Stern Stewart Case: TexGroup – Breaking the crisis of a traditional textile company

The candidate should observe these main points:

Sales volume and price:

• Volume declined across all product categories, but especially for TexCasual and TexPremium (>50% ).
• Prices increased, especially for TexCasual (+27%) and TexPremium (+15%).
• The -40% revenue drop is driven by volume loss.

COGS development:

• Absolute COGS decreased, yet the COGS per unit increased noticeably, especially for raw materials (>30%), energy (>30%), and labor costs (13%).
• Gross profit declined sharply (>50%) driven by revenue loss and increased COGS per unit.

SG&A development:

• Total SG&A costs fell, but disproportionally compared to revenue. The SG&A cost ratio (as % of revenue) rose to 15%, up from 11%.
• EBIT margin reduced sharply to 0.6%.

Operational KPIs:

• Utilization dropped by 40 ppts, signaling highly underutilized production facilities.
• Slight yield decrease by 3ppts results in higher costs for the same output.

The candidate should make these main observations:

Sales mix and pricing:

• Both competitors are significantly larger than TexGroup in 2024
• Competitor #2 has a similar product mix while Competitor #1 seems to focus on retail customers only with no volume in TexSport and TexProfessional
• In the two largest markets TexGroup is 10-20% more expensive than its competitors
• In sport and professional texitles they seem to offer competitive prices

COGS and gross margin:

• Both competitors have lower average COGS per unit than TexGroup; Major gaps stem from raw material, energy and labor cost
• (Competitor #1 has lowest COGS/unit as they mainly focus on Casual, though Competitor #2 also has lower cost with a similar product mix)
• TexGorup has the lowest Gross Profit Margin; The average Gross Profit Margin per unit is also slightly lower than Competitor #1 (<5%), but significantly lower than Competitor #2 (~35%)

SG&A and EBIT margin:

• TexGroup has a significantly higher SG&A cost share (as % of revenue) with ~15%; Competitor #1 has the leanest SG&A cost structure with only ~7% , while Competitor #2 is in between with ~10%
• The higher SG&A cost share is mainly driven by higher sales and G&A cost shares, both approximately double that of Competitor #1
• TexGroup has the lowest EBIT margin with 0.6%, while both competitors generate EBIT margins above 10%

Operational KPI's:

• TexGroup's production is heavily underutilized and lags behind its competitors by >35 pp in terms of plant utilization
• TexGroup shows noticeably lower yield performance with 3-4pp upside potential which could close the gap in raw material costs

The following is a possible reasonable program organization. A great candidate could single-out the procurement workstream from the COGS workstream as shown and could consider the operationalisation of a multi-workstream program with a Steering Board and a Program Management Office. 

(A) Increase Revenues

A reasonable topline measure brainstorming could be structured by price, new customer volume, and existing customer volume. The following are possible measures:

Price increase:

• Value-based Pricing (Pricing based on perceived value
• Dynamic Pricing (Dynamic adjustment of prices based on demand fluctuation, customer segmentation, etc.)
• Sales Training & Enablement (Equip sales teams with better tools & knowledge)
• Incentive system (New incentive system (monetary/non-monetary) to motivate the sales teams)
• ..

Volume increase - New customer acquisition:

• Market Expansion (Enter new customer segments or geographies)
• New Product Development (Introduce new or premium-tier products)
• Monetization of Data & Services (Develop new revenue streams e.g., sell insights, APIs, or premium add-ons)
• Digital Marketing Optimization (Use SEO, SEM, and social media to drive leads)
• Partnerships & Alliances (Expand reach through strategic partnerships)
• ...

Volume increase  - Existing customer expansion & retention:

• Cross-selling (Offer complementary products/services)
• Proactive Customer Support (AI-driven support to improve satisfaction)
• CRM & Lead Scoring (Prioritize high-value prospects using data)
• Loyalty Programs (Reward repeat customers)
• ...

(B) Reduce Raw Material Costs

Any measure ideas that play into the income statement cost item "raw material cost" is accepted. One possible reasonable material cost measure structure could be by purchase price reduction, lean manufacturing, material change. The following are possible measures:

Purchase price reduction:

• Supplier Negotiation (New tools and negotiation formats (e.g. supplier days) to maximize negotiation success )
• Supplier Consolidation (Reduce the number of suppliers to increase leverage in case of broad supplier base for substitutional materials)
• Multi-sourcing strategy (Develop alternative suppliers to enhance negotiation power in case of single-source)
• Long-term contracts (Lock in supplier pricing to avoid market fluctuations)
• Nearshoring (Move sourcing closer to plants to reduce shipping/logistics costs)
• ...

Lean manufacturing:

• Yield Improvement / Scrap Reduction (Eliminate waste in production processes e.g., through higher automation)
• Extension of the useful life (Extend useful life especially of indirect production materials )
• Process Standardization (Standardize processes to minimize defects and complexity cost)
• Procurement Automation (Leverage advanced technology for material tracking and automate ordering to optimize spend)
• ...

Material change:

•  Material Substitution (Use alternative materials without compromising quality)
• Recycled Materials (Incorporate recycled materials to lower raw material expenses)
• Design for Manufacturability (Simplify product designs to reduce cost of production)
• Product Standardization (Reduce complexity by limiting variations in product lines)
• ...