Question

case study:

Spanx Inc.: Growth Dilemma for a Shapewear Leader

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Arpita Agnihotn and Saurabh Bhattacharya wrote this case solely to provide material for class discussion. The authors do nat intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder Reproduction of this matenal is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, lvey Business School, Westem University, London, Ontario, Canada, N6G ON1, (ty 519.661.3208, (e) cases@ivey ca; wwww.iveycases.com?

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Founded in 2000 in Atlanta, Georgia, United States, by Sara Blakely, Spanx Inc. (Spanx) had been, since its inception, a pioneer and market leader in the body-shaping hosiery and intimate apparel segment known as shapewear. Spanx shapewear was lightweight and comfortable, unlike traditional girdles and pantyhose. From Blakely's initial investment of only USS5.000, sales of Spanx quickly accelerated, reaching $250 million by 2012 and $400 million by the end of 2016. In March 2012. Forbes magazine named Blakely the world's youngest, self-made female billionaire. In the same year, Time magazine listed her among the world's 100 most influential people.

Spanx, apart from being the market leader, also became synonymous with shapewear. However, in 2012. doctors revealed several health problems associated with shapewear. Changes in cultural currents also meant that women were less interested in using shapewear to create an ideal body shape, New product categories, such as athleisure wear and activewear, were also launched by companies such as lululemon athletica Inc. and Nike Inc. These clothes were more comfortable to wear, and unlike Spanx, they could be worn on a daily basis.

Despite Spanx's market leadership position in shapewear, by 2015. the company's shapew was being ear perceived as a "tummy-tucking" commodity rather than a fashion statement. To combat these challenges. from 2015 onward, Spanx initiated a rebranding drive for shapewear and diversified into other fast-growing product categories such as athletic wear. Blakely's entrepreneurial spirit led to her being invited to appear as a motivational speaker on television shows such as Shark Tank. In May 2017. Forbes estimated that Blakely was worth S billion." However, would Spanx be able to manage sustainable growth in the product category it had created? Did Spanx need to be rebranded? Would its product diversification strategy pay off? What should Spanx have done to keep its momentum of growth moving against competitors?

BACKGROUND

The idea for Spanx struck Blakely in 1998, when she was getting ready for a party and realized she lacked the right underwear to provide a smooth look under her white pants. She cut the feet out of her panty hose, and hence the idea of footless pantyhose was born.10 Blakely also observed that other womenoften complained about the discomfort of pantyhose, which covered them from foot to waist." As a result, Blakely knew that demand for her product existed and she was ready to take the opportunity.

The core mission of Spanx was "To help women feel great about themselves and their poential,"" Before akely had sold fax machines, and she was sure that she would be able to sell her starting Spanx pantyhose as well." She started her business in one of her spare bedrooms, without any ernal financial help. Blakely explained, "Nobody gave me any money and I also really didn't understand that Iventure capitall world," further adding, "I did not understand how people raise money. know anything about the undergarment industry.

She worked during the day a a salesperson and spent her evenings at the Georgia Tech Library in Atlanta, Georgia, researching pantyhose patents after lawyers refused to file patents for her, having found her idea unusual. Finally. Blakely wrote the patents herself. She had also worked as a stand-up comedian, and that skill taught her that the letter "k" makes people laugh. Also. wellknown brand names at that time, such as the Eastman Kodak Company and Coca-Cola. contained the sound k. Thus, she decided that the company's brand name should include a prominent "k" sound. Furthermore, Blakely's research showed that constructed words were more attention-catching. and she therefore replaced the "ks" in the word "spanks" with an "x maintaining the same pronunciation but with an invented spelling.

her next challenge was to find a manufacturer of hosiery products; she had developed excellent sales. which helped her as she began contacting several hosiery manufacturers. Blakely mentioned, "I couldn't help but think of the days when my job was to cold call people in Clearwater to try and sell them fax machines and how many of them said "No, no, no.

However, just as lawyers had been skeptical about her patent, manufacturers were skeptical about making her product. However, Blakely did not shy away from asking for help:

“ I used a lot of very confident, very powerful language, but l also asked for help. If you covered up your weaknesses, I thought you missed opportunities for human nature to want to kick in. At the end of the day, the guy [manufacturerl ended up just wanting to help me. He didn't even believe in the idea.”

Finally, Blakely found a manufacturer and after a year's effort to find appropriate knitting technology, she developed a prototype. Blakely's panty hose differed from traditional pantyhose in several ways. First with her pantyhose, cellulite was not visible. Second, it did not have rubber cords in the waistbands, but waistbands that were comfortably sized. Similarly. even leg bands were absent, eliminating thigh bulge. The Spanx prototype had a cotton gusset, which provided cool wearability. instead of the typical polyester gusset. Lastly, unlike traditional pantyhose, these pantyhose did not crease the skin at the ankle. Blakely decided to call this product Footless Bodyshaping Pantyhose, which later became synonymous with the product category shapewear.

SHAPEWEAR MARKET POTENTIAL

Shape wear had been in demand as women experienced conflicts between their actual body shape a current cultural ideals Early forms of shapewear included girdles (woven garments similar to wide belts) and corsets. Between the 1920s and 1960s. many women considered wearing these garments to be essential. Corsets were used to shape the body. through a squeezing effect. sometimes reducing the waist to as little as 20 inches (50 centimetres). Consequently. corsets at times resulted in broken ribs or a reduced ability to breathe fully Gradually. corsets were replaced with control garments or control pantyhose, which adapted the concept of the corset. smoothing bulges and bumps in the abdominal area. Because of advancements in fabric technology. demand for shapewear remained h when Spanx launched its pantyhose featuring advanced fabric. which provided more comfort, hid undergarment linings, and offered the benefits of a shapewear product.

PACKAGING

To differentiate from its competitors, Spanx packaging was brightly coloured (such as cherry red): in contrast, competitors' packaging tended to be neutrally coloured and featured images of women extending their legs. A graphic designer was employed to create images unlike those on traditional hosiery packages, such as illustrations of three women. who were fully clothed and showed the various advantages of wearing pantyhose under skirts or pants. Again, Blakely used her sales skills and comedic wit to make packaging more interesting. adorning packages with cartoons and funny captions such as "When you think everyone's looking at your train but they're really looking at your caboose," or "Don't worry, we have got your butt covered. Even the branding of Spanx products was unique and humorous: products were given such names as Bra elujah and Tight-End Tights. PROMOTING SPANX Advertisement through any channel-print, television, or radio was not an option for Blakely due to budget constraints. During Sp start-up days, word of mouth, not an advertising strategy, was a necessity. At first, Blakely stimulated artificial demand by asking her friends to purchase Spanx. later sending them reimbursement cheques She even stood in stores for hours to sell each pair herself because Spanx products were placed in obscure corners of retailers' shelves. She specifically stated. "I learned very quickly that my biggest challenge was location of the store ISpanx werel put in the sleepiest corner. Irealized. "This is going to come here and leave ifI don't personally intervene, even if i have to sell every pair myself." And that's basically what I did.

Next, to further stimulate sales. Blakely decided to target celebrities in the hopes of receiving their free endorsements. She sent a basket of Spanx products to Oprah Winfrey's television program and explained her products. The products aught Oprah's attention, and she named Span her product of the ear. In fact, Hollywood celebrity Gwyneth Paltrow publicly thanked Blakely for Spanx, claiming that Spanx made her post-baby body look better. This free publicity spurred Blakely's career. By 2003. she had become well-known among Hollywood celebrities, who started using Spanx under their Oscar gowns. By 2012. she became an international figure when Time magazine identified her as one of the world's most influential people.

Even as of 2017. Spanx did not employ any type of advertisement. As the former chief executive officer (CEO) Laurie Ann Goldman mentioned in 2012, despite the company's ability to afford any billboard in Times Square, it never publicized Spanx products. Instead, Spanx promoted a philosophy of woman to woman" advice, especially relevant in the era of social media. As Goldman affirmed:

“ The power of women discovering the brand from other women was actually a better strategy. The aunt telling her niece: one woman to a college friend. There's something about saying. "Look, feel my back, no lines" that's powerful. Look at how big social media has become now. People trust advice.

Spanx thus relied on word-of-mouth marketing by it believed that woman-to-woman communication over social media would be much more powerful than paid advertising.

Similarly, Blakely decided to engage in public relations on her own; she was confident about the product and did not feel any need to hire an external agency. She stated. "I believed so much in my dream that the idea of someone pitching it who maybe hadn't even worn Spanx just completely freaked me out. So, I decided to try the public relations myself for a while But as her business grew, a public relations manager was appointed to oversee not only press coverage and media relations but also celebrity relationship management. Further, Spanx began offering several sales promotions for consumers. especially for online shopping, such as discounts with coupons or promotion codes or free shipping when buying through selected retailers. At times, the discounts offered by the company were as high as 70 per cent of the product price.

SPANX'S GROWTH STRATEGY

The cornerstone of Spanx's strategy was innovation. By 2010. Spanx started manufacturing undergarments r men under the label Manx.. Spanx continued adding product lines and variants, and by 2014. the company was selling more than 200 products. fuelling its growth (see Exhibit I) The innovations in the shapewear market had resulted, in part, from abrupt changes in fabric technology and garment design.

Spanx products were sold under different brand names, including Bod a Bing and Hide and Sleek. The company's four most well-known brands were ASSETS, Spanx, Starpower, and the Red Hot label. Spanx offered a range of compression options in a variety of products, such as tights, full slips, half slips, and camisoles, in addition to other hosiery-based products, such as knee-highs. stockings, and socks.

Industry experts noted that as a part of the company's strategic rollout, it was vital for Spanx to have its own independent stores for two reasons: to eliminate the need to fight for space in department stores and to be able to test new product launches easily and effectively, Thus, by 2012, Blakely started launching stand-alone Spanx stores in shopping malls. The first stand-alone outlet was launched in Washington, D.C., with the intent of later extending stores into Pennsylvania and New Jersey. The objective for these stores was to better connect with customers. Blakely trained the sales staff on all the product lines so that they could provide in-person guidance to help customers select the right garments to match their clothing.

Spanx valued innovation, risk-taking, and optimism across all departments, the inculcating leadership values and accountability among a employees. Furthermore, Spanx hired most of its employees through referrals from fashion, health, and beauty companies, which ensured a high level ofexpertise. By 2013. Spanx had 112 employees across all its locations, eight times more than in 2010.

SPANX'S COMPETITORS

In the shapewear product category. Spanx's several competitors had distinctive competitive advantages. Leonisa. for instance, provided flexibility to women by adjusting the level of control required. A Chery was yet another competitor in the shapewear category, which was voted most preferred shapewear in 2015 Your Contour specialized in arm-shaping shapewear. Apart from these specialty competitors, players from other apparel product categories had ventured into the ear category. including shapew Wacoal, Hanes, and Under Armour. Overall, in the hosiery sector globally (see Exhibit 2). Spanx had a market share of 2.06 per cent as of2016.

CHANGES IN THE SOCIOLOGICAL ENVIRONMENT

Both shapewear and compression wear belonged to the intimate apparel segment. According t a 2013. female body weight across the globe was increasing including in countries Euromonitor report in in Eastern Europe, Western Europe, and North America. However, fashion and beauty magazines continued to promote and idolize celebrities. focusing especially o their appearance and weight loss. Partly due to the influence of such magazines. women bought hosiery products such as shapewear. and consequently, the U.S. shapewear market reached its peak in 2010, with record sales of S850 million.

But women gradually started developing concerns about the health effects of tight clothing products such Spanx. According to doctors, products such as Spanx could lead to meralgia paresthetica (a burning sensation as a result of excessive pressure on nerves) or disease due to excessive pressure on the abdomen." The fashion world also shifted its beauty ideals. In France, excessively thin models were banned, while in the United States, Victoria's Secret launched more lingerie in plus sizes. In response to such concems, companies emerged with new clothing that addressed different concerns for example, promising reductions in cellulite or anti-aging properties, releasing sunscreen, or masking odour with fragrance. These concems negatively affected the North American shapewear market. which declined to $678 million by 2015.

Spanx was challenged not only by the intimate apparel or hosiery sector but also by other apparel sectors. While the overall apparel market in North America grew by 2 per cent in 2015. activewear (i.e.. casual clothing meant for exercise and general wear, such as yoga pants or leggings) grew by 16 per cent in 2015 Growth was mainly derived from millennials in the United States, which represented 28 per cent of the U.S population. Their increased health consciousness and informal workplace culture increased the popularity o functional but less fashionable clothing such as activewear." Moreover, activewear products also provided the benefit of a slim fit, which further enticed consumers to shift from uncomfortable, tight shapewear products to stretchable, yet slim-fitting activewear products." As customers switched to new activewear products, fewer new customers tried shapewear due to the discomfort associated with it. The attractiveness f the activewear market could be gauged from entries into this market by large sportswear companies such as Under Armour and retailers such as Walmart (see Exhibit 3)

Critics had labelled shapewear an obsolete product. For the period 2014-2022, the shapewear category was projected to grow in international markets to a value reaching S5.58 billion; however, this estimate was much lower than estimates for new product categories such as activewear. The global activewear mark was growing, on average, 5.52 per cent year-on-year and was expected to reach a value of S365 billion by 2020 (see Exhibit 4)

Nevertheless, the shapewear category found a place among a new segment of consumers. young teenagers instead of adult women. Shapewear became more popular among teenaged girls between the ages o 5 years. Wearing Spanx became so popular among teens that they wore the product for every occasion. ranging from the classroom to the sports field. Thus, wearing Spanx became a trend among teenagers to such an extent that they wore these products irrespective of their weight. Everyone, ranging from thin athletes to healthy teenage girls. began wearing Spanx and other shapewear

SPANX S RESPONSE TO CHALLENGES

Repositioning Spanx

Spanx was originally worn by women for special occasions, such as wedding or parties. When Jan Singer was the CEO of Spanx, she realized that consumer preference had been changing since 2015. and she decided to reposition Spanx from occasional wear" to "everyday wear To achieve this repositioning. Spanx launched a new Power Series line, consisting of high waisted panties and shorts. which slightly smoothed body shape while retaining the wearer's true form. These products were lightweight and more comfortable. The entire product range was repackaged and reformulated to indicate higher performance. comfort, and aesthetics. Packaging was printed with the slogan, "Reshape the way you get dressed, so you can shape the world to reflect feminist inspiration. Furthermore, to establish a stronger connection with the founder of Spanx, the Power Series packaging featured Blakely's signature. Critics, however, believed that the Spanx's repositioning efforts were incomplete because its website still promoted the theme of "the thinner, the better," even selling products such as Power Mama hosiery to accommodate pregnant women. and Spanx's traditional products, such as high-waisted shorts and body suits, remained prominent.

The repositioning efforts were company-wide: senior management restructuring also took place under Singer's regime, with the objective of increasing customer focus. To explain her restructuring effort. Singer stated, "The eye on the consumer was really missing and Spanx needed to get back into deeply understanding the consumer. Furthermore, the market research agency Kramer Group was hired as part of a rebranding effort, which helped in restructuring the Spanx store format, packaging. and even communication. The Kramer Group suggested that Spanx needed to enhance its fashion appeal, while retaining the authenticity of the brand, the new repositioning theme and of everyday wear needed to be consistent across social media, retail and digital media.

Entering the Apparel Segment

Given the potential of the activewear market. Spanx extended its product line to incorporate activewear eggings in 2014: however, online reviews indicated that Spanx was not on par with competitors in terms of sales. For instance, until September 2017. its competitor Zella had received a total of 3,905 online reviews on Nordstrom.com variants of leggings, while Spanx received a total of 617 reviews. Furthermore. none of Spanx's legging varieties received five-star ratings from consumers. in contrast to Zella, which received five-star ratings for several of its products. A whereas competitors such as Zella provided 89 legging variants. Spanx provided only 14.

In the apparel segment, Spanx also entered the denim jeans market. However, in contrast to the activewear segment, the denim industry was struggling, due to poor fit, performance, and price problems. It was market share in its core markets, Europe and North America, although the burgeoning middle-class consumers from other countries, such as India and China, supported its growth to some extent.

Seeing potential in the denim jean market, Spanx diversified into this sector in 2014. Spanx pioneered the launch of the first denim shapewear to compete an existing denim jeans. Spanx denim was different from that of its competitors: it triple-thread technology, used which involved extra stretchable yarn, hereby rendering a body-contouring fit. nvolved other patent-pending shaping features and also offered shaping waistbands for additional slimming. However, fashion critics did not seem to find Spanx s revolutionary, but viewed them as just another option in a sea of denim.

PHILANTHROPY

In 2013. Blakely joined the Giving Pledge campaign, which committed her to donating half o philanthropic endeavours." She was in fact, the first women billionaire to join the foundation led by Warren Buffet and Melinda and Bill Gates She also founded the Sara Blakely Foundation in 2006. which supported organizations such as Grameen America. Malala Fund, the Empowerment Plan, and more. Her objective was to contribute toward women's empowerment and welfare through philanthropy. and she contributed approximately S24 million to these foundations. Despite the potential competitive threat from new start-ups, she also created a platform known as the Leg Up initiative to provide telephone consultation and funding to future women entrepreneurs. Similarly, she started the Belly Art Project to make pregnancy and childbirth safe for women in need.

CHALLENGES AND THE ROAD AHEAD

Whereas 50 per cent of start-ups in the United States fail in the first five years, Blakely's Spanx was not only successful in its home country but also created an international market for her products. With 12.000 distribution outlets across 50 countries, Spanx was a brand synonymous with the shapewear product category. Spanx had a high profile and dedicated customer base, the only undergarment that received joyful shout-outs from the red carpet at award shows, Public acclamations by celebrities such as "I am triple Spanx-ed tonight!" were common.

A market leader in the shapewear category by 2016, Spanx became a S400 million private company with 00 per cent ownership by Blakely. Furthermore, although she did not intend to take the company public, she did plan to launch many new product lines, stating, "Before I retire. I want to make a comfortable high heel. I don't subscribe to the beauty is pain philosophy. She also commented. "I was inspired to move into all categories of fashion eventually because there was so much opportunity to make things more comfortable, fit better, [and] feel better. n March 2017. Spanx launched a bridal lingerie range. Although Spanx continued to innovate, several challenges did remain.

Spanx also experienced its own set of problems in-company. Former S CEO Singer, within two years of her tenure, joined the company's rival Victoria's Secret in 2017. Similar challenges arose when current employees posted negative reviews on job websites such as glassdoor.com about working with Spanx. Due to dissatisfaction, employee tumover also increased throughout 2017.

Furthermore, the glamour of shapewear was declining. As one critic commented, "The game was changed, the rules were changed, and the playing field was changed, and Spanx j didn't have the marquee brand power they had before. Although the product category was expected to grow in international markets with a value reaching S5.58 billion, it was nevertheless much lower than projected growth for new product categories such as activewear.

In the midst of these challenges, would Spanx be able to maintain its position in the market? Since 2015 Spanx had been trying to respond to challenges through rebranding or entering different core product segments, but was this strategy sustainable in the long run? As big players entered the shapewear and other apparel markets, how would Spanx withstand competition and sustain future growth?

Questions: (the answer must be simple and much easier)

1)    Was it strategically appropriate for Spanx to diversify from its core product (i.e., shapewear) to unrelated products (i.e., jeans and activewear)? Is this diversification strategy likely to pay off in the long run?

2)    What is the optimal growth strategy should Spanx follow to sustain its market position in the future?

Answer 1

Answer: 1

No, strategically it was not appropriate for Spanx to diversify from its core product (i.e., shapewear) to unrelated products (i.e., jeans and activewear). The key reason for inappropriate of this initiative is as below

• Spanx is not competent in unrelated products: This initiative at Spanx is not suitable, as the Spanx is not competent to manage the launch of new products in the unrelated segment.
• Spanx will not be able to manage the competition: Competition is very high in the unrelated segment and it will be very difficult for the Spnax to manage the business in the unrelated segment specially the product design, and product pricing, customer pull etc.
• Spanx do not have expertise in that segment: The main problem for Spanx for the unrelated segment is that they do not have expertise in execution and management of the unrelated business. Thus they will be in large problems.
• Spanx do not have any innovative improvement in the new segment: The current business Spanx has developed with the help of innovation approach. But for unrelated product segment, they do not have suitable innovative choices so far.

This diversification strategy is not likely to pay off in the long run because of the following reasons as below

• The unrelated product’s existing competitors are not able to manage the business suitably and are not able to earn good revenue and profit for themselves. Thus it will be very difficult for the Spanx to enter and survive in the unrelated product market.
• It will be difficult for Spanx to achieve the business of unrelated product segments, as competition is very high, so difficult for Spanx to earn in long term.
• Spanx will not be able to manage to run the unrelated products for longer duration, hence they will not be able to get pay off in long run.
• Based on the current competitiveness and expertise of Spanx. It will be difficult for Spanx to succeed and achieve required growth for long term survival in the unrelated product category.