Fénix Del Sur, Llc

Fénix del Sur, LLC

I. Problems and Issues

Fénix del Sur sources and sells a wide variety of South American and African artifacts and distributes its products exclusively through specialty dealers, firm-sponsored showings, and a few exclusive department stores. The company's gross sales are about $25 million and have increased at a relatively constant rate of twenty percent per year over the last decade. The sales increase has been attributed to the popularity of the company's product line and to the expanded distribution of South American and African artifacts.

The company is facing several problems. One of the problems facing Fénix is the rarity of authentic artifacts and the political situation in Africa. Also, certain governments are not allowing the exportation of certain artifacts due to their "national significance." Competition for authentic artifacts has also increased tenfold as Fénix now has eleven major competitors as compared to five a decade ago. This has caused the company to add three new buyers in the past two years. Another problem facing the company is that retail competition has also increased. Some of their larger specialty and department stores are sending out their own buyers to deal directly with sources. Amateur or "fly-by-night" competitors are also hurting the company. They move into a city and dump inauthentic "junk" on the public and are giving the entire industry a bad reputation. Another problem facing Fénix is that high-quality, authentically made decorative items can be found on the Internet. Additionally, several mass-merchandise department stores have begun to sell merchandise similar to that offered by the company and sell the items at retail prices below those charged by the company's dealers.

Recently a mass-merchandise department store contacted Fénix concerning the possibility of carrying a complete line of Fénix products and particularly a full assortment of authentic items. The chain tentatively agreed to buy the products at ten percent below the company's existing prices and that the initial purchase would be for no less than $750,000. Purchases were estimated to be at least $4 million annually. Also to satisfy the contractual obligation the company would have to triple its replica production. The main issue facing Fénix is whether or not to accept the mass-merchandisers contract and how the company defines its business. Do they want to reject the contract and be an authentic supplier or accept it and mainly be a supplier of replicas?

II. Analysis

Advantages and disadvantages exist for both accepting and rejecting the contract. Some advantages of accepting the contract would be the possibility of gaining $4 million in additional revenue over and