Caselet 1: Rugged n Bold

Charles F. Xavier, Chief Marketing Officer of Rugged & Bold (R&B) pores over the maze of 300 retail stores that his company is about to acquire. The board of Rugged & Bold has approved the acquisition of a chain of outlet stores which more than quadruples their own retail footprint. Company Overview and Background Rugged & Bold (R&B) is a privately held American clothing company known for its eponymous R&B brand of denim-wear. R&B employs a staff of approximately 10,500 people worldwide, and owns and develops world famous brands. R&B, the main brand, was founded in the 1890s in Columbia, specializing in riveted denim jeans and different lines of casual and street fashion. Modern jeans began to appear in the 1920s, but sales were largely confined to the working people of the western United States, such as cowboys, lumberjacks, and railroad workers. Another boost came in World War II, when blue jeans were declared an essential commodity and were sold only to people engaged in defense work. From a company with 15 salespeople, two plants, and almost no business west of the Mississippi in 1949, the organization grew in thirty years to include a sales force of more than 2,200, with 40 plants and offices in 32 countries. R&B prides itself in being very connected to pop-culture. A leading fashion magazine opines, Most of the apparel category relies on aspiration, and presents an ideal of what you should be. R&B is exactly the opposite. R&B is about being who you are, and presenting yourself in a way thats completely authentic and true to yourself.

State of Affairs The denim fabric is a fashionable product that sees the emergence of new brands as there is a constant change in consumer habits. Now the market is facing changes in the distribution system especially with the amplification of sales in the supermarkets. Many apparel companies, including R&B, that have traditionally relied on wholesale distribution channels, continue to invest in expanding their own retail store distribution network, which has raised competitiveness in the retail market. Continuing pressures in the U.S. and global economy related to the global economic downturn, access to credit, volatility in investment returns, real estate market and employment concerns, and other similar elements that impact consumer discretionary spending, have created a challenging retail environment for the customers. Apparel companies and their customers are responding by adjusting business practices such as tightly managing inventories. Wholesaler/retailer dynamics are changing as the wholesale channels continue to consolidate and many wholesale customers face slowed growth prospects. As a result, many customers build competitive exclusive or private-label offerings and desire increased returns on investment through increased margins and inventory turns. In response, many apparel wholesalers seek to strengthen relationships

with customers through efforts such as investment in new products, marketing programs, fixtures and collaborative planning systems. Currently R&B distributes their products through a wide variety of retail formats around the world, including chain and department stores, multi-brand specialty stores, mass channel retailers, and both company-operated and retailer websites. R&B faces intense competition, customer financial hardship and consolidation, increased focus by retailers on private-label offerings, expansion of and growth in new distribution sales channels, declining sales of traditional core products and continuing pressure on both wholesale and retail pricing. These factors contribute to a global market environment of intense competition, constant product innovation and continuing cost pressure throughout the supply chain, from manufacturer to consumer, and combine with the global economic downturn to create a challenging commercial and economic environment.

The Times they are a-changing The rise in popularity of the denim jeans as a flexible must-have fashion item in the late 1990s saw the brand losing market share to a host of niche, exclusive upstarts. In 2000, after years of growth, the company reported that worldwide sales had dropped by three percent from $7 billion to $6.8 billion. In 2005, R&B posted record $349 million losses, with revenue of only $4 billion far below the companys 1998 peak. This decade of decline was only reversed in 2007.

Rugged, Bold & Stagnating

8 7 6

Revenue ($ bn)

5 4 3 2 1 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

The resurgence started a couple of years ago, on a really macro level, says James Howlett, CEO of Rugged & Bold. We still have a long way to go. Our net sales have not grown substantially for more than ten years, and actions we have taken, and may take in the future to address these and other issues facing our business may not be successful over the long term. R&B needs to recapture its pole position in the denim-wear industry. While introducing innovative products and elevating the R&B brand will be key to reclaim market share, Howlett favors a multi-year retail expansion plan. The first stage of the expansion will be fueled by inorganic growth of retail outlets. The company has screened a number of potential targets and settled on acquiring Snowflakes Corporation, a retail chain with more than 70 stores across USA.

The Answer is Blowing in the Wind The proposed acquisition of Snowflakes will potentially more than double the current US retail store footprint of R&B. It is an ambitious move, aimed at growing the top-line exponentially over the years. Xavier has his task cut out. Too often, companies fail to focus on the potential impact that merger integration decisions have on customers, which puts the onus directly on the marketing team to keep customer needs front and center during the integration process. Xavier wants to create a novel consumer experience through the acquisition of the Snowflakes chain of retail stores. To meet objectives for increasing revenue synergies, the new executive team must create a combined offer that is uniquely valued by customers and differentiated from competitors. At the same time the company has to be mindful of not antagonizing its current retail/wholesale partners.

The Task at Hand You are the consulting partner to Xavier and would assist him right from the inception of this initiative. You are expected to: 1. Recommend a consumer positioning strategy for the new stores 2. Create a Marketing Communication plan for the new stores 3. Recommend a plan to successfully sustain the relationship with current retail partners

1. For R&B and also for private label Supply chain margin structure a. Manufacturer margin b. wholeseller margin c. retailer margin
Own run retail stores constitute only 2% of sales. Products primarily sell through chain retailers and department stores in the United States and primarily through department stores, specialty retailers and franchised stores outside of the United States

2. How are the private labels positioned/marketed? Are they marketed as aspirational products or as affordable ones. What are the product characteristics vis-a-vis R&B's product?
This can be inferred from the case.

3. A demographic picture in terms of per capita income from 1960's (boom time of R&B) to the current period of the economy
This can be inferred from the case.

4. Sales revenues have declined, have the sales off takes declined? (Revenue/ Product) Please make your assumptions regarding this and clearly state them in the solution. 5. What happened in 2007, how did sales decline reverse? What steps had been taken? This can be inferred from the case. 6. The new stores: Where are they located, which parts of the town, rural/urban? Customer base/store in the new format? Please make your assumptions regarding this and clearly state them in the solution. 7. The retail chains have been pushing private labels, were the products of R&B thrown off the shelves of these retailers? Please make your assumptions regarding this and clearly state them in the solution. 8. How is the general mood in the economy currently, is it gloomy, is it hopeful? Please make your assumptions regarding this and clearly state them in the solution. 9. A customer segment picture of the customers % of people in HIG % in MIG % in Low Income Group
Also R&B sells products across price segments.

10. Is the market saturated? Are the products being sold through promotions mainly? Please make your assumptions regarding this and clearly state them in the solution.

11. A market share position of the industry Where does R&B stand Private labels % Major other competitors Their market share, their product characteristics R&B's market share:
Jeans 12% market Share Khakis 8% Market Share Casual 4% market share

The worldwide apparel industry is highly competitive and fragmented. It is characterized by low barriers to entry, brands targeted at specific consumer segments, many regional and local competitors, and an increasing number of global competitors. primary competitors include vertically integrated specialty stores, Other jeanswear brands with multiple product lines and also athletic wear companies. The worldwide apparel industry is characterized by constant product innovation due to changing fashion trends and consumer preferences and by the rapid replication of new products by competitors