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Vera Bradley Analysis

A Case Assignment

By

Erica Smith

Rebecca Nalevayko

Howard Rogers II

Jehad Alghafly

Jeremy Diebel

In Partial Fulfilment of Requirements for

MGT 495 Global Management Strategy – Spring 2017

Central Michigan University

March 1, 2017

Title Page 1

Table of Contents 2

Executive Summary 3

Five Forces Analysis 4

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Key Driving Forces 6

Strategic Group Map 7

Key Success Factors 7

Company Strategy 8

SWOT Analysis 9

Financial and Operating Performance 10

Addressing Roadblocks and Obstacles 12

Alternative Courses of Action 13

Works Cited 15

Vera Bradley is a company that began in 1982, when two friends realized there was a

market for luggage that was not only colorful, but stylish. Over time, the company's product line

grew to include items such as purses, covers for electronics, jewelry, and even baby clothing. In

2006 Vera Bradley launched an e-commerce site in the United States, and in 2007, opened it's first

retail store. Before this, the company would sell wholesale to department stores and retailers that

specialized in accessories marketed for women. Competitors of Vera Bradley include companies

such as Kate Spade, Coach, and Michael Kors.1

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Vera Bradley Case Study pg 320-321
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The external analysis on Vera Bradley includes the Five forces Analysis of Competitive

pressures in the industry, which depicts high, medium, and low pressures; looking at buyer's

power, companies offering substitute products, the supplier bargaining power, the ease or difficulty

for new entrants, and the rivalry among competitors. The key driving forces will look at areas

such as, the distribution strategy, customer base, cost awareness, and marketing. The strategic

group map will depict how Vera Bradley sits verses the competition and the three key success

factors for this company will be identified.

The internal company situation analysis will identify and explain the various components

of Vera Bradley's strategy, as well as perform a SWAT analysis. The SWOT analysis will look at

the company's strengths, weaknesses, opportunities, and threats to help to explain the company's

position in the market. An assessment of the financial and operating performance of the company

will be the final component of the internal situation analysis.

The conclusion will be about what issues or problems that Vera Bradley must address for

its future. Alternative courses of action will be provided, as well as final recommendations to the

company's top management.

Five Forces Analysis of Competitive Pressures2

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Source Essentials of Strategic Management (Gamble, Peteraf, Thompson) Page 40-49
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Five Forces Analysis3

o Buyer’s Power – High Pressure / Strong

o Diverse customer base
o Items are seen as luxury or with low cost substitutes
o Cost of changing low to consumer

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Vera Bradley in 2015 page 322-328
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o Firms offering substitute service- High Pressure / Strong

o Many large companies offering same types of products
o Large number of small companies entering market
o

o Supplier Bargaining Power – Low Pressure / Weak

o Industry historically sources to lower cost countries
o Designs can be moved to other sources easily
o

o New Entrants – Medium Pressure / Medium

o Cost of production can be low
o Large scale production can be difficult
o Brand recognition is important
o

o Rivalry among Competitors – Medium Pressure / Medium

o Growth aggressive in company branded stores
o Outlet or high volume low cost stores growing
o Marketing involves multiple media outlets
o Brand recognition or premier brand important

Key Driving Forces of the Industry4

 Distribution Strategy
o E-Commerce, department stores, specialty retail stores, company stores and outlet
stores. Balance between and also still keeping distinct lines between products to
reduce internal completion between sites.

 Product Offered throughout Consumer Income brackets

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Vera Bradley in 2015 page 322-332
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o Full line vs. outlet stores and products designed specific for these outlets.

 Diversified Customer Base

o Segment mix across age and income segments. Also reaching out to gender specific
products.

 New and Appealing products and designs

o As with apparel these products can be seasonally and also require consistent
redesigns depending on customer taste.

 Cost Awareness
o Margins are important to keep profits high and also prices to consumers at an
acceptable level

 Marketing to wide customer base

o Internet marketing as well as print ranging from young customers with “Seventeen”
and more mature customers with “Better Homes and Gardens”.

 Global Market Product Distribution

o Global market including expanding to Japan, China and other Asian nations.
Canada, Latin America and Middle East as well as Australia. First by E-Commerce
then to brick and mortar stores.

Strategic Group Map56

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Vera Bradley in 2015 page 322-332
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Source Essentials of Strategic Management (Gamble, Peteraf, Thompson) Page 56
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Key Success Factors7

 Market Share
o Market share leads to higher perceived brand recognition and also peer to peer
marketing. Allows to company to have best premier locations on retail store
placements.
 Gross Profit
o Cash drives the business. It allows for more research and development, marketing
and design work. This is the number one driver to expansion.
 Sales by Global Market Segment
o The world is more connected. If a company can find success in one part of the world
this information travels quickly. Also some developing countries look to culture
and trend driving nations for insight as to what is popular and in style. Some regions
offer higher margins than others.

Internal company situation analysis

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Source Essentials of Strategic Management (Gamble, Peteraf, Thompson) Page 59
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The Vera Bradley Company has an interesting strategy. The strategy focuses on three key areas:
products, distribution, & marketing. Within the product component of the strategy the company
has been revamping their product line. Although they sell a wide variety of items ranging from
handbags to makeup cases to luggage not all of those items are top sellers. The company now is
trying a “halo” method, where “the strategy would put the greatest focus on the company’s
strongest product categories such as travel items, backpacks, bags, and accessories”
(Turnipseed/Gamble p. 324). Alongside focusing on those profitable products Vera Bradley also
will be discontinuing those patterns that generated less revenue and even be expanding their
customer base by targeting the modern 9 to 5 “career focused woman”. The second component of
their strategy is distribution. The Vera Bradley Company is looking to expand the distribution of
their products by “utilizing a tightly integrated multichannel distribution strategy that includes;
department stores, specialty retailers, factory outlet stores, and e-commerce” (Turnipseed/Gamble
p. 324). This point within their strategy will help the companies brand get more exposure which
can/will result in more revenue. Everyone like a discount or a sale so getting involved in the outlet
store market will be a huge sellers for those who love a great bargain and those who are already
Vera Bradley customers. The third component within their strategy is marketing. Brands always
need to market themselves to keep their loyal customers around as well as develop new customers.
Although Vera Bradley is all about self-expression and personality, there are similar products out
there for half the cost which is why retention and marketing is helpful. The strategy of the Vera
Bradley Company is a start for the brand transformation they are trying to achieve. CEO, Robert
Wallstrom stated in an interview; “We believe we are on the right path, but these types of brand
transformation hit some rocky road. The turnaround is taking longer than we expected. This is a
long-term story. This recovery isn’t going to take weeks or months.”

Strengths, Weaknesses, Opportunities and Threats Analysis (SWOT)

Strengths:
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 Unique stylish product line

 No debt

 Strong Brand Name

 Financially Stable

 Updated style patterns/routinely updated patterns

Weaknesses:

 Too many distribution channels

 Slow Revenue Growth

 Operations in U.S only

Opportunities:

 Broaden distribution channel to e-commerce & factory outlet stores

 Expand internationally

 Streamline products to demand within area

 Uses of technological advances to better suit customer needs

Threats:

 Competition (Michael Kors, Coach, Dooney & Burke, Kate Spade, etc…)

Financial Data on Company and Competitors

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Vera Bradley 2015 2014 2013 2012 2011

Revenue $ 508,990 $ 536,021 $ 541,148 $ 460,843 $ 366,057
Net Income $ 38,449 $ 58,812 $ 68,870 $ 57,921 $ 46,198
Working Capital $ 204,648 $ 186,543 $ 145,641 $ 106,234 $ 91,919

Coach 2015 2014 2013 2012 2011

Net Sales $ 4,806,226 $ 5,075,390 $ 4,763,180 $ 4,158,507 $ 3,607,636
Gross Profit $ 3,296,963 $ 3,698,148 $ 3,466,078 $ 3,023,541 $ 2,633,691
Net Income $ 781,336 $ 1,034,420 $ 1,038,910 $ 880,800 $ 734,940

Michael Kors 2015 2014 2013 2012 2011

Net Sales $ 4,199,666 $ 3,170,522 $ 2,094,757 $ 123,100 $ 757,800
Gross Profit $ 2,647,651 $ 2,016,070 $ 1,306,566 $ 753,096 $ 446,065
Net Income $ 881,023 $ 661,485 $ 397,602 $ 147,364 $ 133,216

Kate Spade 2015 2014 2013 2012 2011

Net Sales $ 1,138,603 $ 803,371 $ 544,765 $ 569,820 $ 670,826
Gross Profit $ 680,271 $ 496,590 $ 339,932 $ 309,983 $ 293,203
Net Income $ 159,160 $ 72,995 $ (74,505) $ (171,687) $ (251,467)

**All values in thousands 8

2015 2014 2013 2012 2011

Sales Revenue $ 508,990 $ 536,021 $ 541,148 $ 460,843 $ 366,057
COGS $ 239,981 $ 240,589 $ 232,867 $ 203,220 $ 156,910
Gross Profit Margin 53% 55% 57% 56% 57%

Sales Revenue $ 508,990 $ 536,021 $ 541,148 $ 460,843 $ 366,057

Operating Expenses $ 208,675 $ 205,957 $ 204,412 $ 169,427 $ 163,053
Operating Profit Margin 59% 62% 62% 63% 55%

Profit $ 269,009 $ 295,432 $ 308,281 $ 257,623 $ 209,147

Sales Revenue $ 508,990 $ 536,021 $ 541,148 $ 460,843 $ 366,057
Net Profit Margin 53% 55% 57% 56% 57%

Profit $ 269,009 $ 295,432

Total Stockholder Equity $ 284,471 $ 255,147
Return on Shareholder Equity 95% 116%

Current Ratio 4.25 4.09

Current Assets $ 267,697 $ 246,902
Current Liabilities $ 63,049 $ 60,359

Working Capital 204648 186543

Current Assets $ 267,697 $ 246,902
Current Liabilities $ 63,049 $ 60,359

Inventory Turnover Ratio 2.438756948 1.757111661

COGS $ 239,981 $ 240,589
Inventory $ 98,403 $ 136,923

Debt-toequity ratio 0.326265243 0.304843874

Total Debt $ 92,813 $ 77,780
Total Stockholder Equity $ 284,471 $ 255,147

**All values in thousands 9

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Pg 322. Financial Summary of Vera Bradley
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Pg322. Financial Summary of Vera Bradley
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Coach 2015 2014 2013 2012 2011

Profit $ 3,296,963 $ 3,698,148 $ 3,466,078 $ 3,023,541 $ 2,633,691
Sales Revenue $ 4,806,226 $ 5,075,390 $ 4,763,180 $ 4,158,507 $ 3,607,636
Net Profit Margin 69% 73% 73% 73% 73%

Michael Kors 2015 2014 2013 2012 2011

Profit $ 2,647,651 $ 2,016,070 $ 1,306,566 $ 753,096 $ 446,065
Sales Revenue $ 4,199,666 $ 3,170,522 $ 2,094,757 $ 1,237,100 $ 757,800
Net Profit Margin 63% 64% 62% 61% 59%

Kate Spade 2015 2014 2013 2012 2011

Profit $ 680,271 $ 496,590 $ 339,932 $ 309,983 $ 293,203
Sales Revenue $ 1,138,603 $ 803,371 $ 544,765 $ 569,820 $ 670,826
Net Profit Margin 60% 62% 62% 54% 44% 10,11,12

Vera Bradley’s short-term financial situation worsened across the board in both 2013 and 2014.
Sales revenue, gross profit, and net income all declined significantly. This obviously does not
speak well of Vera Bradley, especially when compared to its closest competitors. While Coach
brand experienced a similar decline, Michael Kors and Kate Spade reached new heights of
profitability. Furthermore, after peaking in 2012, gross profit margin, operating profit margin,
and net profit margin fell roughly 2% each year for Vera Bradley. Net profit margin is especially
interesting. Despite the decline, Vera Bradley still managed to maintain above 50%. However,
each competitor is at least 10% higher in the same period.

While Vera Bradley’s short-term financial situation declined the last two years, its long-term
financial position continued to improve. Vera Bradley’s current ratio registers 4.0+ in both 2013
and 2014. Similarly, they carried more than $180 million in working capital both years. This
speaks well of the company’s ability to pay its current liabilities. Finally, total debt increased
between 2013 and 2014, but the company’s debt-to-equity ratio is still well below 1.0.

All things considered, Vera Bradley’s problems appear to be short-term. Given the fact that the
entire industry is not suffering the same short-term problems, one can assume the problems live
in either the corporate strategy direction or execution of the specific strategy. Good management
of long-term financial metrics are encouraging and lead me to believe the company can recover
if changes are made in strategy.

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Pg 328 Financial Summary of Coach
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Pg 329 Financial Summary of Michael Kors
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Pg 331 Financial Summary of Kate Spade
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Roadblocks or Obstacles Vera Bradley must address for its future:

As with any company, Vera Bradley must address their weaknesses, opportunities, and
threats from the SWOT analysis. Creating a list, based on the company's internal situation
analysis, will help to guide the company in deciding the priority of each problem, which then also
helps the company to decide a course of actions to take to alleviate these issues. The weaknesses
Vera Bradley must address include the following: having too many distribution channels, slow
revenue growth, and operations located only in the United States. The opportunities that need to
be addressed are: broadening distribution channels to e-commerce and factory outlet stores,
expanding internationally, streamlining the product line, and using technological advances to
better suit the needs of the customers. The threats that Vera Bradley needs to address is primarily
related to the competition, a few of these companies include: Michael Kors, Coach, Dooney &
Burke, and Kate Spade. By addressing issues such as these, the company can improve and protect
its market position as well as creating a maintaining a stronger competitive advantage.

Alternative Courses of Action & Recommendations:

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a) Overseas manufacturing of products:

Vera Bradley should consider overseas manufacturing for its products since the cost of

manufacturing for domestic manufacturing is 90% higher in comparison to goods manufactured

in overseas factories (Turnipseed & Gamble, 2017).

b) Adding Distribution Channels

New factory outlet stores generate an average revenue of $2.6 million in the first 1 year. Factory

outlet stores and company operated full price stores should be opened in existing and emerging

markets overseas. These will help in increasing brand awareness and enhance brand’s image.

Vera Bradley should push its ecommerce sales online since internet will allow the company to

reach a global customer base in various countries such as Asian economies such as India, China

and Malaysia.

c) Shutting down of Indiana Plant

Indiana plant should be shut down as the cost for closing is likely to be $6.5 million per year, but

would result in reduction in operating costs by $412 million per year (Turnipseed & Gamble,

2017). The production from Indiana plant can be shifted to third party manufacturers. Indiana

plant manufactures only 5% of the company products and employs 250 people (Turnipseed &

Gamble, 2017).

d) Emerging Markets
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As per Euromonitor, by 2018, Asia-Pacific region will be the largest market globally for luxury

goods (Turnipseed & Gamble, 2017). Vera Bradley should continue to target emerging markets

of India and China that have a growing customer base of upper middle class who may be

interested in luxury goods.

e) Product Line Expansion

Vera Bradley should consider extension of its product line by introducing new products which

can expand its target customer segment. For example, the company may consider the

introduction of new range of affordable handbags for the middle class segment. It can also

introduce a new product line targeting children.

f) Partnerships

Vera Bradley can enter into joint partnership with Asian subsidiaries such as Walton Brown

which is Asia’s top fashion and retail management group to push sales in countries such as

China.

Works Cited

Gamble, P. a. (2016). Essentials of Strategic Management. New York: McGraw-Hill.

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Turnipseed, D. L., & Gamble, J. E. (2017). Vera Bradley in 2015: Can Its Turnaround Strategy
Reverse Its Continuing Decline? In Essentials of Strategic Management: The Quest for
Competitive Advantage. McGraw¬Hill Higher Education.