Baby Clothing Market Entry

• Candidate asks if we have volume info for different categories to calculate weighted average price (interviewer will provide $10 weighted average price for candidate to use) or reasonably assumes a $10 price point per item based on variation in sale frequency
• Candidate adjusts the average price to what a wholesaler gets based on the retailer margin – $6/item – which means our client would have to sell a lot more units to hit the same revenue target as a retailer.
• Candidate calculates $300M / $6 = 50M units to establish volume needed to reach goal
• Candidate asks how many units the top competitors sell on average

• Candidate identifies that the largest player sells direct-to-consumer and is a private label
• Candidate accurately identifies that the wholesale portion of the market is fragmented
• Candidate immediately puts 50M units needed in the context of volume sold by a top competitor – brand A only sells 45M units today
• Exceptional candidates will identify what market share is needed to achieve their revenue goal (50M/382M = 13% or 50M/400M = 12.5% with rounding)

• Client could reconsider retail/direct-to-consumer sales, as this would allow them to capture the retail price per unit instead of the wholesale price
• Client could look at licensing their brand name, however, I think licensing fees are unlikely to generate sufficient revenue to meet their requirements
• Client could look at partnering with a clothing brand/retailer

Our client should not enter the baby clothes market, as the number of units required to meet their revenue target at wholesale prices would make them as large as the largest branded competitor, which seems unrealistic, especially in Year 1

If they still want to enter baby clothes, they will need to either revisit the revenue target size or willingness to sell direct-to-consumer to capture retail pricing

At retail prices, they would need to sell 30M units to meet their goal

Given their strong brand recognition and position, maybe it is possible to be a large player in the long-term

Potential risks: (1) strong brand doesn't translate to baby clothing, (2) high, exorbitant upfront or recurring costs to build and maintain share,(3) negative impact to brand equity if the product isn't high-quality

Potential next steps: (1) conduct additional diligence on brand impact to launching baby clothing line across the various entry methodologies, and (2) conduct cost analysis to understand "what's needed to win"