Classic Knitware and

Guardian: A Perfect Fit?

Product Market Fit

Classic Knitwear operated in $24.5 billion category of non-fashion casual

knitwear.
The branded side of non-fashion knitwear market was dominated by three
large manufacturers: James Brands ($4.5 billion), Flower Knit ($1.25 billion)
and Greenville Corporation ($0.63 billion). These big brands operated on
gross margin of around 30-40%.
In unbranded segment, Classic competed with little known firms like B&B
Activewear which held market share of 23.6% and the “Big Three” were also
involved in this market.

Company Sales Market share

James Brands $4.5 billion 18.37%
Flower Knit $1.25 billion 5.10%
Greenville $0.63 billion 2.58%
Corporation

There was a customer need for protection against the rising insect-borne illness
and the customers were dissatisfied with few prevention products available in
the market. The category is virtually non-existent in the mass market as the
present players in the insect repellant clothing only sold in niche markets.
Guardian brand had high level of awareness and it had patented insect-
repellent clothing technology. The product had a good market potential due to
its innovativeness.

Product Company Fit

The product offered gross margin 38~39% which would enhance the margins
of Classic Knitwear from 18% which was substantially lower compared to
industry standards.
This innovativeness of the product can be leveraged by the production
efficiency of the company to achieve a sustainable competitive advantage.
The company had a moderate cost advantage over other US producers due to
high-volume, low SKU production runs. The addition of the new product
meant addition of 16 SKUs. This new product might lead to some inefficiency
in its present system.

1. Response of the trade (channel)

 Presently the retailers are provided with 50% margin on branded knitwear
and 40% margin on private-label knitwear. The new product would
provide the trade a 45% margin. Our opinion is that displays would occupy
a large amount of retailers’ space and the retailer margin is on lesser side
i.e., 45% Vs 50% offered by other brands. This would not encourage the
retailers to stock the product. But the provision of trade promotion and
advertising allowance might induce them to stock the product.

 The company projected sales would be 10,000 displays within two years of
product launch, of which 50% would be in discount stores, 25% in
general merchandise stores, and 25% in sporting goods and apparel stores.
We think that as the company has no experience in selling to these retail
channels, it must spend considerable resources to develop the channel.

 The company would make the Guardian shirts available to its existing
wholesale clients for distribution to interested screen painter in a later period
as it has currently decided to brand the product as “Guardian Apparel”.

2. Response of the Consumer

 Based on the consumer research, 18.5% of the thousand respondents

(185 respondents) were interested in the product. Based on past market
research experience, 60% of the respondents who indicated they
 would try (38%) would do so (22.8 %) within the two-year introduction
period. The company also predicted that at least 50% (11.4%) would
buy an additional shirt the following year.

ANALYSIS OF PROPOSED MARKETING PROGRAM

 They are launching the product in the sole brand name of ‘Guardian
Apparel’, and have decided not to include the name ‘Classic Knitwear’
 The launch is scheduled in January 07, which might not be the perfect
time to launch this product as its sales are supposed to be seasonal, it
would be better to launch at the end of winter so that the sales pick up
instantly
 The number of SKUs is 16 which include 4 designs in 4 different colors.
As the product is specifically meant for outing, the number of SKUs can
be reduced by using only the two most popular colors.
 The market research is not extensive and should not be relied upon fully for
making important decisions
 Initial distribution is planned through major sporting goods and
apparel chains which would support the establishment of the brand
in the introductory phase. The 3 No. of sales reps to focus on this
sector might not be sufficient for the whole country.

LICENSE AGREEMENT

This agreement forced Classic to meet series of steadily rising

annual net sales target over the first four years and target for 4th year
must be met in each subsequent year. If it failed to meet the
requirements, then the license would be cancelled and void.
 There are loopholes in the branding of the product. Only Guardian logo
is being used on the product. It may create problems for Classic if there
is any conflict between companies over agreement in future.
With this agreement a short-term benefit can be visualized as the
determined marketing investment has been reduced to $3 million from
initial expectation of $8-$10 million.
As the brand value of guardian will increase by its promotion, they should
also bear some part of marketing expense.

BREAK EVEN VOLUME OF THE PRODUCT

Manufacturer's Selling Price 17.87

Cost of Goods 10.82
Trade Promotion (5%) 0.8935
Advertising Allowance (10% of 20%) 0.3574
Royalty (5%) 0.8935
Contribution margin per shirt 4.9056

Fixed costs = 3000000 (advertising) + 510000 (salary of sales rep) +

100000 (licensing cost)
=3.61 million
Therefore, no of shirts for breakeven = 3.61/4.9056 = 735893.6

DEMAND ESTIMATION FOR THE PRODUCT

US Men Population (age 15 and above) 100000000

Target market (18-35) population (60% of total population) 60000000
Awareness among Target Audience in two years (25%) 15000000
Awareness in first year (12.5%) 7500000
Awareness in second year (12.5%) 7500000
Consumers interested in the product as per survey in first year (18.5%) 1387500