PUMA X LUXUS A LUXURY BACKPACK

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OCTOBER 31, 2016 LANDRIA LEWIS, JESSICA VOGEL, AND SAVANNA LOWE

Contents HISTORICAL BACKGROUND 2 ...................................................................................................................SOURCING AND MANUFACTURING 3 ......................................................................................................

Sourcing 3 .....................................................................................................................................................Health and Safety: 5 ......................................................................................................................................Manufacturing 6 ............................................................................................................................................

PRODUCT DESIGN 7 .....................................................................................................................................SELLING AND DISTRIBUTION 8 ................................................................................................................COSTS 8 ...........................................................................................................................................................MARKETING & SELLING METHOD 9 .......................................................................................................APPENDICES 13 .............................................................................................................................................PUMA’S SUSTAINABILITY GOALS 14 .......................................................................................................PRODUCT SKETCHES 15 .............................................................................................................................Works Cited 18.................................................................................................................................................

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HISTORICAL BACKGROUND PUMA was started by 2 German brothers in 1924. It was originally called Gebrüder

Dassler Schuhfabrik, which translated to Dassler Brother’s Shoe Factory. The company’s first

impressive accomplishment was the 1928 Summer Olympic games in Berlin, where most of the

German athletes wore shoes made by PUMA. The four-time gold medal winner, Jesse Owens,

was wearing PUMA sneakers when he won his medals that Olympics. Twenty years down the

road in 1948, the 2 brothers divided up the company and Rudolf Dassler founded PUMA

Schuhfabrik Rudolf Dassler. In 1967, the current logo we know today was drawn by a cartoonist

from Nuremberg and replaced the old.

In 1977, PUMA began to establish its popularity among tennis players, adding on to its

already existent soccer player foundation. In 1992, it introduces a special “Trinomic” technology

into its running sneaker that totally changed the fit of PUMA footwear (positively). Since then,

the brand has continued to incorporate more technology into its footwear, and team up with top

athletes such as Usain Bolt and Serena Williams. It is constantly evolving and now has a

presence in 120 countries, employing 10,000 people. Headquarters remains in Herzogenaurach,

Germany.

PUMA’s popularity in the US began to die down during the 2010’s, however, it has

regained its speed through re-branding and bringing back some classic styles. PUMA is

partnering with celebrities and socialites to draw consumers back to their brand including

Rihanna, Kylie Jenner, Meek Mill, Mario Balotelli, and Usain Bolt. Rihanna is head of Women’s

Creative and has increased brand awareness and sales for the past 2 years. Now, PUMA’s

products range from running sneakers and leisure sneakers to slides and flip flops to running/

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workout clothes and backpacks. With Rihanna’s line, FENTY she has added an adventurous,

avante-garde streetwear element to PUMA’s product offering that is expanding their customer

base and causing them to be relevant to fashion trends.

SOURCING AND MANUFACTURING Sourcing PUMA strongly believes in transparency for their supply chain and annually publishes a

list of their core component and material suppliers, which are Tier 2 and 3, as well as their core

manufacturers, which are Tier 1. Tier 1 for PUMA is manufacturing, Tier 2 is outsourcing, Tier 3

is processing, and Tier 4 is raw materials. PUMA’s list of global core factories consists of 159

countries that are responsible for 80% of PUMA’s sourcing volume of apparel, footwear, and

accessories, with the majority of the factories being in Asia. PUMA has 133 factories located in

Asia, 14 factories located in America, 8 factories located in Europe, and 4 factories located in

Africa. PUMA’s 2016 global core factory list more specifically listed factories in Argentina,

Bangladesh, Brazil, Cambodia, China, Taiwan, El Salvador, Georgia, India, Indonesia,

Madagascar, Malaysia, Mauritius, Mexico, Pakistan, the Philippines, South Africa, South Korea,

Thailand, Turkey, Ukraine, and Vietnam. Within Asia, China and Vietnam are PUMA’s strongest

contributors and the main sourcing countries. The raw materials that PUMA uses to manufacture

its products are cotton, leather, and rubber. PUMA looks to China, Taiwan, South Korea,

Thailand, and Vietnam for their materials. Because PUMA already has such a strong presence

within China and Vietnam, for the luxury backpack line, PUMA will use factories in these two

countries for the new product. PUMA already has factories in China that are component

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suppliers, material suppliers, vertical suppliers, and final product suppliers. Already in place in

Vietnam are material suppliers, component suppliers, and final product suppliers.

China currently does not meet international labor standards and has many flaws within

the few enacted labor laws, “Workers do not have the right to organize in trade unions of their

choice. Legal trade unions have to be affiliated to the ACFTU and accept its control. Although

there have been some efforts to establish collective wage consultation systems, the right to

collective bargaining is restricted as is the right to strike, both in law and in practice” (AFL-

CIO). However, although China is severely lacking in providing suitable labor laws, there are a

few current laws in effect that aim to protect both employees and employers. The Employment

Contract Law, that was most recently updated in 2008, encourages the creation of employment

contracts in a timely manner and effects levels of pay when a contract is not created in time

(Association of Corporate Counsel). The Employee Contract Law also has a lot of flexibility in

terms of which type of employment it protects, for example, fixed-term labor contracts, labor

contracts without a fixed term, and labor contracts for the completion of specific tasks

(Association of Corporate Counsel). All of the labor hired by PUMA in China could potentially

be protected under this law. While other active labor laws in China are difficult to find, the

Chinese government lists multiple labor related laws in relation to work safety. One such law, the

Law of the People’s Republic of China on Work Safety states that the law “is enacted for

enhancing supervision and control over work safety, preventing accidents due to lack of work

safety and keeping their occurrence at a lower level, ensuring the safety of people's lives and

property and promoting the development of the economy” (Database of Laws and Regulations).

Vietnam on the other hand, has a more comprehensive and inclusive set of labor laws in place

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(although these are not perfect either). Vietnam has laws in place for various different steps of

employment and related issues, such as hiring, working hours, and termination. One labor law

related to hiring, that also would directly affect PUMA, states that, “When a foreign employer

wants to recruit foreign citizens to work in Vietnam, explanation must be included as to why the

foreigners are required and written approval must be received from state authorities” (Foreign

Staffing). Unlike China, Vietnam also has current laws in place related to how long an employee

can work and when they can receive paid time off . In Vietnam, there are 10 public holidays

where employees are entitled to full paid leave. Employees in Vietnam can also work no longer

than 10 hours in a day and 48 hours in a week.

Health and Safety: PUMA as a company maintains and enforces its own Code of Conduct and uses the

ratings A, B+, B-, C, and D to grade the social, health, safety, and environmental standards that

the factories are expected to maintain. The factories that PUMA enlists are subject to routine

biannual audits (puma.com). The results of PUMA’s 2015 factory audits can be found in the

appendices at the back of the report. In relation to health standards, after the Rana Plaza disaster

in Bangladesh, PUMA made sure to assess their Bangladesh factories for structural building and

fire safety and suggested 650 corrective measures. Since building safety concerns were not only

centralized to Bangladesh, PUMA made sure to maintain the same level of assessment and

caution over its other factories, specifically those in China, Vietnam, and Cambodia (Puma 2015

Annual Report).

PUMA has always been extremely concerned with and focused on social, economic, and

environmental sustainability, and therefor, has worked to develop a supply chain financing

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program to aid and support factories in maintaining these standards. PUMA is the first European

brand to develop and sign a program of this kind with the International Finance Corporation

(IFC), a member of the World Bank. The program that PUMA and the IFC are working on

together aims to provide short-term financing opportunities to PUMA’s supplies in emerging

markets. The program offers financial incentives for suppliers to improve the environment as

well as health, safety, and social standards for all of their employees (Puma.com). The project

which was approved by the IFC in fall 2010, is expected to assist PUMA’s supply chain factories

by way of US$15 million. The IFC’s role in this agreement is to asses environmental and social

risks at a “supplier level by reviewing buyers’ management system and procedures, especially as

related to managing E&S performance of their Suppliers” (International Finance Corporation).

Within the program, the IFC expects PUMA’s suppliers to meet performance standards in

relation to structural (building), electrical, and fire safety issues.

Manufacturing The manufacturing process for the PUMA x LUXUS backpack will closely mirror the

current manufacturing processes already in place at PUMA. The particular examples of the

process used to explain the PUMA x LUXUS bag are the PUMA x FENTI Lace-Up backpack

and the Heritage Portable Bag. The PUMA x FENTI bag is constructed of velvet with lace

detailing and padded straps while the Heritage Portable Bag is composed of a polyester upper (a

very durable material) and multiple zippered compartments and pockets.While neither the

FENTI Lace-Up backpack nor the Heritage Portable Bag are similar to the design of the bag

proposed, they do showcase the current craftsmanship and line offerings that support what we

hope to accomplish. Through combining the manufacturing techniques from the backpack and

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the portable bag, PUMA should be able to manufacture the proposed design without hand-

craftsmanship.

PRODUCT DESIGN The proposed product for a new PUMA line is bridge point luxury backpacks. The

backpacks would be sold under the PUMA x LUXUS line and would retail for around $300-

$350. While there is currently only one style for the backpack, the customer has the option of

purchasing the backpack in either leather or suede, and in either black with gold hardware, black

with silver hardware, camel with gold hardware, olive green with silver hardware, or navy with

silver hardware. The leather versions of the backpack will be made of a durable and rather stiff

leather that provides the product with a very tailored design. The suede style will be much more

flexible and relaxed in appearance. Leather was chosen as a material because of its timeless feel

and the idea that leather is a more luxurious material than other options. Suede will be an option

for the backpack because of PUMA’s current use of suede for shoes and garments. While suede

and leather were chosen in part for their durability, they are more luxurious and delicate than

some of the other materials that PUMA uses (such as PU) and should be handled with the same

care as someone’s favorite handbag rather than a regular duffel bag or soft fabric backpack.

Although other PUMA products incorporate a lot of organic and sustainable cotton, this

backpack will only use leather or suede for the main construction as well as various metals for

the hardware (rhodium and gold plated rhodium). The purpose of this backpack is to separate

itself from the current practical and athletic inspired backpack and duffel bags that PUMA

already sells, and is instead meant to be used as a stylish every day choice, resembling an

individual’s favorite go-to handbag.

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The measurements of the backpack, mentioned in the following graphic, are 15x10x5.5.

We chose to create a 15 inch in height backpack in order to comfortably fit a standard 13inch

Macbook. This choice was made in order to allow the customer to use this backpack for work as

well as casual weekend use.

SELLING AND DISTRIBUTION The selling and distribution channels will follow the same procedures that are already in

place. PUMAa x LUXUS will mainly be distributed via primarily through e-commerce a limited

wholesale presence, and a limited PUMA boutique presence. These guidelines closely adhere to

the distribution channels currently utilized as outlined in the PUMA Annual Report (Puma

Training 2015). The markets LUXUS will initially focus on the Europe and North American

Markets similar to the initial launch of the PUMA x FENTY line. The backpack will be

transported using the current logistic networks in place. The network currently in place will be

sufficient to accommodate the limited extra supply of the LUXUS backpacks that will be

available in store. However since distribution will mainly focus on e-commerce, the main costs

incurred will be shipping costs. According to FedEx, a package of about 5 pounds is estimated to

cost $168.29 for international economy shipping and $191.51 for international economy shipping

(FedEx Shipping Guide). Those shipping costs will be factored into the existing margins for each

handbag and will be partially paid by the consumer.

COSTS The final consumer costs will be between $300-$350 which will technically place the

handbag in the bridge product category, however it is the correct price point to enter into the

entry-level luxury handbag market. Aspects that are factored into the final cost including the

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costs of sourcing and manufacturing the backpack mainly in Asia. Though labor costs are usually

low in the Asia-PAC region, as covered previously in the Sourcing and Manufacturing sections,

the backpack will require a slightly higher level of craftsmanship and quality of structure and

fabrics of backpack. Also included in the cost, is the cost of transportation, taxes, and tariffs

incurred. In the Europe market, PUMA will not incur tariffs because it is a member of the EU.

However, import duties to the US from a company based is the EU is 14% per kilogram

according to the United States International Trade Commission's (Articles of Apparel).

The price point also positions PUMA as inline with other competitors of in the new

market space. PUMA’s main competitors include Nike, Adidas, and Asics. Nike has already

established themselves in the bridge handbag space under the name Cole Haan. They are

similarly priced backpacks ranging from sport utility backpacks at about $150 to leather

backpacks priced at $450 ( Women’s Backpacks). PUMA currently has an advantage over Adidas

and Asics because of their experience launching PUMA x FENTY, and if LUXUS proves to be

succesfful, PUMA would have an even greater advantage to improve market share, position, and

profit margins.

MARKETING & SELLING METHOD PUMA has been in existence since 1968 and is a global, well-established brand that has

made a name for itself in the industry. For the past 10 years, PUMA has fallen off of millennials’

radar. Nike and Adidas took PUMA’s place and were on a very successful track, until in 2015

when PUMA recognized an opportunity to capture the interest of the millennial market once

again. PUMA brought in one America’s top musical artists and fashion leaders: Rihanna.

Rihanna was placed at the forefront of PUMA as PUMA Women’s Creative Director and as a

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global brand ambassador for Women’s Training. The brand’s logic behind this smart move was to

develop and improve the designs and products that were offered to women and to “build on a

strong heritage and credibility with women,” (about.PUMA.com). PUMA has ultimately re-

branded under Rihanna and not with FENTY alone. PUMA has introduced a wider variety of

urban prints, and returned to classics such as the “Becker OG” silhouette and the definitive

PUMA suede. Inspiration for designs come from modern youth culture, soccer clothing,

breakdancers and more and there is now a strong emphasis on high street fashion. All of these

changes, along with rapidly developing technology has altered the way PUMA markets its

products.

Our group is introducing a new line of luxury backpacks called PUMA x LUXUS that

will serve as a transition into the high fashion market. Athleisure is a major global trend that has

been sported by highly followed celebrities such as Kylie Jenner, Gigi Hadid, and Kanye West

with his Yeezy line. Luxury meets athleisure is a new, ultra-popular sector that we wish to take

on. Our test markets for this product will be Western Europe, because PUMA is based in

Germany, and the North America, since several brand ambassadors including Rihanna have a

strong fan-base there. Our target consumer is female, aged 18-30. She is a student or young

professional with access to discretionary income. She is an avid trend-seeker but she is not too

adventurous. She discovers trends by keeping up with celebrity style and her main inspirations

are model It-Girls like Gigi Hadid, Kendall Jenner, and Hailey Baldwin. Within the VALS

system, she falls under the Achievers category because she remain within the status quo (VALS,

Strategic Business Insights). Our luxury backpack would be appealing to our target consumer

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because it can serve several purposes--it is an everyday schoolbag, a work bag for a more playful

outfit, a bag for brunch or lunch with her girlfriends, or night out bag for a sporty-chic look.

Social media is an evolutionary factor that has changed global and American society.

According to Statista.com, 78% of US citizens have a social media profile (“Percentage of US

population with a social media profile from 2008 to 2016”). A challenge we face is determining

how extensively we wish to use social media. Luxury brands are already known across the globe

and need not heavily utilize social media for marketing. PUMA x LUXUS does not want to

appear tacky. However, several brands such as footwear label, Public Desire, have built the

foundation of their customers on Instagram and have seized the attention of celebrities. Public

Desire now collaborates with Hailey Baldwin, a world-renowned model. With PUMA’s well-

established resources and practices put in place, the use of social media as a promotion has the

potential to multiply our exposure. We plan to use Instagram as our platform and post about two

times a month featuring a different color or fabric of the backpack each time.

Our primary selling method will be via e-commerce. We plan on using banners and

banner videos on popular publication websites such as Vogue.com, Elle.com, and

HarpersBazaar.com. Rose Bertram, a French up-and-coming It-girl and model, is our brand

ambassador and featured model. Rose has already done spreads in Sports Illustrated and a

campaign for H&M and Vogue named her one of “Next Internet It Girls,” (“Who Will Be the

Next It Girl?” Vogue.com). We chose an up-and-coming It-Girl because the Hadids and Jenners

are already brand ambassadors for so many top designers, we feel that they have been played out.

Rose will make up the majority of our advertisements. The overall feel of our ads is youthful

luxe with solid, neutral colors touches of soft blues. The setting of the video advertisements will

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be a modern workspace in a city and the picture ads will be in blank rooms with solid color

backgrounds such as grey.

In terms of launching the product, we are modeling our strategy after FENTY’s launch.

Rihanna launched her first sneaker with a pop-up store in Soho, New York City and online, so we

will do the same. We also plan to include this line in fashion week shows since company

executives stated that, “One highlight for PUMA in the first quarter was the FENTYxPUMA by

Rihanna fashion show at New York Fashion Week in February,” (“Puma Sees a Sales Growth in

2016 Thanks to Rihanna,” Hypebeast.com). PUMA’s first quarter statement shows that sales

went up 3.7% after FENTY was introduced, so it is apparent that adding a line of products that

targets the trendy millennial will also produce positive results.

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APPENDICES ADVERTISEMENT - VOGUE.COM, ELLE.COM, HARPERSBAZAAR.com

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SOURCING AND MANUFACTURING CHARTS AND VISUALS

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PUMA’S SUSTAINABILITY GOALS

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PRODUCT SKETCHES

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