Nate Negri Pricing Waterfall 3/1/16

Carolina Boots

The product that I choose to do was a pair of Carolina Steel Toed Logger Boots the Cove Shoe. Reasoning behind choosing this product was because it is one of their most popular brands that the company sells to consumers. Cove Shoe is located on 107 Highland St, Martinsburg, PA 16662. Established in 1954, Cove Shoe has specialized in the creation of both private-label and branded footwear apparel. For 2015, Cove Shoe reached $446,179.64 for total sales while profits reached roughly $110,000. When speaking to the manager, he was reluctant to give me exact sales so he gave me a rough estimate. They do not have and stock performance because they do not have any stock.

This product is a specialty product due to the stores focus being devoted to footwear. The company is both B2C product due to its sales from both in store and internet.

Industry(US) 2011 2012 2013 2014 2015Revenue($M) $2,026 $2,417.8 $2,169.2 $2,223.2 $2,144.2Profit($M) $571.5 $614.1 $586.7 $514.7 $561Profit Margin 28.21% 25.40% 27.05% 23.15% 26.16%NAICS: #316210- Footwear Manufacturing *Numbers found on IBIS World

This product is in the decline stage of the product life cycle. I believe this is the case because of how the market competes with lower-priced importers. Cove Shoe’s market share is less than 1% because of how small the company is. Cove Shoe locally competes with Zimmerman’s, Walmart, and Payless. When asked how Cove Shoe competes with its competitors, the manager responded that he believes they are first in the market when it comes to meeting consumers’ needs for boots. Second was Zimmerman’s, third was Walmart, and Payless was last. His reasoning behind why Cove Shoe and Zimmerman’s were first and second was because of the quality and selection the two stores have in common as opposed to the other two companies. He said that if he had to put percentages to it, he would say 40% for Cove Shoe, 25% for Zimmerman’s, 20% for Walmart, and 15% for Payless. When comparing margins for the brand and the industry, the industry was higher by roughly two percent at 26.16% while the brand was at 24.65% in 2015.

Market penetration is used by the company because of how they sell the same product, boots, to the same market. Cove Shoe has an exclusive distribution because you can only get products that are made by Cove Shoe either on their website or at their only store located in Martinsburg, PA. Cove Shoe uses both a push and pull strategy. Push is used when they are selling their product to military and law enforcement by bringing them the models to see and try out before deciding if they want to purchase. Pull strategy is used through their website and radio ads that they have on local stations like Froggy and the Bus. Skimming price is used by the company because of how much higher the prices are for Cove Shoe when compared to others in their local market. Pricing was difficult to gather due to the businesses not having the brands of others. These prices, minus Cove Shoes and Zimmerman’s, was gathered at their websites.

Nate Negri Pricing Waterfall 3/1/16

When comparing I used the companies most expensive 12 inch boot. For Zimmerman’s, the price of a 12 inch Carolina Steel Toed Boot was $140. Cove Shoe’s price for the same boot with Gore-tex added was $190. Walmart’s Georgia Boot was at $144.99. And Payless’s Buster Waterproof Boot was $59.99.

I believe the waterfall from Cove Shoe would differ from its competitors because unlike the competition, Cove Shoe manufactures the boots and sells them in store and online. With that being said, I think their profit margin would be higher because of their ability to cut out the middle man unlike the other businesses. The biggest thing that I would change would be the cost of leather since it is the highest in the waterfall. Being able to cut down on that price would increase the profit margin even higher than it is now. Also, I was surprised how much Cove Shoe makes from their Carolina Boot sales. Their overall margin is 24.65% but Carolina’s profit margin is 49.08%. Although they are higher than the overall margin, Carolina sales only account for 20.31% of overall sales. I would like to know what the other margins would be for the company’s other products. The only change I would like to see in the waterfall would be to see a discount off the listed price. When talking to the manager, he does add a discount to certain prices of Carolinas but did not give me an answer for what a possible discount would be because he likes to see how sales are going through the first three months of the year and only offers discounts during hunting and fishing seasons. I think that if they would begin with a lower listed price, demand would be high to start the year and in turn might increase the overall sales of Carolina Boots. I also asked what he thinks would happen if prices both increased and decreased. The manager gave me rough estimates about what the total units sales would be if either possibility would happen. This product would be elastic if the price would increase, consumers would have other options to choose from than Cove Shoe. When doing the calculations using $120 and 1686 units, as well as $130 and 1500 units it came out to 1.46. The product would be inelastic when the price would be lower, I used $110 and 1750 units and got -0.75.

Nate Negri Pricing Waterfall 3/1/16

*All prices gathered from Cove Shoe Manager

Total Sales: $446,179.64

Percent of Carolinas sold: $446,179.64 x 20.31% = $90,619.08

Units Sold: 1686 units sold (Manager)

Annual Fixed Costs

Rent: $14,400

Salary: $30,000

Medical: $7,128

Fixed Costs per Unit

Rent: $14,400 x .2031/1,686 units = $1.73

Salary: $30,000 x .2031/1,686 units = $3.61

Medical: $7,128 x .2031/1,686 units = $0.86

Variable Costs

Leather: $4.50/sq. ft. x 4.5 sq. ft. = $20.25 x 2 = $40.50

Steel: $1.80/lbs. x 2.5 lbs. = $4.50 x 2 = $9.00

Plastic: $1.10/lbs / 2 = $0.55 x 2 = $1.10

Rubber: $0.56/lbs/16oz = $0.035 x 6 = $0.21 x 2 = $0.42

Nylon: $0.09/m/39.3701in = $0.023 x 72in = $1.65 x 2 = $3.29

Glue: 200 tubes x $5.00 per tube = $1,000/1686 = $0.59

Profit Margin

Fixed Costs ($6.20) + Variable Costs ($54.90) = $61.10

List Price ($120.00) - $61.10 = $58.90

Profit Margin: $58.90/$120.00 = 49.08%

Nate Negri Pricing Waterfall 3/1/16

Nate Negri Pricing Waterfall 3/1/16