Urban Clothing Retail Store Business Plan - Essay Example

?Urban Clothing A Business Plan Urban Clothing EXECUTIVE SUMMARY Urban Clothing is a mid-priced clothing retailer that will be catering to the targetmarket of 18-25 year old buyers. Fortunately, these make up a large percentage of potential buyers in the Converse, Texas area and can be recruited/targeted using effective marketing tactics and promotions. The business will use cost-effective and innovative design and procurement tactics in order to guarantee high volume sales. Urban Clothing maintains high start-up costs as most clothing retailers do to ensure adequate inventory, however the majority of successes will come in the form of strategic planning and sales tracking and dedication on behalf of the owner to ensure that relationship management through marketing is a primary goal. This business must be hip, trendy and cater to the lifestyles of younger consumers looking for innovative fashions and this can be done through marketing creativity and by following successful business models for companies that have been able to build lasting relationships with young buyers. The organization relies heavily on a high mark-up based on the costs of procurement overseas (supply chain) however much of this cost is offset by the chosen method of supply in foreign low-wage countries. Net income is estimated at $75,000 in the first year of operation after considering all costs of operations. Urban Clothing TABLE OF CONTENTS 1. Industry Review…………………………………………………….. 4 2. Discussion of Business……………………………………………… 7 3. Marketing Plan………………………………………………………. 9 4. Financial Plan………………………………………………………… 11 5. Self-Analysis…………………………………………………………. 14 References Appendix 1. Industry Overview Urban Clothing will be operating in Converse, Texas, a city of just over six square miles, where there is limited clothing retailer competition. This serves as an advantage for the business, an organization that will be providing urban-inspired clothing for men and women. The primary target market for Urban Clothing is the 16-32 year old consumer who is attracted to hip-hop inspired and innovative fashions appropriate for socializing and the youth-based lifestyle. Converse Texas currently maintains a total population of 18,110 individuals, which is a 54 percent increase from 2000 (city-data.com, 2012). This represents a substantially growing market that continues to improve in population density, thereby attracting a variety of new potential customers, due to improvements in job infrastructure and job availability. To the advantage of Urban Clothing, the median income per household is considerably above the national average at $49,396 per year (city-data.com). Of the total population, Converse Texas maintains 31 percent under the age of 18 and 33.9 percent between 25 and 44. Thus, this represents a significant portion of the total population in the city that could be recruited through inventive marketing concepts for urban-inspired clothing fitting of the youth profile. Additionally, 44.6 percent of total Converse, Texas households maintain a child under the age of 18 (another considerable market opportunity through relationship development in marketing). Globally, clothing retail has witnessed considerable growths since 2009. Clothing retail, as a global whole, grew by three percent since 2005 with volume sales at 8 percent growth (gaapirfrs.com, 2011). Of these sales, women’s outerwear grew 60 percent of the total value sales after 2006, suggesting that Urban Clothing should provide considerably more women’s fashions than men in order to appeal to this diverse group of buyers. In Europe and the United States, clothing retail witnessed the most foot traffic on Mondays and Wednesdays (Goodman, 2011). Therefore, the business will focus on attracting buyers during the weekends, something important for youth buyers who attend school or university in the region. Monday and Wednesday will also have promotional sales to lure buyers during these known busy days with high volumes of customer traffic. The industry for young persons’ clothing requires certain attractions in order to make the company stand out from competitors (even though this is minute in Converse, Texas). In Toronto Canada, the young consumer clothing store GotStyle, a company that provides similar urban-inspired clothing, utilizes DJ music and even offers customers champagne as part of their marketing to ensure higher loyalty and better sales volumes. Urban Clothing will take lessons from this type of business model to make Urban Clothing appear hip, trendy and outstanding against competing clothing companies. By adopting certain key elements from high volume clothing retailers domestically and internationally, Urban Clothing can develop a business model that inspires customer loyalty and long-term patronage. Gap Inc. is another youth-inspired clothing company that has seen incredible growth from 2008 to 2012. This business maintains an efficient sourcing model that focuses heavily on innovative design and merchandising in order to gain customer loyalty. Gap Inc. allows merchandising and design teams to work closely so that fashions are innovative and evolutionary. Urban Clothing will adopt certain key elements from this successful business model in order to find rapid success and appeal to buyers that are familiar with these organizations. Clothing retailers are also finding significant success in using corporate social responsibility in their marketing, sourcing and overall business model in order to attract buyers. For instance, several large clothing companies that offer youth-inspired merchandise are using organic cotton farmers and then promoting this in their literature to show their commitment to youth needs and the broader environment. Cotton is a whopping 45 percent of the global textile industry per fiber sales and is a product that relies on the most chemicals and pesticides to grow successfully (Grey, 2010). Because corporate social responsibility is such a paramount need for today’s youths, Urban Clothing will develop its own CSR program and then using innovative promotional material to illustrate to customers the business’ commitment to helping the environment and providing better lifestyle for farmers and textiles that use similar environmental logic. The urban clothing industry provides ample opportunities for growth, expansion and gaining customer loyalty if the business uses youth-inspired concepts in its business model. Urban Clothing is taking advantage of a region, also, that does not have any clothing retailers of this variety (this will impact pricing structure and other profit-making ventures). The business is settling into a region where the real estate rates for small business ownership are very competitive and easy to procure, therefore the cost of operations (i.e. rent, utilities, etc) will not be overwhelming to the business model during the first several years of operations. Converse, Texas currently maintains a very high volume of small rental spaces that can be procured with short-term leases, thus giving the business an advantage in terms of total operational costs. 2. Discussion of Business The business will be managed by the sole proprietor who will handle the duties of human resources, general accountant, and store manager. In order to accommodate regular retail sales, which will be from 9am until 9pm Monday-Saturday, the business will require two full time sales associates and two part-time associates at least during the first year of business. By performing many of the duties of general manager, the sole proprietor will avoid high costs of payroll and use profits to expand or improve the business and sales/marketing models. First and foremost, the business will be youth-inspired and contemporary in all aspects of the business. The key to success is proper procurement, supply chain, associated with the merchandise selections offered to customers. The organization will consult with many of the vendors that provide clothing to The Gap, GotStyle, and other smaller clothing retailers so that contracts can be negotiated for long-term supply relationships. These consultations will occur with the sole proprietor and an intermittent attorney to ensure that Urban Clothing has proper contractual agreements. Urban Clothing will attempt to procure fashions that are produced in textile companies such as India, Thailand and other developing countries in order to ensure that the business is not over-spending in procurement areas. India is currently one of the highest producing cotton countries and maintains many low-paying assembly and textile production facilities that cater to specific design categories from retailers (Boone & Kurtz, 2007). This model will allow for distribution on networks already established by much larger clothing companies, such as The Gap, and thereby will not have to struggle so intensely with tariffs and other problems already worked out by the World Trade Organization and like contracts. By essentially piggybacking on existing distribution networks, the business can keep the cost of purchasing and supply chain low and thereby offer competitive and fair pricing to customers. This is an important factor since many buyers are 18-25. The business will also have to hire a design specialist on freelance contract to consult with the sole proprietor monthly to discuss various designs for submission to the foreign clothing manufacturers. The yearly salary of this individual will be congruent with the volume of time they are required to put into design fashions and the level of consultation required for fabrics and colors. This will be one of the most important salaried positions at Urban Clothing and will be negotiated based on fair market value for these services or other contract/recruiting fees. However, it is estimated that this salary will be between $20,000 and $40,000 annually based on complexity and design experience. The budget will take into consideration that absolute need for design consultants in order to produce and distribute clothing effectively. Clothing will be offered that is urban in nature, with bright colors (as illustrated on the cover of the business plan). It is estimated that 70 percent of the fashions will be catered to women with 30 percent for male clientele. The business will offer a variety of key outwear products with associated accessory options that will be marketed accordingly. Volume and variety will be adjusted seasonally throughout the first years of operation using appropriate supply chain software to ensure that adequate amounts of clothing are delivered and there is not an overstock of unsold clothing. The sole proprietor will manage this role as well as inventory control and purchasing. Product development will occur with consultation with the manufacturer and the salaried design specialist. 3. Marketing Plan The business already understands the segmentation of the existing market having explored the demographics for Converse, Texas. Foot traffic is 29 percent for 25-34 year olds and slightly less for the key target market of 18-24. The first key is place marketing, whereby Urban Clothing will turn the process of shopping and retail into a total youth experience. Taking cues from GotStyle, the business will play modern and hip urban music during the experience and offer special events that offer promotional deals and opportunities for customers to network and socialize. The goal is to make Urban Clothing stand out from other clothing retailers, and will train employees on how to effectively market using psychographic tactics. Psychographic marketing is where the business conducts surveys to find out about consumer lifestyle for the key 18-25 year old market consumer. Once the organization understands what specific cultural and social aspects drive the market, the business will develop literature both in-house and direct mail in order to attempt to create long-term relationships with buyers. Boone & Kurtz (2007) identify that psychographic segmentation is one of the most effective marketing strategies with youth buyers to properly promote a business that uses innovative and youth-based tactics to ensure higher sales volumes. During the first six months of operations, the business will have grand opening promotional sales that offer 10 or 20 percent off merchandise to a specific volume. The literature will be crafted with backgrounds on ownership and the hired sales personnel so that there is some formality in getting to know the goals and mission of Urban Clothing. Black (2009) suggests that in order to gain initial loyalty, the business must consider the first year as a total branding function so that customers familiarize themselves with the clothing retailer concept and become familiar with its logo and design features. Because of this, Urban Clothing will consult with a low-cost graphic designed to establish a recognizable logo which will be published on print and direct mail advertisements. One month prior to launch, Urban Clothing will also hire a small street team known as guerilla marketing who will be paid to walk around Converse and distribute pamphlets and promotional coupons to customers. They will be given a script and several key pieces of promotional merchandise (low cost key chains, etc). with the logo of Urban Clothing clearly displayed. This will give the business a broader presence in the Converse market and familiarize potential customers with the concept and clothing variety of the business. Boone & Kurtz (2008) identify again that guerilla marketing can be successful if they understand the target market and are properly trained to create relationships in rather informal meeting environments such as pubs, night clubs, or general consumer regions of the city. The business, upon opening its doors during the first month of operation, will make records of what coupons or flyers are returned and how many purchases were made. This will be tracked using Microsoft Office to illustrate which customers, based on demographics, are returning materials with interest. This will give hard statistics on whether certain direct mailing or distributed pamphlets are affective and either increase their production or remove them from the marketing strategy model. These statistics will also provide the business will ages, sexes, and other important demographic information so that appropriate clothing volumes can be increased or decreased over the first year of operation. The goal in this marketing strategy is to maximize the cost of marketing per unit of sales and ensure that supply chain, cost of manufacture, marketing distribution, and promotion are reduced effectively. Once the business has established relationships, as identified by Boone & Kurtz (2009), it becomes easier to match customer needs with product offerings and allow customers to give input that will help in the supply and purchasing processes. The statistical tracking gives the business a quality resource on how to structure and procure product by ensuring that only certain target groups are the main focus of expenditures in these areas. By maintaining a database of this critical information, new and innovative marketing strategies can be developed over time. 4. Financial Plan Since it is too early to effectively estimate a total revenue production for the first year, the business will not produce balance sheets or profit statements. Instead, Urban Clothing will itemize its largest cost estimates and then compare with potential customer traffic/sales to determine start-up costs and operations. See the start-up expense table below: Items Costs Racks, Lighting, Hangers $10,000 Computer and Credit Equipment $3000 Initial Rent $5000 Cash on Hand $2000 Signage, Logo $4000 Initial Inventory $30,000 Sound System $2500 Legal Fees $1500 Office Equipment $3000 Security Systems $1500 Initial Marketing Literature $1200 Total Start Up $130,300 These are practical start-up needs to ensure adequate inventory and proper initial promotional marketing, as well as supply the business with the information technology and furnishings support required during the first year of operation and beyond. Financing will be procured through the Small Business Association and Woodforest National Bank in Converse, Texas with a 15 year fixed loan. The following table illustrates the average per unit cost of merchandise versus the actual retail price to illustrate a revenue statement: Item Cost Retail Shirts $10.00 $35.00 Pants, Skirts $15.00 $50.00 Belts, Purses $8.00 $28.00 Shoes $18.00 $45.00 Coats, Jackets $25.00 $85.00 These are not, of course, the total retail for all items procured, but represent an estimated average. The average profit margin for all merchandise combined is approximately 180 percent of cost. Per unit it is estimated at 80 percent of cost. The business will be operating with a margin of approximately 13 percent, which is standard for large retail companies such as The Gap. If the organization manages to maintain its break even point, which is estimated (including all loans and operational costs) at $45,000 monthly, all sales per unit will be considered profit and used for expansion or improvement services. The business should be able to maintain a monthly positive cash flow of $10,000 during the first year of operation based on all costs considered including payroll, rent, operations, utilities, marketing and procurement. Estimated revenue analysis for the second half of 2012 (launch) through 2014 shows profitability of $75,000 - $120,000 - $150,000 respectively. This assumes high volume sales in women’s outerwear with supplementary sales profit from men’s outerwear, improved through time with innovative marketing concepts. These are highly competitive prices for quality urban clothing and outerwear compared to even mid-range stores such as JC Penney, Wal-Mart, Sears, Target, and other specialty stores owned/operated by independent salespersons. The net income earned will be used to expand the business, improve its distribution and supply infrastructure, or create new innovative in-house marketing to appeal to the younger buyer. If there is interest in the 25-34 group for urban clothing, new relationship marketing finance will be applied to assist in gaining even more sales volume and market interest in a variety of urban apparel for older buyers. 5. Self-Analysis In order to make Urban Clothing work effectively, the sole proprietor will have to ensure that the organization meets all standards of quality, service, and relationship management through marketing and direct sales tactics. Thus, there must be a system of education and training in place so that all members of the sales staff understand the goals and mission of Urban Clothing. Therefore, the burden of training and human resources will have to fall on the owner and be a part of the team-working and sales tactics models. This will require considerable investment on the sole proprietor in order to find total marketing success. Not all aspects of the lifestyles and attitudes of the potential target market can be fully understood prior to launch of Urban Clothing. This will come with survey instruments, interactions with customers, and consultations during special events promotions. However, as part of self-analysis, the owner must realize that not only administrative function is necessary, but there must be dedication and mentoring occurring regularly. The owner should consult with psychological and socially-based academic literature to assist in understanding how to effectively build a quality team environment and act as a role model for positive sales interactions with customers. This business plan is based on existing business models for youth-based retailers and by consulting with trade journals and academic texts on marketing and the social business environment, the owner will be able to make Urban Clothing stand out among many competitors and gain long-term customer loyalty in the Converse, Texas area. References Black, James C. (2009). 10 Steps to Retail Success, Butterworth-Heinemann: Amsterdam. Boone, L. & Kurtz, D. (2007). Contemporary Marketing, 12th ed. Thompson South-Western. Boone, L. & Kurtz, D. (2008). Contemporary Marketing, 13th ed. Thompson South-Western. City-data.com. (2012). “Converse Texas Demographics”. Retrieved July 19, 2012 from www.city-data.com/city/converse-texas.html Goodman, Adam. (2011). “Clothing and Footwear Trends”. Vertical Insight Manager. Retrieved July 17, 2012 from http://advertising.microsoft.com/uk/wwdocs/user/en-uk/foradvertisers/retail.clothing%20and%20footwear_May%202011_external.pdf Gaapifrs.com. (2011). “Retail Clothing Industry”. Retrieved July 17, 2012 from gaapifrs.com/downloads/retail%202520-%2520clothing. Grey, Emil. (2010). “Environmental and Social Consciousness – Global Trends in Clothing Retail”. Retrieved July 18, 2012 from www.value-chains.org/dyn/bds/docs/574/grey. Appendix Population Demographics by Age for Converse Texas Read More