catalog company. Currently, their financing option is limited to $500,000 and would not be sufficient to cover the new costs that come with expansion. And although the company finally made a profit in 1991, the net margin and selling expenses/gross profit are still low compared to the industry average (See Exhibit 2). The net profit earned by Faith Mountain is also 2.6% lower than the industry average. Potential Solution(s): Expansion of the retail division will be very costly and consists of too small a percentage of Faith Mountain’s overall sales to pursue. A better avenue would be to focus on the mail order business unit, which has a greater opportunity for increased revenues and growth. 5. Problem: Forecasting. Faith Mountain fails to account for a possible decline or stabilization in the catalog sales/mail-order industry. From the years 1987 to 1991, the net sales increased at an average of 29.5% per year. And Faith Mountain has projected net sales to increase every year from 1991 to 1995 at an average of 16%, which is still relatively high and would assume a constant growth rate in the mail-order industry.Possible Solution(s): A better forecasting strategy would be to assume growth to increase at the current market rate, which would be far more realistic than assuming that company sales will continue to increase at its current pace. 6. Problem: Limited Advertising Reach and Use of Rented Lists. Ninety-five percent of the advertising and promotional costs go towards the catalog itself; therefore, those who do not receive the catalog have little chance of being reached by The Faith Mountain Company. Therefore, Faith Mountain must find a way to reach those customers. Two to three times as many catalogs are mailed to recipients from rented lists than house lists; however, profits are substantially higher on average for each catalog mailed to in-house lists than rented lists. Possible Solution(s): Faith Mountain should...
