MBB Second Round - Fashion Market Expansion

Additional information (only if candidate asks):

• Chic & Stitch launched in Spain three years ago. They have one store in Madrid
• Their online sales channel is the store in Madrid. They have no online presence
• Their target customer is a working woman looking for high-quality, mid-priced, tailor-made clothing
• They sell dresses, blazers, slacks, shirts, skirts, and sweaters
• Their goal is to increase profits recovering their investment within two years
• They work with manufacturers in Vietnam, Cambodia, and Mexico
• Average items cost between 75€ and 125€

A sample answer would go along the following line:

• Women’s clothing market landscape
  • Barcelona market size
  • Market growth
  • Competition
  • Costumer preferences
• Chic & Stitch business model
  • Product mix
  • Product differentiation
  • Distribution channels
• Financials
  • Revenues
  • Running costs
  • Investments
• Risks
  • Customer adoption
  • Supply chain risks
  • Product/brand differentiation

Additional facts if the candidate asks

• The average price at the Madrid store is 100€ per item
• The sales mix in Barcelona will be very similar to Madrid, since consumer preferences are very similar after running a consumer survey

Annual revenues for Barcelona store = 25.000 items per quarter x 4 quarters x 100€ per item = 10M€

A good candidate will mention things as:

• There might be a seasonality effect we need to consider (sales mix will be potentially different by quarter)
• Sales mix and revenues not only depend on the mix but also on the location of the store, so this will be an important factor to consider in Barcelona

A very strong candidate will mention:

• Based on calculations, we can see the online-only option is the most profitable within 2 years. Given reduced investment costs, it appears to be a good option.

• However, if growth trends continue, the Try-on Shop + Online would be the most appealing option in the mid-term. Assuming the client wants to be in the market for longer than 2 years, this option would likely be the most profitable.

• Alignment with long-term growth strategy
  • Strategic fit – alignment with Chic & Stitch’s overall vision and goals
  • Brand positioning – impact on Chic & Stitch's brand and market positioning
• Sustained Growth and Expansion within Markets
  • Scalability – model support for future growth and expansion into other Markets
  • Adaptability – flexibility to adapt to changing market conditions and preferences
  • Customer reach – factors such as location, accessibility, and online presence.
• Profitability in short and long term
  • Revenue potential – revenue generation capabilities of each model based
  • Cost structure – operational costs, including rent, staff, logistics, or marketing
  • Initial investment – upfront costs associated with each model
• Internal expertise and strengths
  • Capabilities and resources – availability of tech, personnel, financial resources
  • Expertise – experience and skills of the management team
• Competition in each space (online only vs. brick and mortar)
  • Barriers to entry – level of competition in each model
  • Market differentiation – potential to differentiate with each model

• Advantages of the Try-on + online mode:
  • High growth rate – if sustained in time, CAGR would be 3x and 6x higher than others
  • Lower investment costs – lower compared to compared to setting up multiple stores
  • Reduced retail cost – minimizes retail space required
  • Lower marketing costs – combines the benefits of physical presence with online reach
  • Optimized inventory – reduces the need for large inventory storage, as the try-on shop can serve as a display and fitting area, leading to lower inventory holding costs
  • Enhanced customer experience – opportunity to try on clothes and experience the brand in person
  • Sustainability – reduces unnecessary returns by allowing customers to try on products before purchasing, aligning with sustainability goals
  • Additional customer data – collects valuable customer insights from both online and in-person interactions
• Disadvantages of the Try-on + online model
  • Retail costs – still incurs additional costs such as rent and utilities
  • Scalability – less asset-light compared to an online-only model
  • Competitive pressure – faces competition from fast-fashion brands offering free return shipping, which can make the try-on model less attractive to some customers
  • Limited foot traffic – one location may not capture as much foot traffic as multiple stores

We recommend Chic & Stich to proceed with the Try-On Shop + Online for their Barcelona launch because:

• Meet’s client criteria – profitable within a 2-year period, closely matching the profitability of the online-only model
• Higher growth potential – if sustained in time, CAGR would be 3x and 6x higher than other options
• Client first – superior customer experience through in-store interactions and a sustainable focus

Risks

• Cultural fit in Barcelona – ensure model aligns with local consumer preferences and shopping behaviors
• Costs assumptions – to be validated to ensure they remain flat and manageable
• Sustainable growth – supports long-term growth without overextending resources
• Online competition – competitive pressure from fast-fashion brands and free return shipping

Next Steps

• Conduct focus groups, surveys, and consumer studies to better understand local consumers
• Analyze actual costs and revenue figures from existing retailers in Barcelona to refine financial projections
• Explore long-term lease contracts for potential try-on shop locations