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2011 CIMA GLOBAL BUSINESS CHALLENGE

An Action Plan and Strategic Analysis of the


Fast Fashion Company CeeCee

Amarantus Consulting Team


Joseph Finlayson
Chloe Kayser
James Pennington
Abigail Sheridan

Dr Stephen King (Mentor)


Amarantus Consulting 

Strategic Report 
   Into 

CeeCee 

An action plan and strategic 

analysis of the fast fashion 

company CeeCee 

Amarantus Consulting 
I STRUCTURE OF THE REPORT
1. Prioritisation

The first section of the report will concern itself with the scenario. It will
prioritise according to a ‘scale of impact’ matrix and provide
recommendations.

2. Strategic Analysis

The second section of the report will conduct a strategic analysis to see if
problems not mentioned in the scenario can come to light. It will develop,
discuss and provide recommendations for these problems.

3. Appendices

The final section of the report will contain detailed graphs and tables that
have informed our judgements throughout the report. Regular reference
will be made to them throughout the report,


 
II PRIORITISATION

  •Most pressing issue because financial costs of lost sales and damage to reputation of partially
stocked shops
Distributor’s •Immediate action necessary to minimise losses
Strike

•Very important because it is an ethical issue


Child •Serious potential damage to reputation of CRS conscious CeeCee
Labour
Accusations

•Serious problem that need to be avoided in the future and thus action is needed to prevent it happening
again
•Not as pressing because problem has already been solved and financial losses have already occurred
IT Failure •Action possible to recover a part of these losses

•Expansion into jewellery range considered a profitable and strong strategic move so should be
carried out in the near to medium term.
Jewellery •Further increase diversification and competitive advantage
Range

•CeeCee is doing well and word of mouth strategy has been working well so marketing strategy is the
least pressing issue
Marketing •Avoid celebrity endorsement
Strategy •Increase marketing budget to a minimum of 2% of sales revenue

1. Distributor’s Strike

1.1 Situation

The union has held a legal ballot of its members and ordered a ‘work to rule’.
A work to rule is a situation whereby employees work but only in strict
accordance to the terms and conditions of employment agreed. This means
that no union driver will drive a vehicle until it has been fully serviced and
repaired. The work to rule is to begin immediately. The union is demanding a
full service and repair for all of EITs 5,000 vehicles. The union has agreed that


 
as each vehicle is given a clean bill of health then it can be driven by a union
driver and deliveries can recommence using that particular vehicle only.

The work to rule would cost CeeCee £200,913 in lost sales and £120,749
[see appendix] in lost profit assuming that the strike would last ten weeks.

1.2 Recommendations

We want to suggest a hierarchy of recommendations listed in order of priority.

1. CeeCee must investigate why distribution to their stores is not taking


precedence over EITs contract with the multinational corporation. Legal
advice should be sought to see if compensation and or precedence over the
multinational corporation can be obtained from EIT.
2. If a guarantee of distribution cannot be obtained we recommend that CeeCee
takes steps to arrange distribution to their stores via another carrier for the
time that will be affected by the work to rule strike. This may affect their
integrated inventory, production and logistics system.
3. CeeCee should conduct an impact analysis on the possibility of insourcing
distributional operations. As CeeCee grows larger, this may be a way to cut
costs and ensure a quicker lead time from factory to store though it may
reduce distributional flexibility.
4. If there is no way to ensure delivery to stores, and the strike lasts longer that 5
weeks, steps should be taken to ensure 100% of stores get 50% of stock,
rather than 50% of stores getting 100% of stock. Having stores completely
empty of stock could damage CeeCee’s reputation as a premium brand.

2. CHILD LABOUR ACCUSATIONS

2.1 Situation

The local Asian agent has informed CeeCee that a substantial number of the


 
Asian suppliers have been using child labour. It has not been made public and
the agent thinks it is not an important issue as newspapers have grown bored of
the story

2.2 Recommendations

Our recommendations are based on the premise that child labour is unethical
and that businesses should behave ethically regardless of business
consequences. We know that CeeCee takes its CSR responsibilities seriously
and will provide a comprehensive response to these accusations to ensure that
unethical acts are minimised. These accusations should therefore be made
public. However, a rapid improvement of the working conditions of the Asian
employees coupled with a strong PR campaign could mitigate backlash and turn
this misfortune into a marketing coup.

In addition to the ethical reasons for not employing child labour, we find there is
clear business sense in reducing or eliminating the amount of unethical labour.
Long-term effects of positive Consumer Perceived Ethicality (CPE) means a
willingness to pay higher prices for clothing. This is important for CeeCee if it
desires to remain premium brand amongst high street clothing retailers.

2.2.1 Short-term recommendations

1. Investigate and assess 'the damage’:

• How many suppliers are concerned?


• How many children?
• What was the salary that they were given?

2. Send Jeroen de Joost, Head of Environmental Impact and Manager in


the CSR department to Asia to assess the working conditions of main
suppliers. Require detailed report from de Joost on what went wrong
and how suppliers can be monitored to avoid such issues in the future.


 
3. End contracts with suppliers that breached rules or where working
conditions were especially bad.

4. Review and enforce monitoring and auditing systems to make sure


suppliers adhere to the CeeCee Code of Conduct. The agent needs to
be briefed on the importance of this issue to ensure he informs CeeCee
of supplier malpractice in the future

5. Make CeeCee’s actions to ensure better auditing practices to stop child


labour public in a CSR report with an accompanying press release.

2.2.2 Long term actions

1. Currently regular auditing is only performed on production processes.


CeeCee should begin a comprehensive programme to regularly audit
labour and conditions at existing suppliers.

2. We need to make sure that it is in the suppliers’ best interests to not


use child labour. A system of punitive financial instruments must be
implemented to ensure that suppliers that use child labour are
disciplined. We believe this should take the form of the suppliers
involved funding the children’s education.

3. I.T. Failure

3.1 Situation

At the end of 2009, CeeCee invested €10 million in a new online sales
system. The system was designed and developed by an outsourced IT
company (ProveIT) with support from seconded staff from CeeCee’s own IT
department.

Diane Innes has discovered that when customers had attempted but failed to
pay for ordered goods the system still processed the order. This issue went on
for three months before detection. Diane thinks that 50,000 orders have been


 
processed without payment at an average transaction value of €120. Potential
loss of up to €6,000,000 of revenue - total maximum cost to CeeCee is
€2,394,000 [see appendix].

3.2 Recommendations

1. First and foremost, the payment processing system must be fully audited after
any change before going online to prevent this from happening again.

2. Legal advice must be sought to investigate whether proceedings can be


brought against ProveIT to compensate for money lost and staff time incurred
from recovery of the missing money.

3. We have mapped a range of scenarios [see appendix] and in almost all cases
the outside agency would recover more money, though not by much. In the
most likely scenario, using figures given by Dianne Innes, the outside agency
will recover €20,000 more than the in-house agency [see appendix].

4. We recommend that this should be outsourced to a recovery agency. It will


recover more, not take up the time of the finance department, and as a
specialised agency will probably be more effective in recovering lost revenue.

4. Expansion Into Jewellery Range

4.1 Situation

Carla believes that clientele might be interested in buying better quality pieces
of jewellery when buying clothing. The jewellery market has proved
remarkably recession resistant and potential competitors have become
complacent. CeeCee could provide more fashionable and exciting jewellery
than retail jewellery stores to compete with them.


 
4.2 Recommendations

The Net Present Value (NPV) of profits from starting a jewellery range is
positive and very high (€7.937.000). Additionally, the Internal Rate of Return
on Investment even after taking into account the foregone profits from lost
sales of other products is excellent at 32%. Given the very high margin and
recession resistance of jewellery products and a high NPV, our opinion is that
CeeCee should proceed in developing a jewellery range.

The strategic significance of this development is that increases the benefit


advantage for its customers, through offering better quality, more fashionable
jewellery than retail jewellery shops. Additionally, offering matching jewellery
to outfits differentiates CeeCee from its main rivals by offering a one-stop-
shop shopping experience.

5.Celebrity Marketing

5.1 Situation

Juliette Lespere wants to initiate a contract with Kool, a well known and
popular European singer of rock music. She thinks CeeCee is doing well on
the back of good quality products and service but it could do much better with
a more visible marketing presence. Carla is not impressed, she thinks word of
mouth is all that counts.

Kool’s agent proposed a choice of 2 payment methods:

1. Fixed payment of €50,000 for photo-shoot with bonus of €150,000 if sales


reach €2 million.
2. Photo-shoot for free and paid on royalty basis earning 5% of all incremental


 
sales revenue.

If the probability that incremental sales reach €2 million is only 10%, the first
payment method would be the 90% more likely to be the cheaper one for
CeeCee. Both payments are equally costly at the breakeven sale value of
€1,000,000.

5.2 Recommendations

From our calculations, it seems if CeeCee were to choose a payment method


for Kool, it would be far wiser to pay her a fixed payment of €50,000 rather
than a royalty. Every scenario, excluding incremental sales of €2 million would
render this option cheaper.

However, all things being equal, we would not recommend using Kool.
According to Juliette's calculations the promotion would only have a 10%
chance of increasing sales by €2 million, this represents an incremental sales
increase of only 2% in overall sales. However, the return on investment is very
high. Even if proceeds exceed €2,000,000 and payment to cool is €200,000
insures a return of twenty times the marketing investment. Taking profit
margins into account still insures a return on investment of 600%.

Another angle to consider is the possible unintended consequences of


changing the organisations marketing strategy. These consequences could
include:

• Kool’s career could sour, or she could become involved in a scandal. This
could damage CeeCee’s brand
• Kool may not connect to CeeCee’s core market, they might become
disaffected and sales may in fact decrease
• Powerful marketing messages may decrease the efficacy and extent of word
of mouth marketing as CeeCee may become seen as more of a mainstream,
mass market brand.


 
Because of the possible unintended consequences we recommended that
Juliette Lesperre conduct a full impact report before going ahead with an
endorsement campaign.

III STRATEGIC ANALYSIS

Amarantus has performed a Porter’s Generic Analysis and a SWOT analysis to


understand CeeCee’s strategic positioning and formulate recommendations to
strengthen CeeCee’s competitive advantage over its rivals.

1. SWOT Analysis


 
2. Porter’s Generic Strategy Analysis

• CeeCee is pursuing a Differentiation and a Benefit Leadership Strategy. We


believe it is important that CeeCee continues on this path despite the
anticipated coming years of slow economic growth as the global market
recovers, during which ‘value’ retailers will increase their share in the market.
Engaging in a ‘price war’ would be reactionary and counterproductive. It is
important that CeeCee maintain its competitive advantage of fashionable
clothes of higher quality and an enjoyable shopping experience. With this in
mind, we advocate expansion into a jewellery range.
• The target scope of CeeCee is a Broad-Coverage Strategy offering a series of
related products to different groups of consumers (children, young, men and
women). This strategy is appropriate as research has shown that pursuing a
focus strategy in a highly competitive and rapid evolving market is risky.

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2. Ansoff Matrix

Amarantus has performed an Ansoff’s matrix to identify potential strategic


developments CeeCee could bring forward in the longer-term.

Market Penetration (Current Products, Current Markets)

• CeeCee still has growth potential in its currently existing markets. Its recent
transition to online selling has enormous growth potential.
• Currently still focused on female clothing. CeeCee could achieve a larger
market share by increasing the prominence of male products.
• CeeCee knows its stock, but could enhance customer segmentation to
develop automated links, web tracking and a personalised shopping
experience that could increase customer usage.

Product development (Current Markets, New Products)

• As discussed in the scenario, accessories and furniture have high margins,


and low write-downs so it is profitable to keep some sales area dedicated to
other products.
• Need to distinguish itself from value retailers and differentiate its brand.
CeeCee has to continue to offer a higher shopping experience than its ‘value’

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retailers and differentiate itself from its high street competitors with more
fashionable clothes.

Market Development (New Markets, Current Products)

• Commercial rents are down worldwide. CeeCee has prospered during the
recession and has a good cash flow. It is well placed to capture the uptick in
new regions, as it is in a position to buy up exclusive shopping areas.
• Decision to open shops beyond Europe will be even more profitable given
decreased consumption spending in Europe and growing middle-class in fast
developing countries like Brazil, India and China.

Diversification (New Markets, New Products)

• CeeCee has slightly modified its target market and products as it now
provides a range of home furnishings and has switched from focusing solely
on clothing.

2.1 Recommendations

We believe that CeeCee could maximise its penetration by better segmenting


its customers. Currently the CCIPL ensures costs are controlled in the fast
fashion process. Better customer segmentation could identify consumer
trends and feed into design and production, increasing revenue and
decreasing stock write-downs.

We have sketched out how loyalty cards in store and online could fulfil this
role. This could be used to create a personalised shopping fingerprint for the
customer. This fingerprint could be compared to other customers with a heavy
overlap. Non-overlapping products could be recommended to both customers.

We believe that developing products beyond clothing is crucial to offering a


unique shopping experience to CeeCee’s customers and give them a wide
array of choice to put together great outfits. Also because of the high margin

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on accessories it is very profitable for CeeCee to keep selling these products.
Expanding into selling a jewellery range is in our opinion a great strategic
move because jewellery is still very close to CeeCee’s core business area and
has a very high margin. But it is also our opinion that new jewellery products
should be spend at the expense of home furnishing products rather than
clothing. Home furnishing products take more space and their sales have
decreased by 10% during recession but clothes by only 2%.

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III APPENDICES

Table 1: Distributor’s strike


%
Sales
lost per
shop
First
Sales
five Sales revenue weekly Sales lost due to strike
revenue:
weeks
1 10% 57,403.85 5,740.39 2,985,000
2 20% 57,403.85 11,480.77
Gross
3 30% 57,403.85 17,221.16
margin:
4 40% 57,403.85 22,961.54 60.10%
5 50% 57,403.85 28,701.93

Second
five Half capacity
weeks
6 60% 0.5 57,403.85 17,221.16
7 70% 0.5 57,403.85 20,091.35
8 80% 0.5 57,403.85 22,961.54
9 90% 0.5 57,403.85 25,831.73
10 100% 0.5 57,403.85 28,701.93

Total sales revenue lost: £200,913.48

Table 2: IT Failure

Amount
Customers Average order Recovery rate Charge recovered Fee Total revenue recovered Loss
without fee

A - Recovery Agency
40000 € 120.00 50.00% € 14.00 € 2,400,000.00 0.95 € 1,720,000.00 € 3,080,000.00
40000 € 120.00 60.00% € 14.00 € 2,880,000.00 0.95 € 2,176,000.00 € 2,624,000.00
40000 € 120.00 70.00% € 14.00 € 3,360,000.00 0.95 € 2,632,000.00 € 2,168,000.00

50000 € 120.00 50.00% € 14.00 € 3,000,000.00 0.95 € 2,150,000.00 € 3,850,000.00


50000 € 120.00 60.00% € 14.00 € 3,600,000.00 0.95 € 2,720,000.00 € 3,280,000.00
50000 € 120.00 70.00% € 14.00 € 4,200,000.00 0.95 € 3,290,000.00 € 2,710,000.00

60000 € 120.00 50.00% € 14.00 € 3,600,000.00 0.95 € 2,580,000.00 € 4,620,000.00


60000 € 120.00 60.00% € 14.00 € 4,320,000.00 0.95 € 3,264,000.00 € 3,936,000.00
60000 € 120.00 70.00% € 14.00 € 5,040,000.00 0.95 € 3,948,000.00 € 3,252,000.00

B In-house
40000 € 120.00 35.00% € 1,680,000.00 € 1,680,000.00 € 3,120,000.00
40000 € 120.00 45.00% € 2,160,000.00 € 2,160,000.00 € 2,640,000.00
40000 € 120.00 55.00% € 2,640,000.00 € 2,640,000.00 € 2,160,000.00

50000 € 120.00 35.00% € 2,100,000.00 € 2,100,000.00 € 3,900,000.00


50000 € 120.00 45.00% € 2,700,000.00 € 2,700,000.00 € 3,300,000.00
50000 € 120.00 55.00% € 3,300,000.00 € 3,300,000.00 € 2,700,000.00

60000 120 35.00% € 2,520,000.00 € 2,520,000.00 € 4,680,000.00


60000 120 45.00% € 3,240,000.00 € 3,240,000.00 € 3,960,000.00
60000 120 55.00% € 3,960,000.00 € 3,960,000.00 € 3,240,000.00

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Table 3: Expansion into Jewellery Range

End of year Cash


Present
flow Discount
Value
taking Factor Present
Cash taking into
into 12% Value
flow account
account discount €
forgone
forgone rate
profits €
profits
0 Initial outlay -6720 -6720 1.000 -6720 -6720
1 1024 735.52 0.893 914.286 656.71429
2 7584 6333.92 0.797 6045.918 5049.3622
3 7584 6333.92 0.712 5398.141 4508.3591
4 7584 6333.92 0.636 4819.769 4025.3207
5 11104 735.52 0.567 6300.708 417.3538

Present value of cash


flows 23478.822 14657.11
Less initial outlay -6720 -6720
Net present value 30198.822 7937.11
Internal Rate of
Return 32%

Table 4: Payment Method for Celebrity Endorsement

Payment Payment
Incremental Sales Method 1 Method 2
€50 000 + €150
000 if 5% of
incremental incremental
sales reach €2m sales
€ 1,000,000 € 50,000 € 50,000
€ 1,200,000 € 50,000 € 60,000
€ 1,400,000 € 50,000 € 70,000
€ 1,600,000 € 50,000 € 80,000
€ 1,800,000 € 50,000 € 90,000
€ 2,000,000 € 200,000 € 100,000

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Chart 1: Customer Segmentation

Customer A Customer B

Necklaces

Decorative
Flip flops Sarongs
dresses

Flat shoes

Halterneck
dresses

Loyalty Cards and internet purchase recording tracks customer habits and can
target marketing messages in a personal, intimate and helpful way

Chart 2: Customer Differentiation

By segmenting customers we can gain a perspective of consumer trends over


and above that of sales data. This will allow CeeCee to reduce inventory write
downs, better control costs and predict sales trends.
‘Sally’
Sally may be an
‘influencer’: Dora might be
Customer Segmentation can help the opposite:
The clothes she CeeCee better predict sales and The clothes she
buys might show
a spike in
control costs buys might show
a slump in sales
demand for
similar styles for of similar styles
for a duration
a duration after
after her
her purchase
purchase

Halterneck
Dresses Pea coats
Scarves
Smart shirts Flip Flops
Coats Large
Home Earrings
furnishings Sally Socks
buys Dora
buys

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