Objectives and Strategy of the Hardware Mart Company - Assignment Example

1. Objectives & Strategy of the Company: Where we are currently: Our Company, “Hardware Mart” was formed two years ago. It has an online store that sells old, second hand computers through its website, www.hardwaremart.com, to customers around the world. We sell used computers that are not more than five years old. The brands that we mainly deal in are Apple, HP and Dell. The customers can buy the products from the website of the company. The customers can make the payment through a variety of payment gateways like debit cards, paypal etc. We accept the payments in the U.S. dollars as well as in the home currency of the customers. The payments made in the domestic currency of the customers are then converted into pound sterling by us in the open markets. All our revenues therefore end up in Great British Pounds (GBP). We have given this facility of payment in home currency to our customers, because our main target segment is bottom-of-the-pyramid customers in the emerging markets like Brazil, India, China and Russia. Once the full payments are made by the customers, the products are shipped to their addresses. What are we trying to achieve: Our sales during the first two years of our operations were £ 645,000 .Brazil has emerged as our biggest market. Now we plan to supplement our click online store with a brick-and-mortar store. We intend to open our first physical store in Sao Paulo in Brazil. Sao Paulo is the largest city in Brazil. The store in Sao Paulo will serve both as our store and warehouse. We will also provide repair and services in our Sao Paulo store. If the Sao Paulo store succeeds then we will open more brick-and-more physical stores in other major cities of the emerging markets of the world. Our Strategy: Our strategy is to complement our successful online store with physical stores. Empirical evidence shows that the brick-and-click model is the most successful one. The most successful online retailers are those who also have a presence in the physical space. SWOT Analysis of our company: Strengths: Our Company has succeeded in online retailing of second hand used computers. We can leverage our experience in online retailing for creating successful physical operations. Weaknesses: We have no previous experience of operating directly in physical markets. Our company is headquartered in a developed market. The actual conditions in emerging markets may be quite different from our perceptions based on our experience of operating in a developed market. Opportunities: There are immense opportunities waiting to be tapped at the bottom of the income pyramid. Our target customers are low income customers of the emerging markets who cannot afford first hand new products of companies like Apple in the usual conditions. Threats: The threats come from the relatively unstable political and social conditions in countries like Brazil. The crime rate is very high in cities like Sao Paulo. PESTLE Analysis of Sao-Paulo: Political factors: The political conditions in Brazil have stabilized over the years. The country is currently under the presidency of Dilma Vana Rousseff. Brazil is presently a democracy. Economic factors: It is one of the fastest growing economies in the world. There is a huge middle and lower middle class in Brazil. Social factors: The population of Brazil is around 190 million. Portuguese is the main language. Christianity is the main religion of Brazil. Crime rate is high in major cities like Sao Paulo. Technological factors: Brazil has a sophisticated technology infrastructure. The internet penetration rate is around 50%. Legal factors: The property and contract laws in Brazil are well defined. Legal risks are very limited. Environmental factors: The environmental regulation has increased over the past few years. Environmental laws regarding disposal of electronic waste have also become more stringent. Strategic objectives of the company: The main strategic objectives of Hardware Mart are: 1) To start successful operations of the retail outlet at Sao Paulo. 2) To increase the number of outlets to 10 by the end of five years. 3) To create maximum value for our shareholders and stakeholders. Business Plan: 1. Organization………4 2. Operations…………6 3. Sales & Marketing…….8 4. Finance………………9 1. Organization: Business Ownership: Hardware Mart is a limited liability corporation. There are currently six shareholders in the company. All of them have contributed equal equity to the capital of the company. The £ 100,000 required for starting our Sao-Paulo operation will all be raised by selling 7.7% stake to a UK based private equity fund. Management: The Chief Executive officer of the company is one of the promoters who holds an MBA degree from Harvard. Below the CEO are two vice-presidents. One is vice-president for sales and the other is vice-president for operations. For overseeing the proposed store in Sao Paulo, Brazil, a Vice-president for stores has been appointed. This person has about fifteen years of experience in the electronic retail industry. He has worked in Brazil for about ten years and is well versed in the nitty-gritty of the Brazilian market. The two vice-presidents are also co-owners of the company, each having around 16.6% stake in the company. Human Resources: The operations team consists of a staff of about 30 that look after and manage the different aspects of the operations of our website or online store. For the Sao Paulo store an additional staff of about twenty will have to be recruited. Besides the vice-president (sales) the rest of the staff will be recruited locally. Premises: The Sao Paulo store will also have a warehouse. The store will be located in one of the main markets of Sao Paulo near the important Paulista Avenues. The premises will be spread in an area of 3000 square feet. 2. Operations: Product Design: We sell old, second hand computers. These computers are not more than five years old. We focus on reselling computers of brands like Apple, HP and Dell. There is a very high demand for second-hand computers of Apple in emerging markets like Brazil, China, India and Russia. Purchasing: The products are purchased from existing owners of the products. Most of the second-hand computers that we have procured till now for reselling have been procured through our website www.hardwaremart.com. Owners of computers who want to sell them inform about their prices and location on our web page. Then a representative from our company visits them and checks the condition of the computer. If the condition is good then that product is bought by us. The inventory is stored in our existing warehouse in UK. The Sao Paolo store will have a warehouse of its own, behind the store. Much of the initial investment of £ 100,000 will be spent in procuring inventory for the Sao Paolo store. The store, after the beginning of operations, will have a section that will procure secondhand computers. This will ensure a smooth flow of products for reselling. Quality: We will sell only high quality second hand products. Before buying a second hand product for reselling, our operations staff does a close survey of the different features of the product to ensure that the product is in good condition. We sell only those second hand products that are not more than five years old. Our unique value proposition is that customers will get good quality second hand products. The risk that customers face when buying second-hand products is that they are not sure about the quality and condition of the product. Over the two years of our online operations, we have slowly and steadily won the confidence of our customers. Quality complaints have come at less than .5% of the products sold during the period of two years. We will extend the same quality to our customers at Sao-Paolo store. 3. Sales & Marketing: Target segment: The target segment is the lower middle class and bottom of the income pyramid in emerging, developing countries of the world. There is a huge untapped potential in this segment in the emerging markets of the globe. Competition: There is not much competition in the second hand computer selling segment. Much of the competition that exists is from the informal, fragmented sector. Market Research: The market research has already been done. There is huge latent demand for second hand computer products of companies like Apple, HP etc. in Brazil. Marketing: The marketing of the Sao Paolo store will be done through our website www.hardwaremart.com. Pricing: Our pricing strategy is to charge a 30% mark-up over the costs at which the products have been purchased. 4. Finance: Projected Profit & Loss statement of the Sao Paulo store for the first six months of operations: Sales 161,250 cost of products sold 53,750 lease Rent 7500 salary of the vice president 3749.99 salary of the staff 37499.76 other miscellaneous expenses 5000.36 Profit before taxes 53750 tax at 30% 16125 Profit after taxes 37625 The sales of £ 161,250 are based on very conservative assumptions. It is assumed that 1000 units of the product will be sold at the average unit price of £ 161.25. We have not included the revenues from the service and repair operations that will also be available for the customers in the store. We have no previous experience in this area so we have not done any forecasting. The cost of products sold will be £ 53,750. The salary of the vice-president for the Sao Paolo stores will be $ 1162 per month or $ 6976 for the first six months. The vice-president will also hold 25% stake in the Sao-Paolo operations. 25% of the profits from the Sao Paulo operations will go to the vice-president. The lease rent has been assumed to be £ 1249.95 per month or £ 7500 for the first six months. The salary of the staff has been based on the estimate of £ 312.287 per employee per month. £ 312.2875 * 6* 20 = £ 37499.75 The miscellaneous expenses include various bills like that of electricity etc. The Return on equity employed by the Sao Paolo store in the first six months will be: Profit After Taxes/ Total equity employed: 37625/ 100,000 = .37625 or 37.625% Balance sheet at the end of the six months Liabilities Assets Shareholders' funds 100,000 Fixed assets 7500 Current Assets Inventory 40000 Miscellaneous expenditures 52,500 Total 100,000 Total 100,000 Raising Finances: The Sao Paolo operations will require an initial investment of £ 100,000. This investment will be raised by selling 7.7% stake of our company to a UK based private equity fund. The private equity fund has valued our total company at 4 times our average annual sales during the past two years of operations. Total sales of the company during the past two years : 645,000 Average annual sales = 322,500 So 4 * 322,500 = 1,290,000 or £ 1.29 million. So 7.7% of this valuation will be 7.7% * 1290000= 100,000. Credit Policy and control: Our policy is to sell products only on cash. No credit will be given to the customers. The objective of this policy is to ensure that there are no disruptions to the cash flows of the retail operations in Sao Paolo. Also credit collection and credit processing costs can be significant in the case of emerging markets where credit default rates are usually high. Orders : 1000 units : Sales : £ 161,250 : Profit/ loss : £ 37625 : Time : 6 months : Costs of the products sold : £ 53750 References: Eric S. Siegel, Brian R. Ford, Jay M. Bornstein, 1993, The Ernst & Young Business Plan Guide, New York: John Wiley and Sons. Read More