Kandle Shirt Kompany FBMT 303 Assignment

Mark and his agent Tony are in a heated argument. Mark needs to make some final decisions on where

he is going to make his spring shirt collection for his Kandle Brand. He's already placed his fabric orders

and has narrowed down his garment makers to two options, Smart Shirt and Top Garment. Both makers

provide excellent needlework and a very clean, organized factory. Mark is leaning towards using Top

Garment, as he has used them before and is comfortable that they will deliver what they promise. Tony

is suggesting that Mark go with a new maker who Tony uses for many other, noncompeting importers,

Smart Shirt. Smart is less expensive because they are offering to provide CMT prices only.

"Mark, I'm telling you, these guys won't cheat you, I use them all the time! Why pay more than you

need to?"

"I don't know Tony, I'm really more comfortable paying a garment price, I would only use Smart if I

absolutely needed to!"

As they keep debating, the clock is ticking. A final decision needs to be made today, as Mark is heading

back to Canada in the morning.

Background

Kandle Shirt Kompany was founded 7 years ago by Mark Mitchell. It is an established brand catering to

independent retailers, selling shirts that retail between $95 and $155. After a few strong years of

growth, sales have started to falter. The last two seasons, in fact, have seen a drop in volume, which has

Mark concerned. Competition has heated up, and he now finds that there are many more players in the

shirt market that he is being compared to. Last season, one of his best customers cut his orders in half,

complaining that he could not make enough money with the collection.

"The sell-through is great, but the margins are awful. I can't make any money with lines I only get 52

points on! My best lines offer me 58 points."

The Market:

Woven shirts have been experiencing huge growth over the past few years. As more and more men

have been wearing shirts instead of knits, retail sales have soared. As such, many new brands have

entered the market, most of them imports, the cost of entry being much lower to import since no

investment is needed for equipment. With all this increased choice, it has become a buyers' market.

Retailers have not been as loyal as they were in the past to vendors, trying out new brands every

season. In addition, as shirts have become a more important part of their mix, retailers are now

requiring higher margins on this classification than they once did. The combination of higher required

IMUs for retailers and increased competition have put great pressure on all the shirt wholesalers to be

priced as sharply as possible. This has become more and more difficult, as fabric prices have been rising

steadily each season due to increased demand.

Spring 2017

Preparing the collection for S18, Mark knows he is facing many challenges. He has already committed to

his fabric designs for the season and knows that his fabric costs have gone up by about 10%. Mark has

figured out that this fabric cost increase alone is going to make his shirts 1st cost go up by around

US$1.00 from last season. (See Exhibit 1 for costs for each fabric) That scares him, because he knows by

the time the shirts land in Toronto, this could mean that he may have to charge more than $3/shirt

more, just to end up with the same margin. In addition, the Canadian dollar has been getting weaker.

Last season it was trading at 79 cents US, now it is 76 cents, and it is expected to stay there. He's

worried that his customers won't accept price increases and doesn't really know what to do about it. He

knows from speaking to his accountant that he needs to average around 49% IMU on his wholesale

prices in order to be profitable. Thankfully, none of his other costs of landing goods have changed -

Duty is still 18%, brokerage is still approximately 2.5%, and freight is still running at about CAN$0.75

cents/shirt. His agent Tony hasn't raised his price in years, still sitting at 3% commission.

Mark has committed to weave 5 designs, with 2 colours/designs for a total of 10 colourways. Each

colourway will be 1200m. Because it is the spring season, he plans to offer many if not all of his designs

in both a long-sleeve (LS) and a short-sleeve (SS) version. Exhibit 2 is the expected consumption (fabric

utilization) for each design for either SS or LS patterns.

Mark has narrowed down his choice of makers to two - one that he's worked with for years (Top

Garment), and another which is new to him, though his agent Tony has used them extensively (Smart).

Top Garment has quoted Mark prices for his shirts by the garment. They have always agreed to use his

fabric orders in the past, and this season is no different. The only conditions that they have are ones

concerning minimums. They require at least 180 pcs/colour of a particular style (SS or LS) and they

require at least 1500 units in total of a style. Mark knows that even though he plans to offer SS as an

option, he really doesn't sell as many short sleeve shirts are long sleeve shirts. In fact, SS makes up only

about 20% of his sales. While he would like to offer a nice assortment of options, he is not required to

offer every single colour in a SS option. He just needs to decide ahead of time how he plans on splitting

up the fabric colourways between Long and Short Sleeves. Top garment will make as little as 1400 units

of style in total, for an upcharge of US$0.75/unit, but they absolutely will not make less than 180

pcs/colourway.

Smart Shirt is quoting prices based on CMT. They would have Mark's fabric order from Best Shanghai

shipped to their factory for a cost of US$1800, which they would expect Kandle to pay. Their basic CMT

is US$6.50. After looking at the two styles Mark is planning on making, they have advised that the LS

style would have two upcharges for styling, US$0.25 for the contrast cuff, and US$0.15 for embroidered

label. They have also noted that for the short sleeve style, there is still an upcharge of US$0.15 for

embroidery, but they will reduce their regular CMT charge by US$0.20 since the do not have to make LS.

Their quantity minimum are similar to Top Garment, 180/colorway, and 1500/style in total. They will

not under any circumstances make any amounts less than their minimums.

Hi please read this short story and answer the questions below.