There are two main categories of sweater buyers, one who are brand conscious and prefer to buy named brands such as Polo and the others who are on budget and buy sweaters from low wage countries such as Bangladesh and China. Walmart and other retailers buy directly from low wage manufacturers and Steinhouse cannot match the prices offered by these companies. There is increase in US markets for high end and economical priced sweaters. Independent buyers are going bankrupt because of retailers such as Walmart (p.371).
Competition The industry sees fierce competition both for price and sales. Please refer to the following figure. Figure 1. Competitors for Steinhouse (p. 374) The largest company is Boutique Knitting. In Canada, the major Sweater manufactures are located in Ontario Quebec and Manitoba and in 1996, the Sweater sales was totally about 500 million USD. Current competition is Coopers Knitting, San Remo Knitting in Montreal. In Toronto, Stratton Knitting and in Winnipeg there is Standard Knitting.
The competition is surviving because they are concentrating on US markets and by reorienting their products to suit the demands of Walmart and Zellers and they operate in more downtown markets with lower quality of cutting and quality (p. 374). DECISIONS ALTERNATIVE AND SOLUTIONS The following decisions alternatives and solutions are proposed. Alternative 1: Start outsourcing the production It is obvious that Steinhouse cannot manufacture at the prices demanded by Tesco and other retailers and must drastically reduce its prices.
Since the company has a sound technology and enough marketing experience, it must shift the manufacturing base to China and Banglagesh. Many companies have done this and the products can be manufactured as per Steinhouse specifications. They should develop a partnership with some local partners who can invest the required amount in new machinery. This will help them to cut prices to the $15 or so that Walmart demands. The company should enter into an agreement with Walmart for bulk procurement. Alternative 1 – Option 1: Build a Viable brand
With the reduced priced products, the company can start a a vigorous advertising campaign to build their brand and create a customer awareness. Since 85% of the products are bough by women for their husbands or other relatives, the company should target such women who are above 40 years. Alternative 2: Open a Trading and Distribution Company The competitions and the industry has a very grim picture and it can be seen that Stainhouse cannot match the named brands such as Polo and Hiifigher not can it compete against the low priced manufactures.
The best option is to open a large scale distribution center and take up procurement and distribution in US and Canada to large defense contracts, Walmart and other companies. This will ensure that the company is able to survive. Alternative 3: Exit the Business A third alternative is that the company should exit the business, sell the company and move on to some other business. It cannot lower the process and compete with low cost manufacturers and it does not have original designs and a name to compete with named brands. Since the financials are sound, it should quickly exit the industry. Most Favored Alternative
The company should use “Alternative 1: Start outsourcing the production + Alternative 2: Open a Trading and Distribution Company”. This will help to reduce the costs and prices and reduce the overheads. Profits and ROI If the alternative mentioned above is used, then the company can have a share of the 500 million USD market and the overheads can also be lower. The investment can also be lower since it can balance the inventory, bill payments and dues so that a constant flow of good and money can be effected.
Haber Mark, Ross Christopher A. 2002. Case 3: Steinhouse Knitting Mills (Canada) Ltd. pp: 369-375.