Pumpkin patch fasion company in newzaland

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1. Introduction

Pumpkin Patch is the largest children's fashion company in New Zealand. The company was founded in 1990 by Maurice Prendergast, an accountant by training. The idea for the company began when a woman had a vision of providing high quality, yet affordable children's clothing and the company sold its products through mail order catalogue. However, the brand only began to take off when Prendergast took over. Originally positioned as a high end niche brand, the company has grown rapidly since its inception as its customer increases to encompass the Australasia region and has made significant inroads in the rest of the world.

Pumpkin Patch's products cover all the stages of childhood growth, from infant to pre-teen. The company offers a diverse range of products such as normal clothing, nightwear, fashion accessories, footwear and rainwear. According to Prendergast, the aim of the company is to produce clothing that make children “drop dead gorgeous”.

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Currently, Pumpkin Patch has a workforce of over 2, 800 people. It produces more than 2, 000 styles per season and its products are available in over 220 stores around the world. As if 2009, its revenues stood at NZ$412 million.

This report analyzes the performance of Pumpkin Patch. It does so from a number of frameworks, such as a PEST analysis and Porter's Five Forces model. It then provides recommendations on how to overcome some of the problems faced by the company and the steps it can take to improve its competitiveness.

1.1 Current Market Coverage

Pumpkin Patch is the largest company of children's clothing in New Zealand and Australia. It dominates these markets. The company has also made significant inroads into the United Kingdom and United States markets. However, its foray into these markets was not easy as they are highly competitive and a brand needs to be outstanding to succeed in them. Initially, Pumpkin Patch sustained losses in running stores in these countries but the company learnt from its mistakes and shortcomings. Eventually, the company reached a turning point and is set to continue its presence in these markets.

Apart from retailing, the company also is a wholesaler. Apart from acting as wholesaler in the abovementioned markets, it is also present in the Middle East. Currently, the company has a wholesaling presence in 16 markets around the world.

The company views wholesaling as a useful starting point to enter into new markets. It collects valuable customer data through its wholesale business to determine whether it is viable to penetrate new markets and formulates its entry strategy based on the data collected.

1.2 Product Lines

Pumpkin Patch has 13 product lines. Baby Patch is for newborns to 9 month old babies. It has separate lines for toddler girls and toddler boys aged between 6 months to 4 years old. Then there are lines for big girls and big boys who are categorized between the ages of 6 to 11 years. All these lines fall under the Pumpkin Patch range.

The company has a separate line called Urban Angel Girl for preteen and early teen girls. It also has special lines for underwear, nightwear, swimwear, accessories and footwear for babies to 14 years old under its Pumpkin Patch and Urban Angel Girl lines. It also has a separate maternity line called Patch Maternity and another for kids' bedrooms.

1.3 Trends

The international children's clothes market is dynamic and ever changing. Even though there is not much change in terms of basic children's clothing, the changes are much more pronounced in the high end market in which Pumpkin Patch is competing. To stay ahead of competitors, a company needs to continuously innovate.

2. PEST Analysis

2.1 Political

New Zealand is a constitutional monarchy. Its head of state is the Queen of Great Britain, though she is represented by the Governor General, who is currently Sir Anand Satyanand. Like all constitutional monarchies, New Zealand has a Parliament. However, unlike many parliaments around the world, the New Zealand Parliament has only one chamber called the House of Representatives. New Zealand practices the concept of separation of powers. The Parliament has legislative powers. Executive powers rest with the Cabinet which is led by the Prime Minister and consists of other ministers. The judiciary controls the third branch of government.

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New Zealand has a very stable political system. Like most democracies in developed nations, it practices a two party system. Elections are held once every three years. On the whole, the governments in the country have been very stable and business friendly. This positively impacts Pumpkin Patch because a stable government with a pro-business policy provides a conducive environment for the company to prosper.

2.2 Economic

New Zealand has a modern, prosperous and developed market economy with an estimated gross domestic product at purchasing power parity per capita of US$28, 250. The New Zealand dollar is also a stable currency that has appreciated in the last year. According to the United Development Programme's Human Development Index, New Zealand was ranked the third most developed country in 2010.

Export comprises 24% of New Zealand's output. Trade revolves around products such as horticulture, fishing, forestry, mining and agriculture. Dairy products and meat are a significant source of income. This makes the economy vulnerable to fluctuations in global commodity prices. New Zealand's major trading partners are Australia, Japan, China, the United Kingdom and United States.

The largest sector in the economy is the service sector and this is followed by manufacturing, construction, farming and raw material extraction. Tourism is a major source of revenue and a large employer.

The New Zealand economy was badly affected by the recent global recession. The country experienced its worst recession in decades and unemployment rates rose to 7%. Even so, the country's economy has proven to be resilient in the long term, judging from the way it bounced back from previous recessions such as the one in the early 1990s.

A rather unusual aspect of the New Zealand economy is its brain drain which has occurred since the 1970s. Indeed, approximately 25% of high skilled workers reside overseas in Britain and Australia, which is the highest for a developed country. However, the government has made efforts in recent years to lure back talent and to draw educated professionals from European nations.

As a result of the recession, Pumpkin Patch's sales and profitability were affected in 2009 and 2010. The company effort at mitigating such adverse effects is to increase its presence in a larger number of countries. For instance, even though the Australian economy was affected by the recession, sales remained strong there.

2.3 Social

New Zealand has a small population of around 4.4 million. Around 72% of the population resides in urban areas. The four largest cities in New Zealand are Auckland, Christchurch, Hamilton and Wellington. Owing to the high quality of life, the average life expectancy is 78.4 years for males and 82.4 for females.

The majority of New Zealand's population consists of people of European descent, mainly British descent. This is followed by a smaller percentage of indigenous people, led by the Maori who make up the largest group. The country is also home to a small but growing population of Asians.

For more than a century, the needs of the indigenous minorities were sidelined as they were forced to assimilate British culture. However, in the 1980s, the government became more accommodating and declared Maori as one of New Zealand's official languages. Currently, there are Maori television channels and schools. A small percentage of Parliament seats is exclusively reserved for Maori.

Owing to a long history of assimilation, the general requirements of all the ethnic groups are the same. Most go to the same types of schools, have similar education opportunities and buy similar things. Therefore, Pumpkin Patch's products find favour across cultural lines and there is no need to tailor separate marketing campaigns or product lines for the different ethnic groups.

2.4 Technological

New Zealand may not be at the forefront of cutting edge technology. Nonetheless, it is highly advanced in terms of technological application. Internet penetration is an impressive 80%. E-commerce, e-retailing, business portals and automated reorders are all used by businesses to achieve competitive advantage. Indeed, Pumpkin Patch has a software system that is used throughout its value chain from the design of new products to supply chain management to delivery to customer. This system is one of the company's most prized assets and it should improve the model to assist it well into the future.

3. Porter's Five Forces Competitive Model

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The following is a checklist of the competitive analysis of the global children's clothing market using Porter's Five Forces Model (Porter, 1990). It demonstrates how the various forces influence the competitive advantage of the industry.

3.1 Threat of New Entrants

Threat of New Entrants is High When:

General

Industry

High

Low

High

Low

Economies of scale are

X

X

Product differentiation is

X

X

Capital requirements are

X

X

Switching costs are

X

X

Incumbent's control of distribution channel is

X

X

Incumbent's proprietary knowledge is

X

X

Incumbent's access to raw materials is

X

X

Incumbent's access to government subsidies is

X

X

In the international children's clothes industry, the threat of new entrants is low due to restrictions in capital, raw material and consumer taste. While there may be numerous small scale players, it requires vast capital and economies of scale to be in the rank of the top five retailers of children's clothes.

3.2 Power of Buyers

Power of Buyers is High When:

General

Industry

High

Low

High

Low

Concentration of buyers relative to suppliers is

X

X

Switching costs are

X

X

Product differentiation of suppliers is

X

X

Threat of backward integration by buyers is

X

X

Extent of buyer's profits is

X

X

Importance of supplier's input to quality of buyer's final product is

X

X

Customers around the world are spoilt for choice when it comes to children's clothes. There are many companies who produce all manner of clothes for children. Basically, the market can be divided into three main segments which are low end, mid-range and high end. At the low end (which is the largest segment) are discount and general retailers such as Marks & Spencer and Wal-Mart. The second segment is specialty clothing retailers that have a children's section such as GAP. The final segment is for specialty children's clothing such as Pumpkin Patch. However, within each segment, there is generally little product differentiation, particularly for the low end segment.

3.3 Power of Suppliers

Power of Suppliers is High When:

General

Industry

High

Low

High

Low

Concentration relative to buyer industry is

X

X

Availability of substitute products is

X

X

Importance of customer to the supplier is

X

X

Differentiation of the supplier's products and services is

X

X

Switching costs of the buyer are

X

X

Threat of forward integration by the supplier is

X

X

The relative power of suppliers in the global children's clothing retail industry is high. This is especially true for suppliers of raw materials as there are many of them and there are many retailers. Hence, suppliers do not have that much clout to dictate prices since there are many low cost alternatives especially in Asia. Hence, suppliers have to appease retailers if they want to achieve the desired level of sales. The switching cost is also relatively low in this industry.

3.4 Threat of Substitute Products

Threat of Substitute Products is High When:

General

Industry

High

Low

High

Low

The differentiation of the substitute product is

X

X

Rate of improvement in price-performance relationship of substitute product is

X

X

There are few threats of substitute products for children's clothes. Parents generally dote on their children and would not deprive them of necessity like clothing. While low priced clothes can be used as substitutes for expensive ones, there are no real alternatives to clothing, unless one lives in primitive societies in which natural substances can be used as clothing. Cruel is the parent who deprives his children of clothing, so this market is saved from the treat of substitute products.

3.5 Intensity of Rivalry

Intensity of Competitive Rivalry is High When:

General

Industry

High

Low

High

Low

Number of competitors is

X

X

Industry growth rate is

X

X

Fixed costs are

X

X

Production differentiation is

X

X

Switching costs are

X

X

Exit barriers are

X

X

Strategic stakes are

X

X

The international children's clothing retail market is intensely competitive. Many retailers clamour for a market that is experiencing static growth. As a result, they employ all sorts of tactics to maintain and possibly improve their market share. New entrants must offer something unique if they want to pose a serious threat to the established competitors.

4. Action Plan to Mitigate Impact to Business

  1. Continue to dominate the Australian and New Zealand markets. By leveraging on our dominance of these markets, we can rely on them as cash cows in our bid for overseas expansion.
  2. Continue developing innovative products that are sought after by consumers. Differentiation helps to set us apart from competitors and helps to build competitive advantage.
  3. Obtain more suppliers. This will enable the company to get the lowest possible price as a hedge against the rising cost of raw materials.
  4. Build stronger networks of distributors who can help the company build a stronger global presence.

5. Current Strategies

5.1 Marketing Strategies

Strategy

Reasons For Adopting

Product Differentiation

To distinguish the brand as a high end manufacturer and retailer that sells quality products and stylish designs. Very successful in cultivating the brand image.

Market Segmentation

Developing different segments for different age groups such as newborns, infants, small children and pre-teen. Very successful as it ensure continuity of patronage by customers.

5.2 Human Resource Strategies

Strategy

Reasons For Adopting

Nurture human capital

To enable employees to realize their full potential. Successful in attracting new employees and retaining existing employees.

Develop a good corporate culture

To enhance teamwork and cooperation among employees, to empower them to be creative and innovative. Successful in fostering a good working environment that is conducive and nurturing.

5.3 Operations Management Strategies

Strategy

Reasons For Adopting

Quality Manufacturing

To maintain the highest standard of quality throughout the production process. Quality begins with the quality of design and ends with the quality of the finished product. Very successful strategy as the brand is synonymous for high quality

Inventory and supply chain management

To ensure that inventory is available when it is needed and to avoid unnecessary stock pile-up and redundancy. The system is very responsive to changes in demand and is flexible to adapt to last minute changes in product design.

5.4 Finance Strategies

Strategy

Reasons For Adopting

Effective working capital management

To ensure that the company has sufficient cash flow for its working capital while reinvesting surplus as capital expenditure.

Cost management

To ensure that there are no cost overruns and that the production process is lean and efficient to minimize wastage.  Successful in keeping costs relatively low even during periods of rising costs.

Maximize returns to shareholders

The company's stock went public a few years ago and the aim is to make the stock a sought after investment. To do this, the company has to carefully balance both short and long term strategies to ensure good dividends and capital appreciation of its stock. Overall, the company has succeeded judging from its stock price and dividend payout.

5.5 Research and Development Strategies

Strategy

Reasons For Adopting

Horizontal integration

Acquisition of other brands that are related to Pumpkin Patch's core business. For example, the acquisition of HBK Girl was aimed at expanding the preteen market share. Such acquisitions are generally successful.

New Product Development

To speed up the process for new product development to cater to demands in the market. Product development time has been greatly reduced and the number of new products offered is impressive.

5.6 Sales Strategies

Strategy

Reasons For Adopting

Retail Stores

To showcase the full range of the company's products in a custom made environment that highlights their unique features. Retail stores create greater brand presence. The approach is successful in Australia and New Zealand though it took time and effort to succeed in other markets.

Wholesaling

To introduce the company's products in new markets or where it is not possible to open retail stores. Wholesaling also complements the retail stores. It is an important step in determining the viability of markets through customer data collection and feedback.

5.7 Logistic Strategies

Strategy

Reasons For Adopting

Centralized Distribution

All products are shipped from the central warehouse in Auckland. This strategy enables the company to monitor of all its sales and distribution as well as achieving economies of scale. The method is effective as it delivers all shipments on time and without incidents.

Logistics systems

To enable the company to respond in a prompt and timely manner to the demands in its supply chain.

5.8 International Business Strategy

Strategy

Reasons For Adopting

Wholesaling

This may seem to overlap with the sales strategy as the aims are similar. Wholesaling is seen as an important first step in determining the viability of foreign markets. Data collected from wholesale activities is used to formulate expansion strategies.

Retail stores

Once the company feels it is ready to move beyond wholesaling, it then sets up retail stores in target markets. These stores serve to improve brand awareness among customers and to provide a comprehensive shopping experience.

6. TOWS Matrix Analysis

TOWS MATRIX

Strengths

1. Strong brand

2. Good corporate culture

3. Excellent production process

Weaknesses

1. Centralized decision making.

2. Weak presence in the international market

3. Sometimes slow to respond to changes in the global market.

Opportunities

1. Penetrating new markets such as Asia and South America while strengthening existing markets.

2. Horizontal integration by acquiring other clothing brands.

3. Vertical integration by diversifying into other product lines like infant milk powder.

SO Strategies

1. Establish strategic partnerships with new distributors and open more stores in overseas markets.

2. Acquire other brands that are of strategic importance, such as to provide new technology and design or to eliminate rivals.

3. Diversify into new product lines that are related to Pumpkin Patch's core business.

WO Strategies

1. Decentralize some decision making activities to free up top management to focus on international global strategy while giving greater autonomy to branch managers.

2. Acquisitions of other brands could help the company to acquire skills and technology that could help it overcome some internal weaknesses.

Threats

1. Copycat products by inferior rivals.

2. Stiff competition on all fronts.

3. Economic downturn that could dampen sales.

4. Natural disasters like the recent earthquake that could disrupt production and supply chain.

ST Strategies

1. Leverage on the company's strong brand position of quality and excellence.

2. Differentiate by producing innovative design and always staying one step ahead of rivals.

WT Strategies

1. Formulate contingency plans for worst case scenarios to determine what the company should to survive should the worst happen.

7. Key Success Factors for Proposed Strategies

  1. Open at least one new store in each market for each year. Budgets must be prepared to allocate cash for this purpose.
  2. Increase the number of new designs and shorten the new product development time.
  3. Obtain multiple sources of raw material to obtain better prices and services, and cultivate relationships with new suppliers.
  4. Increase the number of distributors for target markets.

8. Implementation of Proposed Strategies

Strategy

Time Frame

Open at least one new store in each market per year

6 months

Increase the number of new designs and shorten the new product development time

Less than 6 months but done on a continuous and ad hoc basis

Obtain multiple sources of raw materials

2 to 5 years. This is a long term strategy as it will take time.

Increase the number of distributors for target markets

1 to 3 years

9. Conclusion

Pumpkin Patch is a successful company in its home base. However, it is a very small international player in the children's clothing market. Therefore, it has tremendous growth potential provided it pursues the right strategies. This report outlined some of the key issues faced by the company and proposed recommendations that will help improve the current situation. Through hard work, strategy and creativity, the company will be able to achieve much success in the future.