This case tests profitability analysis and strategic growth thinking by forcing candidates to work through a structured profitability equation (π = R - C) to identify that volume, not cost or price, is the constraining variable. The case requires candidates to recognize that achieving a 5.2M pair sales target (more than double current volumes) in a flat market necessitates creative strategies like market share theft, geographic expansion, new product categories, or acquisitions.
Your client is a large retail-focused private equity firm that owns Salty Sole, a leading designer of junior women’s footwear, primarily targeting the 14 – 22 year old age group.
Salty Sole was purchased last year by the private equity firm expecting to realize substantial profits upon sale in 2012 by increasing the company’s EBITDA. The situation, however, is that due to a current recession, annual profit has only grown modestly post the acquisition and is not on track to generate the double-digit returns that the private equity firm originally anticipated.
How can the company increase profitability and achieve the private equity firm’s return on investment objectives?