Running head: HARRINGTON COLLECTON CASE ANALYSIS 1

Harrington Collection Case Analysis

[Name]

[Class]

[Instructor]

[Date]
HARRINGTON COLLECTON CASE ANALYSIS 2

Harrington Collection Case Analysis

Problem Identification

Major problems that the Harrington collection was facing are as follows:

Declining sales of high-end women apparel for last three years and an

all-time low-profit margin.

Customers inclination towards inexpensive casual, sporty and stylish

attire.
If management decides to shift towards active wear market, it would

require Harrington to leave its high-end market. Whereas, the decision

of not entering would be made at the cost of losing a viable market

opportunity.

If management decides to enter into activewear market, then it needs to

anticipate the possible retaliation from competitors. Companys internal

analysis is also necessary to assess whether specialty and departmental

stores would support the activewear product line. Management also needs to

consider if new product line requires a separate brand extension or existing

vigor division would serve the purpose. Lastly, the final decision would

depend upon breakeven analysis and amount of sales needed to earn an

attractive margin.

Overview of the active-wear industry

HARRINGTON COLLECTON CASE ANALYSIS 3

Activewear industry experienced a substantial growth due to significant

changes in customers interest towards casual, sporty and stylish attire.

Harrington collection conducted the focus groups and surveys to analyze the

activewear market trend. Results of the research reported that respondents

showed more interest in casual clothing. Around 10% of customers showed

interest in buying a casual attire within the price range of $100 to $200. The

analysis also revealed that private brands were growing faster than the

regular brands for last decade. Backward integration and direct collaboration

with manufacturers were becoming more apparent to develop stylish attire.

Overall, the economic downturn was regarded as the prime reason behind

customers increased price sensitivity and inclination towards less expensive

active wear.

Analysis of the potential market and sales for 2009

Management analyzed that in the year 2007, around 7.5 million active wear

units were traded and on the basis of it, analysts anticipated that it would

grow to 15 million by the end of 2009. Additionally, management also

expected that by 2009, 40 percent of the fifteen million customers would

choose the better category. Vigor division of the Harrington collection

was specialized in this category. So, market expertise of vigor was most

desirable while integrating the better active-wear product line. Analysis of

this group revealed that effective capitalization of this opportunity could

result in the successful expansion of Harrington to lower-end market that

HARRINGTON COLLECTON CASE ANALYSIS 4

would drastically expand the market share. However, the final decision was

still dependent on the demand, profitability and breakeven analysis.

Final decision

Based on the financial analysis (see below), Harrington is advised to enter

the market as it would be able to achieve breakeven point within one year in

addition to making a profit of around $76.3 million. Vigor division should be

used to introduce the new product line as it would save the infrastructure

costs. Survey results also supported the financial analysis by indicating that

only two percent of customers regarded this addition would affect the

prestigious brand name. Research findings also indicated the inclination of

baby boomers towards active wear. Ten percent of the respondents

demonstrated the willingness to buy a high quality and stylish activewear

within the price range of $100 - $200 and this is what the Harrington was

planning to sell.

Financial Overview

Demand and Profitability Analysis

Start-up costs Amount ($)

Start-up Costs Pants Plant 1,200,000.00

Start-up Costs Hoodie and Tee-

shirt Plant 2,500,000.00
HARRINGTON COLLECTON CASE ANALYSIS 5

Equipment Pants Plant 2,000,000.00

Equipment Hoodie and Tee-shirt 2,500,000.00

Plant

Launch - PR, Advertising 2,000,000.00

Fixtures for Company Stores* 2,500,000.00

Total Start-up Costs 12,700,000.00

2,540,000.00
Annual depreciated startup
costs
Amount ($)
Annual ongoing operational
fixed costs

Overhead Pants Plant 3,000,000.00

Overhead Hoodie and Tee-shirt 3,500,000.00

Plant

Rent Pants Plant 500,000.00

Rent Hoodie and Tee-shirt Plant 500,000.00

HARRINGTON COLLECTON CASE ANALYSIS 6

Management / Support 1,000,000.00

Advertising 3,000,000.00

Total Fixed Operating Costs 11,500,000.00

Pants
Direct Variable Costs Hoodie T-shirts
s
3.25 2.85
Sew and press 2.00
0.7
Cut 1.15 0.4
3.05
Other labor 3.2 2.4
7.5
Fabric 9.1 2.2
2.3
Findings 3.85 0.5
16.4
Total 20.55 7.5
Pants
Unit cost Hoodie T-shirts
16.4*1
20.55* 7.5*1.5
0.5
10.28 16.4
Unit cost 11.25
Indirect Variable costs
Wholesale unit price 110.0
total variable costs as % of 9.09
Wholesale Price
Indirect variable costs per "unit." 10.0
Direct variable costs per "unit." 37.93
Indirect variable costs per "unit." 10.0
Direct variable costs per "unit." 47.92
Contribution
Wholesale price per unit 110.00
HARRINGTON COLLECTON CASE ANALYSIS 7

Less total variable cost per unit 47.92

Contribution per unit 62.08
Breakeven Analysis
Fixed annual costs 14,040,000.00
/contribution per unit 62.8
Total breakeven units 226,174.37
Profit Margin
Revenue 115,500,000.00
Minus fixed annual cost 14,040,000.00
Minus total variable cost 25,160,100.00
Profit Before Tax 76,299,900.00
Profit Margin before Tax 66.06 %

Financial overview:

The above table has summarized the overall financial data in a tabular form.

The table has clearly indicated the feasibility of entering into the lower end

market. Breakeven and profitability analysis has supported the firms

decision to explore the activewear market. Total breakeven units are

226,174.37, contribution margin per unit is 62.8, whereas, the anticipated

profit margin amounts to 66.06 percent, which is persuasive enough to avail

the potential market opportunity.