Cutco Case Analysis

Justin Padron

MK 4900

Cutco Case

June 23, 2010

Cutco Case Analysis

1. Situation Analysis:

Industry:

1. Direct Selling Industry

A. The direct selling industry consists of numerous well-known firms.

B. Customers are affluent, educated, aged 35-54, with an annual income above $50,000.

2. Cutlery/Kitchen Utensils:

A. Competitors are usually found in retail outlets.

B. A German Corporation called Henckels is the top competitor and uses department stores and mass merchandisers to market their products.

Company:

1. Cutco is known for outstanding quality and every product has a lifetime guarantee.

2. International expansion began in 1990 (this shows that they haven’t done anything with it in 18 years) they have had failed attempts in the past with Australia, Germany, Korea and other countries.

Trends:

1. Direct sales in the U.S. have increased from 580,000 in 1999 to 700,000 orders in 2008.

2. Direct selling industry sales were in the United States were approximately $30.8 billion ($114 billion globally) with an average annual growth rate of 3.2% for the past 10 years.

3. Prices are increased by an average of 5% every other year.

2. Problem Statement

The company needs to grow revenues to at least $500 million annually in the next five years with the ultimate goal of reaching $1 billion annually.

3. Alternative Evaluation

Acquisitions:

The company has cash reserves of $20,000,00.

Requires a minimum investment of $10 – 15 million.

Strengths – Cutco has a strong balance sheet and would have no problem purchasing another company. With the economy in its current state, it would make sense to do this as soon as possible. The company would need additional manufacturing capacity for desired sales growth.

Weaknesses – Initial cash outlay would be high ($10 – 15 million). Devoting energy and resources to an acquisition would detract from the company’s core business.

Recruiting Approaches:

Minimum investment of $5-10 million...