Nautica 2019
1st Round
Introduction
After regaining the
rule in the state of Mahishmati, great Mahendra Bahubali and his administration
worked day and night to bring back the economy on track. Since the past few
decades, the state of Mahishmati is flourishing in the agricultural and
manufacturing industries. In 2017, when people had higher in-hand income, they looked
for better fashionable clothes and accessories. To tap this potential, few
clothing companies (dealing in Sarees and Salwar Suits) targeted market in
Mahishmati and you as future managers and change-makers have to help them in
taking a few critical decisions to compete in the fierce competition imposed by
big established companies and younger/ newer firms (other players) which aim to
grow in the same segment.
About Mahishmati
According to a census of 2011, 70% of
the population is under the age of 35 and the median age of state is 27 years.
Census also indicates that there are 940 Women per 1000 men in the state.
Females in the state prefer ethnic
wears (sarees and Suits) over western trends but this trend is changing and the
younger generation is looking to experiment in other styles as well. Fashion industry
in ladies segment is primarily driven by new trends and sensitive to promotions
and offers.
In the women’s wear market, saree is by
large the most popular outfit in the state. Retail value of women’s wear market
in Mahishmati is estimated to be around ₭ 7 billion (where ₭ represents KitCoin, currency of
Mahishmati) in 2017, of which saree alone contributed nearly 33% amounting to
nearly ₭ 2.3 billion, this segment is expected to grow at a CAGR of 5%-6%
between 2018 to 2023 owing to increasing demand for the saree from various
segments across the state. Demand for silk and designer sarees is expected to
witness strong growth owing to increasing spending on these types of sarees by
women in the urban regions.
The online market is one of the major
reasons in the growth of sarees in the state. Since the adoption of Sarees is
majorly in rural areas where penetration on internet is increasing day by day,
this will lead to opening of a new revenue pockets for stockholders in saree
industry. The increasing penetration of Internet, the increasing purchasing
power of women, high brand consciousness and fashion sense has made e-commerce
an important medium of shopping. Brand awareness is increasing among the
consumers and hence they are exploring options based not only on the value but
also on the brand.
In 2017, suits sales contributed to 25%
of the total revenue from women’s wear market. This segment is expected to grow
at a CAGR of 10%-11% from 2018 to 2023 owing to the demand of the younger
generation who are looking for a replacement towards sarees.
Clothing market can be categorised into
premium and budget segment. In Premium segment customers are particular about
product quality, brand image and customer service whereas the budget shoppers
includes lower middle class people and are primarily driven by the low cost of
product and durability of the product is secondary. Budget segment is expected
to grow at a CAGR of 15% while the growth of premium segment is expected at
CAGR of 7% in next 5 years.
About the Company
The company is an domestic clothing
company which was introduced in January 2017 with the vision of catering to the
growing demand for fashion in the ladies’ segment. Company manufacture clothes
in both budget and premium segment and offer primarily two products - Sarees
and Suits. Company owns brands SHIVGAMI in premium segment and offers brand
DEVSENA in budget segment. Women from age 18-35 are the target customers for
Salwar Suit segment whereas women from age group 30-55 are target customers for
Sarees.
Current Scenario
According to finance department of the
company, the cost associated with different customer profiles are tabulated in
Table 1.
Customer Type
|
No of Customer
|
Sales (₭)
|
Profit (₭)
|
Existing (Repeat purchase)
|
15000
|
7,500,000
|
2,620,000
|
New
(1st time Purchase)
|
10000
|
5,000,000
|
1,750,000
|
Table 1: Customer distribution of company in 2019
Sales distribution for 2019 among different
segment is mentioned in Table 2.
Segment
|
% sales distribution
|
Profit Margin %
|
Budget
|
70 %
|
30 %
|
Premium
|
30 %
|
40 %
|
Table
2: Sales distribution of company in 2019
Promotions
In past 2 years company has employed following
different promotional scheme for customer:
(i)
Discounts: In 2019, company offered 5% discount on purchase value.
(ii)
VIP Club: Loyal customer are offered perks like new product previews, time
sensitive deals and top class customer service which
includes free delivery of product at customer door step . Total spend in this
category in 2019 was ₭ 250,000.
(iii)
Advertising: In 2019, company had invested ₭ 350,000 in various online and offline
advertisement channel which lead to 4% increase in sales
Raw Material
The company’s manufacturing plant is
equipped with automated machinery which is operated by skilled workers and
clothes are manufactured from scratch. There are 3 different category of raw
material available in the market i.e A, B and C which have following characteristics:
Category
|
Quality
|
Margin Effect
|
A
|
Low
|
+5%
|
B
|
Medium
|
0%
|
C
|
High
|
-5%
|
Table 3: Different category of raw material
Currently, company use category B raw
material for manufacturing clothes. Using a superior quality cloth will
increase the sales but will reduce the margins. Sales change percentage will
depend on number of competitors opting for particular raw material category and
the type of customer (Budget or Premium).
Designers
It is observed that creating an in
house expertise of designers helps in giving fresh perspective about brand to
customer. Fresh designs can be sold at a premium. Also, launching new designs
before other players helps in gaining early mover advantage and helps in
acquiring new customers.
On the other hand, designers
charge a hefty fee for their designs and their efficiency to create new designs
is also low and we cannot always be sure if the designs will be liked by
younger generations. Currently, company does not employ any designers and
follow the market trend for latest designs. Also it is estimated that
investment of ₭ 300,000 can improve sales up to 10%.
Logistics
Currently, third-party logistics
service is used by the company to transport material to stores. Initially, the
company decided to avoid heavy investment of ₭ 600,000 in establishing an
in-house logistic service. Lately due to
inefficiency of the service provider like - delays and missing shipments,
company had to suffer losses of around 4% of total sales. Also, building in
house logistics would improve profit margins.
Distribution
Channel
The fashion market sales are driven by
two channels online and offline. The sales are majorly driven by offline stores
(90 % of the total sale) but with the advent of e-commerce in the last 2 years,
online sales have also started to pick up.
Online channel comprises of platforms
such as AmJohn, MahishMart, Snytra etc. which sell fashion apparels among other
products category online. Currently, the sales, driven from online channel is
approximately 10% but is expected to grow in the coming years. Online
e-commerce clothing sales are forecasted to grow at a CAGR of 16 % in the next
5 years owing to increasing internet penetration in the region and wide range
of products at great discount available at door step of customer. In spite of its boom, the e-retail industry
had its share of problems. Cost of customer acquisition is very high because these
firms were engaged in deep discounting in order to acquire new customers. Also,
due to high discounts on online platforms, the profit margins are 20% lower as
compared to offline stores.
Training & Development
Company working culture is manual
intensive and workers in the company are not skilled enough to manufacture
designer suits and sarees. If company choose to position itself in premium
segment, then the firm does not have required talent to execute the design
provided by designers. According to study, an investment of ₭ 130,000 in Staff training
and development may lead to increase in sales up to 5% in premium segment and
3% in budget segment.
Customer Relationship management (CRM):
CRM is an approach to manage company’s
interaction with current and potential customers. It uses data analysis about
customers’ history with a company to improve relationship with customer,
specifically focusing on customer retention and ultimately driving sales growth.
It is estimated that investing ₭ 100,000 in CRM may improve sales by 5%. But
this number also depends on how much CRM other competitors are willing to do.
Competition
Apparel, fashion and accessories market
in Mahishmati was highly fragmented and competitive. Currently, the fashion
market is dominated by 5 major established firms and together they capture 65%
of total sales. Of those, 3 companies deal in budget segment and the other 2
companies have majority of sales in premium segment.
Similar to your company, there are
several other new companies (other players of the game) which are competing for
the same customer segment. All such companies are relatively young i.e 1-3
years old.
Objective
Given the intense competition and
inherent challenge associated with being a new entrant in the market, you need
to increase the customer base and enhance customer loyalty to grow the
business. As the newly appointed CMO, there are a lot of expectations for
driving the growth of the company. You, having gathered and studied the market
and the company’s past performance, have to decide the long term strategy of
the organization and are required to provide the inputs in google doc form (attached
in link below).
Extended deadline for first round Submission : 23 Nov 2019, 11:59:59 AM
