Pumpkin patch fasion company in newzaland

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Published: 23rd March, 2015

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1. Introduction

Pumpkin Patch is the largest children's fashion company in New Zealand. The company was founded in 1990 by
Maurice Prendergast, an accountant by training. The idea for the company began when a woman had a vision of
providing high quality, yet affordable children's clothing and the company sold its products through mail order
catalogue. However, the brand only began to take off when Prendergast took over. Originally positioned as a high
end niche brand, the company has grown rapidly since its inception as its customer increases to encompass the
Australasia region and has made significant inroads in the rest of the world.

Pumpkin Patch's products cover all the stages of childhood growth, from infant to pre-teen. The company offers a
diverse range of products such as normal clothing, nightwear, fashion accessories, footwear and rainwear.
According to Prendergast, the aim of the company is to produce clothing that make children drop dead gorgeous.

Currently, Pumpkin Patch has a workforce of over 2, 800 people. It produces more than 2, 000 styles per season
and its products are available in over 220 stores around the world. As if 2009, its revenues stood at NZ$412 million.

This report analyzes the performance of Pumpkin Patch. It does so from a number of frameworks, such as a PEST
analysis and Porter's Five Forces model. It then provides recommendations on how to overcome some of the
problems faced by the company and the steps it can take to improve its competitiveness.

1.1 Current Market Coverage

Pumpkin Patch is the largest company of children's clothing in New Zealand and Australia. It dominates these
markets. The company has also made significant inroads into the United Kingdom and United States markets.
However, its foray into these markets was not easy as they are highly competitive and a brand needs to be
outstanding to succeed in them. Initially, Pumpkin Patch sustained losses in running stores in these countries but
the company learnt from its mistakes and shortcomings. Eventually, the company reached a turning point and is set
to continue its presence in these markets.

Apart from retailing, the company also is a wholesaler. Apart from acting as wholesaler in the abovementioned
markets, it is also present in the Middle East. Currently, the company has a wholesaling presence in 16 markets
around the world.

The company views wholesaling as a useful starting point to enter into new markets. It collects valuable customer
data through its wholesale business to determine whether it is viable to penetrate new markets and formulates its
entry strategy based on the data collected.

1.2 Product Lines

Pumpkin Patch has 13 product lines. Baby Patch is for newborns to 9 month old babies. It has separate lines for
toddler girls and toddler boys aged between 6 months to 4 years old. Then there are lines for big girls and big boys
who are categorized between the ages of 6 to 11 years. All these lines fall under the Pumpkin Patch range.

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The company has a separate line called Urban Angel Girl for preteen and early teen girls. It also has special lines for
underwear, nightwear, swimwear, accessories and footwear for babies to 14 years old under its Pumpkin Patch and
Urban Angel Girl lines. It also has a separate maternity line called Patch Maternity and another for kids' bedrooms.

1.3 Trends

The international children's clothes market is dynamic and ever changing. Even though there is not much change in
terms of basic children's clothing, the changes are much more pronounced in the high end market in which Pumpkin
Patch is competing. To stay ahead of competitors, a company needs to continuously innovate.

2. PEST Analysis

2.1 Political

New Zealand is a constitutional monarchy. Its head of state is the Queen of Great Britain, though she is represented
by the Governor General, who is currently Sir Anand Satyanand. Like all constitutional monarchies, New Zealand
has a Parliament. However, unlike many parliaments around the world, the New Zealand Parliament has only one
chamber called the House of Representatives. New Zealand practices the concept of separation of powers. The
Parliament has legislative powers. Executive powers rest with the Cabinet which is led by the Prime Minister and
consists of other ministers. The judiciary controls the third branch of government.

New Zealand has a very stable political system. Like most democracies in developed nations, it practices a two
party system. Elections are held once every three years. On the whole, the governments in the country have been
very stable and business friendly. This positively impacts Pumpkin Patch because a stable government with a pro-
business policy provides a conducive environment for the company to prosper.

2.2 Economic

New Zealand has a modern, prosperous and developed market economy with an estimated gross domestic product
at purchasing power parity per capita of US$28, 250. The New Zealand dollar is also a stable currency that has
appreciated in the last year. According to the United Development Programme's Human Development Index, New
Zealand was ranked the third most developed country in 2010.

Export comprises 24% of New Zealand's output. Trade revolves around products such as horticulture, fishing,
forestry, mining and agriculture. Dairy products and meat are a significant source of income. This makes the
economy vulnerable to fluctuations in global commodity prices. New Zealand's major trading partners are Australia,
Japan, China, the United Kingdom and United States.

The largest sector in the economy is the service sector and this is followed by manufacturing, construction, farming
and raw material extraction. Tourism is a major source of revenue and a large employer.

The New Zealand economy was badly affected by the recent global recession. The country experienced its worst
recession in decades and unemployment rates rose to 7%. Even so, the country's economy has proven to be
resilient in the long term, judging from the way it bounced back from previous recessions such as the one in the
early 1990s.

A rather unusual aspect of the New Zealand economy is its brain drain which has occurred since the 1970s. Indeed,
approximately 25% of high skilled workers reside overseas in Britain and Australia, which is the highest for a
developed country. However, the government has made efforts in recent years to lure back talent and to draw
educated professionals from European nations.

As a result of the recession, Pumpkin Patch's sales and profitability were affected in 2009 and 2010. The company

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effort at mitigating such adverse effects is to increase its presence in a larger number of countries. For instance,
even though the Australian economy was affected by the recession, sales remained strong there.

2.3 Social

New Zealand has a small population of around 4.4 million. Around 72% of the population resides in urban areas. The
four largest cities in New Zealand are Auckland, Christchurch, Hamilton and Wellington. Owing to the high quality of
life, the average life expectancy is 78.4 years for males and 82.4 for females.

The majority of New Zealand's population consists of people of European descent, mainly British descent. This is
followed by a smaller percentage of indigenous people, led by the Maori who make up the largest group. The
country is also home to a small but growing population of Asians.

For more than a century, the needs of the indigenous minorities were sidelined as they were forced to assimilate
British culture. However, in the 1980s, the government became more accommodating and declared Maori as one of
New Zealand's official languages. Currently, there are Maori television channels and schools. A small percentage of
Parliament seats is exclusively reserved for Maori.

Owing to a long history of assimilation, the general requirements of all the ethnic groups are the same. Most go to
the same types of schools, have similar education opportunities and buy similar things. Therefore, Pumpkin Patch's
products find favour across cultural lines and there is no need to tailor separate marketing campaigns or product
lines for the different ethnic groups.

2.4 Technological

New Zealand may not be at the forefront of cutting edge technology. Nonetheless, it is highly advanced in terms of
technological application. Internet penetration is an impressive 80%. E-commerce, e-retailing, business portals and
automated reorders are all used by businesses to achieve competitive advantage. Indeed, Pumpkin Patch has a
software system that is used throughout its value chain from the design of new products to supply chain
management to delivery to customer. This system is one of the company's most prized assets and it should improve
the model to assist it well into the future.

3. Porter's Five Forces Competitive Model

The following is a checklist of the competitive analysis of the global children's clothing market using Porter's Five
Forces Model (Porter, 1990). It demonstrates how the various forces influence the competitive advantage of the
industry.

3.1 Threat of New Entrants

Threat of New Entrants is High When: General Industry

High Low High Low

Economies of scale are X X

Product differentiation is X X

Capital requirements are X X

Switching costs are X X

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 Incumbent's control of distribution channel is X X

Incumbent's proprietary knowledge is X X

Incumbent's access to raw materials is X X

Incumbent's access to government subsidies is X X

In the international children's clothes industry, the threat of new entrants is low due to restrictions in capital, raw
material and consumer taste. While there may be numerous small scale players, it requires vast capital and
economies of scale to be in the rank of the top five retailers of children's clothes.

3.2 Power of Buyers

Power of Buyers is High When: General Industry

High Low High Low

Concentration of buyers relative to suppliers is X X

Switching costs are X X

Product differentiation of suppliers is X X

Threat of backward integration by buyers is X X

Extent of buyer's profits is X X

Importance of supplier's input to quality of buyer's final product is X X

Customers around the world are spoilt for choice when it comes to children's clothes. There are many companies
who produce all manner of clothes for children. Basically, the market can be divided into three main segments which
are low end, mid-range and high end. At the low end (which is the largest segment) are discount and general
retailers such as Marks & Spencer and Wal-Mart. The second segment is specialty clothing retailers that have a
children's section such as GAP. The final segment is for specialty children's clothing such as Pumpkin Patch.
However, within each segment, there is generally little product differentiation, particularly for the low end segment.

3.3 Power of Suppliers

Power of Suppliers is High When: General Industry

High Low High Low

Concentration relative to buyer industry is X X

Availability of substitute products is X X

Importance of customer to the supplier is X X

Differentiation of the supplier's products and services is X X

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 Switching costs of the buyer are X X

Threat of forward integration by the supplier is X X

The relative power of suppliers in the global children's clothing retail industry is high. This is especially true for
suppliers of raw materials as there are many of them and there are many retailers. Hence, suppliers do not have
that much clout to dictate prices since there are many low cost alternatives especially in Asia. Hence, suppliers have
to appease retailers if they want to achieve the desired level of sales. The switching cost is also relatively low in this
industry.

3.4 Threat of Substitute Products

Threat of Substitute Products is High When: General Industry

High Low High Low

The differentiation of the substitute product is X X

Rate of improvement in price-performance relationship of substitute product is X X

There are few threats of substitute products for children's clothes. Parents generally dote on their children and would
not deprive them of necessity like clothing. While low priced clothes can be used as substitutes for expensive ones,
there are no real alternatives to clothing, unless one lives in primitive societies in which natural substances can be
used as clothing. Cruel is the parent who deprives his children of clothing, so this market is saved from the treat of
substitute products.

3.5 Intensity of Rivalry

Intensity of Competitive Rivalry is High General Industry

Number of competitors is X X

Industry growth rate is X X

Fixed costs are X X

Production differentiation is X X

Switching costs are X X

Exit barriers are X X

Strategic stakes are X X

The international children's clothing retail market is intensely competitive. Many retailers clamour for a market that is
experiencing static growth. As a result, they employ all sorts of tactics to maintain and possibly improve their market
share. New entrants must offer something unique if they want to pose a serious threat to the established
competitors.
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4. Action Plan to Mitigate Impact to Business

1. Continue to dominate the Australian and New Zealand markets. By leveraging on our dominance of these
markets, we can rely on them as cash cows in our bid for overseas expansion.
2. Continue developing innovative products that are sought after by consumers. Differentiation helps to set us
apart from competitors and helps to build competitive advantage.
3. Obtain more suppliers. This will enable the company to get the lowest possible price as a hedge against the
rising cost of raw materials.
4. Build stronger networks of distributors who can help the company build a stronger global presence.

5. Current Strategies

5.1 Marketing Strategies

Strategy Reasons For Adopting

Product To distinguish the brand as a high end manufacturer and retailer that sells quality products and
Differentiation stylish designs. Very successful in cultivating the brand image.

Market Developing different segments for different age groups such as newborns, infants, small children
Segmentation and pre-teen. Very successful as it ensure continuity of patronage by customers.

5.2 Human Resource Strategies

Strategy Reasons For Adopting

Nurture human To enable employees to realize their full potential. Successful in attracting new employees and
capital retaining existing employees.

Develop a To enhance teamwork and cooperation among employees, to empower them to be creative and
good corporate innovative. Successful in fostering a good working environment that is conducive and nurturing.
culture

5.3 Operations Management Strategies

Strategy Reasons For Adopting

Quality To maintain the highest standard of quality throughout the production process. Quality begins
Manufacturing with the quality of design and ends with the quality of the finished product. Very successful
strategy as the brand is synonymous for high quality

Inventory and To ensure that inventory is available when it is needed and to avoid unnecessary stock pile-up
supply chain and redundancy. The system is very responsive to changes in demand and is flexible to adapt to
management last minute changes in product design.

5.4 Finance Strategies

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Strategy Reasons For Adopting

Effective To ensure that the company has sufficient cash flow for its working capital while reinvesting
working surplus as capital expenditure.
capital
management

Cost To ensure that there are no cost overruns and that the production process is lean and efficient to
management minimize wastage. Successful in keeping costs relatively low even during periods of rising costs.

Maximize The company's stock went public a few years ago and the aim is to make the stock a sought after
returns to investment. To do this, the company has to carefully balance both short and long term strategies to
shareholders ensure good dividends and capital appreciation of its stock. Overall, the company has succeeded
judging from its stock price and dividend payout.

5.5 Research and Development Strategies

Strategy Reasons For Adopting

Horizontal Acquisition of other brands that are related to Pumpkin Patch's core business. For example, the
integration acquisition of HBK Girl was aimed at expanding the preteen market share. Such acquisitions are
generally successful.

New Product To speed up the process for new product development to cater to demands in the market. Product
Development development time has been greatly reduced and the number of new products offered is
impressive.

5.6 Sales Strategies

Strategy Reasons For Adopting

Retail To showcase the full range of the company's products in a custom made environment that
Stores highlights their unique features. Retail stores create greater brand presence. The approach is
successful in Australia and New Zealand though it took time and effort to succeed in other markets.

Wholesaling To introduce the company's products in new markets or where it is not possible to open retail
stores. Wholesaling also complements the retail stores. It is an important step in determining the
viability of markets through customer data collection and feedback.

5.7 Logistic Strategies

Strategy Reasons For Adopting

Centralized All products are shipped from the central warehouse in Auckland. This strategy enables the
Distribution company to monitor of all its sales and distribution as well as achieving economies of scale. The
method is effective as it delivers all shipments on time and without incidents.

Logistics To enable the company to respond in a prompt and timely manner to the demands in its supply
systems chain.

5.8 International Business Strategy

Wholesaling This may seem to overlap with the sales strategy as the aims are similar. Wholesaling is seen as an
important first step in determining the viability of foreign markets. Data collected from wholesale
activities is used to formulate expansion strategies.

Retail Once the company feels it is ready to move beyond wholesaling, it then sets up retail stores in
stores target markets. These stores serve to improve brand awareness among customers and to provide
a comprehensive shopping experience.

6. TOWS Matrix Analysis

TOWS MATRIX Strengths Weaknesses

1. Strong brand 1. Centralized decision making.

2. Good corporate culture 2. Weak presence in the international market

3. Excellent production process 3. Sometimes slow to respond to changes in

Opportunities SO Strategies WO Strategies

1. Penetrating new 1. Establish strategic partnerships 1. Decentralize some decision making activities
markets such as Asia and with new distributors and open to free up top management to focus on
South America while more stores in overseas markets. international global strategy while giving
strengthening existing greater autonomy to branch managers.
markets. 2. Acquire other brands that are of
strategic importance, such as to 2. Acquisitions of other brands could help the
2. Horizontal integration by provide new technology and company to acquire skills and technology that
acquiring other clothing design or to eliminate rivals. could help it overcome some internal
brands. weaknesses.
3. Diversify into new product lines
3. Vertical integration by that are related to Pumpkin
diversifying into other Patch's core business.
product lines like infant
milk powder.

Threats ST Strategies WT Strategies

1. Copycat products by 1. Leverage on the company's 1. Formulate contingency plans for worst case
inferior rivals. strong brand position of quality scenarios to determine what the company
and excellence. should to survive should the worst happen.
2. Stiff competition on all
fronts. 2. Differentiate by producing
innovative design and always
3. Economic downturn that staying one step ahead of rivals.
could dampen sales.

4. Natural disasters like

7. Key Success Factors for Proposed Strategies

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 1. Open at least one new store in each market for each year. Budgets must be prepared to allocate cash for this
purpose.
2. Increase the number of new designs and shorten the new product development time.
3. Obtain multiple sources of raw material to obtain better prices and services, and cultivate relationships with
new suppliers.
4. Increase the number of distributors for target markets.

8. Implementation of Proposed Strategies

Strategy Time Frame

Open at least one new store in each market per year 6 months

Increase the number of new designs and shorten the new Less than 6 months but done on a continuous
product development time and ad hoc basis

Obtain multiple sources of raw materials 2 to 5 years. This is a long term strategy as it
will take time.

Increase the number of distributors for target markets 1 to 3 years

9. Conclusion

Pumpkin Patch is a successful company in its home base. However, it is a very small international player in the
children's clothing market. Therefore, it has tremendous growth potential provided it pursues the right strategies.
This report outlined some of the key issues faced by the company and proposed recommendations that will help
improve the current situation. Through hard work, strategy and creativity, the company will be able to achieve much
success in the future.

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