BUS 696 Business Strategy Game Executive Summary
May Mandy Han Company: Enygma Industry: Athletic Footwear Period: Year 10 – Year 18 Overview Enygma is a market-leading athletic footwear company operating in a highly competitive global market. Enygma competes for the athletic footwear market share in four main regions: North America, Europe-Africa, Asia-Pacific, and Latin America. Enygma designs and manufactures fashion-forward, modern athletic footwear with a massive appeal to younger demographics. The company also engages in marketing aspect of the products, particularly focusing on celebrity endorsements. The name of the company, Enygma, perfectly captures the mysteriously cool, modern, and young spirit of the brand. Enygma brand represents the edgy and trendy end of the athletic footwear market. The mission of Enygma is to produce and deliver fashionable, quality athletic footwear at an affordable price. Enygma footwear is designed with a great emphasis on styling and innovative features, suitable for sporting, outdoor, and recreational activities. To truly
capture the fast nature of fashion, Enygma concentrates on the ability to generate quick turnover of merchandise in the stores and online as new designs are shipped at a rapid rate. Enygma operates in a highly organized distribution network with a mix of retail outlets, internet sales, and private label operations with major retailers. Products are shipped directly from the distribution centers in Memphis, Milan, Bangkok, and Rio de Janeiro. Enygma oversees in-house designing and manufacturing operations at two plants originally: North America plant and Asia-Pacific plant, gradually expanding to two more plants in Europe-Africa and Latin America. Athletic footwear industry is fiercely competitive and extremely volatile. Market growth potential for athletic footwear is highly positive as athletic footwear is rapidly becoming the footwear of choice for all age groups. Enygma competes with 10 other rival footwear companies for the market leadership position. For the period of Year 11 through to Year 18, Enygma carefully develops orchestrated strategic decisions and clear objectives to take the leadership position in the market in terms of Earnings per Share (EPS), return on average equity investment (ROE), credit rating, image rating, and stock price. On yearly basis, Enygma makes crucial decisions on corporate social responsibility initiatives, production and distribution for wholesale, internet, and private label segments, marketing and celebrity endorsements.
SWOT Analysis Based on Year 12, Year 15, and Year 18 Strengths: Enygma’s biggest competitive advantage in Year 12 was advertising initiatives with the highest budget allocated to advertising in comparison to rival companies. Quick delivery time at 2 weeks was also another crucial strength to support the company’s strategy for quick merchandise turnover and fast fashion. With the decision to increase retail presence, Enygma was also successful in having the most number of retail outlets compared to other
companies and attractive rebate offers in Year 12. In terms of internet segment, majority of Enygma’s strengths lied in big advertising budget and the number of footwear models availability (See Appendix A). Enygma’s strengths were reinforced in Year 15 with higher styling-quality (S/Q) rating from 5* to 6*, models availability significantly increased from 200 to 250 models, and better retailer support. Internet segment was also strengthened in Year 15 with higher styling-quality (S/Q) rating (See Appendix B). Year 18 saw the highest celebrity appeal for both wholesale and internet segments due to contracts with three major celebrities (See Appendix C). Weaknesses: Enygma lacked in celebrity appeal for both wholesale and internet segments as the company lost out in a number of bidding wars for celebrity endorsement contracts in Year 12. Higher S/Q rating was also needed to successfully compete with other competitors in the market (See Appendix A). Carefully thought-out strategies played a major role in eliminating the company’s weaknesses in Year 15 with the only weakness for the company being the lack of free shipping offer for internet segment (See Appendix B). Enygma decided not to include free shipping offer for internet sales. The company believed that Enygma products were priced exactly right for the styling and features and demand would still be there with or without the offer of free shipping. As the demand and sales increased throughout the years, higher S/Q rating was needed to stay on top of the competition in Year 18 (See Appendix C). One of the Year 19 strategies would be to increase styling and quality to address this particular weakness. Opportunities: Enygma saw the overwhelming demand for the products in Europe-Africa which prompted the company to construct a new plant in the region in Year 15. By Year 18, Enygma owned a total of four plants, each one in all four operating regions and optimized
distribution and supply chain operations. Besides identifying and venturing into emerging markets, Enygma had plans to expend the product range to include other sports-related merchandise and extend the product line to include higher value and lower value models. There was a massive opportunity for the company to improve corporate social responsibility practices and marketing activities to raise the brand profile on a global scale. Threats: Enygma faced a tough competition from other rival companies, with majority fighting for the mid-range, fairly priced segment of athletic footwear market. Only one company out of all competitors occupied the high-end, high quality market in the industry. Enygma had to overcome constant challenges to maintain the market leadership position throughout the years. Constant bidding wars to win over private-label contracts and celebrity endorsement contracts created a highly volatile and competitive environment.
Discussion and Analysis of the Eight Years of the Game Fast fashion was the heart and soul of Enygma’s strategy. Developing the concept of fast fashion, Enygma was relentless in manufacturing fashionable athletic footwear at an affordable price with quick delivery time to support quick merchandise turnover in stores and online. In terms of distribution strategy, Enygma dedicated the main focus to the most profitable segment for the company: wholesale, followed by internet segment. Although private label operation was a crucial part of the business, majority of product production was directed to support wholesale and internet segments. Private label production was carried out by leveraging overtime production capacity at the plants. In terms of corporate social responsibility, the company provided ethics training for all employees and workforce diversity program throughout the 8-year-period. The company also made sure to use recycling materials for boxing and packaging at all of the distribution centers.
Enygma started off with S/Q rating of 5*, gradually increasing to 6* by the end of Year 18. Staying true to the mission statement, Enygma set affordable retail prices to accompany the styling and quality in order to capture younger demographics of athletic footwear market. Depending on the demand, Enygma made a careful decision on yearly basis whether to increase retail prices and wholesale prices to take the advantage of the product demand. Since North America and Europe-Africa were the biggest markets for Enygma, price points were higher in these two regions in comparison to Asia-Pacific and Latin America. Over 2 million pairs of footwear were needed to be shipped to North America and Europe-Africa every single year. However, since the completion of Latin America plant in Year 17, demand surged monumentally in the region, overtaking North American and Europe-Africa. Production decisions were made with meticulous calculations and Enygma hugely benefitted from low inventory holding costs. There was never a major issue in terms of over-shipping or under-shipping. As the years progressed, demand gradually increased which prompted for the construction of two plants in Europe-Africa (Year 15) and Latin America (Year 17). Construction of both plants was financed with 50% revenue and 50% 10-year-loans. As a result of investing and financing the construction of the Europe-Africa plant, EPS and ROE took a dip in Year 15. However, Enygma soon saw the benefits of more production capacity as revenues and EPS significantly increased once the new plants were in operation (See Appendix D). In terms of image rating, Enygma’s celebrity appeal massively increased after winning the first celebrity contract in Year 14. Throughout the 8-year-period, Enygma managed to snatch a total of 3 celebrity endorsement contracts which provided a great boost to the company’s image rating.
Despite a shaky start in the beginning where Enygma ranked at No.3 in the market leadership scoreboard in Year 11, Enygma since secured No.1 market leadership throughout Year 12 – Year 18 period (See Appendix E). Making the right production and pricing decisions played a major role in maintaining the market leadership position. Proper management of all three segments: wholesale, internet, and private label, paid huge dividends for the company as the company enjoyed the revenues coming in from all three segments. Most importantly, fast fashion concept and strategy proved to be the right fit for athletic footwear market and it was the main reason behind the success of Enygma. Compared to Year 11 performance, Enygma’s EPS increased from $3.84 in Year 11 to $18.27 in Year 18. ROE also increased from 22.5% in Year 11 to 24.6% in Year 18. Stock Price also majorly improved from $67.68 per share in Year 11 to an incredible $347.21 in Year 18. Credit rating slightly improved from A in Year 11 to A+ in Year 18. Image rating was rather stable at 83 in Year 11 and 84 in Year 18. Within a few short years, Enygma’s net profits turned the company into a multi-billion dollar business. Net profits for Year 18 stood at $182.744 billion which was a massive leap from $38.429 million in Year 11. The full performance of Enygma from Year 10 to Year 18 in terms of net revenues, EPS, ROE, stock price, credit rating, image rating, global unit sales, and global market share is presented in Appendix D.
Self-critique: What Could Have Been Done Better Despite the positives, there were a number of things that, if done differently, would seriously have improved the performance of Enygma. Benefits of building plants in each region and shipping directly within the regions proved to be substantial and constructions could have been done earlier than Year 15 and Year 17. If only the two plants were built and completed earlier,
Enygma would undoubtedly have enjoyed more financial success from more production and more sales. Enygma could also have been more aggressive with bidding for celebrity contracts. Enygma signed the first celebrity four years into the competition. Enygma’s image rating in the early years could have been significantly improved if the company had managed to sign celebrities a little sooner than Year 14. Bid prices offered by Enygma for private label contracts stayed idle for the most part of the 8year-period at $34. Although Enygma consistently won the private label contracts in all four regions every single year, in hindsight, the company could have made even more profits if the bid prices also gradually increased accordingly to reflect the demand.
Suggested Strategy for Year 19 Since the completion of the Latin America plant, the demand has been overwhelmingly excellent, even surpassing the performances of the company’s two biggest markets: North America and Europe-Africa. Thus, the most important strategy for Enygma to implement in Year 19 would be to focus the attention on nurturing Latin America market. The company would have to ensure to stock enough inventories to cover the high demand in Latin America. Enygma would also have to increase the models availability offered in Latin American to 250 models in order to match with other big markets. One of the main strategies lined up for Year 19 would be to improve S/Q rating to 7* while keeping the same wholesale and internet retail prices to compete head-to-head with the rival company at No. 2 spot.
In terms of private label operations, Enygma would have to increase the bid prices from $34 to $40, not only to compete with bid prices offered by other companies but also to improve profits coming in from private label operations.
Conclusion All in all, Enygma has had a great run throughout Year 10 – Year 18 period. Fast fashion concept lays out a fantastic foundation for the company to develop solid strategic decisions accordingly. Quick delivery time combined with great styling and features work in Enygma’s favor as sales and demand continue to accelerate. Big budgets allocated to advertising help with the revenue streams flow rather swimmingly. Although there is definitely a room for improvement, for the most part, Enygma has made good strategic decisions to maintain the No.1 market leader position throughout the 8-year-period. The future outlook for Enygma has never looked brighter and the company will continue to live up to the full potential.
Appendix Appendix A Enygma’s Strengths & Weaknesses Year 12 (Internet and Wholesale)
Appendix B Enygma’s Strengths & Weaknesses Year 15 (Internet and Wholesale)
Appendix C Enygma’s Strengths & Weaknesses Year 18 (Internet and Wholesale)
Appendix D Enygma Performance Charts (Year 10 – Year 18)
Appendix E Game to Date Scoreboard (Year 18)