Case 1 Newport Home Essay

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1. Compare and contrast the operations and cost structure of the retail and DC channels. Describe the items included in cost of goods sold and SG&A costs and how they compare across channels. Do the differences described in the case make sense to you? Which of the categories of cost of goods sold and SG&A should vary with volume? Which should remain fixed?
The company Newport Home, Inc. a retailer that specializes in selling home furnishings through a retail channel and a direct-to-customer channel has many similarities and differences between the two channels regarding the costs and sales. The two channels are designed to center on quality, creativity, and style. The retail store opened its first store in 1960 and now operates 154 …show more content…
First, the retail channel assumes the retail locations cannot sell the entire inventory by the end of the season, which is because the retail channel may overestimate the market demand, over forecast the customers demand and it’s hard to forecast the customers’ preferences. Second, carrying costs are less than the cost of losing out on a customer sale. If the retail store runs out of specific merchandise that caused a customer to leave with an empty bag, the loss of sales would have greater impact on the final profit. Third, there may be some other underlying factors, like the sellers sale ability, the advertisements influential power, the competitors, which are all likely to affect the outcome of the sale. It is necessary for the retail channel to plan the overstock that the stores can reply to the changeable situations properly. Also, from the opinions mentioned above, it is hard for the retail channel to avoid the overstock after the company balances the benefits and flaws of overstock.
4. Identify the revenue sources and incremental disposal costs and capacity costs and benefits of each alternative distribution strategy, assuming it is up and running. There are several revenue sources and incremental costs for the retail Marketplace distribution strategy. First, profits are driven by the markdown period above historical cost, compensating for liquidation losses on remaining product. Also, there will be incidental revenue from budget-savvy customers visiting
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