The North face - Essay Example

The North Face Market Selection: Saudi Arabia Executive Summary The target market selected for the projected entry of North Face, Inc. is the Kingdomof Saudi Arabia. The principal attraction of this market is the accelerated growth of its retail sector which ideally fuels the demand for products such as those produced by North Face. Financially, Saudi Arabia boasts of strong, upward trending retail sales in both total and per capital value. A large proportion of Saudi Arabian GDP is generated from international trade, and whose main import partners are the major economies in the global market, in both the East and West.

Because of its high reliance on trade, the government of Saudi Arabia has prioritized the development of four economic cities which are strategically equipped to support the trade industry needs. The people of Saudi Arabia have a high literacy rate and a strong cultural fabric. Islamic in religion, the country attracts a huge influx of the faithful during the season of pilgrimages to the country, particularly to Mecca. Shopping, already an important part of the local residents’ lifestyle during the regular seasons, is particularly strong at the peak season of religious tourism.

Furthermore, demographics show that of the sizeable population of 28 million, 83 per cent are urbanized, and more than two-thirds of the population are between the ages of 16 and 40 – the ideal market for outdoors-wear, sportswear and equipment, and other paraphernalia, footwear, and accessories for a young and active lifestyle. Other significant advantages in penetrating the Saudi Arabian retail market are the liberal economic policies and free market reforms geared towards enhancing foreign investments, strong demand for imports and stable currency.

Infrastructure and advanced means of telecommunication and transportation are in place and at a level well-suited to global trade. It also has its challenges, however, such as the regulation that only Saudi nationals may engage in trading activities, and the need for a Saudi sponsor in order to obtain a business visa. There also exist significant tariff and non-tariff trade barriers which is normally at 12 per cent, but which rises to 20 per cent for smaller industries. Finally, one cannot discount the heightened political risk in the region due to increased political activism.

Timetable Activity Preceding Activity Description Duration (weeks) Succeeding Activity A None Detailed market study 2 B B A Strategic planning 2 C,D,E C B Filing of legal requirements 4 F D B Operational planning 4 F E B Financial sourcing 4 F F C,D,E Location and layout 4 G,H G F Logistics and supply 4 J H F Recruitment and staffing 4 I I H Marketing organization and set-up 8 J J G, I Start-up 2 K K J Regular operations 0 None PERT diagram (Start) A B C F G J K (End) D H I E Start-up Cost (subject to expansion) Assumptions: North Face will start up with one store located in a commercial facility such as a mall, located in an urban area.

Store space will be approximately 50 square meters and leased on annual basis. Office is located in the backroom of same store and is included in the store lease. Initial staffing requirement is 10 staff and 1 general manager. Professional fees include legal and accounting services. Manpower costs include salaries, wages and benefits. The project is estimated to be prior to any expansion plan and is meant to test the waters for the company before additional investment is made. Gross estimates: Logistics (cost of merchandise) $ 2,000,000 Lease on store space (for the year) 100,000 Manpower cost (for the years; minimum 10 staff, 1 manager) 100,000 Professional fees (annual retainer) 50,000 Marketing, promotions and advertising 10,000 Store improvements and interior design 20,000 Office and store furniture and fixtures 20,000 Office equipment (computers, etc.) 10,000 Office supplies 3,000 Permits and licenses (for the year) 5,000 Utilities (electricity, phone, internet, etc.) 10,000 Transportation 20,000 Contingencies 20,000 Assuming a 30% price mark-up on the cost of merchandise, the firm will be able to clear its cash flows for the year with a 9.

8% return on cash basis over the initial expenses as estimated here. However, it is doubtful that the price target may be attained if market conditions are weak, and the profit achieved since costs may have been underestimated.