Reference No. : TC 050 (ICSC)
Case: Sour Experiences Make Waji Boutique Look for Better Ways to Run the Business
Usman Nazir
-------------------------------------------------
The case is written by Asst Professor Usman Nazir (usmannazir@iba.edu.pk) solely for the purpose of class discussion. It is not intended to indicate any effective/ineffective handling of managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality.
It had only been a few months since Mr Bashir Ahmed, a retired IT Consultant, opened a boutique. He had done a good job in setting up the boutique and sourcing the necessary products for it. His business was slowly nudging towards break-even and everything was running smoothly, so he thought. After seven months of work, his salesperson and the only employee, Khawar, left work without prior notice. Mr Bashir decided to sit at the boutique himself until he found a suitable replacement. He was shocked to find all the fraudulent activities and deceptive tactics Khawar had been using right under his nose. There was inventory mismanagement, accounts manipulation and hidden loans on company’s accounts. Mr Bashir is sitting at the boutique and thinking how to fix the issues and the best way to move forward.
Setting up the Boutique
Mr Bashir had been an IT expert all his life. He joined a multi-national IT company right after graduation and stayed with it for the next forty plus years until his retirement as a senior executive of the company. Life after retirement was what every person would wish for - all his dues were paid off; the daughters and sons were married and independent; the retirement policies had matured and started paying off; hefty pension from the company was coming into his account every month. All was good except one thing; he didn’t know what to do with his time. After working for over forty years he found it difficult to not work.
There was a new mall opening near Mr Bashir’s house in Malir Karachi. A friend suggested him to run a shop in it so to put his time to good use. He applied and won himself a place in the lucky draw to setup a shop at a very good location in the mall for the rent of Rs 19000 per month. This included all the overhead expenses like management fee, electricity bills and maintenance charges. Initially, he wanted to use the allotted space for IT related products or services, but the management of the mall decided against it and asked him to sell something related to ladies products, per the mall plan, or leave the shop for someone else to use. Mr Bashir didn’t want to leave the shop. He decided to turn the shop into a boutique selling ready-made ladies clothes.
Mr Bashir had no one in his family or friends who owned a boutique. He didn’t have any idea on how to go about things. He started searching online for information and interviewed several boutique owners in different malls. One of the boutique owners gave him an idea to just copy whatever he likes about a boutique into his business. Armed with the idea, Mr Bashir started taking pictures of boutiques he visited and made a layout for his shop. Soon enough, Mr Bashir hired an interior decorator and shared with him the layout of the boutique he wanted. Within the next five weeks the boutique was ready for display.
Now came the part of getting the inventory for the boutique. Mr Bashir knew nothing about ladies clothes and asked his wife to help. His wife was well versed in current designs and trends. She went to Tariq road and bought around three hundred dresses she liked. Even though there was plenty of room for more clothes but this provided Mr Bashir enough display material to open the shop for customers.
Pricing and Sourcing the Products
Mrs Bashir got the dresses within the range of two thousand to three thousand rupees. Mr Bashir simply doubled the price of each outfit and put it up for sale. Many customers would come and look at the clothes but almost all of them walked away without making a purchase. Only one dress was sold the first month that too was bought by a family friend. Mr Bashir acted quickly and changed the price of clothes. This time he added half the cost of an outfit as profit margin. He was expecting a much better response as a result but second month was worse than the first. There was no sale the second month. The customer traffic was there but there was no sale.
Customers who walked in the boutique did like the clothes but usually left because they found them too expensive. One of the neighboring shop owners suggested Mr Bashir to buy clothes from a wholesaler in Sadar and sell them in the range of Rs 1500 to Rs 2000 for these were the rates most of the people in the mall were using. Mr Bashir did exactly this. He bought two hundred additional clothes from wholesalers at the cost of Rs 700 to Rs 1200 each and sold them for less than Rs 2000.
The third month did show improvement in sales. Twelve outfits were sold with the gross profit of Rs 9000.
Hiring the Employee
Just before opening Mr Bashir put up an advert on local shopping malls and grocery shops looking for a sales assistant who could take care of his boutique. He had also asked his relatives, friends and house servants to suggest a suitable person. Many suggestions came but the referral from the gardener for Mr Khawar Iftikhar stood out from the rest.
Khawar was matriculated and had worked in a jewelry shop for about 7 years as a sales person. He had sharp sales instincts and had some ideas on how to manage accounts. He had a non-threatening personality and was presentable enough to be talking to the customers. Khawar came to settle in Karachi from Mansehra with his wife and a 3 years old son.
Mr Bashir thought Khawar was perfect for the job. He was looking for someone who could handle all aspects of the business and Khawar fit the spot. Khawar was hired on a monthly salary of Rs 8500.
Operations and Procedures
The opening hours of the boutique were from 11am to 11pm, with Friday as an off day. Most of the shops in the market also followed similar timings. Mr Bashir had handed the keys to Khawar from the very first day and made him responsible for opening and closing the shop.
Mr Bashir had devised a two tag system for managing inventory. For every outfit he made two tags; one he put up on the dress at the outlet with the sale price on, the other he kept at home and wrote description of the outfit, cost price, sale price and date of purchase on it. At the end of every month he asked Khawar to hand him the tags of the sold merchandise and matched it with the tags at home. This way he knew how many clothes were hanging in the boutique at any one time. At the end of every month Mr Bashir would go and visually check all the clothes placed in the boutique. He also randomly picked samples and noted their tags so to match them with the ones at home. This helped him to keep a check on inventory and gauge the type of merchandise to order. Also, there was Khawar to help. Every month he would ask Khawar on what other types of clothes he should get from the wholesalers.
The system seemed to be working pretty well. Khawar was a keen observer and he rightfully pointed out the inventory that was being sold and asked Mr Bashir to buy more of it every month. The hottest selling items in the shop were Plazos and Casual Shirts. Towards the end of sixth month Mr Bashir was buying, on average, about 40 Plazos and 30 casual shirts every month.
Fraud
Everything seemed to be running smoothly. The business was profitable, the sourcing of the products was well set and the boutique had many repeat customers. Six days into the seventh month of operations of the business Mr Bashir visited the shop and found out that the shop had been closed for the past three days. Khawar had never done this before, let alone take a sick leave. Mr Bashir tried to call Khawar on his mobile phone but there was no answer, so he left him a message. The next day he was surprised to know there was no call from Khawar. He decided to visit Khawar’s house and found out that Khawar and his family had vacated the flat about three days ago and left no follow up address or contact number. Mr Bashir was alarmed and contacted the gardener for it was him who recommended Khawar. Even the gardener did not know where Khawar went. The gardener told Mr Bashir that he would contact his family in Mansehra to find out where he went. Even Khawar’s family didn’t know where he was.
It had been about a week since the shop was closed. Although, Mr Bashir had put up adverts looking for a new sales person, he did not want to wait for too long to open the boutique as it would drive his loyal customers away to another shop. He decided to sit at the shop himself. For the next three weeks he sat at the boutique and got to know all the mischief Khawar was up to.
Khawar did open the shop at 11am but regularly left at 1pm putting up the sign of ‘Prayer Break’ and came back at about 4pm to open the shop. He had bought his family clothes from neighboring shops on company’s account and loaned money from them. He would also bring a separate stand of ladies accessories and put it in front of the shop between 4pm to 8pm noting Mr Bashir never visited the shop during that time. Should the customers appear at the stall and the shop at the same time he prioritized attending the customers at his stall first.
Mr Bashir was shocked to find out the discrepancy in his inventory. He thought his two tag system, random count and visual check was fool proof. Although, the hottest selling items were well in check but the old inventory items didn’t match the records. A customer came to the shop and asked Mr Bashir to show a dress from one of the earliest merchandise he had bought. She liked the dress but thought it was too expensive for just a shirt and scarf. Mr Bashir thought so too for the description of the item showed three pieces. Khawar had kept the tags on the outfits as they were but had sold different parts of the dresses separately. For a three piece suit that had trousers, shirt and scarf, he had separately sold a scarf or a shirt. This was done to almost all the merchandise bought at the very start of the business.
-------------------------------------------------
With the inventory mismanaged, discrepant accounts and loans on business Mr Bashir was thinking how best to tackle the current situation and what procedures and checks should he implement in order to avoid such wrong doings.