Great American Knitting Mills

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At the time of this case, in mid 1981, the management of Great American Knitting Mills was reviewing the situation related to the company's distribution policy for its Gold Toe brand men's socks line. Essentially, the distribution policy for Gold Toe socks provided that the products would be distributed through one leading department store (or department store chain) in each major city of the United States. In exchange for the exclusive distribution arrangement, the department store organization was expected to aggressively promote Gold Toe brand socks. At the time of this case, Gold Toe socks were distributed by 57 of the top 100 department stores in the United States in the nation's largest cities, and by 127 other department stores serving small cities in the country. The Gold Toe brand was the only men's socks brand in the country to which an exclusive distribution policy was applied. Branding was a major problem for most manufacturers of men's socks in the United States. The Gold Toe brand, however, had relatively high brand recognition among consumers. Within the past two years (since mid 1979), however, some manufacturers had begun marketing men's socks under designer labels, and these designer labels were beginning to develop some degree of brand recognition among consumers. The sales force for Gold Toe brand socks had reported that several of their major department store accounts had acquired a few of the designer lines. The sales force did not view this development with alarm. Where the Gold Toe brand was distributed through 184 department stores or department store chains, men's socks produced by one major competitor, Burlington, were distributed through more than 10,000 retail outlets. Although national advertising was relied heavily by most manufacturers of men's sock in the United States, Great American Knitting Mills engaged in no national advertising for the Gold Toe brand. Great American Knitting Mills relied on local advertising to promote the Gold Toe brand. The department store accounts were responsible for both the development of such advertising and the conduct of the advertising campaigns. Great American Knitting Mills agreed to contribute one half of the cost of all such advertising. The quality and intensity of advertising for Gold Toe brand men's socks varied widely by market because of this policy. Great American Knitting Mills charged a premium price for Gold Toe brand socks. The company also maintained the quality level high for the products. There were six persons in the Gold Toe brand sales force. The sales force was close knit, long in longevity with Great American Knitting Mills, and on unusually good terms with the company's department store accounts. The Gold Toe sales force did not provide services to accounts such as counting the Gold Toe inventory and stocking Gold Toe shelves services that were provided by the company's competitors. Nevertheless, the exclusive distribution arrangement strengthened the company's position with its accounts to the extent that such services were not demanded of the company by its department store accounts. Thus, the six member Gold Toe sales force compared with a sales force of more than 100 persons employed by one of the company's competitors. Great American Knitting Mills executives were somewhat concerned about the company's Gold Toe distribution policy because the strongest Gold Toe market share was in smaller markets and in those larger markets where some degree of overlap occurred between major department store accounts. A change of distribution policy, it was speculated, might lead to higher market shares in all larger markets. Offsetting this factor, however, was the $200 to $300 per square foot sales ratio for Gold Toe brand men's socks that compared very favorably with the $180 ratio...
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