Capital Markets and Global Perspective Case Study, UOL, Malaysia Roy K., chief financial officer (CFO) of Flashing Sports Inc., was thinking about the bright prospects for his company’s fast-growing outdoor

Roy K., chief financial officer (CFO) of Flashing Sports Inc., was thinking about the bright prospects for his company’s fast-growing outdoor wear brand. It was early March 2007 and was preparing for a meeting with his board of directors to decide on a financing strategy for Flashing Sport’s next phase of growth. Based in Wake County, Flashing Sports Inc. were a manufacturer and retailer of high-quality outdoor clothing.

The company was founded in 2000 and had grown rapidly across the Eastern United States by distributing its clothing, targeted at higher-end, fashionable consumers, through corporate-owned stores. By the start of 2007, senior management realized that further expansion would only be possible if Flashing Sports Inc. had access to outside capital.

Roy had explored a variety of options for the company: issuing long-term debt, an initial public offering (IPO) of stock, and a preferred share offering. Roy and his finance team gathered the relevant data and discussed each of the options in depth. He now needed to decide which option he should recommend to the board and then develop the key rationale to support his recommendation.

THE GLOBAL APPAREL AND FOOTWEAR MARKET

In 2006, the global retail market for apparel and footwear and accessories was worth $500 billion (amounts noted in the case are in U.S. dollars unless otherwise indicated) having grown from $370 billion in 1996. Within this market, the fastest growing segment was the publicly traded branded apparel and footwear players, which had grown from $30 billion to $80 billion during the same period. The U.S. market accounted for approximately 51 percent of the global market. The market for apparel was highly fragmented, with the largest 50 global apparel, footwear, and accessories brands representing only a third of total retail sales.

While it was easy to enter this market, achieving significant growth beyond a one- or two-store operation and a local market required significant skills in purchasing, designing, and store management. The brand building was crucial to success, as one analyst suggested:

Because innovation and fashion can be imitated and operational capabilities developed over time, we view brands as the most unique and powerful assets in the industry. Apparel and footwear consumers are as brand conscious as ever. Apparel was typically sold through mass merchandisers, department stores, and branded-apparel stores.

The mass merchandisers and department stores generally stocked a variety of brands purchased via distributors. Some higher-end apparel manufacturers operated across the entire value chain: first designing and manufacturing the clothing, and then operating their own branded stores. Globally, key centers of apparel production capacity were located in the Far East, the Caribbean Basin, and Central America. This market had few barriers to entry at any point in the value chain; any firm able to design and manufacture clothing and rent a storefront could make clothing available to consumers.

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