Lee Jeans Case Study

1.0 EXECUTIVE SUMMARY

A detailed analysis has been carried out on a Malaysian incorporated company: Elba
Holdings Bhd. Basically they deal in the manufacturing and retailing of garments and
they carry three brands: Elba, Edwin, and Adax. The analysis was done by using the
following theories:
The PEST analysis was studies to give a better understanding as to how the external
macro environment affects the company. There are many external risks involved
here especially when foreign competition enters the Malaysian market. Government
rules and regulations have affected how Elba can trade and furthermore, the
sociological factors are changing in line with technological changes. Thus each factor
in the PEST analysis is intertwined and it can't be unbundled and looked at
separately, because changes in one factor may affect the other.
Porters 5 forces are based on the insight that a corporate strategy should meet the
opportunities and threats in the organizations external environment. Especially,
competitive strategy should base on and understanding of industry structures and the
way they change. Looking at Elba, we are able to identify the height of entry and exit
barriers, intensity of rivalry, threat of substitutes, and bargaining power of buyers and
suppliers.
Competitors' analysis gives a brief description on each of Elba's competitors
including Padini, Bonia, Esprit, Giordano, Lee Cooper, and Levis. Future goals,
strategies, strengths and weaknesses of each competitor is also being discussed.
Customers analysis looks at the buying behaviour of the Malaysian consumers, and
how time and technology and Western influence has changed the way they dress. It
also looks into who are Elba's target markets.
Financial analysis looks into several ratios, such as profitability ratio, leverage ratio,
activity and liquidity ratio. After the analysis, it is seen that Elba is not doing very well
assuming that it is just recovering from the 97'crisis.
The SWOT analysis looks into the internal aspects of the company, as well as the
external opportunities and threat that the company possess. An analyses is done on
each aspect, and followed by the TOWS matrix that provides strategies on how the
firm can benefit from the strengths and opportunities and overcoming the threat and
weaknesses. This is then followed by a brief Conclusion on the total analysis and the
Recommendation looks into how the company can improve their position by
evaluating the strategies using the threat matrix and the opportunity matrix.

2.0 INTRODUCTION

Chie Seng Sdn Bhd started its business in 1969 in the form of a sole proprietorship,
but then in 1996 the company was public listed and hence the name Elba Holdings
Bhd. the Elba Group is now a fully integrated garment entity involved in
manufacturing and trading of garments and related activities. Its products are
marketed under three brand names: Elba (men's formal and informal clothing and
accessories), Edwin (men's and women's jeans, shirts, cotton pants and
accessories), and Adax (formal and informal trendy clothing for young executives of
both sexes). The company is also panning to expand its trading operations and
venturing into other market segments such as the children's wear.
The products are marketed through 258 outlets at supermarket chains, departmental
stores and retail shops located throughout Malaysia and Brunei. Concept shops are
mainly situated at major cities like Kuala Lumpur, Johor Bahru and Ipoh. Sales at
supermarkets/departmental stores are made through consignment counters.
Currently, its subsidiaries manufacture approx. 240,000 pieces of clothing per
annum.
Elba's vision and commitment is to keep abreast with the world by engaging talented
people, and investing in R&D, and sophisticated high-tech equipment including
computerised techniques. These computerised techniques are to be implemented in
the manufacturing aspect, so as to achieve a lower cost differentiation amongst its
competitors which includes: Padini, Bonia, Esprit, Giordano, Lee Cooper, and Levis.
In the future, Elba sees itself as having the distinguished reputation of being the
oldest local manufacturer of formal suits in Malaysia and it intends to become a
fashion manufacturer of quality products of world reputation.
A major strength of Elba is its ability to do independent research and development so
that they are able to come up with innovative products. Elba has a dedicated team of
6 designers headed by an Executive Director who has more than 12 years
experience in the industry and is also an experienced merchandiser of garments. The
designers interact frequently with the marketing department on the brands to
effectively and successfully promote the products.

3.0 PORTERS 5 FORCES

SUPPLIER POWER

BARRIERS TO ENTRY RIVALRY THREATS OF SUBSTITUTES

BUYER POWER

3.1 Intensity of rivalry among existing competitors

*Increased of equal sized firms
When the firms are of equal size, they will have to compete for the same resources
such as market share, customers' loyalty, brand image and other factor. This would
result in a high rivalry and a threat for Elba Holdings Bhd, especially since its
competitors: Padini Holdings Bhd Bonia Corporation Bhd, and Esprit are of equally
size and are all listed in the KLSE second board. Elba also has foreign competitors
such as Giordano, Lee Cooper jeans, Levis jeans, and other potential competitors.
Thus, Elba has to compete with aggressive strategies, such as opening more outlets
and capturing a large customer base.
*Cost of switching is low
The cost of switching is low, because customer will only have to compare prices of
competitors clothing and services offered. They can also compare the styles of the
clothing season. This increases the rivalry among competitors and Elba will have to
continuously compete against Padini, Bonia, Esprit, Lee Cooper, Levis, and Giordano
to ensure that they make a sale, and that customers will always keep retuning
because of the trendy clothing styles. This is a big catch for the competitors because
constant advertising counts in calling to the customers.
*High exit barriers
There is a high exit barriers for those companies like Bonia, Padini, and Elba which
are listed in the Kuala Lumpur Stock Exchange (KLSE). This is because for those
listed in the second board must have a minimum paid up capital of RM 40million, an
uninterrupted profit of 3-5 years with an aggregate Profit after Tax of RM12million
and the minimum business operation has to be for 5 years after incorporation. Thus,
the cost of setting up the business itself is high, and being listed in the KLSE
furthermore increases the goodwill of the firm, thus, rivalry would be high because
firms would not easily leave the industry so easily, instead they would compete even
if they are making low profits or even losses.
In conclusion to this, the intensity of rivalry among existing competitors is very high
due to the number of competitors in the retail industry, as well as the number of
established brands. Competition is very fierce and a certain percentage of loyal
customers need to be maintained in order to remain in the competitive industry.

3.2 Threat of Substitutes

In the retailing and manufacturing industry for apparels, there is no visible substitute,
because clothing is a basic need and necessity. However, there are potential
substitutes in reaching to the customers. This is in the form of a non-retailing store,
where by it is slowly gaining popularity in the Asian countries. Non-retailing include
direct mail, online shopping, direct mailers, telephone sales, door-to-door selling. In
Malaysia, we have already seen this appearing such as SmartShop, Cosway,
Amway, and others.
However the treat of substitutes is weak, because there isn't an entry yet on clothing
only perhaps online shopping which is currently available at large, but hasn't gained
popularity in the Asian culture.

3.3 The power of Buyers

Elba shares the same customers as it Padini, Esprit, Levis, Lee Cooper, and Bonia.
Thus, switching cost is low and if customers are not satisfied with the quality, and
service offered it can go to its competitors and purchase from them. The issue here is
the fashion, how fashionable is the products of Elba and does it provide the same
value to the customers as the other brands. The bargaining power of buyers here is
moderate, and they can influence fashion, and the products carried by Elba.
However, the products are differentiated, thus buyers aren't able to find the same
style and instead have to purchase from Elba even if the price is moderately high.

3.4 The power of Suppliers

As for Elba, they manufacture their own clothing, thus the power of suppliers will
arise in the purchase of raw materials. The number of raw materials available is
numerous, especially from foreign countries which would definitely be cheaper. Thus
in the case of the retail industry the bargaining power of suppliers is weak because if
they raise the prices or reduce the quality, then there are other suppliers available
especially from the third world countries such as China, Vietnam and India.
Furthermore, the switching cost of the supplier is low, because the basic materials
needed to manufacture clothing is the same, i.e., thread, material, and other
necessities. It would however cost a minimal amount to switch, because the supplier
are new, thus, pricing may still be high, and credit terms may not be available unless
frequent purchases are made.

3.5 Threat of entry

The threat of entry here is posed by both local and foreign companies.
*Economies of scale
The existing companies such as Padini, Bonia and Elba have already established
themselves with manufacturing. They are already operating at the lowest cost
possible because their selling prices are much cheaper than foreign competitors.
Thus, it is difficult for new comers to come into the market, because they will face
retaliation from the existing companies. New companies can come into the market,
however they cannot operate in a large scale immediately, instead they can compete
with smaller competitors that are not listed in the KLSE, and once they have been in
the market for long and have expanded in size, can they start to compete with Elba,
Padini, Espirit and Bonia.
*Product Differentiation
Established firms like Padini, Elba, and Bonia already have brand identification and
customer loyalties. It has taken several years to obtain this through heavy
expenditures spent on advertising, creating a good customer service, creating the
products with style and fashion. As for Elba, they have a better advantage because
they were the first in the industry. Thus, entry here will be low because new
companies will have to study the market and do good public relations to win the heart
of consumers. Furthermore, it is very risky to build a brand name, because there is a
potential of failure even if a big amount of money has been spent on advertising, thus
suffering from a start up loss which may take years to recover.
*Cost advantage independent of scale
Companies that have already existed in the market for long such as Padini, Elba, and
Bonia have established themselves with their suppliers, the distribution agents and
the customers. They have already obtained the learning experience of studying the
market and knowing what exactly the customers are looking for. Thus, this would
pose a threat for the new entrant, because when selling clothing, it may not be
according to the taste of the Malaysian consumers, they will have to undergo a test
and trial stage, and this would be costly if they are competing with the large retailers.

In conclusion to this, the threat of entry is low, because Elba is a large retailer and
manufacture and they were the first in the industry market. However, due to their
weak strategies, they are not a market leader, but yet, they have a great number of
outlets and they have the experience in understanding the consumers, and producing
cheaply so as to sell at lower prices.

4.0 COMPETITORS ANALYSIS

There are a number of retailers that have already been mentioned such as Padini,
Bonia, Espirit, Lee Cooper, Levis and Giordano that are direct competitors of Elba.
They are selling the same product but it is highly differentiated in their style and
design.

4.1 Padini Holding Bhd

Padini was incorporated as a private company on 30th August 1979 and it became a
public company on 8th June 1992. Padini has setup an operation in Malaysia's
apparel industry, manufacturing and trading. The products manufactured and sold
include garments for men, women, and children; women shoes; and fashion
accessories for men, women and children.
The strengths of Padini are that they are very aggressive in their advertising, and
bulk of their expenses is on advertising. They recognize the value of advertising and
promotion as a way of building a brand image. They offer their membership cards,
and have promotional events for the members. They have had a rapid expansion
with a total of 170 freestanding outlets and these numbers are still escalating. In
addition to this, Padini has diversified into opening Padini caf¨¦ outlets, in 2001. They
have also begun expanding into the overseas market in Bangkok and Singapore.
However their weakness is that they have too many product lines, thus they have lost
their focus in becoming a brand leader. Their famous brand is Vincci, and this is
largely popular, however, the other 6 brands of Padini, is still in the hide out and not
well exposed. Furthermore, their expansion into the overseas market is rather slow,
thus, having a threat of missing out this opportunity to another competitor.

4.2 Bonia Corporation Bhd

Bonia was incorporated as a private company on 28th August 1981, and became
public on 22nd June 1993. The Bonia Group is involved in the designing,
manufacturing, marketing, retailing, wholesaling and franchising of fashionable
leather goods, accessories and apparel for the local and overseas markets. Bonia's
market share in Malaysia and Singapore is currently between 35% and 40%. Bonia
has two factories in Malaysia.
The strengths possessed by Bonia is that have a superior and well established brand
name, compared to the formal wear at Elba's fashion menswear. They have also
expanded into the foreign market such as New York, London, Paris, Tokyo, Hong
Kong, and Thailand. Bonia has several promotional activities such as the members'
card, whereby point can be accumulated.
The weakness of Bonia is that during the 97'crisis, their financial performance had
been affected, and in the later years, they had to change their strategy and focus on
the core products and to ensure a profit, they had to dispose of their land which was
meant for the construction of apartments.

4.3 Esprit Holdings Limited

Headquartered in Hong Kong, Esprit Holdings Limited is engaged in the sourcing,
retail and wholesale distribution and licensing of quality and lifestyle products
designed under the globally recognized ESPRIT brand name. It has been a listed
company in Hong Kong since 1993 and has a secondary listing on the London Stock
Exchange since December 1998.
The strengths of Esprit is that they have a very well established brand, and they have
been expanding tremendously in the overseas market, and have ventured into new
product lines such as sports wear and clothes for kids. They have been successful in
their financial performance, and have managed to survive with positive figures even
during the turbulent events that took place in the economy.
However, the weakness is that in Malaysia itself, they are not very aggressive in their
advertising. They seldom advertise when there is a sale or when any other
promotional events are taking place or when they are launching a new clothing
design.

4.4 Lee Cooper

The company was established in 1908 when it first began production for jean in
London for work wear. Lee Cooper is distributed in Malaysia through Amtek Holdings
Bhd. The company was incorporated on 27th August 1984, and had become public
on 3rd January 1997. Amtek's core business is the manufacture and distribution of
jeans and shoes. The jeans manufactured are in-house brands, brands held under
licence and for other licensees. Lee Cooper is among the largest selling non-
American jeans brands in the world. The supply of denim is sourced locally as well as
from the US, Japan, Hong Kong, Taiwan and Australia.
The strengths of Lee Cooper are that it has a well established brand name and it is
sold in many stores in Malaysia.
However its weakness is that no much advertising activities are done by the
company to promote its business. It is slowly becoming unpopular in the Malaysian
market as new competitors such as Levis are overriding them.

4.5 Levis
Levi Strauss & Co.'s Asia Pacific Division is comprised of subsidiary businesses,
licensees and distributors throughout Asia and the Pacific region. The Asia Pacific
Division was established in 1995. They manufacture and market jeans and casual
wear under the Levis brand throughout the region. The Asia Pacific Division includes
the following countries: Australia, Bangladesh, Brunei, China, Guam, Hong Kong,
India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the Philippines,
Singapore, Sri Lanka, Taiwan and Thailand.
The strengths of Levis are that they believe in paying close attention to the
customers and also to their employees and shareholders. They also believe that
being authentic and innovative would differentiate their brand name from the
competitors. They also play an active role in being socially responsible and ethical to
the society. For instance, they had taken part in the advertising campaign in Malaysia
to stop smoking among the youths.
The weakness of Levis is that they don't take part in the Mega Sales carnival, thus
they tend to lose out in the sales as customer would find cheaper jeans from the
competitors.

4.6 Giordano
The company was established in 1981 and it is one of the well known and
established brands in the Asia Pacific region especially Malaysia. Giordano is a
retailer of unisex casual wear apparel catering to a market which is young and
looking for affordable clothes. Simplicity is perhaps the most important guiding
principal of the brand Giordano feels that by keeping everything simple.
The strengths of Giordano are that it offers simple clothing in terms of its designs. It
is cheap compared to other foreign competitors like Esprit, and even with these
affordable prices, their products are of good quality.
The weakness however is that they have been doing poorly in their financial
performance ever since the 97'crisis took place. Thus, with insufficient funds, they
are not able to aggressively advertise and expand their outlets across the Malaysia
region.

REFERENCES
*Porter M.E (1980), Competitive Strategies: Techniques for Analysing Industries and
Competitors, USA, The Free Press
*Porter M.E (1985), Competitive Advantage: Creating and Sustaining Superior
Performance, USA, The Free Press
*Thompson A.A and Strickland A.J. (2003), Strategic Management: Concepts and
Cases, New York, McGraw Hill
*Elba Holdings Bhd (2003), www.elbaholdings.com, visited on December 13th 2003
*KLSE (2003), www.klse.com.my, visited on December 13th 2003
*Tradenex (2001), http://www.tradenex.com/corporate/content.asp?
RubricID=13&StandardID=36, visited on January 22th 2004
*Emas (2000), http://www.sabah.org.my/ybdrt/ucapan_htm/2000/08062000e.asp,
visited on January 22th 2004
*SiamFuture Development (2001),
http://www.siamfuture.com/asiannews/asiannewstxt.asp?aid=1388, visited on
January 22th 2004
*BankNegara (1995),
http://info.sm.umist.ac.uk/dissertation/dissertations/suanchinOngAPPENDICES.pdf,
visited on January 22th 2004
*University Sains Malaysia, (2003) Business.unisa.au ,Visited on 25th December
2003
*Pricewaterhouse Coopers, (2003) www.pwc.com/r&c Visited on 31st January 2004
SWOT ANALYSIS

Strengths
 Elba has the ability to do independent research and development. The R&D
department works together with the marketing department in promoting the
new products. The department also monitors the fashion of clothing in
Malaysia and in other leading countries. This allows them to benefit from
being the first to produce according to consumers' needs and wants, thus
having an ability to increase market share, as more consumers would
purchase from Elba.
 Uses latest computerised technologies in formulating appropriate designs,
fabric selection, pattern and colour combinations for new garments and
accessories. This provides better service to consumers as Elba will produce
high quality products that goes beyond consumers' expectations.
 Sample testing of new products including tests of consumers' preference
carried out across Malaysia before actually launching the products, so as to
avoid failures. Elba is cautious and prevents itself from exposing a product
which is an eye-sore to the consumers. With testing, it is able to carefully
utilise its financial resources.
 Has begun operations in 1969 as a sole proprietor, thus it has accumulated
abundant experience in the garment industry. With nearly 35 years of
experience in the clothing industry, Elba would have gained sound
knowledge, and for this reason, it has survived all the economic mishaps,
and still remains in the second board of the KLSE.

Weakness
 Elba has a poor advertising strategy. Edwin jeans were once upon a time
popular, however this popularity cannot be the same if no advertising is done.
The younger generation aren't aware of Elba's existence. There is no
advertisement during periods of sales or launching of new products.
 They have a weak customer base. Although they have been in the market for
long, they have not captured a satisfactory market share. Their sales are still
too little compared to other local competitors like Padini.
 Elba has a weak brand image and brand reputation. They have not
established themselves well enough in the clothing industry. Compared to
their competitors, Padini and Esprit, they are well known amongst the older
and younger generations.
 Although Elba has been in the market for numerous years, they have only
managed to have three product lines. Their current goal is to venture into the
kids market however, it is too late to gain a big slice of the pie because Padini
has already entered that market and is currently holding 7 product lines.
Where have all those years of planning gone to? Elba had lost its chance of
being a market leader and entering to into the once lucrative market, however
now, the market is almost maturing.
 Elba has a weak financial performance, and after conducting the financial
analysis, they need to buckle down and create strategies or a contingency
plan to save them when the economy plummets again.
Opportunities
 Malaysia has been made a shopping heaven when the government had
implemented the Mega carnival sale to be held 3 times a year. This is to
increase the sales and consumer spending because after the 97'crisis,
consumers had been reluctant to spend. Furthermore, this would help Elba
achieve it sales.
 The government has implemented a campaign on "buy Malaysian products".
This is to increase sales of the domestic market and to help them survive the
stiff competition. Elba faces competition from foreign brands such as Levis,
Lee Cooper, Esprit and Giordano. Thus, with support from the local
government, Elba is able to still convince consumers to purchase its products.
 With the implementation of AFTA, Elba can sought raw materials from the
overseas market as it would then be cheaper, thus reducing cost of
production and increasing profit margin.
 There is a great inflow of tourist from Singapore, and other foreign countries,
especially during periods of sale. This is largely due to a weak Ringgit, and
thus products here tend to be cheaper. With this, Elba can also focus on the
foreign tourist.
 Many companies have already gone into online, however, Elba had not yet
taken this opportunity to offer customer online shopping.

Threats
 There is a threat to Elba because when the AFTA has been implemented;
there will be increase competition from foreign companies that would set up in
Malaysia. This would create a fierce competition and only the best can
survive.
 Lately, there have been many economic downturns and mishaps that have
affected businesses. It started with the 97'crisis, then the September 11
attack, the war on Iraq, followed by SARS, and now the bird flu. This is a
threat as businesses are unable to grow due to fears of spending.