Business Plan for Innovative Clothing - Case Study Example

Table of Contents 1Business goals............................................................................................ ...........2 1.2 The Company ......................................................................................................2 2.0 Market analysis ...................................................................................................3 2.1 Overall Scenario ................................................................................................3 2.2 Market Research ...5 2.3 Competitive Edge ..............................................................................................5 3.0 Implementation Strategy 6 3.1 Operations .6 3.2 Business Structure..............................................................................................7 3.2.2 Marketing Department..............................................................................8 3.2.3 Design Department.....................................................................................8 3.2.4 Product and quality control Department.................................................9 3.3 Marketing Strategy.............................................................................................9 3.3.1 Product.........................................................................................................9 3.3.2. Pricing.........................................................................................................10 3.3.3 Distribution................................................................................................ 10 3.3.4 Branding and Promotion...........................................................................10 3.3.5 Market Research........................................................................................11 4.1 Risks and Risk Management: Porters five forces model.................................12 4.2.1 Other Risks-Financial Risks ......................................................................13 4.2.2Operational Risks.........................................................................................13 4.2.3 Strategic risks...............................................................................................13 5.0 Important Milestones and activities...................................................................14 6.0 Financial statements............................................................................................15 6.1 Assumptions.........................................................................................................15 6.2 Profit and Loss statement...................................................................................16 6.3 Balance Sheet.......................................................................................................17 6.4 Cash Flow statement...........................................................................................18 References..................................................................................................................19 INNOVATIVE CLOTHING 1.1Business goals: Innovative Clothing (IC) will manufacture and market a complete range of branded casual clothing to cover the entire segment of this market. The company will position itself as store chain offering casual clothing of quality which is above expectations of the market, at competitive price and with designs which are simple but at the same time makes the wearer look smart. The company will aim to achieve a turnover of 3 million (Aus $) in the first year and 10$ by the end of third year. It will break even in the first year of operation itself and start generating substantial profits from second year onwards. 1.2 The Company Innovative Clothing is a general partnership firm. The fund for the establishment of the business is equally shared by 5 partners. As a general partnership firm the responsibility is also equally shared among the partners. The entire activities of the business are under the control of a Board of directors in which the 5 partners are included. The company is manufacturing and marketing garments locally. With the experience gained, it wants to enter into retail sales of casual garments in a big way by setting up a chain of retail stores in Sydney. It will open 10 stores in the first year followed by ten more in the second year. The partners collectively have experience in production, marketing and design. They propose to recruit a Chief Executive Officer who will be in charge of operations. The CEO will report to the board represented by the five partners. Innovative Clothing proposes to transfer its manufacturing activity to China because of availability of work force at lower wages and various supports given by the government for investing there. The marketing and design activities will be located at Sydney. The company would try to cater to the needs of entire market for casuals instead of focussing on one particular segment only. For this it will evolve appropriate promotion and branding strategy. 2.0 Market analysis 2.1 Overall Scenario Australia's aggregate clothing expenditures increased from $AUD 8.66 billion in 1988-89 to $AUD 11.82 billion in 2006-07. There are around 5000 textile, clothing and footwear manufacturers in Australia, employing over 87,000 people. Most of these operations employ fewer than 50 people and only 5 per cent of firms employ more than 100 people. In addition it is estimated that there are between 50,000 and 330,000 outworkers working from home. Annual turnover is about A$9.5 billion, including over A$3.3 billion in value-added activity. Australian clothing manufacturers supply a diminishing share of the market's requirements and are increasingly concentrating on the high fashion end of the market where they have a competitive edge over the cheaper imported lines (small production runs and quick response). Out of above expenditure more than 60 % is accounted for by casual clothing. Australia's relaxed and informal social mores discourage expenditures on formal dress, and the trend to informality in the workplace undermines work-related clothing purchases (Weller,S Chapter 8) The market for casuals is huge and there are a number of players already in the field catering to different segments of the market. There are both large and small companies in the field. The pricing is competitive. Consumers in the age group of 15-30 account for more than 70% of the demand. Cost of procurement from local sources is very high. Hence there is good scope for getting price advantage by shifting production to China. However it is believed that manufacturers from China are still only interested in producing long runs for the mass market and not for producing orders in smaller lots of fast changing designs There is a growing trend of sale of garments, especially casuals, moving away from departmental stores to exclusive branded retail shops. The influence of the department store is on the wane as consumers increasingly prefer to patronize large retail chains that provide a more tailored and precisely targeted value offering. With a major retail chain to cover every demographic segment, these retailers better understand their target group, are better able to provide them with appropriate fashion and have thus become a more convenient outlet than department stores which have to cater to all demographic segments at once. Specialty retailer chains are located in major cities, within suburban shopping malls and in strip shopping locations that is, in places where people might go to shop as a recreational activity. Their regionalized geography contrasts to Department stores' central locations. There are several regional specialty chains already like Colorado Group comprising Colorado Adventurewear, Mathers Shoes, Williams the Shoe Man, Jag, Adele Palmer, 26 Red and Diana Ferrari footwear (www.market newzealand) The fastest growing in textile and apparel market are casual clothing and specialty products. 2.2 Market Research The company over the past two years has been testing the waters and has been planning an entry into the garments market in a big way. For this purpose the company has commissioned a market research with specific objective of understanding consumer expectations and identifying entry points. Some of the findings of the study are: Sydney seems to be the city where the market size is highest and which is also fastest growing. Sydney also has much lower retail rental costs and has local laws and taxation policy which are all distinctly advantageous compared to other cities. Most of the people in all categories who buy casuals seem to prefer simple and elegant designs. There is an overwhelming demand for clothing which makes them feel and look smart. Consumers want high-quality clothes at affordable prices from a company they trust, which means that branding will be very important. Price and quality are very important factors influencing purchase decision. 2.3 Competitive Edge The strategy under these circumstances would be to create a manufacturing facility in China which will produce casual apparel in smaller volumes, with wider range of designs and in smaller runs, but with costs and deliveries at the same level as it does for its usual mass produced goods. The design and market inputs to produce these should be from a location close to the market. Innovative Clothing plans to adopt this strategy, namely, having marketing and design facility close to the market but moving production base to a location where it can be produced at far lower costs. Innovative Clothing has identified this to be their strategy for getting a competitive edge. It will transfer manufacturing facilities to China with design and marketing in Sydney. Being close to the market it will be alert to fashion trends, changes in demands and preferences and be in a position to react quickly. At the same time it will be able to produce goods at a cost lower than its competitors. It will concentrate on catering to the needs of customers in the age group of 15-30, but at the same time also maintaining presence in other segments so as to be a big player in this apparels segment. In the long run there is a threat that such strategy will be imitated which will have to be countered. The investors of the company have expertise in various aspects of clothing manufacture. They have the ability to be in close touch with the market and track fashion and design preferences of the market and come out with suitable products at the right time. However what is going to be crucial to the company is ability to acquire and retain customers. Since this will have to be done within a short period of time, it will require considerable financial resources. 3.0 Implementation Strategy 3.1 Operations The company is planning to transfer its manufacturing activity to China, where it will be able to take advantage of lower wage cost and support of the government to set up manufacturing facilities. The marketing and design part of the enterprise will remain at Sydney. By this it will be able to control both the market side intelligence and production costs effectively. Cost savings and quality control will be an important strategy in operations. The operations group will use several tools like total quality management, performance gap analysis and bench marking to ensure the highest quality at lowest cost. The company will market these products in the city of Sydney through a chain of stores to be established at selected points. In the first year it will open ten stores and ten more will be opened in the second year of operation. The company will use in house know how in designing the shop layout. The shops will be designed to create a friendly and relaxed atmosphere. The staff will be trained to offer superior service to its customers. All staff excepting those in manufacturing will be located in Sydney 3.2 Business Structure: The business structure followed by the Innovative Clothing is of general partnership firm. The fund for the establishment of the business is equally shared by 5 partners. As a general partnership firm the responsibility is also equally shared among the partners. The entire activities of the business are under the control of a Board of directors consisting of the five partners. A Chief Executive Officer will be appointed by the Board of Directors, to take care of the operations of the company. He will act as the coordinator of the four departments of the business. The departments under the control of the CEO is shown in the below diagram. 3.2.1 Human resource department: The company recognises the importance of the selection and training of its employees. The crucial areas would be in areas of market research, design and retail personnel. These will have to be manned by persons of high competence and trained to understand and serve the philosophy of the company. The entire activity relating to recruitment and training of employees for the business are under the control of the Human Resource Department. A committee of three persons will be doing the recruitment. Training will be standardised and done with resources available in-house. Well trained and competent resources are available within the company to do this. 3.2.2 Marketing Department: The formulation of appropriate strategy relating to the marketing of product of Innovative Clothing and implementing it will be the work of the Marketing Department. Under this department there is a market committee which consisted of 5 members, for carrying the market research. This team will play an important role in the company. They will employ various techniques of doing market research so as to provide timely information to the company on trends, demands and needs of customers. They will play a pro active role and help company to be in the forefront in the market for introducing new products. 3.2.3 Design Department: The design Department consists of 4 professional designers who are highly skilled in designing casual clothing. They will work closely in liaison with marketing department and translate market information into products. The design department will also have the responsibility that their ideas are appropriately communicated to the manufacturer and the end product is as per the actual design. 3.2.4 Product and quality control Department: The quality control department will work in close coordination with manufacturer to ensure that design standards are met. The responsibility of the department will be to lay down product specification and prescribing quality norms to the manufacturer. They will also do a second level inspection of goods at Sydney after the goods are received to double check quality has been adhered to. This is justified on the grounds that the company's success hinges on quality, and there can be no compromise on this. 3.3 Marketing Strategy 3.3.1 Product Product offering of the company will be casuals of quality bettering the expectations of the customer, incorporating latest designs. The emphasis will be on designs that are simple and that which gives a feel of looking smart to the customer. The designs will be generated within the company and manufactured from its partner's factory in China under strict with strict quality monitoring done by the company. Product range will focus on market for customers in the age group 15 to 30, but will also have offerings for the entire buyer segment of casuals. 3.3.2. Pricing The company will try to leverage on the cost advantage it derives from its sourcing strategy. Particularly in the first year it will try to attract customers by fixing lower prices and foregoing profits, with a view to build a customer base. Along with promotion strategy, this will also help in building a customer base in a rapid manner which is one of key points for success. 3.3.3 Distribution Based on the findings of the market research the company has decided to market the products in Sydney through establishing a string of chain stores, which is the current trend in marketing of casuals. Market research done by the company also reveals that the costs of establishing retails at Sydney are also the lowest because of lower rental costs among all other cities in Australia Government taxes and regulations are also favourable in Sydney. By focussing in marketing in one city the company will save considerably in distribution costs. This will give them a focus to spend their promotion budget efficiently. 3.3.4 Branding and Promotion Innovative Clothing aims to project itself as a company that offers a complete range of casuals for every segment of customer in the market. The ultimate goal of the company is to create a brand image of high quality product of low price. The brand should also project an image of the company as selling products with simple but smart designs. The company also has a need to build quickly a customer base that will give it volumes to achieve a break even quickly. The company will use TV as a medium for promoting its products as it will be the most appropriate medium for such products. It is also aiming to develop an innovative website that will be used to attract customers to visit the company's retail showrooms. The portal will also be used to both promote its product as well as encourage customers to share their requirements and needs. The company will also project its latest designs and products through participation in the local fashion shows. It will project an image of the company as offering the latest in fashion. It will always be on the lookout for other ways of product promotions like sponsoring local events and other opportunities. The company proposes to spend 10% of its turnover on product promotion on an average every year. 3.3.5 Market Research An important component of market strategy for the company is to establish an ongoing market research activity which will constantly be engaged in research to pick up trends, changes, preferences, opportunities and threats. The information will influence the company's decision making process at various levels. Decisions on introducing new products, new designs, pricing, promotional efforts will be taken based on inputs given by research. The company has already taken a decision to equip this department with competent and dedicated people. They will be the ears and eyes of the company. The research done by the department will be a mix of open ended as well directed research. The interactive website being developed will also be used as a source of getting market information. 4.1 Risks and Risk Management : Porters five forces model Assessed Risk Risk management strategy Threat of Entry: Here the entry barrier is low and it is easy for other companies who see the success of this model to imitate and come out with similar offering. Company should consolidate gains as early mover. Innovative policies to attract and retain customers would be the only solution to counter this threat. Threat of Rivalry. The business is at a mature stage and the players are many. There is little product differentiation. Competitors very often fight hard to retain and expand their markets. The competitive moves of the company like low price will affect the competitors in the market and they may retaliate. The entire business process can be imitated. Thus the competitor's rivalry is a serious risk in the market Until the rival companies also come out with drastic cost cutting strategies, this company will enjoy the competitive edge. The company will have no alternative but to continuously work on cost control and improving quality in the long run. Also building quickly a large and loyal customer base through its branding policy is essential to cope with this threat. Threat of substitute products: The demands for casuals cannot be entirely substituted. The spending on casuals could change to other products like formal, or even to other lifestyle items like mobile phones, this may decrease/increase demand, but will not be a big threat in this case. There are no risk management strategies planned for this. Bargaining power of buyers: As it is the buyers have wide choices in their purchase. Purchase preference is not entirely on brand, buyers will be always willing to switch to other brands if the offerings become better than this company's. This is a serious threat for the company The customers' expectations on price quality and style have to be met at all times. The company's policy of market research should help in being in close touch with their changing requirements and responding adequately and timely. Bargaining power of Sellers: The sellers from China themselves operate in competitive market; the threat from this is low. Again there is no need to address this now as the threat is low. 4.2.1 Other Risks-Financial Risks Financial risks: The main financial risk is price realisation. Inflation in the economy will decrease disposable income and reduce purchasing power of buyers. The other financial risk will be not being able to generate adequate working capital. The separation in space of manufacturing could also increase the working capital cycle and increase working capital costs. Shipments time will have to be monitored and minimised. 4.2.2Operational Risks: The challenge for the company will be to manage its manufacturing and marketing functions which are separated geographically. There could be communication and logistics issues. These are however issues relating to the organisation. Overall it has a structured set up to control production and sales. The company must overcome the challenge of coordination. The other operational risk of attracting and retaining good talent. The company proposes to have a HR policy of offering suitable incentives to overcome this. 4.2.3 Strategic risks The company will depend a lot on its branding effort by which it will be seen as a low cost high quality player in the market. It will like to be seen as source for simple and elegant design catering to the entire market segment. Anything that happens to mar this image will have adverse impact on its success. The company is proposing to engage the services of a reputed and successful agency and is hopeful it will be able to build an appropriate brand image. 5.0 Important Milestones and activities Milestone Activities Completion date Registration of Business Selection of name, confirm availability, register business, make draft business plan End November 08 Identify and finalise Shop 10 shop locations Selection of real estate agency Selection of sites and finalising lease agreements End January 09 Complete shop layout and design and finalise equipments and facilities Finalising Design Finalising equipment list Identifying Vendors Negotiations Finalise and purchase End March 09 Selection of Business associates completed Finalise and sign up with business associates (Ad agencies, CPA, insurance, legal April 09 Business licences obtained Apply to appropriate agency, and obtain April 09 Funding sanction from bank obtained Prepare detailed business plan, submit to bank, negotiate and finalise May 09 Selection process completed Prepare staff requirement, prepare job descriptions, advertise in newspaper, and complete selection process June 09 Training and all HR related activities completed, and all personnel in place Plan and conduct training Prepare pay roll, Manuals, working rules etc. July 09 Stores Launched Ensure stores are stocked Prepare launching promotion plan and execute August 09 6.0 Financial Statements 6.1. Assumptions The company will be approaching a bank for commercial funding to the tune of Aus$ 2,500,000 The funds will be mainly to purchase assets for setting up manufacturing as well as funding required for setting up retail chains furnishing them and promotion and publicity. The company will have a debt to equity ratio of 2.5:1 The fund will be at an interest rate of 7% and repayable in 6 years, with a holiday period of one year. The sales will touch 3Million A$ in the first year and reach 8.2 million in the 2nd year. To achieve this company will open 10 retail outlets in the first year itself and another in the second year. Appropriate amount for promotion and brand building is provided in the budget. The company will break even and achieve a modest profit in the first year of operation and will post a modest profit of 0.55 million in the 2nd year. The projected Balance Sheet, Profit and Loss account and Cash flow statements have been prepared and appended. 6.2 Projected Profit and Loss Statement (Australian Dollars) For The Year-> 2007 2008 2009 Sales 155,000 3,200,000 8,000,000 Interest and other income 90,000 0 0 Net income 245,000 3,200,000 8,000,000 Wages and Rental 75,000 1,600,000 3,900,000 Pre-operative expenses 0 200,000 0 Interest on term loan 50,000 75,000 150,000 repayment of long term loan 80,000 0 500,000 depreciation 0 100,000 100,000 Promotion And Publicity 0 1,100,000 2,200,000 Net profit before taxes 40,000 125,000 1,150,000 Taxes 20,000 60,000 600,000 Profit for appropriation 20,000 65,000 550,000 6.3 Projected Cash Flow statement ( Australian Dollars) 6.4 Projected Balance Sheet (Australian Dollars) References Drucker,P.F. (1985) Innovation and Entrepreneurship: Practice and Principle. London: Pan Books Eggert,A.;Ulaga, W.and Schultz,F.(2006), "Value Creation in the Relationship Cyecle:A Quasi-longitudinal Analysis", Industrial Marketing Management http://ezinearticles.com/Creating-Brand-Awareness-through-Effective-Brand-Names-and-Symbols&id=230224. Hamel, G. (2006) Reinvent your company. Fortune, 12June, 105-20 Hill, C. Jones, G. Galvin, P. Haider,A. (2007). Strategic Management-An Integrated Approach 2nd ed Kirby, David. A (2003) Entrepreneurship. London, McGraw-Hill. Overview of Enterprise Risk Management, Casualty Actuarial Society, ERM Committee 2003 (http://www.ucop.edu/riskmgt/erm/documents/overview.pdf Porter, Michael E. , Michael E. Porter On competition and Strategy, Harvard Business Review, Published by Harvard Review Press,1991 Weller Sally,(2003) Fashion's Influence on Garment Mass Production Knowledge, Commodities and the Capture of Value Sally Weller A thesis submitted in total fulfillment of the requirements of the degree of Doctor of Philosophy Centre for Strategic Economic Studies Victoria University, Melbourne AUSTRALIA October 2003 (www.wallaby.vu.edu.au/adt-VVUT/uploads/approved/adt-VUT20050202.101459/public/09_C8Austretail.pdf) Yukl, G. (2002) Leadership in Organizations. Upper Saddle River NJ: Prentice Hall Inc. Overview of Enterprise Risk Management Casualty Actuarial society ERM Committee 2003 http://www.ucop.edu/riskmgt/erm/documents/overview.pdf Read More