After reading the description,Applying the risk management process, Should Coe's expand to Mexico ? Justify your decision? Why? Or why not ? A U.S. lease-to-own chain considers whether to test its business in Mexico.Coe's opens the 1000 store. When Stan's father, Terry, opened the first Coe's back in the 1950s. He'd invested $600 in32 chairs to rent out to auction houses, and the business expanded from there into party equipment and sickroom gear.In the 1970s he shifted to residential furniture and other household goods. When Stan started as an assistant manager,in 1984, the same year Coe's went public, Terry had expected him to work harder than everyone else to prove hisworth. And Stan had. Coe's now took in over $2 billion a year in revenues.Unlike many of its competitors, Coe's had always emphasized ownership: More than half of its customers becameowners by the end of their leases, compared with 25% for Mr. Rental. Coe's offered a monthly payment schedule and ashorter contract period (12 months versus four or five years), which meant higher fees each month but a lower cost ofthe eventual purchase. Also, Coe's managers were trained to approve lease agreements only for people who couldafford the payments. "Are we getting any of Mr. Rental's cus-tomers?" Stan asked his new store manager. "Some. But Ithink our strong opening is thanks to the recession more than any-thing. We're seeing people in here who'd never haveconsidered Coe's before-wealthier folks who are nervous about committing to big-ticket items outright."At headquarters," Stan said. "We've been considering Mexico, and Europe. Our investors expect us to keepgrowing. Still, we need to do it smartly.Stan had led a successful expansion into Canada in the 1990s when he was theCOO, and Coe's had over 100 stores there now.But a venture into Puerto Rico a few years before had failed miserably: He'd been forced to close the pilot store afteronly 12 months. Too many customers had skipped their payments and walked away with the products, and the storemanager hadn't been able to handle the massive amount of collections. Several analysts had downgraded the chain'sstock as a result, and its share price had plunged. Stan didn't want to make the same mistake twice. "It's a good timefor us and potentially a great market. But it's also a risky time."Back at the office, Stan stopped by to see his CFO, Carl Amirault. He wanted to be sure everything was ready forthe executive team meeting later that day. They were set to discuss the firm's five-year growth strategy-again. Standiscuss with him the idea saying " Mexico might be easier- maybe starting small with two or three stores in Juárez andtesting the model. Your own team's analysis showed how many people don't have access to credit there.""Yes, but we're still mapping the regulatory environment," Carl warned."The environment has to be better than here," Stan said. In the height of the reces-sion, U.S. consumer protectionadvocates had attacked the rent-to-own industry, claiming the total price of goods-often 60% to 90% higher than that oftraditional retailers--amounted to predatory financing and caused undue hardship for customers. Stan and otherindustry CEOs argued they were providing a much-needed service: giving people without access to credit a chance toacquire household items, in a way that suited their cash flow, preserved their credit, and allowed them to eventuallyown the item outright. It worked just like a car lease--and those weren't seen as predatory. And if at any timeleaseholders couldn't make their pay-ments, they could return the items with no penalty and resume the contract wherethey left off whenever their financial situation improved. But he knew the fight was far from over. Karen, the generalcounsel of Coe's, says "Congress is going to be all over this in the spring". "I doubt it. They have bigger fish to fry" Carlargued. "Besides, you can't legislate what customers want.""That's true. Still, I'm just concerned. The bottom line is we need to diversify our risk. And Latin America might be arelatively inexpensive place to do that, considering the lower transportation, labor, and real estate costs," Stan said."My team's analysis says we have a 35% chance of success in Mexico. However, there are plenty of growthopportunities right here in the U.S. We should be putting a store next to every Walmart. We have the same customerbase, and people need an alternative when they've been turned down for credit. Or we could experiment with ourproduct line, try the rent-to-own concept for goods beyond basic household items. We've got lots of options withouttaking a risk abroad. We're not seeing shrinking margins yet," Carl said. "Yet." Stan shot back. "But why would we addthe complication and risk of international expansion when it's not necessary? In this economy, investors want growth,but they also want to play it safe," Carl said. "And I don't need to remind you about Puerto Rico." Stan expelled a deepbreath. "I'm concerned about building a growth strategy solely on U.S. revenues. I'm worried that things are going toget too restricted here, and if that happens, we may regret not having gone elsewhere to continue growing."Applying the risk management process, Should Coe's expand to Mexico ?

Risk management is the most common way of distinguishing, surveying, focusing on, and relieving…

Answered: After reading the description, Applying…

After reading the description, Applying the risk management process, Should Coe's expand to Mexico ? Justify your decision? Why? Or why not ?

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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