Group 2: e-Commerce vs. Storefront

Kevin Sell

Minh Si

Kimsenjaya Tjendana

Xibin Wu

Business Venture

• Business Type: Book Seller

• Market focus: College students

• Scenarios:

1. Storefront

2. e-Commerce

Key Advantage

• Bookstore:

– Higher discount percentage per book from the retail book seller

• e-Commerce:

– Low overhead

Criterion to Determine the Best Alternative

Neither Input Nor Output is Fixed

Therefore

Maximize Profit

Assumptions• Minimum Attractive Rate of Return: 15%

• Annual Book Sales: 20,000 books

• Average Selling Price: Storefront - $90 e-Commerce - $85

• Analysis Period: 10 years

• Discount: 10% for e-Commerce 15% for storefront

• No equipment purchase, lease instead

Annual Cash Flow Diagram

e-Commerce Storefront

Annual Worth Analysis

• Bring all annual ATCF to present

P=F(P/F,i,n)

• Find Annual Worth from P

A=P(A/P,i,n)

e-Commerce Storefront

AW $28551 $84767

Sensitivity Analysis: MARR

Range: 10% - 30% SENSITIVITY ANALYSIS: MARR

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.00

$80,000.00

$90,000.00

$100,000.00

$110,000.00

10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%

MARR, %

An

ual

Wo

rth

, $

E-COMMERCE STOREFRONT

Sensitivity Analysis: Analysis Period

Range: 4 - 20 years in 2 year incrementsSENSITIVITY ANALYSIS: ANALYSIS PERIOD

$0.00

$20,000.00

$40,000.00

$60,000.00

$80,000.00

$100,000.00

$120,000.00

$140,000.00

$160,000.00

$180,000.00

$200,000.00

0 5 10 15 20 25

Analysis Period, yrs

An

ual

Wo

rth

, $

E-COMMERSE STORE FRONT

Sensitivity Analysis: Discount Percentage

Range: 5% - 20%SENSITIVITY ANALYSIS: DISCOUNT PERCENTAGE

($100,000.00)

($50,000.00)

$0.00

$50,000.00

$100,000.00

$150,000.00

$200,000.00

0% 5% 10% 15% 20% 25%

Discount Percentage, %

An

nu

al

Wo

rth

, $

E-COMMERCE STOREFRONT

Sensitivity Analysis: Sales Volume

Range: 10,000 - 30,000 books SENSITIVITY ANALYSIS: SALES VOLUME

-$50,000.00

$0.00

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

0 5000 10000 15000 20000 25000 30000 35000

Sales Volume, units

An

nu

al

Wo

rth

, $

E-COMMERCE STOREFRONT

Sensitivity Analysis: Selling Price

Range: $82 - $100 per book

SENSITIVITY ANALYSIS: SELLING PRICE

($100,000.00)

($50,000.00)

$0.00

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

$70.00 $75.00 $80.00 $85.00 $90.00 $95.00 $100.00 $105.00 $110.00

Selling Price, $

An

nu

al W

ort

h, $

E-COMMERCE STOREFRONT

Conclusion

The Winning Scenario

Based on Maximizing Profit

is “Storefront”

Reference

• Newnan, Donald G.. Essentials of Engineering Economic Analysis.

Oxford University Press, NY. 2002

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• Baker & Taylor Retail Services for Book Sellers

• Amazon.com

• Bronco Bookstore

• SBC Yellow Page

• SoCal Yellow Page

• In & Out Warehousing INC

• Salary Wizard of Salary.com

• Dr. Phillips R. Rosenkrantz