Reference no: EM132885684

Case Study: Saltspray Wipe Out

Saltspray was an old name in the Australian clothing industry. Started by its founder Jeff Masters back in the late 1980s, the surfing apparel label rode a wave of popularity due to its popular designs and clever promotion strategies. Martin, a long-standing employee of Saltspray said, "In the early days Jeff was amazing.... I remember early on when the retailers had never heard of us that nobody wanted to stock our merchandise. So Jeff talked to all his surfing mates and asked them to go into these shops and ask if they stocked Saltspray. Pretty soon we were getting calls from retailers saying 'we can't believe how many enquiries we're getting for your product... can we please see some samples?' and '...how soon can you deliver?'"

Martin noted Jeff always knew what needed to be done in the early years of the firm. He was young himself which meant he was targeting the same age group he was part of. It was good product development informed by 'knowing the market' and some hard work with retailers that helped to build their success. Martin continued his account of the early years of Saltspray for some time, obviously proud about the part he had played in its success. However, it wasn't long before some of the company's more recent problems were discussed and his tone changed.

Unfortunately, times got tougher for Saltspray and a number of factors created a situation which threatened Saltspray's survival. Growing consolidation in retailing meant larger clothing retailers had the capacity to make greater demands of labels like Saltspray. Small repeat orders were a thing of the past and Jeff had to borrow heavily to invest in the plant and equipment needed to meet these larger orders. Eventually he had to turn to licensed clothing manufacturers in Southeast Asia to make many of his designs, as he simply could not increase local production quickly enough. By 2010-2011, Saltspray had over 1000 employees in Australia with roughly two thirds of these working in the production facility in Melbourne, while the others worked in areas such as Marketing, Accounts and Product Design. Martin had been working in product design for a long time and had been its senior manager for nearly five years.

He now reflected sadly on how his time there was nearing an end, as he seemed almost certain there was little hope of him continuing. He said regretfully, "There was a time we knew what the market wanted so you could say design was one of our distinctive competencies. That's no longer the case and we just aren't getting the orders needed to cover the debt repayments for our heavy borrowing over the last ten years." Martin now lamented that Jeff seemed unable to let his product development team do their jobs effectively. Every time new designs to cater for changing customer tastes were presented, Jeff made large changes, which led to many designers resigning.

Martin said, "We have some talented people in the production and design areas that love the creative side of their work. They live to make clothing apparel that our target Y generation want and then work carefully with production crews to refine the product for better outcomes in terms of product desirability and production costs. They're much more tuned into what the market wants than we are these days and needless to say, they want more control over decision making. Furthermore, as we all get substantial bonuses for profits and have shares in the company, it doesn't do anyone any good when Jeff steps in and sidelines this expertise."

These sentiments were also substantially supported by staff opinion surveys done by the Human Resources Department, so Martin seemed certain he won't see the year out. After putting his resume online he had a couple of very interesting offers and is contemplating when he'll be handing in his resignation. 

Privately he said, "There's no point staying. Jeff had his finger on the pulse once and when he did things were great. However, he's got a family now and he needs to spend more time away from the office. That hurts us even more now as we've become a big operation with substantial offshore production. We're not getting quality out of our offshore licensed manufacturers as we weren't clever enough in selecting help in setting up the contracts. This is all because Jeff had to have a major hand in negotiating supply contracts himself with only the help of an old friend. While his friend had a legal background, he's not experienced in the industry or in dealing with offshore operations and because of this we have no comeback on these manufacturers for the massive log of returns for defects. So essentially it is these quality problems and the lack of interest by new Y generation buyers that is hurting the company." 

-You must address the following case question in your answers

1. Define two perception errors and discuss how they may have contributed to problems at Saltspray.