Hallstead Jewelers - Case Solution

This case solution includes an Excel file with calculations.

1. How is Hallstead Jewelers performing?

Hallstead Jewelers is not performing well due to the following reasons:

• It underwent a loss which was more than double the “normal” income of the year 2004.
• Sales were stagnant from 1999, and profits were diminishing.

Other than these obvious factors, let us analyze the six key performance areas.

For a detailed calculation of each of the following terms, please refer to the attached Excel file.

The contribution margin is falling from year to year, which means that the company’s ability to cover fixed costs and generate a profit is falling.

The break-even quantity is rising, which means that Hallstead Jewelers needs to produce more and more units just to cover the losses and arrive at a break- even point.

The margin of safety is falling very rapidly. The margin of safety is the actual sales that a company makes over and above the break-even sales.

In 2006, the margin of safety was negative, which meant that the company went into a loss. The margin of safety represents how likely it is that the company would not incur a loss. A falling margin of safety is a big danger sign.

The utilization of floor space is also falling, which means that the company is not utilizing its floor space efficiently. So, this is actually the opposite of better utilization of resources and can be detrimental for Hallstead Jewelers.

The cost of space, i.e., the rent, has increased, rather than doubled for the year 2006. This is a rise in fixed costs. As there is no proper utilization of resources, it does not make sense to invest in this fixed cost. The contribution margin is also falling, which means it will be even more difficult to cover this fixed cost.

Efficiency is defined as Output/Input. We have calculated sales force efficiency as Sales divided by salaries. The salesforce efficiency is falling, which is another factor proving that the company is not performing well.

Out of all the 6 key performance areas, there is not one criterion in which the company is performing well.

2. What are the business’s competitive strengths and weaknesses?