Kurt Salmon Associates KSA Sample Case

Management Consulting Case Interviews

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KSA Example Case

Alpha Sporting Goods

650 Fifth Ave.New York,

NY

10019T

212.319.9450

W www.kurtsalmon.com

Fall 2009 | MBA Case

OutlineIntroduction to KSA’s Interviewing Process

2

Case Introduction

4

Formulate Hypotheses

5

Section 1: Assessing Alpha’s Historical Performance

7

Section 2: Determining Industry Attractiveness

9

Section 3: Evaluating Assortment Optimization

11

Opportunities

12

Elevator Pitch

13

Exhibits

14

| Private and confidential—not for distribution

Introduction

The primary objectives of a case interview are to evaluate your ability to:

•

Break down a problem into manageable pieces

•

Efficiently gather, interpret and analyze relevant information

•

Use logic, knowledge and experience to develop and defend a viable solution

•

Effectively communicate: strong interpersonal skills, articulate

a point of view persuasively

•

Think under pressure

Using this case, KSA is specifically looking for these additional competencies:

•

Quantitative abilities

•

Strategic thinking

Introduction to KSA’s Case Interviewing Process


Suggested Practice Guidelines

Allocate ~30–40 minutes for case preparation

Try to simulate a real interview. Think about what clarifying questions you would want to ask

Do not use a calculator. You may use scratch paper and a writing

utensil

Show your work. Write down your thought process in short form. In the real interview, it will help your

interviewer assess the strength of your proposed approach

Throughout the case, you will see cumulative yard markers in the

bottom right‐hand corner to help you

pace yourself

When there are two minutes left of case time, stop and summarize

your findings in an “elevator pitch”

Introduction to KSA’s Case Interviewing Process


Case Introduction

Background

Our client is a middle‐market private equity firm that is thinking about investing in a growing ~$95M (2005

revenue) sporting goods and outdoor equipment manufacturer

The target company, Alpha Inc., is a diversified manufacturer of

six primary product lines

Alpha Inc. has national distribution with several major accounts

Our private equity client has hired KSA to help decide on whether or not to invest in this business

To make a reasonable return on their investment, they would need

Alpha to generate $125M in revenue by

2011, a $30M increase, or ~6% CAGR

Assignment

Our client has asked us to assess Alpha’s business and provide perspective on their ability to grow their

sales to $125MM by 2011

0–2Min


Formulate Hypotheses

Instructions to Candidate

Spend the next few minutes formulating hypotheses on what factors would lead you to make a

recommendation on the attractiveness of the investment opportunity

Think about what questions would need to be answered in order to

prove or disprove your hypotheses

Write down what information you would want to know if you were in your client’s position

2–5Min


Formulating Hypotheses


There are many possible ways to approach this case, and KSA thought the most appropriate were to review

the following:

•

Assess Alpha’s historical performance to determine the company’s growth potential and opportunities

•

Review the industry attractiveness and opportunities

•

Analyze Alpha’s product assortment in the context of their historical performance as well as the

market size

5–6Min



In Section 1, you will assess Alpha’s likelihood of achieving the required growth of ~$30M over 5 years

You should budget 10 minutes for this section

See Exhibits 1 and 2: “How would you assess Alpha’s recent performance?”

Section 1 – Assessing Alpha’s Historical Performance

6–16Min



After reviewing Exhibits 1 and 2, you should have noticed a few important aspects of Alpha’s

performance:

•

Canopies and trampolines are growing extremely well and represent over half of Alpha’s revenue

•

Body Supports is declining rather dramatically

•

The business is extremely consolidated with two customers accounting for over 66% of sales—Target and Wal‐Mart

•

Toys“R”Us and Other Customers business has declined significantly

Additional observations you should have made and questions you could have asked include:

Did you identify the volatility risk with the customer base?

Did you notice the shift in retail channel from specialty to mass retailer? What implications would you

expect as a result of this?

Does the shift in channel sales lead you to assume anything about Alpha’s brand value?

Did you comment on the product mix? Did you notice the product line that just launched?

If you haven’t done so already, write down where you would want to focus when

analyzing Alpha’s product

assortment

Did you observe that historical growth is lower than what is required by your client? (4.2% vs. ~6%)

Note any additional information you would have liked to have known had you been in a live interview

situation and had the opportunity to ask

Section 1 – Assessing Alpha’s Historical Performance

16–20Min



In Section 2, you will assess the industry attractiveness


See Exhibits 3 and 4: “How would you assess the industry dynamics of this business?”

Section 2 –

Determining Industry Attractiveness

20–25Min



After reviewing Exhibits 3 and 4, you should have noticed a few important aspects of Alpha’s industry:

•

Canopies:

Good market penetration in a moderately growing category—assuming constant share, there will be moderate

growth. Likely market leader, good line of business to serve as cash cow

•

Trampolines: Moderate market penetration in a fragmented but rapidly growing category—it seems reasonable to expect

continued high growth in the category

•

In‐Line Skates: High share in a consolidated but declining market—should identify risk of a declining market to future growth.

May be an opportunity to refine products to better meet consumer

demand

•

Skateboards: High share in fragmented but stable market—minimal upside but also minimal downside

•

Body Supports: Big market with low share, and performance has been poor over past three years. Marketing is growing, so it

seems like an opportunity for improvement

•

Folding Chairs: Large market that is growing with significant potential. However, folding chairs are a commodity. Margin

pressures are probably very high

Additional questions your interviewer could have asked include:

•

Is it better to compete in a fragmented or a consolidated market?

•

Which of these lines of business seem most attractive?

•

Where should Alpha focus if it needs to grow $30M over the next 5 years? Can its current product mix support this?

•

How would you summarize the industry attractiveness for Alpha?

Note any additional information you would have liked to have known had you been in a live interview situation and had

the opportunity to ask

Section 2 –

Determining Industry Attractiveness

25–29Min



In Section 3, you have decided based on what you learned in Section 2 that the Body Supports product

category is worth exploring because of its large market size, growth potential and that Alpha’s market

share is relatively low. You want to analyze it to see if Alpha could make improvements in this area


See Exhibit 5: “What does this information tell you about the Body Supports market?”

Section 3 –

Evaluating Assortment Optimization Opportunities

29–34Min

Body Supports

0%20%

40%60%

80%100%

0 10 20 30 40 50 60

Number of SKUs

Cum

mul

ativ

e %

of

Sal

es ($

)

Exhibit 5

BODY SUPPORT SKUs(as a % of sales)



After reviewing Exhibit 5, you should have noticed a few important aspects of the Body Supports market:

•

There are a substantial number of SKUs that are not selling well

•

Perhaps the product assortment is too large; retailers are purchasing a more narrow line of products

•

More expensive to manage/maintain this breadth of SKUs (increased product development costs, higher likelihood of

inventory issues, fewer economies of scale)

•

Analysis of the SKUs should be performed to determine next steps

Additional observations you should have made and questions you could have asked include:

•

Why would retailers carry the SKUs at the tail end of the curve?

Integrated with other SKUs in the assortment (e.g., component parts)

Retailers require them as part of the product line

Traffic builders

Loss leaders

•

What other approaches did you think about to address this problem?

Examine whether SKUs can be eliminated (based on the filters above)

Replace lost sales from eliminated SKUs with increased sales of productive SKUs

Attempt to “fix”

low‐selling SKUs by improving product quality/design, addressing marketing/pricing or increasing

distribution channels (4 Ps)

Note any additional information you would have liked to have known had you been in a live interview situation and

had the opportunity to ask

Section 3 –

Evaluating Assortment Optimization Opportunities

34–38Min



You have just encountered our client in the elevator and they requested a two‐minute synopsis of our

initial findings. Should they buy this business or not? And why?

•

Be concise—put yourself in the position of the client. What information would they want to know?

•

Be sure to use quantitative information to support your recommendation

•

Be sure to include qualitative information where required

•

Be sure to take a position—Yes or No?

Elevator Pitch

38–40Min


12.9 17.16.7

15.8

9.39.4

9.6

9.7

20.726.3

31.8

33.08.2

8.19.2

15.031.3

30.128.2

19.8

2002 2003 2004 2005

Exhibit 1: Historical Sales

ALPHA INC. CONSOLIDATED NET REVENUE 2002–2005 BY PRODUCT CATEGORY($ Millions)

$82.4

$90.9$85.5

$93.2

Skateboards

Trampolines

In‐Line Skates

Body Supports

Canopies

22.2%

16.9%

1.3%

6.9%

2002–2005CAGR4.2%

(14.2%)

Note: Folding Chairs launched late in 3Q05 and generated >$500k in sales


$16.7

$82.5

$105.6 $98.6

$78.1

$39.8$0.0

$23.1

$8.2 $15.2

$20.5 $15.1

$8.2

$19.5

$4.3$23.7$3.3

$22.5 $37.6

$78.1

2002 Wal‐Mart Kmart Toys'R'Us SportsSpeciality

Target 2005

ALPHA INC. CONSOLIDATED GROSS REVENUES 2002–2005 BY CHANNEL($ Millions)

Exhibit 2: Historical Sales By Channel

$82.4

$93.2

Wal‐Mart

SportsSpecialty

Kmart

Toys“R”Us

Target


Trampolines(fragmented)

$115–$130 Million

Exhibit 3: Category Landscape

CATEGORY LANDSCAPE AND COMPETITIVE INTENSITY(Wholesale Sales $)

High>10%

Action Sports

Skate Boards (fragmented)$75 Million

In-Line Skates(consolidated)

$115 Million

Outdoor

Moderate0%–10%

Declining<0%

Body Supports

(consolidated)$267 Million

Canopies(consolidated)

$75–$130 Million

Folding Chairs(fragmented)

$130–$150 Million

Growth


Trampolines$15.0 Million

Exhibit 4: Market Position

ALPHA SPORTING GOODS MARKET POSITION(Wholesale Sales $)

High Share>30%

Action Sports

Skate Boards$9.7 Million

In-Line Skates$15.8 Million

Outdoor

Moderate Share

10%–30%

Low share/TBD(recent entry

into thesecategories)

<10%

Body Supports$19.8 Million

Folding Chairs(TBD)

Canopies$33.0 Million


Body Supports

0%20%

40%60%

80%100%

0 10 20 30 40 50 60

Number of SKUs

Cum

mul

ativ

e %

of

Sal

es ($

)BODY SUPPORTS SKUs

(as a % of sales)

Exhibit 5: SKU Analysis

Management Consulting Case Interviews

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Kurt Salmon Associates KSA Sample Case

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