Question

Ever since it has been in business, California Cobblers, a moderately priced shoe chain, has made it a policy to purchase all of its merchandise from domestic resources. It has promoted itself to its clientele as a store that carries only American-made merchandise. Not only does the company believe it is the right thing to do to help the nation’s economy, but it has also made purchasing much easier than buying from overseas resources.

The last few years have seen wholesale prices rise steadily, and in turn California Cobblers has had to mark up its merchandise to higher price points. There was some negative reaction from customers in terms of escalating prices, but not enough to warrant any merchandising changes.

Chandra Kelly, the product developer for the company in charge of creating its private-label collection, has used American suppliers exclusively for the production of the line. She has always been satisfied with the vendors, getting the service she needed to get the shoes on the selling floor in a timely fashion.

With the enactment of NAFTA, John Leighton, the merchandise manager, has approached the store’s management team and asked them to reconsider their American-only policy. He believes that purchasing from Mexican resources under this new pact would reduce the cost of the shoes. With the lower wholesale prices, the chain would be more profitable. Ms Kelly, on the other hand, isn’t in favor of the change, citing the American-made policy as responsible for the store’s success.

At this time, the company is considering the change.

1. Give three reasons that management should go with Ms. Kelly. Explain each one.

2. Give three reasons that management should go with Mr. Leighton. Explain each one.

3. If management decides to go with Mr. Leighton, what method of import buying should they use? Explain your answer.

4. Recently some decisions have been made about the US trading with China. What was the decision and how do you think this will affect retailers in general?

Answer 1

1. The three reasons that the management should go with Ms. Kelly’s American-made policy are:

a) Help the nation’s economy

b) Purchasing is easier than buying from overseas resources.

c) The fact that the shoes are American made makes customers to prefer the company’s products rather than chose other foreign brands.

2. The three reasons that the management should go with Mr. Leighton are:

a) Lower merchandising cost leads to lower priced products.

b) Customers might not switch to other brands as the prices would be lower.

c) Low-pricing strategy would enable the company to combat the industry competition.

3. The best method of import buying is consignment purchase. In consignment purchase, an agreement is drawn between the vendor and the importer that allows the product to be received however the inventory still belongs to the vendor until the product is actually used. The payment is made to the vendor is made only when the product is used. Pricing is usually finalized in the purchase order that is used when the product is requested by the importer.

4. Mr. Trump has imposed taxes on products imported from China, Mexico and Canada in order to encourage consumers to buy only American products. The tariffs that were levied on Chinese products were quite huge. Not only does Mr. Trump choose China but also Mexico, Canada and Europe. This decision affects the retailers in general because foreign products cannot enter the U.S market where the market opportunity is huge.