Beginning in 1990, the “Danish Clog” was brought to life in the United States. It began as a small company selling the shoes at horse shows but quickly grew larger than was imagined. Expansion of the product went from a single closed back clog to over 3000 products being sold in over 3,500 retail locations. During the past fifteen years there have been many offers to sell interest in the company. You are now becoming concerned that the company that was such as success all of these years may not be structured appropriately to promote further growth. You are now faced with a decision on how to can move forward.
Should you consider a merger that will allow growth and a more conventional way of operations? Financial Analysis As of 2006, Dansko had approximately $90 million in annual revenue. This seems quite impressive given only 110 employees and only one small manufacturers. The company has succeeded in not taking on any debt as they have grown. Dansko remains a privately owned company so finding financial information proves to be difficult. There is much room for growth in the footwear industry. It has been projected that by 2009 footwear consumption will reach $60 billion. This is a forecasted growth of approximately 14. 72%.
Dansko management believes that it can grow 10-15% a year without putting any stress on the company. You have successfully made a brand of the product setting price beginning at $100. This allows you to achieve margins of 50-60%. This company has continued to be profitable with high margins and no debt. Strategy Dansko, Inc. trains employees by what they call a “Home Schooling” approach. You have typically hired younger motivated people with little to no business experience, let alone footwear industry experience. Time is taken to mentor and train the employees and give them many opportunities for growth within the business.
This strategy would be just fine if there were no desire to grow. Because of the desire to expand business this is a major weakness of the company. There is not even anyone in senior management that has any prior footwear industry experience. It will be very tough for the company to move forward and also to expand if no one knows exactly what to do or what may be the best idea to implement. The ‘learn as you go’ strategy could potentially lead to great loss and with an expanding company could likely be detrimental. The company has never been driven by financial goals but rather a desire to exceed expectations.
You have done a great job at satisfying employees in terms of your support and commitment to them. Both you and Peter have prided yourselves in knowing the employees personally and helping them in any way that you can. You also promote volunteerism. All full-time employees can participate in 16 hours of paid volunteer time per year. For every volunteer hour worked, Dansko donates the equivalent of their salary to the organization. You have fostered creativity and try to give everyone a voice. The jobs that are given are not focused on any particular task but are very broad with no specific duties.
This is a weakness because it encourages slacking off and not making the most of the time worked. There is no official marketing program. Most of the marketing is done by word of mouth. This may be an area where the volunteerism could be beneficial. Dansko could use the time that is spent volunteering to do good for the community but to also market the product. One very large mistake is that there is no set budget set. Managers are given what they ask for and do not need to break down costs or show an expected return. Overall the company is very much unstructured but works for where you are now.
Competitors Dansko, Inc. falls into the footwear category of Euro-Comfort. It is categorized by durability and anatomical correctness. Dansko received an award in 2004 in the Women’s Comfort Shoe category at the World Shoe Association Trade Conference. They have also earned a Seal of Acceptance from the American Podiatric Medical Association. Americans have been known to buy these types of shoes mostly for the comfort but Dansko has increased the appeal by also making them stylish. The top competitors in this specific category are Birkenstock, Ecco, and Mephisto.
Birkenstock, also a privately owned company, has been distributing shoes about thirty five years longer than Dansko. They produce a well known brand of clogs which are priced just about the same as Dansko. Ecco is a large international distributor of shoes. They are the largest competitor with annual revenues of approximately $4 billion. The number of employees is more than 10 times of Dansko at around 12,000. Their largest distribution of sales is in Central Europe but they are still well known in the United States. Lastly, Mephisto is the smallest of all the competition.
The company’s annual sales are less than $500,000 and they have around 5 employees. They do not seem to pose much risk to Dansko. Core Competencies Dansko has fairly strong core competencies. The shoes are uniquely valued by their customers and therefore bring good returns. The shoes are made for comfort and they live to their standards. This strongly influences people to choose the product. Dansko shoes are not easily imitated because they were only manufactured by one company and they only manufactured the shoes for Dansko. The shoe originated in another country and the same manufacturer is still being used.
This allows Dansko to provide products that are better than the completion and allows them to sustain a competitive position. In the beginning, there was a very small target market. Dansko has done a great job of not flooding the market with the brand and has been able to expand to a great variety of shoes but still made with exceptional quality. The one disadvantage that Dansko has is that they have used only one manufacturer for so long. You need to start searching for a much larger manufacture that can produce high quality products at the lowest price possible so they can always deliver the product in a timely fashion.
Only having one manufacturer may pose a threat to the company. Industry Analysis Due to lack of financial reports available, to conduct an Industry Analysis I used Porters Five Forces Analysis. This has helped to determine the competitive power that Dansko possesses. The biggest weakness is found in Supplier Power. The supplier utilized by Dansko is very limited. This gives them great control over the company and could allow them to drive up prices. Dansko does however have a well established relationship without any substantial problems.
To decrease the risk of the supplier power I would suggest that Dansko look for more manufacturers to be able to maintain a large volume so there will be no wait on supply. Buyer Power is pretty weak. This is because Dansko is only sold in smaller retail locations so there is not much of a chance that buyers can drive down prices. Also there are many small buyers of the product so if there was a loss of a couple of consumers it would not significantly affect Dansko. Each customer buys the shoes because they love them for the comfort and the style. They seek out the specific brand.
Competitive Rivalry is low. The number of strong competitors is low. No one produces the same product or quality so this gives Dansko greater strength in the market. There is a low threat of substitution because Dansko prides itself with high quality products. It is hard to replicate and has been stamped with certified approvals. There is a small chance that anyone could produce a different product and take the place of Dansko. The threat of new entry into the market is also low. Dansko is already a known brand. Small competition would not affect the company terribly.
Most new companies coming into the footwear industry seem to sell to retail chains and department stores to target the largest market possible. Dansko sells in smaller stores that have a more specific buyer. This also gives Dansko an advantage knowing that these other small competitors should not be able to drive down the product prices. Solutions The idea of a merger is not a bad choice although I believe that Dansko would lose many of the characteristics that they have received satisfaction from. The whole corporate structure would have to be revamped.
You will most likely lose the values and culture that you have uniquely created. Also, it would put you at a larger risk of imitation. Dansko has such a distinctive brand that it would be silly for you to allow another company to see how you do what you do. I believe that if this route was taken that top management may lose the qualities of the company that they enjoy so much. The approach that I would suggest for Dansko, Inc. is for restructure of top management, a proper business plan layout to be implemented, and change in the manufacturing of the product.
A change of management is needed to encourage growth of the business. Hiring top managers that have extensive knowledge of the business is imperative. Although there is no dissatisfaction with the present management it will be nearly impossible to keep moving forward without large mistakes being made by inexperienced decision making. Although Dansko prides itself in the family style environment it will have to find other ways to remain tight with employees such as work sponsored get-togethers. There may be resistance to this change but in the long run it will be the most beneficial to the business.
It will help to increase profitability, confidence, and certainty, improve motivation and communication and will organize priorities. There is a need for strong operational planning. This will help foresee how goals can be reached and will lay out what the top management expects from specific departments. There are many benefits of planning. Planning will help to clarify direction, motivate employees, ensure a more efficient use of resources and provide a way of measuring progress. Once proper management is in order, you should look into either a few manufacturers or acquiring a larger manufacturer.
Also because of the declining dollar to euro production costs have increased. Outsourcing to Asia or South America would be cost efficient. This is where majority of footwear production takes place for competitors. Economics teaches that growth and increased production can bring down operating costs and therefore increase profits. If the company can grow bigger and produce more you can yield even higher returns. In the long run I believe these are the choices that would most suit Dansko. It will still allow for the you to have the last say and to try and maintain some of the corporate culture that is enjoyed by all.