Maidenform Restructuring: An Analysis of its Benefits and Negative Effects

Introduction

Maidenform is an intimate apparel manufacturing company that specializes in women’s undergarments. It recently revealed a massive restructuring plan in order to reduce on its forecasted losses for the first quarter of the year. This essay aims at providing an in depth analysis of the Maidenform restructuring plan with particular attention on the extensive effects of the process.

The Restructuring Plan

The restructuring will take place over 2013. Over the year, the company plans to close all unprofitable segments of businesses. These unprofitable lines require considerable resources but still yield an unappreciable level of profits. Additionally, Maidenform plans to close the Charm brand along with its 10 retail stores along with ‘de-emphasizing.’ These plans will reduce overall sales by close to US$20 million over the financial year 2013. Maidenform plans to channel all resources from the exited businesses to its key priorities. On the other hand, the company intends to undertake aggressive marketing. It also wants to reduce its stock keeping unit (SKU) that it offers by about 20 percent before the year lapses. In essence, the strategy revolves around narrowing of operations to include profitable segments of the business only. It plans to reduce overhead costs by $5 million via Maidenform’s supply chain.

Most corporate restructuring plans occur so that the firm experiences a reduction in business costs and improves the quality of service. Corporate restructuring also leads to reduced consumer prices and readjusts a company’s operations to deal with the market and competition changes (Arocena, Blazquez and Grifell-Tatje, 2011). The restructuring plan is appropriate for Maidenform since, as stated earlier, it will lead to a forecasted reduction in overhead costs by US$5 million. Cumulative annual savings from the reduced operation costs will be essential in reinvesting in profitable areas of Maidenform’s market.

The Restructuring Steps

The company plans to start the restructuring by exiting all unprofitable business segments it has previously dealt in. The exit will focus on the segments that require considerable resources but return little or no profit (Marian, 2013). One of the unprofitable segments is the Charm brand. This would lead to the closure of its 10 retail outlets. The next step in the restructuring process will be the reallocation of resources saved from the closed ventures to the remaining key ventures. After this, the company will engage in increased marketing to boost the Maidenform brand. It will also consolidate all departmental store shape-wear designs under the umbrella Maidenform brand. The restructuring will also include an introduction of a full figure lingerie brand within the year’s fourth quarter. The initial design will include four new styles. Market research shows that Maidenform has a market opportunity in about 40 percent of the market that is dependent on full figure lingerie. The company forecasts an increase in revenue by about US$ 30-40 million for 2014. This strategy will be coupled with a reduction in SKUs by 20 percent before the completion of the trading period. It intends that the SKU reduction lead to efficient brand management. The company forecasts that through careful sustenance, SKU productivity will increase by 25 percent. This will also lead to reduction in its markdowns and significant improvement on its inventory turns. Maidenform also plans to fund the renewed branding via the reduction of overhead costs. The reductions will occur in the company’s supply chain. The restructuring plan includes expansion into Canada, Mexico, South Korea and Germany.

Benefits of the Restructuring to Maidenform

The restructuring will result in reduced operating costs. Its plan to reduce spending on its supply chain will ensure the company achieves this. Cost reduction ensures sustainable economic interests (Griffin, 2003). The restructuring also ensures that Maidenform readjusts according to the market changes. Its decision to focus on additionally developing a full figure outfit is in line with readjustments. Failure to readjust might lead to future losses. All progressive companies in extremely competitive markets have to develop in order to stay afloat (Lanmin and Xianfeng, 2012). In the European Union, previous restructuring plans in the telecommunications industry have ensured that market performance increases and the companies enter into new markets (Siengthai and Pinprayong, 2012). Therefore, Maidenform’s restructuring plan will also ensure that it prepares against its competitors.

Apart from the reduction in operating costs, Maidenform will realize increased revenue in the long term. The restructuring plan focuses on the closure of low profit segments of the company. This ensures a focus on the more profit sections leading to an overall increase in profits. The 2008 restructuring of the Detroit motor vehicle companies Ford, Chrysler and General Motors ensured a return to profitability (Siemiatycki, 2012). Additionally, Maidenform’s restructuring ensures that it maintains a huge market share. Its market research that points towards the need of full-bodied lingerie amongst 40 percent of its customer ensures that it readjusts according to customer needs. An example is the Ford EU restructuring that included the launch of a new car model in addition to the market segment expansion (Siengthai and Pinprayong, 2012). Additionally, Maidenform’s decision to reduce SKUs will result in streamlined operations and a more efficient inventory system. Finally, Maidenform’s decision to venture into Germany, Canada, Mexico and South Korea ensures that it develops global competitiveness (ICSI, 2013).

Negative Effects of Restructuring

The restructuring might lead to negative publicity due to the potential for causing unemployment. The closure of 10 different outlets is wont to cause a considerable number of unemployed parties. In a survey carried out by Wahab (2012) on oil and gas company employees after a restructuring process, the employees were interested in the company’s commitment in minimizing demotivation and reduced performance levels. Such are the effects that Maidenform should avoid. On the other hand, Maidenform’s decision to reduce its SKU may lead to reduction in visits by potential customers to its shops. The recent decision by Wal-Mart to reduce its SKUs via the removal of low sales items is an appropriate example in this case. In doing so, Wal-Mart ignored the customer visits that the removed products occasioned (Ray, 2010). These customer visits could lead to the purchase of other products. The implementation of the restructuring plan would also determine Maidenform’s success. A poorly implemented concrete plan is much worse than a well-implemented ordinary plan (Schweber, 2002). Therefore, poor implementation of the restructuring plan will result in financial failure. The expansion into international markets may entail the training and hiring of new staff. This leads to additional costs. The company will also have to adhere to new market regulations. This would require that Maidenform acquire additional administrative resources.

Effect on Global Markets

Maidenform’s restructuring is wont to affect the global market since it intends to move into other countries. The first problem it would face is to establish its brand identity. This is a problem faced whenever an equivalent product exists in the country of destination. Marks & Spencer failed to launch into the American market due to intense competition (Case Study, 2010). Maidenform will not have a profound impact on the global market due to the existence of other apparel providers. If anything, Maidenform’s restructuring will mostly affect it internally. The expansion into the international market may lead to increased losses. Tesco suffered a loss in its American maiden year (Case Study, 2010). The rebranding portion of Maidenform’s restructuring may result in a better outlook in international market. The choice of including a full-bodied outfit in the new product range may increase its international market share. Such was the case where employee activity in GM’s American operations served as an example for workers in other jurisdictions (Siemiatycki, 2012). Another setback would occur in the form of language and other institutional barriers. In a previous feasibility service, Hedge-Square Consultants found that their client was wary of language barriers (Slideshare, 2013). On the other hand, the company had to comply with international law as well as local Acts in the countries of destination. Maidenform is not exempt from this as it has to comply to all regulations in the countries it intends to operate in.

Total Impact of Maidenform’s Restructuring Plans

Maidenform stands to increase its long-term profitability by changing from underperforming segments to concentrate on profitable segments only. The reduction in cost will provide more finances for aggressive marketing and market expansion. Maidenform stands to benefit, although not in the current financial year of implementation. As stated previously, the plans are long term and Maidenform will do well to implement them effectively. A significant example is the EU telecommunication industry. Previous restructuring plans in the industry have ensured that market performance increases and the companies enter into new markets (Siengthai and Pinprayong, 2012).

References

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ICSI (2013). Corporate restructuring and insolvency. Retrieved 13 March 2013 from www.icsi.edu

Lanmin, G. and Xianfeng, Y. (2012). The motive of enterprise restructuring and risk prevention. Management Science & Engineering. 6 (2), pp. 158-161. DOI:10.3968/j.mse.1913035X20120602.3710.

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