PePe Jeans Case Analysis

Question 1

Option 2 with an ROI of 5 weeks and increased PBT would be the preferred alternative. (ROI financials will not not over)

Question 2

I understand the Pepe has a long standing relationship with the agent in Hong Kong. However, I would first look to see what other agents could possibly offer. I know that most Hong Kong agents are using manufacturing facilities in China. There are other agents from other country’s that can source from other Asian countries for example India, Vietnam, Thailand, etc.

Looking at other agents and other country’s Pepe may be able to use a competitive bid process to speed up delivery as well as decrease expenses.

Pepe could do nothing and keep their current arrangement with the Hong Kong Agent. Heck, their current financial picture is excellent. The negative is they could start to lose sells volume…The bigger question is if they do nothing now, how long it would take Pepe to rebound and make the manufacturing changes and operational changes to decrease lead time if they start to lose market share. I am a proponent of taking a proactive approach.

Pepe could become a manufacturer. They would need to build a manufacturing plant in the UK and move all sourcing operations to that plant. This way they will control their entire destiny. Being debt free and having a nice financial picture gives them lots of possibilities when it comes to financing this move or any changes.

I do not understand enough about the fashion world to make real good determinations. What I do know my 561 Levi’s I purchased four years ago are still in fashion today. You can go to any retail establishment and buy those same pair of jeans. With that logic – why can’t Pepe take an approach of maintaining three months of inventory in a warehouse? Sure their carrying cost will increase but there sales may increase by a lot more than 10% if they can give retailers more flexibility and ship the week an order is placed. This approach for their basic jeans seems to make sense. Maybe their “designer jeans” can have a longer lead time and build the anticipation level. However, they need to keep the highest volume jeans flowing to their customers if they do not want to lose sales.