Company Analysis

Business and Management
Should Roots fashion Pvt. Ltd (Roots) drop Pepe Jeans (Pepe) from its brand portfolio
to increase profits?
Candidate Name: Shristi Tuladhar
Candidate Number: 004874-0032
School: Ullens School Khumaltar, Lalitpur Nepal
Session: May 2014
Subject: Business and Management (HL)
Word count: 1989.

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Research Proposal
Should Roots fashion Pvt. Ltd (Roots) drop Pepe Jeans (Pepe) from its brand portfolio to
increase profits?
Established in 2002, Roots Fashion Pvt. Ltd also known as Roots is the authorized distributor of
multinational brands. Currently, it is operating two denim brands i.e. Pepe and Levis in the
denim market in Nepal. The products of Pepe are sold in the same retail outlet where the
products of Rockport are sold; hence they both share the same retail outlet. There is more
demand for the denim products of Levi’s hence, Pepe is less profitable and has high unsold
stocks. Therefore, dropping Pepe would be a strategy to increase the overall profitability and
efficiency of Roots.
The methodology used:
Primary research:
• Interviewing the Managing Director about the company, profitability of Pepe in
compared to Levi’s, the brand recognition, current market position and the plans for
dropping the brand.
• Interviewing the employee about the marketing strategy, their reaction towards this
dropping off strategy, marketing mix, and the external factors affecting the company.
• Surveying the customers at the outlet with questionnaires about their preference of the
product, quality, price, convenience, dissatisfaction aspect and their suggestions to
validate analysis outcomes.
Secondary research:
• Reviewing annual reports to collect relevant financial figures i.e. historical sales, stock,
and costs data.
• Reviewing websites and articles to analyze the current market situation of Pepe in the
Indian market for further comparison.
It includes both quantitative and qualitative data and marginal/contribution and ratio analysis
would be used.
Areas of syllabus:
1.2 Types of organizations
1.6 Organizational Planning tools
2.10 Human resource planning
2.14 Motivation
2.16 Employer and employee relations
3.20 Working Capital

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3.22 Financial accounts
3.23 Ratio Analysis
4.24 The role of marketing
4.25 Marketing Planning
4.26 Product
4.27 Price
4.28 Promotion and place (distribution)
5.31 Costs and revenues
5.33 Quality assurance
5.36 Production planning
6.1 Business Strategy
Problems and Proposed solutions:
Possible Problems Solutions
Research reliant on forecasts External factors taken into consideration before relying on
forecasts.
Sampling bias during customer
surveys
Specific options inserted hence the questions are not open-
ended.
Difficult to obtain current data for
Indian market
Cross-checking various websites to validate the data
Limited information while
interviewing
Interview questions are open-ended
Validity and hesitancy to share
financial data
Cross-checking with the overall report of the company and
signing a confidentiality agreement

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Action plan:
Task Date Modification
Topic chosen 26/12/2013
Submission of research proposal 28/12/2013
Feedback 1/1/2014 Area of syllabus, rationale and
research question modified slightly.
Reviewing the Annual Report of the
company and recording relevant financial
data
5/1/2014 Recording the stocks value
Interview with the Managing director 6/1/2014
Customer survey 10/1/2014
Appointment for Interviewing the
Manager fixed 13/1/2014
15/1/2014 Appointment postponed
Collating the primary data 18/1/2014-21/1/2014
Presentation of primary data and
conducting PEST/SWOT analysis
26/1/2014
Collating the secondary data 1/2 2014
Writing the first draft 10/2/2014-15/2/2014
Submission of the first draft 21/2/2014
Revising the first draft 5/3/2014 Analyzing the market position of
Pepe in the Indian market
Submission of final draft 23/3/2014
Word Count: 496

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Acknowledgments
Firstly, I would like to thank the Managing Director of Roots Fashion (Roots) Mr. Sanjib
Tuladhar, and the employee Mr. Sanjay Maharjan for taking their time off their busy schedule
during the research procedure of the business and management internal assessment to help me to
provide information about the brand and the company.

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Table of Contents
RESEARCH PROPOSAL
2

ACKNOWLEDGMENTS
5

EXECUTIVE SUMMARY
7

1. INTRODUCTION
8

2. PROCEDURE/ METHODOLOGY
9

3. DISCUSSION AND ANALYSIS:
10

3.1 BOSTON MATRIX OF THE BRAND PORTFOLIO OF ROOTS FASHION PRIVATE LIMITED:
10

3.2 COMPARATIVE ANALYSIS BETWEEN PEPE JEANS WITH LEVI’S AND ROCKPORT:
11

MARGINAL/CONTRIBUTION COMPARATIVE ANALYSIS WITH LEVI’S:
12

MARGINAL/CONTRIBUTION COMPARATIVE ANALYSIS WITH ROCKPORT:
12

3.3 PEPE JEANS IN GLOBAL (INDIAN) MARKET:
14

3.4 IMPACT OF DROPPING PEPE JEANS:
14

ON ROCKPORT’S PERFORMANCE:
14

ON HUMAN RESOURCE MANAGEMENT:
15

4. CONCLUSION AND RECOMMENDATIONS:
15

BIBLIOGRAPHY
17

APPENDIX 1: INTERVIEW WITH THE MANAGING DIRECTOR OF ROOTS FASHION PVT. LTD, MR. SANJIB
TULADHAR
18

APPENDIX 2: INTERVIEW WITH THE EMPLOYEE, MR. SANJAY MAHARJAN
20

APPENDIX 3: SWOT ANALYSIS
22

APPENDIX 4: PEST ANALYSIS
23

APPENDIX 5:CUSTOMER FEEDBACKS
25

APPENDIX 6: MARGINAL COSTING/ CONTRIBUTION COSTING ANALYSIS OF PEPE JEANS AND LEVI’S FOR
THE YEAR (2003-2013) AND ROCKPORT FOR THE YEAR (2012-2013)
33

APPENDIX 8: GROSS AND NET PROFIT MARGIN OF PEPE JEANS FOR THE YEAR (2011-2013)
38

APPENDIX 9: STOCK (INVENTORY) TURNOVER RATIO FOR THE YEAR (2011-2013)
40

APPENDIX 10: THE DETAILS COLLECTED FROM THE BUSINESS
41

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Executive Summary
Managers of Roots Fashion Pvt. Ltd (Roots) expressed concern regarding the profitability
of the denim brand named Pepe as the brand has not been able to generate targeted revenue
compared to another denim brand i.e. Levi’s. Pepe has also created negative implications to
another brand named Rockport, as they both are operated in the same retail outlet. Therefore, this
report will analyze the question, “Should Roots fashion Pvt. Ltd (Roots) drop Pepe Jeans
(Pepe) from its brand portfolio to increase profits?”
The research proposal outlines the rationale, theoretical framework, methodology and
possible problems during the research with the possible solutions. An introduction provides the
background about Roots and its impending decision.
Main results and finding and an analysis section were based upon the interviews with the
managing director and manager of Roots (Appendix 1 and 2), customer surveys and the
secondary sources including financial reports and internet sites using both financial (Ratio
analysis, Contribution cost analysis/Marginal cost analysis) and non-financial techniques
(SWOT, PEST, Boston Matrix-Appendix 3, 4).
Such analysis led to assertion that Roots should not drop Pepe from its brand portfolio
because Pepe is still a profitable brand and is contributing towards the fixed costs of the
company though the financial return is low compared to Levi’s and Rockport. This is solely an
internal issue caused due to the negligence towards the brand i.e. not updating the product
portfolio by the management. Finally, the recommendations that have been provided are to clear
out the old stocks and to constantly update its product portfolio and provide marketing support to
Pepe.
Word count: 261

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1. Introduction
Roots started its operation in the year 2000. It is operated by the managing director Mr.
Sanjib Tuladhar and other managers. It is a sole distributor of Adidas, Levis, Kickers, Dr.
Martens, Pepe Jeans, Oakley, Rockport and other multinational brands. It distributes the products
of these brands through its eleven retail outlets only in Kathmandu and Pokhara cities of Nepal,
as it has not yet adopted e-commerce strategy1
. Pepe Jeans (Pepe) is a denim and casual wear
jeans brand. It was founded in 1973 at a stall in Portobello Market (London)2
and it has a diverse
product portfolio.
The research focuses on Pepe and Levi’s because only these are the two denim brands
operated by Roots, and Rockport though it is a different brand as Pepe and Rockport is being
operated in the same outlet located in Durbarmargh. The total area of the outlet is 1200 Sq. ft.
and, Pepe is covering 960 Sq. ft. whereas Rockport is covering 240 Sq. ft.3
hence, Pepe do not
have an exclusive store unlike Levi’s. The retail outlets of Pepe and Levis are located in ideal
location and which are well received by the customers4
, but the profit of Pepe is not justified and
this has lead to negative implications to Rockport too. As the management is unsatisfied with the
profitability of Pepe compared to Levi’s it is evaluating to drop Pepe from its brand portfolio and
improve its overall profitability5
. However this decision does not seems to be a rationale decision
and is inevitably a biased one because it is solely based on comparison with Levi’s. The other
brand, Rockport has to be shut down if Pepe is dropped unless a new brand would be launched.
Hence, the research question: Should Roots fashion Pvt. Ltd (Roots) drop Pepe Jeans
(Pepe) from its brand portfolio to increase profits?
1
Refer Appendix 1: Interview with the managing director of Roots Fashion Pvt. Ltd Mr. Sanjib Tuladhar
2
About Pepe Jeans. Visited January 7, 2014. Retrieved from http://www.pepejeans.com/en/home/history.html
3
Refer Appendix 2: Interview with the employee Mr. Sanjay Maharjan
4
Refer Appendix 5: Customer feedbacks
5
Refer Appendix 1: Interview with the managing director of Roots Fashion Pvt. Ltd Mr. Sanjib Tuladhar

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2. Procedure/ Methodology
Primary sources: The primary sources are interviews with the managing director Mr. Sanjib
Tuladhar, employee Mr. Sanjay Maharjan, and customer surveys.
Secondary resources: The demand for Pepe brand over the years, historical sales, cost,
Internet, newspapers, magazines, books and other economic data were referred.
Tools used:
• SWOT analysis
• PEST analysis
• Boston Matrix
Quantitative tools used:
Ø Ratio Analysis:
Gross Profit Margin
Net Profit Margin
Stock turnover Ratio
Ø Contribution/marginal costing statement
Ø Sales and Profit figures

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3. Discussion and Analysis:
3.1 Boston Matrix of the brand portfolio of Roots fashion private limited:
High
Levi’s and Adidas both are the star and cash cows for Roots. Due to this increase in
brand awareness, less advertisement is required, thus leading to a decrease in the expenses in the
promotion overheads. In the year 2013, Adidas alone generated Rs. 180, 819, 590 and Levi’s
generated Rs. 218, 189, 82 of sales revenue, the highest amongst its brand portfolio. Hence, the
retained profit can be invested on problem child like Pepe to make it a star product, as there is
potentiality of growth. In 2013, the revenue generated by Pepe was Rs. 8821030 whereas the
target set by Roots was Rs. 1054523, hence it has not been able to meet the target set because it
is not obtaining marketing support and it would soon turn into a dog if this trend continues. Even
Rockport and other brands are the problem child, but this sounds viable as they are newly
established brands in Nepal. However, Pepe seems to be an issue because it is not doing well
though it is a well-established brand. And, Quicksilver is a dog because the contribution and
market growth is very low, and is on the withdrawal stage.
Levi's
Rockport
Others (Kickers, Taylor made,
New balance, Hang ten,
Oakley)
Pepe Jeans (Pepe)
Adidas Quicksilver
Market growth
Market share (%) LowHighLow
Figure 1: Boston Matrix of Roots Fashion Pvt. Ltd product line

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3.2 Comparative analysis between Pepe Jeans with Levi’s and Rockport:
Year (AD) Gross Profit Margin (%)6
Net Profit Margin (%)
2011 51.20 24.03
2012 43.16 13.15
2013 40.13 9.82
6
Refer Appendix 8: Gross and Net Profit margin of Pepe Jeans for the year (2011-2013)
0

5000000

10000000

15000000

20000000

25000000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
SalesRevenue/year(InRs.)
Year/AD
Sales Revenue of Pepe Jeans (Pepe) and Levi's per year (In Rs.)
Pepe Jeans
Levi's
1 US $=101.3 Nepalese Rupees (Accessed on 8th
February, 2014)
Graph 1: The sales revenue of Pepe and Levi’s from 2003-2013
Table 1: Gross and Profit margin of Pepe (2011-2013)

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Marginal/Contribution comparative analysis with Levi’s:
Marginal/Contribution comparative analysis with Rockport:
12808162
12879785

16334432

3386802

3283138

2876480

0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Totalcontribution(InRs.)
Year (AD)
Total contribution of Pepe Jeans (Pepe) and Levi's (2003-2013)
Levi's

Pepe
Jeans

0
500000
1000000
1500000
2000000
2500000
3000000
3500000
Pepe Jeans Rockport
TotalContrbution(InRs.)
Brand Name
Total Contribution of Pepe Jeans (Pepe) and Rockport
(2012-2013)
2012
2013
Graph 4: Marginal/Contribution costing analysis for Pepe with Rockport (2012-2013):
Graph 3: Marginal/Contribution analysis for Pepe with Levi’s (2003-2013):

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Being a market leader, Levi’s is profitable7
among four denim brands: Levi’s, Pepe,
Wrangler and Lee8
in the denim market of Nepal. Pepe and Levi’s were introduced in the same
year and until 2010, both of these brands were going head to head. Levi’s has been constantly
updating its product portfolio hence attract new customers and increase consumer loyalty by
meeting the changing consumer needs and wants through its latest fashionable products.9
This
has resulted to high footfall of customers10
in the retail outlet of Levi’s.
Whereas the product portfolio of Pepe is not being updated, hence the stocks are not sold
so rapidly as expected therefore, the stock turnover ratio is very low.11
This not only increases the
stock holding costs as the stocks have to be held in secure warehouses, but due to piling up of
stocks for a long time period there is generation of quality issues related to material.12
Like the
jeans of Pepe seem to fade away and lose its original quality and shape. Therefore, there is fall in
loyal customers as customers feel that the products are not worth the price charged.13
Hence, the
7
Refer Appendix 1: Interview with the managing director, Mr. Sanjib Tuladhar
8
Refer Appendix 3: SWOT Analysis
9
Refer Appendix 4: PEST Analysis
10
Refer Appendix 2: Interview with the manager, Mr. Sanjay Maharjan
11
Refer Appendix 9: Stock turnover ratio of Pepe Jeans (2011-2013)
12
13
0
2000
4000
6000
8000
10000
12000
Pepe Jeans Rockport
TotalContributionpersquareft.(In
Rs.)
Brand name
Total Contribution of Pepe Jeans (Pepe) and Rockport per
square ft. (2012-2013)
2012
2013
Graph 5: Marginal/Contribution costing analysis for Pepe with Rockport in per square ft.
(2012-2013)
The detail of the calculation of Total contribution has been conducted on the Appendix. 6 and 8

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prices are competitively priced and the price set is not able to cover the cost of production and
generate adequate profit though, there is no loss situation. This decrease in the price level14
,
increase in stock holding costs and the unit cost of production due to diseconomies of scale
because of decreased sales revenue at the maturity phase, with the rising trend of inflation rate15
has led to an increase in costs thus, less contribution towards fixed costs. Similarly, for, every
Rs.100 worth of sales the amount of gross profit generated was Rs. 40.13 in the year 2013, a
decrease in 21.6% from the year 2011.
However, Pepe is contributing more (Graph 4), but this is because it has a wide product
range and covers a large area of the retail outlet compared to Rockport. By looking at Pepe from
the aspect of per square ft. (Graph 5), it has not been effective in generating revenue to the space
being occupied 16
. Indeed, Rockport has covered less area and is generating more revenue with a
limited product range. Though, Pepe contributing less compared to Levi’s and Rockport, it is a
part of range of brands operated by Roots, hence dropping it would reduce the appeal of Roots.
However, operating the brand just because there is no negative contribution, deprives the
company from launching a new brand, which could make even greater contribution though, it is
difficult to launch new brand in a short run.
3.3 Pepe Jeans in global (Indian) market:
Pepe of Nepal has been compared with the Indian market as both of the country lies in
Asia, hence follow similar market structure and social trends. In the Indian market, Pepe is the
market leader in premium jeans and casual wear space. The company has a positive brand image
leading to high footfall of customer in the retail outlets, hence increased sales revenue. Currently,
it’s turnover is Rs. 250 crores (NRs. 400 crores), and it has projected to double it in the next two
or three years.17
3.4 Impact of dropping Pepe Jeans:
On Rockport’s performance:
Consumers hold a positive perception towards Rockport due to its appealing products.
But as there is negative perception towards the products of Pepe, which operates in the same
retail outlet, there are negative implications to Rockport, though the retail outlet has an ideal
location.18
However, Rockport would not be able to fully justify allocation of the entire floor
space of the retail outlet with its limited products and bear all the costs alone, Hence, the retail
outlet might need to shut therefore, even Rockport would not be able to operate in the market
until a new brand has been launched.
14
15
Refer Appendix 4: PEST Analysis
16
17
Pepe Jeans aims to double turnover in two to three years. Visited February 28, 2014. Retrieved from
http://www.fashionunited.in/news/fashion/pepe-jeans-mulls-entering-kids-wear-space-120220134943
18
Refer Appendix 1: Interview with the managing director of Roots Fashion Pvt. Ltd, Mr. Sanjib Tuladhar

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On human resource management:
The retail outlet provided employment for three employees, but as they would be shifted
to other retail outlets19
if Pepe were dropped, their jobs are secured. However, dropping a brand
would increase the feeling of insecurity hence deprive the employees from meeting the safety
needs. There would also be an increase in travelling expenses, as the employees would need to
arrive at different retail outlets, but working on more successful brands increases the incentive to
work. However, the social needs are not met, as it would be difficult to involve in teamwork and
work in a new environment hence, the provision of induction training would lead to a substantial
increase in business costs.
4. Conclusion and Recommendations:
Based on the estimations and the forecasts, Pepe do not operates an exclusive store from
the year 2012 whereas; Levi’s still operates an exclusive store. The management has been
focused more on Rockport and Levi’s as they see the potentiality of growth hence, the products
of these two brands has been constantly updated. Whereas, the product portfolio of Pepe is
outdated and less marketing support is received, due to which it is in a decline stage. Hence, the
stock turnover ratio is very low as it has not been able to sell the old stocks efficiently, because it
has failed to attract new customers and satisfy the loyal customers with these poor-quality and
outdated products.
But, the profit and contribution of Pepe is still positive, though it is less compared to
Levi’s and Rockport. It has not been efficient in generating revenue in terms of area occupied in
the retail outlet. This rise in problem with the Pepe brand in financial as well as non-financial
terms is solely due to negligence, as Pepe has been doing very well in terms of profitability, and
generation of loyal customers in the Indian market (globally).
Dropping Pepe could improve the overall profitability of Roots and there would be
reduction in negative implications to Rockport. But, Rockport would need to bear all the costs
alone and would not be able to fully justify allocation of the entire floor space of the retail outlet
due to limited product range if Pepe is dropped. So, in short-run the retail outlet Pepe may need
to shut down, as it is difficult to carry out a detailed market research, identify market gap and
introduce a new brand in short-run. As this arise in problem is an internal issue, Roots should not
drop Pepe from its brand portfolio but it should instead update its existing stocks and provide
more marketing support to Pepe. However, just because it is doing well in the Indian market for
certain time period does not mean that it would significantly alter the situation in Nepal too as
the market structure is entirely different.
19

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After conducting a research on the dropping strategy, the recommendations are:
Ø The outdated stocks should be cleared out either through selling them in discounted price
or through sales promotion techniques and it should be updated with new ones.
Ø Promotional activities like advertisement should be conducted mainly when the product
portfolio of Pepe would be updated, so that consumers are aware of the new arrivals.
Ø Equal marketing support should be provided to Pepe, as other brands though there would
be cost consequences.

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Bibliography
Web:
1
About Pepe Jeans visited January 7, 2014 Retrieved from
http://www.pepejeans.com/en/home/history.html
1
Michael Korchia (1999),"A New Typology of Brand Image", Pages: 147-154 visited January
17, 2014 Retrieved from < http://www.acrwebsite.org/search/view-conference-
proceedings.aspx?Id=11132 >
1
Corporate image visited January 232, 2013 Retrieved from
<http://www.inc.com/encyclopedia/corporate-image.html >
1
Inflation rate (consumer prices) visited January 7, 2013 Retrieved from
https://www.cia.gov/library/publications/the-world-factbook/fields/2092.html
1
Gross saving (% of GDP) visited January 7, 2013 Retrieved from
http://data.worldbank.org/indicator/NY.GNS.ICTR.ZS
1
DR. ASHOK SHUMSHERE J.B.R. Remittance economy visited on September 16, 2013
Retrieved
from<http://www.thehimalayantimes.com/fullNews.php?headline=Remittance+economy&News
ID=268873 >
1
Nepal’s per capita income to reach US$735 this year visited January 17, 2014 Retrieved from
< http://www.parakhireviews.com/news/2012/04/18/nepals-per-capita-income-to-reach-us735-
this-year >
1
Exchange Rate visited January, 7, 2013 Retrieved from
http://www.nrb.org.np/fxmexchangerate.php?YY=2014&MM=01&DD=07&B1=Go
1
Pepe Jeans aims to double turnover in two to three years. Visited February 28, 2014. Retrieved
from < http://www.fashionunited.in/news/fashion/pepe-jeans-mulls-entering-kids-wear-space-
120220134943 >

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Appendix 1: Interview with the Managing director of Roots Fashion Pvt. Ltd,
Mr. Sanjib Tuladhar
1) Could you please talk a little about the company’s history?
The company was started and registered in 2000 (Nepali year 2056.2057). It was formally
incorporated under the Nepalese Companies Act with five promoter shareholders and is
collectively known as Roots in Nepal. It is a retailer and a private limited company. The first
brand introduced by the company is Adidas. Later on, it started introducing multinational brands
like Levis, Kickers, Dr. Martens, Pepe Jeans, Oakley, and Rockport to make its brand portfolio
more diverse and enhance its brand image.
2) How are the products distributed?
The products are distributed only through retail outlets, as we have not adopted e-commerce
strategy yet. In total, we have eleven retail outlet located in the Kathmandu and Pokhara cities of
Nepal, and are located in very accessible locations.
3) Could you tell me about your products, and the quality of the products of Pepe Jeans?
We are the exclusive Pepe Jeans store in Nepal, guaranteeing only authentic Pepe Jeans’
products in the store. The products are made in London but it is collaborating from India. Being
the sole distributor, we take pride in our quality products and. But due to the increasing
competitors in the market and the establishment of Levi’s, which is a close substitute, the
demand for the products is not consistent though there are loyal customers.
4) Would you say Pepe Jeans is in a very competitive market?
Yes, Pepe Jeans is in a very competitive market. Currently, it has three competitors on its way,
namely Levi’s, Lee, and Wrangler with Levi’s holding the position of a market leader.
5) Is there a decrease in the demand of Pepe Jeans after the Levi’s brand has been
introduced?
We cannot say directly that there is a decrease in demand of Pepe Jeans because Levi’s has been
inaugurated. Yes, it might have affected slightly as it is a similar denim brand. But, as Pepe Jeans
has its own customers and Levi’s has its own customers, we cannot say that there is a decrease in
the demand of Pepe Jean’s products just because Levi’s brand is being introduced. As, it is not
necessary that customers, who prefer Pepe Jeans, would prefer Levi’s as Peep Jeans a European
brand has a separate identity.

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6) What is Pepe Jeans’ current market position?
Our market place is second among the four denim brands in the marketplace. With Levi’s being
holding the first position and Pepe Jeans holding the second position.
7) Do all the employees agree with the strategy of dropping Pepe Jeans or is it an autocratic
decision?
Yes, it is mostly the autocratic decision as the management has first decided this strategy, but
even the employees are taken in consideration. So, it is a mixture of autocratic as well as
democratic decision. And yes, all employees do agree with this decision, because the first they
would be concerned about is the fear of losing jobs. Their jobs are secure because, as Pepe Jeans
is dropped they would be automatically moved to other brands. They would be under the same
company, but they would be assigned to different retail outlets of different brands. Similarly, we
expect more sales turnover and returns after selling Pepe Jeans due to which this would also
affect the amount of bonus and salary received by the employees.
7) Is the decision of dropping Pepe Jeans influenced by external factors?
No, there is no external influence. It is solely an internal decision.
8) If the company is dropped of, what are your plans on the amount saved?
The plan after we drop Pepe Jeans is to invest that sum of money in the research and
development and mainly invest in the product development and marketing of the Levi’s brand as
we see more opportunities for the growth of Levi’s than Pepe Jeans. As it is holding the position
of a market leader, we try to further improve the brand image, customer base and sales by
focusing and investing more on Levi’s. Not only Levi’s we have also planned to establish a new
brand in the retail outlet of Pepe Jeans, but we are still researching on it, but it would be a
multinational and fashion brand.
9) What do you plan to do on the existing retail outlets of Pepe Jeans?
On the existing retail outlets of Pepe Jeans, we have planned to replace with another new brand.
10) Why do you want to drop Pepe Jeans from the product range?
We want to drop Pepe Jeans from our product range, as (Levi’s) offers similar products and as
consumers prefer more of Levi’s products we think there is no need to offer both. So, we plan to
focus more on the profitable brand (Levi’s), because spreading our effort over too many products
would not maximize the potential of the company. Another reason is because Pepe Jeans is not
generating the amount of return as other brand in our product range, so this has affected the
overall profitability of the business though customers are still purchasing its product. We expect
more profit and decrease in costs after we sell Pepe Jeans.

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Appendix 2: Interview with the employee, Mr. Sanjay Maharjan
1) What is the total area of the Pepe Jeans retail outlet?
The total area of the exclusive retail outlet of Pepe Jeans is 1200 Sq. ft. Out of the total area,
Pepe Jeans is covering 960 Sq. ft. and Rockport is covering 240 Sq. ft
2) Where do you see the opportunities for growth, Pepe Jeans or Levi’s?
We see more opportunities for growth for Levi’s than Pepe Jeans though both are denim brands.
Levi’s tend to be dominating the market, and holding the highest position of a market leader and
this is the reason why we plan to focus more on Levi’s.
3) Are the products of Pepe Jeans selling well? If no, what are the costs involved of the unsold
stocks?
No, the products of Pepe Jeans are not selling well, due to which there are unsold stocks. This
not only constitutes to storage costs, but we also need to focus on advertisement, hence there is
involvement of promotion costs too compared to the Levi’s brand. This has also affected our
cash flow statements as it is taking time to convert the stocks into cash.
4) Would the employees motivation level be affected in terms of job security if Pepe Jeans is
drop out?
No, our motivation level is not affected at all because the management has informed us that we
would be transferred to other brand retail outlets after Pepe Jeans has been dropped out. So, our
jobs are secured.
5) What is the footfall of Pepe Jeans and Levi’s?
The footfall of Levi’s is (35-40) and the footfall of Pepe Jeans is (25-30) per day.
6) What is the price range of the products of Pepe Jeans and Levi’s?
The price ranges from Rs. 5000 to Rs. 9,000 for the more exclusive segment of jeans of Levi’s.
And, for the exclusive segment of jeans of Pepe Jeans, the price ranges from Rs. 3000 to Rs.
6000, whereas other products like shirts, t-shirts are reasonably priced.
7) What is your current marketing strategy?
Our current marketing strategy is stock liquidation and sales offer.

Internal Assessment
May 2014
21
8) Can you emphasize on the SWOT of Pepe Jeans.
The strength comprises of high quality products, a multinational company. The employees are
also highly skilled and experienced, but as all of them belong to Nepalese ethnic groups, they
seek holidays in important events. As, Roots Fashion is a sole distributor it enjoys the benefits of
high quality products as well as premium prices. It has also a strong and renowned brand image
due to which there are loyal customers and the retail outlets are fixed in place, which is easily
accessible by the majority of customers. The weaknesses are that, the only source of distribution
is retail outlets, there are no facilities of E-commerce so consumers do not benefit from accessing
the products from anywhere at anytime. This even affects the sales revenue so I understand the
potentiality of making e-commerce strategy though the initial cost are high. The prices of the
products are also high, as the import costs are high and due to the high quality material. Not only
limited product ranges, but there are also other political issues regarding legislation and the
bandhs and strikes affect the company overall. Likewise, it is also at a very competitive market
(three competitors currently-Levi’s, Lee and Wrangler) and the emergence of duplicate product
at low prices is also one of the threats to the company. Lastly, there is a decrease in the
production of cotton globally, which is the main resource for the production of cotton. Due to
decrease in the production of cotton, there is increase in the price of cotton, hence increase in the
cost of production of the company.
9) What external factors do you think will affect the company?
The government rules and regulations affect the company, as the company is totally dependent
on the imports from Singapore. The major political factor that affects the company is the
frequent occurrence of Bandhs and Strikes in Nepal. This not only affects the company’s sales
revenue, but there is also an effect on the rents and wages of the company. Secondly, the
economic factors are due to increasing inflation, there is a reduction in consumer consumption
and more about saving. There is also fluctuating exchange rate, and the increase in interest rates
has made the cost of borrowing difficult and expensive, however good relationship between the
bank and the company and the credibility status has benefited the company though there are
external threats. Thirdly, the social factors are there is an increase in the living standard of people
and people like to follow the trends due to which people have been more brands conscious and
hence prefer international brands. They like to prefer the latest fashion trends. Lastly, the
technological factors are due to advanced technology, we have been easily able to promote our
products, stay contact globally and easily identify its market research and opportunities.

Internal Assessment
May 2014
22
Appendix 3: SWOT ANALYSIS
Table 1: SWOT Analysis
Strengths Weakness
• A multinational brand
• Loyal customers
• Highly skilled workforce
• Sole distributor
• Corporate image
• Location of retail outlets (easily accessible
by the majority of customers or situated in
places where people gather more often.)
• The only source of distribution is retail
outlets
• Higher prices of the products
• Political issues
• Demotivated employees
Opportunities Threats
• Expansion of distribution channels (E-
commerce or retail outlets)
• Collaborating with other brands
• Expanding the product range
• Updating the product portfolio
• Political instability (Frequent occurrence of
Bandhs and strikes)
• Emerging competitors in the market
(Currently, there are three competitors of
Pepe Jeans so there is intense rivalry.)
• Load shedding problems (no electricity)
leading to higher costs (cost of generators
and fuel expenses)
• Duplicate products
• Decrease in the production of cotton, this
leads to increase in cost of production as
the resource needed to make denim is
scarce

Internal Assessment
May 2014
23
Appendix 4: PEST Analysis
1) Political factors:
• The company is totally dependent on the imports from Singapore for its stocks. Hence, the
change in policies or the rules and regulations of the government like indirect taxes, quotas,
restriction on imports, has a direct impact on the company’s sales.
• Due to political instability in the economy of Nepal, there are often strikes and bandhs (when
the business needs to be closes down) and this has a direct impact on the sales revenue, rent and
wages of the company. Even though, there are bandhs and strikes the business still needs to pay
the same amount of rent and wages as, it is on the normal day, so these business costs with
decreasing sales revenue affects the overall profitability of the business.
2) Economic factors:
• Due to increasing inflation, there is a decrease in the consumer expenditure. The current
inflation rate of Nepal is (9.5 %, 2012 est.)20
. People have focused more on saving than
spending. The saving rate of Nepal has increased from (37% of GDP, 2009) to (41% of GDP,
2012)21
. As a result, this has affected the company because; it consists of products with
comparatively higher prices than other brands in the market. So, this increase in inflation and
saving rate may affect the overall profitability of the business, as people nowadays want to
purchase more in low price.
• There is an increase in the disposable income of Nepalese people, hence, the purchasing power
and an increase in living standard and quality of life due to inflow of remittance and increase in
per capita income. The inflow of remittance was marked Rs. 230 billion in the FY 2009-10,
which is estimated to be 19.4% of GDP.22
There is also a prediction that the per capita income
of Nepal will grow by 3.2 percent in the current fiscal year to US$735 from US$712 in the last
fiscal year.23
As, there is an increase in income people shift their demand for normal goods to
more luxurious products like they tend to prefer branded products instead of normal goods.
• Currently, the exchange rate of Nepal is (1$=99.40 NRS)24
. As the value of Nepalese currency
is cheaper, or the exchange rate is low the imports are expensive. This is a major threat to the
company as it is entirely dependent on the imports from foreign countries like Singapore.
20
Inflation rate (consumer prices) visited January 7, 2013 Retrieved from https://www.cia.gov/library/publications/the-world-
factbook/fields/2092.html
21
Gross saving (% of GDP) visited January 7, 2013 Retrieved from http://data.worldbank.org/indicator/NY.GNS.ICTR.ZS
22
DR. ASHOK SHUMSHERE J.B.R. Remittance economy visited on September 16, 2013 Retrieved
from<http://www.thehimalayantimes.com/fullNews.php?headline=Remittance+economy&NewsID=268873 >
23
Nepal’s per capita income to reach US$735 this year visited January 17, 2014 Retrieved from <
http://www.parakhireviews.com/news/2012/04/18/nepals-per-capita-income-to-reach-us735-this-year >
24
Exchange Rate visited January, 7, 2013 Retrieved from http://www.nrb.org.np/fxmexchangerate.php?YY=2014&MM=01&DD=07&B1=Go

Internal Assessment
May 2014
24
Hence, this low exchange rate increases the business costs. Similarly, the fluctuating exchange
rate also affects the business.
• There is an increase in interest rates of the bank due to increasing inflation. So, it has been
difficult for the company to borrow loans for the company, due to increase in the cost of
borrowing. Similarly, even the provision of loans by the banks is extremely fluctuating. Hence,
the company has difficult in obtaining external source of finance. But, as it is a limited company
it has a separate legal identity and continuity. It also has assets and properties as a security, so
banks tend to trust the company. Even the status and the brand image of the company have
helped it to maintain a good relation with the bank. Hence, due to its credibility status it has
been easier to obtain loans in low interest rates.
3) Social factors:
• People like to follow trends they prefer international (European) brands like Pepe Jeans or
Levi’s, as it consists of denim and casual wear of the latest fashion trends so, this has a positive
impact on the company. But, Levis seems to be more fashionable as it has more update
products, or the products which are of latest trends like the curvy jeans.
• Levi’s offer jeans focusing more for trendy and brand conscious customers with eyewear
products. It is most recognizable for jeans pants containing five pockets, copper rivet and
buttons, red tab attached to the left rear pocket and a leather batch at the back.
• Due to the increase in the living standard of the people, they have been more brand conscious
hence preferring more of international brand in order to maintain status in the society. Roots
Fashion has an advantage by exploiting the brand conscious and high-class people.
4) Technological factors:
• Due to advancing technology, Research and development (R&D) has been easier in terms of
time and money. The company is able to easily identify market opportunities and conduct
market research.
• Due to emails, the company has been able to stay in contact globally. The order is being placed
through emails and even the agreements and meetings are made via the Internet.
• Due to social networking sites like Facebook, Twitter the company has been able to advertise,
enhance its brand image, develop brand awareness and is able to receive customer feedbacks.

Internal Assessment
May 2014
25
Appendix 5:Customer Feedbacks
Questionnaire:
1) What is the overall satisfaction obtained with our products? 5- Very satisfied, 4- Satisfied, 3-
neither satisfied nor dissatisfied, 2- Dissatisfied, 1- Very dissatisfied.
2) How likely that you would recommend our products to other people?
5- Very likely, 4- Likely, 3- neither likely nor unlikely, 2- Unlikely, 1- Very unlikely.
3) How satisfied are you with the following characteristics of Pepe Jeans’ products/ service in
comparison to other denim brands (Levi’s, Lee and Wrangler) in Nepal?
Table 2: Satisfaction level with the characteristics of Pepe Jeans’ products:
Characteristic 5- Very
satisfied
4- Satisfied 3- neither satisfied
nor dissatisfied
2- Dissatisfied 1- Very
dissatisfied
a) Quality
b) Usage experience
c) After purchase
service (customer
service, etc.)
4) How long have you being using our product?
Less than 6 months, More than 6 months but less than a year, 1-4 years, Over 4 years
5) Are the prices of the products reasonable? (Yes/No)
6) How frequent do you purchase the products, approximately?
1 Times, 2 Times, 3 Times, 4 Times, 5 Times, More than 5 times.
7) How accessible do you find the location of our retail outlets?
5-Very accessible, 4- Accessible, 3- neither accessible nor inaccessible, 2- Inaccessible
1- Very inaccessible.

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May 2014
26
8) What do you think about the following statements?
Table 3: Agree or disagree level with different statements:
Statements 5- Strongly
Agree
4- Agree 3- neither agree
nor disagree
2- Disagree 1- Strongly
disagree
a) Product/service is
according to what I need
b) Product/service is
competitively priced
9) What would you say about our product compared to other denim brands (Levi’s, Lee and
Wrangler) in Nepal? Best-5, Better-4, Same-3, Worse-2, Don’t know-1.
10) Would you purchase our products again?
Definitely-5, Probably-4, Not sure-3, Probably not-2, No-1.
11) What is the most satisfying factor about the product?
Design, Quality, Price, Features, Others (Please, specify).
12) What suggestions you have to improve our products?

Internal Assessment
May 2014
27
Results:
Graph 1: Satisfaction level with the products
Graph 2: Likeliness of recommendation of the products
0

1

2

3

4

5

6

7

Very

satis4ied

Satis4ied

Neither

satis4ied

not

dissatis4ied

Dissatis4ied
Very

dissatis4ied

No.ofcustomers
Satisfaction level
Satisfaction level with the products
Usage experience
After Purchase Service
Quality
Product
0

1

2

3

4

5

6

7

Very likely Likely Neither
likely nor
unlikely
Unlikely Very
unlikely
No.ofcustomers
Likeliness of recommendation of products
Likeliness of recommendation of the products
No. of customers

Internal Assessment
May 2014
28
Graph 3: Agreement level with the products and price
Graph 4: Time Period for the products used
0

1

2

3

4

5

6

7

Strongly
Agree
Agree Neither
agree nor
disagree
Disagree Strongly
disagree
No.ofcustomers
Agreement level
Agreement level with the products and price
After purchase service
Product/service is
competitively priced
50%
25%
17%
8%
Time Period of the products used
Less
than
6
months

1-‐4
years

More
than
6
months
but
less
than
a

year

Over
4
years

Internal Assessment
May 2014
29
Graph 5: Reasonability of price charged
Graph 6: Pepe Jeans compared to other denim brands
67%
33%
Are
the
prices
of
the
products
reasonable?

Yes

No

0%
17%
33%
25%
25%
Pepe Jeans compared to other denim brands
Best

Better

Same

Worse

Don’t
know

Internal Assessment
May 2014
30
Graph 7: Most satisfying factor about the product
Graph 8: No. of times the products being purchased
23%
54%
7%
8%
8%
0%0%
Most satisying factor about the product
Design

Price

Design
and
quality

Features

Price
and
quality

Quality

Others

1
6
3
2
0

1

2

3

4

5

6

7

1 time 2 times 3 times More than 5
times
No.ofcustomers
No. of times
No. of times the products being purchased
Frequency

Internal Assessment
May 2014
31
Graph 9: Location of the retail outlet
Graph 10: Probability of purchasing the products again
8
3
0

1

2

3

4

5

6

7

8

9

Very acessible Acessible
No.ofcustomers
Location of the retail outlet
Location of the retail outlet
No. of customers
2
3 3
2 2
0

0.5

1

1.5

2

2.5

3

3.5

Definitely Probably Not sure Probably
not
No
No.ofcustomers
Probability of purchase of the products
Probability of purchaing the products again
No. of customers

Internal Assessment
May 2014
32
12) What suggestions you have to improve our products?
Customer 1: Nothing.
Customer 2: I think that the product is good enough. There are good points about it, but nothing
extremely good as well. So for me it lies in the mediocre range. However, I feel that Pepe Jeans is
definitely facing a lot of competition from Levis, Diesel and other well-known jean companies.
So I would suggest Pepe Jeans to come up with more innovative range of designs, for example
Levis has a range of jeans which emphasizes on curvy women, which has gained a lot of attention
from many people, since they feel that its not the size that matters but the shape. So Pepe jeans
would definitely have to get their game on, by coming up with similar strategies which would
help gain attention from more and more people.
Customer 3: Umm, I think the jeans should be more flexible and stylish as other denim brands
like Levi’s and Denim jeans. And, there should be more choice on the products. The choice is
limited.
Customer 4: Yay you’re doing great!
Customer 5: Just keep introducing some new products.
Customer 6: Bring in some new products in the outlets.
Customer 7: More improvement in quality of jeans, in terms of how long the jeans last and the
colors richness over time.
Customer 8: As Pepe jeans have always been my most preferable and comfortable casual wear I
think it is good the way it stands currently. But, I want some more new and latest design products.
Customer 9: More updates on the products please!
Customer 10: It should have more pleasing fit and the style of the jeans should be darker. I like
darker jeans because it looks formal. And Pepe Jeans should provide more choice of jeans.
Customer 11: The products should be made in such a way that it does not loose its original fit,
and not fade away. They should fit in the body very well and more stretchy. And provide more
different curve sized jeans, which is fit for one’s waist.
Customer 12: Get on those features like Levi’s. Because, offering those choices makes us
comfortable while wearing jeans.

Internal Assessment
May 2014
33
Appendix 6: Marginal costing/ Contribution costing analysis of Pepe Jeans and
Levi’s for the year (2003-2013) and Rockport for the year (2012-2013)
Marginal costing/ Contribution costing analysis for Pepe Jeans:
Marginal costing/ Contribution costing analysis for the year 2003:
Sales Revenue 4319156
Less variable cost 4121500
Contribution 197656
Less fixed cost 1656892
Profit (1459236)
Contribution 2932509
Profit 745180
Profit 721389
Profit 596608

Internal Assessment
May 2014
34
Profit 835978
Profit 899120
Profit 1160768
Profit 1586621
Profit 1200048

Internal Assessment
May 2014
35
Profit 1324585
Profit 522103
Marginal costing/ Contribution costing analysis of Levi’s:
Profit 3152387
Profit 1555836
Profit 2155054

Internal Assessment
May 2014
36
Profit 2117817
Profit 2088228
Profit 1574470
Profit 1433729
Profit 2729220

Internal Assessment
May 2014
37
Profit 10721408
Profit 10721232
Profit 14180055
Marginal costing/ Contribution costing analysis of Rockport:
Profit 1249533
Profit 1573081

Internal Assessment
May 2014
38
Appendix 8: Gross and Net Profit Margin of Pepe Jeans for the year (2011-2013)
𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭 𝐌𝐚𝐫𝐠𝐢𝐧 % =
𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭
𝐒𝐚𝐥𝐞𝐬 𝐑𝐞𝐯𝐞𝐧𝐮𝐞
×𝟏𝟎𝟎
Gross Profit Margin (%)
Year (AD) Calculation
2011 Gross Profit= Sales Revenue-Cost of goods sold
=9123378- 4452633
= 4670745
Where,
Cost of goods sold= Purchases + Opening stock - Closing stock
= 5056684+ 5240932- 5844983 = 4452633
Gross Profit Margin % =
46707455
9123378
×100
= 51.19534672 %
=8926762- 5074330
= 3852432
Where,
= 5492705+ 5844983 -6263358 =5074330
3852432
8926762
×100
= 43.15598422 %
=8821030- 5281025
=3540005
Where,
=6858599+6263358-7840932 =5281025
3540005
8821030
×100
= 40.13142456 %

Internal Assessment
May 2014
39
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐌𝐚𝐫𝐠𝐢𝐧 % =
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭
𝐒𝐚𝐥𝐞𝐬 𝐑𝐞𝐯𝐞𝐧𝐮𝐞
×𝟏𝟎𝟎
Net Profit Margin (%)
2011 Net Profit= Gross Profit-Expenses
=4670745-2478335
=2192410
Net Profit Margin % =
2192410
9123378
×100
=24.0306825 %
=3852432-2678675
=1173757
1173757
8926762
×100
=13.14874307 %
=3540005-2673665
=866340
866340
8821030
×100
=9.821302047%

Internal Assessment
May 2014
40
Appendix 9: Stock (inventory) turnover ratio for the year (2011-2013)
𝐒𝐭𝐨𝐜𝐤 𝐢𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨 =
𝐂𝐨𝐬𝐭 𝐨𝐟 𝐠𝐨𝐨𝐝𝐬 𝐬𝐨𝐥𝐝
𝐕𝐚𝐥𝐮𝐞 𝐨𝐟 𝐬𝐭𝐨𝐜𝐤 (𝐚𝐯𝐞𝐫𝐚𝐠𝐞)
2011 Cost of goods sold= Purchases + Opening stock - Closing stock
= 5056684+ 5240932- 5844983
= 4452633
Stock inventory turnover ratio =
4452633
8163423.5
=0.545436973
= 5492705+ 5844983 -6263358
=5074330
5074330
8976662
=0.496023243
=6858599+6263358-7840932
=5281025
5281025
10183824
=0.51856994

Internal Assessment
May 2014
41
Appendix 10: The details collected from the business

Company Analysis

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