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A memo on closing two shops that lose money
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
A European fashion retailer has 12 shops; two lose money. Write the executive summary of a memo on whether to close them.
Format note: The two shops lose EUR 0.4 million and EUR 0.2 million a year. Closing them costs EUR 0.9 million once (ending the leases). Together they sell EUR 5 million a year, and about 30 percent of those sales are expected to move to nearby shops, which earn a contribution margin of 40 percent on them. All figures are illustrative.
2. Answers to clarifying questions
This case has no scripted clarifying answers. Answer from the prompt, and say "assume what you think is reasonable" if the prompt does not cover it.
3. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Is the business better off without the two shops?
- Losses that stop when they close
- Contribution from sales that move to nearby shops
- One-off closing cost, and how fast it pays back
4. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Losses that stop
What a strong candidate does: Add the two shops' yearly losses.
Yearly losses avoided (EUR millions): 0.4 + 0.2 = 0.6
Step 2: Sales that move
What a strong candidate does: Thirty percent of EUR 5 million moves to nearby shops.
Sales kept (EUR millions): 5 × 0.3 = 1.5
Step 3: Contribution on those sales
What a strong candidate does: Forty percent contribution margin on the sales that move.
Contribution kept (EUR millions): 1.5 × 0.4 = 0.6
Step 4: Yearly gain
What a strong candidate does: Losses avoided plus contribution kept.
Yearly gain (EUR millions): 0.6 + 0.6 = 1.2
Step 5: Payback
What a strong candidate does: The one-off cost divided by the yearly gain, in months.
Payback (months): 0.9 ÷ 1.2 × 12 = 9
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Close both shops by the end of the year: the business is about EUR 1.2 million a year better off, and the EUR 0.9 million closing cost pays back in about 9 months. The gain comes from two places: EUR 0.6 million of losses stop, and about EUR 0.6 million of contribution stays because some customers move to nearby shops. The main risk is that fewer customers move than the 30 percent assumed; even if none did, the closures would still pay back in 18 months. We need a decision by the board meeting on 15 November to give notice on the leases.
Risks a strong answer names: Fewer customers move to nearby shops than the 30 percent assumed.
Next steps: Board decision by 15 November; Give notice on both leases; Track sales at the nearby shops each month.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?
Total
0 out of 25
Score all five criteria to see the band and the feedback template.