THE XAVIER JACKET

In late December of 1989, Joe Bradford and Erin Deyell sat over coffee at the Student Union Building of St. Francis Xavier University, discussing Edford Enterprises, their partnership to market university jackets. They had just completed their first year of business and the preliminary Income Statement showed net profit in excess of $5,000. While pleased with the results, they were also concerned. Now that the business had been established, they didn't want it just to evolve...they wanted it to grow! The question they were wrestling with was...HOW!

It all started in September of 1988 when Joe, the High School Liaison Officer, was discussing with his co-worker how to attract students to St. Francis Xavier University (St FX), in Antigonish, Nova Scotia. While the university certainly had a lot to offer a prospective student, Joe wanted something to wear on his many high school recruiting visits that would provide instant identification, like a university jacket. But, in Joe's opinion, all the currently available St FX jackets looked more appropriate for high school students than for university students. They did not have the look of a university jacket---something to be worn with pride and passed on to the next generation of "X"ers.

St FX students could order leather or nylon jackets from a Halifax based manufacturer of sports clothing, Maritime Campus Stores (1985) Limited, who came on campus twice a year and Stewart's Jackets based in nearby New Glasgow. However, there had been some delivery problems with Stewart's Jackets in the past. Jackets could also be purchased locally from stock either at Jim's Shirt Locker, a downtown Antigonish store which carried a full range of "X" wear or at the University bookstore which sold various nylon jackets, all under $60. Joe felt that the leather jackets were of questionable design and quality and that the nylon or lined ones were "transitional" - not likely to survive the four years at "X". In fact, Joe felt this so strongly that, during his four years at St FX as an Honours Bachelor of Arts student majoring in Political Science, he had refused to purchase any St FX jacket. Joe had


This case was prepared by Professor M. Jan Charbonneau, formerly of St. Francis Xavier University, now at Athabasca University, for the Atlantic Entrepreneurial Institute as a basis for classroom discussion and is not meant to illustrate either effective or ineffective management.

Copyright 1990, the Atlantic Entrepreneurial Institute. 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.


noticed that a few students on campus were wearing melton cloth or leather jackets which dated back as far as the 1950's. Obviously, they had been passed down from their parents or from an "X" alumnus.

Of all the old jackets he saw, Joe's favourite was the Xavier jacket - a plain navy melton cloth jacket, with a navy and white striped knit waist and white felt letters spelling "XAVIER" prominently displayed across the front. It had served as the University football team jacket in the '60's. He felt that not only was it of extremely good quality, but was both unique and representative of St FX. Joe was hooked! As the Liaison Officer, he wanted to show up in that jacket at high schools across Canada to recruit students.

Seven of Joe's friends were also prepared to buy. The problem was that the jacket they all wanted dated back to the early '60's. Joe had the design he wanted, but no way to get it produced. He decided to approach the manager of the St FX University Bookstore who was investigating the production of university jackets. The Bookstore Manager determined that any jacket made from melton material with hand cut letters would be too expensive; therefore he wasn't interested.

One of the students on campus who wore an Xavier Jacket was Joe's friend, Kate McIntyre. She had her father's Xavier jacket which she allowed Joe to borrow. Kate's jacket and eight orders in hand, Joe travelled the 220 km distance to Halifax where he approached Juergen Riedel, the President of Maritime Campus Stores (1985) Limited. Joe was specific about what he wanted. He refused to switch to an in-stock royal blue jacket - it had be navy, which Juergen would have to special order! He also wanted four inch hand cut letters from a heavy stock of white felt that Juergen would have to order from the United States. He was forced to compromise on the collar, settling on a flatter one since the original design was not available. Overall, he was satisfied that the jacket was "as original as possible".

On September 21, 1988, Joe negotiated a unit cost of $100 each. Juergen required a $50 deposit per jacket, which Joe collected from his friends. Joe decided to travel to Halifax to collect the jackets rather than pay delivery charges to Antigonish on Acadian Bus Lines or by courier.

Despite a promised December delivery date, the jackets didn't arrive on campus until January 1989. Juergen had experienced trouble getting delivery of all the materials. Apparently the plain jackets had been taken from the supplier's inventory left over from the '60's when clothing was worn tighter. To accommodate current tastes, the normal size plus 2 would be required because these Xavier jackets fit quite small. Undaunted, Joe and his friends proudly displayed their jackets.

Once the jackets appeared on campus, word spread quickly. Joe and Kate appeared in the Winter edition of the Alumni News (Exhibit 1), published in January 1989, both sporting Xavier jackets. Joe was constantly being approached on campus, mainly by 3rd and 4th year students who wanted jackets. (Exhibit 2). Because of the demand, Joe agreed to arrange for another order. At this stage, he wasn't thinking of the Xavier Jacket as a business venture but mainly as good public relations for St FX. He was also pleased to see that others shared his taste in university jackets.

Knowing he would have to travel to Halifax to take delivery of the jackets and that some of his time would be involved, he decided to charge $130 per jacket - with a deposit of $65 required at the time of ordering. At this stage, he did not anticipate continuing orders and felt "if there really was a market for the jackets, some company, either Maritime Campus Stores or another school jacket manufacturer would snap it up". He accumulated the orders, hoping that he could reduce the cost if he ordered in bulk. He also hoped to ensure uniformity and maintain control. Students who asked for variations in colour, style/design or the addition of crests or names were flatly told, "no". The Xavier jacket of the '90's was going to be as true to the original as possible! When he had accumulated 25 orders, it was time to negotiate. Maritime Campus reduced their selling price to $91.50, requiring a deposit of 50% when the order was placed.

After paying the deposit to Juergen, Joe still had $481.25 ($19.25 per jacket) to deposit in his bank account. Now he realized that there was real money to be made! To Joe's amazement, students kept ordering and a second order for 11 jackets was quickly placed. A subsequent order of 9 was placed in late February.

The first two orders arrived on campus mid March. Joe had once again travelled to Halifax to take delivery and pay the remaining $45.75 per jacket. He used the $19.25 per jacket from his bank account and financed the remainder out of his own pocket. He was offered credit terms by Juergen but declined, fearing that interest would be charged. At this point, Juergen appeared "overly friendly" and Joe was wary, thinking that Juergen was "feeling out" the market with hopes of undercutting Joe.

The jackets were distributed over two days at the Blue and White Centre, a central, high traffic location in the Student Union Building, just outside the cafeteria. As the jackets were being distributed, more orders emerged. The orders continued, even though students were told that the jackets would not be delivered before the end of term and that they would be shipped COD, probably in May or June, with students paying the cost of postage.

By the end of the first day, Joe had recovered his out of pocket costs. At this point, Joe realized that he should be looking at this as a business venture. He made preliminary inquiries with a Professor in the Department of Business Administration about the logistics of forming a business.

The 36 jacket order was picked up by Joe in May and subsequently shipped COD from Belleville, Ontario, where he had returned for summer vacation. All but one jacket was delivered. COD orders cannot be shipped to the United States so Joe kept the US destined jacket until September.

In September, Joe realized that, with the volume of travelling required in his position as High School Liaison Officer, he would need a business partner. His girlfriend, Erin Deyell, a second year Honours BA student from Calgary, seemed the obvious choice. Erin was not sure if she wanted to join the business; however, she agreed to accompany Joe to Halifax for a scheduled meeting with Juergen.

Erin and Joe met with Juergen to discuss future supply and pricing arrangements. Joe had some concerns that Maritime Campus might sell Xavier jackets or "knock-offs" (similarly styled but inferior copies) when they were on campus in the fall. Instead, to their surprise, Juergen offered them a franchise to market Maritime's current line of sweaters and jackets on campus on a commission per item basis. At this stage, Joe and Erin realized "they were being treated like a business, not just a customer with a big order."

The time had come for many decisions. Despite her original reluctance, Erin too was hooked! On September 9th, Joe and Erin formed a partnership.

They decided to refuse the offer of a franchise since they didn't want Juergen controlling them or their profits. Joe agreed verbally to continue purchasing the jackets from Maritime Campus in exchange for Maritime Campus' not selling them on campus. His fears of direct competition and undercutting seemed put to rest. Juergen intended to sell Xavier jackets in his commercial outlet in Halifax but would keep the price high. The issue now became agreement on a price. Juergen's initial offer of $90 was too high for Joe and Erin's liking. A few well placed words about the possibility of other suppliers resulted in a price range of $80-85, depending on volume, being agreed upon. Joe and Erin anticipated a final price of $82-83.

The time also had come to set up the venture as a proper business. With the assistance of the Business Administration Professor, Joe and Erin entered into an equal partnership and signed a Partnership Agreement setting out areas of responsibility and authority, financial arrangements and how the business could either be disbanded or sold. (Exhibit 3) The business was named Edford Enterprises - "Ed" for Erin Deyell and "ford" for Joe Bradford - and was officially registered with the Registry of Joint Stock Companies in Halifax. They also opened a business bank account. Upon investigation, it was discovered that no license was required to operate as a retail vendor in the Town of Antigonish.

Joe and Erin knew that Maritime Campus would be making their fall visit to campus the last week in September to take orders for their leather jackets. In an attempt to beat them, Joe and Erin placed hand lettered posters all over campus (extensively in the residences) and took orders at the Blue and White Centre during the third week in September. Because of the buoyant demand, they felt they could raise the price to $140, this time including the 10% Nova Scotia sales tax required on clothing over $100. They also adjusted the deposit required to $70. Joe realized that he had not remitted provincial sales tax for the previous orders and decided to deal with the tax man later!

When the order was placed for 90 jackets, Joe and Erin were dismayed to discover that Juergen wanted $84.59 per jacket! He argued that a higher unit cost was required due to the number of oversize/tall orders. Joe and Erin realized that they had not considered this nor had they built that variable into their pricing structure. The partners felt, though, that Juergen was not acting in good faith. They had discussed a range of $80-85 but had anticipated a price between $82 and $83. They finally agreed on a unit price of $84. While this was higher than they wanted, Joe and Erin felt that their next order would be for a smaller number; historically, students run out of money near year-end. They felt that they could insist on the $84 as a guaranteed price.

Expenses were kept to a minimum, essentially travel to Halifax (Joe estimated $65 per trip), postage ($25), poster and office supplies ($30), a small amount for telephone calls ($25) and rental of the Blue and White Centre ($50 per day).

In December, 1989, the first order of their partnership arrived and was distributed through the Blue and White Centre. As in the past, new orders appeared, but, as they had anticipated, the number was low (eight). They weren't overly concerned as they did not intend to place orders until the end of January 1990. At that time, they intended to change the price to $130 plus tax, with a $65 deposit required.

Joe and Erin wondered, over their December cup of coffee, what the impact would be of the sudden wash of navy Xavier jackets over campus - they were everywhere! Would this have an impact on future sales, and if so, how much? Would there be an adverse reaction to the new price? Was the jacket a fad or was it on its way to becoming the "official" St. Francis Xavier University jacket? An ad for the jacket was set to appear at no charge in the Winter edition of the Alumni News. Would alumni prove a viable market? Should they look at another type of promotion besides posters? There was the campus newspaper to consider. (Exhibit 4).

As the calendar and their business year drew to a close, they looked to the future. Analysis of past orders revealed that most of their customers were females. (Exhibit 5). Was this to become a "girl's" coat? How could they appeal specifically to males? They talked about trying to get either the football or hockey teams or other male dominated groups interested in bulk ordering the jacket, but how and when they were not sure. They also knew that they would have to reduce the price, but by how much?

They talked about having a "Back to School" special - $99.99 - but realized they would have to get Juergen to reduce the unit cost to maintain a reasonable margin. Joe also wanted to approach Juergen regarding the franchise idea, but only for leather jackets and only of Joe's design. The Xavier jacket, because of its light satin lining, had been marketed as spring/fall apparel. Now Joe wanted to produce a high quality all-season leather jacket. Erin joked that it wasn't only women who changed their minds! The leather jacket would have the university crest and the person's residence crest on each sleeve and the name of the faculty/program on the back, much like those Joe had seen at Queen's University in Kingston, Ontario. Erin questioned whether there was a market for the all season design and if it would cut into sales of Xavier jackets.

They wondered if they should look at diversifying into other university student-oriented products? Would it be possible to set up franchises on other campuses to market similar jackets? A disturbing event had come to their attention. A student in residence had arranged through his father, a crest manufacturer, to have 7 or 8 Xavier jackets copied and had sold them to his friends for $90! While Joe agreed that the jackets were "passable" copies, he also knew that the father must have sold them at cost. Joe and Erin wondered how they could solidify the position of their jacket as the "official Xavier" jacket? Ideas such as including instructions for care, a guarantee and a short history of the jacket were discussed. So far, they'd only arranged repairs for two jackets and knew that Juergen stood behind his goods.

So many decisions. So many options to investigate if they were going to GROW!! The question was where to start?


THE XAVIER JACKET

EXHIBIT 1

ALUMNI NEWS - WINTER 1989

One of these jackets has been passed down from one generation to another. Can you guess which one?

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The original version is worn by Katie McIntyre '92, Lanark, ON, who inherited it from her dad Edward McIntyre '61. Joe Bradford '88, high school liaison officer, has initiated the reproduction of the nostalgic style Xaverian jacket.

Source: Alumni News - Fall and Winter 1988-89, St. Francis Xavier University, Antigonish, Nova Scotia

THE XAVIER JACKET

EXHIBIT 2

STUDENT DATA - ST. FRANCIS XAVIER UNIVERSITY

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*includes Full-Time students only

Note: Due to classroom and residence limitations, minimal enrolment increases are expected in the foreseeable future. Approximately 1500 - 1600 students live in residence on campus.

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*includes students enroled in the Department of Education (B.Ed. degree), Masters and Diplomas in Adult Education, the Coady Institute (a one year Economic Development program for International students on sponsorship or scholarships) and "others", enroled in more than one program or year.

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REGISTRATION STATISTICS - FULL TIME STUDENTS

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4 Nutrition and Consumer Studies.
5 Coady International Institute.
6 Includes students enroled in more than one year or program.

Source: St. Francis Xavier University.

EXHIBIT 3

PARTNERSHIP AGREEMENT - EDFORD ENTERPRISES

The purpose of this document is to formalize and define the terms of operation for the partnership of EDFORD ENTERPRISES, established September 9, 1989. The partners of the enterprise, Erin K. Deyell and Joseph A. Bradford both agree to abide by and operate this business according to the terms of this agreement.

SECTION ONE: INCOME ALLOCATION

The division of the Edford Enterprises profits will be 50% of net profits to each partner. However, at the discretion of both partners, this may be adjusted.

SECTION TWO: LIABILITIES

All partners agree to share equally in any liabilities incurred by the partnership. Both partners must sign any contract the business enters, however, any partner may individually sign certain documents pertaining to banking, such as deposit and withdrawal slips.

SECTION THREE: DECISION MAKING AND AREAS OF AUTHORITY

The purpose of this section is to delineate the areas of responsibility and authority (final decision) that the partners will hold individually or partners will hold equally. If an area is not covered in this section, it is assumed to fall under the area of equal authority.

A) NEW PARTNERS: The present partners must all be in full agreement to permit entrance of a new partner into the business relationship.

B) EXPANSION (INTRODUCTION OF NEW PRODUCTS): All partners must be in full agreement concerning any expansion of the business or the introduction of new products.

C) AREAS OF INDIVIDUAL AND FINAL AUTHORITY:

1) Joseph Bradford will have final authority concerning communications and negotiations with suppliers.

2) Erin Deyell will have final authority concerning all advertising and marketing procedures.

D) DIVISION OF AUTHORITY IN PRICE SETTING: Jointly, the partners must agree upon a "BRACKET" price for both the "BUYING" and "SELLING" price of any product. The "bracket price" is a set price that can be increased or decreased within the below outlined boundaries. Before the launch of any sales campaign, the partners will set the bracket prices and record them in the enterprise reports. The record of this will be a dated and signed document, applicable and binding to the sales campaign in question.

1) Buying Price: Jointly, the partners will agree on a price in the above mentioned document and allow the negotiator with the suppliers, Joseph Bradford, a bracket of $1.00 either side of the agreed price to bargain with.

2) Selling Price: Jointly, the partners will agree on a price in the above mentioned document and allow the advertising and marketing officer, Erin Deyell, a Bracket of $10.00 either side of the price agreed to finally set the selling price.

Any amounts that are in excess or fall short of the above defined Brackets will disallow any unilateral action by one of the partners.

E) MONETARY EXPENDITURES AND BOOKKEEPING: All monetary expenditures must be recorded in the enterprise's books and announced as soon as possible to all partners. However, partners may conduct normal monetary procedures in the absence of other partners. Normal monetary procedures involve the depositing of funds, withdrawals to pay for orders and withdrawals for office expenses. In regards to bookkeeping procedures, the original entries will be recorded by Joseph Bradford, subsequently to be audited by Erin Deyell.

SECTION FOUR: CONFLICT RESOLUTION-DISPUTE MECHANISM

The purpose of this section is to outline an agreed method to address any disagreement that, through normal business discussions, cannot be resolved.

A) FINAL AREAS OF AUTHORITY: If the dispute falls clearly in any of the above mentioned areas of "final" or "individual" authority, then that designated person's decision shall prevail. If there is a question as to the nature of the area, a third party will be asked to clarify.

B) JOINT AREAS OF AUTHORITY: If the dispute falls in any of the above mentioned "Joint" areas of authority, then the partners will agree to disagree or will take no action on the dispute. (i.e., expansion, partners).

C) PRICE SETTING: If the dispute falls in the area of price setting, the agreed upon Bracket price for the particular campaign will be considered binding as will the above outlined authority in section three.

The partners agree that if a dispute is locked, they will negotiate at least seven business days and seek out the advice of a third party before taking any further action.

SECTION FIVE: DISSOLUTION OF THE PARTNERSHIP

The purpose of this section is to outline the methods of exit for an individual partner or the total closure of the business.

A) TIMING OF DISSOLUTION OR EXIT FROM THE BUSINESS: Once an order has been made for any number of items, such that a monetary commitment has been made by the customer, all partners will remain in the working relationship until such time that the order has been completely finished and the campaign or order is closed on the accounts. At that time, profits will be split equally among all the partners. If a partner abandons the business before the completion of an order, they will not be compensated and will forfeit any right to the final profits of the order in question or the business in general. Additionally, the abandoning partner is also bound by the non-competition clause stated in section five, sub-section B.

B) EXITING THE PARTNERSHIP: If a partner wishes to leave the enterprise after individual duties concerning the order (and the order itself) have been completed, the partner will receive their appropriate division of the profits as stated in section one of this contract and will cease to be a partner of the business nor will they have any right to use or represent the name Edford Enterprises. An Exiting partner must inform the other partners of their intention to exit in writing. Furthermore, the exiting partner agrees to refrain from selling any similar (or competing) products on the campus of St FXU for a period of two years following their exit.

C) TOTAL DISSOLUTION OF THE PARTNERSHIP: In the case of a mutually agreed closure of the business or a hostile break up at the fulfilment of an order, all the books of the business will be closed, licences withdrawn and the partnership of Edford Enterprises will cease to exist. No one partner may continue the business under the original name of Edford Enterprises.

D) BUY OUT: If one of the partners wishes to buy out the interests of any or all other partners, a separate negotiation or contract will be struck at that time.

DATED October 14, 1989

AT Antigonish, Nova Scotia

WITNESSED _______________________

ERIN K. DEYELL JOSEPH A. BRADFORD

Source: Company files.

EXHIBIT 4

ADVERTISING RATES 1989 - 1990

XAVERIAN WEEKLY*

Rates
Column Inch $ 3.50
1/8 page $ 40.00
1/4 page $ 65.00
1/2 page $120.00
Full page $175.00

*a student newspaper published weekly, distributed free on campus. 10% discount offered if ad run consecutively for 4 weeks, 20% discount if run consecutively for more than 4 weeks.

 

EXHIBIT 5

Edford Enterprises
SALES

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Source: Company files.