Case Analy sis Classic Knitwear and Submitted by : Guardian
Group 1 Abhilasha Jas (2013IPM004) Aishani Verma (2016PGP023) Akanksha Wasnik (2016PGP030) Amandeep (2016PGP048)
CASE FACTS
Non- Fashion casual knitwear category ($24.5mn ) In 2005 Classic reported $550 mn revenues (US sales). Margin – 18% vs. 30%-40%. It operates in two segments-wholesale (screen-prints) and mass retail channels. 75% through wholesale ($413 mn) and 25% through mass retail ($137 mn) Second player in the sector with 16.5% market share in the wholesale category Cost advantage over other producers because of state of the art production hub in Dominican Republic. Mixed retailers like Wal-Mart and Clothing specialist retailers like GAP. Branded side of the non-fashion knitwear market was dominated by three large manufacturers: JamesBrands, FlowerKnit and Greenville corporations TopTops division. Classic was more heavily invested in shirts than the overall industry.
Problems: Whether to launch the Guardian insect repellant shirts or to continue to pursue production efficiency using traditional methods?
Increasing gross margin to 20% in the subsequent years.
Causes: 1. Classic knew it would be only a short time before the competitions realize similar superior manufacturing efficiencies. 2. Neither controlled labels nor tie-in promotions could ever push overall gross margins consistently over 20%. 3. Downgrade of classic’s stock if the company didn’t communicate compelling plans for margin growth. 4. How should they launch their new product as a different product or as a new product under Classic (including the name “Classic Knitwear”)? Options Available: 1. Launch Guardian as Guardian 2. Launch Guardian as Classic 3. Don’t launch Guardian Option 1 Pros: Leveraging guardians positive reputation Competitive advantage over competitors(i.e. B&B,Activewear) Allows Classic access to new distributors (i.e. LL Bean). Cons: 1 | Page
Guardian may overshadow effect on Classic. Additional royalty paid to Guardian (5% on net sales). Guardian may terminate its agreement if sales of Guardian shirts are adversely affecting sales of Guardian’s existing insect repellant products.
Option 2 Pros: Increase brand recognition for Classic. Help in achieving the target gross margin of 20% in the coming years. Does not confuse the current distributors. Cons: The new product might affect the sales of the existing Classic’s products. Market is hesitant to try out the new product. Will require additional marketing efforts for brand building. Option 3 Pros: Less risky as no extra marketing cost and efforts Continue enjoying cost advantage over other US producers. Cons: Will remain in the 18% gross margin. Continue to have problem of no brand recognition Recommendations: Fixed costs Break Even Volume Advertising Manufacturer’s selling price Salary COGS Total fixed costs Trade promotion (5%) Advertising allowance (10% for 20% retailers) Contribution margin per shirt Breakeven Volume
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30,00,000 17.87 5,10,000 10.82 35,10,000 0.89 0.35 5.81 6,04,130
Total Population over 15 years of age(men)
100,000,000 .00
Consumers who were aware of guardian name
95,000,000. 00
Consumers having positive perception of the brand
55,100,000. 00
Awareness among target audience in 2 yrs
13,775,000. 00
Awareness in 1st year
6,887,500.0 0
Awareness in 2nd year
6,887,500.0 0
Consumers survey Consumers would buy Consumers year Consumers year
who responded to the
1,274,187.5 0
who expressed that they 484,191.25 who would buy in 1st 290,514.75 who would buy in 2nd 290,514.75
Repeat purchases during 2nd year
145,257.38
Total demand over 2 years
726,286.88
As the demand over the two years is greater than the break even, it is recommended to launch the new product. This product has a gross margin of 37%-40%, this can drive up the gross margin of the whole firm. According to the research Men’s Fleece is not that much in demand as compared to other products, so it needs to be relooked after the pilot launch. Need to look at the low price options along with the high price options so as to increase the sales volume.
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Additional market research should be conducted and a pilot launch for the product before the actual launch.
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