2. 1
I. Table of Contents 1
II. Executive Summary 2
III. External Analysis 3
III.i Dominant Economic Characteristics 3
III.ii Assessment of competitive forces 4
III.iii Driving Forces of Change 5
III.iv Strategic Group Map 6
III.v Key Success Factors 7
III.vi Weighted Competitive Strength Assessment 8
III.vii Industry Attractiveness 9
IV. Internal Analysis 9
IV.i TOWS Matrix 9
IV.ii Distinctive Competencies 10
V. Company Profile 11
V.i Vision Statement 11
V.ii Financial and Strategic Objectives 11
V.iii Generic Business Strategy 14
V.iv Strategic Actions by Functional Area 14
V.v Monitoring of Performance 15
V.vi Summary Remark 16
VI. Appendix 17
VI.i Appendix A 17
Vi.ii Appendix B 20
3. 2
II: Executive Summary
This interim report focuses on an overall evaluation of the athletic footwear industry, and assesses the
competitive strength of Breeze.
The external environment is characterized through fierce competition between existing competitors.
Another major external force are exchange rates. While overall market growth is starting to slow down in
the footwear industry, there are some market segments that are growing rapidly.
Breeze’s competitive strengths are the wide variety of models offered and possessing a low cost
leadership. Both these advantages stem from the company’s sustainable competitive advantage of having
large and well-dispersed production facilities. The companies competitive weaknesses are the below
average quality of its shoe and the number of retail outlets that are used for wholesale. Another area that
needs improvement in order to lead the market is advertising; this is where Breeze’s biggest competitor,
Fierce, has a competitive advantage over Breeze.
The company pursues a cost leadership quality; therefore management is committed to investing in new
plants, efficiency upgrades, and employee training to reduce cost. As a new measure to increase
competitiveness, Breeze strives to enhance the customer buying experience by extensive use of celebrity
endorsers and increased advertising expenditures. Management thereby hopes to create more value for
the consumer, thus attracting more customers.
The company’s strengths and strategy is vividly represented in its vision to provide “A shoe in your
everyday living. With Breezers life is a Breeze.”
Breeze has been exceeding most financial and strategic goals; management is convinced that the
company is at the start of a growth spurt.
4. 3
III: External Analysis
Dominant Economic Characteristics
The footwear market is a growing industry with some market segments approaching the mature stage.
There are ample opportunities to make a profit in three key segments: Wholesale, Private label sale,
Internet sale. The growth rates are greatly differing in every segment and every market.
Please use Appendix A for in depth analysis of growth rates in the industry.
There are 7 companies competing in four geographic regions: North America, Latin America, Europe-
Africa, and Asia-Pacific. Growing at a rate of 7-9% annually in years 11-15 and 5-7% annually in years
16-20.
One of the most important dominant economic characteristics of the international marketplace has been
the exchange rate. Exchange rates are a force that is driving changes in the industry, and which will
impact the competitive intensity and industry profitability. Currency exchange rates are unpredictable.
Competitiveness of a company’s operations partly depends on whether exchange rate changes affect
costs favorably or unfavorably.
The shareholders may reference to Appendix B for additional information of exchange rate trends
pertaining directly to Breeze.
Assessment of Competitive Forces
Bargaining Power of Suppliers
Materials to make the company’s footwear are purchased from a variety of 250 suppliers, all of whom
have similar capabilities, delivery times, prices, and product quality. Thus, bargaining power of suppliers
is low and industry attractiveness high for this force.
Bargaining Power of Buyers
Wholesale and Internet customers have no direct bargaining power. They can choose to buy a shoe or
not, but they do not have the power to negotiate price or quality. Private label customers have some
bargaining power, as they will accept the lowest price bid for shoe of a given quality. All in all, bargaining
power of buyers is low, which makes the footwear industry more attractive.
Substitutes
5. 4
Substitutes are not a threat to the footwear market. Shoes are bought and worn in every part of the
world and not readily substitutable with other products. The absence of viable substitutes makes the
footwear industry more attractive.
Entry Barriers
Tremendous investments in production capacity, brand awareness, supplier network, and distribution are
imminent if a company wants to be a viable and profitable player in the footwear industry. The high
amount of capital outlays accompanying these challenges discourages new competitors from entering the
market, thus fostering market attractiveness for corporations that have already built the necessary
infrastructure.
Competition among Firms
There is a fierce price competition among existing firms. In every of the last four years there has been
excess supply capacity of at least 20% and has reached highs of up to roughly 24.3%. The market for
athletic footwear is clustered and there is no sign of competition weakening as the economic conditions in
the marketplace are becoming increasingly difficult and the market growth rate is starting to decrease.
The fierce competition amongst existing firms makes the athletic footwear industry vehemently less
attractive.
Driving Forces of Change
The athletic footwear industry is generally not characterized through rapid changes in technologies or
market conditions. However, there are three driving forces of change that will alter the marketplace over
the next three years. An average 8% increase in consumer demand over the last four years will slow
down to roughly 6%. This decrease of two percentage points will have a sizeable impact on the industry
and the profitability of many firms in it. Additionally, the growth of private label shoe sales is projected to
decrease by 1.5 percentage points. Only Internet sales are picking up speed; increasing the number of
shoessoldonline by1%of the total industrysaleseveryyear.Note thatthisincrease doesnotchange
howmany shoesare sold,butrather inwhichwaytheyare sold.
Graphics presenting the industry growth rates can be found in Appendix A.
Globalization is a driver of change in virtually all industries all over the world. The footwear industry has
seen changes in the proposition of demand; as less developed countries continue to gain more and more
buying power. Unfavorable exchange rates have led multiple companies to abandon their production
facilities in North America. Both these trends are projected to continue, which points towards increasing
production capacities in Europe-Africa, Asia-Pacific, and Latin America, and deemphasizing production in
the higher cost region of North America.
6. 5
Changes in cost and efficiency are coming into play more substantially in the years ahead. Some
companies have built a competitive advantage through their investments in employee training programs,
new production facilities, and upgrades. These investments are cumulative, meaning that their effect
increases every year. Thus, there are companies able to sell shoes at a price beneath most competitors’
production cost while still making a profit.
Strategic Group Map
We have prepared a strategic group map for our wholesale segment in Europe-Africa. This is a depiction
of Company B in the market place as of year 14. We are leading with 19.2% market share using the low-
cost provider strategy. Our closest rival is company A with 15.9% of the market share. We are the leader
with our low price and have the most impactful celebrity appeal in this market. We have sold 24% higher
volume of shoes.
There are two top companies in our industry using two different strategies. Company B is using the
overall low-cost strategy with minimum quality shoe and Company F is using brand differentiation
strategy with higher prices and higher quality shoe.
0
1
2
3
4
5
6
7
8
9
10
11
0 50 100 150 200 250 300
S/QRating
Number of Models
Industry Group Map
Team Models S/Q Rating Market Share
A 200 5 15.9%
B 200 4 19.2%
C 198 7 15.1%
D 139 6 15.0%
E 200 5 12.4%
F 250 9 11.1%
G 200 4 11.3%
7. 6
Key Success Factors
There are four key success factors in the athletic footwear industry. First and foremost, every company
has to tender towards a price sensitive consumer. On the other hand however, consumers value product
differentiation and are ready to pay a premium price for a shoe with superior quality and/or style. The
next key success factor is advertising. Companies view advertising as an additional way to differentiate
themselves from rivals.
All three-success factors have one thing in common: The better a company performs on any and all of
them, the more market share it will have.
The industry’s last success factor is capacity utilization. In contrast to the first three capacity utilization
deals with cost reduction, not increasing market share. Full capacity utilization drives cost per pair down;
this advantage can be translated into an advantage in price or profit margin.
Weighted Competitive Strength Assessment
We have prepared a Weighted Competitive Strength Assessment to illustrate our position in the market.
Breeze has identified four of the industry’s key success factors and their weights as 1) Number of Models
(15%), 2) S/Q Rating (30%), 3) Price (35%), and 4) Celebrity Appeal (20%).
Recent surveys show the following ratings for Breeze, Company F, and Company A (1 to 10, 10 being
best and 1 being worst).
# Of Models S/Q Rating Price CelebrityAppeal
Breeze 6 4 8 7
Company F 7 8 3 8
Company A 6 5 5 6
KSF % Breeze Company F Company A
# Of Models .15 .09 .11 .09
S/Q Rating .30 .12 .24 .15
Price .35 .28 .11 .18
CelebrityAppeal .20 .14 .16 .12
Total 1.00 .63 .62 .54
Based upon the weighted assessment above, Company A’s key success factor that has produced the
greatest contribution to success is price. Our most concerning weakness is S/Q ratings.
Overall Industry Attractiveness
Based on the six factors presented above, it can be concluded that the athletic footwear market is
8. 7
moderately attractive. While the market shows a healthy overall growth, it must be considered that this
growth is starting to slow down. Significant entry barriers keep new competitors out of the market;
nonetheless there is a high level of competition between the existing firms. Overall, any firm that can
manage the exchange rates in its favor and uphold a viable competitive position will be successful.
IV: Internal Analysis
TOWS Analysis
Strengths Weaknesses
Capacity Celebrity Appeal
Models Offered S/Q Rating
Price Retail Outlets
Opportunities
Online market growth
Market Segmentation
Private Label
Threats
Exchange rates
Slowing market growth
Guerilla tactics
Primary Thrust
Use superior production capacity and low price to dominate the online and private label market. In both
of these market price is the most important product attribute.
Secondary Thrust
The market is segmented in a way that favors low cost provider and differentiation strategies. Firms that
use a best-cost strategy have not been very successful. It is unlikely that Breeze is losing a significant
amount of sales due to a lower quality product because most companies that sell a 4 and 5 star quality
shoe are struggling. At the same time, we are not directly competing with firms that offer a 6+ star shoe.
Secondary Parry
We operate production facilities in all markets. This advantage can be used to mitigate, or even take
advantage of, exchange rates.
Primary Parry
A slowing market growth means that gaining market share is becoming harder and almost equivalent to
taking market share from another company. Breeze has had no celebrity appeal over the last two years.
9. 8
Making a big push towards increasing this value is a preemptive strike, as it does not only mitigate the
weakness, but also keeps other companies from getting the same celebrities.
Distinctive Competencies
At Breeze, we believe in value! We belong to the market leaders in number of models offered
and production capacity. At the heart of these statistics stands our distinctive competence of having the
most production capacity in the market. This helps solidify our cost advantage by using economies of
scale.
V: Company Profile
Vision Statement
“A shoe in your everyday living. With Breezers life is a Breeze!”
Financial and Strategic Objectives
We have provided a performance chart for our Earnings per Share, Return on Equity, Stock Price, Image
Rating and Credit Rating. You will see that we continue to exceed investor expectation year after year.
Our Earnings per Share at the end of Year 14 were $6.87 and we are projecting that they will maintain
over the next three years.
10. 9
Our Return on Equity at the end of Year 14 is 19.6% and we are projecting to maintain for the next three
years.
Our Stock Price at the end of Year 14 is $117.51 and we are projecting to maintain or be a little lower for
the next three years.
11. 10
Our Image Rating at the end of Year 14 is a 76 and we are projecting that will increase to an 84 over the
next three years.
Our Credit Rating at the end of Year 14 is an A+ and we are projecting that will maintain over the next
three years.
0
1
2
3
4
5
6
7
8
9
Y11 Y12 Y13 Y14 Y15 Y16
CreditRating
Year
Credit Raiting
Credit Rating Goal Investor Expectation
Score
Assigned
Credit
Rating
8 A+
7 A
6 A-
5 B+
4 B
3 B-
2 C+
1 C
0 C-
12. 11
Breeze’s Business Strategy
With the goal in mind to reach as many potential customers as possible, we pursue a cost leadership
strategy. We seek to produce at the lowest cost possible. At the same time, we want to offer a valuable
shoe to our customers. Thus, we aim to enhance our customers buying experience wherever possible!
Strategic Actions by Functional Area
Manufacturing
We have built a large network of production capacity that is efficient and dispersed. Our larger plants in
North America and Asia Pacific allow us to use economies of scale. At the same time, producing in every
region of the world shields us from fluctuations in exchange rates and potential natural disasters in any
region of the world.
Human Resources
Over the last few years we have invested heavily in the education of our workers. Our best
practices training and TQM system are now starting to show effect. We expect to be able to reduce
production cost even further due to these investments early in our management era.
Marketing
We are very excited to have three new celebrities endorsing Breeze this year! Our marketing department
is the face of the new Breeze. In the past, management was solely focused on driving production cost
down and providing an affordable shoe for our customers. Now we have set new objectives to enhance
our customers buying experience and generate more sales by pursuing an aggressive
marketing campaign.
Finance
To support our cost leadership strategy, we have invested heavily in many areas of the business.
Therefore the finance department took out several loans and management has been cautious with paying
dividends in the past few years. It is also worth to mention that we have constantly been buying back
stock almost every year at a relatively low stock price, with a plan that in the future we will be able to
issue it out back again for a much higher stock price, and also giving us the option to do a debt-equity
swap if needed. However, Breeze’s shareholders can rest assured that we have maintained proper
liquidity, debt-to-asset ratio, and interest coverage ratio in all years. Lately our credit rating has averaged
a rating of A+ the last 3 years and we have been active on refinancing our loans when the interest rates
has decreased each year to an all time low of 4% as recently as last year. We are confident we won’t
need to take any additional loans in the future, and we expect to be able to pay out dividends
continuously during the coming years, with the hope of a continuous increase as well.
13. 12
Monitoring Performance
To ensure these goals will be achieved, management will meet semi-weekly and discuss any changes in
the marketplace, our operations and general strategy. We consider monitoring the company’s
performance and make adjustments to enhance its results very important. Information about other
footwear companies is readily available on the online portal bsg-online.com and management has
supreme confidence in the accuracy, timeliness and integrity of this data. This commitment of
management reflects in the productivity of Breeze’s workers and the overall performance of the
company.
A Word to Our Shareholders
The two core values that are echoed through the halls of Breeze’s manufacturing plants, marketing
offices, and management bureaus are performance and value. We expect market-leading performance
from all our employees and suppliers, thus creating market-leading value for our customers. We ask
every Breeze shareholder to hold us to our own standards.
Over the last four years Breeze’s goals were to build and grow. Now it is time to reap what we have
sowed and take the footwear market by storm. Breeze shareholders can expect a healthy growth in ROE,
EPS, and especially stock price. We hope to stay above 25%, $10.00, and $200 in the following years,
respectively. Let us prosper united.
14. 13
VI: Appendix
Appendix A: Market Growth Rates
Note that the number used in the graphics represent industry averages per company. Graphic
1:
This graphic highlights the steady growth in branded shoe sales. Closer examination of the
graph shows that sales are projected to increase almost 60% over the course of nine years.
North America and Europe-Asia have a significantly bigger market for shoes in the early years.
However, Asia Pacific and Latin America have higher growth rates, thus closing the gap towards
the end.
0
500000
1000000
1500000
2000000
2500000
11 12 13 14 15 16 17 18 19
PAIRSSOLD
YEAR
Branded Wholesale
NA
EA
AP
LA
15. 14
Graphic 2
The private label market is uniformly distributed, the worldwide demand is evenly distributed
across all four regions. Private label sales are projected to double over the timespan of nine
years.
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
11 12 13 14 15 16 17 18 19
PAIRSSOLD
YEAR
Private Label Demand
Worldwide
16. 15
Graphic 3
Internet sales are the fastest growing market segment, doubling it’s sales totals almost every
four years. In year 11, only five percent of all branded shoes were sold over the net; in year 19
the web is projected to account for 15% of all sales. This increase in use of the internet,
coupled with the overall increase in sales leads to the high growth of internet sales.
0
200000
400000
600000
800000
1000000
1200000
11 12 13 14 15 16 17 18 19
PAIRSSOLD
YEAR
Internet Sales
Worldwide
17. 16
Appendix B: Exchange Rates
The following graphics show how exchange rates affect the cost of exports from all of our
plants to other markets.
