Bachelor of International Sales and Marketing Management

Professionsbachelor International Handel og Markedsfring

Wrth Danmark

Written exam 1st semester / Skriftlig eksamen 1. Semester

5th January 2016 / 5. januar 2016

8.30 - 14.30
The background for a companys sales

Virksomhedens salgsgrundlag

This examination paper consists of 4 assignments. For grading purpose, the

assignments are given the following approximate weights

Dette opgavest bestr af 4 opgaver, der indgr i bedmmelsen af den samlede

opgavebesvarelse med flgende vejledende vgte:

Assignment 1/Opgave 1: 40 %

Assignment 2/Opgave 2: 20 %

Assignment 3/Opgave 3: 20 %

Assignment 4/Opgave 4: 20 %

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 Bachelor of International Sales and Marketing Management
Professionsbachelor International Handel og Markedsfring

Contents

Assignments (English) 3

Opgaver (dansk) 7

The Wrth Group 11

Wrth Denmark A/S 12

Vision and Mission 12

Wrth Danmark and work wear 13

Lee Cooper work wear 15

Industry competitors and competitive environment for work wear Denmark 17

Customers and market requirements 19

The Wrth Group at a Glance 21

Operational Units 21

Scandinavia 22

Consolidated Statement of Cash Flows 23

Notes to the Consolidated Statement of Cash Flows 24

Consolidated Value Added Statement 24

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 Bachelor of International Sales and Marketing Management
Professionsbachelor International Handel og Markedsfring

Assignments (English)
Assignment 1 (40 %)

Based on the performance of the work wear market so far and the belief that there is an
untapped potential and position within this market, Wrths marketing manager, Morten
Vejgaard, contemplates how work wear can obtain a larger strategic position in the set-up
of Wrth Denmark.

1.1.

Evaluate the market situation for work wear in the Danish market, and propose how the
customer base can be segmented. Your segmentation must include an analysis of the
buying behaviour of the segments.

1.2.

Analyse Wrth Denmarks business model and discuss how a launch of Lee Cooper work
wear on the Danish market through Wrths organisation will influence the business model.

Assignment 2 (20 %)

Please consider which strategic Supply Chain/Sourcing factors you think the management
of Wrth Denmark A/S could have attached importance to in connection with establishing
the strategic partnership with Lee Cooper on work wear. Present your considerations in a
structured manner. You must explain why and how these factors are relevant for Wrth
Denmark A/S.

Assignment 3 (20 %)

Question 3.1 (6%)

When introducing Lee Cooper work wear, Wrth would like to make a large campaign
comparing Lee Cooper work wear with products from the three competitors Mascot A/S,
Kwintet A/S and Hultafors A/S. In the campaign, Wrth would like the Lee Cooper work
wear to be presented in a very positive way - and to the extent possible make a negative
impression of the competitors.

What legal considerations should Wrth be aware of when making this campaign?

Question 3.2 (4%)

Wrth has 5 employees with much experience in selling work wear and a high degree of
knowledge of the potential customers. Based on this Wrth would like to make sure that

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Professionsbachelor International Handel og Markedsfring

the mentioned 5 employees will not leave Wrth during the introduction of the Lee Cooper
work wear.

What would you suggest Wrth to do?

Question 3.3 (10%)

Wrth managed to sell a large quantity of Lee Cooper work wear to a Danish company in
the construction industry, Quality Buildings A/S. According to the contract delivery had to
be made on 4 January 2016.

In order to be able to deliver the above, Wrth orders the relevant quantity of work wear at
the Chinese producer of Lee Cooper work wear.

It was agreed that the work wear should be delivered from the Chinese producer Incoterms
2010 DDP Kolding no later than 27 December 2015. The work wear was packed and
shipped from China 5 December 2015.

When the work wear had not arrived in Kolding on 28 December 2015 in the morning,
Wrth started to worry and contacted the Chinese producer to find out why the work wear
had not arrived as planned.

It turned out that there had been some engine problems on the ship and therefore the ship
with the work wear did not arrive in Kolding until 2 January 2016.

On the 30 December 2015 the Danish customer Quality Buildings A/S filed for bankruptcy
and informed Wrth that they would not be able to live up to their responsibilities
according to the contract.

Based on this Wrth is no longer interested in receiving the shipment from China.

Can Wrth cancel the contract with the Chinese producer?

Both Denmark and China joined the CISG.

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 Bachelor of International Sales and Marketing Management
Professionsbachelor International Handel og Markedsfring

Assignment 4 (20 %)

Question 1 (5%)

Calculate the ratios for profitability for the Wrth Group for the three latest financial years
based on the financial figures from the case and analyse the development with reference to
the case text.

Question 2 (6%)

You have been asked to prepare the necessary work for decision-making regarding the Lee
Cooper work wear which is expected to be sold to two selected B-B customer segments.

Your calculations should be based on the following assumptions:

Sales price per unit DKK 400, material costs per unit DKK 64 and labour costs per unit DKK
128. The customer segment A is expected to purchase 800 units whereas customer
segment B is expected to purchase 1,200 units.

In Wrth, the contribution to indirect expenses makes up 46% of the sales price.

Calculate the result before interest of the expected sales.

Question 3 (9%)

Based on the expected sales to the two customer segments, Wrth finds that the
expenditure of indirect costs could deviate from the general 46%. They therefore consider
an ABC system.

The indirect costs should be allocated in accordance with the ABC system based on the
following assumptions:

Activities Activity cost driver Total activity cost Total annual costs
drivers

Set up machinery No. of set ups 20 6,000

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Sewing and assembly No. of hours 2,000 200,000

Packaging No. of products 2,000 100,000

Delivery to No. of deliveries 20 62,000

customers

Per customer Customer segment A Customer segment B

No. of set ups 10 10

No. of hours 800 1,200

No. of products 800 1,200

No. of deliveries 5 15

Calculate and evaluate the profitability of each customer segment.

Explain the reasons for the differences in the indirect costs for the two customer segments
and give suggestions for how to decrease these costs.

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Professionsbachelor International Handel og Markedsfring

Opgaver (dansk)

Opgave 1 (40 %)

Baseret p den historiske performance p markedet for arbejdstj og opfattelsen af et

uudnyttet potentiale og position inden for dette marked, overvejer Wrths marketingchef
Morten Vejgaard, hvordan arbejdstj kan f en strre strategisk betydning i Wrth
Danmarks set-up.

1.1.

Du bedes vurdere markedssituationen for arbejdstj p det danske markedet, og give dit
forslag til segmentering af kundegrundlaget. Segmenteringen m gerne indeholde en
beskrivelse af segmenternes kbsadfrd.

1.2.

Analyser Wrth Dannmarks forretningsmodel og diskuter hvordan en lancering af Lee

Cooper arbejdstj p det danske markedet gennem Wrths organisation, pvirker
forretningsmodellen.

Opgave 2 (20 %)

Du skal komme med dine strukturerede overvejelser om, hvilke strategiske Supply
Chain/Sourcing faktorer ledelsen i Wrth Danmark A/S kan have lagt vgt p i forbindelse
med det strategiske partnerskab med Lee Cooper p arbejdstj. Du skal begrunde, hvorfor
og hvordan faktorerne er relevante for Wrth Danmark A/S.

Opgave 3 (20 %)

Opgave 3.1 (6%)

I forbindelse med Wrths introduktion af Lee Cooper arbejdstj nsker Wrth at lave en
stor markedsfringskampagne, hvor Lee Cooper arbejdstj sammenlignes med produkter
fra tre konkurrenter; Mascot A/S, Kwintet A/S og Hultafors A/S. I kampagnen vil Wrth
gerne sikre, at Lee Cooper arbejdstj prsenteres p en meget positiv mde - og i det
omfang det er muligt give et negativt indtryk af konkurrenterne.

Hvilke juridiske overvejelser skal Wrth vre opmrksom p i forbindelse med

udarbejdelsen af kampagnen.

Opgave 3.2 (4%)

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Wrth har 5 medarbejdere med srlig erfaring inden for salg af arbejdstj og med en hj
grad af kendskab til potentielle kunder. P denne baggrund vil Wrth gerne sikre sig, at
disse 5 medarbejdere ikke forlader Wrth i den fase, hvor Lee Cooper arbejdstj skal
introduceres.

Hvad kan Wrth gre?

Opgave 3.3 (10%)

Det er lykkedes Wrth at slge et stort parti Lee Cooper arbejdstj til en dansk virksomhed
i byggebranchen, Kvalitetsbyggeri A/S. Iflge kontrakten skal der ske levering den 4.
januar 2016.

For at vre i stand til levere ovenstende bestiller Wrth den relevante mngde arbejdstj
hos den kinesiske producent af Lee Cooper arbejdstj.

Det er aftalt, at den kinesiske producent skal levere arbejdstjet DDP Kolding, Incoterms
2010 senest 27. december 2015. Arbejdstjet blev pakket og afsendt fra Kina den 5.
december 2015.

Da arbejdstjet ikke var ankommet til Kolding om morgenen den 28. december 2015 blev
Wrth nervs og kontaktede den kinesiske leverandr for at finde ud af, hvorfor
arbejdstjet ikke var ankommet som planlagt.

Det viste sig, at der havde vret nogle motorproblemer p skibet og som flge heraf nede
skibet med arbejdstjet frst frem til Kolding den 2. januar 2016.

Den 30. december 2015 indgav den danske kunde Kvalitetsbyggeri A/S konkursbegring
og Wrth modtog meddelelse om, at virksomheden p denne baggrund ikke kunne leve op
til sine forpligtelser jf. den indgede kontrakt.

P denne baggrund nskede Wrth ikke lngere at modtage varerne fra Kina.

Kan Wrth hve kontrakten med den kinesiske producent.

Bde Danmark og Kina har tilsluttet sig CISG.

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Opgave 4 (20%)

Sprgsml 1 (5%)

Beregn ngletal for rentabilitet for Wrth koncernen for de tre seneste regnskabsr p basis
af regnskabstal opgivet i casen og analyser udviklingen med henvisning til caseteksten.

Sprgsml 2 (6%)

Du bedes udarbejde et beslutningsgrundlag vedrrende Lee Cooper arbejdstj, som

forventes at blive solgt til to udvalgte B-B kundesegmenter.

Dine beregninger skal foretages p basis af flgende forudstninger:

Salgspris per styk 400 kr., materiale omkostninger per styk 64 kr. og arbejdsln per styk
128 kr. Kundesegment A forventes at kbe 800 styk mens kundesegment B forventes at
kbe 1.200 styk.

I Wrth arbejder men med, at bidraget til de indirekte omkostninger udgr 46 pct. af
salgsprisen.

Beregn resultatet fr renter ved den forventede afstning

Sprgsml 3 (9%)

Wrth finder, p baggrund af den forventede afstning til de to kundesegmenter, at

forbruget af indirekte omkostninger kunne afvige fra de generelle 46 pct., derfor overvejes
en ABC betragtning.

De indirekte omkostninger fordeles efter ABC system efter nedenstende forudstninger:

Aktiviteter Aktivitets kost driver Samlede antal Samlede rlige

omkostninger

Maskinopstning Antal opstninger 20 6.000

Syning og samling Antal timer 2.000 200.000

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Professionsbachelor International Handel og Markedsfring

Emballage Antal produkter 2.000 100.000

Levering til kunder Antal leveringer 20 62.000

Opdelt p kunder: Kundesegment A Kundesegment B

Antal opstninger 10 10

Antal timer 800 1.200

Antal produkter 800 1.200

Antal leveringer 5 15

Beregn og vurder lnsomheden for hvert kundesegment.

Forklar rsager til forskelle i de indirekte omkostninger for de to kundesegmenter, og giv

forslag til hvorledes disse kan reduceres.

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The Wrth Group

Adolf Wrth founded Wrth in 1945, and even today, Wrth is a family owned business,
where the supervisory board consists of Wrth family members.

Today, the Wrth Group is represented in more than 80 countries, and counts for more
than 400 companies. The group occupies globally approximately 65,000 employees,
whereas around 30,000 of these are occupied in sales. The most recent figures for the first
half of the business year 2014 showed that the Wrth Group generated a total sale of
approximately EUR 5 Billion.

The expertise for the group lies in supplying materials and tools for the metal, auto, wood,
industry and construction divisions on the market.

Wrth Group global representation

Quality beats price is the saying at the Wrth Group. There is a common understanding
within the organisation that the best possible way to engage the market is by offering
premium priced products. This common understanding, combined with a decentralized

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structure and a multi domestic strategy, results in a broad approach to the market, where
the more than 400 Wrth companies are able to react in flexibility to any of the
requirements and needs the local market demands.

Wrth Denmark A/S

Wrth Denmark A/S was founded in 1965, as the sixth in line in the Wrth Group. The
company was and has, since then, been located in Kolding. Wrth Denmark started off the
business in Denmark with occupying only two sales-employees and the CEO Ernst Clausen.
Today the company in Denmark have more than 500 employees, whereof 300 are employed
in serving the approximately 30,000 customers.

The product-portfolio consist of more than 20,000 products, and where the Wrth Group
empowers the individual company to react to market conditions, Wrth Denmark has
specified the core business to be within:

Auto
Metal
Wood and building
Maritime-offshore
Public customers

Therefore, the company has been organized according to the mentioned categories, each
with specified employees in the specific business. An example of this could be that the
sales person occupied in the wood market, would have former experience as a carpenter.

The products and services are made available for the customers through Sales
representatives, Wrth stores and web shop.

Vision and Mission

The following statement is the chosen and pursued vision at Wrth Denmark:

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We want to be the best to free resources and add competences to the businesses of our
customers

The vision focuses on reducing customer time, money or resources in general, with the
purpose of optimizing the process and operations for the customers, by offering a product,
concept or service that makes this possible.

The way the vision is achieved, can partly be justified by the chosen mission objectives,
Wrth Denmark has formed.

- Society: Wrth Denmark will show commitment both locally and nationally.
This will happen in forms of contribution to societys financial, cultural, social,
environmental end educational conditions.

- Customers: Wrth Denmark wishes to be an innovative and attractive

partner, in terms of doing business with customers. This will happen through
stable relations and agile customer adaption.

- Suppliers: Wrth Denmark wishes to be an innovative and attractive partner,

in terms of doing business with suppliers. This will happen through strong
supplier relations, and common knowledge sharing, in order to optimize
performance.

- Employees: Wrth Denmark seeks to be an attractive company to work for.

This is achieved through being focused on the conditions in the working-
environment that sustain and develop presence, well-being, cooperation and
community for the employees.

Wrth Danmark and work wear

Wrth Denmark A/S is today present on the Danish work wear market with their own Wrth
branded assortment of jacket, jacket vests, safety jackets, T-shirts, trousers, shoes and
socks.

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Wrth Denmark has for a decade offered work wear to its customers, located in the
different segments; however, this has not been within the strategic target scope of doing
business at the company, and the product category has not been given very much
attention. Several attempts to improve their position on the work wear market have been
implemented, but due to low priority of resources for sales and marketing, results has not
been satisfactory. The sales force is an important part of the actions, and since each sales
person has a broad and complex range of products and services to handle, little attention
has been given to the work wear assortment from the sales force perspective.

Based on the historic performance on the work wear market, Wrth Denmark management
sense an unexploited potential within this field of business, and wants to develop a
strategy and actions plan with the objective of strengthening their position on the work
wear market.

Wrth Danmark is considering initiating a strategic cooperation with Lee Cooper work wear,
where Wrth Danmark launch Lee Cooper work wear on the Danish market through their
existing sales and distribution system.

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Lee Cooper work wear

Lee Cooper was established in 1908 in London, England, by Morris Cooper, and the main
reason was to produce work wear using denim material. When the First World War started,
Lee Cooper changed his main profile and, based on the success of their work wear clothes,
they started to supply military uniforms to the army. This helped Lee Cooper to increase its
reliability and trust among the customers. In 1931, Lee Cooper become famous because of
their so-called Navy clothes, which included not only jeans and jackets, but work wear as
well. In 1950, they started to manufacture hardwearing clothes that were more durable than
any other competitors product in the market. With this development, they reached 80% of
the UK market.

In 2014, Lee Cooper had 49 global partners in worldwide. Latest markets entered are
Ireland, Estonia and Lithuania, and right now, the entire Lee group is selling its products,
including the work wear line, in more than 100 countries. All over the world, Lee Cooper has
about 500 branded stores. 2010 was the official year when Lee Cooper started to produce
work wear, as we know today, including lines as footwear, headwear, luggage, underwear,
safety shoes, stylish and wide selection of shirts and trousers for construction workers. The
company offers high quality, great value, affordable price and an overall reliability for its
customers. Lee Cooper is a 100% licensing company, throughout Europe, the Middle East,
Asia Pacific and Central America. This means that the partner companies that sell and
distribute Lee Cooper work wear in the markets, pay Lee Cooper a licensing fee for the
exclusive right to distribute and sell the products on the specific markets.

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Professionsbachelor International Handel og Markedsfring

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Professionsbachelor International Handel og Markedsfring

Industry competitors and competitive environment for work wear Denmark

The work wear market in Denmark is characterised by approximately 15-20 suppliers of

work wear. Among these, the three biggest and most powerful suppliers are Mascot A/S1,
Kwintet A/S2 and Hultafors A/S3.

Mascot has a market history that goes 30 years back in the industry, and manufacturing
and selling work wear is the companys primary objective. The target segments for Mascot
can be found in the building and industry segments where they in 2013 generated a
turnover of approximately 518 million Danish kroner. Mascot has recently acquired
production facilities in Laos and Vietnam where they approximately produce the 17,000
products in their portfolio. The main market for Mascot is found in the western part of
Europe, where the primary sales channel is the DIY stores such as Bygma, Silvan, XLbyg and
similar stores. With 4 showrooms located in various areas of Denmark, Mascot are also
moving their focus to the e-commerce business. Recently a website with the order-function
called Smartstore was introduced, enabling the customer to order a tailor made solution
with individually packed products for the single employee. In addition, Mascot also has a
number of external sales representatives that visit the customers regularly and make sure
that the presentation in the stores is acceptable. The main differentiation focus of Mascot is
that they apply a tested-to-work statement, which promises that their products are tested
to the conditions that they will primarily be in. Other areas of differentiation are that
Mascot has a lot of focus on their CSR and code of conduct since they are producing in
foreign countries where ethics pose a great deal (Mascot.dk, 2014).

Kwintet A/S is a company mainly focusing on large customers such as equipping an entire
organisation with work wear for all departments or for example, public customers. The
company refer to themselves as the European leader in professional wear 2.

1 http://www.mascot.dk
2 http://www.kwintet.dk

3
http://www.hultafors.dk

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Kwintet had in 2013 a turnover of approximately 267 million Danish kroner in the Danish
market, and the primary differentiation focus for the company is that they have suppliers to
cover every need on the market. The most popular brand Kwintet owns is called Fristads-
Kansas and has a long history in the Danish market where it for some people is considered
a synonym for work wear.

Even though Kwintet has focus on the larger customers, they do still use DIY (Do It
Yourself) stores as distribution channels. The brand Fristads-Kansas can be found in
Bygma, STARK, Silvan and many other DIY stores. Kwintet is a member of the Fair Wear
Foundation4, which ensures that the products have been produced with a good ethics
(Kwintet.com, 2014).

The Hultafors Group A/S is the owner of the company and brand Snickers, which has been
on the Danish market for the last 35 years. All products of Snickers are distributed from a
centralised warehouse in the Netherlands with an approximate order count of a 1000 per
day to 7000 distributors located around in Europe. In Denmark, Snickers has 239
distributors located. The distributors are stores such as Lemvigh-Meller, STARK, Bygma
and other DIY stores. Next to this, the Snickers products are offered in 8 different e-
commerce shops. In the presentation of the products, Snickers draws a lot of attention to
the use of co-branding such as Gore-Tex, Cordura, Windstopper (Snickerswork wear.dk,
2014).

Besides the mentioned competitors we find approximately 15 other companies producing

and distributing in the Danish market. The basic information gained about all competitive
companies is that they deliver variable services such as logo-print, washing service, flexible
delivery and rental of the work wear.

The level of rivalry is high and the three main competitors mentioned are well established
on the market with some competitive elements of differentiation. Moreover, they seek to
cover every corner of the market with the use of either sales representatives, physical
stores or e-commerce business.

4 http://www.fairwear.org

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Customers and market requirements

Work wear is the clothing worn by employees in various industries. It varies between
industries; for instance, work wear used in an industrial manufacturing facility is different
from the one used in a corporate office. The former is usually made of polycotton, as it
needs to be durable and cost effective and have functional qualities. On the other hand, as
the latter is generally used for representative purposes, more emphasis is given to its
design or model. Earlier, work wear was considered only as an accessory in a workplace;
however, now, it has transformed into an essential component. Companies consider work
wear essential for various purposes, such as the following

Prevent soiling of personal clothes

Corporate branding

Employee identification

Promotional activities

Safety aspects

The customers have a wide range of suppliers to choose from, and decision criteria and
preferences vary significantly between segments of customers. Customers in search for
work wear for their employees have several options for sales channels and suppliers
/brands. DIY stores sell a variety of branded products within the whole range of work wear
products, and they can order products directly from the suppliers sales representatives or
web shops. There is a wide range of product attributes that the customers might consider
in the buying process, for example price, safety, functionality, design and style, branding,
delivery terms and conditions, and there are also considerable differences in which of the
attributes that are weighted most relevant and important.

The buying and decision process depends on size of company (number of employees that
needs work wear), general strategy (for example differentiation or cost leadership), type of
usage of the work wear, business segment, and several other factors.

However, the financial crisis, which started in 2008, and was followed by slow economic
growth in Denmark and Europe in general, has increased customers focus on price and
value for money.

The increasing cost of production operations has prompted many manufacturers to shift
their bases to low-cost countries. This has reduced the manufacturing operations in

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Western Europe significantly. Hence, the number of workers, especially the users of blue
work wear, is declining steadily in Western Europe. This is a major restraint for the growth
of the total Western European work wear market.

Clothing constantly undergoes changes in designs and material types, influenced highly by
the fashion trends of the given time. These trends influence the work wear market. In
addition, the color preferences of employees, preference for work wear that will be
appropriate for both formal as well as casual occasions and the functional needs of work
wear, are constantly changing and driving the product innovation in the market. Examples
of some of employees preferences include the need for additional pockets, resistance of
the clothing material to fading due to repeated washing and so on. In addition, a recent
trend is to provide more protection in areas that are prone to wear and tear, such as knees
and elbows. Hence, due to the changing needs of consumers, there is a constant demand
for new types of work wear. This is driving work wear manufacturers to focus on innovation
in order to fulfil the needs of their consumers. Innovations in the marketplace are achieved
in different forms such as change in designs of work wear or type of material used. Focus
on innovation drives the demand for work wear; this acts as a driver for the overall western
European work wear market.

Work wear needs of each and every customer vary largely. Therefore, the manufacturers of
work wear need to have sufficient stock keeping units (SKU) to ensure consistent supply to
different customers. To ensure availability of products, work wear manufactures need to
maintain a minimum number of garments in inventory for each SKU. For many leading work
wear companies, inventory turnover ratio is only 3.75 to 4.0. Major challenge for work wear
companies is to add customers, through organic or inorganic means, without affecting the
inventory turnover ratio.

Many of the leading work wear companies have established manufacturing locations in the
Far East (China, Vietnam, India etc.), Africa (Tunisia, Morocco etc.), and Eastern Europe
(Poland, Slovakia, Hungary etc.) in order to reduce manufacturing cost of products.
However, this led to increase in lead-time, which has resulted in the need for maintaining a
manufacturing location near to the customer. This has increased the complexity of
sourcing, and the work wear companies have to devise processes to overcome this
challenge.

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