Last night, the shareholders of Mount Olympus Awards, LLC had a 4 or 5 hour scheduled meeting in a local office and solidified our plans for the business, which I discussed a few days ago (see Wholesale Chenille Letters, Patches, and Varsity Jacket Business Launching). The end decision was we are going much farther than we originally anticipated after doing a DuPont Return on Equity analysis. Far from being just ruthless on pricing, like I promised, we are about to drop a nuclear bomb on the letterman jacket industry by transforming our company into the same business model used by Rose Blumkin to build Nebraska Furniture Mart. We generate higher returns on equity for shareholders, our customers save money to a degree that wasn’t even possible only a few years ago, and we have the opportunity to compete for additional business that we previously chose not to pursue.
There are four components to this plan, which launches within 12 hours:
1. Drastic retail price reductions on letterman jackets, varsity jackets, and letter sweaters
We are dropping the price of our brand name, American-manufactured stock letterman jackets (companies such as Rock Creek, Holloway, and any remaining DeLong merchandise) to $129.95 from the MSRP of $239.95, giving customers $110.00 off, or 45.84%. We already dominate the industry, yet our market analysis shows that we have an opportunity to more than make up for the price drop in volume profits. Given that there is very little cost of capital due to our business model, there is no down side. In other words, individuals can now purchase their letterman jackets and varsity jackets from us for less than many wholesale companies can purchase them! The same brand names, the same quality, with no minimum orders. We will still earn attractive margins due to the sheer quantity of merchandise moving through our system. The same is true for our letter sweaters, which we are dropping from an MSRP of $180.00 per letter sweater to $69.95, a total discount of $110.05 or 61.14%.
2. Launching a direct-to-school and corporate division that offers wholesale prices
We are transforming MOA Team Supply into a direct-to-school and institutional business that will sell wholesale custom chenille letters, patches, and awards at prices below what most American manufacturers can manufacture the product for in their own facilities. These products, with only a few exceptions, are made here in the United States. Due to our volume, we will still make more than adequate compensation (in fact, our profit margins are comparable to those of one of the firms I admire, Bloomberg, LP). My team has identified 3-4 of the top players in this market and we are going to aggressively go after their business. We can beat their prices, and in many cases, offer faster delivery.
3. We will devote whatever capital is necessary to becoming the nation’s largest retailer and direct-to-school custom chenille and letterman jacket company
Mount Olympus Awards has indirectly served as one of the investment vehicles through which I had put capital to work. For instance, during the crash in March of 2010, I used the company’s cash flow to engage the capital markets heavily; e.g., when General Electric had fallen from $40 to below $6, I had the company buy a hell of a lot of common stock and even more LEAP (long-term call options) that have been obscenely profitable and will show up on our 2010 tax return (GE is back up above $16 per share). Hence, the old inside joke among the shareholders that we are basically a hedge fund in drag. In order to support these changes, I will halt all dividends, except tax distributions, and we will retain all of our capital to commit to whatever purchases are necessary with our letterman jacket vendors and suppliers. Capital markets investments will come second to our primary business.
4. We will expand our product offerings into complimentary lines, such as embroidered patches worn by those in the service industry (sewn on or ironed on to a mechanic’s uniform, for instance).
We already have the relationships with the vendors necessary to immediately jump head first into this line of business, and we attract millions upon millions of page views at our various online sites each year. With a database of tens of thousands of customer names, we can hit the ground running.
The Ultimate Plan
Despite my general distaste for selling assets, I would consider selling the letterman jacket business within 3-5 years (not before then because the things we have in development are paying off heavily, meaning that every day that goes by, the underlying operating profits and cash flow continues to expand geometrically and that would mean a higher valuation for us, and a better, more powerful strategic asset for the firm that acquired us).