Business Plan for Online Apparel Business: Case of Bonanza Apparels - Speech or Presentation Example

BONANZA APPARELS BUSINESS PLAN FOR AN ONLINE APPAREL BUSINESS Table of Contents Page 1 Executive Summary 3 2 Introduction 3 2.1 Company Profile 3 2.2 Addressing New Markets 6 2.3 Novel Techniques 6 2.4 Trading Partners 7 2.5 The Winning Team 7 3 The Product Line 7 3.1 Current Availability 7 3.2 The Future 8 3.3 The Competition 8 4 The Market 8 4.1 Trends 8 4.2 SWOT Analysis 9 4.3 Segmentation 11 4.4 Projections 12 5 The Competition 13 5.1 On-line Competition 13 5.2 Brick & Mortar Shops 13 5.3 Our Advantage 13 6 Marketing Strategies 14 6.1 Logistics 14 6.2 Selling Milestones 14 7 Manufacturing 15 7.1 Production Planning 15 7.2 7 P’s 15 8 Management Profile 16 8.1 The Founders 16 8.2 The Winning Combination 17 9 Financial Projections 17 9.1 Income Statement 17 9.2 Balance Sheet 18 9.3 Cash Flow Statement 18 10 Leveraging Investments 19 10.1 Capital Portfolio 19 10.2 Fixed Investments 20 10.3 Working Capital 20 10.4 Return on Capital 20 Executive Summary The modern way to do business is the B2C model and the advent of internet and expansion of broadband connections have felicitated this greatly. The presentation deals with the various aspects of doing this business successfully in the Middle Eastern markets. Since the chosen commodity is Apparels, there is a ready market for these items and the new business model needs to attract customers in a different way. Interesting observations have been made through a SWOT analysis and it clearly demonstrates the capability of Bonanza Apparels to do a roaring business of an innovative on-line shop. The founders are looking for seed capital in the venture, having put in a major sum themselves, assuring good returns for the discerning investor. 2 Introduction 2.1 Company Profile The Middle East has a burgeoning population of over a 100 million and growing fast. During the last few decades, wealth distribution has become more widespread due to the benign policies of the rulers and the demand pattern has shifted significantly from necessities to comforts and finally luxuries. The definitions of needs too have undergone a sea change. In these changing environments, wars and unrest not withstanding, there is a growing demand for fashion garments, for men, women and children. Bonanza Apparels will be fulfilling the aspirations of the people and will be headquartered in Dubai, which is the undisputed commercial and manufacturing hub of the entire region. The novel feature of this business will be that it is an on-line B2C business venture which will have a virtual shopping space on the World Wide Web. This concept expands the coverage area of the operations, frees it from the confines of four walls and offers the customer a wide variety from the comfort of his/her home. A large catalogue of the styles and designs, which is continually updated with new offers, is available for the customer to browse at leisure and there is 3D viewing facility where the customer can try out the clothes in virtual reality in complete privacy, a luxury that no normal store can offer. This is the high point of preference and purchase for the customers which can be really appreciated by the culture prevalent in the Middle Eastern societies. The on-line store, that has been aptly names Bonanza, will be a unique and ultimate shopping experience for visitors and customers alike. One can window shop without crowding and enjoy the visit with a comfort minus the hassles and at a time that is chosen by the visitor. The shop is never closed and works 24x7x365 to suit the moods and needs of the modern day shopper. A shopping cart is always handy to fill with desired objects and the price to be paid is always known. There are gifts and surprises at every turn and the customer experiences an excitement without need to wait in queues or to jostle with crowds. Payments were never so easy. Cash is out and card is in. The customers can plan their payments and enjoy several bargains along the way. The payment gateway is secure and a wide variety of choice is available. The navigation of the site is most user friendly and has been designed with a pleasing background. The site is interactive and a FAQ that will assist the visitor or customer on most likely questions and answers and for more discerning queries there is an option to email online with assured answers within a very short period of time. This web-store has been strategically placed with search engines and has been tagged specifically so that its visibility has increased. Further measures for user awareness such as ads and banners on most frequently visited sites have been placed and are continuously being placed to increase hit rates. Other communication media have also been tapped to inform the would be customers of this new venture. The company is founded by two experienced local entrepreneurs who have wide exposure both in the real and the virtual reality worlds. Their combined experience and the winning team that they have put together ensure that the venture is based on solid foundations and employs vigorous policies towards offering the customer an entirely satisfying experience. 2.2 Addressing New Markets Bonanza will be looking to cater to all the Middle Eastern Markets as well as the adjacent prosperous Iranian Market, despite its comparative conservatism. The potential in these markets is tremendous as the population is now embracing modern education and is set to become part of the global village. They are shedding their traditional inhibitions and are becoming part of the post modern society that is far more liberal than its ancestors. Bonanza is well aware of the traditions of the area and respects the culture and customs of its people. Therefore, although it will offer all modern concepts, it will remain respectful and mindful of these aspects of the communities. The company is offering a new vision to its customers and introducing them to a new world of fashion and comfort that gives them an opportunity to integrate with the cultures of the world at large. 2.3 Novel Techniques Part of it is due to the introduction of modern technological concepts and the new and novel communication techniques. The advent of internet and the spreading of broadband have really broken all restraints and the communities that were prisoners to none but their own concepts are now free to interact with other cultures. This has encourages Bonanza to introduce the novel concept of online selling through their website and offers an exceptional experience to the Middle Eastern Market. The net has fascinated one and all and the variety it offers is something that the customer enjoys. It has empowered them and they have become more demanding in return. The evolution of web 2 with interactive sites have opened a new era of bringing communities together and sharing of experiences has helped crossing of previous barriers. This has had profound effects on the minds of the consumers and they have become more conscious and responsive. 2.4 Trading Partners Bonanza is not alone in this venture and has lined up delivery partners in each country and region and arranged for local warehousing for logistic support. This is explained later in this presentation as these support facilities are finally to define the success of this venture. 2.5 The Winning Combination This venture represents a distinctive opportunity for the discerning investors who look forward to support Innovative ideas backed by winning combination of solid business proposals that are based on carefully calculated and well laid out plans. Tapping into huge market potential is objective of Bonanza and it is looking for active seed support from interested and committed investors looking for assured profits. 3 The Product Line 3.1 Current Availability A study of the current availability of Apparels in the Middle East shows two different approaches by sellers. One set of trade banks on the conservative lifestyle of the local populace and offer little by way of challenging styles. The only innovations they offer are new fabrics, ignoring the styles and designs. On the other hand others are unmindful of the heritage and offer their flamboyant styles that are prevalent in their own cultures and they require daring customers to convert to their lifestyle. In both cases the customer is short-changed and has to go for either extreme. There is no middle ground and the customer is either ill-informed or not informed on how he or she can change with times without a clash of cultures. 3.2 The Future Bonanza wants to change that. The company has surveyed the market and its founding members possess a rich background of local cultures and aspirations and are experienced traders of Apparels in the past. They know that the future lies in subtle changes and that local flavours blended with modern trends will catch the customer’s imagination in no time. There is a rich and hungry market awaiting the launch of such styles with new fabrics and designs and that in practically no time a new class of customers is ready to be born. In fact such customers are already patronizing similar business concepts and are hungry for someone who understands them better and is indeed from among their own communities that will communicate better with them. 3.3 The Competition Currently Bonanza’s competition is sites like Amazon.com, e-bay and Froogle. They are huge sites, with a lot of products but they are meant for international consumers. They do have the latest styles and fabrics but they do not cater to the Middle Eastern taste. Their clothes are not appropriate for the local environment and ethos. 4 The Market 4.1 Trends There has been huge advance in education in the Middle East. Modern civilization has ensured that the only way to survive in this world is to be able to understand behaviors and that has lead to healthy exchange of students between the nations of the world. The onset of internet and communities on the net, increase in the number of local population who now understand an communicate in foreign languages, exposure to travel to and from other cultures, interaction with the global travellers and larger awareness of world cultural movements have radically changed the youth of the Middle Eastern Nations. They are now more aware and understand the benefits of mixing with the crowd rather than standing apart. For this they need to identify with those they interact with. Yet they need to retain their unique identity and this is where Bonanza becomes useful as it understands the subtleties that are sought by these customers. 4.2 SWOT Analysis Intuition is an entrepreneur’s forte but Bonanza carried out a SWOT analysis to come to above conclusions. Here is what it looks like. STRENGTHS 1. The chosen business of Apparels is one of the basic requirements this industry is already well established in the Middle East 2, The idea of an on-line shop is not new but there is novelty that it is specific to the area of operation 3. The business has an advantage in having founders who are locals with in depth understanding of local needs 4. The founders have experience and exposure in the Apparel business as well as the model of the business venture 5. The excellent logistic support is the mark of excellence and assured deliveries bring customer loyalty 6. A new design every week and a fresh catalogue every quarter keeps the customer interest at a very high levels. 7. In house manufacturing ensures quality as well as control on timely deliveries 8. Implementing an Enterprise solution has increased productivity and planning capabilities 9. The convenience of anytime shopping is a great attraction for otherwise busy customers with hectic schedules 10. Something for everyone, from Adults to children and all under-one-roof shopping is a sure winner WEAKNESSES 1. Infusion of capital at the right time is important to keep the momentum. If the company fails to invest it will loose its market share 2. Since customers cannot visit the e-shop in person, their interest can wane if new designs or styles are not presented regularly therefore the designers have to be able to cope up with this 3. Timely deliveries are essential and any logistic failure will spell disaster and blow out of proportion 4. Since the e-shop never closes it is imperative that an excellent system for booking and delivery is required 5. In absence of customer contact development of customer relations is difficult and cannot match the rapport that a salesperson can develop in a brick and mortar store 6. Constant communication and ability to attract new customers is a demanding task on the web. The company needs to keep up innovative methods to attract eyeballs OPPORTUNITIES 1. Absence of serious competition from other local entrepreneurs on the web space can be cashed in 2. Blending of cultural aspirations with western practicalities will be a sign of success 3. Expansion of the market in children and new-born segments will be highly profitable 4. The 3D effect is something new and can entice customers in a modern way THREATS 1. The obvious and greatest threat is that the customer, especially the female customers, do not purchase unless they try out and physically feel the garment and the 3D will not replace this experience 2. In the Middle East personal rapport means a lot and personal relations are supreme and this will be difficult to replace by a CRM software as has been done in the West It can be observed from the above SWOT analysis that the real threat lies in the customer and the salesperson not being able to discuss and close the sale. The fact is that in the past there was more mistrust in a transaction and that required to be cemented by the touch and feel factors requiring physical presence of all elements, the seller, buyer and goods. In the modern times, with greater exposure to knowledge and information as well as greater levels of understanding, this status is changing and the company expects that this threat will no longer be in the way of healthy sales. 4.3 Segmentation Markets are heterogeneous and are created by reasons of different values, needs wants, constraints, beliefs and incentives. Customers differ in their values and perceptions and want to purchase things that have value for them. Value is not just the monetary part, but also the usefulness and emotions that with go with it. The need and want play a great role in determining this value. The price actually determines the location from which this purchase will be made. Service and reliability are other important determining factors. Therefore a market segment is a set of customers that have a common approach to above questions and have a common desire to purchase a common set of goods and or services. They also respond to such offers in a common way. Marketing segmentation would therefore cover the process of dividing customers who have a common need for common variety of products whose preferences vary in very narrow bands for these items. Marketing success depends largely upon the ability to divide the segments of different class of customers and catering to their particular and peculiar requirements at the ideal cost. Bonanza has studied this and has devised plans for different segments of customers to ensure that they are offered what is most suitable for them on the above basis. 4.4 Projections Based on above analysis Bonanza has made the following projections for its trade on its e-shop. SALES in $ MILLIONS YEAR 1 YEAR 2 YEAR 3 YEAR 4 MENS APPARELS 50 60 72 87 WOMENS APPARELS 100. 120. 144 175 CHILDRENS APPARELS 80 96 120 144 TOTAL 203 276 336 406 The above calculation is based on a CAGR of 20% per annum. The total Apparel Market for Middle East is about $ 20 Billion with a CAGR of 10%. We are aiming at getting about 4% market share in 4 years time. This is a modest figure but we wish to be on the conservative side. Already in the first year we have achieved sales of $ 210 million which is slightly in excess our target. 5 The Competition 5.1 On-line Competition An analysis of e-bay and other sites like it shows that although they have a wide variety of apparels for all sections but they are more generic and not specific to geography. This means that styles are outlandish and more pro-western cultures and not meeting the aspirations of the Middle Eastern Communities. The sites are well planned but static in nature. They do have extensive catalogues and varying prices as well as good secure payment gateways. 5.2 Brick & Mortar Shops This traditional store or shop has both daily wear and high Quality dresses in the high fashion range that are meant for customers in the Middle East. The have trial rooms and cash counters in the normal way and are both small and large. They are also spread all over the place and customers need to travel to them. Their location is both individual showrooms and shops in Malls and Plazas. There are both local shop owners who cater to ethnic tastes as well as franchisees of foreign labels. 5.3 Our Advantage The Bonanza advantage is that right from the management down to the designers we are all local people. We understand the cultural requirements, we understand the ethnical values and we are aware of the local needs and customs. Aside of this we are trained by overseas marketing and design experts and are therefore aware of international moods and trends. For us it is easy to blend the two far apart concepts and produce clothing that is suitable yet modern for use by our Middle Eastern customers. We also offer the customer the convenience of shopping from homes and other locations of their convenience and at times of their choice. 6 Marketing Strategies 6.1 Logistics Since we are an on-line shopping company the most vital link is the management of logistics. Unless deliveries are well planned there will be chaos and ultimate failure of the organization. Again our being local people has helped us to rope in the best of methods and we have managed to put together a fool proof system backed by contingency planning. It is a two-tier mode so that a back-up procedure is available in case of a primary failure. Our deep knowledge of the area has assisted us in managing this front very effectively. Our success lies in our ability to deliver the customer’s need at their doorstep and this is the biggest plus point that we will cash upon. 6.2 Selling Milestones We plan to sell all over the area simultaneously. But keeping in mind the local political development it will be prudent to keep out of the troubled area as there are bound to be logistic problems. We shall therefore exclude all war affected zones for the moment. This will effectively reduce our target market by about 25% but this is more than adequately compensated by other areas that are more peaceful and thus more conscious of their needs. We shall concentrate here for the first two years and when these areas are fully covered we shall venture into the so call war affected areas and hopefully by then some sort of normalcy is expected there by that time. 7 Manufacturing 7.1 Production Planning Bonanza has in house designers who will work with International counterparts as well as local artisans for their creations. They will cover from daily wear to high fashion and party wear in between. Weddings are great occasions in the Middle East and special attention will be paid in this high volume business. It is therefore natural that we shall set up our own manufacturing facilities to ensure the highest standards of production. Productivity and cost are a great concern and we have decided to manage these two important areas by using trained and qualified labour from adjacent countries as well as using latest machinery from Europe and Japan. We also understand that it is most important to set up systems and monitoring and for this we have decided to install and implement Enterprise Resource Planning software. This will ensure that we reduce on wastages and increase productivity as well as maintain quality. 7.2 7 P’s The success of a modern business enterprise rests upon the 7 P’s. They are Product, Price, Promotion, Place People, Process and Physical Evidence. We are therefore ensuring that we have a wide consumer friendly Product range at acceptable and competitive Pricing structure. Our efforts will be directed on effective communication of Promotions and what could be better than an easy accessible Place on the web for better reach. Here the customer needs a click to transport himself literally to our fabulous shop. We have the right People to design and market our products who use the latest Processes for most efficient and quality production. Both our people and processes are the latest and most highly developed in the industry. Finally our Presence in the Middle Eastern market is already noticed. Our Beta Site is already in operation for the last twelve months. We have achieved our first target on market share as well as sales figure as will be seen in the projections. You are seeing the efforts in this direction invariably expressed in different parts of this presentation. 8 Management Profile 8.1 The Founders There are two founders of this novel enterprise. One is Faisal Jassim. He has worked for over ten years in the USA in various dot com ventures and is highly capable of administering and managing B2C and B2C businesses. He has also worked on e-bay for the last two years and has acquired an extensive knowledge of selling products on-line and was particularly involved in launching several garment lines. He is adept at organising and publishing on-line catalogues and has successfully worked on several of these for various fashion houses of Europe. Our second founder is Bilal Abdallah. He has been managing his family apparel manufacturing business for the last twenty years and has travelled extensively around the world sourcing material and clothing for the Middle Eastern customers. He has his ears close to the ground and is able to forecast change in trends and has been running a very successful business enterprise from his headquarter in Dubai and twelve branches all over the Middle East. He also operates a modern Garment manufacturing factory located at Ras-al-Khaima. 8.2 The Winning Combination The two founders have hand picked a team comprising of three designers, one each for men, women and children’s clothing. They have also engaged an experienced Production Manager as well as a host of Merchandisers and Purchase Personnel who have a wide contact of suppliers worldwide. They have also appointed a Logistics manager who was previously working for DHL based at Jeddah. With this team comprising of fifteen men and women of high and proven calibre they have set up this organization on professional lines. 9 Financial Projections 9.1 Income Statement All figures are in $ Million Years 1 (Actual) 2 (Projected) 3 (Projected) 4 (Projected) Sales 210 276 336 406 Cost of Sales 200 210 222 243 Other Operating Expenses 50 60 70 80 Operating Income 40 (Loss) 6 (Profit) 44 (Profit) 63 (Profit) Operating Margin 19% (Loss) 0.2% (Profit) 13% (Profit) 15.5% (Profit) Increase in Year-on-Year sales = 20% (Projections) Increase in Year-on-Year Cost of Sales= 10% (result of economies of Production) Increase in Operating Expenses = 20 to 10% due to economies of scale Increase in Operating Margins = 15% + de to wider coverage of market 9.2 Balance Sheet YEAR ONE – ALL FIGURS IN $ MILLION ASSETS LIABILITIES CASH 5 ACCOUNTS PAYABLE 10 ACCOUNTS RECEIVABLE 2 INVENTORY 5 TOTAL CURRENT ASSETS 12 TOTAL CURRENT LIABILITIES 3 PROPERTY 2 LONG TERM DEBTS 7 PLANT & MACHINERY 10 EQUITY CAPITAL 50 OTHER EQUIPMENT 3 RETAINED EARNINGS (loss) (-) 40 GRAND TOTAL 27 GRAND TOTAL 27 9.3 Cash Flow Statement Year One – Actual – All figures in $ Millions SOURCES OF FUNDS APPLICATION OF FUNDS EQUITY CAPITAL 50 PROPERTY 2 LONG TERM DEBT 3 PLANT & MACHINERY 10 CASH IN HAND 5 OTHER MACHINERY 3 ACCOUNTS RECEIVABLE 10 ACCOUNTS PAYABLE 2 DEPRECIATION 1.5 LOSS 40 DECREASE IN CASH 12.5 Depreciation has been calculated at 10%. 10 Leveraging Investments So far after the first year the figures are running slightly better than projections and it is expected that the future will prove to be better as the business model has been well planned. However it is felt that some more investments are required at this stage to augment the manufacturing facilities. It is also necessary to carry a larger range of stocks as the demand appears to be growing for more variety. In this business one cannot be out of stock of popular items and fresh introductions at short intervals bring back the customers to explore latest styles and design. Another notable feature is that while the adult section has done well, it is the children’s section that appears to be out growing. There is a sudden desire on the parent’s part to dress their offspring in the latest fashions and we have had several enquiries for expanding the line and to include a separate section for new-born accessories. We seriously need to look at this promising area. There has been a good response to our range of wedding dresses and it is highly paying as customers are prepared to pay enormously for a once-in-a-lifetime experience. We need to add to this line. 10.1 Capital Portfolio The founders have already invested $ 50 million in the venture. They need another infusion of capital for fresh investments in machinery and stocks of raw materials such as fabrics and trimmings for accessories. They have two options. One is to go for dent financing, but this involves interest and in present risk situation in the Middle East, the surcharge on account of risk is heavy and it will erode the profits. The second option and this is the preferred route for which this presentation is being made, is to offer 25% equity in the venture for a sum of $25 million. The promoters and founders are confident that in three to four years time the venture capitalists will reap a huge benefit out of this investment. 10.2 Fixed Investments So far the investment in fixed assets is quite low. The reason is that the founders wanted a slow but steady start and retained greater part of the cash for meeting expenses and logistics support. But after one year they wish to double the capacity, especially in the children’s section to meet growing interest of the customers. 10.3 Working Capital In the first year the major part of the capital was used as working capital and the company is of the opinion that this pattern should not be disturbed for any reduction will affect services. Services play a major part in this business model as it is very important for customer relationship to be able to deliver on time at reasonable cost to even remote destinations. 10.4 Return on Capital It can be observed that from the third year onward there is a fair return of over 30% return on capital. However the company is already overwhelmed with the response to its business model and it looks that targets will be exceeded, provided fresh funds are infused well in time to cash in the current scenario. Any delay will open a window of opportunity for the competition and new comers who will occupy the space built so painstakingly by the company so far. More than the return on Capital there is bound to be an appreciation on the investment and it will easily double in three years time. This is a golden opportunity for those who have the staying power and the foresight to invest in a well engineered venture. Read More