TO: Jen Kluger, Suzie Orol
FROM:
DATE: September 12, 2011
SUBJECT: Foxy Originals Expansion into U.S. Market

Introduction
This memorandum compares two approaches Foxy Originals can take to expand their Canada-based operations into U.S. markets. Specifically, CVP analyses will be conducted to figure out the financial implications of each method. Finally, recommendations will be made about how Foxy Originals should proceed in its expansion.
Mission of Foxy Originals
Jen Kluger and Suzie Orol built Foxy Originals on the principles of having fun, gaining exposure for new product lines, and staying ahead of fashion trends. Foxy offers high style and high-quality jewelry at an affordable price, targeted toward women between 18 and 30 years of age. Kluger and Orol have established a strong Foxy presence in the Canadian market and are now ready to expand into the much larger United States markets with the hope of growing profit by at least $100,000. Kluger and Orol first have to decide whether the best method of distribution going forward is to attend trade shows or hiring sales representatives in the key U.S. fashion hubs.
Option 1: Personal Attendance
Trade shows are a good place to expand a business because they are very large, often with over 75,000 buyers. Jewelry companies set up booths to showcase their products to these potential buyers, who then place orders for select merchandise they would like to sell in their stores. Trade shows are a good place to learn about U.S. jewelry markets and they allow for personal networking with important people in the industry. However, trade shows require days of preparation, and there is high uncertainty in regards to which retail locations will sell the products because of the diverse attendance.
Option 2: Hired Representation
The owners could instead hire Sales Representatives, who would carry different brands and sell to retailers in key fashion hubs. Hiring representatives are a fast way of entering U.S. markets because sales representatives have pre-existing networks with retailers. However, it can be difficult to find people with the right connections and training.
CVP Analysis and Assessment
A thorough CVP analysis has been conducted to examine the alternative ways for Foxy Originals to expand their business into the United States. The personal attendance option has a higher contribution margin, meaning that there are less variable costs relative to selling price. Personal attendance has over $30,000 higher estimated profit per year at high projection numbers for both options, but almost $61,000 lower profit per year with low numbers (Exhibits 2, 5). The difference is a result of high fixed costs for trade shows, which is approximately $97,000 for the year, compared to $25,520 for four hired representatives (Exhibits 1, 4). Therefore, neither distribution channel is decisively more profitable than the other. Uncertainties lie in how many orders will be made at trade shows compared to through representatives.
If the owners choose to personally attend trade shows, approximately 17 orders at each of ten trade shows throughout the year will be needed to break even (Exhibit 3). This is less than the minimum of 20 that can currently be expected for any one trade show. Reaching the target profit of $100,000 will require approximately 35 orders per trade show, which is also in the expected range of 20-45 (Exhibit 3). If Foxy Originals instead chooses to hire representation, each representative will be required to make 3 orders per month to break even (Exhibit 6). This is significantly less than the 10-15 orders per month that can be expected. In order to reach $100,000, each representative will be required to make 13 orders per month, which is within the expected range (Exhibit 6).
Recommendation and Action Plan
It is recommended that the owners hire representatives to help them expand into the U.S. markets. There is more guarantee that Foxy Originals will break even, and it is fairly certain that the $100,000 target can be reached. Foxy Originals will be in a better starting position using sales representatives who are more familiar with U.S. markets and customers, and thus require little training. They have connections to key people in the industry, which would take a long time for the owners to establish on their own. This option allows the owners to use their time adjusting to the market and tastes of customers in United States.
Foxy Originals should interview candidates to find four representatives that are loyal, identify with the company’s image and goals, and have extensive knowledge of U.S. jewelry markets. One representative should be designated exclusively for each of four major markets (Chicago, New York, Dallas, and Los Angeles), which allows each representative to collect commission for sales in the entire city. Finally, this option gives the owners more certainty regarding which retailers will ultimately sell their products in store. This is important to the owners, who want all major fashion stores in an area to support their merchandise.
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