27 20-1 - b Hill Scool Apparel, Final Case PDF

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RETHINKING B-SC’OOL APPAREL AT HILL Professors Dwight Heinrichs and Michael Taylor wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2020, Ivey School of Business Foundation

Version: 2020-02-10

In October 2018, Calysta Bradshaw, the newly elected president of the Paul J. Hill Business Student Society (BSS), faced a challenging opportunity to dramatically improve the success of the BSS’s apparel venture. Reviewing what had transpired during the previous year along with the current challenges and opportunities, she contemplated her vision and strategic direction for the coming year. She faced several decisions: Was it possible to dramatically improve the revenue from school apparel sales? Should the product line be branded under the Hill Business School logo or the BSS logo? What should be included in the clothing line? What strategy will be most likely to succeed? What resources and actions will be required to execute the strategy? Bradshaw thoughtfully considered a number of strategies that might lead to greater student engagement. Ultimately, she hoped to create a culture within the faculty in which successful graduates would become passionate alumni, offering ongoing engagement and financial support to the Hill School of Business. In particular, she wondered whether the business school apparel line could be a means for students to develop stronger connections to the school. The historic BSS business model with respect to the clothing line had generated some success; however, Bradshaw wondered whether the potential existed to achieve more. Bradshaw had a lot more questions than answers as she set to work. THE BUSINESS SCHOOL

The Paul J. Hill School of Business was the undergraduate school within the Faculty of Business Administration at the University of Regina in Regina, Saskatchewan, Canada. The school was named after Dr. Paul J. Hill, who had given to it a generous gift. The Faculty of Business Administration also included the Kenneth Levene Graduate School of Business and the Centre for Management Development. The school was proud of its exclusive partnerships with a network of world-class institutions. It had a strong symbiotic relationship with business, government, and non-profit organizations, as well as its surrounding community. The school had become vibrant and had grown to exceed 1,500 students by 2018, approximately 20 per cent of whom were international students. Creating opportunities for experiential learning was a key focus. Managing the BSS and, more specifically, the apparel line, was one of those opportunities.

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THE APPAREL INDUSTRY

Bradshaw recognized that the apparel industry was mature, providing consumers with an abundance of competitive alternatives and fashion choices. Barriers to entry were low, and competitors were plentiful. Discounting and razor-thin margins were the norm. Styles were in continual flux. What was popular one year was often out of fashion the next, making inventory management a particular challenge. Advances in technology had opened access to the global shopping mall; this mall could be entered through one’s personal smart phone. Classic brick-and-mortar stores were increasingly finding it difficult to compete with the prices, selections, and low-cost operating structures afforded to their online rivals. Even long-term classic retailers, such as Sears and Macy’s, were closing stores due to the shifting purchase habits of consumers. Bradshaw picked up her phone and quickly scanned a few fashion-forward digital boutiques (Conspiracy, Gubb & Mackie, Genny, and Tom Ford). She then glanced over at her light summer jacket, which was draped over an adjacent chair. Not surprisingly, the label indicated that the jacket had been manufactured in China. Most apparel manufacturing now, it seemed to her, occurred in Asia. High manufacturing capacity counterpointed with improved quality and low wage inputs made it difficult for North American and European factories to compete but for the more exclusive haute couture. Yet, a small number of North American manufacturers remained, specializing in low custom orders but at comparably high wholesale prices. From her cursory Google searches of the industry, Bradshaw discovered that most apparel brands did not have their own manufacturing facilities; rather, they contracted their manufacturing out. Phillips-Van Heursen was an example of a brand that employed this practice. Bradshaw also noted that celebrities could strengthen the desirability of an apparel brand. Mary-Kate and Ashley, Mark Jacobs, Nicole Richie, Dolce and Gabbana, and Stella McCartney did exceptionally well with their product lines—tying in cache with name recognition. Customers of apparel had endless options in terms of price, quality, and selection. The industry was mature. Shoppers were accustomed to purchasing at deep discounts and expecting generous return policies. Young and educated consumers, epitomized by business students, were increasingly shopping online. And, beyond purchasing clothing for fashion, discerning young business students had a plethora of substitutes on which they could spend their discretionary dollars. Deep discounting was the classic maneuver used to attract customers, turn dated inventory into cash, and cover month-end payables. There had been some nano-tech innovations in fabrics. The most competitive edge in the industry seemed to lie in distinct branding, low-cost structures, and niche product categories. If a brand succeeded in achieving a “must have” status, economies of scale and tall margins were a result. A substantive portion of profits were then reinvested into image making, often with celebrity endorsement, thus further elevating the brand’s persona and visibility to the target clientele. Top retailers competed to carry prestigious brands in their stores. Brand mavens could then demand preferred space in retail boutiques to showcase their products. They could also demand volume retailer purchases in product depth and breadth. If retailers held an edge on supply chain power, they typically negotiated aggressively to drive down manufacturer wholesale costs and demand more favourable payment terms and end-of-season return policies on unsold inventory. This was usually the reality for brands that had not yet attained cult status. THE BUSINESS SCHOOL APPAREL MARKET

As Bradshaw thought further about the challenging apparel industry, she realized that many students purchase primarily for utility, while others buy for style or brand cache.

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At the other end of the spectrum, some business students had more money to spend on clothing. If they were motivated by fashion and brand cache, they could afford to spend more on apparel. Bradshaw considered herself a fashionista and thought about favourite brands that she and some of her friends wore — Seven for all Mankind, Citizens of Humanity, Michael Kors, and Diesel, among others. Her sense was that business students were more fashion-conscious than other students at the university. She also wondered whether marketing students tended to be more image-focused than colleagues in other business majors, though this was speculation. She had no hard data. Bradshaw’s best guess was that most local Hill students came from middle to upper-middle income backgrounds. Her assumption was that they could and would purchase from the apparel line if the right products were made available. She was less certain of the economic backgrounds of foreign students’ families. Foreign students’ tuition costs were relatively high compared to what their Canadian counterparts paid. If tuition was paid in depreciating foreign currencies, it was particularly expensive. Bradshaw surmised that these students’ discretionary purchases might be limited. Recalling an oft repeated comment from one of her professors, something about “there is always a bell curve,” Bradshaw guessed that most business students fell somewhere between the two spectrums. They desired somewhat fashionable clothes, but at an affordable price. THE BSS APPAREL BUSINESS MODEL

Bradshaw’s thoughts turned to the BSS Apparel Line. It had operated as a niche micro-business since at least 2005. Historically, members of the BSS executive team had directed and managed operations through an appointed lead. Most of the work had been executed by third- and fourth-year business student volunteers. There were many demands on their time, especially that of the over-achievers; there were classes to attend, term papers to write, exams to study for, co-op work-terms or part-time jobs, and other personal interests, such as sports and hobbies, in addition to time spent with family and friends. Most of the BSS executive team would turn over from year to year. This made it more difficult to retain knowledge and the continuity of operations with the apparel line. Bradshaw was aware that there had not even been a grand vision, a sorted out competitive strategy, or hard goals as to what was to be achieved. There seemed to be an underlying perception that selling branded apparel was something that business schools do. The BSS historically had a pricing policy of selling at just over cost, suggesting a not-for-profit cost recovery business model. Bradshaw again thought about the historic lack of a fine-tuned business model to drive the apparel line’s success. Not surprisingly, financial records were weak during that time. The costs of cash-flowing the apparel line had come from BSS funds. As near as Bradshaw could piece things together, annual revenues had never exceeded a few thousand dollars. An estimated average selling price of CA$301 suggested that one hundred or so items had been sold—implying a very small uptake. Because products had been sold marginally above cost and were given some carry-over, there were no profits to speak of. Bradshaw wondered whether the apparel line could potentially succeed if it was run like a niche boutique online business. 1

All currency in Canadian dollars.

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Utility shoppers made their purchase decisions based first on price, followed by quality, fit, shopping convenience, and design. Business students experiencing financial pressure were often inclined to take a price-sensitive, utilitarian approach when purchasing apparel. Some utility shoppers were simply not fashion-conscious. For them, a hoodie that was inexpensive yet durable and sufficiently warm to take a brisk stroll through the park in October or November was optimal.

The Hill School of Business brand had a growing cache. Named after a third-generation family group of companies with a significant presence in Regina, the school’s success in regional and national academic competitions was growing. The physical space of the faculty had become much less institutional. The students felt the business school had one of the coolest student lounges on campus. More focus was placed on case-based and experiential learning. The Hill School also had a business consulting centre that actively involved students in a wide range of projects. This took Bradshaw down another line of thought. The apparel line had historically been a Hill BSS brand, not a Hill School of Business brand, and to date, the student exec team had not been mandated to follow particular branding guidelines by the school or the university. Furthermore, because the Hill BSS brand was under the purview of the student exec team, which changed from year to year, the logo itself had gone through multiple iterations over previous years. It reflected the evolving BSS visual identity more so than it did that of the business school. In addition, the percentage of business students actively connected to the BSS was relatively low. Using Hill School of Business branding would require consultation with the administration and take away the creative purview to stylize the logo. However, the school logo, rather than the BSS logo, may have more strongly connected with students. Bradshaw wondered how other schools managed their brands. She scanned the Rotman Business School gift and clothing line sold through the University of Toronto Book Store. The Harvard Shop carried a limited business school line of products. Most of their apparel was tied to the Harvard brand itself. The Stanford Student Store offered a wide selection of apparel, with candid images of students modelling the clothes on campus. There were also a variety of shots taken on the shoreline with the Pacific surf in the distance. Apparel from the business school itself was not so easy to find. The underpinning of the apparel line was its branded connection with the Paul J. Hill School of Business and a target audience that could be easily reached. The alumni association was also a target market subset. However, gaining access to their contact information was somewhat complicated. The supportive business community was also a potential target market subset for the apparel line. The BSS had multiple points of contact with Regina businesses through a number of well-attended annual events that the students had organized. It was unclear whether attendance was driven more by the school connection or the BSS connection. Bradshaw reflected on a past marketing class in which brand archetypes were discussed. The “regular guy/girl” was the closest she could come to nailing down the personality of the existing brand image—and the notion of connecting with others. The Hill name worked well for branding purposes. It was short, easy to package into a logo, and had a connection to affluence. One direct competitor to the business school apparel line, the University of Regina-branded apparel, sold primarily through the university bookstore. There was also an online university bookstore presence. Although some academic institutions primarily sold branded apparel featuring their university name, Bradshaw had a sense that business students were more emotionally connected to their faculty and the Hill brand. She also noted that there was a wide assortment of fashion-branded apparel available in nearby shopping malls and online that had captured the interest and wallets of students. This was likely the strongest point of competition. THE PRODUCT PORTFOLIO

Although some apparel may have been purchased as signature souvenir merchandise, students presumably purchased the products for everyday casual wear.

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THE BSS APPAREL BRAND

In the past, quality had been decent—mid-grade. Selection had been limited. As far as Bradshaw was aware, there had not been any warranty concerns. PROMOTION

Twice annually, apparel was showcased in the business faculty, usually on temporary hangers. Some items were displayed on study tables adjacent to the BSS lounge. This did the job, but it certainly could not be described as a choreographed purchase experience replete with full-length mirrors, ambient music, and fitting rooms. To the extent that signage was used, the signs were created by hand. There really was no selling as such—just the handling of the purchase transaction when a decision was made to purchase, and this was paid with cash. The square reader had not yet been utilized. Promotion of the apparel line utilized both classic and digital media. There were the requisite hallway and study area posters. Classroom talks to promote the line occurred intermittently. These were mostly impromptu, with limited, if any, use of audio visuals or product samples. Facebook had also been used to promote the apparel line. Bradshaw logged on to hillbss.com to review how the line was featured there. The site itself was excellent. However, the apparel line was not a priority. Bradshaw wondered whether more could be done with promotion to elevate the results—if the apparel line was relaunched. GROWTH CONSIDERATIONS

Bradshaw contemplated the potential of the business school apparel line. What might it look like if best-ofthe-best business practices were employed? Would it be a lot of work for limited return—a make-work project? Or, could it become a brilliant, remarkable success if all of the instruction from the classroom was infused into an insightfully designed business model? How, then, could it fail given the built-in brand strength and target market? Bradshaw had access to a pool of faculty experts with a broad scope of industry experience. Additionally, she had a sense that she could get corporate funding for seed money if a convincing business model could be articulated. She realized that much of what had transpired with the apparel line had not been executed with best-of-the-best precision. Rather, she observed that it had been largely run undercapitalized off the corner of a metaphorical desk. However, she wondered what she was missing. Few Canadian business schools, to her knowledge, had done anything particularly remarkable with their apparel lines. After doing some quick math with a few assumptions, Bradshaw guessed that on average, the 1,500 business students would each spend $300 annually, whether online or at a shopping mall, on apparel that the Hill label could sell. If the apparel line could capture even 10 per cent of that, it would result in annual sales of $45,000. Bradshaw also thought about potential sales among alumni and the business community. Could they successfully launch a near-premium business casual line that included polo shirts and scarves, leveraging off their multiple points of contact? What about operating costs? As Bradshaw pictured possibilities in her mind, she thought about prominently featuring mannequins in a high-traffic, floor-to-ceiling windowed space in the business school. Marketing students with a strong sense of fashion and design could become practiced in the art of the window display. Seasonal collections could

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The range of products the apparel line provided included tank tops, t-shirts, sweatshirts/pants, light jackets, and, of course, hoodies. There were bits and pieces of accessories, but these were minimal. Products were ordered from domestic suppliers, which made sense given the relatively small orders. This, however, resulted in relatively high unit costs and limited profit margins, given the pricing strategy. Fortunately, fixed costs were very low. Packaging was minimalist.

A polished yet entertaining fashion show, followed by a wine and cheese event, could provide students with valuable experience in event planning. It could be another opportunity to connect with the business community. Furthermore, a portion of the ticket proceeds could go to an apparel-related cause. Naturally, products would be available for purchase at the event. This, in turn, could hone students’ skills in the ar...