Harrington Collection Harrington's Interest in Case Study

Excerpt from Case Study :

Lastly, the company can improve its image. Although within Harrington the firm believes that it has a strong brand, this brand is supposed to allow it to charge high prices for its goods. Yet, margins are slipping; this could indicate an erosion of brand power at Harrington. Activewear could restore some of this brand power by showing consumers that Harrington was up-to-date with modern fashion sense.

There are a number of threats, however, associated with entry into the activewear market. While the brand could be enhanced, it could also be diluted if a large number of existing Harrington customers do not approve of the activewear trend. Moving into activewear, even if successful, could result in cannibalization of existing sales. For example, marketing money will likely be shuffled from older lines to promote the new activewear line. Shelf space and inventory space in the distribution channel will also need to be created at the expense of more established lines, meaning that even if activewear is a success, that success could come at the expense of other lines within the company. As well, moving into activewear would introduce new competitors to Harrington, and this could place the company at a strategic disadvantage, attempting to compete against companies Harrington knows little about.

If Harrington does decide to launch into the activewear market, it needs to understand the demographic, psychographic and purchase behavior profile of the activewear consumer. The following table outlines the key characteristics of the potential Harrington activewear customer:

Demographics

Female

25-60

Professional, good income

College-education

Predominantly urban, white

Psychographics

Wants to be viewed as professional, sophisticated (aspirational)

Shifting lifestyles towards a more casual approach, brought about by family and established career success

Wants to feel young (esp. The 45-60 baby boomers)

Still retains an interest in maintaining status even while dressing down

Vigor consumers emphasize the blending of comfort and fashion

Purchasing Behavior

Brand loyal

Do not view the brand as subject to dilution if an activewear line is introduced

Not concerned much about quality (easily pleased, even by shoddy products)

10% of customers would pay $100-$200 for better styling, fabric and fit

Purchase more frequently (higher turnover)

Harrington must also consider the financial implications of its decision. In this case, it needs to analyze the breakeven point for the project, and determine if capturing that level of sales is feasible. The figures utilized in the breakeven calculation are those specific to the decision to enter the activewear market.

Harrington Breakeven Analysis

Start Up Costs

Pants Plant

1,200,000

Hoodie Plant

2,500,000

Equipment Pants

2,000,000

Equipment Hoodie

2,500,000

Launch- PR, Advertising

2,000,000

Fixtures

6,000,000

Total Start-Up costs

16200000

Annual depreciated

3,240,000

Ongoing Annual Costs -Fixed

Overhead Pants Plant

3,000,000

Overhead Hoodie Plant

3,500,000

Rent Pants Plant

500,000

Rent Hoodie Plant

500,000

Management/Support

1,000,000

Advertising

3,000,000

Total Fixed Operating Costs

11,500,000

Hoodie

T-Shirt

Pants

Direct Variable Costs

Sew and Press

3.25

2

2.85

Cut

1.15

0.4

0.7

Other variable labor

3.2

2.4

3.05

Fabric

9.1

2.2

7.5

Findings

3.85

0.5

2.3

20.55

7.5

16.4

Direct variable costs per unit

20.55

7.5

16.4

x .5

x 1.5

x 1

10.275

11.25

16.4

Indirect Variable Costs

Wholesale "unit" price

Total variable costs % of unit price

9.090%

Indirect VC per unit

9.999

Direct Variable costs per unit

37.925

Indirect VC / unit

9.999

Total Variable costs / unit

47.924

Contribution

Wholesale price per unit less total VC per unit

47.924

Contribution per unit

62.076

Breakeven

Fixed annual costs

14,740,000

/ contribution per unit

62.076

Breakeven units

237450.8667

Profit Margin

Revenue

46,200,000

less fixed annual costs

14,740,000

less total variable costs

20,128,080

Profit before tax

11,331,920

Profit margin before tax

0.245279654

Better equals 40% of 15M market

6

Harrington's share

420000

Recommendation

Harrington should enter the activewear market. The market share is expected to grow large enough that it will be profitable for Harrington to enter this market by 2009. The company will have a breakeven point of 238,000 units, and if it gains the market share it expects to gain, it will easily break that number of sales. There is minimal evidence that the brand will be damaged or diluted by the move (just 2% of customers) and there is significant evidence that the move into activewear is congruent with the needs of the Harrington customer base. The company's estimates of market share are therefore reasonable -- its customers…

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