DHL Consulting case: Bike Shop

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Provide some additional information to help the interviewee understand the situation and the problem.

• The shop is very local (around for the last 20+ years), focusing on selling bikes (i.e. no repairs)
• It has 2 FTEs working there + 1 owner.
• The profit is essential as the owner is living from it.

Ask for additional information in order for you to understand the situation and the case.

In order to derive profits, it is necessary to evaluate the cost structure: 

What is the actual cost structure of the bike shop? (no actual numbers yet)

Here the interviewee should come up with the biggest cost elements:

• Cost of Sales (COS) – Variable Costs
  • ​i.e. sold bikes to be paid to the suppliers
• Direct Operating Expenses (DOE) – Fixed Costs
  • ​Rent, Utilities, Personnel expenses
  • Optional: Insurances, Advertising

Share Table 1 with a cost overview for 2013 with the interviewee.

Information that can be shared if inquired by the interviewee:

• The company sold 1,000 bikes in 2013.
• The price per bike sold was €800.
• The COS make up 80% of the revenue 2013.

What is the profit for 2013?

Information that can be shared if inquired by the interviewee: The bike sales were 10% lower than in 2013. The price per bike was also got reduced by 10% compared to 2013.

What is the profit for 2014?

What can be respective short-term priorities?

Possible answers:

• Reduce to 1 FTE at least to decrease DOEs and make a slight profit (owner is living from profit)
• Increase prices / stop discounts: less volume does not impact profitability as much as less value (COS only for sold bikes)

Information that can be shared if inquired by the interviewee:

Competitors

• A new big bike store opened in a city nearby:
  • shopping center like
  • high volumes / low prices / low service
• No relevant competition of small comparable bike shops within own city district

Customers

• Increasingly looking for “tour-bikes” instead of family “city-bikes”
• Consumer spend affected by the economic downturn

Other trends

• Go Green
• Congestion of high ways

What can be a sustainable strategy on a long-term basis?

Possible options:

• The position of the bike shop in the volume segment is challenged by a new competitor in a close city.
• The touring segment shows growth opportunities due to the current trends.

What is your conclusion?

The interviewee should suggest our client enter a new market.

• The client could position himself as a bike specialist. This could justify higher prices and increase retention. They could also offer increased services, e.g. accessories, a repair shop or training for employees.
• The client should attract new customers via a marketing campaign and events, e.g. rent-a-bike or guided bike trips.
• In addition, they could decrease the cost of sales, e.g. via purchasing cooperation with other smaller suppliers and focusing on 2-3 core brands exclusively.

Possible answers:

• After 20 years of having the shop, the owner is ~50 years.
• Giving up the shop would result in the need to consider possible other occupations and means for a living (pension, private funds).
• This could be difficult but is very much depending on the private situation of the owner.

Possible answer:

• Key levers for expansion could be
  • Size of the location
  • Number of locations
  • Service offering
  • Differentiation per location
• It would require management attention and additional investment capital.

More questions and risks to be added by you, interviewer!

At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).