Classic Knitwear’s most prominent dilemma is its low gross margin. In comparison to the 30%-40% gross margins of the leading branded product manufacturers, Classic Knitwear’s gross margin of 18% is alarmingly low. The company attributes their low gross margin to its private label and unbranded knitwear having no branded recognition among retail customers. Although Classic Knitwear had recent success in shrinking that gap between themselves and the leaders, the growth-hungry board still demanded better results. As a publicly traded company reporting $550 million in revenue, Classic Knitwear needed to make decisions that satisfy its board and investors, as well as better the company in all ways possible. One of the successes that the company experienced is low production costs through their state-of-the-art offshore production hub that they established in the Dominican Republic. Because of Classic Knitwear’s moderate cost advantage over other US producers, rival companies such as JamesBrands and FlowerKnit had noticed Classic Knitwear’s model. It would only be a matter of time until these rivals reached similar or better manufacturing efficiencies. Although Classic Knitwear is the #2 player in the Wholesalers screen-print sector with 16.5% market share, it only possessed 1% market share of the private-label sector. The importance to increase gross margins to stay successful and relevant, especially in the private-label sector where its market share is so weak, could not be more important.
Classic Knitwear’s major short-term objective is reaching and sustaining a gross margin of 20% in 2006. Because the low gross margin is tied to Classic Knitwear’s poor brand recognition, the company needs to focus on innovating their products and raising recognition. To reach this objective and maintain consistency in stock price, Classic Knitwear knows that it needs to communicate compelling plans for margin growth. Through market research, the company found that a licensing agreement with the chemical firm Guardian, a manufacturer of insect repellents that offered odorless protection against mosquitoes and bugs of that nature must be reached. Because this new category of insect-repellent clothing had barely begun appearing in mass-market products, the agreement with Guardian seems very promising. In order to reach this enticing goal, there needs to be calculations made and a discussion involving the financial aspects and how they can ultimately benefit Classic Knitwear.
In order to approach the problem of having little to no brand recognition, Classic
Knitwear should assess a co-branded approach to marketing this new product. Classic Knitwear’s product line is mostly the basics, which consumers do not exactly tie together with a specific brand. Their private label is for the standard products that consumers do not get excited about. Through co-branding with Guardian on the insect-repellant apparel, this would be their way to become noticed more amongst their target market and Guardian’s. In the case Classic Knitwear discussed the option of having the insect-repellant shirts sold by using cardboard in-store displays. These displays would only have the Guardian brand name on it as opposed to having both. If Classic Knitwear wants to become a more well known they need to make sure that their name is on every single display next to Guardian’s. This will increase the awareness of Classic Knitwear as a provider of various lines of apparel as well as insect-repellant shirts. A co-branded approach that increases their brand awareness can increase product purchases among their whole chain of products and not just for these specific shirts. Guardian’s brand name in itself is very well known which can aid Classic Knitwear’s brand issues as well. Research indicated that, “95% of consumers who were aware of the Guardian name...