2 Pages Posted: 30 May 2017 Last revised: 19 Jul 2019
Hightrek was a small Canadian manufacturer of camping gear and specialized in low-cost tents that were sold through small retailers catering to price-sensitive casual campers. The company was considering a modest expansion into a new product line. The basic technology used to make camping tents could be adapted to make lightweight hoop houses for gardening. While there are many considerations involved, Hightrek first had to explore whether the decision made sense financially, and then whether it was a good strategic move.
Rev. Jul. 3, 2019
Hightrek was a small Canadian manufacturer of camping gear. Its manufacturing facilities were located not far from Niagara Falls, New York, and the company specialized in low-cost tents that were sold through small retailers catering to price-sensitive and casual campers. A typical retailer was a general store located in a tourist town, and almost all Hightrek's retailers were located in Canada or close to the US-Canadian border. Business was steady, although margins were low and growth prospects nearly nonexistent.
The company was considering a modest expansion into a new product line. The basic technology used to make camping tents could be adapted to make lightweight hoop houses for gardening. A hoop house was similar to a greenhouse in that it allowed gardeners in cold climates to start plants early and gardeners in warmer climates to control pests. Similar products went by many names, such as high tunnels, cold frames, and tunnel greenhouses. They varied from small frames for the garden beds of residential homes to the large frames used for the big commercial operations. Hightrek was hoping to introduce a hoop house that was about twice the length of one of its larger tents and used much of the same framing material. Unlike most competing products, these hoop houses would be highly portable and easily stored.
While there were many considerations involved, Hightrek first had to explore whether the decision made financial sense. All the associated costs were easily estimated; a small test run on the frames suggested there would be no production uncertainty; and many of Hightrek's customers indicated they would consider stocking the item. If this expansion made financial sense, then Hightrek would have to explore whether it would be a good strategic move.
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Keywords: cash flows, investment, expansion analysis, production costs
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