Founded by Leon Leonwood Bean in 1912, L.L. Bean, Inc., a Maine-based manufacturer and mail-order retailer of sporting goods and apparel, has increased its sales from $3 million in 1967 to over $120 million in 1980. Current projections predict an annual compounded growth of 25% through 1985. Thus, management must make some important decisions regarding how it should achieve this growth: through mail order, by increasing retail store space, by increasing manufacturing operations, or by taking the company to a global level. In managing growth, the company president hopes to maintain the highly personal service, excellent product quality, and friendly, informal working environment that he considers most important to the company's popularity with customers and employees.
This research paper will analyze previous years and use that financial information to forecast how successful the organization may be for 1981. 1981 is a crucial year, because, if the 1981 forecasts are reliable, that success is likely to continue through 1985, causing L.L. Bean sales to nearly double every year.
When Leon Gordon, Bean's grandson, joined L.L. Bean in 1961, Abercrombie and Fitch was the industry leader in sporting goods. Within a few years, Abercrombie went out of business and L.L. Bean became the largest mail order company in the specialty outdoor business.
L.L. Bean has several immediate competitors, including Eddie Bauer, Talbots, Orvis, and Land's End. In 1980, Eddie Bauer and Talbots operated 16 stores each. According to press accounts, Bauer planned to drastically increase its retail outlets by 1985, opening 30 stores in major cities and several catalog showrooms in smaller areas. Talbots planned to open 56 to 65 stores by 1984. Both Orvis and Lands' End operated only one retail store.
L.L. Bean recognizes Eddie Bauer as its No. 1 competitor. Company research reveals that when L.L. Bean customers are asked what other mail-order companies they've bought from, about 27% mention Bauer. The next competitor is mentioned by only 8%, indicating that Eddie Bauer is the company's main source of competition. However, 1 1979 survey revealed that L.L. Bean had higher awareness than Eddie Bauer in all regions except the Pacific.
When discussing L.L. Bean's competition, Bill End, the company's marketing director, stated that L.L. Bean's product is well-known, but people do not immediately see just how competitive the company's products are on price. L.L. Bean charges about 10-15% less than its major competitors, and offers free delivery to its customers.
In 1975, L.L. Bean's leaders identified a major goal -- they planned to double the business within five years. After considering three potential areas in which they could expand -- mail-order sales, retail store sales and manufacturing -- they decided to focus on mail-order sales. There were many reasons behind this decision, including the following:
the mail-order business was entering a period of rapid growth;
mail order tended to be more profitable, yielding an average profit after taxes of 7% (retail and manufacturing yielded only 2.5% and 5.4%, respectively);
L.L. Bean knew the mail-order business best; and The company's management felt that they could forecast and control this type of growth because mail-order sales were closely correlated with catalog circulation.
When the company's goals and direction were established, L.L. Bean set about making major changes to accommodate its projected growth. The company began, for the first time, accepting credit cards. As a result, credit card orders accounted for approximately 50% of catalog sales. In addition, telephone lines and customer service staff were added, so that less incoming calls would be lost. As a result, in 1980, phone orders accounted for more than $22 million of catalog sales. In addition, several changes were made to improve the company's catalogs, including all-color printing and the hiring of a professional art director.
The company also made numerous efforts to improve its product assortment and competitive pricing models. Studies were conducted with a direct-mail consultant to identify exactly who the L.L.Bean customer is and how he perceives the company's products and services. The studies revealed that L.L. Bean's target customer is predominantly over 35 years old, highly educated and well off. Most customers reside in one of the following three regions -- New England, Mid-Atlantic and South Atlantic. In general, L.L. Bean's customers are very satisfied with the company's high-quality products, reasonable prices and delivery time.
These factors demonstrate that there are no major problems with the company's products or service, and that the company does not have to reposition itself. Thus, the best way to increase sales would be to increase catalog circulation between two target audiences -- new prospects and existing customers. The company expanded its advertising budget and its rental mailing lists.
The company's strategy was a success. In 1976, the number of new L.L. Bean customers exceeded 360,000. By 1980, that number has passed 650,000. In both years, new customer accounted for about half of the company's existing customers. The company expanded its marketing mix to include women and younger customers.
L.L. Bean now uses a computerized file to record each customer's individual purchase history. This information is used to identify the company's best customers and determine the needs and desires of these customers. As a result of the company's marketing strategy, business quadrupled from 1975 to 1980.
Still, despite the company's confidence in its mail-order sales, there were still several marketing concerns, including the following:
These concerns raised the question of how well equipped L.L. Bean was to continue to enjoy success in the future. Thus, the company needed to forecast its future performance. In order to forecast how successful the company will be for 1981, it was important that L.L. Bean conduct a comprehensive review of its internal systems to mitigate the risks associated with adding additional square footage to its brick-and-mortar and/or manufacturing business.
Research shows that while many small mail-order companies lack the operational resources needed to grow, L.L. Bean's customer service was noted as one of the best in the industry. In 1980, L.L. Bean had the resources to:
open and sort over 31,000 mail orders a day;
process and ship over 35,000 parcels a day; and ship most orders within three business days.
However, customer service at L.L. Bean extends beyond simply packing and shipping. The company keeps product buttons in stock, answers all questions, gives refunds for all merchandise, and responds to all inquiries. According to company representatives, new shipments are inspected according to a double-sampling plan and subjected to a complete inspection. Fit tests are also performed at the company's manufacturing locations. In addition, the company's equipment is subject to inspection.
In 1980, L.L. Bean had a full-time staff of 900 and a part-time staff of 500. Of the full-time staff, 800 were hourly employees and 100 were salaried. All employees were nonunion. To attract and retain a high-quality staff, L.L. Bean paid substantially above-average wages and cash performance bonuses. In addition, the company offered a full benefits plan, including health coverage, pension, profit sharing, savings plan and insurance.
The company emphasized job security and individual development through job postings and supervisory assessment programs. Additional benefits included a major discount on all L.L. Bean products; an employee store where defective products and returned items sold for near-cost; and an equipment pool through which employees could borrow equipment for free. The company also kept employees up-to-date on the company, specifically by publishing newsletters and encouraging feedback.
As a result of its human resources efforts, L.L. Bean's working atmosphere appears to be relaxed and congenial. Although the number of L.L. Bean employees had increased from 200 in 1967 to 1,400 by 1980, a family atmosphere was still prevalent. There were few barriers among ranks, and company events were well attended.
Future Growth Opportunities
At the end of 1980, L.L. Bean recruited Norman Poole, the former controller of Spiegel, to be its vice president of finance. Poole analyzed the company's past sales and growth trends, and projected sales and income through 1985. Poole perceived these projections as the reasonable extension of existing trends. According to Poole, the company's growth could be achieved through mail order. Several strategies were open to the company, including the following:
The company could expand geographically into areas of lesser penetration.
It could develop specialized catalogs for narrower segments of L.L. Bean's existing customers or narrower product lines.
It could continue expanding the customer activation program by installing a toll-free number, and the customer acquisition program by increasing the advertising budget or renting mailing lists.
The company could acquire other mail-order companies offering noncompeting product lines.
Retail Manufacturing Expansion and Specialty Growth Options
Aside from increasing the mail-order side of business, the company had some other choices for future growth. Increasing its retail sales and expanding its manufacturing business were on the top of the list. From 1975 to 1980, store sales had increased by about $13.5 million. The store had increased its selling space from 15,000 square feet…