Company History and Operations
EarthWear Clothiers was founded in Europolis, by Tor Engan and Calvin Rogersin 1993 to make high-quality clothing for outdoor sports, such as hiking, skiing,fly-fishing, and whitewater kayaking. Over the years, the company’s product lineshave grown to include casual clothing, accessories, shoes and soft luggage.EarthWear offers its products through three retailing options: catalogues; retail outlets;and its website.
The company strives to provide excellent, high-quality products at reasonable prices.EarthWear has a commitment to excellence in customer service and an unconditionalguarantee. The company is also conscious of its environmental responsibilities.All company facilities are insulated, recycle and conserve power. The companycontinuously monitors the environmental impact of its products. The company believesthat many of its customers share this concern for the environment.
The company offers its products principally through regular mailings of its monthlycatalogues. EarthWear has seven outlet stores in the USA, six in Germany and France,five in the UK, two in Denmark, Sweden and Japan. The company also offers itsproducts over the Internet. During 2009, the Company expanded its global presenceby launching sites in Belgium, Finland, Hungary, Ireland, Italy, Norway, Poland,Singapore, Slovenia and Spain. Currently, revenue from catalogue sales, retail outletsand the website are 74 per cent, 5 per cent and 21 per cent respectively. Managementexpects that Internet sales will grow significantly in the future, perhaps replacingcatalogues as the major source of sales.
EarthWear went public on the Euro Stock Exchange (ESE) in 2002 and is listed on theNASDAQ (USA) from 2007.
COMPANY GROWTH STRATEGY
EarthWear’sgrowth strategy has three elements. First, the companyattempts to increase sales by expanding its customer base andby increasing sales to existing customers through improvedproduct offerings. Second, the company seeks to generateadditional sales by targeted mailings of special issues of itscatalogues and by offering its products through its website.Third, the company is pursuing additional opportunities toexpand its merchandising skills internationally.
CATALOGS AND SALES OPERATIONS
During2013 the company mailed 12 issues of its regular monthlycatalogue with an average of 75 pages per issue. Worldwide,the company mailed approximately 160 million full-pricecatalogues. EarthWear views each catalogue issue as a uniqueopportunity to communicate with its customers. Products aredescribed in visual and editorial detail, and the company usessuch techniques as background stories and distinctive coversto stimulate the readers’ interest.
Each issue of the regular catalogue offers certain basic productlines for men and women. The regular catalogue also offersseasonal merchandise. In addition, EarthWear mails twoend-of-season clearance catalogues. The company mailsits catalogues to prospective customers who are identifiedbased on lists of magazine subscribers and lists of householdsmeeting certain demographic criteria. In addition, the companyidentifies prospective new customers through its nationaladvertising campaign.
In 2001 the company introduced its first business specialtycatalogue, which offered its products to groups and companiesfor corporate incentive programmes. EarthWear’s embroiderycapabilities allow for the design and monogram of unique logosor emblems for groups and companies. In 2013 the companymailed five issues of its corporate sales catalogues.
The international business segment includes operations inseven countries, and various Internet sites. Cataloguesmailed in those countries are written in the local languagesand denominated in local currencies. EarthWear has launchedlocal websites in each of these countries in their respectivelanguages and currencies.
CUSTOMER DATABASE
A principal factor in thecompany’s success has been the development of its own listof active customers. At the end of 2013 the company’s mailinglist consisted of about 21.1 million persons, approximately7 million of whom were viewed as customers because they hadmade at least one purchase from the company within the last24 months.
The company routinely updates and refines the databasebefore mailing catalogues to monitor customer interest asreflected in criteria such as the regency, frequency, amountand product type of purchases.
EarthWear believes that its customer database has desirabledemographic characteristics and is well suited to the productsoffered in the company’s catalogues. A survey conducted bythe company in seven countries during 2012 indicated thatapproximately 50 per cent of its customers were in the 35–54age group and had median incomes of €62,000.
The company advertises to build its reputation and toattract new customers. In 2013 this advertising campaignappeared in about 70 international and national magazinesand publications, as well as onnine national television networks.EarthWear also advertises on anumber of Internet search enginesand websites.
PRODUCT DEVELOPMENT
EarthWear concentrates on clothingand other products that are aimedat customers interested in outdooractivities. The company products arestyled and quality crafted to meet thechanging tastes of the company’scustomers rather than to mimic thechanging fads of the fashion world.At the same time, the companyseeks to maintain customer interestby developing new products,improving existing core products,and reinforcing its value positioning.
The company continues to incorporate innovations in fabric,construction, and detail that add value and excitement anddifferentiate EarthWear from the competition. In order toensure that products are manufactured to the company’squality standards at reasonable prices, product managers,designers and quality assurance specialists develop thecompany’s own products.
EarthWear deals directly with its suppliers and seeks to avoidintermediaries. All goods are produced by independentmanufacturers except for most of its soft luggage, which isassembled at the company’s facilities. During 2013 the companypurchased merchandise from approximately 300 domesticand foreign manufacturers. In 2013, one manufacturer and oneintermediary accounted for about 14 and 29 per cent of thecompany’s received merchandise, respectively. In 2013 about 80per cent of the company’s merchandise was imported, mainlyfrom Asia, (Bangladesh, China, India, Indonesia and Malaysia).The company will continue to take advantage of worldwidesourcing without sacrificing customer service or quality standards.
Order Entry, Fulfillment and Delivery
EarthWear has toll-free telephone numbers that customers can call 24 hours a day, seven days a week to place ordersor to request a catalogue. Approximately 90 per cent of catalogue orders are placed by telephone. Telephone calls areanswered by the company’s well-trained sales representatives, who utilize online computer terminals to enter customerorders and to retrieve information about product characteristics and availability. The company’s main internationaltelephone centre is located in Mumbai, India. Other telephone centres are located in Boise, USA; London, England;Tokyo, Japan; and Mannheim, Germany.
The company’s order entry and fulfilment system permits shipment of in-stock orders on the following day, but ordersrequiring monogramming or inseaming typically require one or two extra days. The company’s sales representativesenter orders into an online order entry and inventory control system. Customers using the company’s Internet site seecolour photos of the products, their availability and prices. When ordering a product over the Internet, the customercompletes a computer screen that requests information on product code, size, colour and so on. When the customerfinishes shopping for products, he or she enters delivery and credit card information into a computer-based form.
Orders are generally shipped by United Parcel Service (UPS) or comparable services at various tiered rates thatdepend on the total monetary value of each customer’s order. Other expedited delivery services are available atadditional charge.
MERCHANDISE LIQUIDATION Liquidations (sales ofoverstock and end-of-season merchandise at reduced prices)were approximately 12 per cent, 11 per cent and 8 per cent of netsales in 2013, 2012 and 2011, respectively. Most liquidation saleswere made through catalogues and other print media. The balancewas sold principally through the company’s outlet retail stores.
COMPETITION The company’s principal competitorsare retail stores, including specialty shops, department storesand other catalogue companies. The company may also faceincreased competition from other retailers as the number oftelevision shopping channels and the variety of merchandiseoffered over the Internet increase. The apparel retail business ingeneral is intensely competitive. EarthWear competes principallyon the basis of merchandise value (quality and price), itsestablished customer list, and customer service, including fastorder fulfilment and its unqualified guarantee.
TRADEMARKS The company uses the trademarks of‘EarthWear’ and ‘EWC’ on products and catalogues.
SEASONALITY OF BUSINESS The company’sbusiness is highly seasonal. Historically, a disproportionateamount of the company’s net sales and most of its profitshave been realized during the fourth quarter. If the company’ssales were materially different from seasonal norms during thefourth quarter, the company’s annual operating results could bematerially affected. Accordingly, results for the individual quartersdo not necessarily indicate results to be expected for the entireyear. In 2013, 37 per cent of the company’s total revenue camein the fourth quarter.
EMPLOYEES The company believes that its skilled anddedicated workforce is one of its key resources. The majority ofemployees are covered by collective bargaining agreements, andthe company considers its employee relations to be excellent. Asa result of the highly seasonal nature of the company’s business,the size of the company’s workforce varies, ranging fromapproximately 3,500 to 5,300 individuals in 2013. During the peakwinter season of 2013 approximately 2,700 of the company’s5,300 employees were temporary employees.
EXECUTIVE OFFICERS OF THE COMPANY
Tor Engan, 65, is chairman of the board and former chiefexecutive officer. Mr Engan was one of the two original foundersof EarthWear. He stepped down as chief executive officer inDecember 2006.
Calvin J. Rogers, 57, is president and chief executive officer ofthe company. Mr Rogers was one of the two original founders ofthe company. He assumed his present position in December 2006.
Stefan Anderson, 56, is executive vice president and chiefoperating officer. Mr Anderson joined the company as chiefoperating officer in June 2001. He was promoted to vicepresident in October 2004. Mr Anderson was previouslyemployed by Eddie Bauer in various capacities.
Linda S. McDaniel, 45, is senior vice president of sales.She joined the company in July 2003. Ms McDaniel servedas divisional vice president, merchandising, with Patagoniabetween 1998 and 2001. Ms McDaniel was the president andchief executive officer for Mountain Goat Sports from 2001 until2003. She has been serving as a director of the company sinceNovember 2004.
James C. (‘JC’) Watts, 45, is senior vice president and chieffinancial officer. Mr Watts joined the company in May 2005,assuming his current position. He was previously employed byArtic Department Stores.
Mary Ellen Tornesello, 47, is senior vice president of operations.Ms Tornesello joined the company in 2000 as operationsmanager. She served as vice president of operations from 2001until 2003, at which time she assumed her present position.
Market information The shares of the company are listed and traded on the Euro Stock Exchange(ESE) and on NASDAQ. The high and low prices of the company’s common shares for 2013 were €52.50 and€21.75 per share. The closing price of the company’s shares on 31 December 2013 was €40.25 per share.
Shareholders As of 31 December 2013, the number of shareholders of record of common stock of thecompany was 2,120.
Independent Auditors The company has been audited by Willis & Adams International sinceestablishment in 1993.
Financial Reporting Framework EarthWear prepares consolidated financial statements reportsin accordance with the International Financial Reporting Standards (IFRSs) issued by the InternationalAccounting Standards Board (IASB).
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