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Quincy

Apparel Case

To: Dr. Tarek Kettaneh

Talal Abou Ibrahim, Nader Nammour, Salem El Halabi

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1. What are the root causes of problems confronting Quincy Apparel in December 2012?
One problem arises in the value proposition, the low amount of resources and inefficient
capabilities. The design process was underestimated as the co-founders view this process as an
easy step without taking in consideration the importance of the production which was related
directly with the customers. 
The business had many negative aspects in terms of percentages: Very high return rate of
35% above Quincy's target of 20%. First time customers returned 38% of purchases, repeat
customers returned 25%. In addition 68% of their returns were an issue related to fitting
concerns. Returns were still increasing as the business increased its complexity.
Costs of production were high as the core competencies of Quincy entails
the differentiated key factor of personal measurements and innovative personalized clothing
methods which demand more material costs and service/measurement costs.
Inventory was high which adds another negative and unprofitable reason to the business and
reflects a major concern which is the difficulty to keep up with the trends. (major competitive
advantage to the fashion industry).
Conflicting Strategy between the co-founders; Nelson wanted to produce a narrow range of
sizes in order to rein in complexity while Wallace believed that fitting apparel for most women
was Quincy's key sources of differentiation. Decision making was hard.

2. Estimate the amount of money they might require (UNTIL THE NEXT COLLECTION
COMES OUT); if you cannot derive a number yourself, use $250,000.

Projected capital =1,200,000

Initial capital =$950,000
Duration =$4months
1 month =$950,000/4 =$237,500
I day =$237,500/30=$7916
7 weeks (49days) =$7916*49=$387,917
Estimated $ = $950,000-$387,917
=$562,083
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3. Did Quincy’s customer value proposition address a strong unmet need in a differentiated
manner?

Quincy's customer Value proposition did address a strong unmet need. In fact, this
business differentiate itself from others with the simple fact that a huge chart of the population
(tall, short...) was unable to find adequate, good-fit work clothing that would give them the high-
end feel and the stylish designs that felt good and gave them a high sense of self confidence.
Quincy did so by providing the right methods and tools in order to take personal relationships
carefully and solve the problem of young women who wanted a safe and fast way to dress up
fashionably and professionally.

4. Are the early test results encouraging?

Yes, this is shown since 25% of the 200 people who attended the truck shows made a
purchase. A survey was created to check how well Quincy’s idea is. Out of all the people that
filled the survey 57% considered garment’s fit to be the most important factor to look into when
buying apparel. In addition 81% of the surveyed had difficulty finding work apparel that fit well

5. How is recent sales performance?

Sales are good and Quincy’s performance gets even better with time. This is shown from
the results of the first Trunk show that were good for the sales average order was 350$ and also
Quincy established e-commerce on Shopify for its soft launch where a fit quiz is done by visitors
to acknowledge the size of the Quincy Apparel for them which resulted in a high amount of
purchases and an increase in sales, for example, in March 2012 their sales were $5,400 which
increased to $9,100 in April then to $10,400 in May.
In addition, the launch of the fall-winter collection in September had sales of $42,400 and
increased to $62,000 in November.
6. How do you rate the “P” in this venture? The fact that the two founders were good friends is a
good or a bad indicator of their chances of working in harmony in Quincy? Justify.

Christina Wallace has a background in math and theater studies then later went to do her
MBA at Harvard. As for Alex Nelson, she first studied mechanical engineering at MIT. Then
gained some experience at a consulting group focusing on the retail industry. She later on went
to do her MBA at Harvard as well.

Relating to Quincy, an online apparel retailer, both of Wallace’s and Nelson’s

backgrounds did not suite well with Quincy’s business. Their role at Quincy is to design,
manufacture, and sell work apparel targeting professional women with a budget. What they
studied prior to their MBAs is not related to their roles at Quincy. This created a problem in the
long run.
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Both of Nelson and Wallace had two different approaches from the right of the startup.
Nelson focused on reducing the range of sizes just for the time being was the best way to limit
the complexity and its costs. On the other hand, Wallace believed that having more options to
better fit most women was the way to go since it is what differentiates them from their
competitors. As a startup they need to be 100% on the same page and agree on everything before
they move forward.

They both had bad managerial and future planning skills. Because they didn’t know that
different fabrics have different elasticity (problems in planning) this affected their
“differentiation” model of “the perfect fitness”. The fabrics that they had during the trucks
shows, which everyone loved, weren’t available anymore (also shows problems in finding the
right suppliers).Another major problem has to do with their HR skills. They hired people who
weren’t ready to give it their all, eventually affecting Quincy on the long run as well.

All in all, even though they are good friends once a startup begins all of the key people
should be on the same page as to what they want to achieve. In Quincy’s case, neither of them
were. In addition a startup requires a lot of skills that might seem minor at the time, but on the
long run could critically affect the company. Such skills weren’t present within the cofounders,
maybe because they had no business experience prior to them stating Quincy.

7. Do you prefer Wallace’s plan or Nelson’s? Why?

As a startup you need to minimize your costs to a minimum. The more you can control
your costs at an earlier stage, the better are your chances to make it. In Quincy’s case, their
inventories were high and their operations were very complex. As a startup with a small team,
such tasks can be very hard to take on (especially since they are very limited with the resources
they have). These problems created operational challenges and made it very hard to meet their
promise and their “differentiation” to deliver the perfect fit.

Nelson’s pan was to produce narrower range of sizes, temporarily at least. By doing this
she is segmenting the market, which would ultimately reduce their costs. Quincy could choose to
target the most profitable segment at first, and once profits or returns increase they could then
increase their scope or expand to other segments.

The problem with Wallace’s plan was that she was acquiring too much costs at a time
which the company was not handle it all. Moreover, she did not see that Nelson’s plan still uses
their “key source of differentiation”, however on a smaller scale (why they disagreed in the first
place).

Since none of them had any experience in the apparel business, they should have hired a
consultant at an early stage to help them with such decision, like deciding whose plan is more
ideal, for advice on what they should or should not do etc.
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8. Exhibits 7a and 7b present customer segmentation; which segment could cause problems to
Quincy? Explain.

According to exhibits 7a and 7b, the segment that could cause problems to Quincy is
“Trend seekers”. They amount up 22% of Quincy’s customers. As compared to the other
segments whose rate of returns is 11%, compared to 7% and 6% to affluent traditionalists and
rising stars respectively. Moreover they have the least customer life out of all the segments. This
makes them the least favorable segment or the riskier one of all four.

9. Assume that the variable portion of SG&A = 20% of net sales; assume they have $800k of
fixed costs, and a 35% gross margin; what level of sales is required to breakeven? Is it
achievable, and if so, over what time horizon in your estimate?

Variable portion of SG&A = 20% of net sales

Fixed costs = $800,000
Gross margin = 35%
Now, breakeven = fixed costs/revenue per unit - variable cost per unit
Let net sales be x
0.2x = 0.35  x = 1.75*100 = 175
So, variable cost = 0.2*175 = 35
 Breakeven = 800,000/175-35 = 5,714.28
So, the level of sales required to breakeven is $5,714 which is achievable as is shown in previous
sales performance and within a period of 6 months.
10. What could the founders have done differently to avoid or mitigate these problems?
 Key people were not available instead the people there were anyone who was willing to
work, Wallace hired a freelance designer instead of a professional designer, and also no
teamwork and cooperation was available between the employees which led to the
negligence of duties.
 A third party with experience in the industry would’ve been good since Alex and Wallace
had many arguments and disagreements which led to bad decision making and poor
communication between the two since both are friends and that barged in their business
relationship. Also, an extra hand would be available in the business if someone had an
emergency such as the one that happened with Wallace when she had to take care of her
grandmother in November and everything was handled by Alex which caused her to be
stressed and overwhelmed.
 Quincy should’ve went to other investors that have experience in the industry so they can
give them advice for they have chosen investors only based on their previous investments
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which were in the same industry and they gave them bad advice of raising their inventory
stocks which was a disaster since trends keep changing.
 Wallace and Alex didn’t maintain the same relationship with employees that led to bad
results which were that Alex had no more authority over them since she was being very
nice to them when Wallace was being harsh.
 Alex and Wallace should’ve thought twice in leaving their jobs and stepping into a new
business that they know nothing of.
 Inconsistency in measurements of the pre-ordered clothes which means most of the
clothes will be returned and customers will be dissatisfied was because of the lack of care
of the process of designing since it’s the basis of the whole thing, production should’ve
been done way before, not just in 8 weeks because the factories highly depended on
personal relationships that Quincy didn’t have then.