1.Assume that you are a risk management consultant hired by Sports Authority . 2
ID: 2791439 • Letter: 1
Question
1.Assume that you are a risk management consultant hired by Sports Authority.
2.On the trailing pages, list the potential risks faced by the company based on the case below.
3.Then, select the top five most significant risks, and describe the way in which you would recommend treating these risks. Be specific. You may use additional pages if necessary.
Company Background
Sports Authority manufactures and retails a line of skateboards, designed for people ages 8 through adult. The company is a privately-held corporation that has been in business for three years. During this time, sales increased an average of 10% annually.
John Sport, the president and CEO of the firm, is a renowned former professional skateboarder. His reputation in the skateboarding community added immeasurably to the product’s brand. The 10-to-14 year-old demographic group accounts for 70% of the company’s sales.
The Market
The popularity of the X Games skateboarding events contributed significantly to the growth in sales. Three large international sporting goods manufacturers currently account for 50% of the domestic skateboard sales. Sports Authority trails these companies (in fourth place) with 9% share of the domestic market. Recently, competition has intensified as the three large rivals, as well as other manufacturers, moved to exploit the opportunities in this market sector.
The company’s management believes that growth will continue over the next few years. The growth will be realized through a combination of new products and new markets.
Product Development
In the summer of 2018, the company plans to introduce the John 500, a new model of skateboard that features reduced wheel friction and lighter weight. Although the board is slightly less stable than other skateboards in the product line, it is capable of moving 25% faster. Focus groups told the marketing department that a faster-moving board is the most important product attribute.
Distribution
The United States accounts for about 75% of the firm’s sales. Sports Authority leases 25 retail stores located in major U.S. metropolitan areas. Also, the Internet has accounted for an increasing percentage of sales.
Sports Authority distributes its products internationally thought selected foreign sporting goods retailers.
Production
Sports Authority conducts all operations from a single-story building in suburban Miami. The building houses the corporate offices, the factory, and the warehouse. The company owns the building.
Assignment
1. List the risks faced by Sports Authority. Be specific.
2. Select the top-five most significant risks, and describe the way in which you would recommend treating these risks. Be specific.
Explanation / Answer
1. The risks faced by Sports Authority are as follows:
a) Risks associated with the top 3 competitors also launching a similar new product thus eating away a major pie of the potential business.
b) US Market accounts for about 75% of the firm's sales. This can be a problem in long run because of the dependence of company on only one market for majority of its revenue.
c) The new skateboard developed by Sports Authority is faster no doubt but is unstable, so the competitors might exploit this weakness and come out with a new faster and stable skateboard . This might cause a failure of Sports Authority's new product.
d) Sports' Authority's major 70% of sales comes from 10-14 year old demographic group thus getting too much dependent on only one group of customers for its major sales revenue.
e) Company has one fully owned building which has all corporate offices, factory and warehouse. This might create a problem in long run if it targets any new geographical area for expansion. This might not be cost effective due to buiding depreciation.
2. Ways to manage the top 5 risks mentioned above are as follows:
a) The company should try to introduce a product with new unique features which should be difficult for competitors to copy and should have patent rights over it and promote the product with agressive marketing.
b) The company should try to expand beyond the US markets may be to neighbouring countries by doing proper research so that it does not get too much dependent on only one market for its revenue stream
c) The company should not introduce an unstable skateboard focusing only on increasing the speed because this might cause accidents to the end user which can ultimately lead to negative word of mouth and hamper the brand reputation and sales of the products of Sports Authority.
d) The company should also try to intoduce products targeting demographic group beyond 10 to 14 yr old to maintain a better and stable revenue stream.
e) The company should prefer leasing the building instead of owning so that it will be more cost effective for the business and leave some additonal free cash flows for further expansion.
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