Kandle Shirt Kompany FBMT 303

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 has 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%, the 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 weaving 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. The 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 the 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.

Exhibit 1 Handle Shirt Kern pan? Assignment Best Shanghai Fabric Ca 7 lat coat Design # # cola SUE 100C! 2 $4.25 11m: 2 $.55 120C! 2 $5.85 1300 2 $5.05 1400 2 $5.25 10 Exhibit 2 Kandle Shirt Kompany - Assignment Expected Fabric Consumption by style SS Fabric # Utilization LS Utilization meters meters 1000 1.90 2.20 1100 2.10 2.40 1200 1.85 2.15 1300 2.00 2.30 1400 2.05 2.45Exhibit 3 Kandle Shirt Company - Assignment Top Garments - 1st Costs Garment Garment Fabric # Cost SS Cost LS 1000 $13.85 $16.85 1100 $15.50 $18.80 1200 $16.55 $20.00 1300 $16.00 $19.10 1400 $16.50 $20.40Q1: How much IMU would you try to offer the retailers on this season's collection? Q2: If Mark could make as little or as many shirts in each style as he would like, approximately how many short sleeves shirts and how many long sleeve shirts should he be making based on the historical sales of SS vs LS and based on cutting up all the fabric he has committed to? Round up or down to the nearest 100 units.Q3: Calculate the Landed Cost of each design for both SS and LS based on using Top Shirt. Assume that we are making 1400 units/style SS and the balance of the shirts will be made LS. Costing Variables FX Candian dollar is worth: US$ Duty Br Can$ Frt Agency Landed Cost = [FC x (FX) x (1+Duty Rate) x (1+ BR)] + Freight/Unit + [FC x Comm x FX] TOP SHIRT Expected Fabric # LS 1000 1100 1200 1300 1400This is Q4 part(a&b) Q4: Calculate the First Cost of each design for both SS and LS based on using Smart Shirt a) 1st we need to calculate the cost of the fabric/m in its original currency b) currency C) 3rd we need to calculate the expected CMT in the original currency d) original currency Smart Shirt (a) 1st Fabbric Freight to US$ Fabric US$ RM Fabric# Cost SUS maker Cost /M Fabric# Cost LS 1000 1000 1100 1100 1200 1200 1300 1300 1400 1400\fQ5: Calculate the Landed Cost of each design for both SS and LS based on using Smart Shirt Costing Variables FX Candian dollar is worth: US$ Duty Br Frt Can$ Agency Landed Cost = [FC x (FX) x (1=Duty Rate) x (1+ BR)] + Freight/Unit + [FC x Comm x FX] SS LS Est 1st Est 1st FC x FX X FC X Expected FC x FX X Expected Garment Garment (1+Duty) x Comm x Landed (1+Duty) x FC x Comm Landed Fabric # Cost SS Cost LS (1+BR) Frt/Unit FX Cost SS (1+BR) Frt/Unit x FX Cost LS 1000 1100 1200 1300 140006 instruction BB3 . Q f3: - Assuming we plan to make both colours of designs ifs 1000,. 1100,1200 and 1300 in SS and LS styles, and A M an 31 32 Q6: Assuming we plan to work with Top Shirt, and: Y - Assuming we plan to make both colours of designs ifs 1000, 1100, 1200 and 1300 in SS and LS styles, i 34 - Assuming we plan to make all of design # 1400 in LS only, and 35 - Assuming you want to make as close to the number of SS shirts you calculated in (12 above, while still achieving 35 Ton Shirt's minimum order reduirements [even if that means incurring an unchargel: a? as a} For each at the 8 colours being made as 55, list now many shirts in each colour 01 each as design you would be making in 55. no 01 b] For each colour, calculate how many meters at tabric would be used to make the short 02 sleeve shirts from part {a} 03 04 c] With the remaining tabric in each colour, calculate how many LS shirtslcolour you would 05 be making for each designlcol combination 06 \f'5": Based on the landed cost of the garments only, which Maker would you use for each fabricfdesignfstylefcol? [recall that you do not need to make all the garments with only one maker] [Mote: If, based on your previously calculated landed cost of the garments only, you want to split the production up between the two makers, you will have to consider whether the landed cost will change at either maker based on this occurring. If the landed costwill change, then recalculate the new landed cost] I [From [13: I [From [15: I To Landed Cost Smart Landed Cost 1000 1000 1100 1100 1200 1200 1300 1300 1400 1400 _-. M M4. Ma \".1 m4. Q8: Based on the above, if you want to offer 58% IMU to the retailers, what WS price would you charge for each of the above 5 designs in both SS and LS (Select a retail price that is rounded to the nearest round your price to the nearest $5.00) Pricing Variables Reqd IMU For Kandle (given in the case) Desired IMU To give Retailers Expected Expected Final IMU Final IMU LS Landed Landed Calc WS Calc Retail Calc Retail Sugg Retail Sugg Retail | Final WS SS | Final WS LS SS with with Retail Fabric # Cost SS Cost LS WS IMU Calc WS SS LS Retail IMU| SS @ 58% LS @ 58% SS @ 58% LS @ 58% offering 58% offering 58% Retail 58 58 pts 1000 1100 1200 1300 140009: Calculate the total IMUS and IMU% would Kandle be expecting to earn on the entire shirt collection if it sells all the shirts it makes Final WS SS LS with Total Landed Landed Cost with Retail |Retail IMU] Extended Extended Extended Extended Total Total Design Col Maker SS units LS Units Cost S5 LS IMU 58% 58% Cost SS Cost LS Cost WSS SS IMUS IMU% 1000 1 1000 2 1100 1100 2 1200 1 1200 2 1300 1 1300 2 1400 1 1400 2 Total