Section C Group 8

Company Background: Classic Knitwear is a publicly traded company headquartered in Miami,

Florida. It is a manufacturer and distributor of unbranded casual knit apparel; it is operated in the
$24.5 billion category of non-fashion casual knitwear. Classic reported 2005 revenues of $550
million.
Advantages of going with Guardian
• Struggling with 18% gross margin and in hope of achieving short-term goal of 20% margin.
With Guardian, they can achieve between 35-40% gross margin.
• They determined marketing investment of $8 million to $10 million for their new product
but if they go with Guardian who already have strong recognition in the market, their
marketing budget will reduce considerably to around $3 million.
• This product will be niche in the market and the advantage of first mover will be there.
• Guardian has EPA registration for newly patented technology that would provide
protection through 70 washings nearly three times the existing insect-repellent apparel.
Disadvantages of going with Guardian
• As the technology with Guardian is still unproven, so this strategy might be risky.
• Classic cost price is cheap because of low number of SKU’s and manufacturing of the
product in Dominican Republic but with Guardian their SKU’s will increase to 16 which
can lead to increase in complexity and manufacturing cost.
• Their estimated market strategy will lead to only branding of Guardian and completely out
shadowing Classic as a brand.
• Internal salesforce does not have experience to quickly penetrate sporting goods and
apparel stores so they need to hire 3 new reps. Thus, increasing cost to company.
Break-even Calculation
Fixed Cost $3510000
Gross Margin $7.05
Royalty $0.8935
Advertising Allowances $0.3574
Trade Promotion $0.8935
Total Margin $4.9056
Break-even Sales for 2 years = 715509
Conclusion: Our Break-even sales is 715509 while the estimated demand is 2375000 so, we can
break-even within one year. Hence, it will profitable if we go with Guardian. Regarding, the
drawbacks of going with Guardians, we can do re-branding of the product and do advertisement
of Classic also along-with Guardian. We can also save cost on hiring of new employee by cross-
skilling the existing employees. The new product is different from their existing products so
cannibalization of old product won’t happen also they are using majorly retailers’ channel instead
of their wholesalers’ channel so there will also be minimal conflict between them.