Background:

On January 1, 2019, the Canadian apparel industry changed forever: import quotas on foreign manufactured apparel, which had protected Canadian apparel manufacturers by limiting the amount of foreign goods entering the country, were eliminated. Canadian importers were now able to import as much foreign-made clothing and components as they could afford. There was substantial incentive to do so because industry experts reported that wholesale prices on foreign manufactured apparel were an average of 40% lower than Canadian made.

Although the cheaper prices overjoyed retailers, they were less impressed by the foreign suppliers' consistency in terms of product quality, ability to maintain production schedules, and production volumes.Canadian manufacturers initially lost market share to foreign competitors, but recovered somewhat because of the lower production standards and capabilities of foreign competitors.However, noted industry observer Allen Birnboim has stated: "Foreign producers are improving quickly and will soon consistently meet Canadian standards in terms of product quality and overall production capabilities." Canadian apparel manufacturers, no longer afforded the protection of the quota system, will have to change strategies or face potential closure.

Delphi Exceptional Clothing (DEC):

DEC (pronounced "deck") is the 6-year-old creation of Jerry Anderson and Anna Hedberg, people who love climbing, biking, hiking and snowboarding in the mountains. About eight years ago they concluded the clothing for these activities did not meet their needs. They decided to make their own. Following 18 months of trial-and-error, Jerry and Anna developed three high-end product lines: underwear, rainwear, and winter coats. Delphi Exceptional Clothing (Delphi is the name of one of Anna's tattoos) was launched.

Marketing and Sales -

Their marketing and sales strategy was simple: Jerry and Anna sold directly to Eastern Canadian retailers they knew or had heard about, and it worked. DEC experienced rapid growth as hard-core adventurists flocked to the brand. The company's products, price point, and business culture, exemplified by the slogan, "Get DEC'd out", appealed to their market niche.

DEC's clothing and corporate image attracted a young, active, financially comfortable consumer who does not tend to shop at big box stores, preferring smaller specialty retailers, mid-market chain stores, and online shopping. The four reasons customers shopped at these stores were: product quality, product selection, detailed product knowledge and customer service.

Jerry and Anna conducted some exploratory research and determined that the primary reasons their customers purchased DEC clothing were:

1. Style and functionality of the clothing
2. DEC's 100% satisfaction guarantee
3. Very high value proposition despite the clothing being higher priced

In the first three years of operation, DEC's sales grew at just over 50% per year, topping $3 million in the third year. At that point, the North American mass market noticed this "cool little clothing company", and sales more than doubled in 2018 to over $6.2 million.

2018 Expansion:

The majority of 2018 sales were from Eastern Canada although retailers in B.C, Alberta, and the U.S. showed great interest.The mid-market chain and specialty retail store market in these areas was valued at over $2.8 billion in 2018.Also, DEC received numerous inquiries from individual consumers, across North America, who were interested in its products. Since their old business model was working, Jerry and Anna kept selling directly to regional retailers and continued manufacturing in Canada.

The 2018 expansion was fuelled by a large injection of capital from DEC's bank and a small group of investors. DEC invested this money into expanding their current production facility and overall business operations.

Current Situation:

Then the quota system ended. As with many Canadian apparel manufacturers, 2019 was a difficult year for DEC. Its sales dropped by 30% over the first quarter, rebounded slightly in Quarter 2 and stayed flat to year-end. Sales were $4.7 million that year.

With an average net profit margin of 32%, DEC's balance sheet continued to look pretty good, but sales must increase to maintain company cash flow and service debt. Unfortunately, DEC's sales to-date in 2020, are below 2019 figures. Under pressure from their bankers and investors, Jerry and Anna need to make some changes.

Research:

In an attempt to understand the new marketplace, DEC conducted more comprehensive market research during the Fall of 2019. The findings concluded:

1. DEC's market share is being eroded by foreign competition, even in its original regional market, and this trend will accelerate.
2. Current marketing and sales strategies may no longer be viable.
3. Western Canadian, U.S. and several international markets show promise.
4. Business-to-consumer sales also show promise.
5. DEC's management skill-set is confined to its current business model; their expertise is limited.

Your Challenge:

As marketing consultants specializing in international business, you have been approached by Delphi Exceptional Clothing to help solve their problems.

SOLUTION SHEET

Questions:

1. SWOT Analysis (8 marks)

STRENGTHS	WEAKNESSES
OPPORTUNITIES	THREATS

2. Problem Identification:

(what problem are you trying to solve?) (5 marks)

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

3. Alternatives (9 marks)

ALTERNATIVES	PRO'S	CON'S

4. Final Recommendation: (3 marks)