Tuckamore

It was May of 1989 and Joy Harmon, sole proprietor and manager of Tuckamore, had just returned from a visit to the Faculty of Business Administration at Memorial University of Newfoundland in St John's. The purpose of the visit had been to share her "small business experience" with a class of undergraduate students. The students had impressed Joy with their enthusiasm, but at the same time their questions had left her with a feeling of inadequacy. Joy recognized that underlying her difficulty in responding to the many questions, particularly those relating to marketing strategy, was the lack of a formal business plan. She knew one had to be developed and wondered how to proceed.

The Company

The business started in 1986 as a hobby in Joy Harmon's basement in Portugal Cove, Newfoundland. At that time, she produced a very narrow product line of active wear garments, with the majority of finished goods distributed among friends and relatives. Unexpectedly, Tuckamore grew at such a rate


This case was prepared by Professor Gary Gorman of Memorial University of Newfoundland with the assistance of Mr. Steve Christie for the Atlantic Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management.

Copyright 1993, the Atlantic Entrepreneurial Institute, an Atlantic Canada Opportunities Agency funded organization. Reproduction of this case is allowed without permission for educational purposes, but all such reproductions must acknowledge the copyright. This permission does not include publication.


that Joy ended her career as a mechanical engineer in order to focus all her energy on the expanding business. The business grew quickly and Joy hired her first full-time employee less than a year later in July 1987. Within the next ten months, two more employees were hired and Tuckamore was relocated to a small building on Holloway Street in downtown St John's. In July 1988, a small retail shop was opened at the front of the store with just enough room to display the various items produced. Tuckamore had expanded from a strictly contract-order operation to include retail sales as well.

Marketing

Joy chose Tuckamore* as her company's name as it symbolized the outdoors and Newfoundland. Many of the products made at Tuckamore were targeted towards the outdoors and/or the sports-oriented individual in search of a good quality garment. Tuckamore's customers were quite varied; however, the majority of sales were to males and females, 20 to 40 years old. Many serious athletes purchased their clothing from Tuckamore as it was the only functional clothing outlet in St John's which offered tailor-made services.

* Tuckamore is a Newfoundland term for a small stunted evergreen tree with gnarled spreading roots forming closely matted ground cover.

Tuckamore offered fifteen different product lines with all products made from either nylon-lycra, Dermoflex or Arctic Fleece (Exhibit 1). Tuckamore garments were high quality so they could stand up to a lot of wear and tear. Tailor-made garments such as running suits made from dermoflex, a durable waterproof breathable material, were carefully made in order to satisfy and attract potential customers.

Local craft fairs and word of mouth were the main advertising vehicles for promoting Tuckamore products throughout Newfoundland. Tuckamore was a member of the Newfoundland and Labrador Crafts Development Association (NLCDA) and as such, was entitled to participate in the various craft shows. Additional benefits from membership in NLCDA consisted basically of general promotion for the craft industry. Joy also attended craft shows in Halifax and wholesale shows in Halifax and Toronto. These shows allowed Tuckamore products to be displayed to potential markets in Eastern Canada and necessary contacts were made for marketing her goods. With the exception of the Christmas shows in St John's and Halifax, sales at the shows had been low, although some sizeable contracts had been obtained after the shows were over. Local promotion consisted of Joy's direct canvassing of various clubs, associations and businesses involved in sports and fitness related activities (notably the St John's cycling and rowing clubs and local dance studios). Advertising in the St John's newspapers and articles in the Newfoundland Herald and Atlantic Insight publications also had provided some limited exposure.

In addition, the Tuckamore retail shop also had provided some advertising, although the Holloway Street location was somewhat removed from the downtown shopping core. There were additional retail outlets in Carbonear and Comer Brook, as well as several stores in mainland Canada, which carried Tuckamore products. Since most orders from retailers were fairly small, they were shipped by Tuckamore through the mail.

The popularity of Tuckamore products had grown considerably in Ontario despite the large number of competitors in the area. An agency, Dancey and Associates, was hired in 1989 to canvas children's, sporting, and craft/ gift stores in Ontario. As a result, large sales in Tuckamore's fleece jackets had been experienced in a craft/gift store at Algonquin Park, Ontario.

Tuckamore's primary competition consisted of three retail outlets in St John's: The Outdoor Hut, a small retail shop specializing in fleece and fleece-lined products such as ski wear and sweaters (no lycra products were sold); Sports Experts, a retail chain specializing in cycling, running and aerobics wear; and Sports Beat, another locally owned retail shop which sold running and aerobics wear. In addition, there were a number of local seamstresses who produced aerobics and gymnastics garments and promoted their products through the clubs to participants. Some of the larger retailers also represented competition, in particular, for fleece products such as sweaters. However, it appeared that no one else, at the local level, was providing tailor-made products.

Joy had found the competition to be more prevalent in Quebec and Ontario where there were more companies offering custom services. Consequently, the percentage of sales** in Central Canada was 12% of the total, as compared to 59% for the Newfoundland markets. The balance was to the other Atlantic Provinces. The monthly sales for each product line from January 1988 - April 1989 are shown in Exhibit 2.

** Based on dollar value from October 1, 1988 to April 1989 on wholesale orders only. Note: Large dance studio orders in the spring distorted Newfoundland sales.

Since Tuckamore garments were hand made in Newfoundland, they were considered crafts and therefore, exempt from the 12% provincial sales tax. Joy was unclear on the details of the exemption criteria and was concerned that someday Tuckamore might lose its exempt status. This exemption, combined with the high quality of their products, allowed Joy to set her prices at the same level as her competitors' after-tax prices. However, her profit margins were not necessarily higher as her costs were felt to be greater. To determine the wholesale price for each product type, a dollar/hour cost was calculated which included labour and material costs. The markup on each product would be adjusted to coincide with Tuckamore's pricing strategy. Labour and material costs for the seven basic products are shown in Exhibit 3.

Despite the increased sales trend over the past 18 months, Joy was concerned about the viability of her business. Fabric availability had started to delay Tuckamore's delivery schedules as shipments which originally took four to six weeks to arrive were now taking four to six months. In addition, DuPont, the major material manufacturer, was leaving Canada. Consequently, wholesalers would be forced to obtain materials in the United States' market where prices were higher.

Production

For large contracts, clients discussed the desired designs and product colours before the materials were ordered. The design was drafted onto onion skins, materials were then cut to specification, sewn and tagged. All this work was completed by the same employee as Joy felt it was important to let the employee complete all the tasks from start to finish. All products were produced this way, with one to three employees working on each contract depending on its size. The products were made on two large tables in a work room (735 sq ft) located behind the retail store (465 sq ft). The work area had become a little cramped for space. However, Joy felt another employee could be hired before Tuckamore would have to relocate.

The equipment used in the production operations was shared equally among the employees (Exhibit 4). Joy also took part in production, emphasizing the importance of a strong work ethic and a relaxed informal atmosphere. This approach had proven successful, as no formal quality control had been implemented. The employees knew what Joy's expectations were and accepted responsibility for inspecting their own products. The wage rate at Tuckamore (average of $7.00/hour) was slightly higher than their competitors' rates. This strategy appeared to work well since the employees hired were inclined to stay with the company.

Joy had found it virtually impossible to forecast the styles and designs ordered by the varied clientele and as a result the company worked strictly on a job order basis, except in the case of the craft and trade shows. Employees would build up stock for the various shows and if not sold, the samples would be placed in the retail shop. As a result, inventory levels were kept to a minimum. The retail outlet always carried at least one sample of each garment produced.

There were no patents on Tuckamore products due to the strict regulations placed on clothing styles. Any product which was changed by more than five percent from its original design (e.g., zipper style changed) was no longer protected by the patent. Consequently, it was very easy for competitors to enter the market with "me too" products in spite of a patent.

Finance

Joy had invested approximately $10,000 cash and two domestic sewing machines of her own and had received a personal loan of $5,000 (guaranteed by her spouse) from a local bank to start the business. Difficulties in arranging additional bank financing had resulted in further contributions on Joy's part of approximately $7,000 to $10,000. Tuckamore's income statements for the two and a half year period (1987-89) are shown in Exhibit 5 and a balance sheet as of April 1989 is shown in Exhibit 6. The expenses had been somewhat reduced by grants, provided by the Provincial Department of Rural, Agriculture and Northern Development (RAND). The funds, provided by RAND, permitted Joy to attend trade shows, to purchase display fixtures for the products and to subsidize salaries of new employees.

The domestic equipment at Tackamore had depreciated at a faster rate than anticipated and as a result, Joy would soon require additional capital to purchase more durable industrial sewing machines.

The Situation

Joy was reasonably pleased with Tuckamore's early record. In fewer than three years the company had undergone expansion into the retail area, established new markets in the central part of the country and expanded the manufacturing side through a move to its present location. Nevertheless, profits were still not at a satisfactory level and many of these same decisions needed to be addressed yet again.

Joy had set out with the hope of "managing a business which doesn't take over my life completely and provides a reasonable salary." She now realized the importance of taking a more formal approach to decision making and of developing a strategy for the future in order to ensure the success of Tuckamore and to attain her personal objectives.


Exhibit 1

Tuckamore Product Lines and Retail Prices

Fleece Lines Adult Child
Fleece jackets $75.00 $60.00
Fleece pants $60.00 NA
Fleece mitts $10.00 NA
Lycra lines
Women's Aerobics Wear
Leotards $35.00 $25.00
Unitards $43.00 $30.00
Tights $24.00 $20.00
Two piece outfits $36.00 $30.00
Sports Wear
Cycling shorts $50.00 $30.00
Running shorts $30.00 NA
All-sport tights $43.00 NA
Cycling jersey $45.00 NA
Cross country ski suit $75.00 NA
Downhill ski suit $85.00 NA
Dermoflex Lines
4 different style jackets (custom made) ($175-$265)
2 different style pants (custom made)($100-$150)

Exhibit 2

Monthly Sales January 1988 - April 1989
(in actual dollars)

Dermoflex Fleece Lycra
Month (2 products) (3 products) (10 products)
January 390 0 4233
February 795 660 3103
March 225 605 2659
April 190 660 2659
May 0 1052 2439
June 315 1070 4064
July 0 1265 3075
August 0 1110 6049
September 865 385 3363
October 880 1880 5216
November 0 3695 5946
December 725 2775 4030
January 500 445 1729
February 350 376 1968
March 810 1930 5414
April 85 118 9460

 

Exhibit 3

Labour and Material Costs for

Tuckamore Product Lines (Adult)

Labour Material Total
Hours Cost ($) Cost($) Cost($)
Fleece jacket 2.5 17.75 16.35 34.10
All-sport tights 0.9 6.30 7.30 13.60
Shorts 1.3 9.10 5.00 14.10
Aerobic tights 0.6 4.20 7.20 11.40
Leotards 1.0 7.00 5.20 12.20
Ski suit 1.6 11.20 12.75 23.95
Dermoflex jacket 12.0 84.00 49.00 133.00

 

Exhibit 4

Inventory of Equipment*

1 Cutting Machine $300.00
1 Semi Industrial Sewing Machine $1800.00
1 Industrial Sewing Machine $900.00
1 Domestic Electronic Sewing Machine $2000.00
2 Domestic Overlock Sewing Machines** $ 950.00 each
*The above prices are book values as of the purchase date. All machines were purchased between 1985-1987.
**Must be replaced within the next two years by industrial overlock sewing machines.

Exhibit 5

Tuckamore Income Statements (1987-1989)
(in actual dollars)

1987 1988 1989*
SALES
Wholesale $20,628 $38,811 $15,594
Retail N/A 27,567 7,591
Total Sales 20,628 66,378 23,185
COSTS AND EXPENSES
Cost of Goods Sold 22,495 52,032 21,649
Selling 3,225 7,088 2,536
Administrative 2,293 4,645 1,778
General 1,545 7,085 3364
Total Expenses 29,558 70,850 29,327
Net Loss $8,930 $4,472 $6,142
*Note: January - April 1989

Exhibit 6

Tuckamore Balance Sheet
As at April 30, 1989

Assets

Current Assets
Cash $1,500
Accounts Receivable 3,100
Inventory 10,500
Total Current Assets $15,100
Fixed Assets
Equipment 6,900
Less: Depreciation 4,700
2,200
Furniture 1,000
Less: Depreciation 1.000
Total Fixed Assets 0
Total Assets $17,300

Liabilities and Owners' Capital

Current Liabilities
Trade Credit $8,500
Total Current Liabilities $8,500
Long Term Liabilities
Shareholder Loan $4200
Total Long Term Liabilities 4,200
Owners' Capital 4,600
Total Liabilities and Owners' Capital $17,300