Hart, Schaffner & Marx should NOT pursue the high-quality separates market. Based on our analysis, we see the risks of brand degradation and financial costs far too great when compared to what we see as a limited market growth opportunity in a low margin segment.
Customer: Our analysis of Exhibit 6 shows the separates market to grow approximately 300% between 1977 and 1980, regardless of advertising expenditure. This promising statistic is muted when we look at sales growth increases over advertising expenditures. If there were value to brand in the separates market, we would expect the sales in Columbus to significantly outpace the other tested markets where there were significantly less advertising expenditures. This was not the case and we presume that the decision to purchase separates is price oriented, thus the market displays the traits of a commodity good (highly elastic), where price is the key decision making metric and brand and quality have little value. Since the decision is generally made by a spouse, and based on the lowest price, she is unlikely to be influenced by the prior brand that Hart’s offers. There is clearly a growing demand for separates as a whole, but we do not believe that a high quality separate offers the value that customers are looking for.
Further, as the customers age, their preferences will shift toward higher quality suits that Hart’s currently serves.
Competition: Leadership in the lower quality separates market is already being fought for by Levis Strauss and Haggar who are leveraging their position as lower quality slacks manufacturers into separates. Furthermore, competition in the suits market is exiting due to financial distress, so while the market for suits is staying constant in size, opportunities for growth by picking up this market share are very real.
Company: Hart’s is a high-cost producer in the market, and as such, a high degree of investment would be needed to enter the low-cost separates business. The firm employees unionized American labor, and currently has access to high cost American made fabric. This has given the firm a competitive brand advantage in regards to three consumer desires, fabric, intricacy and silhouette all highly valued in the market for suits, but not as much for suit separates. The company
