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).

Submission Link :https://forms.gle/wpi8TqcnZvnA2cmG8

Extended deadline for first round Submission : 23 Nov 2019, 11:59:59 AM