The Carlson Department Store suffered heavy damage when a hurricane struck on August 31, 2013. The store was closed for four months (Sept – Dec 2013) and Carlson is now involved in a dispute with its insurance company concerning the amount of lost sales during the time the store was closed. Two key issues must be resolved:

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Chapter1: Financial Statements And Business Decisions
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The Carlson Department Store suffered heavy damage when a hurricane struck on August 31, 2013. The store was closed for four months (Sept – Dec 2013) and Carlson is now involved in a dispute with its insurance company concerning the amount of lost sales during the time the store was closed. Two key issues must be resolved:

  1. The amount of sales Carlson would have made if the hurricane had not struck; and
  2. Whether Carlson is entitled to any compensation for excess sales from increased business activity after the storm

More than $8 billion in federal disaster relief and insurance money came into the county, resulting in increased sales at department stores and numerous other businesses.

The table below shows the sales data for the 48 months preceding the storm. The following table reports total sales for the 48 months preceding the storm for all department stores in the county, as well as the total sales in the county for the four months the Carlson Department Store was closed. Management asks you to analyze this data and develop estimates of the lost sales at the Carlson Department Store for the months of September through December 2013. Management also wants to determine whether a case can be made for excess storm-related sales during the same period. If such a case can be made, Carlson is entitled to compensation for excess sales it would have earned in addition to ordinary sales.

Table 1 – Sales for Carlson Department Store, Sept ’09 through Aug ‘13

Month

2009

2010

2011

2012

2013

January

 

1.45

2.31

2.31

2.54

February

 

1.8

1.89

1.99

2.26

March

 

2.03

2.02

2.42

2.67

April

 

1.99

2.23

2.45

2.46

May

 

2.32

2.39

2.57

2.71

June

 

2.2

2.14

2.42

2.35

July

 

2.13

2.27

2.4

2.3

August

 

2.43

2.21

2.5

2.21

September

1.71

1.9

1.89

2.09

 

October

1.9

2.13

2.29

2.54

 

November

2.74

2.56

2.83

2.97

 

December

4.2

4.16

4.04

4.35

 

 

 

Table 2 – Department Store Sales for the County, Sept ’09 through Dec ‘13

Month

2009

2010

2011

2012

2013

January

 

46.8

46.8

43.8

48.1

February

 

48

48.6

45.6

51.5

March

 

60

59.4

57.6

57.5

April

 

57.6

58.2

53.4

58

May

 

61.8

60.6

56.4

60.2

June

 

58.2

55.2

52.8

57.2

July

 

56.4

51

54

57.5

August

 

63

58.8

60.6

61.5

September

55.8

57.6

49.8

47.4

69

October

56.4

53.4

54.6

54.6

75

November

71.4

71.4

65.4

67.8

85

December

117.6

114

102

100.2

121.5

 

Prepare a report for the management of the Carlson department store that summarizes your findings, forecasts and recommendations.  Include the following:

  1. An estimate of the countywide department store sales had there been no hurricane.

Hint: By comparing the forecast of county-wide department store sales with actual sales, one can determine whether or not there are excess storm-related sales.  By computing what is known as a "lift factor" – the ratio of actual sales to forecast sales – you have a measure of the magnitude of excess sales, if these do indeed exist

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