Future Scenario Analysis: Recharge MyDenim Custom Jeanswear & Regeneration

Scenario

The cost of hub rentals in the future will increase to the extent that it will restrict geographic expansion and thereby limit consumer reach. This is a relatively Surprise-Free scenario, because past trends have shown that the cost of real estate, especially rentals, in central geographical locations (Hubs) has been on a gradual yet constant rise.

Uncertainties And Trends

Uncertainty 1: Current Competition

	Scenario The cost of hub rentals in the future will increase to the extent that it will restrict geographic expansion and thereby limit consumer reach. Strategy ·         License or outsource manufacturing operations ·         Invest in premium delivery services like priority mail to reduce lead-time and improve consumer reach. ·         Develop an IMC strategy to engage consumer interaction and boost virality.
Uncertainty 2: Current cost of Expansion	Uncertainty 2: High cost of Expansion

Uncertainty 1: Intensive competition

Plot

This scenario takes into consideration the possibility that the cost of hub rentals in the future will increase to the extent that it will restrict the geographic expansion of MyDenim’s business and thereby limit its subsequent consumer reach. This is a very realistic prospect because past trends have shown that the cost of real estate, especially rentals, in central geographical locations (Hubs) is on a gradual yet constant rise.                                                              

            Cities or regions that are strategically located or have a close proximity to prime urban centers obviously attract the attention of sellers, which in turn, increase the density of occupants and this drives up the cost of real estate. This is an ongoing phenomena which is widely prevalent in our major cities today that are not short of ever increasing clusters of factories, stores or offices. We can thus extrapolate this trend to expect a similar situation in the future, wherein MyDenim may be unable to penetrate newer markets owing to an unforeseen spike in such costs.

Impact On Business Model

MyDenim’s business model requires an increasing number of hubs, or centrally located manufacturing units, to expand its market and consumer reach. But if the cost of renting real estate property to support these hubs soars unreasonably, the entire operation may experience stagnation of growth which can make it unsustainable in the long run. 

Plausibility 

Judging from the behavior of the global real estate market over the last rounded decade (2000 – 2010), which debatably is a conservative approach owing to the sub-prime mortgage crises in the U.S. and the European recession, the average rate of rental displays an oscillatory increase.  Since only 3 out of the 10 years showed a decline in rental prices, we can estimate the odds of this scenario actually becoming a reality to be approximately 3:10 (See graph below).

Precursors

The following indicators can provide an early warning that this scenario may be unfolding as a reality as they are factors that lead to higher rental prices in major cities.

·  Government Regulation: Many well-intentioned policies like housing-choice vouchers, affordable housing mandates, rent control, height regulations, historic designations, and protective zoning laws contribute to the creation of a bifurcated, distorted market — one in which a $500 apartment can exist next door to a $3,000 one. Affordable housing mandates, which usually require a developer to set aside a small percentage of new units for affordable housing, sound good in theory, but developers simply pass on the cost of the affordable units to other residents, driving up the cost of market-rate rents.

·     Plummeting Crime Rates: As crime rates plummet, more people are willing to live within cities. That decrease in crime, coupled with a cultural move away from suburbanization, reversed the wealth/population flight that marked the second half of the 20th century. Many cities are now close to, or exceeding, their 1950 population highs. There is a positive correlation between rising rents and house prices and falling crime rates in places like Atlanta, Washington, New York, Los Angeles, and Chicago.

·     Social Stratification: Along with high unemployment, and stagnant and falling wages for bottom- and middle-income earners, the hollowing out of the middle class brought with it a geographic realignment. As the economy required higher levels of education, a lot of cities, especially on the coasts, became hubs for a lot of well-paid people who could afford higher rents and higher house prices.

·   Market Speculation: This is one of the most hidden factors to high rental costs: large landlords and investors who can afford to buy up huge swaths of the available housing stock, reducing the natural elasticity of the market. Investor-driven developments are catalysts that can speed up the pace at which neighborhood rentals change.

Recommended Strategic Actions

These strategies align with the ideology of ‘reserving the right to play later’.

·         License or outsource manufacturing operations

If the rental expenses for hubs becomes unsustainable, it will make more sense for MyDenim to either license or outsource some or all of its manufacturing operations for new regions. This is an operation that will commence now, on a smaller scale, irrespective of fluctuations in future rental rates. This option will give MyDenim the flexibility to reach newer markets without having to bear the costs of renting out its own facility. While there will be a fraction of revenue loss as a result of the Licensing operation or outsourcing fee, it will give MyDenim the formidability needed to survive in a changing landscape.

·    Invest in premium delivery services like priority mail to reduce lead time and improve consumer reach

As per the present strategic plan, MyDenim will fulfill a small proportion of its customer deliveries via premium services like priority mail. This will be especially true in the case of customers who either demand the service or those who are located in outlying destinations, beyond the normal reach of the nearest hubs. It is plausible that this operation could be easily scaled up in the future, if opening new hubs is no longer a viable option. It will help reduce the average lead time and maintain greater consistency of deliveries.   

·         Develop an IMC strategy to engage consumer interaction and boost virality

This is another strategy which will commence immediately and with minimal financial investment initially. We plan on gradually growing this effort and pumping more revenue into the marketing budget to improve customer knowledge of MyDenim’s brand and offerings. Should hub rentals become too expensive, there will be a significant fraction of the intended investment that can be directed towards this IMC strategy, thus scaling it up to a greater extent. This will slowly but surely build the MyDenim brand and propagate it to a larger audience, who wouldn’t mind longer lead times or marginally higher prices. This relationship marketing initiative will complement the first two strategies for this scenario.  

Annex One: List of MyDenim Risks 

1.      Threat of customer dissatisfaction

2.      Limited geographic presence

3.      Failure to attain expected market share due to existing competition

4.      Delays and inconsistencies in delivery time

5.      Machine breakdown and/or system failure

Annex Two: List of four different scenarios discussed in the team, including the one with full write-up (In green)

Uncertainty 1: Current Competition

Scenario Globalization along with digital marketing add more pressure on margins due to increased availability of information through social media. Consumers become more selective as supplies exceed demands  leading to consumer selectiveness. Therefore, companies have to adapt by redesigning their supply chain models to relief preassure on their margin. Strategy Develop an effective supply chain model by incorporating the following three main attributes. ·         Lean: Effective and low-cost operations ·         Fast: Speed in fulfilling customer’s orders by adapting to change and realizing results. ·         Flexible: Effective process that enables clients to increase flexibility in their end-to-end supply chain.	Scenario The cost of hub rentals in the future will increase to the extent that it will restrict geographic expansion and thereby limit consumer reach. Strategy ·         License or outsource manufacturing operations ·         Invest in premium delivery services like priority mail to reduce lead-time and improve consumer reach. ·         Develop an IMC strategy to engage consumer interaction and boost virality.
Uncertainty 2: Current cost of Expansion	Uncertainty 2: High cost of Expansion
Scenario Fashion industry trends show positive signs in the emerging markets; however, consumers’ awareness is expected to increase because the power shifts to their hands.        Strategy ·         Invest heavily in big data solution to track consumers’ behaviors. ·         Build more hubs within close proximity to the emerging markets since consumers prefer quick delivery.	Scenario A natural disaster occurs, leading to a machine breakdown that affects the production capability and this would affect delivery time and customer satisfaction. Strategy ·         Buy more machines working in different places so that it reduces risk ·         Buy an insurance that covers natural disasters

Uncertainty 1: Intensive competition