Alternate solution: sell the clothing directly from a company website & put the website address on the tag of the clothes. $60-$45=$15 to the stores. $120-$45=$75 to the customers.
Thanks for sharing Elaine! This video playlist was my pleasure viewing in the fall semester and really helped me heaps getting started with case prep during the fall semester
Hi Elaine, hope you are still reading these comments. I noticed that the client is very large (~6x) large yet has the same cost structure as every other competitor. Isn't there bound to be scale economics the client has not taken advantage of? Optimizing delivery, syncing up production schedules with retailer seasons, etc are all things that are easier to do for a large manufacturer that smaller competitors won't be able to copy, hence giving them a competitive edge. Does that sound right to you?
Would you please post some more case studies? How about just making some up with fabricated number and see how the interviewee responds. Or just take some ideas from existing companies and give a case study on them. Love the insight business education like this, it's going to a business school.
Interesting example. I have a question about the case solution - it seems that entering the retail market (moving up/down the value chain) could be a viable way to double their EBIT. If we assume that the manufacturer could gain around a third of the market share they have in the manufacturing industry (so only 10% of the retail market), they could sell their units in the retail industry at 120, or undercut and sell for 100 (maintaining the 50% gross margin by manufacturing their own products, keeping COGS at 33 and SG&A no higher than 17). You'd also have to address costs, but unless marketing expenses increase SG&A significantly, I don't see why it wouldn't be viable. I think this could easily add an additional 150M to their EBIT. What do you think?
Was my first thought, honestly. When you're looking at just a 2 year horizon, its probably easier to enter distribution so that you can directly play on price.
This would be a high risk play on the eve of their retirement. Either it works out fantastically, hitting their EBIT goal, or fails fantastically by not being able to succeed in the retail space and losing their business. They don't have experience operating in the retail space so a lot of organizational and infrastructure changes would need to be implemented to compete, all in a short timeline. In the process, they could hurt relationships with existing retailers if not sever relationships completely. All this would make the company unattractive to potential buyers and hurt their ability to sell at their target date. Adding to their product line is a lower-risk option that appears to not affect their existing business and allow them to increase EBIT. P.S. I think your idea is interesting and worth consideration, I just wanted to add the opposing view.
Or the manufacturer could go from B2B to DTC and now instead of earning a 25% margin, they earn a 62.6%. Even if they lower their prices and spend on building websites, they would still be able to attain a 50% margin within 2 years.
Hi Elaine! I was going through this video and it definitely is helping me! But my spidey-sense was tingling me for something. Though the interviewee gave various insights into the case, from many different directions, she seemed precipitous to me. Is it a good sign or a bad sign for someone's attitude, who will soon be working down the line? Can you give overall analysis of this case study?
Hi! We have a variety of people with different styles casing here to show that a breadth of styles can be successful but this is by no means an example of perfect casers (I dont really think they exist). Regardless if that is the sense you received from this case, then make sure you take a bit more time when you case. It's definitely a balance between being thoughtful and quick/responsive/getting the 80-20 answer.
Quick question regarding this case study. Surely when we look at EBIT margin improvement it is more a function of operational improvement and less so the increases in revenue which this interviewer focuses on? E.g. Ebit margins declining or stagnating matched with a good growth rate in topline revenue occurs in many industries. So to achieve the object, surely this is mainly costs. In a real-life interview, would you be seen as bad by spending so much time on revenue like this candidate did? I realise you probably might not remember this case, so no worries.
Karran Kent great great point. I don’t remember the details of the case and haven’t reviewed the video to confirm, but I think where you’re spot on is that you want to start and drive the case given what is most logical given all of the facts of the case but if you are given more information that your initial hypothesis may be incorrect or may not be the “full story” then you need to be flexible enough to pivot. So, to your point if you’re given a EBIT margin case then you should still have top line growth in your framework but you can start with decreasing costs and explain your rationale. If that is where the case is going then great, if they give you hints there may be other areas to explore then listen and move in that direction. Hope this helps!! Sounds like you have a solid understanding thus far
Karran Kent I think the main goal of this case is to double the EBIT not the EBIT Margin, so focusing on revenue can be one way to achieve it and it excatly what the candidate did.
Riz is right, EBIT, not margin. Understanding the objective is key. In high margin scenarios like this, topline focus tends to be the right path for EBIT growth, which the interviewee correctly did and solved the case. Although, costs were explored as well.
She's wrong tho, should have focussed more on cost and not revenue. I wouldn't let her pass that mistake if i was an interviewer as she failed to identify the root cause.
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