Classic Knitwear and Guardian: A Perfect Fit?

Case Analysis: Classic Knitwear and Guardian: A Perfect Fit?

Overview:

Classic Knitwear Is a publicly traded company, established in 1995 as a manufacturer and distributor of unbranded casual knit apparel. Company did not operate in the prestigious fashion labels like Ralf Lauren and DKNY. It operated in a non-fashion casual category. In the year 2005, classic reported revenue of $550 million with the gross profit margin of 18%. 75% of classic’s revenue generated from wholesalers and remaining 25% of revenue generated from mass retail channels as a private label merchandise.

Top management of Classic Knitwear is not happy with the 18% gross profit margin that they have currently. Company is aiming for 20% gross profit margin in coming two-year. In order to achieve 20% gross profit margin, company had been investigating the launch of a line of insect repellent shirts through a partnership with chemical firm Guardian, Inc.

Guardian Project:

Guardian is a insect repellents manufacturer that offered odorless protection against mosquitoes, ticks, flies, and “no-see-ums”. Two former pharmaceutical industry scientists founded company in 2001. The company also received EPA registration for a newly patented insect-repellent technology that would provide protection through 70 washings, 3 times existing insect-repellent apparel. Guardian has a very high level of awareness and positive customer associates among the age of 18 to 35.

Classic is thinning of partnering with Guardian to manufacture and sell a new line of insect-repellant apparel under the name of Guardian. There is a growing national awareness of insect-borne illness, which will help classis to sell their product easily and quickly in the growing market. Classic is planning to introduce new product in January 2007.

Issue identification:

In the year 2005 company achieved 18% gross profit margin. Classic Knitwear is not happy with the 18% gross profit margin; therefore company is aiming at the 20% gross profit margin in the coming two year. Classic is in the process of taking a decision between either to merge with Guardian and sell their product under the name of Guardian or continue their current operations to achieve 20% gross margin goal. Another issue is that, even after starting a new product line with Guardian, how viable the new product will be in the long run after two year? How many products must be sold by classic to achieve the break-even point for the new product? Currently, there isn’t any major competition in the market, but will Classic be able to differentiate itself from the competition in the future when new players will enter the market? These issues have been addressed in this paper.

Product-company fit:

The new product-line offered the gross-profit margin of 38 to 39%, which is extremely high from the current gross profit margin of only 18%. Current gross profit margin is below the industry average. Classic will be able to achieve higher gross-profit margin by introducing new product-line. The company has a moderate cost advantage over other US producers due to high volume and low SKU. Guardian brand has a high level of awareness in the market and they have patented insect-repellant clothing technology. There is a high potential of capturing a very good market because of its innovation. Classic can take an advantage of that for starting a new product-line. There isn’t any major competition in the market for this type of product. Classic can take an advantage of first entry. Company can leverage their production and lower their cost in the future to sustain the competitive market.

Product Market fit:

Product-market fit means selling products in the right market and satisfy that market with their needs. Even the best product at the best price cannot be sold where there is not market for that product. The new product –line under the name of Guardian has a very good potential in the current market. There is high customer demand for the insect repellent clothing because of rising insect-borne illness and customers are not satisfied with the few products that are available in the market. Classic Knitwear operated in the unbranded non-fashion casual category. They do not have a risk of loosing their current market if they fail in the new-product line because the new product-line will be under the name of Guardian.

Will consumers and the trade respond to the Guardian marketing program?

Consumer Response:

In April 2006, classis conducted an online survey in partnership with Consumer.com to gauge purchase intend for four shirt types treated with Guardian repellent. Based on the consumer research, 18.5% of the total invitations responded to the survey. 38% of total respondents said that they would definitely try the product for the fist year. Based on past market research experience, miller expected that 60% of positive respondents will actually buy the product for the fist year. Company also predicted that at least 50% of fist time buyers would buy the product in the second year, too. These numbers are on the lower side of the potential buyers. There is a high chance of more buyers than predicted in this case.

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Trade Response:

Currently, retailers are provided with the 50% margin on the branded knitwear and 40% margin on the private-label knitwear. New product-line from classic provides trade margin of 45% to the retailers compared to 50% trade margin on other products. Retailer will be little disappointed on the trade margin. On the other hand, Classic is providing an advertising allowance of 10% to the retailers who promote Classic’s products in the stores. This will attract retailers towards Classic’s new product-line. Guardian products will be sold through branded cardboard display featuring outdoor activity-related imagery. Classic projected that it would need 10,000 display units within two years. Out of which 50% will be in discount stores, 25% in general merchandise stores and 25% in sporting goods and apparel stores. Each display will cost $100 to Classic. Classic will also hire 3 new employees for marketing their new product in three different regions because their current employees do not have an experience of selling in the retail market. I think, Classic will have to concentrate more in the trade promotions at the beginning stage in order to capture the market. Once they achieve a good amount of market share and good product recognition, they can easily sell their products in the retail stores.