3. PROBLEM STATEMENT
1
OVERVIEW OF SITUATION
Stella & Dot has experienced rapid growthover the past 12 years, reaching over30,000 Stylists
globally and over$200 million in sales. Stella & Dot is looking to go public within the next five
years, and is aiming todouble their sales revenueprior to going public. Withoutcompromising
the core integrity of the company, whichis empowering and inspiring women, Stella & Dot will
need to find a way to expand their current distribution plan (Wilson, 2015).
PROBLEMSTATEMENT
The problem statement that our team identified is, “How can Stella & Dot modify or adjust its
current distribution strategy and achieve$500 million in revenue by 2021?”
4. KEY FINDINGS AND ASSUMPTIONS
2
Through research, our team found the followingkey findings and made the following
assumptions:
KEY FINDINGS
Stella & Dot’s standard shipping is $5.95 for10-day delivery,and its fastest shipping is
$19.95 for 4-day shipping. Shipping for trunk shows workthe same as an online purchase
(Stella & Dot,2015)
55% of shoppers who buy online prefer topurchase from a retailer witha physicalstore
than an online store (Forbes, 2014)
62% of females would prefer to buy apparel in store, rather than online (eMarketer, 2015)
Stella & Dot’s revenue in 2012 is $200 million (Ernst& Young,2015), and its revenue in
2013 is $220 million (Los Angeles Times, 2014)
51% of shoppers don’t wantto wait to receivetheir item (Morrison, 2014)
Stella & Dot has three companies: Stella & Dot (jewelry and accessories), Ever(skin care),
and Keep (collectives),wechose tofocus on Stella & Dot
ASSUMPTIONS
Fashion, costume, and specialty jewelry belong to the same classification
Movements among specialty jewelry willimitate the fashion market
Stella & Dot’s behavior is categorized as an online retailer as its shipping procedures,
shipping prices, and trunk shows frequency does not fillthe gap forin-store availability
and experience
Trunk shows are classified as a personalized experience towardssocial selling, and filling
the customer needs to try fashion products before buying
2014 revenue forStella & Dot is $250 million as its growthrate is 13.6% (PrivCo,2015)
5. ENVIRONMENTALSCAN
3
Stella & Dot’s current environmental scan, internal strengths and weaknesses, and external
threats and opportunities.
Table 1: SWOT Analysis
Strengths Weaknesses
High growthrates
Highly profitable business model
Directsales distribution model
No retail outlets
Current expenses and costs
Small business units
Opportunities Threats
Multiple unused distribution channels in the US
Environmentally and socially aware market
Global markets: Emerging economies
Counterfeit products
Increasing labour wages
Dangerous chemicals in jewelry
The next section willanalyze the Table 1 data in detail.
STRENGTHS
High growth rates
One year growthrate of 13.6% (PrivCo,2015)
Three year growthrate of 12.5% (PrivCo,2015)
Online women’s accessories sales grew 7% to$7.1 billion in the fiscalyear ending March
2014 (NPD,2014)
Three out of seven accessories categories haveexperienced double-digit dollar sales gains
during the March2014 fiscal year(NPD,2014)
o Bag sales accounting for24% of the women’s total accessories market, increased
by 17% (NPD,2014)
Highly profitable businessmodel
Stella & Dot’s revenue has been growing each year
o 2012 $200 million (Ernst & Young, 2015)
o 2013 $220 million (Los Angeles Times, 2014)
o 2014 $250 million (assumption)
6. ENVIRONMENTALSCAN
4
Direct salesand distribution
Full-servicepersonalized customer interaction
o Stella & Dot can reach customers through social networks and sales
representatives
More knowledge about customers’ needs and desires
WEAKNESSES
No retail outlets
Customers cannot try on items and products if there are not any trunk shows
Difficulty toreturn products
Specialty jewelers are losing current market share to retailers, wholesalers, and
manufacturers (Gaille, 2013)
Expensesand costs
Stella & Dot pay a 20% to 30% commission to their Stylists (PrivCo,2015)
Training representatives is an expensive process (New EraConsulting, 2015)
Sales costs for design and materials
o Use of sterling silverand semi-precious stones (Stella & Dot, 2015)
o Stella & Dot manufactures and designs its products (Stella & Dot, 2015)
o Maintaining and managing website and inventory foronline store
Small businessunits
Jewelry expense forhouseholds is typically $167annually (ESRI,2015)
Stella & Dot sells costume jewelry not fine jewelry
o Costume jewelry is 12% of the market share, while fine jewelry is 88% of the
market share forjewelry (International Euromonitor,2014)
7. ENVIRONMENTALSCAN
5
OPPORTUNITIES
Multiple unuseddistributionchannels inthe U.S.
Currently, Stella & Dotonly does online sales and peer-to-peer sales (Womens Wear Daily,
2011)
Stella & Dot does not use any retail outlets or physicalstores (PrivCo,2014)
Environmentallyandsociallyaware market
Today,social and political concerns are serious factorsconsidered when purchasing fine
jewelry (Polygon,2014)
Gem mining is a major concern in environmental studies; conflictminerals (gold), and
blood diamonds are one of the main issues considered by consumers (Source Intelligence,
2014)
Fashion jewelry is mainly produced by artificially-craftedmaterials like acrylic,sterling
silver,brass, rhinestones, etc., whichbrings the new waveof social and environmentally
friendly customers
Global market: Emergingeconomies
Emerging economies are expected to grow twoto three times faster than developed
nations (Forbes, 2015)
High GPDper capita, retail sales increasing year by year, and continuous growth(CNBC,
2014)
Emerging economies include Argentina, Brazil, Chile, Colombia, Mexico, Indonesia, etc.
(Forbes, 2015)
THREATS
Counterfeitproducts
Customers look forlow cost alternatives
The number of IPRseizures reached 23,140 in 2014 (CBP Public Affairs, 2015)
Counterfeits not only deprive revenues forthe company but also dilute its brand image
(Marketline, 2015)
8. ENVIRONMENTALSCAN
6
IncreasingLabour Wages
The labor cost for companies is rising
o Tight labour markets, increased overtime,government mandated increases in
minimum wages, and a higher proportion of full-time employees are increasing
labour costs (Marketline, 2015)
Higher cost of living is increasing the rates of wages across the country
o Wage rate in the US, whichremained at $5.15 per hour since 1998, increased to
$5.85 per hour in 2008, increased to $6.55 per hour in 2009, and to $7.25 per
hour in 2010 (Marketline,2015)
o See Appendix B for the minimum wage increases in the past year in different
states
Increasing wages can reduce the profit margin
Dangerous Chemicals
Research from the Ecology Center found the lead, cadmium, chromium, and mercury
levels are higher than recommended, in a sample fromthree retailer’s fashion jewelry
(Daily Mail, 2012)
Fast spread of communicationcan stop customers from purchasing products, as they will
link Stella and Dot’s jewelry with the chemical founds in the fashion jewelry
9. TARGET MARKET
7
Stella & Dot’s primary market is middle-aged American Caucasian women.In order to further
expand Stella & Dot’s well established direct sales model, wewill need to expand current reach
and become more accessible to the normal consumer.
GEOGRAPHIC
Stella & Dot should focuson the US market, trying to capture the 20 main cities forretailing
(Forbes, 2010), see Appendix A for listed cities.
DEMOGRAPHIC
The main demographic forjewelry and apparel is Caucasian women in the age range of 35 and 55
years. The individuals in this market have an average income of $78,000 and spend on average of
$750 per yearbetween jewelry and apparel ( U.S. Bureau of Labor Statistics, 2012).
PSYCHOGRAPHIC
Out of the identified market, 32% prefer to shop via methods that are not online (PwC,2014).
The reason forusing retail locations is the desire to receiveproductimmediately, avoid shipping
costs, and the ability to physically handle the product beforepurchasing (PwC,2014).
MARKET VALUES
Stella & Dot’s core conceptof empowering and inspiring women should remain intact to be
socially responsible. The solution must not negatively impact the current distribution method of
direct sales through Stylists.
MARKET SIZE
Utilizing the total population of Caucasian womenbetween 35 and 55 years, whichis 40 million
women, and taking away the online segment, leaves a potential market of 8.96 million (Census
Bureau, 2010). In order to accomplish a revenueof $500 million by 2021, Stella & Dotwill need
to acquire at least 6,700 women.
10. COMPETITIVE ANALYSIS
8
The competition Stella & Dot faces is both direct and indirect distribution channels within the
jewelry and apparel market.
DIRECTCOMPETITOR
Directcompetitors are companies that are competing directly with Stella & Dot,and their current
distribution model.
Table 2: Stella & Dot’s Top 5 Direct Competitors
Direct
Competitor
Chloe +
Isabel
Lia Sophia
Silpada
Designs
Origami Owl
Jewels by Park
Lane Inc.
Most
Expensive
Item(USD)
$188 $118 $329 $54 $769
Least
Expensive
Item(USD)
$18 $3 $3.50 $5 $4
MedianPrice
(USD)
$72 $89 $89 $22 $95
Revenue(USD) $0.36 million
$121.9
million
$164 million $250 million $179.9 million
Market
Share(%)
0.01% 4.3% 5.5% 8.3% 6%
Distribution
Strategy
Online +
Personal
Merchandiser
Online Outlet
+ Designer
(Closing)
Online +
Personal
Representative
Online + Personal
Designer
Online +
Personal
Representative
As seen in Table 2, weare establishing directcompetitors as the companies that sell fashion
jewelry and base their distribution strategy in direct selling and online retail.
Origami Owlhas the greatest share of the market, targeting their segment based on a lowerprice
strategy and Jewelsby ParkLane has the highest prices.
11. COMPETITIVE ANALYSIS
9
INDIRECTCOMPETITOR
Fine jewelry is more than half the market of purchased jewelry with 36.6 billion items (Golan,
2015). Fine jewelry is still an option forcustomers to consider while buying jewelry.
Table 3: Stella & Dot’s Top 5 Indirect Competitors
Tiffany Zales Kay BlueNile Helzberg
Distribution
Strategy
Online +
Retail
Online +
Retail
Online +
Retail
Online Online +
Retail
Sales(USD) $1,805
million
$1,888
million
$4,209
million
$488 million $692 million
Main
Product
Rings Diamonds Rings Diamonds Diamonds
Market
Share
5.4% 5.6% 13% 1.4% 1.9%
In Table 3, wecan see overallrevenue in fine jewelry is approximately 9 times greater than
fashion jewelry.Kay earns the most revenue, in comparison toother competitors.
STELLA & DOT
Stella & Dot stands close to Origami Owlwith an 8.3% share with $250 million in revenue (as we
assumed before) but presents a higher valueproduct.
Stella & Dot’s Stylist have a better performanceper person, as 30,000 generate almost the same
revenue as Origami Owl’s team of 50,000 designers (Forbes, 2014).
12. ALTERNATIVES
10
Alternative1 – Indirect Distribution
Alternative 1 is to completely re-haul Stella & Dot’s current distribution model fromdirect sales
through Stylists towell-established brands and retailers such as Macy’s and Nordstrom.
ADVANTAGES
Refocuson production of products
Reduce amount of interactions Stella & Dot needs to manage
Easier to manage whilescaling revenue growth
DISADVANTAGES
Less controlof the representation of Stella & Dot’s products
Alienates the Stylists and current customer base
Completely revamping a business model is a highly risky strategy
OVERVIEW
For our target market, the ease of access to the products, and the more standardized approach to
sales is potentially appealing. As stated earlier, 32% of women between the ages of 35-55 do not
use the internet when making jewelry purchases (PwC,2014). By modifying our distribution
method and utilizing multiple retail channels, Stella & Dot can expand its production and improve
relations by reducing the number of interactions they deal with, to reach their sales goal of $500
million in annual sales.
13. ALTERNATIVES
11
Alternative2 – Hybrid Distribution
Alternative 2 is to combine Stella & Dot’s current distribution method withthe addition of major
retail outlets such as Nordstrom and Macy’s.This allows the target customers, middle-aged
Caucasian women, to choose whichevermethod of purchase is most convenientto them.
ADVANTAGES
Adding more distributers, increases potential to capture the fullmarket
Potentialgrowth of revenue is very high
Providesa physical location forwomen to go, handle, and try on the product before
committing to a purchase, without having to waitfor trunk shows
DISADVANTAGES
Balancing channel conflictswhen dealing with multiple distributors is very difficult
Additional marketing channels are very expensive
o Need to hire staff to manage and maintain the channels
o Need to either provide or accommodate shipping in mass amounts to retail
locations
Could potentially harm the income and negatively impact the women Stella & Dotare
trying to empower and inspire
OVERVIEW
Using the current established direct sales distribution model Stella & Dot has, and the indirect
distribution of major retail outlets, the company can capture their target market. Current
research shows that 32% of womenwant an alternate method of purchasing products aside from
the internet (PwC,2014). Currently, Stella & Dot only has 3.9% of their sales at fairs, exhibitions,
and malls (DirectSellers Association, 2015). By using these additional channels of distribution,
they can increase their revenue to reach their target of a $500 million increase in revenue within
the next 5 years.
14. ALTERNATIVES
12
Alternative3 – Direct Distribution
Alternative 3 is forStella & Dot to open physical retail outlets using selectivedistribution and a
full personal service. The specialized retail outlets can workside-by-side withthe Stylists.
ADVANTAGES
67% of jewelry shoppers prefer buying in-store (PwC,2014)
Full controloverservice representation since it is operated by Stella & Dot
Omni-channel approach forbetter customer experience
DISADVANTAGES
Increased operational expenses due to additional salaries and on-site software
Threat of reduced sales forthe Stylists
Additional distribution channels make inventory management more difficult
OVERVIEW
Stella & Dot can create retail outlets toallow more sales channels forthe customers without
harming their Stylists. All distribution and sales will be handled directly by Stella & Dot, allowing
complete controloverthe representation of the brand. This gives the most potential to capture
the goal of 67,000 additional customers per year.
15. SOLUTION
13
We recommend Stella & Dot to strategically expand its direct sales model, and open retail stores
to capture the interest and appeal to middle-aged American women. Therefore,by adjusting its
current distribution strategy, Stella & Dot willachieve $500 million in revenue by 2021.
ARGUMENT
Specialty jewelry sales were $33.6 billion in 2014 (Golan, 2015)
o 82% is done in-store (Golan, 2015)
o 7% is done through online sales (Golan, 2015)
o 10% is done through direct sellers (Ibis World, 2015)
48% of people research online before buying jewelry (PwC, 2014)
o 67% will buy in-store compared to 26% online (PwC, 2014)
The main reasons why people chose to buy in-store instead of online:
Figure 1: People Who Purchased In-Store Rather Than Online (PWC, 2014)
As seen in Figure 1, 73% people decided to buy in a physicalstore overonline. Among the top
three reasons, avoid to pay for delivery and immediate access to the purchase, are reasons why
consumers prefer to buy in a physicalstore rather than online (PwC,2014).
16. SOLUTION
14
OBJECTIVES
The overallmarket value is based on the average jewelry sales of $750 annually per
person (BLS Expenditure, 2011)
Utilize the new trend of “webrooming”
o 73% of customers will research online before buyingin store (PwC,2014)
Physicalstores will help reach 22% of the 35 to 55 year-oldCaucasian women, whodo
not buy jewelry online and prefer in-store shopping forno shipping fees and delivery time
(Ibis World, 2015)
o Stella & Dot willcapture 1% of their yearly spending in jewelry of $50 million, a
market increase of 67,000 women yearly.Achievingthe goal of a 100% increase in
revenue of $500 million by 2021 (Appendix C)
Having a physical store will lowerthe 30% return rate (averagefor the fashion industry)
to 20%, by decreasing the poor fit returns (70% of totalreturns); therefore,decreasing
costs (Neasle, 2013)
Physicalstores will havean objectivetorefer to a Stylist, for a fully customized experience
and to avoidchannel conflict.Hence, it willalign with Stella & Dot’s “our mission and our
passion for creating flexible entrepreneurship forwomen” (Herrin, 2014)
17. IMPLEMENTATION PLAN
15
1-2 YEAR
1. Use prime retail locations tomaximize potential customer traffic
2. Design and plan a good layoutforretail outlets that represent Stella & Dot’s brand’s goal
of empowering and inspiring women
3. Organize the retail sales model to empowerthe Stylists, use a personalized one-on-one
service, and preventa negative impact on their job
4. Prices willremain the same as the online store
5. Introduce a recommendation system, allowing customers that use retail outlets to
recommend their Stylists
6. Stella & Dot products willworkby time-based competition
7. Physicalstores will create a better experience to casual shoppers and customers that
prefer immediate products. Also, it will generate loyalty by recommending Stylists togive
more value and personalized experiences to the clients
8. Open 20 pilot stores across large cities in the USA forretailing (Forbes, 2010):
Phoenix, AZ
Los Angeles, CA
San Diego, CA
San Francisco,CA
San Jose, CA
Denver,CO
Chicago, IL
Indianapolis, IN
Jacksonville,FL
Boston, MA
Charlotte, NC
New York,NY
Columbus, OH
Philadelphia, PA
Nashville, TN
Austin, TX
Houston, TX
San Antonio, TX
Dallas, TX
Seattle, WA
Refer to Appendix A for cities’ data.
Costs and revenue for1-2 year implementationplan:
Total opening costs: $30,834 per location
Extra monthly costs: $8,997 per location (additional cost forin-store strategy)
Average monthly revenue first twoyears: $29,761 per store
Total revenuefirst twoyears: $33,600,000
Refer to Appendix C for costs and sales breakdown.
18. IMPLEMENTATION PLAN
16
3-5 YEAR
1. Expand to additional retail outlets based off the success of pilot stores
2. Long-term goal to havemultiple retail locationswithin each state
3. Having nearby retail outlets will allow women to havea fully customizedexperience. The
referral program allows Stylists to still recommend products to their friends and families
and doesn’t impact the current model negatively
4. Open 140 stores across the main cities and malls
Costs and revenue for3-5 year implementationplan:
Total extra costs yearly (all stores): $1,259,580 (additional costfor in-store strategy)
Total revenueyearly (all stores): $260,400,000
Total revenueyearly (Stylists): $412,500,000 (assuming a 13% growth(PrivCo,2015))
Total revenuein 2021: $672,900,000
Refer to Appendix C for costs and sales breakdown.
BACKUP PLAN
If Stella & Dot does not achieve100% growthin revenue by 2021, that is $500 million dollars,
alternative 2: hybrid distribution willbe implemented, supporting our solution.
We will reassess the selectivedistribution and go for a broader scope of distribution channels.
Utilizing both direct and indirect distribution will allow Stella & Dot to reach the maximum
amount of customers, thus developing a horizontal marketing system withNordstrom and
J.C. Penny.
19. COURSE CONCEPTS
17
Channel Conflict – Primary goal of our solution is to create an environment for the Stylists and
retailer that does not create conflictbetweenthe distribution channels.
Customer Value – Main focuswhile developing the case.
DirectDistribution – Primary alternative and solution is a direct distribution method.
Hybrid Distribution – Second alternative is hybridizing the direct and indirect distribution
models.
Indirect Distribution – First alternativeis indirect distribution.
Levelof Service – Full service is our type of service in directdistribution.
Marketing Mix – Followed the four Ps in the implementation of the solution.
Secondary Research – Used throughout the case using library resources (PrivCo,Business Source
Complete), retail surveys,and jewelry statistics.
SelectiveDistribution – Retail outlets managed and distributed, our primary solution, is a formof
selectivedistribution.
SMART – Guideline toidentify the problem to solve.
SWOTAnalysis – Environmentalscan of the internal strengths and weaknesses as well as the
external threats and opportunities of Stella & Dot.
Target Market – Identifying our target market by geographic, demographic, psychographic,and
behavioral.
20. REFERENCES
18
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brands-7811877/
23. APPENDIX
21
APPENDIX A
Table 4: Top 20 Cities for Retailing (Forbes, 2010)
APPENDIX B
The minimum wage increases in the past year in different states:
Arizona $7.9 in 2014 to $8.05 in 2015 (Marketline, 2015)
Florida $7.93 in 2014 to$8.05 in 2015 (Marketline, 2015)
Colorado $8 in 2014 to $8.23 in 2015 (Marketline, 2015)
Alaska $7.75 in 2014 to $8.75 in 2015 (Marketline, 2015)
Washington $9.32 in 2014 to $9.47 in 2015 (Marketline, 2015)
Oregon $9.1 in 2014 to $9.25 in 2015 (Marketline, 2015)
Cities Retail Locations Shopping Centers Sales Tax Women Population
Phoenix, AZ 11,992.00 40 9.30% 765,455
Los Angelex, CA 40,170.00 15 9.75% 1,972,290
San Diego, CA 9,948.00 22 8.75% 683,595
San Francisco, CA 14,412.00 9 9.50% 504,845
San Jose, CA 5,421.00 13 9.25% 504,845
Denver, CO 8,476.00 11 7.72% 420,263
Chicago, IL 30,234.00 22 9.75% 331,500
Indianapolis, IN 5,955.00 18 7.00% 438,778
Jacksonville, FL 5,190.00 25 7.00% 439,492
Boston, MA 17,098.00 7 6.25% 341,716
Charlotte, NC 6,225.00 21 8.25% 418,748
New York, NY 75,619.00 9 8.88% 4,332,072
Columbus, OH 5,712.00 32 7.75% 428,010
Philadelphia, PA 20,970.00 29 8.00% 823,786
Nashville, TN 5,955.00 18 7.00% 331,676
Austin, TX 5,347.00 31 8.25% 450,903
Houston, TX 16,938.00 54 8.25% 1,115,271
Dallas, TX 19,069.00 28 8.25% 640,500
San Antonio, TX 5,913.00 41 8.13% 735,589
Seattle, WA 11,549.00 9 8.80% 334,171
24. APPENDIX
22
APPENDIX C
35-55 Us Women White women In Store buyers Average spending Total spending Needed Goal Revenue Summary Description
40,000,000.00 70% 32% $250,000,000 $286,111.11 Per Store
40,000,000.00 28,000,000.00 8,960,000.00 $750 $6,720,000,000 1% $50,000,000 $35,000.00 Per month
22% 66,666.67 People
Sales associates Sales Salary Total Associates Regional Manager Average Rent Utilities Other expenses Total
2 $1,760 $3,520 $2,500 $1,877 $300 $800 $8,997
Spread cost 1 year Expense $359,880
5 year Expense $1,619,460
Rent and Operation Arrengements Miscellaneous IT Marketing Public Relations Total Costs
$4,899 $7,650 $1,560 $6,165 $8,900 $1,670 $30,844
# Stores 2 year 40 $1,400,000.00 $16,800,000.00 $33,600,000.00
# Stores 5 year 180 $6,300,000.00 $75,600,000.00 $226,800,000.00
$260,400,000.00
Revenue 2021 Stylists 250000000 412500000 $672,900,000.00
OPERATING COSTS
SALES
OPENING COSTS
Table 5: Sales, Operating Costs, and Opening Costs
