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Jon Jung

Professor Long

2/4/2011

Fe’nix del Sur Case Study

I. Introduction

Fe'nix del Sur is a company, which sells South American and African antiquities.

It is also a source for Southwestern Indian authentic jewelry and pottery. The company is

located in Phoenix, AR. Fe'nix del Sur originated as a trading post in the early 1900's. It

was the leader in authentic Southwestern jewelry and pottery yet now has expanded to

sell pre Colombian artifacts from South America and burial artifacts from Africa. Fe'nix

del Sur has established itself as one of the most respected sources of these artifacts.

In 2001 the company started selling replicas along with its authentic products.

The replicas are so good that only a true collector would know they were not authentic.

The company now has craftsmen in Central America, South America, Africa, and the

Southwest. To this date, replicas only account for a small portion of the company’s total

revenues. The company didn't want to initially expand into replicas but the firm’s clients

were demanding a larger product line. These items are usually purchased by gift buyers

and are not what the company really wants to be selling.

The company’s gross sales are about $25 million and its profits have been steadily

increasing by 20% over the past decade. Attributed to the popularity of the companies

product line and expanded distribution of South American and African artifacts. The

company distributes is products through specialty dealers (interior designers and


decorators), sponsored showings, and exclusive department stores. Usually the company

remains the sole supplier to its buyers.

II. Identify Problems

Problems the company is facing are the rarity of the real artifacts and political

instability in certain countries. To the first point, there is a very limited supply of real rare

artifacts to be found and sold so it is hard to keep up with the demand. Second, political

unrest makes it hard to even get into a country to export the goods the buyers have found

and purchased. Some governments are restricting the export of certain artifacts due to

their "national significance".

Another problem is that the competition for authentic artifacts has raised 10 fold

in recent years. A decade ago there were only 5 major competitors for the company, now

there are 11. This has forced the company to add three additional buyers in the past two

years. The company’s gross margin has slipped due to aggressive competitive bidding by

others.

The retail competition has become harder as well. Some of the company’s larger

and exclusive department stores have been sending out their own buyers to deal with

Fe'nix del Sur's own contacts in foreign countries. This is forcing the company out of

important territories and causing a dent in their profits.

Smaller amateur competition is also eating away at the company’s profits. These

amateurs come into a city and dump inauthentic junk on the market at exorbitant prices,

which gives their industry a bad name.

Another problem is Internet sites, which sell authentic goods. If you Google buy
African artifacts, dozens of pages come up with ecommerce stores that sell both authentic

and replica artifacts. The problem is counterfeiting. 90% of what is coming into the US

are replicas or tourist art that is made to look old.

The problem recently other than the Internet is that several mass merchant

department stores have started to sell similar merchandise. These stores sell a mix of

replicas and authentic items. The stores were selling the items cheaper than Fe'nix goods

were sold for which again eats away at the company’s profit margin.

A mass merchant store contacted the company in 2009 asking to sell a large

product line. The store said they would pay 10% below the companies existing prices

and the purchase would be for no less than $750,000. Purchases were expected to be 4

million annually however, to satisfy the contractual obligation, the company would have

to triple its replica production. Accepting the contract would have a severe impact on

how the company defined its business. The real question to be asked is: Do they want to

be an authentic antiquities supplier and reject the contract or be a cheap replica supplier

and accept the contract?

III. Identify Alternatives

There are really two possible choices to this fundamental question. Either accept

or reject the proposed contract. Accepting the contract comes with some advantages. If

they accept the contract there is a possible $4 million dollars in additional revenue for the

company. They would also be broadening the company’s position into replica artifacts.

This would also cause the company to expand their reach into other department stores

giving them a larger audience.

Some disadvantages are the possibility of loosing current dealers that only deal in
authentic antiquities. The company could also loose customers that held the company at

a certain standard. If they started mass-producing replicas then picky customers could

stop buying from them.

Rejecting the contract would have its advantages and disadvantages as well.

Some advantages being keeping their relationships with current dealers preserved.

Another is keeping their current customer base happy. Finally they can keep their name

intact of being a company that deals in highly sought after authentic antiquities.

Some disadvantages of rejecting the contract would be not earning an additional

$4 million in sales. They will also not expand their reach to a new audience and expand

their customer market.

IV. Recommendations

While the idea of broadening the company’s customer base and increasing sales

by $4 million dollars sounds promising, the fact that the company has a gross margin of

$25 million should not be ignored. Also, the company’s business has been steadily

growing by 20% over the past decade. To totally transform how you do business when

you have a working business model seems silly when some simple adjustments could be

made like increasing the company’s presence on the web and re-branding the company to

be a more specialized company rather than a mass supplier.