14 May 2009

Nine West Case Analysis

I. Central Issue
Chairman of the Board Jerome Fisher saw that changes were needed in the
merchandising organization within NWRS, the retailing division. He believed this was
critical to the success of the company. NWRSs main objective was to decide what
products to carry at which location.
Fisher predicted that the role of retail director would change in the near
future, due to technology, sales growth, competition, and the addition of new
product lines. The companys sales growth complicated merchandising decisions
since this now included a broad geographic area with variations in fashion
preferences. This was expected to become even more complicated as leading
specialty stores were planning on launching footwear brands, which gave the
NWRS a new source of competition.
Merchandising had become even more difficult, due to the decision to
diversify product to include sunglasses, jewelry, legwear, and apparel. Fisher
wanted to expand the company to a complete lifestyle brand. Also, he planned to
launch an online division.
II. Key Factors for Consideration
a. The retail footwear industry
The footwear industry had seen little real growth from 1990 on. From
1990 to 1995, the industry only saw a compound growth of 0.44%.
Footwear represented 46% of the total retail market in 1995, yet sales
were expected to rise only 3-5% over the next five years. Most shoe
segments only experienced a small increase in sales in the early 90s.
The basis for differentiation was most often quality, style, and
sometimes manufacturing location (esp. France, Italy.)
b. Shoe Design and Construction
A creative team first searched for inspiration, which resulted in a series
of sketches. Designers then visited raw materials suppliers and
tanneries to view the colors offered for a season. Sketches were then
produced for all classifications of footwear, and then proposed for the
wholesale line.
Because a shoe consisted of numerous parts, which needed to
be assembled together, the production process was complex, often
 consisting of 130 stages. Manufacturing lead-time could take up to 10
days. The shoe then had to be held on the last for an additional 5.
c. Company Background
Named for its early office location at 9 West 57th Street in New York
City, the Nine West Group, Inc. was founded by Jerome Fisher, and
the current chairman of the board and chief executive officer, Vincent
Camuto. The company started in 1977 as a manufacturer and
wholesaler of womens footwear, and by 1998 had expanded to include
fashion footwear and accessories for fourteen brands, including Nine
West and Easy Spirit.
The wholesale division was present in more than 40 countries
worldwide. It also distributed product to over 7000 department,
specialty, and independent retail stores. By 1997, retail division
represented about 49% of the total company revenues. This division
was formed in 1983. By the end of 1997, the Nine West group
operated 1,459 stores, 429 of which belonged to NWRS.
Nine West saw significant growth since its conception, reaching
sales of $1.6 billion in 1996, which was achieved with rapid expansion
in domestic and foreign markets, with significant presence in Asia,
Europe, Canada, and Australia. The company strategized the
aggressive acquisition of other footwear companies, including Amalfi,
Easy Spirit, and Selby. Nine West also created the footwear concept of,
a shop within a department store.
Nine West plans to increase product diversification to one day
evolve into a lifestyle brand with every aspect of the business being
integrated.
d. Merchandising Organization Structure
The retail directors of NWRS were similar to both the buyers and
merchandisers of other retail companies. However, retail directors,
who were each responsible for 50 to 60 stores, managed style
selections, purchasing, pricing, and display. They reported to a
merchandise manager who in turn reported to the president of NWRS.
The president was responsible for allocating decisions for
creating a point of view across the entire organization. He or she was
also to oversee the compliance of retail directors with company goals.
 NWRS, unlike traditional retail organizations, was divided by
region. They held the view that product could be customized to the
regions specific demographic, market trends, and eliminated
competition between retail directors.
NWRS did not believe in having extensive planners, rather,
they expected buyers to be artistic and creative. Buyers and planners
frequently worked together as a team.
e. Merchant Incentive Structure
Retail directors were rewarded based on performance and year-end
bonuses. Since the outcomes of a regional director were easier to
monitor then the actions themselves, compensation and performance
based rewards were tied to outcomes. A retail director was capable of
earning up to 15% of their annual salary for such rewards. To be
eligible, he or she had to exceed both goals and plans.
f. Store Organization and Incentive Structure
Field organization was crucial to day-to-day operations. Because of the
NWRSs centralization, retail directors relied on regional sales
managers to be their eyes and ears. Regional sales managers
qualified for bonuses of up to 15%. 5 or 6 area sales managers, who
could occur bonuses of up to 10%, would report to one regional sales
manager. Each store employed a store manager, and several assistant
managers. The store manager was responsible for producing weekly
business analysis and highlighting the stores successes and failures.
They were reviewed based on annual sales, expenses, turnover, and
shrinkage Field employees were rewarded based on the achievement
of sales and by reviews by corporate EPS. Promotion for field
employees were present, but infrequent.
g. Demand Forecasting
Retail directors broke this down by store and SKU, and used a
combination of historical data, exogenous variables, and intuition.
They relied heavily on historical variables to forecast demand.
Their product portfolios consisted of safe and risky styles.
Each risky style was evaluated based on rick and potential reward,
and also considered in product diversification.
 Fashion trend forecasting consisted of input from designers and
NWRS merchandise managers who would travel to Europe to view the
fashion and new materials. These inputs were combined with the
prediction of consumer tastes and likely success of a theme.
h. Seasonal Budgeting
This process allocated capitol for inventory decisions to various product
categories, and created sales and gross margin plans for each retail
director. The plans were created during a three-month process ten
months prior to the merchandise hitting stores. These plans acted as
guidelines for the way retail directors managed business. Exact
figures were derived from historical data, analytical monitoring, and
strategic direction to project a six-month merchandising plan.
Ultimately, the president holds the key to all funding and, hence, is
central to merchandising decision.
To set the financial budget, a retail director submitted a formal
request, attempting to make an argument as to why the stores should
have increased funding. Regional directors then determined
appropriate levels of merchandise and created an aggregate total
budget for their region.
The merchandise manager and president developed category
level forecasts. They had to be both effective managers and competent
merchants.
The ultimate objective was to make certain the most promising
opportunities underwent the planning process when the final budget
was approved.
i. Merchant Product Selection
After the completion of seasonal budgets in December, retail directors
visited the wholesale divisions shoe week show to preview the
upcoming fall collection. Within a week, retail directors were required
to project the styles that would be represented in their stores. They
also had to forecast initial store quantity commitments, which
represented 40-50% of the entire seasons buy. The other 50-60%
was set aside for reorder merchandise, and to buy new products which
had appeared on the market.
 By this time, many trends had surfaced, and the direction
became apparent. Retail directors used the seasonal budget to ensure
that they didnt overbuy. They also used historical data and intuition.
Because NWRS is vertically integrated, merchants were able to
postpone some decisions.
j. Rolling Financial Forecasting
Once the formal budget and purchase orders are finalized, retail
directors continue to warehouse and additional information and apply
this knowledge to updated financial forecasts. Forecasts would be
updated if a major event, such as production problems or competitor
going out of business, occurred. It also allowed for showcasing
successes and supported funding for specific products or locations.
k. Merchandise Display Decisions
Merchandise display recommendations were created by retail directors
and visual marketing directors, and were communicated to the store in
the form of planagrams. Merchandise was put together in groups,
to be aesthetically pleasing. Retail directors had to make sure that
shipments arrived in the correct order so the store could implement
the displays, and also needed to ensure that specific regional
preferences were satisfied.
l. Retail Pricing
The NWRS, who again controlled pricing, dictated a suggested retail
price to products purchased from their wholesale division to ensure
consistency in pricing. For the wholesale division, NWRS sourced the
best costs, and chose to either pass the savings on to the customer, or
to keep it within the company. But merchandise sold to department
stores was often discounted, forcing regional directors to match the
new lower price to drive sales.
40 50% of merchandise was generally secured at regular
price. Promotions and markdowns were developed to arrive at
profitability requirements. After a products lifestyle, which lasted
about 12 weeks, the product was often sold to off-price retailers
through merchandise jobbers to ensure brand integrity.
m. Tough Decisions
 Because Fisher planned to expand into lifestyle products, he realized
the forthcoming few years would be the companys most crucial.
Success, changes in merchant organizational structure, market
competition, efficiency, possible incentive modifications, were major
issues. In addition, the use of IT was increasing in the market, yet the
organization lacked familiarity with computer techniques and
capabilities, and with computer oriented merchandising.
n. Alternative Courses of Action
The first milestone would be creating an online store for the company.
Nine West could either train or hire new employees to create and
maintain this new division, or they could source to a different
company.
Instead of vertically integrating this new product, Nine West
may either choose to license select product, or, or acquire small
companies altogether. With the latter, they would be able to alter the
new company to fit into the Nine West vision. It would be greatly
beneficial for the acquired company to already have a strong sourcing
department, as existing Nine West employees would most likely be
unfamiliar with manufacturing this new product. However, this would
be a case of vertical integration or expansion, and may change the
dynamics of the company. However, a synergy would still exist
between management in NWRS and new companies.
If Nine West so chooses, vertical integration would require
much more work, but would allow the company to maintain total
control over all aspects of products. Nine West would have to hire new
product designers, production specialists, market researchers, etc. to
ensure the success of the brand.
o. Conclusion and Recommendation
The company faces two issues creating an online division and
expanding into the lifestyle market.
Because the companys distribution of product is divided into
regions, Nine West would need to research sales as a whole for their
new online division. Because Nine West distributes to many
department and specialty stores, they may choose to research which
styles they are selling on their websites, and which are making the
most profit. Because Nine West is vertically integrated, manufacturing
would only need to be increased on select styles, or on online
exclusive styles. Because Nine West chooses to offer different widths
of shoes in their stores, the ones that are the least performing may
become online exclusive items.
Instead of maintaining prices regionally, the company would
now need to maintain stronger company standards on pricing because
a customer from any region could now buy the item online.
Process benchmarking is the most crucial marketing technique
for the company at this time. Nine West would need to do extensive
research on other companies who have also expanded to include full
lifestyle brands.
Instead of immediately introducing additional merchandise to
all stores, select high-traffic high-performance in key areas should
begin to carry test merchandise. This merchandise could also be
carried on their new website.
It would be less time consuming and require much less training
for Nine West to acquire new companies to produce new products.
Also, because Nine West employees are unfamiliar in general with
technology, a company should be sourced to create and maintain the
online division. A new department of the NWRS could be created to
maintain synergy between all companies.