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Individual Write-Up of Moncler case As a stepping stone helping you to be better prepared for the teamwork on the case competition project, each student is required to complete a short individual written preparatory assignment as the follows. The hard copy of this assignment should be submitted at the beginning of the class on March 23. Also, an electronic copy should be submitted at the course website (in \"Course Content\" folder) by then. Please prepare a report (500-1000 words) on the case assigned for the case competition by addressing the following: 1. Identify the main problem that needs to be addressed by the management team. Make use of relevant theoretical concepts and frameworks from the course for defining the problem. 2. Recommend a strategy that best addresses the problem. Use an outline form and specify strategic objectives followed by relevant tactics. (Note that your recommended strategy may include changes in corporate, business, and functional strategies as deemed necessary) 3. Discuss the reasons why you believe your recommended strategy will solve the problem identified. Make use of relevant theoretical concepts and frameworks from the course to support of your position. 4. As you prepare your write up, please visit Mason's library (online or on campus) and identify at least three reference sources that would be helpful for examining the main problem its likely solution. (Please use APA format with respect to these reference sources.) Please note that this is an individual assignment. The report should not exceed 1000 words. For the exclusive use of H. Brown, 2017. IES509 SM-1621-E January 2015 Style Knows No Season: Moncler's Leap From Piste to Street On Monday, December 16, 2013, Remo Ruffini realized that he had literally become a billionaire overnight. The 52-year-old Como native appeared quiet and composed as he sat among the throbbing crowd in the hectic Milan Stock Exchange intently watching the countdown on the clock. At 9 a.m., shares in Moncler, the luxury skiwear brand that Ruffini had spent a decade reinventing, began trading on the open market. It was the largest flotation in the European luxury sector that year. The climate had finally been deemed right for an IPO. Moncler had stalled an attempt to go public in 2011, instead selling a 45% stake to the French investment group Eurazeo in a deal that valued the brand at 1.2 billion. Expectations were epic that cold December morning. The sale had valued Moncler at 2.55 billion after the stock was offered. Moncler's main shareholders had raised 681 million through the share sale. It was Italy's biggest IPO since Enel Green Power in 2011 and it was the biggest IPO by an Italian company since Prada's Hong Kong listing in 2011. The initial IPO sat at the top of the IPO range (8.75-10.20/share) after investors sought more than 31 times the amount of stock offered. Sitting amid the electric energy of the crowd, Ruffini, who had bought the company partly in 2003 and fully in 2005, wondered how the next 10 years would pan out. Jackets accounted for about 85% of Moncler's revenue. Ruffini knew he had to diversify the brand offering without letting it lose its original raison d'tre. Under his leadership, Moncler's sales had leapt from 45 million to 489 million (see Exhibit 1 for sales and EBIT margin yearly from 2003 to 2012). Revenue was safely expected to continue growing by another 671 million, or 18%. However, to ensure this, Ruffini was convinced that he must decrease Moncler's dependency on its main product line - the down jacket - while still being faithful to the original Moncler motto, \"Born in the mountains, lives in the city.\" This case was prepared by Alice Tozer, Research Assistant and Mawuse Ziegbe, MBA 2014, under the supervision of Professor Fabrizio Ferraro and Andrea Baldo, General Manager at Marni Spa, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. January 2015. Copyright 2015 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to iesep@iesep.com, send a fax to +34 932 534 343 or call +34 932 536 558. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of IESE. Last edited: 4/23/15 1 This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. SM-1621-E Style Knows No Season: Moncler's Leap From Piste to Street St The History of Moncler Founded in 1952, Moncler was born into a golden era of mountaineering, dominated by Alpine expeditions and a surge in the popularity of ski tourism, which had skyrocketed by the 1970s. \"Moncler\" was a neat portmanteau of Monestier-de-Clermont, the French Alpine town near Grenoble where Frenchman Ren Ramillon first established the company. While Moncler got its start making heavy-duty mountain gear, such as durable tents and extreme-weather-proof sleeping bags, after two years it unveiled its now iconic goose-down jacket, which was initially conceived for its employees to protect them from the icy climes. The 1960s saw Moncler provide these down jackets to the French Alpine ski team and a whole host of monumental expedition makers, who donned the garment as far as to the highest summits of Nepal and back (see Exhibit 2). It was in the 1980s that Moncler began its first point of departure from its origins. Hot off the heels of the Italian Paninaro youth movement of the same decade (see Exhibit 3), Moncler jumped off the pistes and landed on the streets. The Paninari: \"the world's only youth cult named after the sandwich. Fast food was fancy, foreign and modern in Italy in 1982. The Italians had spent most of the preceding decade living in a crisis-ridden country, dealing with domestic left and right-wing terrorists who liked to blow each other and various political and business figures up. Politics were not on the agenda for the Paninaro; they just wanted to have fun, embrace all things American, wear designer labels, and listen to British synthpop. They pretty much hated Italian music. \"The original Paninaro came from a few private schools in Milan, holidayed in the same parts of California and the Italian Alps, and hung out together at Il Panino, the first sandwich bar in Milan. They wore Timberland boots, aviator jackets, faux fur-lined Levi's jackets, brightly colored Moncler or Stone Island jackets, Levi's, Armani, and Stone Island jeans, and Burlington socks. They also had their own magazines: The Paninari - the circulation of which hit a hundred thousand at one point - Wild Boys, Zippo Sandwich, Preppy, and Paniara girls mag, Siffty.\" Source: Vice magazine. However, Moncler suffered under the avalanche of its 1980s success. Failure to reinvent itself afterwards led to a series of operational and economic failures. There were unsuccessful attempts to reposition the brand within the luxury goods market, with its acquisition by Pepper (an apparel company endowed with an impressive brand portfolio) in 1992 and then by Finpart (the Italian fashion conglomerate) in 1998. Finpart acquired 80% of Pepper Industries, thereby taking under its wing Henry Cottons, Moncler, Balaj, the license for Cerruti Jeans, and Frette, the prestigious luxury home-textile group. Under Finpart, Moncler developed more comprehensive product lines and drew upon brand value. It took the appearance of Remo Ruffini on the scene for the next decisive direction to be taken. A graduate of fashion marketing from Boston University, Ruffini first worked in his father's creative design and marketing company in the United States, Gianfranco Ruffini Limited. He relocated back to Italy in 1984 and launched two clothing labels, New England Company and Ingrose. These were sold to the Stefanel Group in 2000. From 2000 to 2003, he was an independent industry consultant. Ruffini had been part of the Finpart group as creative director of Pepper since 1999 but bought out Industries SpA 2 IESE Business School-University of Navarra This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. Style Knows No Season: Moncler's Leap From Piste to Street SM-1621-E (with the brands Moncler, Henry Cottons, Marina Yachting, Coast Weber & Ahaus, and Cerruti 1881) in 2003, purchasing the entirety of its operations in 2005 with the assistance of the Mittel private equity group. Ruffini's affinity with the brand was a personal one. In an interview, he said: \"I was born in Como, very close to the border with Switzerland. When you woke up in the morning at 7 a.m., it was below 10, below 15 degrees every day. With a Moncler jacket, you felt incredible. I pushed my mother to buy one, so, when they offered me the [chance to buy the] company in 2003, I said 'fantastic!' because I knew the heritage of the company very well, and I remembered the story.\"1 In 2008 Carlyle Partners, one of the world's most prestigious private equity groups, acquired a 48% stake, while Ruffini kept 38% of it. From 2008 to 2010, Moncler's revenues and EBITDA grew by 42% and 91%, respectively, under challenging market conditions.2 In 2010 Moncler created a sportswear unit, with the brands Henry Cottons, Marina Yachting, Coast Weber & Ahaus, and Cerruti 1881, and sold it in 2013 to the Emerisque group. The doors were open to the IPO for Moncler SpA. The Market and Competitors Moncler had few direct competitors. Instead, competition came across three different markets: outdoor sports/skiwear, lifestyle sportswear and luxury apparel. The Outdoor Sports (Including Skiwear-Specialist) Market Outdoor apparel sales increased 35% from 2003 to 2005.3 Even in the last years of the first decade of the 21st century, the outdoor activity industry seemed to be one of the few to be weathering the economic slump. In the United States in particular, the sense was that participating in some form of outdoor pursuit seemed to signal a vote of confidence from consumers, who did not see it as a luxury but as a must-have. This is not to say that the economic crisis did not lead customers to seek value for money, nor that the crisis did not leave its footprint on the industry. Inside managers concluded in a report for the Outdoor Industry Association that from a trading perspective, 2012 was characterized by a \"flight to safety\" tendency, in which category leaders and strong brands were favored, as retailers continued to order conservatively. See Exhibit 4 for a product breakdown in the outdoor goods sector in 2012 and Exhibit 5 for volume and development per category in 2013, respectively. The industry was also affected by the weather. In 2013 in the United States, after two consecutive winters of below-average snow conditions, outdoor ski specialist retailers were reconsidering their changeover dates and strategies. They were shifting more dollars towards less seasonal products while also looking into vendor terms and maintaining good margins in 1 \"CEO Talk,\" The Business of Fashion, October 22, 2014. 2 Case Study by The Carlyle Group, http://www.carlyle.com/investor-relations/case-studies/moncler-group. 3 Outdoor Industry Association \"State of the Industry\" Report 2006. IESE Business School-University of Navarra 3 This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. SM-1621-E Style Knows No Season: Moncler's Leap From Piste to Street St order to move winter merchandise to retail floors as early as possible. Down sweater orders, for example, were cut back in favor of mid-weight fleece. See Exhibit 6 for the peaks and troughs inherent to depending on a seasonal product. Europe and the United States were the biggest global outdoor apparel markets in 2013, worth an estimated 12 billion and $6 billion, respectively. 4 While Europe was much bigger, the market was more mature, and thus more competitive. \"We've got a saturated market in Europe. There's no playing catch-up anymore; brands are now fighting for market share,\" Klaus Jost, president of Intersport International Corp, told Reuters in 2013. Specialty retailers were the dominant channel in the United States but they declined slightly from 2011 to 2013. 5 Growth in retail chains was also flat, and as for online sales, while they had the lowest value across different sales outlets from 2009 to 2013, they registered steady positive growth.6 See Exhibit 7 for country-by-country share of outdoor activity goods in 2013. In 2013, 45% of worldwide ski visits took place in the Alps. North America was the second largest destination at 21% and Western Europe had 11%. 7 Skiers from Western Europe constituted the majority of the estimated 115 million skiers worldwide, accounting for 27%. Austria, Switzerland and Norway were the countries with the highest percentages of skiers, with at least 25% of the population skiing.8 However, the United States, Germany and Japan had the largest absolute numbers of skiers - around 12 million per nation - because of the countries' large populations. In the majority of countries, most visits were from domestic skiers, except in Andorra, Austria and Switzerland, where 50% of skiers were from other countries. The Alps had the world's largest number of major resorts. China's ski industry was starting to blossom in 2010, and Western brands, from VF Corporation to adidas, had shifted massive resources to China in a bid to capture a share of the outdoor specialty retail market (pioneered in China by Sanfo) and benefit from the large proportion of wealthy under-45-year-olds. Skiers tended to have more urbane tastes when choosing their gear. According to research by advertising firm Exponential Interactive, U.S. skiers were 29% less interested in shopping for apparel but favored more sophisticated options and were more likely than snowboarders to shop for a specific brand.9 U.S. skiers were also more likely to search online for Stoic, a U.S. outerwear brand, while snowboarders preferred Volcom, a line known for its surfer and skateboarding gear. 4 According to the European Outdoor Group and the Leisure Trends Group as cited in the article \"Outdoor Clothing Makers Seek Growth as Europe Stagnates,\" Reuters, July 11, 2013. 5 \"SIA Releases August Through January Sales Numbers,\" SnowSports Industries America press release, March 5, 2013. 6 Ibid. 7 Laurent Vanat, \"2014 International Report on Snow & Mountain Tourism - Overview of the key industry figures for ski resorts.\" 8 Ibid. 9 Cassandra Mcintosh, \"Snowboarders versus skiers - data reveals strong differences in consumer behavior and interests,\" Exponential Interactive blog, http://blog.exponential.com/2014/03/27/snowboarders-versus-skiers-data-reveals-strong-differencesin-consumer-behavior-and-interests/, accessed December 2014. 4 IESE Business School-University of Navarra This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. Style Knows No Season: Moncler's Leap From Piste to Street SM-1621-E VF Corporation and The North Face VF Corporation was a U.S.-based apparel group with 25 outerwear, activewear, footwear and jeanswear brands such as Wrangler, Jansport, Vans, and 7 For All Mankind. While the company specialized in accessories and intimate apparel at the inception of its 115-year history, by 2012 outdoor and action sports accounted for 53.6% of company revenues.10 Outdoor lifestyle brand The North Face (see Exhibit 8) was VF's largest brand by revenues, accounting for $2 billion in 2013, an exceptional turnaround story from the brand's status as an unprofitable acquisition in 2000. VF Corporation envisioned The North Face as a $3.3 billion, \"four-season\" consumer brand by 2017, powered by innovations such as down insulation substitute \"ThermoBall\" technology. VF also planned to increase its international presence, growing sales outside of the United States from 38% of revenues in 2013 to 43% in 2017. 11 Revenues for 2013 stood at $11.4 billion, a 58% increase from 2007's $7.2 billion revenue.12 Columbia Sportswear Established in 1938 in Portland, Oregon, as Columbia Hat Company, Columbia Sportswear branched out into outerwear in the 1960s, eventually becoming the first company to use Gore Tex technology in a parka. The company cemented its status in the winter sports world by sponsoring NBC and CBS sports for various Winter Olympic Games, launching a footwear line, and developing waterproof technology Omni-Tech before going public in 1998. Columbia continued to develop apparel innovations, introducing multiple new technologies between 2008 and 2013.13 Company net sales had risen steadily since its IPO - from $427 million in 1998 to $1.6 billion in 2013.14 Patagonia Patagonia (see Exhibit 8) was a U.S.-based outdoor apparel firm known for its quality products and unorthodox approach to management and marketing. Established in 1972 by mountaineer Yves Chouinard, who already had a successful mountain climbing hardware company called Chouinard Equipment, 15 Patagonia ensured the quality of its apparel through extensive field testing and pioneered technological innovations that were later adopted across the industry. The firm's mission statement - to build the best product, cause no unnecessary harm, and use business to inspire and implement financial solutions - informed Patagonia's approach to business. The company encouraged consumers to recycle and purchase less in its communications strategy and offered repairs for old products. 16 Patagonia was smaller than many of its competitors, with $220 million in net sales in 2002, which increased to $322 million by 2010.17 10 VF Company Profile 2013, MarketLine. 11 VF Corporation Annual Report 2013. 12 Ibid. 13 Company website. 14 Company annual reports. 15 Forest Reinhardt, Ramon Casadesus-Masanell, and Hyun Jin Kim, \"Patagonia,\" Harvard Business School, revised October 19, 2010. 16 Ibid. 17 Ibid. IESE Business School-University of Navarra 5 This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. SM-1621-E Style Knows No Season: Moncler's Leap From Piste to Street St Canada Goose Perhaps the North American equivalent of Moncler was Canada Goose, an outerwear company rooted in extreme weather apparel but with luxury positioning. It was broadening its efforts to become a lifestyle brand. The company could trace its roots to Toronto in 1950 and touted that 100% of its production remained in Canada. Known for heavy parkas with fur-lined hoods that retailed for up to C$1,200, the brand was found at luxury outlets such as Saks Fifth Avenue alongside high-end outerwear by Gucci and Burberry. The company's growth had been explosive in recent years, with revenue climbing from C$5 million in 2001 to C$150 million in 2013. In 2013 Bain Capital acquired a majority stake in the privately owned firm, allowing Canada Goose to fuel its international expansion.18 Rossignol Established in 1907, Rossignol was a French firm that rose to prominence outfitting Olympic skiers. It was acquired by the surf brand Quiksilver in 2005 only to be sold three years later for $147 million, which was less than half of the original purchase price.19 While the brand had been known for its performance gear, it had also collaborated with designer Jean-Charles de Castelbajac, who put animal print and other bold motifs on the otherwise straightforward ski apparel. Others: Highly Technical Gear Founded by a former U.S. ski coach, Spyder was well regarded among ski enthusiasts for its functional offerings. Although they had sponsored U.S. and Canadian ski teams, they had a lower profile than outdoor sportswear makers such as Columbia and Patagonia. Similarly small but durable brands like Arc'Teryx, Mover, and Eider were favored among active skiers. The Lifestyle Sportswear Market Nike Nike started to establish itself in the lifestyle segment in the early 2000s, designing versions of its popular skateboarding and basketball shoes with streetwear brands such as Stussy and Supreme. The limited runs of only a couple hundred pairs stocked at select retailers became collectible and eventually garnered Nike cult status among certain die-hard fans.20 Adidas Adidas played into the lifestyle segment with adidas Originals, a business unit dedicated to reinterpreting heritage products and producing fashion-oriented apparel and footwear. Adidas also targeted the premium and luxury markets through its Sport Style division, which 18 Iain Marlow, Sean Silcoff, and Susan Krashinsky, \"Canada Goose sells a majority stake - with a made-in-Canada guarantee,\" The Globe and Mail, December 10, 2013. 19 Andrea Change, \"Quiksilver to sell Rossignol ski unit,\" The Los Angeles Times, August 28, 2008. 20 Matt Welty, \"A History of Supreme's Nike Collaborations,\" October 3, 2013, http://www.complex.com/sneakers/2013/10/supremenike-collaboration-history/; Stussy website. 6 IESE Business School-University of Navarra This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. Style Knows No Season: Moncler's Leap From Piste to Street SM-1621-E included years-long collaborations with high-end fashion designers Yohji Yamamoto and Stella McCartney. In 2005, Sport Style accounted for less than 1% of adidas Group revenue.21 Puma Puma ran into trouble in the 1980s and was $100 million in debt and close to bankruptcy when CEO Jochen Zeitz focused on making it the world's \"most desirable sports-lifestyle brand.\" The company gradually experienced success in the lifestyle segment and by 2006 fashion offerings accounted for 75% of revenue.22 Profitability waned, however, owing to the brand's reliance on the European market 23 as well as its \"lack of brand heat, commercial products and desirable distribution.\"24 Luxury Goods Several high-end fashion houses had expanded into trendy skiwear. Prada introduced it in 1997 and later launched Prada's Leading Ski Schools initiative, which provided ski instructors with gear.25 Chanel (see Exhibit 9) introduced a ski and aprs-ski line in 2001 and, after expanding the line between 2004 and 2010, mounted a 2013 pop-up shop in the French Alps' Courchevel. 26 Armani and Dior also offered ski lines and Herms had been offering ski clothing since the 1930s.27 In addition, some luxury companies like Brunello Cucinelli (see Exhibit 9) offered down jackets not for skiing but for the street and at similar prices to Moncler's. However, none were as dedicated to the genre and focused on style as Moncler. Moncler's Positioning The Product Line Moncler product offerings (see Exhibit 10) were organized in five key lines: Main, Gamme Rouge and Gamme Bleu, Grenoble, Special Projects, and Enfant. The Enfant line aside, all lines targeted high-income men and women from 18 to 40 years old. 1) Main: Within the Main line there were four collections - Archive, Sport Chic, Bridge and Premire Archive - Moncler's heritage products, which, alongside its newer sport-chic down jackets, formed the core products, whose prices ranged between 600 and 1,500. 21 2005 Annual Report. 22 Ibid. 23 James Wilson, \"Puma poaches Pandora chief for top job,\" The Financial Times, April 18, 2013, http://www.ft.com/intl/cms/s/0/f51c6764-a7fa-11e2-8e5d-00144feabdc0.html#axzz3NHd9OZcl, accessed December 2014. 24 See footnote 25. 25 Voguepedia. 26 Alex Gorton, \"Fashionable and functional ski wear,\" The Financial Times, January 16, 2010; Stephanie Hirschmiller, \"Chanel Pops up in Courchevel,\" The Telegraph, December 9, 2013. 27 http://www.vogue.com.au. IESE Business School-University of Navarra 7 This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. SM-1621-E Style Knows No Season: Moncler's Leap From Piste to Street St Sport Chic - Available both with and without the Moncler badge logo, this line was more sophisticated and had more design content than the Archive line. For instance, the fit was slimmer (less boxy) and more feminine, and there was less of a tendency towards the iconic flashy nylon of the Archive line. The logo was reduced and wool was introduced. The line took the original \"piumino\" jacket and applied it, for the first time, to non-subzero climes. Bridge - This product offering bridged the gap between the Archive segment and Sport Chic. Premire - The most elegant and female-centric of the Main range, with a notable evolution from the traditional down jacket to a more sophisticated version. The profile of the target customer for the Main lines was as varied as the styles of the lines themselves. They encompassed men and women, from young people to those in their 50s, those with a medium to high propensity to spend, and those with a desire to buy a product that was at once stylish, warm and technically superior. 2) Gamme Rouge (for women) and Gamme Bleu (for men): These collections marked Moncler's foray into couture proper. The entry price was above 1,000 and didn't stop until it hit 6,000. Products were characterized by exclusivity with highly selective distribution. They were haute couture and of a sartorial nature. The collections were surrounded by much glamour and shown at the most essential events on the fashion world's international calendar. Gamme Rouge began in 2006 and was followed by brother line Gamme Bleu three years later. The target customer was sophisticated, with high purchasing power, and between the ages of 30 and 45. They sought fashionable goods to distinguish themselves from the Moncler masses (the Main line clientele). The Gamme lines represented up to 5% of sales. 3) The Grenoble range Essentially an additional part of Moncler couture but with the particularity of being a technical ski collection, it made its debut at New York Fashion Week in 2010. The couture range as a whole contributed to enhancing the Moncler brand's positioning in the luxury sector. The target customer of the Grenoble range was something of a \"fashion victim\" who liked trendy options when doing outdoor sporting activities. 4) Special Projects Finally, diversification within down jackets was completed with a Special Projects collection based on a cutting-edge approach, innovative design and partnerships with important stylists and designers. The early partnerships with Japanese stylists led to the creation of limited edition collections, featuring powerful references to Oriental style and culture, particularly from Japan. Note that the Moncler website offered three language choices: English, Italian and Japanese. 5) Enfant This line was separated into baby and junior ranges. The latter sought to reinterpret aspects of the adult ranges and as such the target customers were the children of Moncler's Main lines. 8 IESE Business School-University of Navarra This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. Style Knows No Season: Moncler's Leap From Piste to Street SM-1621-E Distribution of sales across the various lines was the following in 2003: Enfant (0%); Gamme Rouge and Gamme Bleu (0%); Grenoble (5%); and Main line (95%). By 2010, the figures had evolved to Enfant (12%); Gamme Rouge and Gamme Bleu (3%); Grenoble (5%); and Main line (80%). In terms of gross margins, the Main line enjoyed an above-average markup. Then, in decreasing order, came the Enfant, Grenoble and Gamme lines. Pricing Analysts estimated that quilted down jackets accounted for some 85% of Moncler's 2012 sales. The average price of a Moncler quilted down jacket was 850. Moncler's price evolution was even more surprising when compared with that of another staple of the 1980s Paninari: Timberland shoes. In the 1980s, Moncler's down jackets sold for 230, and Timberland shoes for 130, in Italy. By 2014, the price of a comparable Moncler product had almost tripled (near approaching +300%), to 625, whereas Timberland shoes still sold for only 210 (+40%) (see Exhibit 11). Moncler had achieved luxury status, selling in directly operated stores (DOSs) located in luxury resorts and urban high streets and in high-end retail chains. Timberland, of course, remained in a different category - that of pure mass-market, outdoor brands. Distribution and Retail The first directly managed Moncler store opened in Saint Moritz in 2001. Moncler had two types of DOSs: on the one hand, ski-station boutiques perched in the most exclusive of snow-capped resorts from Aspen to Courchevel. Then, on the other hand, tier-one urban stores in locations from Milan to Tokyo, encompassing London, Chicago and Hong Kong in between. Of these, seven flagship stores stood tall in Paris, Milan, New York, Tokyo, Peking, Shanghai and Hong Kong. At the end of 2012, Moncler's DOSs totaled 72, to which they could add 11 outlet stores (part of the retail business), two franchised stores, two wholesale shop-in-shops and 1,900 multi-brand stores. The retail network in 2012 was highly concentrated on Italy, the rest of EMEA (with a significant presence in France and Switzerland), Japan, and China (see Exhibit 12). While 30% of Moncler's overall distribution went to sportswear specialists in 2003, by 2010 levels had dropped to 10%. Moncler had steadily gone from wholesale to retail dominant (see Exhibit 13). Between 2003 and 2010, retail channels increased from 2% to 25% (including franchised stores); then, between 2008 and 2012 the retail side of the business went from occupying 12% to 21% of overall sales. The press reported Ruffini's plans to open about 20 stores a year. Locations for these new stores would include Europe (principally Russia, Eastern Europe and the Middle East); the Americas (mainly the United States, Canada and Brazil); and Asia (most notably China and Japan). He sought international expansion in tandem with growth in mono-brand stores in A-class luxury locations worldwide. With the exception of Italy, where distribution dropped from 66% to 26% from 2003 to 2012, regional distribution grew worldwide in the same period: in the EU, from 20% to 32%; in the United States, from 4% to 10%; in Asia, from nothing to 20%; and in Japan, from 10% to 12%. IESE Business School-University of Navarra 9 This document is authorized for use only by Heidy Brown in BUS 498-spring 2017 taught by Yan Ling, George Mason University from January 2017 to July 2017. For the exclusive use of H. Brown, 2017. SM-1621-E Style Knows No Season: Moncler's Leap From Piste to Street St Development of the wholesale channel was more selective, with plans to develop in markets where the brand did not yet have a presence, while also \"focusing on a selected number of first class key accounts in order to avoid the dilution of the brand\" (Moncler website). They sought to strike a balance - \"to increase targeted penetration of the Moncler product in each individual store, while still maintaining the brand's principle of selectiveness.\" Its outlet presence was non-existent in 2003 but represented 3% of overall distribution in 2010. Moncler's Activities Design Moncler aimed to maintain the tradition behind the brand, while also keeping up with modernity and remaining loyal to a high level of craftsmanship. \"We do not follow fashion, but we want to be contemporary and creative,\" said Ruffini.28 Goose down (superior to duck down) was used as the padding in Moncler jackets and it met all of the aforementioned criteria. Moncler's desire to be at the cutting edge of design was reflected in its Special Projects collection, which produced innovative designs by emerging designers such as Junya Watanabe, French fashion house Balenciaga, Rei Kawakubo of Comme des Garons, Giambattista Valli and Tom Browne. However, this did not mean that 1950s designs were neglected. \"Moncler had two lives, one in the '50s and one in the '80s,\" said Ruffini. \"I am always thinking about these two strong periods. I want to create some special concept that has them both.\"29 The Moncler design, in the words of Ruffini, translated into \"an authentic sporty spirit with an urban edge, and for us that's a winning combination.\" The designer of the high-end Gamme Rouge line, Giambattista Valli, said that he tried \"to use fabrics such as duchesse satins and silks that were used by masters like Cristbal Balenciaga, Christian Dior or Coco Chanel [and] mix together [his] knowledge of couture and Moncler's technical side.\"30 Production Moncler almost always managed directly the purchasing of key raw materials needed for its products: goose down (of which 130 tons were acquired in 2012) was purchased from Italy, France, the United States and Canada (see Exhibit 14); and nylon was acquired from Japan. The products were then produced elsewhere. Production of Moncler down jackets was almost entirely outsourced or subcontracted to third parties in Eastern Europe (Romania and Hungary), lending it high growth rates and margins. Up until 2008, production was also subcontracted further afield (e.g., Madagascar). The Gamme Rouge and Gamme Bleu collections were handmade in Italy, which made it possible to guarantee the highest standards of quality for the finished product. In some instances, particularly in the case of the Enfant line, the company did outsource both the purchasing of the raw materials and the production, such that they effectively purchased 28 \"CEO Talk,\" The Business of Fashion, October 22, 2014. 29 David Colman, \"A Gucci Loafer Filled With Feathers\