Babbitt Brothers Trading Company operates in Arizona and are part of a family-owned and controlled diversified business. Bill Galis came to the company less than one year ago as president and chief operating officer, but he has spent the bulk of his time with the Department Store Division where he has instituted a number of reforms, including downsizing the buying department, replacing the general merchandise manager, implementing MIS systems designed to give more accurate and more timely information to key personnel, and where he now faces the challenges of more management changes and entry into the market of a major competitor from the south.
The most immediate problem facing Galis is whether to commit to opening a store in the Flagstaff Mall, and whether that should be done in conjunction with closing the downtown store or whether the downtown store should remain open. Galis also faces the challenge of bringing the Yuma store up from a negative return, and the entire department store operation needs to have its facilities upgraded over the next several years.
The issue of whether or not to participate in the Flagstaff Mall can be considered from the larger standpoint of the company's strategy for the department stores overall. Armed with the information that Galis' MIS system has generated, the department stores are a profitable part of the business, but there is considerable room for improvement. If the company is going to remain in the department store market, it must upgrade its stores and improve the facilities (both those that the customer sees as well as back office activities) and this requires an infusion of capital.
Of particular concern is the Yuma store, which generated more than $2 million in revenue, but posted a loss for the most recent year. The loss can be attributed to the low gross margin on which the store operated and a high level of variable and fixed expenses. Since the store can do nothing at th...