International Marketing Review

Jitex: a case study of apparel marketing in the Czech Republic

Suzanne Loker

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Suzanne Loker, (1995),"Jitex: a case study of apparel marketing in the Czech Republic", International Marketing Review,
Vol. 12 Iss 5 pp. 49 - 59
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Jitex: a case study of

apparel marketing in
the Czech Republic
Suzanne Loker

Jitex: a case
study of apparel
marketing
49

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University of Idaho, Moscow, Idaho, USA

Introduction
The collapse of the Soviet markets in 1990, the split of the Czech and Slovak
Federal Republic (CSFR) on 1 January 1993 into the Czech Republic and Slovakia,
the effects of the West European recession, the continuing ethnic uprisings in
Central and Eastern Europe these were the components of the external
environment in which the Czech Republic moved towards privatized businesses
with market-driven philosophies. Czech Republic industries varied in their
privatization approaches, their competitive advantages and marketing strategies.
Thus, each industry provided unique perspectives on the privatization and
transformation process. Study of the apparel/textile industry is significant for two
additional reasons. First, the Czech Republic was the base of apparel and textiles
production for the Austro-Hungarian Empire, establishing the tradition of apparel
and textiles in the country (Matesov, 1993). The industry provides continuing
employment for many Czechs. Second, the Czech Republics central geographic
location between Western Europe and the Central and Eastern European
consumer markets makes it a potential source and distribution centre for apparel
exports. The purpose of this article is to describe and analyse the marketing
strategies of Jitex, a formerly state-owned knitting firm, as one example of apparel
marketing in the transforming Czech Republic.
Current literature was used to set the context of apparel marketing in the Czech
Republic. In 1992 and 1993 interviews were conducted with the directors of Jitex,
its competitor Czech apparel manufacturing firms, and officials of Centrotex and
the Association of Textile, Clothing and Leather Processing Industries (ATOK).
Jitexs apparel marketing strategies during its transformation from a state-owned
to a private, market-driven firm were analysed.
The Czech Republic in transformation
The 10.4 million Czech Republic citizens (The Economist, 1993) are part of the
larger consumer market of approximately 400 million in Eastern and Central
Europe and the newly independent states (Seitz, 1992). Although the Czech
Republic and Slovakia divided for both cultural and economic reasons, their
This research was funded by the Fellowship for Business and Economics Faculty in East
Europe (BEFEE) from the University of Pittsburgh and the Geiger apparel firm, Middlebury,
VT and Schwaz, Austria.

International Marketing Review,

Vol. 12 No. 5, 1995, pp. 49-59.
MCB University Press, 0265-1335

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50

independence was gained without bloodshed and the Czech Republic is

relatively stable politically (The Economist, 1993). Consumer wages in the
Czech Republic were low in 1992, about 4,641 Kcs or $163 per person per month
in firms employing over 25 (Czech Statistical Office, 1993a). These rose about 25
per cent in 1993 to reach 5,840 CZk (Czech crowns) or $205 (Czech Statistical
Office, 1993b), while the income growth slowed in the first half of 1994 to
about 15 per cent (Czech Statistical Office, 1994). This income growth was
counteracted by cost of living increases, due in part to the value added taxes
(5 per cent VAT on some food and 23 per cent on other goods) established in
1993 (Eastern Europe Business Bulletin, 1993).
In 1993 the Czech and Slovak Federal Republic currency became Czech
crowns and Slovak crowns. The federal currency was convertible into US
dollars and German Deutschemarks, though business transactions were carried
out in dollars and marks. As the Czech Republic adjusts to its independence and
due to the changing use of US dollars abroad, the convertibility of its currency
may change. In 1994, the government-run privatization process was concluding,
pressing large firms to decrease their employee bases and small entrepreneurial
firms to be founded. Joint ventures and foreign investment were present, but
were not the dominant forces in privatization that they were in Hungary
(Whitney, 1993).
Although the privatization process in the Czech Republic was interrupted by
the June 1992 election that made it independent from the Slovak Republic, the
main characteristics of the process begun by the Czech and Slovak Federal
Republics (CSFR) remained intact the small privatization, two waves of the
big privatization, and the voucher system. The small process was primarily
in the form of auctions (Bulir, 1992). The big privatization occurred in two
waves between 1992-94.
Privatization proposals for larger firms were solicited from any interested
individual or group, domestic or foreign. These plans could include any of a
variety of methods of privatization or combinations of methods: direct sale
including management buyout and foreign sale, joint venture, public auction, or
voucher sales to Czech citizens (Bulir, 1992).
In 1990 Czech Republic state planners dictated which goods were to be
produced and where they were to be distributed without consideration of
consumer needs, regularly producing the wrong goods at the wrong prices for
the wrong markets at the wrong costs (Seitz, 1992). Although both retail and
manufacturing firms in the Czech Republic were moving towards marketdriven practices before 1990, the marketing infrastructure needed for success
was absent in privatized firms. Manufacturers had been left with large
inventories of unmarketable goods as they left state-run and Soviet markets and
moved to Western markets (Eastern Europe Business Bulletin, 1994). The
emergence of thousands of entrepreneurial retailers caused a distribution
problem for manufacturers without an effective alternative to the state retail
distribution system in place. Finally, the relative obscurity of Czech apparel
goods in world markets in the last 40 years had left a general perception of low

Apparel, textiles and Centrotex

The Czech lands were the centre for textile production in the Austro-Hungarian
monarchy (ATOK, 1992). Before the 1948 Communist take-over, many small
workshops as well as large firms existed in both Moravia and Bohemia, the
Czech Republics two regions. In 1948 large state-owned and directed firms were
established, often combining small firms into enterprises employing up to 8,000
people. The industry was organized by function, each with a geographical
headquarters (see Figure 1). In apparel and textiles, cotton headquarters were
located at Hradek Krlov, linen at Trutnov, wool at Brno, silk at Moravsk
Trebov (now extinct), knitting at Pisek and apparel production at Prostejov
(Kohoutek, 1993). The centralized organization of the firms allowed easier
control by the federal ministries which dictated what, how much, and for whom
each firm would produce. The complete coverage of apparel products and
textile production was a clear objective of the central plan.
Centrotex, the central trade organization for textiles, monopolized the export
distribution of the apparel and textile products from 1948-89 and also facilitated
some domestic distribution (Kvasnicka, 1993). In 1993 Centrotex was located in
Prague and was organized into nine departments according to product, seven
for export and two for import (see Table I). There used to be a separate
department for the Soviet Union as it was Centrotexs largest customer.
Business with the newly formed republics was just beginning again after their
market collapse in 1990-91. Since 1989 Centrotex continued to operate with
most formerly state-owned firms but with decreasing proportions of their total

marketing
51

Trutnov
Hradec
Krlov
Moravsk
Trebov

Czech Republic

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quality, low priced goods, produced by low-wage workers (Womens Wear

Jitex: a case
Daily, 1990).
study of apparel

Pisek

Prostejov
Brno

Figure 1.
Historic centres of
textile industries in the
Czech Republic

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Import/export

Centrotex departments

Export

Cotton textiles
Jute, linen, polypropylene, canvas textiles
Knitted, lace, under and outer knitwear
Textiles for apparel
Ready-to-wear
Carpets, blankets, upholstery textiles, hats
Fibres, yarns, threads
Wools, animal yarns, geotextiles
Textiles and ready-to-wear

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Import and/or
export
Table I.
Centrotex departments

Source: Centrotex (1993)

sales. Consequently, it was reducing its workforce, employing 960 in 1993 down
from 1,300 in 1990. Centrotex had agents in Germany, France, Scandinavia,
Austria, Great Britain, and five in Slovakia since the country divided.
As textile and apparel firms privatized, they set up independent marketing
efforts in part to save the 5-7 per cent charge for Centrotexs services. In
addition, many Czech firms had mostly cut, make, trim (CMT) sales where
foreign companies provided the fabric and design. These orders required less
capital and it was generally not profitable to Centrotex or the firm to have
Centrotex facilitate the CMT agreements. Three major advantages to working
with Centrotex remained (Bezecny, 1993):
(1) attractive payment terms for the firms;
(2) Centrotex took all risk of payment including insurance and exporting
costs; and
(3) Centrotex developed and researched markets.
Jitex
Jitex, in Pisek, was the largest knitted textile firm in the Czech Republic in 1993
with 3,000 workers, down from 3,900 in 1991 and 3,500 in 1992. Jitex consisted
of ten factories, four in Pisek and six in the nearby countryside. It produced
about 20 million pieces with annual sales of over $42 million in 1993. This
vertical manufacturer produced jersey, fleece, double thread jersey, one- and
two-sided fleece, and velour knits in 100 per cent cotton, cotton blends including
cotton/lycra, and 100 per cent polyester. Womenswear accounted for 50 per cent
of their production, childrenswear for 15-20 per cent, and menswear for 30-35
per cent. The products ranged from underwear, T-shirts and camisoles to
jogging suits and bathrobes. Over 1,200 styles per year were offered in four
domestic collections and two foreign collections. Exports accounted for 40 per
cent of the total sales and included customers from Germany (50 per cent),
France (35 per cent), Scandinavia, Holland, Austria, and the USA. Jitex owned

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one retail department store located in Pisek in 1993 and opened over 20 more in
Jitex: a case
1994.
study of apparel
Jitex reorganized its management after 1990 to include a general director,
marketing
with four other directors: production, economic, markets and technical.
Directors of the ten factories reported to the general director as well. The
market director oversaw four departments: export, domestic, retail/wholesalers
53
and supply. Each director was vested with decision-making authority, very
different from a state-owned firm where decisions were dictated by the state
ministries. Following privatization in 1994 the firms leaders felt that a further
reorganization might be required that divested even more decision-making and
profit-making responsibilities to each factory.
Before 1990 the central planning role for the 11 vertically organized, knitted
goods firms in the Czech Republic was located in Pisek. The other firms were
more specialized than Jitex, a centrally planned strategy to reduce competition
among the state-owned firms. For example, Pleas produced underwear, Bonex
velour garments and Loana childrenswear. Due to its proximity to the
headquarters and its broader product range, Jitex had a competitive advantage
in knitted textiles as the transformation process began.
Jitex and Centrotex
Centrotex arranged 100 per cent of Jitex exports before 1990 and still arranged
50 per cent of Jitex exports in 1993. Jitex was similar to most state companies in
its need to catch up in marketing and sales for survival. Before 1990 production
planning and distribution was state controlled and sales and marketing
departments, if in existence, did not function as Western departments (Savitt,
1992). Indeed, the creation of sales and marketing departments with language,
cultural and marketing expertise was one of the main modifications in the
organizational structure of formerly state-owned enterprises.
Although some development of firm-directed domestic channels of
distribution occurred prior to 1990, the real change occurred following the
small privatization process during 1991-92. At Jitex, customers increased
from about 120 to thousands with the privatization of domestic retail shops.
There were no organized systems to serve customers such as buying offices or
company sales representatives as in the USA. By 1993 Jitex had appointed
seven domestic sales representatives (one in the Slovak Republic) and private
wholesalers had initiated business. Still, Jitex was overwhelmed by the number
of relatively small customers and the quick change from central organization to
no retail organization beyond single shops. The 1992 purchase of 13 Czech and
Slovak department stores (Maj and Prior) by Kmart (Loker et al., 1994) may
serve as a model for centralizing retail channels of distribution in East and
Central Europe. In summer 1993 Kmart became Jitexs largest domestic
customer when they completed one order for all their stores instead of separate
orders as in the past.

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Privatization plan
Proposed privatization plans for Jitex were considered in the second wave.
According to the Ministry of Industry, the following considerations determined
Jitexs placement in the second wave (Bezecny, 1993):
the firms financial stability through production and markets;
its large size basically precluded a single buyer; and
its lack of restitutions to past owners as it was originally founded in
1949.
The privatization plan proposed by Jitex directors in 1993 and the plan
approved by the Ministry of Privatization in 1994 both encompassed a
combination of methods (see Table II). Czech citizens were given the
opportunity to purchase vouchers in both plans 33 per cent in the Jitex
management plan and 37.4 per cent in the approved plan. The sale was
announced in newspapers with the cost set by the Ministry of Privatization.
Jitex directors had proposed a special offering of 10 per cent of the stocks to
Jitex employees, but this was not part of the approved plan.
Jitex directors listed three investment banks (Investicni Banka,
Ceskoslovenska Obchodui Banka and Investicpu Spolecnost Ceske Sporitely)
and Centrotex as the four large investment members with 10 per cent each.
These partners were chosen for the following reasons (Bezecny, 1993):
at least one of the banks is a stock market member and can sell stocks;
all banks can give credit to firms such as Jitex; and
Centrotex continues to develop and sustain export trade with a 14-day
payment guarantee on product delivery.
Invest Fonds was the largest designated partner in the final plan, owning 27.3
per cent of the shares.
Through historical events, Jitex owned property in Pisek which it did not
need for its future operations. It had designated 10 per cent of its stock offering
to the town in the form of this property, but the approved plan designated 5 per

Voucher sale
Czech investment banks (10 per cent each)
Centrotex
Employee sale
Pisek town committee (building)
Restitutions for arts/culture state fund
Table II.
Privatization proposals
for Jitex (in
percentages)

Management 1993

Approved 1994

33
30
10
10
10
7

37.4
27.3
10.0

5.0
20.3

Note:
In the final approval plan, Invest Fonds was the largest designated partner owning this percentage of shares
Source: Vlasaty (1993, 1995)

cent to the town. The final 20.3 per cent of the stock in the approved plan was
Jitex: a case
designated to the state for its use or future sale. This included the 3 per cent of study of apparel
each companys stock that, by law, must be set aside for cultural/arts support.
marketing
Both privatization proposals illustrated the multiple approaches to
privatization that were developed by Czech firms to accommodate their sizes,
production emphases and future directions.

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Jitex marketing responses

Miroslav Bezecny (1993), Jitex General Director, cited three key problems that
Jitex needed to solve to position itself for the future:
(1) to prepare the right styles for collections;
(2) to broaden customer base to replace former USSR market, the potential
loss of some of the Slovak market, and the shaky West European market;
and
(3) to increase direct contact with customers through enhanced sales and
marketing activities.
These problems formed the basis for Jitexs initial marketing responses through
product development, price, distribution, and promotion.
Product development
Developing products with design and fabrication that were appropriate for
Jitexs old and new customers was a major problem. Jitex hired a German firm,
Liska-Design, to design a line especially for the German market under the
OCHRE Fashion label. However, the major product development steps that Jitex
took were in fabric and applied design areas. In 1988 Jitex purchased a Lectra
computer-assisted design system (CAD) to aid in pattern making and layout.
Screen printing equipment was purchased in 1989 for the electronic production
of screens that were easily modified to different designs. Sample preparation
used a photographic process that provided easy duplication of a customers
sketch or photograph. Jitex purchased embroidery machines with 50 operating
heads in 1990 to take advantage of the fashion trend of appliqud knits. They
ran the machines 24 hours per day and had two more machines on order.
Four fabric innovations were made possible with capital expenditures
amounting to just under $2.5 million. A Swiss machine performed a finishing
process that controlled shrinkage for 100 per cent cotton fabrics, making Jitex
competitive with the Far East manufacturers. Lycra was added to the
underwear fabric two years ago, tested and approved by Du Ponts Belgium
textile testing laboratory and labelled with the Du Pont trademark. This
labelling increased the credibility of the Jitex product in both domestic and
Western markets. Fabric innovations such as a one-sided fleece cloth and a
three-thread, 100 per cent cotton cloth that is thicker than present products also
increased Jitexs competitive advantage.

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Jitex was evaluating the size of its collection. Thinking that Western markets
required larger collections, the firm doubled the size of its 1992 collection to
1,200 styles in 1993. Its commitment to design as a marketing tool was
symbolized by its ten-person design department.
Price
Price was a continuing problem at Jitex. The 23 per cent VAT tax instituted in
January 1993 was added to the cost and profit of each apparel piece causing 1321 per cent increases in Jitex domestic retail prices. Although the retail mark-up
for Jitex goods ranged from 25-40 per cent, well under USA mark-ups, the Czech
market could not bear high-priced offerings. Jitex was known domestically as
the company that produced for each member of the family. And most Czech
families could afford Jitex products. To illustrate, 1993 retail prices of Jitex
goods were as follows: velour bathrobes $21, panties $1, sweatshirts $7-10,
plain T-shirts $3.50, and screen printed T-shirts $4.20 (Vlasaty, 1993).
In export markets and Prague, Czech knitted goods were evaluated against
Far Eastern prices, regardless of quality differences. Jitex was pursuing volume
as partial answer for this cost problem as illustrated by the Kmart order. They
were also upgrading quality and fashion standards to meet the needs of
Western markets.
Distribution
With disorder in the former USSR and the non-convertibility of the rouble, Jitex
and other Czech Republic firms accepted only payment-guaranteed orders from
these countries and, as exceptions, small barter agreements (Vlasaty, 1993). As
15 per cent of Jitexs total sales (50 per cent of their export sales) were to the
USSR before 1990, a sales gap was left to be filled with new customer orders
(see Table III). In addition, there was the impending likelihood of the Slovak
Republic initiating a 20 per cent customs tax on all exports, including Czech
Republic goods. Jitexs Slovak sales comprised 12 per cent of total sales (20 per
cent of the domestic sales). Thus, a 20 per cent tax imposition would affect the
company significantly. Finally, the recession in many Western European
countries and the saturation of that market with textile goods also caused
concern for Jitex.
Jitex responded with a consolidation of domestic market channels. The
establishment of domestic sales representatives was one strategy. For the first

Table III.
Jitex domestic and
export sales ratios
(percentages)

Domestic
Export
Soviet export
Source: Vlasaty (1993)

1990

1993

70
15
15

60
40
0

1994
65

} 35

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time, Jitex set minimum order standards at 300-700 pieces per style or colour.
Jitex: a case
The firm sought to maintain the 60 per cent domestic (including Slovakian study of apparel
sales) and 40 per cent export sales ratio. Jitex also established a retail chain of
marketing
stores with Jitex and other textile products due to the lack of retail distribution
infrastructure in the Czech Republic. Its retail store ownership grew from one in
1993 to over 20 in 1994. This allowed the firm to address the distribution
57
problem and to sell for a lower price with a lower retail mark-up, i.e. to reap
more profit from each sale.
Jitex built new export markets, especially in the USA. Jitex consulted with a
US firm, Arthur D. Little (ADL) for advice to match their product line to US
companies needs. Their first order through Globaltex, a Boston-based
wholesale distributor of childrenswear, was shipped in summer 1993. ADL
identified and arranged initial contacts with other US customers including
Disney Co., Eddie Bauer, JCPenney, and Victorias Secret. This strategy
addressed the need to make direct contact with Western customers without
Centrotex and was a model that could be used by Jitex in additional countries.
Promotion
Jitex has no brand name recognition outside of the Czech Republic. Although
the firm desired a 60 per cent domestic, 40 per cent export ratio of sales, it saw
the need to start in the domestic market when designing a promotional
programme. In conjunction with the 750th anniversary of Pisek town in June
1993, Jitex sponsored a 350-piece fashion show in the town square during the
celebration. In addition, they invited their employees, business partners and
other guests to a pre-show event. Jitex planned to continue promotional
activities with the establishment of an in-house advertising department to
organize shows and magazine and newspaper promotion.
Conclusions
The size of Jitex appears to be a handicap. In a world where small business
growth is strong and large corporations are downsizing, Jitex also must
evaluate its workforce and infrastructure to become more efficient and
productive in a capitalist sense. Management is considering establishing profit
centres under the large corporate umbrella, and this may be an evolutionary
step towards size reduction or the selling of one or several of the ten factories.
Managements openness to these or other organizational modifications is
certainly more likely to yield a positive future for Jitex.
The other major disadvantages to Jitexs success in a market economy are its
lack of marketing experience and the industrys lack of marketing structure.
The export and domestic sales department and new promotional initiatives
such as the fashion show during the town birthday celebrations are a
beginning. Jitexs ability to identify and promote its market niche, adapt to
market forces and develop solid distribution channels will determine its future.
A variety of possible short- and long-term strategies are proposed below:

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Jitexs capital investment in equipment and human resource

development that supports fashionable and upgraded product
development is a sound strategy. Jitex has focused selectively on design
techniques that add fashion touches and profit margin to distinguish its
products and make them competitive in Western markets. It should
continue to invest in equipment which can be used to add value and
fashionability to its products.
Jitex must continue to learn about the Western market and its strategies
for product innovation, product mix and line development (Halik, 1992).
Its desire to increase the total number of styles offered may be suspect.
Jitexs need to be price sensitive for the domestic and future newly
independent republic markets does not match increased style offerings.
Instead, it may be more efficient and profitable to split its lines into a
lower-priced and a higher priced line with fewer total styles. This would
likely increase volume sold per style, at least in the lower price points.
Such an approach would address the needs of the domestic market and
volume-based Western markets. It would also establish Jitexs ability to
produce and market at a higher price point with lower volume, an
approach used by many Far Eastern apparel manufacturers in their
attempt to upgrade their products.
Jitex has not succumbed to the quick returns of CMT work, in part at
least because of its vertical organization where both the knitting and
apparel manufacturing are in-house. This will undoubtedly help the
firms long-term profitability. However, their brand name, Jitex, remains
known only in the Czech Republic. If it continues to be a good customer
Kmart will probably begin to distribute Jitex along with other Czech
products throughout its worldwide retail chain. This will boost
recognition of the Jitex brand name. Jitex has broken into the US market,
although under the buyers private label. None the less, it is a first step in
establishing Jitex as a viable export partner to Western firms.
Promotional activities, both in the Czech Republic as the market-driven
economy evolves and in Western markets, must be matched to the
expectations of the consumers (Halik, 1992). Jitex directors have an
awareness of the cultural barriers to Western markets and to the
unsophisticated Czech consumers and are strategizing to surmount
them. A solid, well-planned promotional strategy needs to be articulated
and implemented.
In summary, Jitex is positioning itself for domestic, Western and the newly
independent states markets. This strategy is recognized by others as healthy in
the Czech textile industry (Mates ov, 1993). It is emphasizing product
development to address consumer needs and desires, struggling to assign price
for profitable sale, establishing new distribution channels and developing initial
promotional strategies, particularly for domestic and Western markets. If the

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external environment (e.g. local economy, Czech laws, cultural traditions, and
Jitex: a case
trade agreements) supports the growth of Czech manufacturing in general and study of apparel
apparel manufacturing in specific, Jitex apparel marketing strategies have a
marketing
good chance for a prosperous future.
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ATOK (Association of Textile, Clothing, and Leather Processing Industries), (1992), brochure,
Prague.
Bezecny, M. (1993), General Director, Jitex, personal interview.
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