3258 SEPTEMBER 26, 2008 RICHARD S. TEDLOW HEATHER BECKHAM Harrington Collection: Sizing Up the Active-Wear Market On January 22, 2008, financial results for Harrington Collection’s 2007 fiscal year were distributed to all senior executives. Harrington, a large manufacturer and retailer of high-end women’s apparel, had posted lackluster sales for the past three years and margins were now at an all time low. Sara Huey, Vice President of Strategic Planning, gathered her strategy team and key operating managers to review the disappointing 2007 results and brainstorm ideas to reverse the negative trends. During the meeting, Blake Myers, the general manager for the Vigor division, proposed his idea to expand into a new product line. Myers stated, “The word I hear from some of our retailers is that stylish, sporty, casual attire is flying off the shelves. There has been tremendous growth in the activewear segment. Harrington is missing a huge opportunity by not offering this kind of line.” Karen Allen, a director in Strategic Planning, responded, “Expanding our lines downstream is not a sound long-term strategy. And a new product launch would probably put a significant drain on our resources. I doubt we could capture enough sales in the first year to break even.” Huey thought for a moment. Expanding into a product line with more casual, lower-priced fashions was not a novel idea, but it had always been dismissed as too big a departure from Harrington’s sophisticated, high-class roots. However, with continued pressure on profits, it was clear Harrington needed some fresh ideas if it was going to continue to remain an industry leader. Huey thought that there might be something to Myers’s idea. She told the group, “Interesting suggestion, Blake. Perhaps the time has come to flesh out this idea. I want you and Karen to gather all the data you can, and then we’ll analyze the opportunity properly.” ________________________________________________________________________________________________________________ HBS Professor Richard S. Tedlow and Heather Beckham prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. All names and key data in this case have been disguised. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. The authors and HBS are grateful to Suzanne Norris for her assistance. Copyright © 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. 3258 | Harrington Collection: Sizing Up the Active-Wear Market The U.S. Women’s Apparel Industry In 2007, the U.S. women’s apparel market was both mature and highly competitive. The economic downturn that began in the early 2000s significantly impacted the industry. Consumers had become very price-sensitive, and over half of all apparel purchased was sold “on sale.” The trend toward less expensive, casual clothing and the rising supply of low-cost, imported apparel intensified price pressure. Consumers’ discretionary dollars, once earmarked for fashion, were being diverted to technology products, home design, and leisure-activity spending (e.g., travel, spas). In 2007, the women’s apparel industry was estimated at $133 billion in retail sales. Exhibit 1 and Exhibit 2 provide data on the women’s apparel market in dollars and unit volume sales. Women’s apparel products could be divided into six general categories based on quality and price: (1) haute couture, (2) designer, (3) bridge, (4) better, (5) moderate, and (6) budget. See Exhibit 3 for definitions of each product class. One of the greatest challenges facing apparel companies was managing the short-lived fashion product life cycles. Hot new designs were easy to imitate, and consumer demand was often shortlived. New products and product lines were constantly introduced in an attempt to stimulate sales. Rapidly changing consumer tastes required apparel manufacturers to continue to reduce their product design, production, and retail placement cycle time. Major factors that differentiated apparel products included (1) Fabrication: fabric choice, finish and pattern; (2) Silhouette: the outline or shape of the design; (3) Quality of construction; (4) Brand; and (5) Price. Competition in the Industry Scores of brands competed fiercely for market share and shelf space. The industry was moderately concentrated. Leading companies, such as Jones Apparel Group and Liz Claiborne, captured significant market share with their diverse brand portfolios. Jones Apparel Group and Liz Claiborne were both involved in the design, marketing, wholesaling, and retailing of women’s apparel. Both companies outsourced production of their apparel to third parties overseas. Jones operated 396 specialty retail stores and managed an array of brands (e.g., Jones New York, Nine West, Anne Klein, Gloria Vanderbilt, Kasper, Bandolino, EvanPicone, Energie, Enzo Angiolini). Claiborne operated 338 retail stores around the globe (201 in the United States). Company-owned brands included Liz Claiborne, Mexx, Juicy Couture, Lucky Brand Jeans, and Ellen Tracy. Producing Women’s Apparel for the U.S. Market The value chain for the women’s apparel industry consisted of seven critical activities: (1) Branding; (2) Design; (3) Buying; (4) Production; (5) Channel Marketing; (6) Distribution; and (7) Retailing. Exhibit 4 provides detail on each activity. Apparel manufacturers generally took responsibility for branding, design, sales and marketing to retailers, and managing production and distribution of the apparel. Some companies were completely vertically integrated across the entire value chain. However, the trend toward outsourcing production to low-cost labor areas was increasing. Imports dominated the U.S. women’s apparel market, accounting for 82% of total industry sales in 2005. 1 Once global import quotas on textiles from China were eliminated at the end of 2004, apparel 1 Internal note: Freedonia Industry Report, “Focus on Apparel,” December 2006 2 BRIEFCASES | HARVARD BUSINESS SCHOOL This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. Harrington Collection: Sizing Up the Active-Wear Market | 3258 imports from China soared. Due to low labor costs in China and other developing nations, COGS for imported apparel was significantly less than for similar apparel produced in the United States. Cost advantages from producing in low-cost countries could reach 50%, depending on the product and the labor involved. 2 Outsourcing production also eliminated the need for overhead and capital spending associated with the manufacturing plants. Due to the relative ease of outsourcing production, barriers to entry in this industry were rather low. Firms that chose not to outsource cited lack of quality control, concerns about reliable delivery, and long lead times as reasons for retaining ownership of production activities. In addition, cost advantages for imported apparel were shrinking due to skyrocketing oil/transportation costs, rising wages in developing nations such as China, and the relative weakness of the U.S. dollar. Retailing Women’s Apparel for the U.S. Market Women’s apparel retailers included department stores (e.g., Macy’s, Bloomingdale’s), discounters (TJ Maxx, Marshalls), mass merchandisers (Target, Wal-Mart), specialty stores (Ann Taylor, Talbots), and warehouse clubs/supercenters (Costco, Sam’s Club). See Exhibit 5 for industry market share breakout by channel. In recent years, discounters had established themselves as strong competitors in the women’s apparel retail space. They were able to exploit the overproduction by many manufacturers and buy branded pieces at deeply discounted costs. Their off-price merchandise often competed directly with the department store offerings. In an effort to boost financial performance, many department stores pursued consolidation strategies. For example, Federated (operator of Bloomingdale's, Macy's, and Rich's) acquired May Department Stores (operator of Marshall Field's, Lord & Taylor, Filene's, and Kaufmann's) in 2005. Mergers of large department store chains provided them with significant bargaining power in the value chain. Another trend in the industry was for retail outlets to integrate backwards in the value chain by contracting directly with manufacturers to produce private label brands. Private label brands had been growing at twice the rate of regular brands for the past 10 years. 3 The allure of private label brands for retail outlets was product costs that were about 20% below those of national brands. 4 As a result, these products could be offered at a lower price to the consumer, and margins for the retailers were 10% to 20% higher. 5 Manufacturers had also expanded their roles by integrating forward into retailing. With company-owned stores, manufacturers benefited from controlling customer service, product display, and the sales staff. Company Background Harrington Collection was established in 1960 by Ella and Steven Harrington as a manufacturer and marketer of designer women’s clothing. In the early years, the company focused solely on designing and manufacturing formal dresses for high-end specialty stores. In 1970, Harrington grew 2 Internal note: Reinecke, Dr. Nicholas, “Getting to Grips with Global Outsourcing,” Business Day South Africa, November 26, 2007. 3 Internal note: Baker, Stacy, “The apparel industry's top seven mega-trends: Management briefing: Trends for 2007,” Just Style, May 2007 4 Internal note: Sloane, Leonard, “Private-Label Clothes Find New Buyers,” New York Times, February 20, 1988. 5 Internal note: “Mid-Range Brands Suffer as Department Stores Focus on ‘Private Label’ Clothing,” The Economist, May 19, 2007 HARVARD BUSINESS SCHOOL | BRIEFCASES 3 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. 3258 | Harrington Collection: Sizing Up the Active-Wear Market its product lines to include women’s suits, pants, blouses, and coats. By the mid 1980s, Harrington had built a chain of company-owned retail stores and sold products in upscale department and specialty stores as well. In 1984, Harrington expanded by acquiring the Vigor and Christina Cole brands, which appealed to younger, fashion-conscious customers. Huey stated, “Throughout Harrington’s history, we‘ve had the preeminent brands for women desiring elegant, high-end fashions. In the 1980s, we capitalized on the demand for professional and stylish attire for women entering the workforce. Because of our superior quality, knowledgeable sales staff, and designer styles, customers became extremely loyal to the brands. Our logos are still synonymous with highclass fashions.” Harrington Collection separated financial results into two reportable segments: The Manufacturing Group, dedicated to designing, producing, and marketing upscale women’s apparel, accounted for 50.3% of company profits in 2007; and The Retail Group, focused on retail-based operations for company-owned stores, accounted for 49.7% of profits in 2007. Detailed company financials are provided in Exhibit 6. Manufacturing Group Harrington’s manufacturing group supplied apparel for company-owned stores and also sold products to upscale department and specialty stores. Company-owned stores accounted for about 20% of the manufacturing group’s sales in both units and dollars. The remaining sales were split 40:60 between specialty stores and department stores. Harrington did not sell any products to mass merchandisers or discount retail outlets. The manufacturing group owned and operated production facilities in the United States, Mexico, and the Caribbean. Many apparel firms had closed their North American manufacturing plants to achieve savings by outsourcing production to China. Some senior managers at Harrington Collection had urged CEO Kathleen DuBroff to do the same. However, two concerns had led DuBroff not to outsource: a desire for greater quality control than she thought she could dependably obtain from an outside source, and a desire to have manufacturing plants reasonably close to the U.S., to ensure that when a particularly fashion-sensitive product line was ready, it could be placed into retail outlets with maximum speed—that is, faster than container ships from China could get it there. Harrington Collection manufactured clothing under four distinct divisions: Harrington Limited, Sopra, Christina Cole, and Vigor. Harrington did not manufacture private-label brands or use licenses from other companies. Overall, Harrington Collection products held approximately 1.83% share of the total women’s apparel market in terms of retail dollars in 2007. Exhibit 7 provides details on the product focus, positioning, competition, and market share for each division. Retail Group Harrington Collection’s retail group operated 120 company stores: 70 stores sold a combination of Harrington Limited and Christina Cole merchandise, and 50 of the stores were dedicated solely to the Vigor division. Products from these divisions were also sold in upscale department stores and specialty stores. Sopra designs were sold exclusively at specialty stores. Each division also had a sophisticated e-commerce site where products could be purchased directly. Harrington Collection felt sales people were the most important factor in the consumer decision-making process and spent significant resources training its retail sales force and offering attractive commissions. 4 BRIEFCASES | HARVARD BUSINESS SCHOOL This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. Harrington Collection: Sizing Up the Active-Wear Market | 3258 Brand Positioning, Sales and Marketing Strategy Harrington Collection targeted affluent, fashionable, college-educated, professional women ages 25 to 60. Each manufacturing division focused more narrowly on a specific target consumer. Harrington Limited’s target customer was interested in “sophisticated elegance,” Sopra’s customer was described as a “status seeker”, Christina Cole consumers wanted to be “office chic,” and Vigor consumers were labeled “trend setters.” Exhibit 7 provides further details on each division’s target customer. According to Huey, “Harrington products are aspirational in nature, and wearing a piece of clothing with one of the Harrington labels provides instant status. We were one of the first companies to successfully introduce a lifestyle-branding strategy. This brand equity fuels the premium prices that Harrington Collection captures.” Harrington Collection differentiated its products through design, marketing, and outstanding service. Harrington Collection was known for its top in-house design staff, extensive national advertising campaigns, and its exceptional quality and styling. In company-owned stores, Harrington employed cutting edge technology to track inventory and sales information. This allowed the manufacturing group to quickly react to market demands, improve productivity and shorten manufacturing cycles. Harrington’s expertise in analyzing market data helped to prevent overproduction in the manufacturing group. An added benefit of staying ahead of the product life cycles was reduced overstocks for the retail trade partners. Harrington Collection maintained a significant channel marketing budget and had an excellent relationship with the retail trade. Huey explained, “We focus on a push marketing strategy. We offer our channel partners more support and incentives than most manufacturers. We consider them a strategic partner. We offer retailers valuable inventory and sales advice based on decades of expertise and data from our retail group. The independent specialty stores find this invaluable. These smaller specialty stores are our most fervent supporters. They love dealing with us because they can count on reliable deliveries, help in selling the merchandise, and credibility that comes with carrying the Harrington labels.” The Active-Wear Opportunity and Its Costs In recent years, several companies had launched stylish, active-wear lines sold in department stores. These lines often consisted of a matching hoodie, pants, and tee shirt and were meant to be worn everywhere, not just to the gym. The trend toward more contemporary, athletic fashions resulted in rapid growth for firms that offered these lines. Liz Claiborne’s Juicy Couture was one of the early leaders in the “better” active-wear category. Popular with Hollywood celebrities, Juicy Couture focused its line on glamorous fabrics and sexy styling. Knock-offs in the “moderate” and “budget” classifications quickly arrived on the market. Harrington Collection estimated that over seven and a half million active-wear units 6 had been sold in 2007. This number was expected to double by 2009. In 2007, 80% of this apparel was in the “moderate” and “budget” classifications. However, many brands were starting to trade-up and 40% of active-wear in 2009 was expected to be captured by the “better” classification. The successful “better” active-wear product lines focused on large-scale advertising campaigns, with average price points just below $100. Ongoing advertising for an active-wear line was estimated at $3 million per year, exclusive of launch costs. 6 Since active-wear was sold as separates, the ratio of hoodies to tee-shirts to pants was not equal. Historical sales in the market segment showed this ratio was one to three to two. Therefore, an active-wear “unit” was viewed as half a hoodie, one and one-half tee-shirts, and one pair of pants. HARVARD BUSINESS SCHOOL | BRIEFCASES 5 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. 3258 | Harrington Collection: Sizing Up the Active-Wear Market During her analysis, Karen Allen convinced a Harrington manufacturing expert to tear apart one of the “better” sets and was astonished by the results. Allen noted, “This is one of the most poorly made garments I have ever seen. The consumer will not be fooled for long. She will wash it once and be appalled.” Blake Myers agreed: the durability was well below Harrington standards, but he added, “Our research shows that 95% of purchasers were satisfied with the products’ durability, feel, fit, and look.” Reports from department stores showed the stylish active-wear inventory sold extremely quickly. Active-wear inventory had an inventory turnover rate almost twice the rate of current Harrington Collection apparel. In addition, markdowns for the stylish active-wear were not as extreme as other product lines. Surveys and focus groups commissioned by Harrington Collection, revealed that their target customers showed considerable interest in more active-wear clothing. Myers explained, “Our survey findings showed 10% of customers purchasing apparel in the $100–$200 price range would buy an active-wear set if one with superior styling, fabric, and fit was available. This is a huge opportunity for us. By conducting focus groups we also uncovered that there is a subset of Harrington customers who were loyal to the brands throughout their careers but no longer desire the tailored, professional look. They are now interested in something fresh and comfortable that fits with their active lifestyles. Other studies have also supported this finding and have shown the aging baby boomer population wants clothing that does not make them feel old.” Myers felt active-wear would be a perfect addition to the Vigor division. Vigor styles were less traditional than the other Harrington divisions. Although the division currently focused on career wear, it emphasized comfort and fashion. Myers explained, “Vigor has the strength to branch out and support a more casual, less-expensive line. Fewer than 2% of respondents in the customer research survey felt that a less-expensive active-wear line would cheapen the brand.” Vigor currently provided a very broad line and advertised nationally. Also, account executives called on retail trade partners about four times per year—double the industry average of two sales calls per year. Myers thought the new active-wear pieces could be offered well below Vigor current price points. The suggested retail sales prices for a Vigor hoodie, tee-shirt and pants would be $100, $40, and $80 respectively. Wholesale prices from the manufacturing group to the retailers would be 50% of those figures. Both Huey and Allen felt the company could not outsource the production of this line to a third party. When Myers brought up the idea of outsourcing to China, Allen quickly cut him off by saying, “Kathleen DuBroff has made it clear that in-house production is one of our competitive advantages. Quality and agility are Harrington’s mainstays. Outsourcing does not provide for adequate control over quality or turnaround times. If shoddy, outdated pieces with a Vigor label make it to the public, then it will irreparably harm all Harrington divisions.” Allen felt the optimal strategy was to rent plants in Mexico to produce the pants, hoodies, and tee-shirts. Allen believed renting plants in Mexico complied with DuBroff’s control mandate at the lowest possible cost structure. Although costs to produce apparel in Mexico were slightly higher than in China, Allen felt the close proximity to U.S. retail outlets made Mexico the optimal choice. Wage differential between laborers in China and Mexico was less than one dollar per hour. 7 7 Pollina, Ronald R., “Can Mexico Compete for Jobs Internationally,” Area Development Site and Facility Planning, August 1, 2004. 6 BRIEFCASES | HARVARD BUSINESS SCHOOL This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. Harrington Collection: Sizing Up the Active-Wear Market | 3258 A facility to manufacture the pants could be rented for $500,000 annually with equipment costing about $2 million and plant start-up costs estimated at $1.2 million. Yearly overhead, excluding rent, was projected to be $3 million. Hoodies and tee-shirts could be produced at a plant that could be rented for the same annual amount as the pants plant. Equipment would cost $2.5 million, start-up costs would be another $2.5 million, and yearly overhead, excluding rent, would be $3.5 million. Launch costs, which included a national advertising and public relations campaign, were estimated at $2 million. New fixtures for company-owned stores carrying the active-wear line would run $50,000 per store. All launch, fixture, plant start-up, and equipment costs would be depreciated over a five-year period. Allen had also run some numbers on variable costs. Direct labor of sewing, pressing, and cutting had to be considered. Raw material costs were broken out into fabric and findings (e.g., buttons, zippers, and thread). Allen’s estimates are summarized in Exhibit 8. Allen projected working capital requirements at 3% of wholesale prices and sales commissions at 4%. She expected carrying costs for inventory to be 1% of wholesale prices. Other expenses that Allen estimated were bad debt at .7% of wholesale prices, transportation at .24% and order processing/miscellaneous at .15%. Vigor would be able to leverage Harrington’s existing corporate support functions (e.g., IT, HR, Legal, Finance, etc.) to run the new business, but Vigor would have to hire a general manager, merchant, planning manager, and two design staff members who were dedicated to the new product line. These management salaries and support allocations were estimated at $1 million per year. Making the Decision Allen and Myers had spent two months collecting data on active-wear trends and cost estimates for launching the new line. As Huey examined their findings, she was pleased with the potential of the opportunity, but she was also mindful of the risks. In March of 2008, Huey called her strategy team into her office. Once they arrived, she looked up from the papers strewn upon her desk and addressed them: “I think we could be ready to launch a new active-wear line January 1, 2009. However, we need to first think through all the critical questions. What is the potential competitive reaction? Will both department and specialty stores enthusiastically support this new product line? Can active-wear be folded into the existing Vigor division or should a brand new division be created? What sales are needed to break even? Is this attainable? Can we achieve the sales needed to capture an attractive profit margin? Before we bring this idea to the board, we need to have answers to all these questions. I sketched out a template to help us work through the demand and profitability analysis (Exhibit 9). Let’s order in some lunch and start to sort through the issues.” HARVARD BUSINESS SCHOOL | BRIEFCASES 7 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. 3258 | Harrington Collection: Sizing Up the Active-Wear Market Exhibit 1 U.S. Apparel Market Salesa U. S. Retail Sales of Women’s Apparel 2002 – 07 Sales Year 2002 2003 2004 2005 2006 2007 $ billion $ 106.0 $ 109.7 $ 115.9 $ 122.1 $ 127.7 $ 133.0 % change – 3.5 5.7 5.3 4.6 4.2 a Mintel International Group Exhibit 2 U.S. Women’s Apparel Market Unitsa U. S. Women’s Apparel Market: Units Sold Annual 2005 millions Annual 2006 millions Annual 2007 millions $200+ 138.3 139.2 143.2 $100 - $200 219.0 218.9 222.2 $50 - $100 438.0 468.9 511.5 Under $50 489.9 524.3 584.6 1,285.3 1,351.2 1,461.5 Price Point Total a Fictional industry numbers Exhibit 3 Women’s Apparel Product Classifications Haute Couture—Custom, made-to-order apparel. Only affordable for the most elite members of society. Costs could be in the tens of thousands of dollars for each item. Example: Chanel, Christian Dior. Designer—Highest quality ready-to-wear apparel. Characterized by high-style fashions. Usually sold in highend department and specialty stores. Items typically have an average suggested retail price of more than $1,000. Example: Gucci, Marc Jacobs. Bridge—Offers a “bridge” between designer and better segments. Pieces like career wear and dresses with high quality fabrics usually appear in bridge lines. Items typically have an average suggested retail price of less than $1,000. Example: Tahari, Ellen Tracy. Better—Brand-name labels which are less expensive than bridge. Lines generally include sportswear, career wear, and dresses. Items typically have an average suggested retail price of less than $500. Example: Jones New York, Liz Claiborne. Moderate—Moderate quality sportswear, career wear and dresses often fall into this category. Items typically have an average suggested retail price of less than $100. Example: Gap, Nine West. Budget—Least expensive product category. Product lines generally consist of more casual clothing, including jeans and tee-shirts. Items typically have an average suggested retail price of less than $50. Example: Old Navy, Cherokee. 8 BRIEFCASES | HARVARD BUSINESS SCHOOL This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. 3258 Exhibit 4 Women’s Apparel Value Chaina Branding •Build and manage brands Product Design •Research trends and create new designs Buying •Source raw materials or locate manufacturers that make all or part of the finished product Production •Cut fabric •Sew and press •Assemble garment •Perform final finishing Channel Marketing •Develop promotional strategies for retail channel partners •Sell products into retail channel Distribution •Distribute apparel to retail outlets Retail Sales •Operate retail outlets •Determine product mix •Develop marketing and merchandising strategies •Sell products to consumers a Adapted from information from IBM, Apparel Manufacturing Industry Brief, September 2002 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. -9- 3258 | Harrington Collection: Sizing Up the Active-Wear Market Exhibit 5 U.S. Retail Sales Breakout by Channela US retail sales of women’s clothing, by channel 2007 Other, 2.9% Warehouse clubs & Supercenters, 8.1% Discount or Mass Merchandiser Dept Stores, 11.4% Department Stores (Other than Discount), 19.0% Specialty Stores, 58.6% U.S. retail sales of women’s clothing, by channel, 2005 and 2007 2005 2007 $ in billions % Specialty stores $ 70.2 57.5 $ Department stores $ 25.5 20.9 Discount or mass merchandiser dept stores $ 14.1 Warehouse clubs & supercenters $ Otherb Total $ in billions Change 2005–2007 % % 77.9 58.6 11 $ 25.3 19 -0.8 11.5 $ 15.1 11.4 7.1 8.6 7 $ 10.8 8.1 25.6 $ 3.7 3 $ 3.9 2.9 5.4 $ 122.1 100 $ 133.0 100 8.9 a Source: Mintel International Group b This includes retailers such as outlet stores, sporting good stores, gift shops, and food and drug stores 10 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. Harrington Collection: Sizing Up the Active-Wear Market | 3258 Exhibit 6 Harrington Collection Financials Harrington Collection Financial Results Year Ending December 30 $ in millions 2005 2006 2007 Manufacturing $556 $542 $538 Retatil $834 $813 $806 Total Revenue 1,390 $1,354 $1,344 Manufacturing $372 $366 $366 Retail $375 $369 $371 Total COGS $747 $735 $737 Manufacturing $183 $176 $172 Retail $459 $443 $435 Total Gross Profit $643 $620 $607 Manufacturing $106 $108 $113 Retail $383 $379 $379 Total SG&A $489 $487 $490 Manufacturing $78 $68 $59 Retail $76 $65 $58 $154 $133 $118 Sales Costs of Goods Sold Gross profit SG&A Profit Before Tax Total Profit Before Tax 11 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. 3258 Exhibit 7 Harrington Manufacturing Divisions Division Product Line Focus Product Classification Retail Price Range Target Customer Competition Market Sharea Harrington Limited Designer Collection: dresses, skirts, blouses, pants, suits, and coats Designer $500–$1,000+ Sophisticated Elegance: Women age 35 to 60, average household income of $200k+, college-educated professional seeking conservative designer clothing Donna Karan, St. John 20% Sopra Evening Wear: dresses, suits Bridge $400–$800 Status Seeker: Women age 35 to 60 with average household income of $150k+, collegeeducated professional seeking status brands Diane von Furstenberg, Kay Unger New York 5% Christina Cole Career Wear: dresses, skirts, blouses, pants, suits, and coats Bridge $300–$700 Office Chic: Women age 30 to 55, average household income of $100k+, collegeeducated professional seeking stylish, refined clothing for work Tahari, Dana Buchman 8% Vigor Career Wear: dresses, skirts, blouses, pants, and coats Better $150–$500 Trend Setter: Women age 25 to 50, average household income of $75k+, collegeeducated professional seeking fashionable, yet comfortable clothing for work Theory, BCBG Max Azria 7% a Represents market share in price ranges and product lines in which each division competes Exhibit 8 Active-wear Program: Direct Variable Cost Estimates Active Wear Program Cost Estimates Hoodie Tee-shirt Sew and Press $ 3.25 $ 2.00 Cut $ 1.15 $ 0.40 Other Variable Labor $ 3.20 $ 2.40 Fabric $ 9.10 $ 2.20 Findings $ 3.85 $ 0.50 $ 20.55 $ 7.50 $ $ $ $ $ $ Pants 2.85 0.70 3.05 7.50 2.30 16.40 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. -12- Harrington Collection: Sizing Up the Active-Wear Market | 3258 Exhibit 9 Demand and Profitability Analysis Template Start Up Costs: Start-up Costs Pants Plant Start-up Costs Hoodie and Tee-shirt Plant Equipment Pants Plant Equipment Hoodie and Tee-shirt Plant Launch - PR, Advertising Fixtures for Company Stores Total Start-up Costs Annual Depreciated Start-up Costs $ $ $ $ $ $ $ $ - Annual Ongoing Operating Costs —Fixed: Overhead Pants Plant Overhead Hoodie and Tee-shirt Plant Rent Pants Plant Rent Hoodie and Tee-shirt Plant Management/Support Advertising Total Fixed Operating Costs $ $ $ $ $ $ $ - Direct variable costs: Sew and Press Cut Other Variable Labor Fabric Findings Hoodie $ $ $ $ $ $ - Tee-shirt $ $ $ $ $ $ - Direct variable costs translated into "unit" costa Hoodie $ x .5 $ - Tee-shirt $ x 1.5 $ - Indirect variable costs:b Wholesale "unit" price Total variable costs as % of wholesale price Indirect variable costs per "unit" $ Pants $ x1 $ - % $ - $ $ - Total variable costs per "unit" $ - Contribution: Wholesale price per "unit" less total variable costs per "unit" Contribution per "unit" $ $ $ - Direct variable costs per "unit" Indirect variable costs per "unit" Pants $ $ $ $ $ $ 13 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. 3258 | Harrington Collection: Sizing Up the Active-Wear Market Exhibit 9 (continued) Breakeven: Fixed annual costs (operating and depreciated start up) ÷ Contribution per "unit" = Breakeven Units Profit Margin:c Revenue less fixed annual costs less total variable costs Profit before tax Profit margin before tax $ $ - $ $ $ $ % a See footnote 6 in the case narrative for product mix ratios b Working capital, bad debt, sales commissions, order processing, transportation, inventory carrying, etc c Assume market share of 7% "better" active-wear segment 14 This document is authorized for use only in Faculty's KMBA 713 - Market Perspectives expire at Laureate Education - Baltimore from Dec 2018 to Feb 2020. Developing marketing strategies and plans DEVELOPING MARKETING STRATEGIES AND PLANS Programme Transcript The marketing plan begins with an assessment of the current position of the brand, product or service. This involves collating information from many different places to ensure that the marketing communications are in line with the company mission and objectives. Moorman and Day (2016) note that there are four key elements to creating marketing excellence: capabilities, configuration, human capital, and culture. The management of these through appropriate marketing strategy ultimately decides the reward from a marketing campaign. The marketing plan involves assessing whether the mission and objectives are fit for purpose and reflect the overall strengths, aims and position of the brand. Additionally, marketing is a fast-moving and ever-changing business sector. Understanding the velocity and type of change that exists in both the macro and micro environment facilitates marketers being able to make strong predictions for future trends, market availability and promotional avenues. Marketing strategies need to be flexible and responsive to change, and this week you will have an opportunity to start looking at the organisational environment through the eyes of a marketing strategist. You will begin to understand how to bring together multiple aspects of market analysis to create marketing plans and strategies. Importantly, you will also look at the traditional strategic concepts such as PESTLE factors and Porter’s Five Forces analysis to consider how these can be assessed and used to make top-level marketing decisions. Brands, products and services do not exist in isolation. Considering shifts in consumer behaviour, social norms, political and economic restrictions, as well as benchmarking against competitors in the field, is essential and contributes to marketing strategy. Marketing is also largely concerned with the processing and analysis of vast amounts of data, and this is conducted on an even greater scale with the introduction of big data, super computers and the role of the Internet. As strategic marketers, we can collect and analyse vast amounts of information about the environments in which we operate, our competitors, and the internal capabilities of the company, and of course our customers. This allows us to understand our strengths, weaknesses, opportunities and threats and act appropriately (Helms and Nixon, 2010). Whether the goal is to launch a new product, increase brand awareness or enter a new market, creating a strategic marketing plan is a complex and time-consuming process, but if successful it can be hugely beneficial for the brand and the organisation. 1 Developing marketing strategies and plans REFERENCES Helms, M.M. and Nixon, J. (2010) ‘Exploring SWOT analysis-where are we now? A review of academic research from the last decade’, Journal of Strategy and Management, 3(3), pp. 215-251. Moorman, C. and Day, G.S. (2016) ‘Organizing for marketing excellence’, Journal of Marketing, 80(November), pp. 6-35. DEVELOPING MARKETING STRATEGIES AND PLANS Additional Content Attribution FOOTAGE: GettyLicense_545782806 Rawpixel / iStock / Getty Images Plus / Getty Images GettyLicense_538173696 [Courtney Keating]/[E+]/Getty Images Marketing strategy Photo by Kaboompics.com from Pexels GettyLicense_467599724 pixomedesign / iStock / Getty Images Plus / Getty Images GettyLicense_468840905 [Paul Bradbury]/[Caiaimage]/Getty Images GettyLicense_165661900 alengo / E+ / Getty Images GettyLicense_179602002_7 [Peshkova]/[iStock / Getty Images Plus]/Getty Images GettyLicense_157608644 alexsl / E+ / Getty Images GettyLicense_468840905 [Paul Bradbury]/[Caiaimage]/Getty Images GettyLicense_559540509 Westend61/None/Getty Images 2 KMBA 713 - Market Perspectives Week 2: Developing marketing strategies and plans Successful marketing practices rely on extensive market analysis, research and the creation of an e ective marketing strategy and plan. Laureate Education (2018) Developing marketing strategies and plans [Interactive Media]. (Accessed: 14 August 2018). (View full screen) References Helms, M.M. and Nixon, J. (2010) ‘Exploring SWOT analysis—where are we now? A review of academic research from the last decade’, Journal of Strategy and Management, 3(3), pp. 215–251. Moorman, C. and Day, G.S. (2016) ‘Organizing for marketing excellence’, Journal of Marketing, 80(November), pp. 6–35. Learning Objectives By the end of this week, you will: Develop a critical understanding of the theoretical and practical aspects of the strategic processes around marketing activity. Gain an awareness and understanding of the strategic signi cance of marketing and the conceptual and practical tools and models to undertake an internal and external marketing audit and analysis. Consider the conceptual underpinnings and awareness to develop practical marketing plans. Develop a sound understanding of processes of marketing strategy formulation, implementation and control. Overview The rst and most important aspect of organisational strategy is creating a company vision, mission and brand objectives. The role of the mission statement and corporate objectives From a marketing perspective, critically analysing the existing mission statement and organisational objectives allows us to consider how the brand is positioned and perceived. It is possible to compare the marketing communications with these statements to see if the company has a consistent message and is ful lling its overall objectives. Importantly, the entire strategic marketing process and decision-making is guided by the mission and objectives set out. This will include everything from the brand message, product portfolio, social media campaigns and international expansion. Marketing strategy is complex and considers the company’s current position (PESTLE, SWOT) and its future goals. Two good examples of mission statements include the following: The Walt Disney Company Mission: ‘Using our portfolio of brands to di erentiate our content, services, and consumer products, we seek to develop the most creative, innovative and pro table entertainment experiences and related products in the world’ (Disney, 2018). The Coca-Cola Company Mission: ‘Our mission is: To refresh the world in mind, body and spirit. To inspire moments of optimism and happiness through our brands and actions. To create value and make a di erence’ (Coca-Cola, 2017). Strategic objectives are speci c ways in which to achieve the overall strategic mission. A company will use these aims and objectives to guide its decision-making. In order for a company to be able to evaluate the success of the objectives, the company aims to make them SMART: Speci c (simple, sensible, signi cant) Measurable (meaningful, motivating) Achievable (agreed, attainable) Relevant (reasonable, realistic and resourced, results-based) Time bound (time-based, time limited, time/cost limited, timely, time-sensitive) Change shapes strategy After critically analysing and evaluating the company mission and objectives, the next step in creating a strategic marketing plan is to conduct a marketing audit assessing the internal, external and market environment. This will include considering PESTLE factors (political, economic, social, technological, legal and environmental), a competitor analysis and considering customer needs and purchasing habits. Change in these areas impacts marketing decision-making and it is important to consider how they operate from a marketing point of view; moreover, this allows market trend predictions to occur. Johnson, G. (2002) The external environment The macro environment A macro environmental analysis is a popular strategic analysis tool which provides data for decision-making purposes. This is no di erent when creating a strategic marketing plan; however, it is the way in which these di erent elements impact customer behaviours and beliefs that is most relevant. It is also useful to consider how the macro, micro and internal environment work together to inform and in uence consumers. The in uence of these environmental factors has been intensi ed and changed by the introduction of digital retail and digital marketing, which has signi cantly altered how consumers form relationships with brands, and how brands communicate with and in uence customers. The Competitive Environment (Johnson, Scholes, and Whittington, 2008) The micro environment five forces A competitor analysis is also an essential part of a full marketing audit. You are already familiar with Porter’s Five Force analysis of the competitive environment, which considers how an organisation compares with rivals to establish what current competitive advantage they have. However, a sixth force, the addition to the model of a complementor factor, provides further industry analysis that can be exceptionally helpful for marketers. Complementor are organisations, brands or products that provide goods or services which are compatible with, or complementary to, the goods or services produced and sold in a given industry. Complementary goods o er more value to the consumer together than apart, providing potential marketing and business collaboration opportunities. When one product or service complements another there exists a condition called complementarity, where the two products or services emphasise the other’s qualities. The existence of these complementor can strongly in uence the competitive nature of an industry and, as such, guide strategic marketing plans. Porter’s Sixth Force (Grant, 2002) It is important to distinguish between competitors and complementors. A player in the market is a complementor if customers value your product more when they have the other player’s product than when they have the product alone. However, a player is your competitor if customers value your product less when they have the other player’s product than when they have your product alone. For instance, Coca-Cola’s relationship with PepsiCola is essentially competitive; whereas, the relationship between Intel and Microsoft is primarily complementary. Complementors for the University of Liverpool The internal environment The internal environmental analysis of a company is a nal step in the marketing audit, which provides data on the strengths and capabilities of the organisation. The core competencies and the unique selling point of the product or service on o er are usually direct results of the internal factors of the company. This provides an organisation’s strengths in the competitive marketplace. The internal data along with the macro and micro environmental analysis can be presented in the form of the SWOT framework. Again, this is a model you will have seen before, looking at the strengths, weaknesses, opportunities and threats facing the organisation. However, this allows strategic marketers to prioritise information and identify key areas to focus the marketing strategy on (Matterson and Philips, 2017). Conversely, the TOWS framework, is considered to be a complementary tool to build on the SWOT analysis and is even considered a superior tool to replace SWOT for strategic planning purposes. The reported value of TOWS is that it focusses on combining matrix elements, such as SO, WO, ST and WT, to actually aid strategic decision-making as shown in the table below: Strengths Weaknesses Opportunities S/O W/O This is the process of using an internal Here you would use an external strength to take advantage of an external opportunity. Threats S/T W/T This is the process of using an internal Here you would need to use a strategy strength to mitigate against an external threat. References opportunity to mitigate an internal weakness. which minimised internal weaknesses in addition to external threats. Grant, R.M. (2002) Contemporary strategy analysis: concepts, techniques, applications. 4th edn. Malden Mass: Blackwell. Johnson, G. (2002) ‘Managing strategic change—strategy, culture and action’, Long Range Planning, 25(1), pp. 28–36. Johnson, G., Scholes, K., and Whittington, R. (2008) Exploring corporate strategy. Text and cases. 8th edn. Harlow: Financial Times Prentice Hall. The CocaCola Company (2017) About us. Available at: https://www.coca-cola.co.uk/about-us/mission-vision-and-values (Accessed: 12 May 2018). The Walt Disney Company (2018) Available at: https://www.thewaltdisneycompany.com/ (Accessed: 12 May 2018). Learning Resources Readings Module Text Masterson, R., Phillips, N., and Pickton, D. (2017) Marketing: an introduction. 4th edn. Los Angeles: Sage. Chapter 2, ‘The Marketing Environment’ Journal Article Atuahene-Gima, K. and Murra, J.Y. (2014) ‘Antecedents and outcomes of marketing strategy comprehensiveness’, Journal of Marketing, 68(4), pp. 33–46. Use the University of Liverpool Online Library to nd the article. Case Study Tedlow, R.S. and Beckham, H. (2008) ‘Harrington Collection: sizing up the active-wear market’, Harvard Business School, 3258(September). Collaboration In this rst part of a Collaboration taking place over two weeks, you will position yourself as a strategic marketing manager and use a small-scale marketing audit to assess the position of Harrington Collection in the US active-wear market. 2-Week Collaboration: Strategic marketer: Harrington Collection Case Study Tedlow, R.S. and Beckham, H. (2008) ‘Harrington Collection: sizing up the active-wear market’, Harvard Business School, 3258(September). Fashion retail is fast-moving and trend-dependent and has faced a huge amount of change in terms of consumer demand and social trends. Therefore, considering the environmental analysis used this week, you will provide thoughtful suggestions for the future marketing strategy of the company. To prepare for this Collaboration: Review Week 2 Learning Resources. Personal Development Plan Your Personal Development Plan (PDP) will allow you to appreciate how understanding consumers and developing re ned consumer pro ling techniques are invaluable for creating a marketing strategy. PDP: Your current consumer pro le One of the primary ways that we evaluate the role of the consumer within marketing is from our own experience. We have all been consumers all of our lives. Whether we use products because they were available based on our family purchasing habits, because of their proximity, or because of their price, we all consume in various forms every day. Similarly, we are all exposed to thousands of marketing adverts and promotions every day, and as consumers we have become adept at ltering these promotions so that we are not overwhelmed, but also so that we are able to stay abreast of developments in products and services. Over the course of the module you will consider your own consumer pro le and how you are in uenced by macroeconomic trends. You will then change perspective and look at the in uence of consumer pro ling and macroeconomic trends from the perspective of the marketer. This will provide you with valuable insights into the ever-changing role of the consumer and how this impacts marketing strategy. To prepare for this PDP submission: To evaluate your current consumer pro le, you will rst need to critically re ect on your own purchasing habits. Are their brands that you are loyal to? Do you make purchases based on recommendations, promotional material, and advertising, or because of price and availability of products? Consider if your purchasing habits and behaviours have changed over time. What speci cally in uences you when making purchases? This may be to do with using more online shopping, the in uence of social media or it could be based on moving locations, or having more disposable income after a promotion at work. Do you think that your consumer pro le correctly re ects your current purchasing habits and behaviour? Do you foresee any changes to your consumer pro le in the future? To complete this PDP submission: By Day 7 (Wednesday) Provide a summary evaluation of your personal consumer pro le. Identify three major in uences on your current purchasing behaviour and discuss how this may change in the future. Post your ndings to your My Working Group and discuss each others’ analyses of the personal consumer pro les. Are there any major similarities or di erences, and what do you think the reasons for these are? If needed, develop your summary after gaining insights from peers. Submit your 500–700 word summary to Turnitin.
Purchase answer to see full attachment