Strategic growth options for CIMA boot company

advertising, point-of-sale literature, exhibiting at trade shows and through a co-Op advertising program. Its factory employs more than 400 people and operates at 85% capacity.

Despite growth in its sales and profitability, CIMA executives are concerned that future growth prospects for existing product lines are limited. CIMA has experienced growing competition from foreign competitors who are offering good products at lower prices. CIMA's management's concerns are not entirely speculative -- the company recently lost approximately $130,000 in sales from two retailers who decided to stock a cheaper competitor.

Quite simply, CIMA needs new avenues of growth but management can not seem to agree on what those avenues should be. Company president Margaret Simon is concerned that CIMA is not targeting segments of the market that have the strongest growth potential, such as the weekender segment, which prefers a lower cost boot for less rigorous hiking than that which is undertaken by mountaineers or serious hikers. The weekender market has heavier competition and has been entered by major shoe retailers such as Nike and Reebok.

Executive Vice President Anthony Simon believes that CIMA should stay in its core markets -- mountaineers and serious hikers -- and simply offer some new, lower cost models that would compete with the foreign boot manufacturers. The proposals offered by Margaret and Anthony Simon both entail roughly half a million dollars in product development and capital costs.

CIMA also is considering whether it should expand its distribution chain. The company has historically shunned mail-order catalogues because they compete with retailers, who handle the bulk of CIMA sales, but company management is reconsidering this position.

Major Strategic Alternatives

CIMA has a number of major strategic alternatives at its disposal. The first option, obviously, is to do nothing. There will always be less expensive alternatives in any market, and CIMA has been experiencing uninterrupted growth. The anticipated market stagnation has not yet occurred. The advantage of this alternative is that it does not require additional capital expenditures or major strategic shifts. The downside is that if the projected stagnation occurs, CIMA may react too late.

The second alternative is to aggressively target the weekender market. The advantage of this strategy is that it places CIMA in a growing, vibrant market with strong sales potential. The downsides are that it could impair CIMA's reputation for producing high-end boots; it would require an investment of half a million dollars for product development and capital costs; and it forces CIMA to compete with major manufacturers, such as Nike and Reebok.

The third alternative is to introduce new, less expensive models in CIMA's core mountaineering and serious hiker markets. The advantage of this alternative is that it keeps CIMA in its core markets; allows for some sales growth; helps CIMA compete against lower priced foreign manufacturers; and does not impair CIMA's reputation for producing high-end boots. The downside of this alternative is that it would require an investment of half a million dollars for product development and capital costs, and it offers a lower sales volume opportunity than selling to the weekender market. Plus, there is nothing to stop the foreign competitors from doing the same thing.

A fourth alternative is for CIMA to expand its distribution channels. CIMA only sells in the Western parts of the United States and Canada and has shunned mail-order business out of fear of that it could jeopardize sales to retailers who compete with mail-order catalogues. The advantage of expanding distribution channels is that it could increase sales without the company having to endure the expenses associated with launching new product lines. The downsides are that it would likely require hiring more sales people; it would take time to build new distributor relationships; and too much mail-order business could offend CIMA's retailer customers.

Decision Criteria

Any decision CIMA makes would have to improve the company from the perspectives of sales, profitability and brand strength. So, we would need to make a decision that would allow for sales growth; would not over-extend CIMA financially; and would not impair sales to CIMA's bread-and-butter markets (particularly retail sales to mountaineers and serious hikers).

Recommended Solution

CIMA should look to increase its distribution to include all of the U.S. And Canada. This method could double sales without having to launch new products or leave the core mountaineering and serious hiker markets. The company should not accept mail-order business at this juncture, as CIMA has enough room to grow by just reaching out to more retailers. There is no sense, with all the growth potential that already exists, in jeopardizing the retailer relationships.

CIMA may eventually face capacity problems, but focusing on new distributors allows the company to control its growth and grow incrementally -- perhaps just a handful of states at a time. CIMA may face the same competitive threats in other U.S. And Canadian markets that it is facing in the West, but by expanding distribution CIMA gets to grow sales while buying time and getting a free look at whether the weekender market, for example, will retain its strong growth pattern.