Pacific Brands Case Study

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Pacific Brands Case Study


1. Problem Identification
1.1 Cost Reduction
1.2 Structural Reorganisation
1.3 Ethics and Social Responsibility

2. Problem Analysis
2.1 Cost Reduction
2.2 Structural Reorganisation
2.3 Ethics and Social Responsibility

3. Recommendations

4. Bibliography

Pacific Brands is an Australian based textile retail business that operates throughout Australia, New Zealand, United Kingdom and Asia. Within the following report is an exploration of the change process which Pacific Brands began implementation of in 2009. This step change was driven by a number of internal and external factors. These included falling profit and share price, increasing costs and the pressure of the worsening Global financial crisis. Added to this was the need to stay competitive in a market that has significantly shifted to cheaper imports. (TCF Review 2008, pp. 9-10) Pacific Brands restructure and the sale/discontinuation of unprofitable brands generated a focus towards core brands and the implementation of a profitable, streamlined structure that would guarantee the most cost efficient model. The disadvantage of such an aggressive restructure was the immediate media backlash and ensuing reputation damage caused by the outrage of employees, politicians and general public.

1. Problem identification

1.1 Cost reduction
As in all developed markets the Textile, Clothing and Footwear industry that Pacific Brands encompassed had been impacted by the dramatic rise in imports. Compounding this was the growing consumer demand for cheaper product, a rising Australian dollar, and the Global Financial Crisis further adding pressure on an already falling share price. For the achievement of future success and reversal of falling share prices, Pacific Brands needed to implement a programme of cost reduction initiatives and a focus towards their core profitability.

1.2 Structural Reorganisation
The most integral part to achieving the decrease in costs was the “off-shoring” of manufacturing to Low Cost Countries. Over 2000 jobs were made redundant whilst another 940 employees were transferred through the sales of underperforming non core brands. (Pacific Brands FY2010 presentation, p.12-17)

1.3 Ethics and social responsibility
At a time of wide sweeping redundancies and plant closures the move to increase executive remuneration packages by up to 170% was seen as unethical by the community and media commentators. Inside the closures no provisions were made for the $15million dollars of Commonwealth subsidies received for retraining and re-tooling throughout 2007/08.

2. Problem analysis
2.1 Cost Reduction
With falling share prices ($3.20 July2007 to $0.10 Feb 2009) (ASX share data 2007-2012) and diminishing profits Pacific Brands was under pressure to propel the organisation in a new direction. After the removal of the previous CEO, Paul Moore, direction was given for Sue Morphet to undertake a comprehensive review of the Pacific Brands Business to ensure its ongoing sustainability. This identified that manufacturing in Australia was no longer a sustainable option for Pacific Brands. The Australian Textile industry had seen an increase in imports from 28% in 1980 to 91% in 2006. (TCF Review 2008, p. 9) This trend and increasing labour costs in Australian manufacturing formed the Organisational Strategy for Pacific Brands. The labour component, being generally low skill tasks, allowed for off-shoring of manufacturing to low cost countries to be the key to the turnaround of profit growth. It also identified the need to delete all non-performing product lines and sell assets where possible. This would see an increase in profitability but a decline in overall sales performance.

2.2 Structural Reorganisation
The decision to restructure the organisation was brought about to stop Pacific Brands larger problem of declining returns....
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