Eddie Bauer
Core problems
There are several issues for Eddie Bauer, Inc. to tackle, low profit margin ratio, high sales return and high inventory level, and brand positioning.
Analysis of the problems
Eddie Bauer yielded the lowest net income among its competitors like The Gap, A & F and Land’s End. It achieved similar gross profit margin but got a poor performance on overall net income at 1% because it suffered from high expenditure on SG&A in both retail and catalog operations which accounted for 37% of its total net sales. This is extraordinary high while compared with its main competitors like A & F, and the Gap whose SG&A amounted to 22% and 27% of their net sales respectively (Table 1). A & F and Eddie Bauer are similar in size, distribution channels and sales volume, but the amounts of SG&A of Eddie Bauer was $318M, which is almost twice of A&F ($176M). Even though the net sales of Eddie Bauer was $511M which is 63% higher than A & F, the gross profit in absolute amount and percentage are both lower than A & F, which amounted $83M and approximately 5 times more in net income (Table 3). There are two main reasons, the high production cost ($75M) of catalogs with 3.75 million copies (Table 7) mailing out and the high sales return ($528M Gross sales - $345 net sales = $183M) which is due to the service commitment and the weaknesses of catalog business which offer no fitting and touching on the items and hence the return rate would be higher. This means a higher tendency of dead stock and the higher handling expenses that have negative impact to the company’s profit. Indeed, Eddie Bauer placed its footwear and swimwear items in catalog only, which accounted for an extremely high return rate throughout the industry, often over 50%. The total inventory for retails and catalog $656M equaled the costs of goods sold ($697M), meaning the stock rotation around 12 months (table2) which is extremely high when compared to A&F with 1.3 months and Gap with 2.4 months
There are several issues for Eddie Bauer, Inc. to tackle, low profit margin ratio, high sales return and high inventory level, and brand positioning.
Analysis of the problems
Eddie Bauer yielded the lowest net income among its competitors like The Gap, A & F and Land’s End. It achieved similar gross profit margin but got a poor performance on overall net income at 1% because it suffered from high expenditure on SG&A in both retail and catalog operations which accounted for 37% of its total net sales. This is extraordinary high while compared with its main competitors like A & F, and the Gap whose SG&A amounted to 22% and 27% of their net sales respectively (Table 1). A & F and Eddie Bauer are similar in size, distribution channels and sales volume, but the amounts of SG&A of Eddie Bauer was $318M, which is almost twice of A&F ($176M). Even though the net sales of Eddie Bauer was $511M which is 63% higher than A & F, the gross profit in absolute amount and percentage are both lower than A & F, which amounted $83M and approximately 5 times more in net income (Table 3). There are two main reasons, the high production cost ($75M) of catalogs with 3.75 million copies (Table 7) mailing out and the high sales return ($528M Gross sales - $345 net sales = $183M) which is due to the service commitment and the weaknesses of catalog business which offer no fitting and touching on the items and hence the return rate would be higher. This means a higher tendency of dead stock and the higher handling expenses that have negative impact to the company’s profit. Indeed, Eddie Bauer placed its footwear and swimwear items in catalog only, which accounted for an extremely high return rate throughout the industry, often over 50%. The total inventory for retails and catalog $656M equaled the costs of goods sold ($697M), meaning the stock rotation around 12 months (table2) which is extremely high when compared to A&F with 1.3 months and Gap with 2.4 months