IFSM 300 - Final Exam: Virginia Bikes. Case Study.
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Course
IFSM 300
Institution
University Of Baltimore
IFSM 300 - Final Exam: Virginia Bikes. Case Study.
Virginia Bikes
Case Study
In 1985 Bill Thomas took $6,000 of his savings, borrowed another $4,000 from his best friend, and
opened a bike rental business in Vienna, VA. The rental shop is adjacent to the Washington & Old
Dominion Trail (W&O...
Virginia Bikes
Case Study
In 1985 Bill Thomas took $6,000 of his savings, borrowed another $4,000 from his best friend, and
opened a bike rental business in Vienna, VA. The rental shop is adjacent to the Washington & Old
Dominion Trail (W&OD) that goes from Purcellville to Old Town Alexandria (45 miles), connects to
the Mt Vernon Trail (18 miles) and ends at George Washington’s Mt Vernon Estate. Bill, bought 10
bikes for his first store. The location has parking, and is near the historic Vienna Inn and a number of
food and drink establishments. He has since opened stores in Old Town Alexandria and Reston, VA,
where he sells, rents and repairs bicycles.
The Vienna store is now Bill’s anchor store, and at 5,000 square feet, it is three to five times larger
than his other stores. Bill estimates he sells around 3,000 new bikes a year. Because of the high
use of the W&OD trail, especially on weekends, he also provides tune up and maintenance services
at all of his stores for the many riders from up and down the trail.
In 2012, Bill leased a store in the heart of D.C., near the Smithsonian Museums and other tourist
attractions. He uses this store to rent bikes to tourists and residents of the city, and does some
repairs to his rental bicycle inventory in the back of the shop.
Although he has always made money, or he would not be in business, Bill has seen a decline in
bikes sales of about 20 percent since 2008. He attributes this to the downturn in the economy and
the growth in Internet sales. However, his rental, tune up and repair business has increased
dramatically. Over the past few years, he realized that he must be more aware of expenses and
decrease them wherever practical in order to preserve profits.
Bill thinks that the one of the most important factors is the weather, but has no data to support that
thinking. On rainy days, there are few customers in the stores, while on sunny weekends all of his
locations are extremely busy. From spring through fall, Bill keeps all his stores open seven days a
week, while in the winter months he opens his stores on the weekend when the weather is good for
riding. Through observation, Bill figures his highest sales occur in May, and that June and
September are his best months for rentals. He also sells many bikes during the holiday season in
December, but in January and February, he often wonders if he should close shop and go to Florida
for a couple of months.
Virginia Bikes grosses between $5 and $8 million annually and earns Bill a comfortable six-figure
income. Each year, he leaves a considerable amount of cash in the business so that he does not
have to borrow money to keep his business going. He sells a wide variety of bikes (from tricycles for
toddlers to sophisticated racing bikes) and accessories such as helmets, speedometers, bike racks,
repair kits, and clothing. Bicycle sales have decreased to account for 25 percent of revenues.
Accessories such as helmets, bike racks, gloves, and locks amount to another 5 percent. Rentals
make up about 35 percent, and repairs make up the remaining 35 percent.
Summer 2015 1
, In recent years, he has noted that customers are less likely to purchase the high-end road and
triathlon bikes, and are purchasing bikes in the range of $400 to $1,000. The lower-priced bikes are
also easier to sell and to keep the inventory moving.
Most of the rental business is concentrated in the downtown D.C. and Alexandria stores, due to the
tourists and university students located near those stores. Bill is excited about rentals, as they have
a huge profit margin. He can charge as much as $50 a day, which means the bikes pay for
themselves after just a few rentals.
Bill’s expenses include such costs as new bikes, parts and accessories, rent and payroll. He
negotiates leases for all his locations except the Alexandria store, which he owns outright. Bill has
15 full-time employees and usually hires another 15 part-time employees during the busy months
and weekends.
Until two years ago, he was spending about $30,000 a year on advertising in local papers. Now he
uses a simple website and has links on many of the local biking trail sites to provide information
about his various locations, and his advertising budget is close to zero.
In the late 1990s, Bill over-expanded to six stores, including a store in Purcellville, VA, and one in
Bethesda, MD. The expansion necessitated a warehouse in Springfield, VA, the hiring of a general
manager and considerable overhead expenses. In a subsequent cost-reduction effort, Bill closed
the Bethesda store, gave up the warehouse and moved his inventory to the Vienna store, and let the
general manager go. Now, he handles all the general management tasks himself, which affects the
time that he has available to plan and develop strategies.
Bill further reduces his expenses by working in the Vienna store two days a week. Since he has only
one staff person in some of his stores, he has to make special arrangements if that person does not
come to work, or takes a day (or week) off.
He is trying to expand the bicycle repair work, especially on the weekends, so he will be able to
increase revenue from this profitable aspect of his business. He needs to have repair capability at
each store to maintain the rentals, prepare the new bikes for sale, and perform the periodic
maintenance for the bikes that he has sold, as well as provide the breakdown repairs and
adjustments for the riders on the trail.
In an effort to increase profits, Bill tries to get good deals from his suppliers so he can realize a good
margin on bike and accessory sales and repairs. He looks for situations where suppliers have more
bikes in a line than they need and buys those bikes at a discount for rentals and low-end sales, while
maintaining a rapport with high-end suppliers so that he can offer his customers the best at
reasonable prices. By doing so, he can sell bikes at a lower retail price with on-the-spot delivery
while still realizing a nice profit.
Bill has no bank debt and has long since repaid the $4,000 he borrowed from his friend to start the
business. He feels that, because he has a diverse business strategy that addresses the many
different aspects of the local bike business, he will do well in the many different economic climates
as long as he is able to manage his varied business. He also feels that he is insulated from
“substitutes” from the electronic world, due to the rental and repair aspects of his business.
Bill is seeking your help to analyze his business and identify areas where information systems could
help him better manage and grow his business.
Summer 2015 2
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