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Medium Profitability

7SHIRTS – ONLINE APPAREL BRAND

#Consumer Goods #Retail
ProHub Comment

This is a profitability case focused on identifying why marketing spending efficiency declined despite revenue growth. The candidate must recognize that 95% of marketing budget on low-margin shirts (65% margin vs 80-85% for other products) combined with Facebook's unprofitable unit economics (-€10 per customer) is the core issue. The solution requires both optimizing marketing channel allocation and shifting product mix focus.

Estimated Time 26 minutes
Difficulty Medium
Source IESE
20 / 100

Our client is an Italian online apparel store called 7SHIRTS. The company sells casual pants, polo shirts, sweaters but it is famous for its unique trendy patterned shirts. The value proposition is to have the perfect shirt for each day of the week. The company has experienced a strong growth in the last two years but the profitability has declined in the last year.

The CEO has hired us to understand the reason of the decline and to receive suggestions on how to improve profitability.

Clarifying Information

  1. The company has a turnover of about 1,5M with a growth of 20% in the last two years. The net profit is still positive but it went down by 21% in 2020 after a stable growth.
  2. There is no specific profitability goal.
  3. The company does not manufacture the products directly. It buys them from a supplier and sells them online under its own 7SHIRTS brand.
  4. The company sells in five European countries: Italy, France, Spain, UK, Germany
Mock Interview
Interviewer

Our client is an Italian online apparel store called 7SHIRTS. The company sells casual pants, polo shirts, sweaters but it is famous for its unique trendy patterned shirts. The value proposition is to have the perfect shirt for each day of the week. The company has experienced a strong growth in the last two years but the profitability has declined in the last year. The CEO has hired us to understand the reason of the decline and to receive suggestions on how to improve profitability.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

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7SHIRTS experienced 20% revenue growth but 21% profit decline in 2020. Analysis reveals inefficient marketing spending concentrated on Facebook and low-margin shirt products. Facebook has -€10 profit per customer while Google, Newsletter, and Affiliate Marketing are profitable. Recommendation is to reallocate marketing budget to more profitable channels and promote higher-margin products.

Key Insights:

  1. Facebook marketing is unprofitable (-€10/customer CLTV) while Newsletter (€95/customer) and Affiliate Marketing (€70/customer) are highly profitable
  2. Product mix shift toward shirts (95% of marketing budget) combined with shirts having lowest margin (65%) vs sweaters/casual pants (80-85%) is a primary profitability driver
  3. COGS increased 33% YoY while marketing increased 30% YoY, indicating marketing spending efficiency deterioration as growth driver
  4. Customer lifetime value is consistent across channels (€90-€105) but customer acquisition cost varies dramatically (€10-€100), making channel selection critical
  5. The core issue is internal marketing channel inefficiency, not external market conditions, allowing for controllable optimization