CarToys

By Jeffrey Chambers, Janet Feldstein, Brian Trelstad
2002 | Case No. E78
The case reviews the company’s history, starting in the late 1980s when Brettler formed the company with his own savings in 1987. It details the early stages of the company, its initial strategy, and its on-going successes. CarToys was a consistently strong performer in the mobile audio and wireless markets (it never had a single store have an unprofitable month), and became the dominant retailer in the Pacific Northwest. Brettler built the company’s value proposition on three components: great service, expert staff, and quality installation.
The case reviews the markets in which CarToys operated as of 1998, and some of the competitive dynamics, including supplier relationships (price and selection), employee expertise, regional branding, and store location (and format) that are part of the CarToys formula for success. In the mid 1990s CarToys set on a pretty aggressive expansion strategy and Brettler needed to expand his team with key hires, saturate his existing markets, and –eventually— identify new regions to move into.
In 1997, Brettler decided that he wanted to refinance the company for two business reasons. The first was to provide an opportunity for his newly hired senior management to invest in the company and gain an equity share. As part of his strategy to delegate more responsibility, Dan thought that equity would play an important motivational role for his vice presidents. The second reason was to position the company for a public offering at some point down the road. While he was not sure he wanted to go public, or when for that matter, Dan recognized the value of having a financial partner with experience in taking retail companies public. He did know that other consumer electronics companies, like one of his competitors, Tweeter, had been receiving attractive valuations, and he might want to take advantage of the favorable capital markets.
After the discussion of the recapitalization, the case turns to discuss the company’s next-steps strategy for geographic expansion. Brettler hires a market research company to assist CarToys in making its decision. Four potential markets are identified and described in detail; in one market a strong potential acquisition candidate is identified and discussed.
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