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Eddie Bauer Case: Marketing HBS

Extracts from this document...

Introduction

Eddie Bauer, Inc:One Brand, One Voice, One Customer Team ATTAKK Kunal Ahuja Alessandra C. Elder Tarun Mishra Chun-Hsiang Peng Kartik Vaswani December 2, 2009 Table of Contents Executive Summary...................................................................................... 3 Goal .........................................................................................................4 Goal Defense ..............................................................................................4 SWOT Analysis............................................................................................6 Impediment................................................................................................8 Impediment Defense .....................................................................................8 Solution ....................................................................................................11 Solution Defense .........................................................................................11 Exhibits ....................................................................................................16 Executive Summary Eddie Bauer, Inc. was a $2 billion apparel retailer in 1999. However, the preceding year was one of diminishing sales and profits of over 5%. Our goal is to increase the operating profits in the existing channels as follows: Retail 11% to 20%, Catalog 4% to 15%, and iMedia 19% to 25% over a period of two years from 1999 to 2001. The biggest impediment is the existing synergy in our distribution channels. The solution is to modify the synergy in the channels. We have chosen to not to completely destroy the synergy for the sake of maintaining an external appearance of the brand mantra of "One Brand, One Voice, One Customer. We are ensuring synergy for the customer externally, while internally we are breaking synergy in areas that are damaging us. Goal Our goal is to increase the operating profits in the existing channels as follows: Retail from 11% to 17%, Catalog from 4% to 15%, and iMedia from 19% to 25% over a period of two years from 1999 to 2001 (Exhibit 1). Goal Defense In 1998, after a steady expansion, profits decreased over 5%. Focusing on improving operating profits will allow us to measure the performance of each channel, as well as acquire the necessary revenue to possibly increase market share in the future. ...read more.

Middle

Also, there is a major need to improve the synergy between the channels because of the existing low inventory turnover. Eddie Bauer has an inventory turnover ratio of 1.0, as compared to 5.0 and 9.5 for The Gap and Abercrombie & Fitch, respectively (Exhibit 2). This low inventory turnover ratio reduces the company's cash flow and adversely affects operating profits. Having more efficient inventory processes will decrease costs. Inventory carrying costs can be reduced by not overstocking the various channels. Once this ratio is improved, operating profits will improve. Also, the channels had different economics for which the synergy did not account. Although the gross margins held steadily at 50%, the operating costs of each channel drastically decreased overall operating profits. Operating profits will be improved once distribution is corrected. Currently, SG&A (Selling, General and Administrative) costs account for about 37.3% of Eddie Bauer's overall sales revenue, as compared to The Gap, Abercrombie & Fitch and Lands' End, 26.5%, 21.7% and 39.7% respectively (Exhibit 2). The existing synergy of the iMedia and catalog channels sharing call centers creates conflict because of the product and price confusion that may arise from customers viewing catalog versus iMedia. This could easily lead to bad customer service and hurt sales. When evaluating the competition, there is a successful separation in the channels. For example, Victoria Secret has completely separate retail and catalog channels which only integrate with the design teams. Subsequently, Victoria Secret Catalog represents 31% of total revenue, with returns being minimal. The synergy of Eddie Bauer's catalog and retail returns adversely affects retail store sales, and 25% of all catalog purchases are returned. ...read more.

Conclusion

The ratio of cost of goods sold to net sales is 52.5 %, which is less than that of the competitors GAP & Abercrombie & Fitch, 58.7% and 57.8%, respectively. In as much, having a synergy between channels in pricing is hindering operating profits. For example, differing pricing policies for different regions should exist. Regional managers for a particular channel will decide within a common pricing framework the prices of the products. Costs for the additional training of customer service representatives will be offset by establishing a charge for calls to the call center during the off season. During the holiday season, in order to ensure a high level of calls that are converted into sales, we will waive these miscellaneous charges. Also, these charges will encourage customers to convert to iMedia ordering. The catalog channel will maintain high operating profit through continually decreasing the operating costs by using an automated inventory management system. Also operating profits for catalog can be increased by increasing sales as a result of a customized experience for the customers through the sales representatives. People In order to maximize operating profits, the process of recruiting executives should be differential in nature in terms of channels. This would ensure different policies for recruiting for each channel in terms of compensation and responsibilities. Recruiting efforts should be made to specifically acquire those executives with talent in the development of their prospective channels. To compete with Amazon and Microsoft for talented employees, higher compensation and benefits such as employee discounts, gift vouchers, and ESOPS should be given to potential executives. Promotion For consistency in external consumer perception, we will continue using the brand mantra of "One Brand, One Voice, One Customer," which entails an integrated marketing communications strategy. ...read more.

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