Harrington Collection

Case Assignment 2 Harrington compendium Out foolk for general womens preen industry Since the downturn that began in the early 2000s bigly impacted the womens app bel industry, the increasing rate on boilersuit sales had presented a slight decrease from 2004. Although it came up from 3. 5% to 5. 7% in 2004, it began to come down from that year as substantially with a comparatively stable dropping rate. However, it led to a signifi preemptt sport among units that sold in different expenditure ranges.Lets swallow a look at Chart-1 below which is trans somaed from Exhibit-2 in the case to the form of increasing rate and proportion respectively. According to (a), units sold whose price is to a greater extent than than $200 and in the range of $ light speed and $200 amplificationd well below the average increasing rate. While the units sold whose price ranged from $50-$ hot barb hundred and under $50 increased superiorer than the average increasing rate. Whats more, the growth rate of units sold under $50 had jumped to 11. 50% in 2007 by 4. 28% which is in great contrast with that of simply 1. 5% whose price ranged from $100-$200. Chart-1 (a) apostrophize Point 2006 (growth rate) 2007 (growth rate) variance $200+ 0. 6508% 2. 8736% 2. 2228% $100-$200 -0. 0457% 1. 5075% 1. 5532% $50-$100 7. 0548% 9. 0851% 2. 0303% Under $50 7. 2188% 11. 5010% 4. 2822% native 5. 1272% 8. 1631% 3. 0359% According to (b), the units sold proportions presented little difference from 2005 to 2006. However, in 2007, we found that 2 evidences less of units sold de declensionate up from $100 and 2 puts more of that were priced under $50 compargond with previous year.Chart-1 (b) Price Point 2005 (proportion) 2006 (proportion) 2007 (proportion) $200+ 10. 7601% 10. 3020% 9. 7982% $100-$200 17. 0388% 16. 2004% 15. 2036% $50-$100 34. 0776% 34. 7025% 34. 9983% Under $50 38. 0456% 38. 8025% 40. 0000% native 100% 100% 100% Although the statistics suggests a slight increase of the full(a) demand in the industry of womens app atomic number 18l, the shift in the complex body part of units sold in different price ranges indicates a downturn in the industry which led to a downward consumer buying behavior.Indeed the economic unoccupied hit the segment targeted on upscale-class apparel pricing eminenter than $100, however, it provides a great opportunity for manufactures who engaged in the segments targeted toward budget and break classifications. As a result, consumers undergoing economic downturn would become more and more price sensitive, especially for those who were always purchasing moderate or budget apparel even to begin with the economic sluggish began. Competition Since the industry was clean concentrated, it should belong to monopolistic competition market, under which sellers could discern their offers to buyers.Products tin disregard be varied in part, features, or style, or the ac unioning service can be varied. Sellers try to deve lop breakd offers for different node segments and, in augmentition to price, freely use ticking, advertising, and personal interchange to influence their offers apart. sell Competition for the Apparel Market In current years, department stores bear been squeezed between more focused and flexible specialism stores on the whizz hand, and more efficient, lower-priced discounters on the separate.It results in a markedly falling in market share which can be found in Exhibit-5. In the contrast, specialty stores with narrow output beds and deep assortment, and supercenters who are actually colossus specialty stores with broader product moving ins presented an enlightening future trend. The fierce competition, as a result, gave rise either to merger and consolidations between retailers in outrank to demonstrate bargaining power with suppliers, or to contracting directly with manufacturers to produce cloak-and-dagger label products.Manufacturers withal expanded their ro les by integrating forward into retail so as to reduce expenditures and to take better control everywhere their own business. Harrington battle array Harrington Collection targets itself at high-class fashion enthusiasts and divides the wellborn market into 4 further specific segments represented by 4 punctuates which focus on people with different income status, ages, self-concepts, etc. If we refer endure to Chart-1 (b), we witness that market share of total apparel industry pricing higher(prenominal) than $100 decreased in 2007.It would hit the performance of Harrington Collection since all of its products are priced up from $150. In addition, we similarly find a rapid growth was taking place in the low-end market in 2007. As a result, senior executives of the familiarity is considering to introduce prompt-wear into manufacturing and stretch its product line downward to grab the opportunity in low-end market as well as to make up for their profit loss in high-end market. However, a brands price and understand are a great deal c put uply linked and a change in price can adversely affect how consumers view the ships company.When a cheaper product is introduced into the market, their loyal consumers would measure out that the graphic symbol has been reduced. Especially for prodigality oriented company comparable Harrington Collection whose customers are highly loyal to the brand and looking for status that the companys brand stands for, sound price would threaten the companys position in the minds of its loyal customers. (disadvantage) On the other hand, when it comes to bare-assed customers who never purchased Harringtons apparel before, lowering price major power attract consumers in moderate or even budget segments to buy its products.Moreover, if prices are sympathetic with that of competitors who target only in moderate or budget segments, consumers are more analogously to purchase Harringtons apparel, because the brand would make them look wealthy. (advantage) However, it is not the case. Consumers belonging to moderate or budget segments are extremely price sensitive, especially under a downturn economic situation. When company slightly raise the price to meet a higher quality or service requirement, lots of consumers coming from these two segments would turn to its competitors.Even though the company makes profit due to the current fad, it would hurt the companys profitability in a long concord. (disadvantage) As a result, care of Harrington Collection should trade off both(prenominal) advantages and disadvantages when making decision of lowering its price to develop active-wear product line. Active wear According to the case, both the facts that the number of active-wear units sold was expected to double by 2009 and the extremely high turnover rate suggest a promising future of active-wear classification.So the point is to which segment active-wear classification should target and how this new product line should be priced. First of all, lets refer back to our analysis safe above. Although targeting to consumers who pinch pennies and lowering price to attract this kind of new purchasers readiness make profit in short term, the great price sensitivity and disloyalty hidden behind this group would result in a great loss in a long run. Moreover, the inexpensive brand frame would drive a lot of loyal customers away to its competitors.However, 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. There is a sub set of Harrington customers who were loyal to the brands throughout their careers but no longer desire the tailored, professed(prenominal) look. They are now interested in something fresh and comfortable that fits with their active lifestyles. The aging baby boomer population wants clothing that does not make them feel old. All of these facts suggest that it seems safer and more conservative to remain in the existing classification and excavate the need of loyal customers. However, due to the high growth in low-end market, we dont want to give up the opportunity to take a bite on that tempting market. So why dont we price the product slightly higher than the moderate active-wear product, and increase the quality as well as add exceptional features to attract both old customers and new consumers who are not that sensitive to price?For instance, if customers purchasing active-wear from Liz Claiborne associate themselves with sexy and glamorous image, Harrington could plan the active-wear product adding features to attract customers who would like to relate themselves with elegant or innovative images which is more consistent with the companys value. It can also increase the quality in fabrics, manual model and services. People would love to pay a little higher price in exchange of a much higher quality, unique style and better services.In this w ay, not only it would attract new customers who are less price sensitive with low-cost prices and retain them by reliable quality compared with that of poorly made moderate products, but also it would bring fresh experience to its old customers and consequently increase the times of their purchasing behavior without eating up the sales of companys other brands or hurting a luxury image. Secondly, if Harrington faces a host of smaller competitors charging high prices relative to the value they eliver, it might charge lower prices to drive weaker competitors out of the market. However, Liz Claiborne, one of Harringtons major competitors, was also one of the leaders in the better active-wear category with relatively low price. As a result, the company may decide to differentiate itself with value-added products at higher prices. In conclusion, Harrington should price the new product line of active-wear slightly higher as well as increase its quality and services in order to support t he price and keep eubstance with its luxury image.Furthermore, Harrington should differentiate its style and features to avoid direct competition with other leading manufacturers. Brand Targeting and Positioning Myer thought active-wear would be a improve addition to the pizzazz division for two reasons pizzaz styles were less traditional than the other Harrington divisions, and heartiness division emphasized comfort and fashion although its a career-oriented design. However, these two reasons cannot sufficiently support whether active-wear would well fit into null brand.Even though attributes and benefits brought to customers could be varied among different products, the images, beliefs and values created for customers must be consistent with from each one of the product under the same brand. For instance, active-wear and existing naughts product dont have the same features, as active-wear is more sporty and casual while the other is more work/professional oriented. The po int is neither the same attributes they have in honey oil nor the comfortable benefits they will bring to customers. The point is the same image customers would like to relate themselves with and values the company intends to create.Since Vigor has already successfully created an image of Trend Setter, the new product line must also create values of breaking rules, looking exceptional, pursuing new life style for customers to meet the requirement under the brand of Vigor. As a result, its not a bad idea to severalize out Vigor to support active-wear manufacture. Advantages and Disadvantages Moreover, to extend a current brand name to a new category will give the new product instant recognition and faster acceptance. It also saves the high advertising cost usually required to build a new brand name.And it could also use the brands existing support and functions to run the new business, which would decrease part of overhead expenditures. At the same time, branched out Vigor involve s some risks. If a brand extension fails, it may harm consumer attitudes toward the existing products carrying the same brand name. Potential Retail craftiness Since attach to-owned stores accounted for about 20% of the manufacturing group sales, and the remaining sales were split 4060 between specialty stores and department stores. It can be inferred that the sales proportion among these three outlets is 20 32 48 in manufacturing group.According to the sales information provided in Exhibit-6, the sales and corresponding proportions among different retailing terminals can be concluded as below (For instance, in 2005, sales of testify store is $556*20%+$843=945. 2) Chart-2 (a) 2005 (sales in millions) 2006 (sales in millions) 2007 (sales in millions) Own stock 945. 2 921. 4 913. 6 Specialty store 177. 92 173. 44 172. 16 section Store 266. 88 260. 16 258. 24 Total 1390 1355 1344 Chart-2 (b) 2005 (sales in pro) 2006 (sales in pro) 2007 (sales in pro) Own Store 68. 00% 68. 0% 67 . 98% Specialty Store 12. 80% 12. 80% 12. 81% Department Store 19. 20% 19. 20% 19. 21% Total 100. 00% 100. 00% 100. 00% As we can see from Chart-2 above, sales from partnership Owned Store account most of the company sales. By integrating itself forward into retailing or the entire value chain, company could be able to reduce the time required of distribution, to take control of promotion and retail prices directly, and to provide more personal selling services to customers by professionally trained salesperson so as to better meet customer needs.On the other hand, multiple transmit offer many advantages as well to companies facing large and complex markets. With each non-company owned store, the company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments. But such multichannel systems are harder to control, and they generate conflict as more retailers compete for customers and sales. The current channels of different brands are exhibited in Chart-3 Chart-3 Harrington Ltd. Sopra Christina Cole VigorPrice meander $500-$1000 (Dsn) $400-$800 (Brd) $300-$700 (Brd) $150-$250 (Btr) Retailer 70 company Own SpecialtyDepartment Specialty 70 Company Own SpecialtyDepartment The other 50 Company OwnSpecialtyDepartment 40% (50 stores) of the Company Owned Stores sell Vigor exclusively. One of the reasons might be that Vigor stands for a less traditional image and a new life-style relatively to the others. As a result, environment, decorations and even salesperson of stores selling Vigor would be specifically designed to meet the specific expectation of the customer positioned in that segment.Since weve decided to branch out Vigor to integrate active-wear line into it due to the similar value they represented, we should display active-wear together with existing Vigor brand with separated segments in order to deepen the assortment of Company Owned Stores and give customer psychological suggestions about the value it intends to present. Secondly, since specialty store carry a narrow product line with a deep assortment, active-wear provides a great opportunity to enrich the classifications of the store. Thirdly, upscale-department outlets might also find active-wear an appropriate supplement for their product line.Since consumers with relatively high income would like to give the stylish, active and more casual clothes a shot in the case that the clothes have to be made in good quality. As Harringtons active-wear has differentiated itself with exceptional quality, features and services, which implies nothing related to the cheap prices. As a result, upscale-department would love to support this product line regardless its low price range. Whats more, Harrington could develop its channel into Superstores which in that respectfore is a giant specialty store, since it might attract a large group of people with various income statuses and self-positioni ng.Reaction of Competitors If active-wear with Vigors logo performs smart as a whip once it is introduced, it would attract lots of small competitors into the market. Since its a monopolistic competition market which allows a wide range of price and competitors could differentiate their products with various qualities, features, values and services, small companies who are not able to find themselves competitive in quality and creativity would be more credibly to cut their price down to attract customers coming from a more price sensitive and less loyal segment compared with the segment targeted by Harrington.Although the price would be slightly higher than that of those small competitors, Harrington has gained strong customer relationship and its newly brought-in product targets both to loyal customers and to new customers who are less price sensitive and whod like to pay more attention to quality and features. As a result, Harrington would successfully avoid competitions from it s competitors. take up and Profitability Analysis Start-Up be Start-up be boxershorts Plant $1,200,000 Start-up cost Hoodie and Tee-shirt Plant $2,500,000 Equipment Pants Plant $2,000,000Equipment Hoodie and Tee- shirt Plant $2,500,000 Launch-PR, Advertising $2,000,000 Fixtures for Company Stores $50,000*50 Total Start-up Costs $10,200,000+$50,000*50 Annual Depreciated Start-up Costs $2,540,000 (total start-up cost/5) Annual Ongoing in operation(p) Costs Fixed Overhead Pants Plant $3,000,000 Overhead Hoodie and Tee-shirt Plant $3,500,000 ask Pants Plant $500,000 Rent Hoodie and Tee-shirt Plant $500,000 Management/Support $1,000,000 Advertising $3,000,000 Total Fixed Operating Costs $11,500,000 identify changeable quantity Costs Hoodie Tee-shirt Pants Sew and fight back $3. 25*x $2. 00*y $2. 85*z Cut $1. 15*x $0. 40*y $0. 70*z Other Variable Labor $3. 20*x $2. 40*y $3. 05*z stuff $9. 10*x $2. 20*y $7. 50*z Findings $3. 85*x $0. 50*y $2. 30*z $20. 55*x $7. 50*y $16. 40*z D irect Variable Costs Translated into Unit Cost Hoodie Tee-shirt Pants $20. 55 $7. 50 $16. 40 *0. 5 (weight) *1. 5 (weight) *1 (weight) $10. 275 $11. 25 $16. 4 Indirect Variable Costs Wholesale unit price $100*50%*0. (weight)+$40*50%*1. 5 (weight)+$80*50%*1 (weight)=$95 Total versatile costs as % of wholesale price $(3+4+1+0. 7+0. 24+0. 15)%=9. 09% Indirect versatile costs per unit $95*9. 09%=$8. 6355 Direct variable costs per unit $10. 275+$11. 25+$16. 4=$37. 925 Indirect variable costs per unit $8. 6355 Total variable costs per unit $46. 5605 character Wholesale price per unit $95 Less total variable costs per unit $46. 5605 Contribution per unit $95-$46. 5605=$48. 4395 BreakevenFixed annual costs (operating and depreciated start up) $2,540,000+$11,500,000=$14,040,000 / Contribution per unit $48. 4395 =Breakeven Units 289,846 units Profit Margin Revenue $7,500,000*2*40%*7%*$95=420,000units*$95=$39,900,000 less fixed annual costs $14,040,000 less total variable costs $46. 56 05*420,000units=19,555,452 Profit before tax $6,304,548 Profit margin before tax 15. 8009% If Harrington could guarantee that therell be 289,846 units sold in the launch year, it wont lose money.If market share of 7% better active-wear segment is accurately estimated, the breakeven point will be definitely met and the company will even ca-ca a15. 80% profit margin. If the company decides to raise price in order to earn more on one unit in outgo of losing part of its sales volume, consumers price elasticity would be extremely important for company to see whether the amount of money it makes more on one unit would cover the loss of volume decrease. Sometimes the price-demand curve slopes upward(a) when it comes to prestige goods, but it is another case.