January 2005, is quickly approaching. There are a couple of options Jen and Suzie can take first tour their products at ten U.S trade shows and make direct sales to retailers or secondly, hire sales representatives in the key fashion “centers” of the U.S.

Solution 1: Trade show distribution strategy gives the partners a chance to learn about the market trend and customers’ preference.  This given information would simplify the choice making methods on placing their products, new product design as well as benchmarking strategies. However, with this strategy comes a risk of higher fixed costs but lower variable costs [Exhibit 1] compared with Sales representative strategy. Also, another element that would be a cause for concern is time (days of preparation and days needed for one trade show) which equals a huge opportunity cost where the partners could be utilizing their time with more important aspects like the overall business strategy or company structure design, etc. Below is the cost of going to the trade show:

Expenses depending on # of trade shows

   Foxy planned to attend 10 shows, so total cost per year would be $93,000 ($9,300*10).

Expenses for one time investments

Total Fixed cost would be $9,433 (=9,300+133) per show and $94,330 per year.

Contribution margin from the trade-show

For each order, Foxy would sell 25 necklaces and 12 pair of earrings, and would pay $15 of shipping cost. Therefore, total variable cost and weighted average contribution margin for an order at a trade show is calculated as following:

Solution 2: Sales representative’s distribution strategy is another alternative that can help develop a sales force in the important fashion centers (NY, Chicago, LA and Dallas) in the United States. This strategy would help the company to enter into the U.S. market more quickly by benefitting from the established sales channel and contacts of the salesmen or saleswomen. With that being said, the partners know that finding suitable personnel would be quite difficult. The cost & benefit analysis [Exhibit 2] shows that this strategy has much lower fixed costs while with higher variable costs incurred from the commissions for sales representatives.

Costs for the sales representatives

Expenditures depending on # of sales representative

   Foxy planned to hire 4 representatives, so total cost per year would be $23,600 ($5,900*4)

Other expenditures

Total Fixed cost would be $25,520 (=23,600+1,920) per year

Contribution margin from the sales representative