Capstone: a strategy for Cedarline

The final two sessions of the course are given to a single task. Cedarline Outdoor's board, which the cohort has advised throughout the program, has asked for a strategy for fiscal 2027 to 2029. The chief executive has a plan of her own: open 18 new stores and a second distribution centre over three years for about 95 million dollars, grow wholesale with the national sporting goods chains, and consider the hiking-boot brand that has offered itself for sale. The private equity investor that owns part of the company wants returns restored before any exit. The founding family wants the company to remain independent and true to its reputation. The cohort works in teams, and Dr. Ashford asks for a recommendation that a board could act on: a diagnosis, a guiding policy, coherent actions, the numbers that support them and the measures that will show whether they are working.

Diagnosis

The teams start with the facts the cohort has established across the program. In fiscal 2026 Cedarline had revenue of 468 million dollars, 45 per cent through its own stores, 25 per cent online and 30 per cent wholesale. Revenue had grown by half in four years, but gross margin had fallen from 54.0 to 49.8 per cent, inventory had more than doubled to 128 million, the cash conversion cycle had stretched to 177 days, and return on invested capital had fallen from 12.1 to 8.0 per cent, below the cost of capital of about 9 per cent. Lesson 1 showed that at these returns, growth destroys value.

The teams' diagnosis, in Rumelt's terms, names the critical challenge plainly. Cedarline has a valuable brand built on durability, but it has been growing by accumulation, adding styles, channels, promotions and wholesale accounts, rather than by choice. Each addition looked reasonable on its own; together they have blurred the position that justifies its prices, raised inventory and complexity, and handed bargaining power to wholesale chains and to customers trained to wait for sales. The challenge is not a lack of growth but a lack of focus, and the obstacle is internal as well as external: the organization's structure and rewards are built for volume.

Industry, environment and resources

The analysis of lesson 2 found outdoor apparel to be an industry where returns differ widely by position. Rivalry is intense and promotional in the middle of the market, buyer power is high in wholesale and entry is easy at the low end, but brands with a credible reputation for performance and durability, strong direct relationships with customers and disciplined pricing earn good returns. The scenario analysis of lesson 3 identified tariffs on imported apparel and consumer demand as critical uncertainties, and warmer winters and growing interest in durability and repair as predetermined trends.

The VRIO analysis of lesson 4 identified two resources capable of sustained advantage: the brand's reputation for durability, accumulated over three decades, and the repair workshop's skills, records and customer relationships. Both are valuable, rare and costly to imitate. Neither is yet exploited by an organization that treats repair as a customer service cost. The value sticks of lesson 5 showed that Cedarline's products create more value than mass-market rivals', but its pricing and channel choices have been giving much of that value away.

Options

The teams develop three strategic options. Option A, Grow everywhere, is the chief executive's plan: 18 stores and a second distribution centre committed now, wholesale growth with the national chains and the current breadth of styles and promotions. Option B, Durable focus, builds on the marketing plan from MBA-512 and the staged financing from MBA-511: reduce styles from 3,400 to about 2,400, halve promotions and commit to everyday fair prices on core products, turn repair into a lifetime service and add resale, keep wholesale only with partners that present the brand well, release about 50 million dollars of working capital, and open stores in tranches of six, each conditional on the previous tranche meeting its targets. Option C, Focus plus footwear, is Option B with the acquisition of the hiking-boot brand for 75 million dollars.

Each team projects the three options to fiscal 2029 and tests them against the four scenarios from lesson 3, combining high or low tariffs with strong or weak consumer demand. The code below sets out the base projections and the scenario test.

# Cedarline options to fiscal 2029 (millions of dollars); tax 26.5 per cent, WACC 9 per cent
tax, wacc = 0.265, 0.09
base = {  # revenue, EBIT margin, invested capital in fiscal 2029
    "A Grow everywhere":   (620, 0.078, 514),
    "B Durable focus":     (530, 0.115, 372),
    "C Focus + footwear":  (595, 0.110, 447),
}
start_ic, start_nopat = 366, 39.8 * (1 - tax)
print(f"{'Option':20s} {'NOPAT':>6s} {'ROIC':>6s} {'EP 2029':>8s} {'EP 3 yr':>8s}")
for name, (rev, m, ic) in base.items():
    nopat = rev * m * (1 - tax)
    roic = nopat / ic
    path = [(start_nopat + (nopat - start_nopat) * t / 3, start_ic + (ic - start_ic) * t / 3) for t in (1, 2, 3)]
    ep3 = sum(n - wacc * k for n, k in path)
    print(f"{name:20s} {nopat:6.1f} {roic:6.1%} {nopat - wacc * ic:+8.1f} {ep3:+8.1f}")

# Scenario test: (revenue factor, change in EBIT margin) by scenario and option
scen = {"low tariffs, strong demand": {"A": (1.05, 0.010), "B": (1.04, 0.008), "C": (1.05, 0.008)},
        "low tariffs, weak demand":   {"A": (0.90, -0.022), "B": (0.94, -0.010), "C": (0.92, -0.014)},
        "high tariffs, strong demand": {"A": (1.00, -0.020), "B": (1.01, -0.010), "C": (1.00, -0.013)},
        "high tariffs, weak demand":  {"A": (0.86, -0.040), "B": (0.92, -0.020), "C": (0.89, -0.027)}}
eps = {k: [] for k in "ABC"}
for s, adj in scen.items():
    for (name, (rev, m, ic)), key in zip(base.items(), "ABC"):
        f, dm = adj[key]
        eps[key].append(rev * f * (m + dm) * (1 - tax) - wacc * ic)
best = [max(eps[k][i] for k in "ABC") for i in range(4)]
for k in "ABC":
    print(f"Option {k}: EP 2029 by scenario " + ", ".join(f"{x:+5.1f}" for x in eps[k])
          + f"; worst {min(eps[k]):+5.1f}; max regret {max(b - x for b, x in zip(best, eps[k])):4.1f}")

Option                NOPAT   ROIC  EP 2029  EP 3 yr
A Grow everywhere      35.5   6.9%    -10.7    -25.1
B Durable focus        44.8  12.0%    +11.3    +18.9
C Focus + footwear     48.1  10.8%     +7.9    +12.1
Option A: EP 2029 by scenario  -4.2, -23.3, -19.8, -31.4; worst -31.4; max regret 31.9
Option B: EP 2029 by scenario +16.4,  +5.0,  +7.8,  +0.6; worst  +0.6; max regret  0.0
Option C: EP 2029 by scenario +14.0,  -1.6,  +2.2,  -7.9; worst  -7.9; max regret  8.5

The results are clear. Option A grows revenue the most but earns a return of about 6.9 per cent on its larger capital base by fiscal 2029, below the cost of capital, so its economic profit is negative and worsens. Option B earns about 12 per cent on a capital base barely larger than today's, turning economic profit positive at about 11 million dollars a year by 2029. Option C adds revenue but its extra capital earns less than the cost of capital, so it has lower economic profit than B in every year. The scenario test strengthens the conclusion: Option B has the highest economic profit in every scenario, the best worst case and no regret, while Option A loses heavily if tariffs rise and demand weakens.

The recommendation

The teams converge on Option B and write its strategy statement in Collis and Rukstad's form: By fiscal 2029, earn a return on capital above 12 per cent as the outdoor brand people trust to last, serving customers who value performance and durability through our own stores, online and selected partners, with gear repaired for life. The statement has 41 words, slightly over Dr. Ashford's limit, and he lets it pass.

The guiding policy is to compete on durability and trust rather than on breadth and price, and to grow only where returns exceed the cost of capital. The coherent actions follow from it and reinforce one another, forming the activity system the cohort sketched in lesson 1.

Position and offer: cut the range by about 30 per cent, concentrating design on long-lasting core products updated rather than replaced each season; launch the lifetime repair service on all core products and a resale program run through stores and online; and replace frequent promotions with an everyday fair price policy on core products, announced publicly, which also changes the holiday game of lesson 7 by making deep discounting costly for Cedarline's credibility.

Channels and scope: keep wholesale only with partners that present the brand well and accept fewer allowances, allowing wholesale to fall from 30 to about 20 per cent of revenue; open new stores in three tranches of six, each conditional on the previous tranche reaching its sales and contribution targets and on leverage staying below 3; defer the second distribution centre and use a third-party warehouse until store growth justifies it; and stay out of manufacturing, where competition among contract makers works in Cedarline's favour.

Footwear and alliances: decline to buy the hiking-boot brand at 75 million dollars and instead offer it a distribution agreement for Cedarline's stores and website, with an option to acquire a stake later if the boots sell well, testing the revenue synergies without paying for them in advance, as lesson 10 recommended.

Innovation: treat repair and resale as the core of a learning system. Repair records show how products fail, which feeds design; resale extends the life of products and brings in younger customers at lower prices; and both strengthen the durability reputation. The teams recommend building the resale program in-house at first, at small scale, rather than joining a third-party marketplace, so that Cedarline keeps the customer relationship and the data.

Execution

The teams devote as much attention to execution as to the choices, because lesson 11 showed that strategies most often fail there. They propose four organizational changes. First, a single chief merchandising officer responsible for range, inventory and pricing across all channels, ending the separate channel inventories that drove the build-up of stock. Second, the repair workshop becomes a business unit, Cedarline Care, reporting to the chief executive with its own budget and growth targets. Third, incentives change: merchandisers are rewarded on gross margin return on inventory rather than revenue, the wholesale team on contribution after allowances rather than volume, and store managers on contribution and customer experience. Fourth, a strategy office of three people tracks the scorecard and the conditions for each store tranche, reporting to the board quarterly.

The scorecard has twelve measures. In the financial perspective, return on invested capital, gross margin and inventory turnover. In the customer perspective, the share of sales at full price, repeat purchase rate and net promoter score among core customers. In internal processes, the number of active styles, repair turnaround time and new store contribution against plan. In learning and growth, design changes informed by repair data, staff trained in repair and product knowledge, and employee engagement in stores. Each measure has a target for fiscal 2029, an owner and a quarterly milestone.

Risks and signposts

The teams are candid about the risks. Revenue will grow more slowly than under the chief executive's plan, and there may be a year in which revenue falls as styles and wholesale accounts are cut; the board must be prepared for it. Competitors may copy the repair service, though the cohort's VRIO analysis suggests that matching Cedarline's reputation and workshop skills would take years. Customers trained to wait for sales may resist the fair price policy at first. Tariffs could rise further, though Option B's lower inventory and capital make it the most resilient option. The signposts they propose for the board include the full-price sales share, the return rate on repaired products, the performance of the first store tranche and the gross margin in wholesale after allowances, with agreed thresholds that would trigger a change of course.

Dr. Ashford closes the course with the cohort's index cards from the first session, which he has kept. Next to Grace's original card about being the region's favourite grocer, he places the 33-word statement she wrote in lesson 1. Next to the vague cards from the first night, he places the teams' statement for Cedarline. The difference, he says, is the difference between an aspiration and a strategy: the second set of cards makes choices, accepts trade-offs, and tells everyone in the organization what to do differently on Monday.