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Week 6 Assignment

Aldo Group CBA Report

Semence Bonane

SPEX670

American University

08/14/2020
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Week 6 Assignment

EXECUTIVE SUMMARY
The ALDO Group is a Canadian retailer that owns and operates a worldwide chain of

shoe and accessories stores, consisting of 3,000 stores in across 100 countries, under three retail

banners: ALDO, Call It Spring/Spring and GLOBO. Stores in Canada, the U.S., the U.K., and

Ireland are owned by the Group, while international stores are franchised. The company was

founded by Aldo Bensadoun Montreal, Quebec in 1972, where its corporate headquarters remain

today.

Patterson states in his article, Aldo did not pay rent in April and May for its stores in

both Canada and the United States. The company will run out of cash by the first week of

June according to the filings. Aldo was already in trouble before the COVID-19 store

closures — despite selling more than $1.2 billion worth of merchandise over the 12 months

ending February 2020, the company lost $74.8 million in Canada and $52.8 million in the

United States. The company’s debt stands at $287 million, excluding rents owed, and filings

stated that some shuttered store locations will never reopen.

On May 07, 2020, CEO David Bensadoun requested court protection through the

Companies’ Creditors Arrangement Act in Canada, is seeking similar protection in the U.S. and

is about to do the same in Switzerland; stating “after conducting an exhaustive review of

strategic alternatives, we determined that filing under CCAA and related proceedings is in Aldo's

best interest to preserve the company for the long term and survive through this challenging

period”.

Since Aldo Group file for CCAA which is a Canadian federal law allowing insolvent

corporations that owe their creditors in excess of $5 million to restructure their business and
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financial affairs, allowing a company to continue in business while it seeks to develop and obtain

the approval of compromises or arrangements with its creditors. The main purpose of

the CCAA is to avoid, where possible, the social and economic consequences of bankruptcy, and

to allow a company to carry on business. CCAA involved seeking protection from the

company’s creditors and not bankruptcy protection.

During my Cost and Benefit Analysis report, I did an alternative analysis on whether or

not Aldo should consider closing all of their stores and fully shift their platform from bricks and

mortar retail stores to ecommerce in order to survive the financial burdens impacted through

Covid-19. Shifting to Ecommerce turned out to be the best option for ALDO Group to consider

because it has less overhead cost than maintaining a store and other financial advantages than

stores.

INTRODUCTION AND PROBLEM STATEMENT

The problem is that ALDO stands at over $287 million in debt and Covid-19 pandemic

has made it even harder for the company to reduce its debts due to having to close their stores by

state orders. Aldo is determine to survive these financial challenges and aiming to avoid going

out of business; they are currently doing so by trying to strategies a way to maintain both stores

and ecommerce. The stores remaining open is simply increasing overhead costs which is causing

ALDO to have to permanently close some of its stores worldwide and not making it possible for

ALDO to come out of these financial challenges.

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METHODOLOGY
Most of my research was online based. I attempted to visit ALDO stores, most were

closed, and the one that was open, the staff were not able to answer my question. I first research

on ALDO official website to know from the horse’s mouth what was happening with the

company. ALDO is currently working on a restructuring plans which will help them survive the

impact of the Covid-19 pandemic and as continued my research, I find out that many of ALDO

stores were closing, and yet ALDO still maintaining to keep the stores open; this is when I

thought of the alternative to applying to CCAA, will it beneficial or cost effective for ALDO to

shift from bricks and mortar retail stores to ecommerce. I then researched on the cost and benefit

of having ecommerce vs. bricks and mortar retail stores. The report will entail all of my findings

which I used to conduct my cost and benefit analysis of doing business through ecommerce vs.

bricks and mortar retail stores.

ANALYSIS
Aldo is fully familiar with ecommerce because they currently run their online business

through their website aldoshoes.com. in 2017, Aldo decided to redesign their website because of

their growing ecommerce goals where they are not only looking to cash in on the growing use of

smartphones in internet shopping but also to boost cross-category sales to build upon their

popularity in the footwear and accessories markets and the new responsive website and

ecommerce platform was designed and implemented by leading digital product agency Work &

Co. Even after filling for CCAA, and closures due to quarantined caused by Covid-19; Aldo

online platform was still operational.

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First let’s define what Ecommerce and bricks mortar retail stores is; Ecommerce stores

host their business online. Customers can shop the products from anywhere, but they cannot

touch them or see more than a picture or video. A brick store has a physical location to sell from,

where customers can come and see the products in person. However, customers have to actually

visit that location to shop with the business. There are pros and cons associated with running

business through ecommerce or bricks mortar retail stores and here are the break down reasons

as to why I think Aldo should consider fully shift to ecommerce.

1. First advantage of ecommerce vs. bricks mortar retail stores is lower overhead costs:

Overhead cost is the cost associated in running a business and instead of paying rent

on a large lease every month, Aldo can pay for website hosting for their storefront,

and possibly the online software for taking orders, called a “shopping cart”, both of

which are significantly cheaper. The cost of rent for bricks and mortar retail store is

commonly determined with the following formula; Total Square Feet x Price per Sq

Ft. ÷ 12 (months) = Monthly Rent. In 2016 Aldo opened nearly 3,000-square-feet

space a store at charlotte premium outlets and in major cities, a storefront location

will cost between $50-75 per square foot a year. Using the formula, Aldo monthly

rent will be (3000*62.50((50+75)/2)) = $187,500) $187,500/ 12= $15,625 plus

possible other charges that may be associated to the lease based on landlord lease

terms.

For ecommerce, rent is seen as website hosting. Every website is a collection of

files on a remote computer. The computers used to host websites are called servers,

and when company are paying for hosting, they are paying for server space. The cost
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can range from under a hundred dollars per year to over a hundred dollars per month,

depending on the need of the company.

Even though both ecommerce and bricks retails store provide the same goods,

they have different cost structures and an example in comparison between retail and

E-commerce cost structures for a $150 apparel piece is shown in this graph.

For bricks and mortar retail stores, payroll (18%) and rent (15%) are the most

significant retail costs that are location specific and cannot be effectively mitigated. A

good retail location usually commands a high rent and labor costs, which are

associated with higher sale volumes. Other retail costs mainly involve utilities and

store supplies. Transportation costs account for 3% of retail costs, depending on the

origins of the goods.

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For ecommerce, operating costs (20%) are the most important component of e-

commerce costs and include the software and transaction platform, which requires

maintenance and updating. Then, shipping costs (7%, often free or highly discounted)

are the most significant costs, which also includes returns. Since many e-commerce

distribution centers are located in low cost areas, warehousing and fulfillment costs

are usually in the range of 3% of the retail price.

Both ecommerce and bricks mortar retail store incur shipping cost, but

ecommerce incur the cost more than bricks mortar retail store because the entire

operational is processed online and product needs to always be delivered to the

customer’s selected destination. There are three types of shipping costs; calculated

shipping, flat-rate shipping, and free shipping.

Calculated shipping is when the shipping charged is automatically calculated

based on the package measurements and the customer’s location. Flat-rate shipping is

when the total price of shipping is not tied to the shape, weight, or size of the shipped

item. Customers can fit however much they can or want into a box and pay the sit

shipping fee designated by the company.

Free shipping is when shipping is free to customers. Free shipping is the costly

shipping methods for companies, but also methods that generate the most profits.

Though lowering the cost of shipping through free shipping, Aldo can still charge

customers the same way, partly by adjusting their product prices on a real-time basis,

based on supply, demand, and buyer’s habits. Customers are mostly intrigued by the

advertised free shipping that they wouldn’t think twice about paying more. A clear

majority (66%) of consumers in a Harris Poll of 2,241 American adults said shipping
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costs are their “biggest online shopping pet peeve”; some 81% said free shipping

would make them more likely to shop online, and 70% said free returns would be an

enticement.

The cost of shipping can also be calculated as a percentage of the inventory. This

must be done by determining the shipping cost for a specified period of time. For

example, let’s assume ALDO spent $60,000 in shipping during the year, and then we

determine the average inventory for the same period of time and let’s assume ALDO

beginning inventory was $2,000,000 and the ending inventory was $2,500,000

( $2000.000 + $2500.000= $4,500,000/2= $2,250,000). Then divide the shipping cost

by the average inventory figure $60,000/ $2,250,000= 0.026 * 100= 2.6 percent is the

shipping cost as percentage of inventory.

2. Brick and mortar retail store simply cannot compete with an online e-commerce site

in terms of monitoring your performance against your peers. Google Analytics and

other SEO tools that can help monitor ALDO website traffic and ranking on search

engines.

3. A survey that has been conducted by BigCommerce in 2017 has shown that younger

demographics have higher preference for buying online vs. retail stores, where 67%

of surveyed millennials preferred shopping online vs. only 41% of surveyed baby

boomers.
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4. Marketing costs can also be reduced as there is no need for physical signs or

advertisements.  Aldo can create ads and post them on social media platforms, and

spend very little money in the process. Aldo can reach all of their customers, or target

a smaller demographic by zooming in on a cross-section of them based on parameters

such as age, sex, location, and lifestyle; also allow Aldo to build and manage your

email mailing lists make it easier to reach out to your customers every time you have

a new product to promote.

5. With brick and mortar retail store, the business is limited by what hours it is open. 

Personnel would need to be hired to accommodate longer business hours, and this

will increase costs. For example, the store hires 15 sales associates at $12 per hour

each and if they were to work 24hrs/ 7 days a week, the cost will be $12* 168 (24

hours * 7 days a week) = $2016 per week *4.3 (average week per month) = $8,668.80

monthly salary * 15 sales associates = $130,032 is the monthly cost for operating

24/7 through bricks mortar stores. With an e-commerce business, the online store of a

merchant is always open (barring technical difficulties).  There is no need staff

presence as it is required for brick mortar stores, and this means customers can place

orders 24/7 because they are in full control of their shipping needs.

6. Ecommerce allows for 24/7 operation because business can be conducted worldwide

which gives advantage in time zones operating hours which bricks mortar store does

not.

7. There are starting cost involved in transitioning from bricks mortar stores to

ecommerce; but the advantage that ALDO have is the fact it already have an online

platform. They already have a website developer that can create a platform which can
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allow them to fully transition to ecommerce. The cost of a warehouse is far less

expensive than leasing a storefront, with the money saved from transitioning to

ecommerce to they invest that funds in obtaining more warehouses and other

transitioning requirements.

A stakeholder have interest in an organization performance and can either affect or be

affected by the organization’s actions, objectives, and policies. There are two types of

stakeholders internal and external. Aldo Group internal stakeholders are the founder Aldo

Bensadoun, the CEO David Bensadoun, chairman, board members, employees/sales associates,

district sales managers, marketing, product developer, store managers, store designer, and store

planners. Aldo Group external stakeholders are customers, creditors/investors, suppliers,

members of the communities in which Aldo operates, organizations that engage with Aldo one

way or another, partners, and media. The internal stakeholders have financial stakes and direct

relationship with Also. If Aldo choose to shift to ecommerce, it will mostly positively affect both

internal and external shareholders. The profit margin will increase due to continue cash flow.
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Management can allocated the funds saved from reduced expenses by investing it to other

channel which can make Aldo stronger.

One bias that can influence my analysis is confirmation bias. Confirmation bias is the

tendency to interpret new evidence as confirmation of one’s existing beliefs or theories. I have

always belief ALDO is a successful retail store considering it’s been in business since 1972

which is almost 48 years ago and it’s hard to belief that it could possibly go out of business. I

spent most of my time doing my research on finding sources that justify what I believe about

ALDO and not looking at alternative possibilities. Due to lack of resource in regards to my

project, I feel that analysis may also be influence to negativity bias. ALDO is not quite giving

details on what their restructuring plans are in order to survive the pandemic and I mostly used

an estimate in order to validate my calculations.

My project was greatly affected by negativity bias, because of my inability to be able to

access all needed data in order to properly conduct my calculation involving monthly lease fees

and many others; because the cost of getting out of debt must be beneficial in the long run and

sustain the organization in order to avoid going out of business.

One concept I was able to apply was alternative analysis. I have utilized both quantitative

data and qualitative data evaluation. Aldo has to look into alternatives of surviving the pandemic

challenges besides simply applying for CCAA. CCAA does protect from creditor, but it does not

prevent ALDO from having to close their stores due to financial difficulties due to reduced cash

flow.

With any type of business, there is always risks involved whether one is doing business

through bricks and mortar retail stores or ecommerce. As Aldo consider shifting to ecommerce, it
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should also have the risk awareness associated with ecommerce because they are so many out

there, but here is top five ricks.

1. Online security: There are many range of security threats such as phishing

attacks, hacking, and spam mail.

2. System reliability: The internet service provider server could crash, online

payment system could show errors, and the ecommerce plugin could have

bugs.

3. Privacy issues: customers’ personal data could be compromised and used for

spamming, identity theft, and unsolicited marketing.

4. Customer disputes: A customer might not have received their order, their

credit card was charged twice, or the product they received didn’t fit the

online description.

5. Credit card fraud: someone could use a stolen credit card to make an online

purchase, or hacker could use stolen credit data from other customers in Aldo

system.

Aldo can manage risks and prevent data breaches by replacing outdated PoS

equipment and hiring a cybersecurity specialist to audit their systems and software.  Cyber

liability insurance protects your retail business and covers damages in the event of a data

breach. They can also take the following steps in order to mitigate some of the risk

associated with ecommerce:

1. Conducting intensive training for staff on ecommerce risk

2. Always stick to best practices

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3. Achieve and maintain the Payment Card Industry (PCI) compliance. PCI help

ensure that all online merchants and their customers are protected from frau

and breaches. Aldo should also have the right payment processor because the

right credit card processing company will provide effective risk management

support. Limit the number of declined transactions.

4. Develop internal fraud prevention structure, because the probability of

ecommerce depends on internal strategies and controls for minimizing fraud.

Aldo should use fraud prevention tools to help reduce risk exposure and build

a fraud screening process that when adequately implemented, the screening of

online card transactions can help minimize fraud for large-ticket items and for

high-risk transactions. Implementing proactive measures by protecting

merchant account from intrusion. Keep the list of confirmed fraudulent

attempts.

5. Recognizing signs of suspicious activity. Such as unusually large order or

high-priced orders, suspect email address, inconsistent address information,

and many others. Make sure the billing address matches the IP location.

DATA
For my quantitative analysis, I have chosen to calculate Return on Investment (ROI) on

ecommerce vs. bricks and mortar retail stores. To figure the ROI, subtract the ‘cost of the
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investment’ from the ‘total gain on the investment’ and divide that by the ‘cost of

investment’.

Cost for bricks and mortar retail stores involves Monthly lease, upfront investment, staff

and many others. Cost for an ecommerce involves web development, hosting, technical

and marketing support and many others. For calculation sake, let’s assume that in the

initial first year, Aldo profit was $350,000; cost of investment for having bricks and

mortar retail is $125,000 and the cost of investment for having ecommerce is $80,000.

Cost to start up ecommerce is cheaper than bricks and mortar retail stores.

𝑅𝑂𝐼 = (Income-Expenditures)/Expenditures= *100

Bricks and mortar retail stores: ($350,000-$125,000) $225,000/ 125,000= 1.8 *100=

180%

Ecommerce: ($350,000-$80,000) $270,000/ $80,000= 3.375 * 100= 338%

A positive ROI is preferred. If ROI is negative, it means no profit will be made, based on

the above calculation, both route provides a positive ROI result, but ecommerce has a

higher ROI. ROI calculation shows that Ecommerce returns profits to the investment

greater than bricks and mortar due to the financial advantages ecommerce have over

bricks and mortar.

We can also determine the Internal Rate of Return if Aldo was to transition ecommerce

and was granted $350,000 with interest rate of 8% per year.

F= P(1+i)n

P= $350,000

I=8%

N=1
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F= $350,000 (1.08)1= $378,000 will be how much the investment be worth in one year.

And if we look into how much the investment be in 5 years, the answer is $514,264.82

F= P(1+i)^n

P= $350,000

I=8%

N=5

F= $350,000 (1.08)^5= $514,264.82

CONCLUSION
In conclusion, although one of the biggest advantage bricks and mortar retail stores have

on ecommerce is the ability for consumers to see, feel and try out the item they were looking to

purchase. Aldo should fully consider shifting all their business to ecommerce and close down

their bricks and mortar stores. The have always strive with online business as to compare to their

retail stores. According to an article by Llod, Aldo’s online sales are growing faster than in-store

sales, with Baret saying online saw a 15% sales jump in 2016 versus a 5% increase in-store. He

says online sales account for approximately 20% of overall sales revenue at present, with just

under 50% of that total now coming through mobile channels. Hence the reason they invested in

revamping their online platform which George Baret, GM of experience design states “We are

committed to designing a universal digital experience: accessible, responsive, social, human-

centered, and most of all, easy to evolve and scale. We involved our consumers at each step of

the creative process, focusing on flows and details to go beyond convenience and build

meaningful services for style seekers.”

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References
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Admin. (2020, August 03). 12 Proven Advantages of Ecommerce against Brick and Mortar.
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