Allen Edmonds to Increase Profits for Children’s Shoes

Case Type: improve profitability.
Consulting Firm: Capital One first round full time job interview.
Industry Coverage: apparel, clothing, textiles.

Case Interview Question #00948: Our client Allen Edmonds Shoe Corporation is an American shoe manufacturer based in Port Washington, Wisconsin. The company was established in Belgium, Wisconsin in 1922. Today it designs and manufactures shoes for women, men and children in the United States, as well as in Italy and the Dominican Republic.

The Allen Edmonds Shoe company sells its shoes to a range of retailers from national department stores like Macy’s and Bloomingdale’s, mass retail stores like Target and Walmart, and shoe retailers like Famous Footwear and Foot Locker. While the revenue for the children’s shoe segment has been increasing over the past few years, profits have been declining. The client has brought our consulting firm in to address this issue. What would you recommend the client do?

Possible Answer:

The candidate should come up with a structure that addresses costs and possible increases in costs due to manufacturing, distribution or marketing. The candidate should also include product mix in the structure – profits may be decreasing because the mix of shoes sold has shifted towards lower margin models.

1. Profitability & Trends

After candidate has asked about product mix, prices and costs for shoes, provide the following charts:

Table 1. Price/Pair

Table 2. Cost/Pair

Price/pair is the revenue generated from selling shoes to the retailers and cost/pair is the fully-loaded cost associated with designing and manufacturing a pair of shoes. Candidate should calculate the profits for each brand in 2012 and in 2014 to compare how the profits have changed over the two years.

Example calculation: (64-35)/64 = 45%

Profit Margin/Pair

The candidate should ask about the types of shoes and the differences between them. If not, guide them to this. Let them know that Brand A and Brand C are casual shoes and Brand B is a formal shoe.

Key Insights:

The client is likely decreasing prices for Brand A and Brand B because of decreasing sales volumes. Decreasing price is leading to eroding profit margins. On the other hand, the company has been able to increase price for Brand C and this has lead to increasing profit margin for that category. Since Brand A and Brand C are both casual shoes, there may be some cannibalization of sales, especially if Brand C offers similar appeal to kids at a lower price.

2. Sales & Strategy

The Candidate should ask about sales volume for each brand to confirm the above hypothesis.

Table 3. Sales Volume/Pair (000′s)

Candidate should calculate the total revenue in 2014. For example, 280,000 pairs * $56/pair = $17.1MM. Candidate should also calculate the % of revenue from each shoe brand for 2014 as well as for 2013 and 2012, as shown below in Table 4. Though general “guesstimation” of numbers may be legitimate.

Table 4. Total Sales (MM)

Key Insights:

Sales volumes are declining for Brands A & Brand B even though price is decreasing while there is significant growth in sales volume for Brand C despite the fact that price is increasing. Brand C accounts for a small portion of total sales, but the proportion is increasing relative to other brands due to sales decline for the other two brands.

Interviewer: If you had $50MM to invest in one shoe brand only, which brand would you choose and why?

Candidate: Brand C is the most attractive segment because:

(1) there is increasing demand for the product and potential for greater sales growth;
(2) it has become the most profitable amongst all brands and hold promise for enhanced profitability due to potential of increasing prices.