Puma

Puma's assignement

* 1. What is your opinion of the job that Puma's management has done since CEO J. Zeitz took over? Is the company in good shape and in a good market position? Would Puma management agree with you assessment? How does your Characterization of where Puma is and how well is it doing compare with the message and image that Puma management is trying to get across?

The management quickly understood that Zeitz was a winner. Being at the head of Colgate-Palmolive's marketing which was well known as a pure market player during the 90's was a good bet. Within a year at Puma at the age of 30 he has been promoted to CEO. His aims were to make Puma profitable, in order to do so; Zeitz reduced cost, which had increases margin. Then he worked on the working capital to reduce inventory and account receivable. His main goal was in fact to save cash. And then six years later he made a record earning of $37 millions euro with strong cash flows.

As a matter of fact Puma was in a great situation not because it was the leader in terms of market share but because their operating margins were the best in the sector.

* 2. What is the competition like in the international sport apparel industry? What does five forces analysis tells you about competition in this industry?

In terms of Supplier power, Costs are rising for many goods and services, competition in finding the cheaper supplier who remains the best quality and keeping high capacity production. As far as Barriers to entry are concerned, as a well-established Leisure shoe company, Puma benefits from large image in prospective areas which have contractual protection. Customer power is having an effect when Labor prices are set in global markets. Quality and brand positioning are the consumer's only real response to high prices. Substitute products, in case of High prices, leading to a renewal of interest in alternative sport shoes or city wear. Finally, Rivalry: with a strong competition between international companies in all business areas. In recent years, large sport shoes companies have further increased market shares.

* 3. Why is the supply side of the international sport market so fragmented?

The demand for any clothing in the world is very high. Puma is a part of it, even though they are focused on sports shoe sector. Nowadays with the globalization world we are facing the competition become more and more hard and in terms of market share or relative market share even the leader doesn't have more than 2% (textile).And since thousands of sports are practiced worldwide touching every social class we can claim that the market is fragmented.

* 4. What does a SWOT analysis reveal about Puma's situation?

The main strength of Puma is its ability to innovate, that what is the most harder in this industry, because the demand curve can switch extremely easily from one trend to another. The image they have developed from "dirt-cheap" to "fashionable" brand reveal how they interact in the market. We also can notice that they truly care about research and development, in terms of percentage of the sale, during the previous year they have been beating Nike. So I guess that their return on investment is incredibly high.

Concerning their brand management, the image that they reflect can be a "cool" one with sponsoring Jamaica, Cameroon or Italy, but it can also be "trendy" when you see a pair of puma in a Gucci store on the most expensive avenues in big cities.

Furthermore they become vastly present on the Asian market.

Their weakness is probably their size, in fact they are too small to become a market leader, I think they have to expend more to be at the level of Nike and Adidas as far as market shares are concerned

Relating to their opportunities, Puma is doing a really good job on contracts. Having already an incredible organic growth, they now focus on vertical growth in others words acquisitions, and partnership. Tretorn which was acquired in 2001 is becoming their cash cow and about other contracts they perform with any kind of sub sector, luxury with Gucci, and Yamamoto, or with other sports brand like Loto or Quicksilver

The major threat is Puma's exposure to the US is 26% of sales in 2006 which can be seen as a loss of 30% on the exchange rate.

* 5. What is your assessment of Puma's value chain make-up?

Regarding the value chain Puma is at the top for every channel. With regards to Research and Development, they nowadays are beating Nike which is probably their major force. Indeed they have developed several brands as Platinum and Nuala to reach a more casual style.

About Sourcing and procurement, their key supplier is Yue Yuen who is also supplying the competitors (75% of Yue Yuen sales come from sport shoe). Puma known how to deal with geopolitical situation, this was the case with 9/11 where they moved their factories from Pakistan to China. At the beginning Puma made itself its own products, since 2002 they've outsourced about 70% of their logistics, this might explain theirs high margins.

As regards brand management and image, as mentioned before thy can be viewed as "cool" and at the same time "trendy". Their sponsorship campaign are well focused they are present