Business case: Cobbler.com Ltd. is expanding
Read about how to solve a business case here
Cobbler.com Ltd is the largest online cobbler service in the UK
Customers can send their shoes by mail to the cobbler factory in Manchester where they are repaired by the company’s shoe cobblers and returned the following week. Flexibility, price and quality are considered key success factors for Cobbler as a company according to a recent customer survey.
The board of directors wants to expand the business to other parts of Europe as they have identified opportunities for growth and want to leverage economies of scale. The CEO has therefore reached out to Cupole for support in order to understand the market potential in Sweden.
Here are the key questions we need you to answer in order to help Cupole and Cobbler.com Ltd.:
Question 1:
What is the market size for shoe cobbler services in Sweden?
Question 2:
Should Cobbler enter the Swedish market? Elaborate your thoughts.
Question 3:
The CEO has decided not to expand to Sweden as the projected profit margin year four is five percentage points less than the board’s required return. However, an analysis suggests that a profit margin increase is possible by selling Cobbler labeled shoe trees. What volume of shoe trees is necessary to sell in order to reach the profit margin required by the board (assuming all else equal in the business case)?
Additional information for question 3:
Expected key figures 2022
Estimations
Expected revenue split 2022
Key figures private label products
Don’t go any further unless you’re ready to see the right answers!
Suggested solution to Question 1
This question can be approached in many different ways. Our example relies on the assumption that two of the main demand drivers are an individual’s age and place of living where people living in larger cities are expected to consume cobbler services to a greater extent than people living elsewhere. A good answer can rely on other assumptions provided that the main demand drivers are sufficiently motivated.
Population figures of large cities are based on below estimations
Drivers affecting demand for cobbler services
Large cities
Outside large cities
Based on the data provided, this is the reasoning we would use to conduct a sanity check:
– A rough estimate would be to assume that an average shoe cobbler has one customer per 10 minutes, open 10 hours a day 250 days a year, with an average transaction value of SEK 250
– The average revenue per shoe cobbler would be SEK 3,5-4 m
– With a market size of SEK 2 bn, this would equal in ~550 shoe cobblers in Sweden (one per 18 000 inhabitants) – sounds fair!
Answer Question 1: Shoe cobbler market size is SEK 2 bn per year
Suggested solution to Question 2
Sample of demand drivers affecting market attractiveness for shoe cobbler services online in Sweden:
– High online penetration
– Large share of purchases online (specifically for shoes and clothes)
– Large share of online sales for similar services
– Large share of population wearing leather shoes
– Expensive shoes are common
– Wear and repair attitude
– Purchases of expensive shoes lead to a willingness to repair rather than buy new
– Delivery is cheap
– Mature delivery infrastructure
Answer Question 2: Sweden matches multiple of the drivers and should be considered an attractive market for Cobbler.
Suggested solution to Question 3
Key figures necessary to calculate the correct answer:
– Customers per year = 30 000
– Cost of purchase shoe tree = SEK 30
– Retail price shoe tree = SEK 200
– Revenue 2022 = SEK 40 m.
– Profit margin 2022 = 10% (SEK 4 m.)
– Profit per shoe tree = SEK 200 – SEK 30 = SEK 170
Suggestion for simplification: Make an assumption that the sales volume of shoe trees doesn’t affect costs other than total purchase price. E.g. space for inventory is available, no additional work for employees.
Multiple approaches for calculation are possible. We believe it to be best to work from total revenue but it could also be calculated per customer etc.
Required return is 15%
Suggested approach to calculate the volume of shoe trees to reach 15% profit margin year 2022:
Calculation:
4 000 000 + 170x / 40 000 000 + 200x = 0,15
0,15*(40 000 000 + 200x) = 4 000 000 + 170x
6 000 000 + 30x = 4 000 000 + 170x
2 000 000 + 30x = 170x
2 000 000 = 140X
X = 14 285
14 285 / 30 000 = 0.47
Answer Question 3: 14 285 shoe trees are required to be sold in order to reach a 15% profit margin in 2022. Cobbler has 30 000 customers per year, meaning each customer needs to purchase 0.47 shoe trees per year. It is reasonable but a student should reflect on that a shoe tree lasts longer than a pair of shoes and that 0.47 could be too high of a number.
These are a few practical examples of how to break down a business case and to clearly explain the reasoning behind it. We would advise you to complete a bunch of cases like this one as a preparation for your real-life case interview. There are tonnes of assets to find apart from ours to find through some light research. Have a look and good luck with your case solving!
