Killer Squid Blades
Our story begins one fateful afternoon when Jimmy Post received phone call from one of his very best
customers, Ben Logan. Ben called complaining that so many of his competitors were now selling Killer
Squid Blades and it was becoming impossible to support the product. All the local competitors in
Saskatoon were making it impossible to make profit. He was very sorry but he felt that his store was
likely going todrop the Killer Squid Brand enough they really loved the products.
Ben's store had been an exclusive carrier of Killer Squid Blades in Saskatoon since 2010 and one of Killer
Squid' very first customers. Ben's support had been important in the growth and survivalofK Killer Squid
through their first three years and Uimmy was very concerned about this potential defection. Killer Squid
was almost becoming victimoo its own success.
The Killer Squid Blades had become so successful across Western Canada that retailers were contacting
them every day to order their product line. Jimmy was starting to worry that Killer Squid Blades had
reached market saturation. If they continued to grow in Western Canada he was certain that some of
his very best customers would start leaving. One ofthe great successes of the Killer Squid brand was its
exclusivity and the more stores it was available in the less "cool' the product lines became. But how
could Killer Squid grow without more retailers. Thus the dilemma that kept Jimmy awake at night.
History of Killer Squid
Jimmy Post and his best friend Jim Candy had grown up in Calgary partying and adventuring through
their teen's barely surviving high school. The problem was not smarts but rather their commitment to
school. The two "Jims" wanted adventure and could barely tolerate sitting in class listening to boring
math theorems. The day before graduation they left note with their respective parents saying "Gone
with Circus" and bolted for parts unknown. Five years later having seen most of the uncommon world
sights they returned home to Calgary for theirnext big adventure
During their travels they had developed a pure Canadiar business idea to combine skating and
snowboard ding and thus became the seed for the idea of Killer Squid Snow Blades. Beginning in 2010
they launched their first product line working day and night putting on demonstrations at Banff ski hills
and twisting the arms of local retailers. Their big break carne when movie producer watching a
demonstration at Whistler Mountain Resort decided to use their Snow Blades in 2012 James Bond
movie "Quantum of Snow". From there the products took off and now they had expanded into Turf
Blades used in the summer months
Killer Squid' two product lines Snow and Turf now covered all four seasons. As the company grew the
company attracted additional retailers by offering market exclusivity. The relationship took long time
to develop and the travel and partying started to take toll on the two "Jims" In 2013 Jim Candy
limmy that he had had enough and handed in his office keys and left for parts unknown never to be
heard from again. Jimmy almost losti but through support from excellent retail friend: including Benin
Saskatoor he battled through and today at the end of 2015 he has strong and powerfu Ibusiness
Financial Statements 2015
September 30, 2015
Fixed Costs -overhead and administration
Selling and Marketing Costs
Total fixed costs
NE before tax
Income tax expense
Note to Financial Statements (unit costs and cost details)
Selling and Marketing Costs
Total R FC
Jimmy has spoken with his best retail customers and some valued advisors and believes he faced with
some serious decisions in the immedi ate future
1. To protect his current market and to keep his strongest retailers in Western Canada Killer
Squid is going to have to terminate relationships with about ten (10%) percent of his current
retailers. This will obviously drop his current sales but it will build and re-entrench the strong
relationships with his best customers. The approach will be to offer local market exclusivity to
the very best retailers thus stopping any future market erosion.
2. Any market expansion can come from either US market expansion or Online retailing around the
US market expansion has some costs;
Expansion Costs annual
Expansion Costs one time start up
The commissions are paid to regional distributors that have current retailers in similar target markets
throughout Western United States (l.e. Colorado, Utah and California). The contribution margins earned
by Killer Squid are anticipated to be the same across the current product lines. Jimmy can access his
business line of credit for the startupexpansion costs and working capital needs. The projected sales for
the US expansiona are .500 units wit hintwo years.
4. Online retailing has some different costs;
Expansion Costs annual
Expansion Costsone time start up
The commissions are paid for online transaction fees. The contribution margins earned by Killer Squid
are anticipated to be the same across the current product lines. Jimmy can access his business line of
credit for the startup expansion costs and working capital needs. The projected sales for the Online
retail expansion are 1,000units withir two years.
Killer Squid and Jimmy have asked for some numeric advice with respect to his expansion options. They
are going to start dropping retailers within the next two months and he wantsto know which expansion
option to undertake Jimmy also looking for any general business advice that you may be able to offer
as accounting professional.
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This report presents an analysis of the expansion options for the company Killer Squid Blades. The company has been using the strategy of selective distribution so as to maintain a high-profile brand image. As one of its key customers is moving out, the company needs to formulate effective strategies so that it can expand without losing the exclusivity associated with the brand. It is confronted with two options –
• US market expansion
• Online expansion
Both the options have their own sets of advantages and benefits and an incremental cost-benefit analysis has been conducted to determine the best option for the company.
2. Cost-benefit analysis
The company has two options and it needs to consider the incremental costs and benefits due to each options. This is because this would help to analyze the additional profitability that would result from implementation of the decision. Therefore, the existing fixed costs and interest paid on loan are treated as irrelevant costs and not considered for the purpose of decision making since this would be incurred even if the expansion options are not undertaken. The factors of interest are...