e current time regarding its fixed expenses, it needs to focus both on improving its top line (revenue) and gross margin levels, and reducing its variable expenses. Some of this should come about as a result of the changes that Galis has already implemented. Having fewer buyers for the stores and having them more responsible for the margins is a good start, and indicates that the buyers should be able to get better prices on some of the items they purchase.
The Yuma store is also important because it is located in a mall in Yuma, which is where the proposed new store would be located in Flagstaff. Malls are quickly becoming the preferred shopping area for Americans, and the downtown Flagstaff area has seen a number of merchants flee in favor of the mall. With Dillard's pledged to become an anchor store in the Flagstaff mall, Babbitt's has little choice but to concede the Flagstaff business and close its downtown store in the future, or it can choose to take on Dillard's in the mall environment.
Moving to the mall is not an inexpensive decision for the company, and as the Yuma store illustrates, the fixed costs of such a decision can be significant. While the forecasts for sales for the downtown store initially indicate a loss of $1 million during the first year, that loss can be expected to increase as more and more customers choose the convenience of the mall over the downtown area.
For the first time in its history, BBTC has a good understanding of how its business units are performing, and the department store division in particular has come under some level of control. To forfeit the largest market that the department stores has simply because of a new entrant does not make sense. Instead, the company should build on the reputation and consumer base that it has built over the last 100 years and open a mall location, with the intention of closing the downtown store in the future. Because of its long tradition of op...