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Medium Profitability Operations Supply Chain Turnaround Strategy

Discount Retailer

#Retail #Fashion #Discount Retail
ProHub Comment

This is a classic operations and supply chain case that requires structured top-down thinking. The interviewee must diagnose that profitability decline results from two simultaneous pressures: a demand shock (demographic shift away from cities) and a cost shock (rising wholesale prices and declining channel rebates). The dramatic 70% gross profit decline illustrates the multiplicative effect of volume and margin compression.

Estimated Time 15 minutes
Difficulty Medium
Source Cornell
50 / 100
Your client is a clothing retailer that specializes in discount fashion (think of brands like Old Navy and Kohl’s). The company operates exclusively in North America (US and Canada). In the last two years, your client has experienced a decline in profitability and has hired us to 1) diagnose the issue – what is causing the decline and 2) provide a turnaround strategy to get back on track.

Clarifying Information

Industry (CMO):

  1. Market share in 2015 was 70%
  2. Market share in 2017 (now) is 60%
  3. 3 major competitors in this space
  4. No new entrants recently
  5. No major shift in customer demographics
  6. But people are moving away from cities
  7. Our client operates in cities

Financials (CFO):

  1. Revenue decreased by 10%
  2. COGS increased by 30%
  3. Same-store sales decreased as people move away from cities to sub-urban areas

Supply Chain (COO):

  1. COGS increased because: a. Raw material cost went up b. Channel rebates went down c. Less kickback / incentives to order more units