You are a book store owner in a small town. In your first 18 months, your reach

Question

You are a book store owner in a small town. In your first 18 months, your reach $782,000.00 in sales. 90 percent of your customers make a purchase
of $13.59( closure /transaction size) and your You have estimated that of the 41,000 households in your market, 38 percent visit your store an average of 4.1 times a year. A Borders book store open 20 miles away from your store. It is hard for you to estimate the impact of this new competition. You predict that the number of households will decrease from 38 percent to 34 percent and the average shopping frequency will decline from 4.1 times per year to 3.9 times per year.

Question: What is the estimated sales impact of gaining Borders as a competitor?

(Hint: Annual sales can be obtained by multiplying the number of households in the market by the percentage that patronize your store multiplied by their average shopping frequency or number of visits per year. Then multiply this figure by the closure rate and multiply the result by the average transaction size.)

Explanation / Answer

time = 18 months = 1.5 year given gain $782,000.00 in sales total households = 41000 no. visiting your store = 38% of 41000 =15580 no of visits/per household per year = 4.1 total visits= 15580 X 4.1 X 1.5 = 95817 ( calculated for 1.5 years) 90percent have a bill of 13.59$ let closure rate = C therefore net amount = .9 X 95817 X 13.59X C = $782,000.00 C=.6672 = closure rate now under new circumstances no of visits = (34% of 41000) X 3.9 X 1.5= 81549 ( for 1.5 years)(3.9 visits per household) New Total sales = .9 X 81549 X 13.59 X .6672 = 665,482.5 $ ANSWER (90 percent customers with bill 13.59) ( c= closure rate) loss =782000 - 665,482.5= 116,517.5 $

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