Classic Knitwear & Guardian Case

StudyAmit Garg

Gaurav BapatShambu Nandanan

Sovan GhoshVikram Baheti

Casual KnitWear

Branded

Unbranded

Casual Knit Wea

r

Case FactsClassic Knitwear operates only in unbranded category

Business comes from wholesalers (screen printing) and retail channels (private label sector)

16.5% market share in wholesale category. 1% in private label sector

State of the art off shore facility in Dominican Republic gives them moderate cost advantage over competitors due to low SKU count and economy of scale.

Threat of other big players adopting similar strategy.

47.7% and 42.8% sale to Mixed retailers like Walmart and Clothing Specialist Retailers like GAP respectively.

Average manufacturer’s gross margins in Private Label Sector are 10-20% while it is 30-40% in Branded Sector.

Special seasons (Christmas, Back to school etc) constitute 50% of annual retail knitwear sales.

Current gross margin of Classic is 18%. They are targeting 20% by 2006.

Need of the HourCompetition may catch up soon in replicating

Classic Model Neither controlled labels nor tie – in

promotions could ever push overall gross margins consistently over 20%

Possibility of downgrade of Classic’s stock if the company did not communicate compelling plans for margin growth.

OpportunityGrowing awareness of insect-borne diseases

Few prevention products available.

Only a few small time insect repelling clothing companies exist. No mass market products.

$ 8-10 million required to generate 50% national unaided awareness among males aged 18 – 35.

Classic does not have funds that large available.

Strategy – The Guardian ProjectLicensing partnership with Guardian to produce insect

repellant clothing.Guardian credibility – Market leaders in insect repellentsEPA registered (Category IV)New patented technology to give protection for 70

washes (3 times longer than available brands).Guardian has 50% unaided awareness among 18-35 year

old males.Among these, 95% have good impression of brand.Marketing cost of Classic will be reduced to $ 3 million.CFO skeptical about investing in unproven technology

Consumer ResearchTotal

Respondents

Short Sleeve

Tee

Long Sleeve

Tee

Polo Fleece Low Price Group

High Price Group

Respondent Base

185 60 22 34 69 95 90

Definitely would buy

(%)

38 43 45 42 29 39 37

Probably would buy

(%)

44 47 27 35 51 42 46

Might or might not buy (%)

13 7 23 15 16 13 13

Probably would not buy (%)

3 3 5 6 1 3 4

Definitely would not buy (%)

2 - - 2 3 3 -

Marketing StrategyCardboard Display Units (Outdoor activity

themes)12 dozen shirts across 16 SKUs / display unit4 styles: Short Sleeve, Long Sleeve, Polo &

Fleece4 colors/ styleComplimentary display unit for stores which

place minimum orders of 12 dozen shirts across all 4 categories + 24 dozen shirts as back up.

Cost per display will be $ 100 if Classic gets a min order of 10,000 displays

Shirts with Guardian Logo to tap their market recognition. No Classic Knitwear branding.

Pricing at par with same quality national brands.

45% trade margin.Unconditional 1 year money back guarantee.Target to set up 10,000 units within 2 yrs of

launch to achieve $ 100/unit cost.Product distribution through major sporting

goods and apparel chains(25%), general merchandise chains(25%) and discount chains(50%)

Eventual entry into existing wholesale client market by distributing to interested screen printers

3 additional sales representatives to be hired to meet increasing sales demand. Total annual salary cost of $ 255000.

Advertising campaigns to target men aged 15+ (100 million base)

Pricing and Cost Structure

Retail selling price $32.49

Manufacturer's Selling Price $17.87

Trade Margin $14.62

Cost of Goods $10.82

Gross Margin $7.05

AnalysisWhat should Classic do??

Break Even point : 440000 shirtsBreak Even Sales : $7.86 millionGross Margin on the new product : 39% on the

new productDemand for the shirt : According to survey 5.5

million will definitely buyIf the new product adds 50 million sales to the

existing sales then the company will be able to cross the over all gross margin of 20%

Conclusions and Recommendations

No brand recognitionClassic may end up getting raw deal20% Gross Margins difficult to meetShort term gains. Sustainability is questionable

Questions?