Prompt:

Our client is Ralph Klein. They design, produce, and sell high-end men’s
fashion clothing. All the company’s current sales are sold through the 30
company-owned stores. This client asks for your help how to grow the retail
sales. The retail sales are defined as how much the end consumers pay for
their products through all retail channels.
As a part of this effort to grow retail sales, the client is considering
expanding their distribution channel by partnering with department stores.
There is one high-end clothing department store that has reached out to
them. It is a company called Fashion World, and they are interested in
reselling your client’s clothing through their 90 locations.

Q1: (Structure)
what would be the most important factors to consider in determining if this
partnership would be a good idea for Ralph Kline?
 One good structure: R.K. (left) | F.W (right)  evaluate 4 factors for
each: consumers, products, sales number, risks

Q2: (Hypothesis Testing)

What’s your hypothesis underlying the financial analysis? What specific
factors you think might impact the cannibalization for R.C stores?
 The best practice shall first clarify what cannibalization means here.
The most important thing is “what changes”. It can be volume, or
retail sales. Tell candidates we are talking about the sales (which
can be influenced by both volume and pricing).
 Key factors:
o Consumer segment (primarily by location; or further segment in
the same location)
o Product
o Pricing
o Marketing & Selling

Q3: (Hypothesis Testing)

What the potential impacts for R.K. if F.W. prices higher, and what if prices
lower? How to test your ideas?
 If in the nearby location sharing the same customer base

Q4: (Chart Interpretation)

Conclusions for Exhibit 1.
 30  70 high priority cities; 30 more low-priority cities
 But still 70 high priority cities cannot be reached
 Substantial cannibalization may occur in 2/3 of R.K. stores

Q5: (Chart Interpretation; Math)

How would you validate the hypothesis that overall sales will increase after
this partnership?
Exhibit 1,2,3: How will the total retail sales change?
 New cities (40 high + 30 low): sales grow
o 40 stores x $500K + 30 stores x $100K = $23M
 Existing cities with overlapped stores: ???
o If grow, then affirmative immediately
o If decline, need further assess the net effect
o 20 stores x ($1.5M x 80% + $500K x 60%) = 30M
o Comparing to the original sales 20x1.5= 30M, actually no net
cannibalization.
 Existing cities without overlapped stores: sales unchanged
o 10 stores x $1.5M = 15M
 In total, the new sales = $68M
 Current sales = 30 stores x $1.5M = $45M
 Increase by $23M, ~ 50% up

Q6: (Brainstorming)
Conclusion?
What other factors you might consider in order to prove or disprove this
conclusion? Push for at least 4 points
  Double check the cannibalization assumption
 F.W’s capabilities
 70 other high-priority cities
 Why not build our own stores? (because per store sales is 3x of
FW stores). This is the most insightful points a lot of candidates
missed.

Q7: (Synthesis)
Summarize your analysis.
 Go for it
o 50% increase in sales
o 30  70 high priority cities; extra 30 low cities
 Risk
o R.K.’s capability to supply
o F.W’s capability to sell
o Competitor’s responses
o Brand impact if sell in low priority cities
 Next steps:
o Product differentiations
o Deal negotiation: can we skip the overlapped cities
o New opportunities: other 70 high priority cities; open our own
stores