Polar Sports, Inc.
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Harvard Business School Professor W. Carl Kester and Professor Wei Wang, Queens University, Kingston, Ontario, prepared this case solely as a
asis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although
ased on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities
is coincidental.
Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call XXXXXXXXXX,
write Harvard Business Publishing, Boston, MA 02163, or go to http:
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W . C A R L K E S T E R
W E I W A N G
Polar Sports, Inc.
In early January 2012, Richard Weir, president of Polar Sports, Inc., sat down with Thomas
Johnson, vice president of operations, to discuss Johnson’s proposal that Polar institute level monthly
production for 2012. Since joining the company less than a year earlier, Johnson had become
concerned about the many problems arising from its highly seasonal production scheduling, which
eflected the seasonality of sales of skiwear and accessories. Weir understood the cost savings and
improved production efficiency that could result from level production, but he was uncertain what
the impact on other aspects of the business would be.
Polar Sports, a fashion skiwear manufacturer based in Littleton, Colorado, ca
ied production
lines in high-quality ski jackets, snow pants, sweaters, thermal soft shells and underwear, and
accessories such as gloves, mitts, socks, and knit caps. The company produced most of these products
in a wide range of styles, sizes, and colors. Polar had a unique design of skiwear that employed
special synthetic materials for better insulation and durability. The design and color of products
changed annually. Dollar sales of a given product line could vary as much as 30% to 40% from year to
year.
The ski apparel design and manufacturing business was highly competitive. The industry
comprised a few large players and a number of smaller firms. Besides several major competitors in
the market such as North Face, Burton, Ka
on, Spyder Active Sports, and Sport Obermeyer, high-
end designers like Prada and Giorgio Armani had recently entered the technical skiwear market.
Occasionally, a company was able to gain share in that competitive market by developing and
marketing new fa
ics and using innovative patterns in a given year; typically, however, competitors
were able to market similar products the following year. Unlike Polar, several large producers had
shifted their major production to Asia and Latin America to save on labor costs, making their
products more competitive in price. Fierce competition in both design and pricing resulted in short
product lives and a relatively high rate of company failures.
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A U G U S T 2 0 , XXXXXXXXXX
For the exclusive use of J. Bates, 2020.
This document is authorized for use only by Jennifer Bates in FNCE 6310 Financial Decisions and Policies Spring 2020 taught by John Byrd, University of Colorado - Denver from Jan 2020 to
Jul 2020.
913-513 | Polar Sports, Inc.
2 BRIEFCASES | HARVARD BUSINESS SCHOOL
Company Background
Polar Sports, Inc., was established in 1992 by Richard Weir, a retired professional snowboarder.
His desire was to produce high-quality skiwear and accessories for people of all ages and abilities.
Through Weir’s expansive network of ski instructors and resorts, Polar was able to sell a few
hundred units of high-quality products by the third year of operation.
Polar experienced fast growth since the late 1990s, after sponsoring a number of snowboarding
events and endorsing a few talented athletes who later competed in several international
competitions. Polar became a popular
and among both professional and amateur skiers and
snowboarders. The company’s sales growth was affected only slightly by the 2008–2009 economic
ecession. In 2011, Weir hired Thomas Johnson, a production manager at a sports equipment factory,
as vice president of operations.
The skiwear production process, though not complex, was nevertheless labor intensive. It
equired designers to constantly come up with new styles to stay ahead of competing products. The
designers worked closely with raw-materials suppliers in developing new fa
ics. Focusing on both
the technical and the fashion aspects of their products, Polar’s designers helped create a high-tech
temperature-control fa
ic for the base and middle layers, providing both
eathability and
waterproofing. The production technology required skilled labor, and the process was primarily
manual, which ensured that stitching was accurate and jackets and pants were properly insulated.
Company Financials
The popularity of skiing and snowboarding had grown tremendously over the past two decades.
According to a National Sporting Goods Association survey, at the end of 2010 more than 15 million
Americans over seven years of age participated in skiing or snowboarding. The skiwear
manufacturing industry experienced fast growth in the 2000s with the rising popularity of winter
extreme sports such as snow kiting and heli-boarding. Polar achieved progressive market share
through its unique design and expansive sales network. Its sales grew from $4.65 million in 2001 to
$16.36 million in 2011. With a number of promising new designs under production, sales were
projected at $18.0 million for 2012. However, the ultimate success of the new designs depended
greatly on how well the market would respond. In recent years, more-intense competition had made
accurate predictions increasingly difficult.
Polar’s net income reached $897,000 in 2011 and was projected to be $1,147,000 in 2012 under
seasonal production. Tables A and B show the latest financial statements. The cost of goods sold had
averaged 66% of sales in the past and was expected to remain at approximately that level in 2012
under seasonal production. Operating expenses, projected to be 24% of sales, would be incu
ed
evenly throughout each month of 2012 under either seasonal or level production. Polar was facing a
corporate tax rate of 34%.
For the exclusive use of J. Bates, 2020.
This document is authorized for use only by Jennifer Bates in FNCE 6310 Financial Decisions and Policies Spring 2020 taught by John Byrd, University of Colorado - Denver from Jan 2020 to
Jul 2020.
Polar Sports, Inc. | XXXXXXXXXX
HARVARD BUSINESS SCHOOL | BRIEFCASES 3
Table A Consolidated Income Statement, 2009–2011 (in thousands of dollars)
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Net sales 14,079 15,065 16,360
COGS 9,011 10,244 10,798
Gross profit 5,068 4,821 5,562
Operating expense 3,520 3,615 4,090
Interest expense XXXXXXXXXX
Interest income XXXXXXXXXX
Pretax profit 1,461 1,099 1,359
Income tax XXXXXXXXXX
Net income XXXXXXXXXX
Table B Balance Sheet at December 31, 2011 (in thousands of dollars)
Cash 500
Accounts receivable 5,245
Inventory 1,227
Cu
ent assets 6,972
PP&E 2,988
Total assets 9,960
Accounts payable 966
Notes payable, bank 826
Accrued taxes 139
Long-term debt, cu
ent portion 100
Cu
ent liabilities 2,031
Long-term debt 1,000
Total liabilities 3,031
Shareholders’ equity 6,929
Total liabilities and shareholders’ equity 9,960
As noted, sales of skiwear and accessories were highly seasonal, with more than 80% of annual
dollar volume generated from September through January. Table C shows both actual monthly sales
for 2011 and projected monthly sales for 2012. Polar pursued three sales channels: wholesale, catalog,
and online direct sales. Polar’s wholesale channel, which accounted for 70% of sales, included about
1,000 dealers, sporting goods stores, specialty ski stores, and department stores. During the SIA Snow
Show in Colorado, the biggest annual exhibition for skiwear manufacturers held in late January,
Polar presented its latest product designs, which would be released in the fall. It often received orders
epresenting around 15% of its annual sales right after the show; these were shipped in September.
Customers usually took 60 days to pay for wholesale purchases, and the collection experience had
een very satisfactory. Transactions with catalog and online direct sales were usually settled on the
date of purchase.
For the exclusive use of J. Bates, 2020.
This document is authorized for use only by Jennifer Bates in FNCE 6310 Financial Decisions and Policies Spring 2020 taught by John Byrd, University of Colorado - Denver from Jan 2020 to
Jul 2020.
913-513 | Polar Sports, Inc.
4 BRIEFCASES | HARVARD BUSINESS SCHOOL
Table C Monthly Sales (in thousands of dollars)
Sales 2011
Projected Sales
2012
January XXXXXXXXXX
Fe
uary XXXXXXXXXX
March XXXXXXXXXX
April XXXXXXXXXX
May XXXXXXXXXX
June XXXXXXXXXX
July XXXXXXXXXX
August XXXXXXXXXX
September 2,896 2,970
October 2,618 2,520
November 4,564 5,724
December 2,928 3,546
Total 16,360 18,000
Polar’s practice was to fulfill customers’ orders promptly. A small fraction of capacity at Polar’s
Littleton plant was required to meet orders from Fe
uary through July each year. From August
through January, the company greatly expanded its workforce. New employees were hired and
trained, and existing employees were asked to work overtime. All equipment was used more than 15
hours per day, which called for frequent maintenance. Whenever possible, shipments were made on
the same day an order was placed. Production was scheduled to match sales for each month.
Under seasonal production, in 2012 Polar would maintain the same level of inventory that it held
on December 31, 2011. The accounts payable balance at the end of a month was assumed to be 50% of
the cost of goods sold that month. This figure was related to material purchases that accounted for
50% of the cost of goods sold for 2012. Total material purchases, based on 30-day payment terms,
were forecasted to be $5,940,000 in 2012