A+ Athletics Final Presentation 11.28.11

8/2/2019 A+ Athletics Final Presentation 11.28.11

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A+ AthleticsBUSINESS STRATEGY GAME PRESENTATION

Presented by:

Julia Baniasadi, Renee Darby,

Joshua Pickett & Lacey Robison


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PART 1:

Initial Strategy Overview


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Our vision for A+ Athletics was to provide quality footwear

that was affordable and accessible. We werent interested inproducing a luxury shoe to sell to the wealthy. We wantedconsumers at all income levels to be able to enjoy the varietyand affordability offered by our product lines.

In order to understand our strategy, its helpful to know ourStrategic Vision Statement.


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Strategic Vision Statement

A+ Athletics is committed to makingquality footwear that is accessible to

athletes at all levels; providing you with

the opportunity, technology andinspiration to achieve your maximum

potential.

We help you bring your A game.


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To put it simply, our strategy was to be the Wal-Mart of the

athletic shoe industry.

Wal-Mart is more than just the world's largest retailer. It is aneconomic force, a cultural phenomenon and a lightning rod for

controversy. It all started with a simple philosophy fromfounder Sam Walton: Offer shoppers lower prices than they getanywhere else. That basic strategy has shaped Wal-Mart'sculture and driven the company's growth.

Our team agreed that this strategy translates well to the shoeindustryas evidenced by the practices of many of the real-world leaders in shoe industry.


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High Level Strategy

The Wal-Mart Strategy Offer consumers the lowest prices

Dominate the retail market

Drive growth in existing overseas markets

Leverage economies of scale


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From the very beginning, we believed that our success would be

found in the wholesale market and not in the private labelmarket.

This concept was a core element of our strategy throughout the

game. We worked hard to create demand in the wholesalemarket, only selling shoes in the private label market when thedemand did not exist in wholesale.


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Strategy for Achieving

Performance TargetsA+ Athletics will employ a focus strategy as westrive to be the global leader in the wholesale

market segment.

We will achieve this leadership based on being a

best-cost provider in the wholesale segment.


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PART 2:

Company Performance

Evaluation


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Earnings Per ShareA+ Athletics got off to a strong start in year 11, exceeding investor

expectations by fifty-seven cents per share. While we were unableto meet investor expectations during years 12 and 13, we did leadthe industry with the second highest and highest EPS respectively.

The company saw its strongest EPS during year 15, exceeding

industry expectations and earning a staggering $3.26 per share.

Years 16, 17 and 18 proved difficult for the company as we failed tomeet investor expectations due to decreases in demand for ourproduct in the wholesale market segment. Despite this, A+

Athletics managed to maintain an EPS ratio that exceeded theindustry average throughout the game.

The following chart illustrates our EPS performance during each

year of the game, comparing it against the industry average andinvestor expectations.


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-4

-2

0

2

4

6

11 12 13 14 15 16 17 18

PricePerShare

Year

Investor Expectations Market Average A+ Performance

Earnings Per Share


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Return on EquityROE was a primary focus for our company throughout the game.

As with all of our key performance indicators, years 17 and 18proved difficult as we saw a reduction in both wholesale demandfor our product and market share across all four regions.

The following graph illustrates our ROE performance during eachyear of the game, comparing it against the industry average andinvestor expectations.


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-80%

-60%

-40%

-20%

0%

20%

40%

11 12 13 14 15 16 17 18

RO

E(%)

Year

Investor Expectation A+ Performance Market Average

Return on Equity


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Stock PriceOur stock price remained well above the industry average until

years 17 and 18, when we began to lose market share in thewholesale segment of the market.

The following graph illustrates our stock price performance

throughout the game, comparing it against the industry averageand investor expectations.


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0

10

20

30

40

50

60

70

80

11 12 13 14 15 16 17 18

PriceP

erShare

Year


Stock Price


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Image RatingImage was another primary focus for A+ Athletics.

We saw a strong correlation between image rating and demand,and found this to be a key factor that allowed us to dominate thewholesale market in each region.

The following graph illustrates our image rating throughout thegame, comparing it against the industry average and investorexpectations.

.


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010

20

30

40

50

60

70

80

90

11 12 13 14 15 16 17 18

ImageRating

Year


Image Rating


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Credit RatingAdmittedly, at the beginning of the game, credit rating was asecondary focus for our team. Our primary goals were to expandour production capacity in the Latin American andEuropean/African regions and gain market share in thewholesale segment while keeping costs low.

In year 16, we decided to place an increased emphasis on raisingour credit rating, but the decision was made too late in the game;we were unable to raise our credit rating while still remainingcompetitive. In hindsight, we should have focused on creditearlier in the game.

A+ Athletics maintained a consistent credit rating of C-, except foryear 14 when we were able to raise it to a C.


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PART 3:

Internal Analysis


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Internet prices were kept approximately 40% aboveour wholesale prices to avoid retailer conflict.

We also made sure our company manufactured a

4-star quality shoe while keeping our prices wellbelow the industry average.

Pricing and Quality Strategy


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Plant Upgrades & Quality Improving Manufacturing Efficiencies

We were strategic in making plant upgrades. One mistake that we made early in the game was upgrading

our North American plant, which we eventually closed. Our company may have benefited if the plant upgrades in

other regions were spread over a greater period of time.

Strategic Quality Decisions We made strategic decisions surrounding the capital spent

in the areas of design, training, incentives, and superiormaterials usage.

Our decisions were primarily based on our reject rates aswell as the labor and production costs for each year.


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Raw Material Usage

Balancing Quality and Cost Our goal was to create a quality shoe at the lowest price

possible, while still making a profit.

Based on material prices, adjustments were made to

superior materials usage each year so that we couldachieve a quality shoe while keeping production costs low.

The application of employee incentives assisted in keepingmanufacturing costs low.

With these savings, we were able to use a largerpercentage of superior materials, while maintaining a lowprice-per-pair cost.


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$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

11 12 13 14 15 16 17 18Year

A+ Athletics Company Revenue vs. Industry Total

Industry total

A+ Sales

Manufacturing Operations

Our Companys net revenues accounted for a large percentageof the industrys totals each year.


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Future ExpansionOur factories manufactured at over 100% capacity during 6 out of

the 8 years. Capacity was closely monitored to ensure that wewere keeping pace with industry demand.

0

20

40

60

80

100

120

140

11 12 13 14 15 16 17 18

%o

fUtilization

Year

A+ Athletics Capacity Utilization


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Shipping Operations & Policies

Alignment with Low Cost Strategy In alignment with our low cost strategy, free shipping in

the Internet segment was not offered during any of thedecision rounds.

At the cost of $10 per pair, free shipping did not align with

our low-cost strategy.

The decision to charge for shipping allowed us to keepcosts low; we allocated this money to other areas of thebusiness to increase demand.


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Keeping Costs Low While Creating Demand When making advertising decisions, we tried to find a balance

that would give us the demand that we wanted, whilemaintaining our low-cost focus.

This was accomplished through a steady increase in advertisingexpenditures through year 17.

A close watch was kept on all advertising changes to ensure thatnet profits were increasing and that the money spent was costeffective.

We also monitored the impact of our advertising expenditureson the market share in each region.

Advertising Strategy


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Advertising Expenditures

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

11 12 13 14 15 16 17 18Year

Wholesale Advertising

Ad Expenses

(000)

To coincide with our efforts and expenditures surrounding

celebrity appeal, our advertising budget was also increasedeach year, until year 17.


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Significant Focus & Investment in the CelebrityAppeal Marketing Avenue. We saw a strong correlation between the amount of celebrity

appeal in any given market and the demand in that market.

Our strategy was to bid heavily on celebrities in every round,with the exception of years 17 and 18.

The goal of this strategy was to ensure a positive cash flowgoing into the final two years while still maintaining activeexisting contracts.

The following slides illustrate our dominance in this area ineach of the four market regions.

Celebrity Appeal


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Celebrity Appeal

0

100

200

300

400

500

600

11 12 13 14 15 16 17 18

CelebrityAppea

l

Year

European and African Markets

A+

IndustryAverage


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Celebrity Appeal

0

100

200

300

400

500

600

11 12 13 14 15 16 17 18

CelebrityAppe

al

Year

North American Market

A+

Industry Average


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Celebrity Appeal

0

100

200

300

400

500

600

11 12 13 14 15 16 17 18

C

elebrityAppeal

Year

Latin American Market

A+

Industry Average


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Celebrity Appeal

0

100

200

300

400

500

600

11 12 13 14 15 16 17 18

C

elebrityAppeal

Year

Asian and Pacific Markets

A+

Industry Average


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0

500

1000

1500

2000

2500

11 12 13 14 15 16 17 18

RetailSupport

Year

NA

LA

AP

EA

Retailer SupportRetailer support was adjusted as needed in each of the four

geographic regions in order to help drive demand.


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Finance

Dividends A+ Athletics did not issue dividends to stock holders as it did

not align with our primary goals for the company.

Loans A+ Athletics financed our expansion and strategies to gain

market share through the use of loans.

By the end of year 18 the company had an outstanding loanbalance of $163,000,000.

Although the utilization of large loans is a common practicewith many companies, we do recognize the impact that thispractice had on our credit rating and other key performanceindicators.


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Finance

Stock During nearly all years, outstanding stock was purchased in aneffort to boost EPS and ROE.

The company avoided issuing stock; this measure wasreserved as an emergency act to generate cash flow.

In retrospect, we perhaps should have issued stock when itreached its peak price of $76.56 in order to generate revenueto pay down our outstanding loan balance.

Cash Flow Management Cash flow was carefully monitored in an effort to avoidoverdraft fees.


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Social Responsibility

Implement Programs Once Profitable Our team had strong opinions on the importance and value of

being a socially responsible company.

After a small initial investment in energy saving programs atour manufacturing plants, we made the decision to place theprogram on hold.

This was decided in alignment with our low-cost strategy in aneffort to reduce the price per pair of shoes manufactured.


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PART 4:

External Analysis


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Monitoring of Industry-Wide Supply & Demand

Timing of building and selling plants.

Timing of purchasing plant upgrades.

Early Development of Disaster Recovery Plan

Issuing stocks only in emergency situations. Monitoring of Exchange Rates

Building plants in locations where production costs could bekept low.

Distribution of branded shoes to areas with advantageous ratesto keep costs down.

Close Attention to Interest Rates Timing of taking out and paying off loans.

Cost Reduction Strategies


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A+ S/Q Rating vs. Industry Average 4-Star Quality Rating was the sweet spot between good

quality and low cost.

A+ Wholesale Price vs. Industry Average

Keep prices below the industry average.

A+ Celebrity Appeal vs. Industry Average Most and best celebrities under contract industry wide.

Competitor Analysis


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0

10

20

30

40

50

60

11 12 13 14 15 16 17 18

Price

Years

North America

A+

Market Avg.

Wholesale Pricing Strategy


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0

10

20

30

40

50

60

70

80

11 12 13 14 15 16 17 18

Price

Years

Latin American

A+

Market Avg.


Wh l l P i i S


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0

10

20

30

40

50

60

11 12 13 14 15 16 17 18

Price

Years

Europe-Africa

A+

Market Avg.


Wh l l P i i S


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0

10

20

30

40

50

60

11 12 13 14 15 16 17 18

Price

Years

Asia-Pacific

A+

Market Avg.



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PART 5:

Team Management &Dynamics


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Team Management

Active Participation Daily Login to BB to comment on team discussions.

Mandatory weekly meetings held Thursdays @ 8PM.

Team members took turns running weekly meeting.

All members made & reviewed decision entries.

Timely Communication

Team members summarized their decision entries, rationaleand impact on the key performance indicators on the BB team

message board.

24 hour response commitment to questions and discussionson BB team message board.


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Team Management

Shared Leadership Responsibilities Each week a different team member would lead the meeting.

No single person was responsible for all decision entries.

Team members were trusted to make and save changes

throughout the week.


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Team Dynamics

Successful Collaboration Practices Commitment to common goals & approach

Shared and disbursed control and authority

Open, direct, and timely communication

Inclusive and thoughtful behaviors Constructive conflict resolution

Members held each other accountable

Flexible, adaptive & appreciative of team diversity

Joint problem solving

We attitude, rather than an I attitude


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PART 6:

Future Strategy


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Future Strategy

Dominate the Wholesale Shoe Market Our future strategy is to work to maintain our position of

being the dominant company with the most market share inthe wholesale branded shoe segment of the market.

We feel that this strategy will keep us ahead of ourcompetition and, in the long run, force our competitors outof business.

Balance Quality and Cost

We will continue to focus on producing a good quality shoeat a lower price than our competition.


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Future Strategy

Private Label Expansion Opportunities We may also expand more into Private Label if future

trends show that profitable conditions exist.

If our competition is forced out of business, opportunities

may be available in this market segment. Celebrity Endorsements

We are committed to keeping our celebrityendorsements.

We feel that this is money well spent, since it adds to ourappeal and creates demand in every market region.


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Future Strategy

Commitment to Shareholder Wealth We are committed to our shareholders and understand

the importance of their investment.

We will strive to meet or exceed investor expectations for

each year. Once we are profitable and possess a solid upward

trajectory, we will implement a yearly dividend to rewardour investors.


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Future Strategy

Create a Sustainable Economy WherePlanet, People and Profit go Hand-in-Hand We are committed to implementing environmentally

conscious practices in all areas of our business.

Green initiatives are not just good for our image, but alsohelp to sustain the communities that we do business in.

Once profitable we will begin to implement greeninitiatives that include the following:

The use of recycled materials in packaging and production

Employing green technologies to reduce our energy needsImplementing a recycling program for used shoes that

provides customers with credit towards new purchases

Rewarding and recognizing employees for submitting ideason how to reduce waste


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PART 6:

Conclusion


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Industry Performance

Our Easy-to-Imitate Strategy Created anEnvironment of Intense Competition We didnt disguise our moves, making it very easy for

underperforming companies to adopt our strategy.

Failing to plan ahead, we should have implemented ourstrategy in phases that were less telling of our overall plan.

We were reactive to market conditions when as the industryleader, we should have been driving the market.

We should have taken measures to shut out more of ourcompetitors before revealing our overall strategy.


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Lessons Learned

What We Learned from Playing the Game There were many lessons to be learned from this game, but

the main lesson that we learned was how to work as a team.

We learned the importance of cost structure in different

manufacturing countries. This is why many companieschoose to locate their production facilities in China ratherthan the United States.

We learned the importance of debt management and the

impact that debt has on a companys credit rating andborrowing ability.

We learned that you must adapt to changing businessenvironments. You may be on top one day, but you need tokeep adapting in order to stay there.


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Reflections

Improvements if we Were to Play the GameAgain

Sold the NA plant instead of investing in upgrades.

Quicker expansion and Upgrades in EA and LA to drive the

price of each shoe down. Studied the Private Label operations more closely to

determine which areas could be profitable.

Make sure our credit rating stayed at a B in order to get long

term loans at a lower interest rate.


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Accomplishments

Accomplishments made by A+ Athletics Over 20% market share with expected continued growth in

all markets for the Wholesale Segment.

Net Revenue growth for every year except for 1.

Met investor EPS expectation for 3 years when most otherteams werent able to.

Ended with a 23.5% global market share.

Adapted to a changing business environment and ended up

placing number 3 out of 8 teams. Had a consistent image rating throughout all the rounds.

Documents

A+ Athletics Final Presentation 11.28.11