Classic Knitwear & Guardian: A Perfect Fit?

Classic Knitwear & Guardian: A Perfect Fit?

Summary

Classic Knitwear manufactures and distributes casual apparel, either unbranded or under a private-label brand name. Partly because Classic has no brand recognition with consumers, gross margins are low. To improve margins, the company considers partnering via a licensing agreement with Guardian, a manufacturer of insect repellent that has developed superior repellent technology for clothing. Unlike Classic Knitwear, Guardian is a well-known and well-respected brand in its target market of outdoor enthusiasts, and Classic Knitwear wants to take advantage of this by selling the new clothing line under the Guardian brand. The partnership presents many new opportunities for Classic Knitwear along with many risks. The CEO wants a quick decision in time for the company's upcoming investor call. The case explores challenges in product development, brand management, and consumer marketing.

Background Information

Classic Knitwear, a publicly traded company headquartered in Miami, Florida, was established in 1995 as a manufacturer and distributor of unbranded casual knit apparel (T-shirts, sport shirts, sweatshirts, fleeces, etc.). The company operated in the $24.5 billion category of non-fashion casual knitwear, and reported in 2005 revenues of $550 million.

Wholesalers comprised 75%, or $413 million, of Classic’s revenues. The other 25% of Classic’s revenues came from knitwear sold through mass retail channels as private label merchandise, which typically carried the name of the retailer or of some in-house “brand” the retailer had invented

Classic’s problem with gross margins of 18% was that its private label or unbranded knitwear had no branded recognition among retail customers.

Competitive Context

Broadly speaking, the branded side of the non-fashion knitwear market was dominated by three large manufacturers: James Brands ($4.5 billion in revenue from U.S. sales), Flower Knit ($1.25 billion in U.S. revenue), and Greenville Corporation’s Top Tops Division ($630 million in U.S. revenue).  

In unbranded segment, Classic competed with little known firms like B&B Activewear which held market share of 23.6% or $590 million and most industry analysts believed Classic was the #2 player in this sector, with 16.5% market share.

Current Strategy

• Board of directors and CEO seeking opportunities for growth
• Classic had been investigating the launch of a line of insect repellent shirts through a partnership with chemical firm Guardian
• Company seeking to increase overall gross margins consistently over 20%

The Guardian Project

Guardian, which reported 2005 sales of about $100 million, was founded in 2001 by two former pharmaceutical industry scientists, and it represents a manufacturer of insects repellents. The young company had recently received EPA registration for a newly patented insect-repellent technology that would provide protection through 70 washings— nearly 3 times the 25 washings promised by existing insect-repellent apparel.  

The potential alliance would allow Classic to use the Guardian name on a line of insect repellent shirts. Also, Guardian viewed its potential partnership with Classic as an opportunity to reach the outdoor enthusiast market that valued the convenience of not having to apply or carry traditional liquid repellents.