1 Net Impact Case CompetitionOctober 29, 2005 Recommendations for BloomingShoes Corporation Aaron Cohen Chris Cox Eric Harris Kanika Mittal.

1Net Impact Case Competition October 29, 2005

Recommendations for BloomingShoes Corporation

Aaron Cohen

Chris Cox

Eric Harris

Kanika Mittal

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Agenda

• Introduction

• Problem Statement

• Comparison of Nike and Reebok

• Recommendations

• Summary and Conclusions

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Introduction

• In 1993, Nike (32%) and Reebok (21%) are the industry leaders

• Growth is slowing – peaked in 1990

• Consumers are becoming more price sensitive

• Manufacturing – subcontractors in Asia

• Worker exploitation and human rights are continuing issues

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Problem Statement

• How can BloomingShoes address human rights issues and still remain profitable?

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Human Rights Statements for Nike and Reebok

Nike, Inc.Memorandum of Understanding (01/1993)

• “(Subcontractor/supplier) certifies compliance with all applicable local labor government regulations…”

• “(Subcontractor/supplier) certifies compliance with all applicable laws…”

• “(Subcontractor/supplier) certifies compliance with all applicable local environmental regulations…”

Reebok International, Ltd.Human Rights Policy (11/1990)

• “Reebok encourages free association…”

• “Reebok will seek to ensure that opportunities for advancement…”

• “Reebok will seek to prevent compulsory political indoctrination…”

• “Reebok affirms that it deplores the use of force against human rights.”

Nike’s Memorandum of Understanding relies on the laws, policies and regulations of local governments, which, according to AAFLI’s Jeffrey Ballinger, do not protect workers. Nike’s Memorandum fails to suggest, emphasize or reinforce Articles 23 through 25 of the United Nations Universal Declaration of Human Rights.

Reebok looked to the U.N. Universal Declaration of Human Rights for guidance; however, the language used in the final version of its Human Rights Policy is only suggestive. While Reebok encourages, seeks and affirms to improve working conditions, they impose no direct requirements or stipulations on suppliers.

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Recommendations

1. Labor Practices

- Improve Practices

- HR Organizations

- Local Auditors

- Strengthen Human Rights Language

2. Marketing

- Branding “Fair Trade” shoes, upscale brand

- Industry Initiatives to raise awareness

- Public

- Industry

3. Financial Implications and Schedule

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Recommendations

1. Labor Practices

2. Marketing

3. Financial Implications and Schedule

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Declaration of Human Rights

“…do or do not…

there is no try”

Yoda, The Empire Strikes Back

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Suggested Human Rights Statement

BloomingShoes’ Human Rights Declaration

• Everyone has the right to employment, and BloomingShoes will only work with business partners that provide just and favorable working conditions and protection for its employees.

• Every worker has the right to equal, fair and favorable pay, and BloomingShoes will only work with business partners that guarantee equal pay for equal work, which provides the worker and his/her family a dignified existence.

• Everyone has the right to rest and leisure and participation in organizations that project and protect their interests, and BloomingShoes will only work with business partners that provide reasonable limitation of working hours and the formation of unions.

• Everyone has the right to an adequate standard of living, including the health and well-being of the family, and BloomingShoes will only work with business partners who protect mothers and children and work with local governments to continually improve the wage and social services available to workers.

BloomingShoes’ Human Rights Declaration should enforce and extend the United Nations’ Universal Declaration of Human Rights and should proactively encourage business partners to work with local governments to improve the lives of its citizens through favorable working conditions, favorable and increasing wages, the betterment of social services and improvements in human rights and environmental policies.

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Recommendations

1. Labor Practices

2. Marketing

3. Financial Implications and Schedule

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Marketing - Branding

Recommendations:

1. Launch “Liberty” brand Fair Trade shoes

2. Improve human rights standards for all brands

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Marketing - Branding

• “Liberty” Fair Trade Shoes – name appeals to:

-Pro-American consumers

-International/global minded consumers

• Great quality, price control and great profits are not dependent on bad labor conditions.

• Upscale shoes to contribute towards the cause of Fair Trade across the globe.

• Feel good about your shoes:

“Every shoe bought helps bring a smile somewhere in the world.”

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Efforts Towards Our Branding

• Advertise the fact that we have full-time, local auditors reporting directly to us at each of our suppliers.

• Invite ILRERF, FIA & AALFI to participate in our addressing the issues of labor exploitation in many such situations.

• Offer exclusive, high-quality shoes for those who want to help suffering people the world over. A percentage of revenues will be spent on workers.

• Have visibility in all government census surveys and trade reports.

• Target a ‘specialized niche’ – the semi casual work place shoes, since statistics predict a rise in this category, as more and more workplaces are switching to casual dress codes.*

• Invite Human Rights Activists to visit factories annually.

Source: *www.infomat.com/information/ research/industry/Reports/USA_Footwear.html

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Marketing - Industry Initiatives

• Raise Awareness

- Encourage public concern

- Force competitors to meet Human Rights standards

• Utilize Organizations

- Athletic Footwear Association

- Sporting Goods Manufacturers’ Association

- Asian-American Free Labor Institut

- International Labor Rights Education and Research Fund

- United Nations

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Marketing - Awareness

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Marketing - Awareness

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Marketing - Awareness

This is the type of publicity that we want to avoid.

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Recommendations

1. Labor Practices

2. Marketing

3. Financial Implications and Schedule

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Financial Analysis

Nike & Reebok Cost of Sales Yearly Percentage of Revenue

50%

52%

54%

56%

58%

60%

62%

64%

1991 1992 1993 1994 1995 1996

Year

Sel

lin

g &

Ad

min

% o

f R

even

ue

Nike

Reebok

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Financial Analysis

Nike & Reebok Selling Costs Yearly Percentage of Revenue

0%

5%

10%

15%

20%

25%

30%

35%

1991 1992 1993 1994 1995 1996

Year

Sel

lin

g &

Ad

min

% o

f R

even

ue

Nike

Reebok

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Financial Analysis

Increase in Number of Chinese and Indonesian Workers Above Poverty Line

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1994 1995 1996

Year

Nu

mb

er o

f C

hin

ese

and

In

do

nes

ian

s A

bo

ve P

ove

rty

Lin

e

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Implementation Schedule

Quarter Two

Testing & Market Research

Implementation Plan – QTR 1&2Strategy

• Raising awareness on human rights issue.

• Establish importance of fair trade shoes.

• Emphasis on quality and competitiveness.

• Draw attention towards our specialized niche product.

• TV commercial• Consultative sales on

major shoe stores.• Print campaign in all

major business journals, women’s magazines and newspaper dailies.

• Sponsorships of events on radio and presence in trade shows

Strategy Implementation Plan- QTR 3 & 4

• Aggressive push into the markets.

• Increasing the dealer network.

• Advertise about margins to business to business world.

• Establish which markets are more responsive than others.

• Structure and train sales force towards consultative sales.

• Incentive for dealers and sales force.

• Press conferences, towards human rights.

• Human rights activists to visit our factories with media coverage.

• MR - 1st round to be completed by March 15th 1993

• 1st review of strategy – May 20th 1993

• TV ads – August 1993.

• 2nd market survey - September 1993.

• 2nd review - November 1993

Quarter Four

QuarterOne Quarter

Three

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Summary and Conclusions

1. Labor Practices

- Improve Practices

- HR Organizations

- Local Auditors

- Strengthen Human Rights Language

2. Marketing

- Branding “Fair Trade” shoes, upscale brand

- Industry Initiatives to raise awareness

- Public

- Industry

3. Financial Implications and Schedule

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