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A. PRIORITIZATION AND APPROACHES

The major issues which the CeeCee Management Board (CCMB) faces are shown in priority order as follow

1. Distributor strike CeeCees business is all about quick response, whether or not it can provide customers with the newest clothes in the shortest time. As CeeCee has only worked with one big distributor, any problem happened to that sole distributor could be life-threatening to the whole business model of CeeCee. In this case, EIT, CeeCees sole distributor, is facing a serious problem which causes a severe disruption in delivery for CeeCee. It is estimated that the problem would last for 10 weeks with the substantial loss in profit of 189m (sales loss 316m respectively). Appendix 7 shows calculations in support of these figures. Moreover, the loss of any bad reputation cause to brand value will be unable to estimate. Therefore, it is recommended that CCMB should concern solving this problem with the highest priority. There are two possible scenarios.

Firstly, should CeeCee rely solely on the act of EIT in dealing with the strike, it's most likely that CeeCee will suffer a great loss shown above. Besides, shops have to deal with overwhelming inventory and outdated product lines (average 3 new product lines released within 9 weeks). To reduce the loss, it is recommended that CeeCee temporarily cut back its production until delivery recover and inform its customers about this sudden incident. Notifications for delay of new products for (at least) 5 weeks should be posted clearly on CeeCees website and shops. Moreover, CeeCee should also send notification through mail and e-mail to all of its customers together with a coupon or voucher (value of coupon or voucher based on customers loyalty). After 5 weeks, when the amount of delivery is still limited, it is further recommended that CeeCee utilizes its IT system to monitor what is selling and 1

what is not and only deliver products that are in the highest demand first. Delivery items among shops rather than from one distribution centre should be considered as a smart choice since it help sell better but need less manpower. When the crisis is over, there is possibility to consider doing media advertising, which is not what CeeCee is used to, as CeeCee should inform a large amount of customers about its full recovery (recommended social media advertising for cost-effectiveness).

Secondly, CeeCee can reduce its sales loss by looking for alternative distributor(s) (one or more distributors depends greatly on CeeCees needs and the real situation, hereunder, for simplicity, regarded as a distributor) during the disruption. As the work to rule to begin immediately, i t is obvious that the longer it takes to find alternative distributor, the more severe the damage is. Supposed that CeeCee is able to have full delivery to its shops in the start of 3rd week, the loss in profit will only be 9.45m, compared with the substantial loss of 189m if it dont have an alternative distributor.

Therefore, it is strongly recommended that CCMB appoint Jim Bold (Head of logistics) to set up a negotiating section with relevant stakeholders from EIT to propose a crisis response plan with the following main terms as soon as possible EIT will focus on service and repair its vehicles and will only start delivering for CeeCee when possible. CeeCee will incur all losses due to the delay in delivery. As CeeCee will try to find an alternative distributor during crisis, EITs duty is to cooperate with CeeCee to give training to the new distributor to make sure it can provide delivery as usual in the shortest time. To express its goodwill, CeeCee commits to keep on long term partnership with EIT after the crisis. However, when new distributor is found, CeeCee will adjust the amount of services provided by EIT and its new distributor to an appropriate ratio since CeeCee want to reduce the risks of having the same incidence happen again in the future. The criteria recommended selecting an alternative distributor are

 Alternative distributor is competent and is capable of implementing delivery contract with CeeCee as soon as possible Alternative distributor appreciates and practices ethical behaviors in delivery business Alternative distributor is willing to sign a long term contract with CeeCee The first two criteria must be complied strictly whereas the last criterion is preferred. The new distributor must have the capacity to replace EITs delivery soon enough, and must be an ethnic-complying firm. As CeeCee is depending on just a single distributor, it could be the right time for CeeCee to diversify its distributors and reduce the risks of disruption in supply chain in the future. Moreover, hiring a company on a long term basis will earn CeeCee a better price.

2. IT failure

The newly launched online shopping system, while is easy to use, contained a fatal flaw in the payment process. This resulted in products worth 6m had been sold without payment. Therefore, CCMBs objective is to minimize financial and reputation loss.

In this particular issue, the later the company responds, the harder it is able to collect this money. Thus it is essential that the management must immediately decide whether to hire an outside agency to recover the money or leave the task for the Finance department. Appendix 5 provides calculations in support of following figures. 1st scenario: CCMB outsource the collection task to an outside agency, it will be able to recover 3m out of the total 6m 2nd scenario: CeeCees finance department staff reclaims the money themselves, only can collect 2.7m out of the total 6m The first method is more effective in financial aspect. However, as agency want to collect money from many customers as they can in a shortest time, it can make their

manner when dealing with CeeCees customers possibly turn negative and hence, affect CeeCees customer philosophy. The second method can maintain CeeCees excellent customer care, but it is less effective in regard of finance and cause unnecessary stress to CeeCees already overstretched staff.

3. Expansion into the jewellery range

Market research shows that the EU is the second largest market for jewellery. Despite being weakened in 2008 by the economic crisis, the jewellery market is expected to grow again in 2010. Consumers now tend to turn away from precious jewellery towards silver and costume jewellery, regard good design and affordable price more important than the intrinsic value of a jewellery piece, and this motto suits CeeCee very well.

On the other hand, CeeCee is a clothing-centric retailer. Therefore, the expansion into a new jewellery business (mid-range jewellery) could be regarded either as an opportunity or a threat. CCMB must consider carefully the markets suitability, the acceptability, and the feasibility of the project to make the right strategic decision.

The jewellery is the highly competitive market as there are many competitors competing in and brand identity is one of the most important factors. Appendix 2 provides analysis of the competitiveness of jewellery market. Mid-range jewelers and better quality department stores could be beaten in the short run. But in a longer run, with the fast, increasingly growth of lower end jewelers and the change in customer behaviors, competition would be much tougher for non-specialized firm like CeeCee. In the regard of 5 years expansion plan, the NPV of the project is about 10 million that ensure the project will bring benefit to CeeCees shareholders. The initial investment needed reaches roughly 6.7 million to cover cost such as upgrading 4

shops and enhancing security systems etc. If being implemented, the project will generate cash flow of over 5 milli on since the second year to CeeCee. Appendix 6 provides calculations in support of these figures.

However, since CeeCee has been facing the liquidity problem with the deficit of 10 million of its net working capitals, the initial investment for the project of 6.7 million should be concerned properly. CeeCee may resolve its liquidity problem by taking a long term loan or issuing more stock to the market. Financial summary on liquidity and loan could be found in Appendix 3.

4. Celebrity marketing

The marketing manager J.Lespere is proposing an endorsement plan. The chosen celebrity is Kool, a rock star, and his agent proposes 2 methods of payment. The first method is that CeeCee pays a fixed payment of 50,000 with a bonus of 150,000 should incremental sales reach 2m. The second method is CeeCee makes a payment of 5% of all incremental sales revenue. The two ways suggested will cost equally when sales increase by 1m and 4m, however the possibility of the latter is rather small (only 10%). The comparison of cost between the two methods can be described as followed. Appendix 4 provides calculations in support of following figures. If incremental sales is lower than 1m or from 2m to 4m , method 2 is more economical than method 1 If incremental sales is from 1m to 2m or higher than 4m, method 1 is more economical than method 2 However, this marketing concept has several flaws. First , it is proved that CeeCees original marketing strategy, which relies on centralization of shop window displays and interior presentations in using the shops to promote its market image, is highly effective associated with its business model whereas media 5

advertising seems to be more costly and less effective. Furthermore, CeeCee main customers are considered to be young professional women, and a rock star doesnt seem to fit that style.

B. ETHICAL CONSIDERATIONS

1. Child labour accusations of suppliers

Child labour in manufacturing garments for CeeCee in many Asian suppliers has been spotted by a local agent. As those Asian suppliers are proven to be using underage labour, they have apparently disqualified the criteria that CeeCee requests from suppliers. Therefore it is recommended that CeeCee discusses with these Asian suppliers and give them a certain amount of time around 3 weeks (referring to SA 8000 standard) to solve the problem. The head of environmental impact Jeroen de Joost is recommended for this task, as he has lots of experience in dealing with the companys CSR. If any suppliers who are not willing to comply, CeeCee should consider not signing new contract with them. In the long term, it is essential that CeeCee should publish a new Guidebook to the Code of Conduct, including SA 8000 standard which specifies requirements for social accountability, including child labour issue. Only those suppliers who follow this code should CeeCee consider signing a contract with. See Appendix 8 for SA 8000 standard procedure for dealing with children and juvenile labour. 2. Ethical aspect of distributors strike

Even though the drivers' strike poses a significant threat to CeeCee's business, CeeCee should take the ethical aspect of EITs strike seriously according to its CSR rules and regulations. It is recommended that CeeCee resolve the problem base on following ethical criteria 6

CeeCee supports three unlucky drivers and the process of implementing work to rule as much as it can. It is recommended that CeeCee should solve the problem in a cooperative manner with EIT.

CeeCee should not demand any kind of financial penalty or impose any legal pressure on EIT. It should be clarified that the fact that CeeCee intends to find a new distributor is not because of the strike, but it is a part of CeeCees long term strategy to reduce risks in its supply chain, which should be implemented regardless of the problem with current distributor EIT.

Despite the urgency of the problem, it is strongly recommended that CeeCee should NOT hire distributors who do not comply strictly ethical standards, even on a short term basis, as it may contaminate CeeCee image as an irresponsible firm.

C. RECOMMENDATIONS

1. Distributor strike

Crisis can take any business down, but if crisis is handled wisely, it could also be regarded as an opportunity. If CeeCee put all of its effort in resolving the problem in a right way, it will help CeeCee not only minimize the loss, but also overcome its own weaknesses, and add more value to the brand CeeCee in the eyes of its customers, and partners. As the disruption start immediately and the process of hiring a new alternative distributor would possibly take time, it is recommended that CCMB consider implementing simultaneously two solutions as suggested above. The first action is implementing the solution package of reducing loss and regaining sales after crisis by optimizing delivery system as well as launching marketing campaign with the aim of retaining customer and creating awareness. The second action, which must be done simultaneously, is seeking for a new, competent, and ethical

distributor based on a long term contract. This will eliminate CeeCees biggest weakness and bring it a less risky business model. CeeCee is now having only one distribution centre in Northern Europe. Therefore, it is further recommended that CeeCee should invest in opening a new distribution centre in Western Europe in the near future as it would increase the safety of CeeCee supply chain significantly. If there is any strikes happen, lead to lack of delivery, the fact that CeeCee have two distribution centres could cut down the delivery time needed and hence, greatly lower the damage of the crisis. Moreover, having two distribution centres also avoids the risk of losing inventory all at once due to any unexpected event such as fire or natural disasters 2. IT failure It is recommended that CCMB outsources the money recovery task to the outside agency. Choosing the agency not only guarantees that more money of 300,000 will be recollected, but also free CeeCees staff from being overstretched . However, it is advised that CeeCee give the agencys staff trainings about praticing CeeCees customer service to ensure CeeCees excelent customer care is maintained throughout the task. It is recommended that CeeCee have the agency send out feedback forms to collect customers opinion about the service of the agency for further evaluation.

A further step to be taken is to recheck all the IT system, including CCIPL and CCF. Any errors if identified, must be corrected right away. The payment problem had gone for three months, yet CeeCee audit staff could not discovered. Therefore it is recommended that CCMB establishes a training programme on detecting faults in IT system for its internal auditors and raise the frequency for external audit.

3. Expansion into a jewellery range

It is recommended that CCMB should not accept the proposal. The major reason is the harsh competitions in the jewellery market awaiting CeeCee in the long term. In bad situation, CeeCee could lose competitive advantage to its rivals not only in its jewellery business but also in its clothing retailer industry. Moreover, the current difficulty in liquidity is also a real obstacle. CeeCee may not issue more stocks to draw more capitals as it will make the return of current shareholders diminish. On the other hand, it may be hard to receive any long term loan from banks as CeeCee has already received two loans. It is further recommended that CeeCee use their resources to take initiative based on their solid business model. CeeCee should use its capitals to invest in either unexploited market in Europe, where it has existing well-working business model, or a new distribution centre which can cut down delivery time and reducing risks significantly to the supply chain. CeeCees fast fashion business model is unique and hard to replicate. By and only by focusing to its unique feature, CeeCee could never lose its image and be outstandingly competitive in the market.

4. Celebrity marketing

It is recommended that CeeCee management reject the celebrity endorsement plan. There is no concrete figure of the increase in revenue if CeeCee accepts the plan, except the estimate of Juliette Lespere herself that incremental sales are not likely to exceed 2m. Besides, image of a rock star doesnt suit the companys target customers young professional women. It is recommended that CeeCee focus on enhancing quality of advertising on its prime location shop by developing a customer-oriented system to identify more precisely markets needs.

D. CONCLUSION

The critical issues facing CeeCee are to: 1. Take immediate actions to reduce the loss caused by the problem with EIT CeeCees only distributor. Some further methods should also be dealt with in order to prevent future similar problem. 2. Recover the money lost by the error in IT system. 3. Consider whether to accept the jewellery expansion plan. 4. Evaluate the payment to Kool and the suitability of the marketing endorsement.

The logic behind the prioritization process is two criteria: level of urgency and scale of the issues. Therefore the unavailability of CeeCee distributor must be the first priority. This problem caused huge damage to the company, in both terms of revenue and business model, and need immediate remedy. Of the two proposals that CCMB has been offered, the expansion plan should be considered with more caution, since it could be a part of companys long term strategy and require a lot of investment.

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APPENDIX

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Appendix 1 SWOT ANALYSIS

Strengths The major strength of CeeCee, definitely, is its Just in Time business model which is built upon the well-developed corporate culture, the effective IT system, and the group of young, well-trained, and innovative designers. This unmatched feature, together with the prime locations for all of its shops, is the key factor that gains CeeCee an irreplaceable competitive advantage from all of its rivals. Thanks to its strict criteria and audit used in the selection of its suppliers and distributors, CeeCee has been cooperating well with the most suitable suppliers and distributor (those who met CeeCees strict criteria and have been proved to perform well over a long time) a nd hence, ensure the success and competitiveness of the JIT business model.

Weaknesses The major weakness is that CeeCee only has one distribution center and depends heavily on one distributor. Even though it helps CeeCee follow the fast fashion supply chain, there are huge risks associated with just one center and one distributor. If there is a power shortage, strike or even a natural disaster in the area it will be sure to affect CeeCee dramatically.

CeeCee is now facing the liquidity problem of its financial condition. Its net working capital is currently suffering the 10 million deficit in the year ended 31 December 2008 with < 1 current ratio. As long as CeeCee do not take a proper action, there will be a huge threat that CeeCee may face a financial broken-down and is forced of going bankruptcy which should be not likely to happen with a highly profitable and potential company like CeeCee.

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Opportunities There are several opportunities that CCMB will need to pay attention to. Firstly, there is the opportunity to expand to new market either inside or outside of Europe. At the moment, all of CeeCees sales come from Europe and entering the unexploited, but promising market like China, Japan, India, and the United State could give CeeCee a big surge in revenue to become the number one clothing retailer.

Another opportunity for CeeCee is its ability to expand and focus on developing a wider range of product, such as, jewellery, accessories and furniture. These ranges contain high risks but also high returns, especially in the brighter economic condition.

Last but not least, the nonstop evolution of digitalization could provide the unique solutions for retailers like CeeCee to access the low-cost and effective sales and marketing strategies through online shopping and social media branding.

Threats The intense competitions from other retailers still remain CeeCees major threat today. Among those, value retailer with their extremely low prices is, expectedly, the huge threat that can CCMB cannot ignore. The economic downturn and the fact that these competitors (value retailers) are taking more and more market share, demand high street retailers like CeeCee to take immediate actions to re-position their brand, differentiate, and retain their customers.

Another threat to CeeCee could be, as mentioned before, any unexpected event like a power shortage, strike or a natural disaster happen to the sole distribution centre or the sole distributor. In that case, CeeCees revenues could almost tank overnight. That is the reason why long term investors may prefer to stay away from CeeCee.

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Appendix 2 5 FORCES ANALYSIS JEWELLERY INDUSTRY IN EUROPE

Competitive rivalry (Inter-firm rivalry): medium to high Brand identity is extremely important Main rivals which are mid-range jewelers and better quality department stores. Although they seem to not upgrade shopping experience regularly and lack for contemporary ranges, getting customers from them is not easy. Wide range of rivals: harsh competition from imitation jewellery makers to highend jewelers Industry growth is stable

Supplier power: high In jewellery industry the main suppliers are South Africa, India, UAE, Australia, US, Congo, Botswana, Russia New and fashionable design requires high skilled labour and competent suppliers

Buyer power: medium Price sensitivity is low Specific customer: medium to high income customers There are several alternatives buyers can choose from

Threats of substitutes: medium Substitutes are gold, real assets, stock market, & bank deposits & mutual fund investment and other types of jewellery like imitation jewellery, stone jewellery Threats of new entrants (barriers to entry): low to medium Skilled manpower is essential Advanced technology required

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Appendix 3 CeeCees financial summary on liquidity and loans 1. Liquidity ( million) Liquidity Ratio Net working capital = Current Assets Current Liabilities (negative working capital => firms unable to meet its short-term liabilities with its current assets) Current Ratio = (A lower ratio indicates less liquidity, implying a greater reliance on operating cash ow and outside financing to meet short term obligations) Quick Ratio =
0,53 0,34 0,98 0,75 -10 -143 2008 2007

(low quick ratio => low liquidity) Cash Ratio =

(liquidity in crisis)

2. Loans Current loan Loan amount 200 m 100 m Annual interest rate 12% 8% End date of loan Oct 2014 July 2016

Total finance cost each year: 32m

Planned loan Loan amount Unknown yet Annual interest rate Unknown yet Start date of loan 2014

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Appendix 4 ANALYSIS ON CELEBRITY MARKETING PLAN

Incremental sales 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000

Payments to Kool Method 1 50,000 50,000 50,000 50,000 200,000 Method 2 60,000 70,000 80,000 90,000 100,000

Break-even sales volume considering 2nd method Incremental sales Cost Margin Tax x $ 50,000 x- 50000 0.3(x- 50000)

x - (50000 + 0.3(x-50000)) Break even: =0 x = 50000 Sales where both payments method are both costly Incremental sales < 2000000 50000 = 0.05x x = 1000000 Incremental sales 2000000 200000 = 0.05x (x 2000000) x = 4000000 (x < 2000000)

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Cost comparison between 2 methods Incremental sales Below 1m From 1m to 2m From 2m to 4m Above 4m More beneficial method method 2 method 1 method 2 method 1

Appendix 5 MONEY COLLECTION PLAN ANALYSIS

Lost sales (orders) Average value Total sales lost

50000 120 6,000,000

1st Scenario: Outside agency to collect money Fee: 14/person 5% of recovery (amount of money can collect) Money recollected

6000000 0.6 6000000 0.6 0.5 50000 0.6 14 3000000

0.45 6000000 2700000

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Appendix 6 CASH FLOW INVESTMENT MODEL OF JEWELLERY EXPANSION

INNITIAL INVESTMENT Glass display Lifetime of the investment (year) Working Capital Total 4,800,000 5 1,920,000 6,720,000

2010

2011 forecast

2012 forecast

2013 forecast

2014 forecast

2015 forecast

Cash out Staff training Working Capital Loss of other products Cash Outflow Cash in Increased revenue Cash Inflow
0 1,824,000 1,824,000 7,904,000 7,904,000 7,904,000 7,904,000 7,904,000 7,904,000 7,904,000 7,904,000 0 0 0 0 800,000 320,000 0 320,000 320,000 0 320,000 0

1,280,000

288,480

1,250,080 2,850,080

1,250,080 1,570,080

1,250,080 1,570,080

1,250,080 1,570,080

1,088,480

Initial Investment Cash flow

6,720,000 (6,720,000)

0 735,520

0 5,053,920

0 6,333,920

0 6,333,920

0 6,333,920

NET PRESENT VALUE

10,093,384.49

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Appendix 7 Estimated loss from distributors strike Estimated sales per week: 57.4m % sale lost per shop 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Total Sale lost (m) 5.74 11.48 17.22 22.96 28.70 34.44 40.18 45.92 51.66 57.40 315.72 Lost profit (m) 3.45 6.90 10.35 13.80 17.25 20.70 24.15 27.60 31.05 34.50

189.75

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Appendix 8 SA8000 Standards: Procedure for dealing with children & juvenile labour 1. Purpose To meet the requirement of SA 8000:2001 standard and the guide about how to deal with situation of children and juvenile labour in the company. 2. Scope This procedure applies to the children and juvenile labour working in the company, office or in the garment factorys area. 3. Definition 3.1. Children labour is the under 15 year old employee. 3.2. Juvenile labour is the not yet enough 18 year old employee. 3.3. The discoverer is the related division or personnel inside or outside the company who discovers any case of children or juvenile labour. 3.4. Suitable work to children or juvenile is the work that doesnt have any impact on their physical development, not dangerous and the total time of working and studying is no more than 10 hours a day or 42 hours a week. 3.5. The children s family representative: parents, grandparents, brothers or sisters, uncle and aunt or the conservator. 4. Content The company forbids all the staffs to participate in or approve the use of children & juvenile labour in the company. If any case is found, do as the following procedure:

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4.1. When discover the use of children & Juvenile labour, the Discoverer must report to the Administrative Department the name and department where the child is working in. 4.2. The Administrative Department has responsibility to cooperate with other related departments and employees to check the true age of the suspected. This check will base on methods such as direct interview with the employee, check the ID card or citizen record, birth certificate or even ask for help from the employees hometown. In addition, also check the education level, temporary place and the office where that employee is working in. 4.3. When find out about the true age, the Administrative Department informs the suspected and other people (if concern) and make a report to the board representative to carry out corrective actions as follows: AS FOR CHILDREN LABOUR The Administrative Department discusses with the chief of the office where that employee is working in to assign him (her) a suitable job in the waiting-tonegotiate period. This period is normally no more than 3 weeks. The personnel manager will discuss with the childs family representative about sending the child to school. The company will pa y for the tuition, book.. The family representative must guarantee that he (or she) will go to school. Each quarter, the company will contact the family and school to update the inspecting sheet. As for health status, it will be updated every 6 months When the child is enough 15 years old, the company will invite the child to work in the company. If he (or she) doesnt agree, then the relation between him and the company ends. If agree, then applies the procedure for juvenile labour. The period that the child works for the company will be reserved for later regimes (such as social insurance, working seniority, compensation.) as regulated by the company.

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AS FOR JUVENILE LABOUR The head of Administrative Department must discuss with the chief of the office where that employee is working in to assign him (or her) a suitable job. When the employee is enough 18 years old, the Administrative Department will remove the name of that employee out of the list of juvenile labour and inform the concerning parties, then update the inspecting sheet and make a record. The period that the juvenile employee work for the company will be reserved for later regimes (such as social insurance, working seniority, compensation.) as regulated by the company. The Administrative Department has responsibility to inspect that employee and update the inspecting sheet of juvenile labour.

THE END

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