Classic Knitwear, founded in 1995, began production of a unique line of unbranded casual knit apparel. Included in their product line were such clothing as T-shirts, sport shirts, sweatshirts and other wearing apparel. Although the company saw exceptional revenues as of 2005, they still felt that they were not meeting certain criteria when it came to their gross margin. They sought to increase their gross margin, currently sitting at 18%, to that of a more comfortable number of 20%. To combat this issue, Classic Knitwear decided to team up with Guardian, a producer of odorless repellant protection against bugs, and combine their fortes into a line of clothing infused with the bug repellant technology. These new products would hopefully to rise the gross margin to the 20% they were hoping to accomplish.
The non-fashion casual knitwear market consisted of products that range from casual t-shirts to even underwear. Within this industry, it can be divided into two categories, those manufacturers who brand their products with their name and those companies who choose not to brand their line of products. On the branded side of the industry, Classic competed with three major brands.
These brands were JamesBrands (which accounted for $4.5 billion in revenue from sales), Flowerknit (which accounted for $1.25 billion in revenue from sales), and Greenville Corporation’s TopTops Division (which accounted for $630 million in revenue from sales). These branded labels competed on the level of private- labeled businesses. On the other side of the industry, Classic competed with one company in terms of unlabeled products. B&B Activewear were major competitors as they generated $590 million or 23.6% market share, which made them a leader in the market. Although not directly involved within this sector, Jamesbrand, Flowerknit and Greenville Corporation’s TopTops Division still were involved with Classic on this level.
Distribution channels are essential when it comes to the wholesales of these companies products. 90% of the product distribution from these companies go directly to two distinct types of retailers. Almost 50% of these sales are accounted for from mixed retailers, such as Wal-Mart and Kohls, who sell clothing as well as wide variety of other products. The other 40% is sold towards clothing specialist retailers, such as Gap and Brooks Brothers, who only specialize in the selling of clothing related products. The remaining 10% of the distribution channels contained bits from non- grocery retailers, home shopping, internet retailing and direct selling to the customers. In order for manufacturers to compete for retail business, they used a variety of strategies in order to gain attention from these retailers. Some of these tactics involved prices, variety of products, and efficiency of delivery.
Classic Knitwear, since its inception, has been a simple manufacturing company whose focus is on creating and distributing unbranded casual knit apparel which includes T-shirts, sweatshirts and fleece like products. Unlike other companies that chose to have expensive products which carried prestigious fashion labels, Classic decided to venture away from them and focus on products that were categorized as non- fashioned knitwear. With this strategy, Classic accounted for $550 million in revenues from domestic sales.
They have also decided to sell only in the United States, as foreign markets were too much of a risk that could have negative consequences. 75% of this revenue came from the selling of their products to wholesalers, who in turn, resold the Classic clothing to screen- print channels which customized the products with logos and images. Ortiz and Chong decided to concentrate on this pathway because it offered the fastest growth potential than trying to sell like ordinary retailers.
As a result, Classic Knitwear had established itself as the #2 seller in the market, accounting for 16.5% of the market share. Classic generated the remaining 25% of their revenues from mass retail channels under private labeling. Classic would sell their products to retailers such as Wal-Mart and Dollar General and would be carried under the name of the retailer or through a house brand that was developed by the retailers themselves. In fact, these two retailers accounted for 57% of those revenue sales.
To help accomplish such high revenues, Classic had to achieve low production costs throughout the entire company. To ensure that such goals were obtainable, Classic established state-of-the-art production factories that were situated off shore, mainly in the Dominican Republic. Being situated not in the United States allowed them to have much lower production costs than those produced domestically. Although other companies had also set up production factories in other countries, Classic was able to have a slight competitive advantage over these other companies. What helped them keep this competitive advantage was a high volume- low SKU (stock keeping unit) strategy. This ensured that they would produce high quantities of products without the large variety of products that other companies had.
As of 2005, Classic felt that it would never reach their goal of 20% gross margins through various controlled labels or tie in promotions. However, Classic Knitwear had an epiphany which could potentially shoot their gross profits to levels that they would feel satisfied with. With the rise of the West Nile virus across the Americas, more and more people were looking for ways to prevent the transmission of the diseases. Classic thought it would generate the attention of customers to produce a new line of clothing that would be infused with chemicals that would be able to repel insects that carried the West Nile virus.
With the help of another company, Guardian, who specialized in insect repellants, they would be able to create such a line of products. The reason that they chose Guardian was due to their flagship repellant, have established them as one of the top producers in insect repellant. The products would consist of a short and long sleeve T-shirt, a Men’s polo, and a Men’s fleece. Along with the production of these chemical infused clothing, Classic was targeting males 18-35, seeing as these individuals would most likely be outside during times when insects are active. The initial investment of such a line could cost about $10 million, which would help to generate 50% unaided awareness across the United States.
In order to get the needed awareness of their product out to the public to ensure increased gross margins, Classic relied heavily on marketing. They had studied how other brands that were selling similar brands of insect repellant clothing and how they were successful, establishing themselves into small niche markets. Based on those already established companies, Classic decided to sell their product lines to retail stores with cardboard displays housing the different styles of shirts. On the outside of each of the boxes would display pictures of outdoor related activities that would promote the proper use of each shirt. Some of these retail stores would be outdoor related stores such as Bass Pro Shops and L.L. Bean. Classic wanted to have 10,000 displays in stores over the next 2 years after the product line was to begin production. To help get these displays in stores, they offered discounts on the sale of T-shirts if the store agreed to have a display in their store.
Classic, with the production of these chemical infused shirts, could have a possible juggernaut to help generate sales, but there could be other possibilities that could help them reach their target gross margin of 20%. One alternative would be to not produce the new line of shirts, relying on frequent customers to help generate the extra sales to gain the extra gross margin. Another possibility would be to vertical integrate with one of the screen-pressing companies that create the logos which are later screened onto the sold shirts. By integrating, they could possibly cut unnecessary costs that would also help create higher gross margins. Lastly, another possible alternative to this problem would be to establish a brand of clothing that is positioned near the high labeled brands. They would have to compete with the big three companies with sales, but could possibly steal sales away from them to help establish themselves.
Classic Knitwear was set with a problem of what to do to try and earn more in their gross profits. To solve such case, it would be recommended that they continue with the production of these insect repellant shirts. With the outbreak of the West Nile virus and outdoorsmen wanting styled brands to wear, this idea would help to generate the sales need to raise the gross profits. Based on Consumer.com surveys, it was concluded that there was a strong desire for such a product, especially one whose clothing was made out Classic’s materials. In the end, the continuation of this line would help generate the extra gross margin they had hope to gain.
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