Sales of watches

Team 7

Chua Sock Yii |

Kum Wei Chuen | Lau Hui Xian Lydia |

Teo Wan Yu | Tho Bei Yi Joey

Background Information
Wei Chuen opened a watch shop at Bugis street 3 months ago

Been suffering losses for the past 2 months

Recently, his wife has been very unhappy because of this issue

A typical day at Bugis

street

* *
**If

you love me, dont

leave

Bao Ga Liao*
*All-in-one

Options Available
Remain as he is

Rent storage facility in

2
addition to his shop

Set up online
website
&
shut
3
down brick-andmortar shop

Wind up his watch

business
and
work
for
4
an employer at
$1000/mth

Remain as he is

o Currently stores watches in his shop (can store up to 200 watches)

o Maximum monthly profit attained when all 200 watches sold
o Can return unsold watches to supplier at end of month

Remain as he is

Cost of running the shop:

Rents/Utilities
Part-Time Labour
(Uniform distribution)

Cost of watch

$2800/month
~U($750-$1000)/month
$10/watch

Remain as he is

Current demand faced by the shop:

o

demand for watches (X) is normally distributed ; X~ N(210, 502)

Brand

Probability that brand is popular

Price of watch ($)

2%

24

3%

26

15%

28

80%

30

Remain as he is

Profits for shop under option 1:

Profits = Qty of watches sold x (Price cost)

- Rental/utilities cost
- Labour cost
+ No. of watches not sold x Refund

Rent storage facility in

2
addition to his shop
Details of option 2:
o Allows Wei Chuen to restock the watches in his shop as and when he like
o Can sell more than 200 watches/month if demand is high
o Storage facility keeps 100 watches per 100 square feet
o $100/sqft (rental goes in multiples of 1 sqft)

Rent storage facility in

2
addition to his shop
Profits of shop under option 2:
Profits = Qty of watches sold x (Price cost)
- Rental/utilities cost
- Labour cost
- Storage Facility cost

Set up online website &

3 shut down brick-andmortar shop
Details of option 3:
o no longer constrained by the maximum quantity of watches he
can sell
o Order as many as he want and store with e-commerce website
firm, but can only obtain partial refund for unsold watches

Set up online website &

3 shut down brick-andmortar shop
Cost of online shop:
Web domain cost

$40/month

Commission to website operator

15% of monthly sales revenue

Cost of watch

$18/watch

Refund per watch

$6/watch

Set up online website &

3 shut down brick-andmortar shop
Demand faced by online shop:
o Demand for watches (Y) normally distributed ; Y~N(230, 402)

Set up online website &

3 shut down brick-andmortar shop
Profits of shop under option 3:
Profits = Quantity of Watches sold x Price
No. of watches ordered x Cost
+ No. of watches not sold x refund
0.15 x Quantity of Watches sold x Price
Web domain Costs

Wind up his watch business and

4 work for an employer at
$1000/mth
Details of option 4:

o Shut down his business and work for an employer at

$1k per month.

Decision Criteria
1. Choose the option that will have the highest profit and compare it against
$1k/month
2. As long as best options profit has at least 80% probability that will exceed
$1k, he will choose that option
3. If the probability of exceeding the expected $1000 of profits is below
20%, he will take the risk adverse option to work as a watch sales person
instead.

Assumptions made
1. Assumed that the monthly salary as a watch sales person is constant at
$1,000 per month, without additional bonuses.
2. Online market demand is independent from the shops demand.

3. Assume that Wei Chuen will order 200 watches per month for his online
shop.

Results of Simulation
Option 1: Remain
as he is

Option 2: Storage
facility in addition
to his current store

Option 3: Set up
an online shop

Expected profit

-$90.6705

$308.992

S1035.681

Standard deviation of
profits

$491.401701

$765.106232

$240.08

Probability of profit >

$1000

365/2000

1654/2000

Results of Simulation
Histogram of profits of online shop
1800

1600
1400

Frequency

1200
1000
800

Frequency

600
400
200
0
0

100

200

300

400

500

600

700

Profits

800

900

1000

1100

1200

More

Results of Simulation

Optimal result : ONLINE STORE

Sensitivity Analysis

Happy ending! ~

Thank You!