HISTORY OF COMPANY

Like any new business venture, XYZ Company was born from an idea and a market need. Donna Browning realized this business need after teaching fitness classes in Cincinnati and in Chicago for 22 years. She took her constant annoyance of headbands falling off of her head during workouts and channeled that energy into teaching herself how to sew ribbon, velvet, elastic and thread together to make a fashionable and secure headband. In 2007, Browning began gifting her innovative product to friends and by 2008, she had realized the headbands potential and began working under the name XYZ Company. Browning set two prices for her XYZ Company, $15 and $18, which have not changed over the years. Donnas husband, Doug, officially joined the company in 2010 and has been running Sweaty Bands nationwide sales force ever since. Sales have been generated from the companys website, sporting events and marathon expos, professional athletes endorsements, small boutique shops, and large retailers such as REI and Nordstrom. In conjunction with the exponentially growing sales demand, XYZ Company has grown from one producer, Donna Browning, to now over 45 seamstresses and factories in North Carolina and China. With a quickly growing company, Donna remains committed to the organization and the inspiration behind it all, which is an undying passion for fitness and flair. XYZ Company current, primary target market is women between the ages of 25 and 45. Donna and Doug categorize XYZ Company in the fashion accessories industry and claim to be the #1 fitness headband in the world.

STATEMENT OF FIRM OBJECTIVES (3)

XYZ Company' mission is to inspire health and fitness to women across the world. By implementing a culture of "sweaty love" both inside and outside of the company, XYZ Company endeavors to enhance confidence in customers and employees alike. With an emphasis on quality and a passion for the American Dream, XYZ Company commits to developing products right here in the USA, while consistently providing excellent customer service and delivering happiness to each consumer. *Note: this statement will be revised and amended throughout the project, as it is a portion of our final deliverable.

INDUSTRY OVERVIEW (4)

Though admittedly a diverse collection of companies, the industry that most aptly describes XYZ Company is textile manufacturing. Companies in this industry produce textiles and textile products from natural and synthetic materials. The US textile

manufacturing industry includes about 9,000 companies with combined annual sales of more than $50 billion. Competition from other countries continues to challenge US textile manufacturers (Hoovers 2014). Demand is driven by consumer spending, especially in the domestic apparel and home furnishings industries. Profitability in the textile manufacturing industry is largely due to operational efficiency. Large companies capitalize on increasingly efficient technology to achieve both economies of scale and scope, thus maximizing revenue. Conversely, smaller companies achieve profitability through the creation of specialized products at a higher price point. Exports represent more than 20 percent of US textile production. The main export destinations include Canada, Mexico, the UK, and Honduras (Hoovers 2014). Imports account for around 40% of the US market and mainly come from China, India, Pakistan, Mexico, and Canada. Although it is worth noting that US manufacturers will often export raw materials only to later import the finished products from other countries. Most products sold in the industry are yarns and threads, fabrics, curtains, or carpets. The vast majority of goods are produced in factories using highly specialized, automated machinery. Textile manufacturers buy raw material for production from various sources. Cellulosic, or natural, fibers, such as cotton, silk, or wool are typically purchased from commodity brokers and farm cooperatives (Hoovers 2014). Technology is a key source of operating efficiency for companies in this industry. The technology used in production is well-known to industry members; however, it is highly sophisticated and requires substantial capital that smaller firms may not possess. In the textile industry, most companies sell to apparel manufacturers, furniture manufacturers, or a variety of retailers in diverse industries. Sales are often handled by an in-house team, and trade shows and events are important sources of new customers. Large textile companies are mainly bound by extensive contracts or supply agreements to other businesses while some smaller firms may market directly to consumers and thus be reliant on consumer trends and overall market forces. Price, quality, and on-time delivery are the three most important determinants of a successful firm. For smaller companies who sell directly to consumers, orders and production can fluctuate greatly throughout the year. Thus managing cash flows and accounts receivable is an extremely important challenge. Inventory levels of raw materials and finished goods may be high for companies that produce standard products such as carpets. To preserve margins in an industry that is extremely price-competitive, textile firms invest in automated machinery. Although work conditions are directly regulated by state and federal labor laws, the most important regulation of the industry is indirect, through trade regulations. Under the WTO, trade quotas on textiles and apparel have been phased out, although tariffs will remain. Under NAFTA, there are no trade quotas on products moving between Canada, the US, and Mexico, and many tariffs on textiles and apparel are being phased out. Under the Caribbean Basin Trade Partnership Act, Caribbean apparel imports to the US made from US textiles are given preferential tariff treatment (Hoovers 2014).

China has long enjoyed global dominance in the textile manufacturing industry and currently accounts for more than 30% of all global exports (Hoovers 2014). However, rising labor costs in China are allowing nations such as Malaysia, Vietnam, and Bangladesh to gain market share. The world market for textiles is satiated due to the low barriers to entry and surplus of unskilled labor available globally. This makes the industry especially sensitive to a weakening economy as increased competition continues to drive prices downward. Smaller firms are somewhat insulated from these factors as they largely compete on qualities other than price. Despite being much costlier, domestic manufacturing can actually be a benefit for industry members. Producing domestically can shorten production times and enable greater quality control. Additionally, domestic production will allow firms to comply with the laudable ideals of corporate social responsibility and fair labor practices. The three most salient industry trends are consolidation, manufacturing development groups, and polyester market share. Competitive trends have encouraged mergers and acquisitions, resulting in fewer companies with a much larger influence on fabric prices and contract conditions. Additionally, companies are working more closely with the design departments of their customers in order to become more valuable suppliers. Finally, demand for polyester has recently overtaken that of cotton creating a lucrative market especially in countries with a strong textile manufacturing industry such as China. Because textile manufacturing is being dominated by low-cost imports from other countries, US textile manufacturers must develop innovative products that cater to specific consumer demands. Labor expenses alone prevent US manufacturers from competing on the basis of price. Thus domestic manufacturers must emphasize innovation, trendspotting, and customer relations. Product quality and branding also become particularly important at the necessarily higher price point. Finally, some customers might have unique needs such as softness or ultraviolet absorption. For larger firms, it is important to negotiate favorable payment terms in order to optimize cash flows. For both large and small companies, it is necessary to closely monitor the financial situation of major markets. The textile manufacturing industry is sensitive to changes in economic conditions. Small firms that sell to niche markets are especially sensitive to any change in the discretionary income of their core consumers. There are several challenges that companies in the textile manufacturing industry need to overcome in order to thrive. The most important of which is volatile domestic demand. The textile industry is very sensitive to economic conditions. Smaller firms are especially susceptible to any changes in consumer spending habits. Low barriers to entry continue to lead to increased competition forcing US manufacturers to compete on other characteristics than price. Another business challenge is the industry regulations that govern transactions. Most quotas on apparel and textile have been lifted; however, companies must remain cognizant of the various tariffs on textiles that affect exporters and importers. A final business challenge is the fluctuation of the price of raw materials. Fluctuating materials costs puts firms in the unenviable position of reducing profit margin

or raising prices on consumers. Although XYZ Company mostly falls under the textile manufacturing industry, it is also considered a member of the apparel and accessory manufacturing industries, because it creates headbands using both pre-made and self-produced fabrics. This industry is highly fragmented within the US: the 50 largest companies generate less than 40 percent of the revenue (Hoovers 2014). It is also an extremely dependent industry with profits based on consumer taste, fabric supply, efficiency in operations, and contract security. One of the only ways for small companies to gain traction is to specialize on a particular apparel item. There are few economies of scale in manufacturing, because of the high labor content of most apparel (Hoovers 2014). Industry growth rate, overall, is low and very similar to the textile industry. With high risk of wasted money on unsold inventory (due to misjudgment of trends), the demand is flaky and unstable. Revenue comes in during high shopping seasons, and falls off after holiday seasons come to a close. If a season is abnormally warm, or visa versa, the apparel industry gets hit with low sales. For example, a warm winter with relatively low snow means less scarves, hats, mittens, gloves, and ear muffs will be purchased. All of which bring in the winter revenue majority for many companies. Another challenge for the apparel industry is that consumers purchase accessories based on disposable income. These purchases are labeled discretionary, and are one of the first to be cut back on during economic down turns. Between 2012 and 2013, however, there was an increase in shipping of apparel manufacturing goods by 2.2 percent, and a retail sales increase of 1.4 percent comparing the first month of 2013 and 2014 (Hoovers 2014). According to the Census Bureau, hats, caps, belts, gloves, and neckties account for over 65% of revenue. All other apparel accessories fight for a stronghold and for growth within the 35% left in the industry. Due to small growth and limited dependency on speed and efficiency, many companies have started to manufacture over seas to cut costs. This leaves their companies vulnerable to economic disruptions and political issues.

The industry has growth opportunities lining up, however. Mens apparel has seen an increase in recent years, especially in hat and tie sales. Licensing for brand names has increased market reach to new consumer bases, and product innovations are transforming the accessory industry. New gloves have been created to keep up with the demand for a glove that can be worn while using a smart device. While growth is currently slow, there is room for the apparel and accessory industry to see an increase in sales and revenue for 2014 and 2015.

PORTERS FIVE FORCES (4.5)

Supplier Bargaining Power Extremely Low: XYZ Company are produced by hand from the raw materials of felt and

yarn and thread. As manufacturers of commodities, the suppliers for XYZ Company have almost no bargaining power as their prices are determined purely by supply and demand. Their unenviable situation is exacerbated by the fact that there are little to no switching costs and the number of suppliers is extremely large and growing with increased global imports from countries such as China, India, and Pakistan. In fact, some suppliers are even avoiding tariffs by smuggling textiles into Canada and Mexico in order to take advantage of NAFTA regulations (Hoovers 2014). Furthermore, XYZ Company does not utilize specialized products such as chemical treated or specialty fabrics. Though not negligible, the main production cost comes from labor and not raw materials. Additionally, while the price of raw materials does fluctuate, it is due to macroeconomic factors such as the spot price of crude oil that is out of the control of both the supplier and XYZ Company. Potential For New Entrants Moderately High: The barriers to entry into Sweaty Bands industry are not onerous. In fact, start ups can often compete with almost no investment of capital equipment. There are no advantageous relationships with the aforementioned suppliers either, as supplies are commodities dictated by market prices. Also, there are very few restrictive regulatory policies or international trade restrictions for new entrants. Perhaps most important, there are very few incumbent companies with the desire or the means to challenge a new entrant into the market. Most firms compete on the bases of product quality and brand recognition, meaning that incumbent firms cannot utilize economies of scale to price newcomers out of the market. Also, there are no existing firms with enough financial resources to prevent the entry of new competitors. While there are many aspects of this industry that make it attractive to new entrants, there are some challenges for new firms. The most daunting of these are brand preferences and customer loyalty. Successful competitors build a strong brand identity and create lasting relationships with their consumers. This is why they are able to sell at a higher price point and why new entrants, with an unknown brand, may have a difficult time gaining market share. Finally, new entrants might have a difficult time building a distribution network. Wholesalers and retailers might demand burdensome concessions from companies with a product that lacks recognition and selling directly to consumers poses its own set of challenges. Buyer Bargaining Power Low: Customers purchase headbands infrequently and in small quantities. Thus they are unable to exert any direct influence over the prices of industry competitors. Additionally, the brand and quality are very important to consumers. Consumers are willing to spend more for and remain extremely loyal to a brand that they connect with. Quality is also very important to consumers. Customers are willing to spend extra for a durable product that will last longer than that of competitors. However, buyers do possess some indirect power in that this industry is heavily reliant on consumer trends and any negative public relations with a buyer can have serious negative repercussions on brand image and brand equity.

Threat of Substitutes High: XYZ Company has a stronghold in being known for its quality. It is hard to mass produce headbands in the same way, with the diversity of patterns and ability to create custom designs as quickly and efficiently as theyre doing. That being said, a large company like Nike, Lulu Lemon, etc. have the ability to create a similar product with great quality. They have a much larger competitive advantage domestically and internationally, and they have billions that can be spent on marketing, shipping, and production. It is worrisome that a company of their size hasnt entered the headband market yet. New Balance is on the verge of creating a very similar product that can replace XYZ Company. Other big box, fitness companies have the ability to do the same. Competitive Rivalry Low: Currently, companies like Goodie are known for being cheap, easily replaced, and of the lowest quality. You can buy a twenty headbands from Goodie at Kroger for the same price as one Sweaty Band from Nordstrom. Keeping in line with their value on quality, there is no one in the market that can currently duplicate what XYZ Company does. That being said, they dont have a rivalry within the marketplace yet.

SWOT ANALYSIS (5)

XYZ Company have been able to create a successful business by building into and relying on several key strengths. The core of these strengths stems from the simple three fabrics Donna sewed together just a few years back. This process has allowed XYZ Company to be able to produce a product that is superior in both quality and function to its competitors. The velvet sewn into the bottom of the product creates a no slip headband. When comparing it to other products on the market, slipping is one of the biggest issues consumers face with headbands, specifically when used for athletic purposes. This added functionality combined with the quality of materials used, truly sets XYZ Company above most competitors in the space. Another advantage that has put them significantly ahead of competition, is again simple, the fact that they did it first. Being the first mover to find a cure for the common slip issue, allowed them to gain significant traction in the market before others began to imitate and make similar products. This traction gave them both a solid clientele that continues to buy products over and over again, as well as made their brand synonymous with the fashioned, no slip headband, enough so that they even claim to be the #1 Fitness Headband in the World. They have continued this success through excellent trend analysis that stems from both constant immersion in a multitude of fashion outlets and a workforce that greatly resembles the products key demographic. Although XYZ Company has been able to continue to grow and build a successful business, they are not without weaknesses that have and will continue to hinder their business if not remedied. Throughout the life of the business, organization has been lacking and has caused the loss of revenues on multiple levels. A lack of forward

thinking for event planning has caused major loss in profit for rush ordering and shipping. The accounting process is slowed due to loss of inventory for free give aways. The majority of opportunities that exist for growth mirror that of their weaknesses. The establishment of documented processes for both day to day operations and event preparation is a must for continued success. No additional costs would be incurred due to rushed planning and no sales would be lost due to being incapable to produce. Additionally, by creating a functioning website that would draw traffic and drive sales in a more efficient manner, ecommerce sales could see a drastic increase. There is plenty of room left for them to grow within the United States. Looking into dress head bands for business professional attire, and teaming with NBA, NFL, MLB, and NCAA for new styles and customers are great opportunities for growth. While the threat level is currently low for XYZ Company, there is a high chance, over all, that a large fitness company like Nike, New Balance, Lulu Lemon, etc. could jump into the head band market. If a big player, with multi-million dollar resources, large market share, and global reach enters the market, XYZ Company will have a hard time keeping up.