This Business plan is designed to setup fashion garments manufacturing and retail business in the city of Milan, Italy. The target market would be people within the age bracket of 13-49 and fashion conscious customers. The unique selling point will be attractive designs, quality, embroidery, fabric and sizes. The company will open two retail outlets in the city and arrange agreements with three leading departmental stores for the purpose of sale (Businessoffashions, 2007).
The designs, fabric and quality will clearly differentiate our product from its competitors. To adequately cater to the needs of the customers, the market is divided into two segments, the business customers and the general public. The “Corporate Suiting” and “Women traditional Wear” will be targeted towards large income groups, while jeans, shirts, T-Shirts, Jackets and party wear will particularly be for middle income customers and teenagers. The Women’s traditional wear and Men’s formal apparel appear different and superior to competition, therefore a skimming pricing policy will be adopted. The other brands will follow different pricing strategies, keeping in view the status of the product. The initial revenue target for the year ended December 31, 2014 and December 31, 2015 will be € 622000 and € 1166250 respectively.
The direct competitors are Versace, Moschino, Dolce and Gabbana and other manufacturing businesses owned by designers. The strategy includes widening of distribution channels and a vibrant marketing campaign. The products will prominently be displayed at leading departmental stores and company owned retail outlets. As a part of the brand promotional activity, the advertising, sales promotion, research and development budget has already been allocated accordingly. The chronological action plan for extensive marketing has been prepared and the commercials will also be published in Newspapers, Magazines and Social Media simultaneously. Moreover, leading media channels and celebrities will be contacted for promotion purposes. Initially Life Style Fashion Company will launch six different categories of Men’s and Women’s wear such as Formal suiting, T-Shirts, Jeans, Sweaters and Cardigans, Trousers, party dresses and women’s dresses for traditional events such as Christmas, Valentines, Good Friday and other formal events. The legal status of the business will be a partnership between two friends each investing € 50000 and a long term loan of € 200000 will be obtained by the bank and the initial startup capital will be €300000.The machinery and other accessories will be imported from Ningbo city, China. The textile material will be imported from Thailand and Bangladesh. The financial projections are attached with this report and interpretation and notes to financial statements are discussed in the last part of report which will further elaborate the business plan (Kotler, 2001).
VALUE PROPOSITION
Life style fashions aim to deliver high quality and differentiated designed garments to its customers. We intend to maximize value creation because it will ultimately increase market share of the company (Fastcompany, 2000). Our company would be the first one in the Italian fashion industry to offer unique designs of Men’s and Women’s wear at highly affordable prices compared to others. Since Italy is the home of fashion and a highly competitive market and the only way to succeed is providing differentiated and unique design garments on excellent fabric. In this regard, we have concluded the deal with the leading textile exporters of Thailand and Bangladesh to supply us high quality material at affordable prices. Our garments will maintain its quality even after being washed repeatedly. The stock provided to retail and departmental stores from the factory will be in accordance with the product list and designs in the catalogue. Our cost planning experts and manufacturing staff will employ the latest costing methods such as Activity based costing and target costing to maintain profitability over the product life cycle. Through excellent sales efforts, we aim to achieve economies of scale in the third quarter of the first business year. The utilization of full capacity will not only maintain our profitability but also enable us to serve our prospective customers in a cost effective way (Expomal, 2012).
MARKET ANALYSIS
We will be offering six different categories of Men’s and Women’s Wear including corporate suiting’s, party wear, winter collection and other casual apparel in more than two hundred designs and to increase the importance of these designs, we have decided to produce just one size of each design. This will increase the value of the product because the customer who buys one design that fits his or her body size will not be available in other sizes. We know this strategy has certain drawbacks and is expensive to implement because it requires a great deal of resources to produce unique designs for every customer (Npd).
Market Segmentation
Our target market is composed of teenagers and young adults. In other words, the target market comprises of people aged between 13 to 49 years. As far as the socio-economic grouping of our customers is concerned, we have decided to set a price that is suitable to middle income, upper middle class and corporate and executive customers (Finch, 1992).The teenagers would prefer party wear, jeans and T-shirts, while the working men and women would buy corporate suiting, shirts and other formal wear. In the near future, we will make arrangements to start one window operations in our outlets by selling other accessories such as shoes, bags, belts, jewelry, valets etc. These accessories will be purchased from branded stores at discounted prices. This will not only help us in retaining customers but also contribute significantly towards the revenue and profit of the firm (Kotler, 2010)
Target Market
Fashion conscious and trend setter customers with particular focus on female buyers. In this regard, our target would be office going women and party girls. However, the efforts will be made to cater to male customers because they are more profitable than female customers because of low input costs in producing men’s garments. However, Italian women are more inclined towards the latest clothing styles and fashion in comparison with men (Kerin et al., 2013).
Product Line
Female traditional wear is more expensive, while T-Shirts, Jeans, Jackets and Cardigans are normally priced. Men suiting’s and trousers are priced higher than shirts and jeans. We plan to add lower and higher priced products and accessories after two years of business. The successful accomplishment of our financial goals will enable us to expand our production to double the initial levels, in a three to five year period and also ensure the opening of retail shops in other cities of the country (Chatterjee et al., 2013).
Pricing
We will follow a dual pricing strategy based on penetration and skimming principles for different products, however, the size has no concern with the prices. After two years, we would be introducing more designs by developing niche market and by applying premium pricing principles to cover fixed costs and maximize profits. To damage competition in the industry we will also use penetration pricing in more profitable products to outperform rivals (Tanner, 2011).
SWOT ANALYSIS
Strengths
- Three leading departmental stores are willing to carry our products in their apparel section
- Differentiated and wide range of designs in different sizes is available.
- Availability of high quality material and other components at competitive prices.
- Our sales force is efficient and have prior experience in the same line.
- Customers are willing to purchase new style clothing under new brand name (Scribd2010),
Weaknesses
- Strong and financially sound competitors and we have limited financial resources
- Entirely a new setup with little knowledge and experience of the fashion industry.
- Distribution is limited to one city.
- Lack of resources for demonstration and effective marketing campaign.
- Limited presence on all mediums of advertising (Ehow).
Opportunities
- Target customers have great interest in fashion garments and accessories.
- Market for fashion garments is rapidly growing with a high volume of business from local and international customers
- The hiring of celebrities as brand ambassadors will boost sales and increase customer value and market share (Fashioncapital,2013)
Threats
- The customers are brand loyal and prefer purchasing from preexisting firms and experienced designers (Mbaskool, 2012).
- Lack of brand recognition and unexpected economic changes might affect the production cost.
- Large volume of sales is achieved through own retail outlets and Life Style fashion will open just two stores initially (Researhandmarkets, 2011).
DEVELOPMENT STRATEGY
Distribution outlets
Initially we have decided to open two company owned retail outlets in Milan and the products will also be sold in three other departmental stores through licensing arrangements. The sales price will be same at both distribution points, however, extra discounts and credit period facility will be given to departmental stores. The five direct and indirect sales counters will be enough for first two years of operations. In the second phase, we aim to expand our operations nationwide by opening outlets and supplying products in other cities such as Florence, Venice and Rome (Lamb, 2012).
The expansion of operations on the entire European continent is also our long term goal and will be accomplished in minimum period of 3 to 5 years, depending on the success of the business. In the early years our main priority would be to create greater value and acquire loyal customer base and develop strong brand reputation and goodwill in the market (Berman, 2010).
Sales Force
We will hire a professionally trained sales force for our retail outlets. We are offering a competitive salary and three percent commission on every sale through representatives. The sales force will also perform its duties during fashion related events and exhibition to promote our brand awareness (Morebusiness, 2009).
Advertising
Our advertising strategy will support our brand positioning; the adverting budget is ten percent of the expected sales for each year. The medium of advertising will be magazines, newspapers, billboards, exhibitions and trade events. An effective promotional campaign will be run on internet and social networking websites (Lovelock, 2011).
Service
Quick service and availability of required products on time will be ensured, despite limited resources and we will make sure that all the products listed in the catalogue are easily available in readymade stock (Levy, 2004).
Research and Development
Marketing Research
The 5 % of the expected sales will be incurred to acquire knowledge regarding customer choices and competitor’s new strategies and competitive moves (Pride, 2012).
INDUSTRY ANALYSIS
Despite the economic downturn, high input costs and Euro zone crisis, the fashion industry of Italy has shown some steady progress in the last couple of years. Italy has been ranked at the top in the European fashion industry and it has been declared as the home to fashion. The entire fashion industry in the country is run by private business owners and investors. The government has no concern with the growth and development of the fashion related businesses except some tax relaxation and reduced import duty on raw materials and components for the purpose of production and export. The fashion houses of Italy operate beyond its borders; the industry is dominated by leading players such as Armani, Gucci, Dolce and Gabbana, Moschino, Versace, Valentino, Emilio Pucci, and other medium and large scale manufacturing units owned by different fashion designers (Eurbanista, 2009).
The word fashion in Italy can be traced back to 11th century, three hundred years before the renaissance. Italy is considered as the founder of fashion clothing and accessories. The industry is not limited to stylish and unique design garments but it has also a wide range of products including shoes, belts, bags, jewelry etc. In the recent years, there have been huge inflow of Chinese investments in the fashion industry and Indian suppliers also enjoy trade facilities provided by the European Union and the World Trade Organization (Valueline). Italy’s importance in the fashion industry is one side but the trend has been changed in the last decades and now France is considered as the launching country of new styles and trends in the world of fashion. The rising trend of fashion in the emerging markets such as India, Singapore, UAE, South American countries and Russia is a threat of Italian fashion business because cost of doing business is comparatively low in these countries. In addition, the import of raw material and other components is more easy and cheap because of trade agreements and near locations (Wisegeek, 2013).
FINANCIAL PROJECTIONS
Income Statement
The predicted revenue for the year ended December31, 2014 and 2015 is € 622000 and € 1166250 respectively. We have planned that cost of sales should not exceed 50 % of the revenue in both years. In the year 2014 and 2015, the cost of sales remains constant at 45 %. The revenue has witnessed a significant increase but due to the rising cost and quantity of merchandize the cost of sales and gross profit will remain the same (Appendix II). We will prepare our financial statements according to the International Financial Reporting Standards and therefore included depreciation costs in the cost of sales (Brigham, 2012). The distribution and administrative costs are 5% and 8% of the revenue respectively. The earlier includes fuel charges, packaging, and salaries of distribution staff. The administration expenses include staff salaries, factory rent and utility charges. The projected administrative cost also contains some provision for contingencies and bad debts. The finance cost is 6 % of the revenue including interest on short term loans and bank overdrafts. The income tax expense for the year is expected to be at 17.5%. The initial loan of €200000 is acquired at 17 % p.a for five years period (Wood, 1996).
Balance Sheet
The property plant and equipment is estimated to be €284098 in the year 2014 and will exceed more than 26 % in 2015 because the profit earned in the first year will be reinvested to expand manufacturing capacity in the succeeding periods (Weygandt, 2012). The cash and banks figures show a positive liquidity position in both the years; however the closing stock will increase because the sales volume is expected to increase in the succeeding periods. The major portion of closing stock is composed of Work in progress and finished goods for the next period (Appendix II). The expected revenue for both the years seems sufficient to meet long term business goals and no more long term loan is required to expand business operations. The short term debts will be required during year 1 to meet the running expenditures of the business however; it will significantly reduce in the year 2015 (Malone, 2005).
Cash Budget
The cash budget contains revenue figures and production overheads and clearly presents in flow and outflow of money in both the accounting years. To make it convenient we have divided two years into 4 periods of six months each. The 65 % of the production will be sold from company’s own outlets and the remaining 35 % will be sold through licensed shops or departmental stores. The garments will be sold on cash from the retail outlets. The company will receive 100 % payment from all the sales made through retail outlets; however the departmental store will pay the company in two installments (Appendix I).The 60% of the payment will be received on delivery and the remaining 40 % in the month of production for the next season (Wood, 2002).
This flexible schedule is allowed to build long term relationship with the retailers and moreover an extra 7 % commission will also be given on achieving extra sales exceeding 35 % of the original volume of sales. The production overhead contains all the variable and fixed production costs for the period (Scarlett, 2009). The detail is provided in the financial data attached. To keep its working capital cycle up to date and maintain good working relationship with the suppliers the company will pay all the overhead charges and running expenses immediately. The production will take place in a month before the starting of a new session. For instance, the good being sold from January 2014 to June 2014 will be produced in December 2013. It is not possible for the company to delay supplier’s payment because most of the material is being imported from other countries and we will make sure that international suppliers will be paid through 100 % sight letter of credit. The revenue figures are based on the expected sales volume of each category of products and its target selling price. Life style fashion will use traditional absorption costing method in the early years however, there is plan to introduce Activity Based Costing after two years. The contribution of the different categories of product folio is different therefore we need to implement Activity based costing for proper allocation of resources (Watkins, 2009).
Breakeven analysis and Margin of Safety
The attached file contains the breakeven figures in units of each product company must sell to cover its fixed costs (Appendix III). Overall the performance of the company seems satisfactory and we have to sell very little volume of units to cover fixed costs. This shows that how profitable the fashion clothing industry is. Similarly the margin of safety is quite good and very easy for the company to attain its targets (Appendix IV) (Horngren, 1997).
Assets
A part from raw material and other components, we need to import sewing machines and equipments from China to produce garments in our factory. In addition, we also need computers and other office material to commence business operations. All the fixed assets will be depreciated using straight line method for the period of 3 years (Appendix V). After that these assets will be replaced and gain or loss on sale will be recognized in the financial statements. In the year 2014, the major portion of cash balance is composed of loan amount, however, in the year 2015 this will cover by profit earned in the period 2014. The complete details of the assets in given in the attached file (Robertson, 2009).
Ratio Analysis
Again the position is quite satisfactory and it seems form the analysis that the company has enough current assets to meet current liabilities as they fall due. The position will become much better in the year 2015 due to significant increase in the cash and equivalents because of the fact that sale volume is expected to be high in 2015. The consistency in the gross and operating profits shows that the management is quite efficient in managing costs of sales and running expenditures. The return on capital employed is adequate in the year 2014; however it shows a massive increase in the year 2015, the reason could be reduction in long term debts and adequate profits (Appendix V).
CONCLUSION
The overall business plan seems to be based on an ideal business situation. The industry analysis shows that the fashion industry of Italy is the most mature market for fashion related products in the world, yet still has the potential for profitability by offering unique designs and high quality products. Italy is a fashion conscious society; therefore we believe that the product portfolio of Life Style Fashions will meet the needs and demands of prospective customers. The company has planned the business feasibility for the coming two years. The margins of profit are enough to meet contingencies and uncertainties that can arise because of contemporary business developments. The accessories will be imported from China and raw material from Thailand and Bangladesh. The revenue targets are not difficult to attain, however business will be able to cover its fixed costs easily because of attainable breakeven and margin of safety in units.
Appendix 1
The projected sales and Production over heads budget for the year ended December 31,
2014 ad 2015.
Appendix 2
The projected income statement of Life Style Fashions for the year ended December 31, 2014 and 2015.
The projected statement of financial position of Life Style Fashions for the year ended December 31, 2014 and 2015.
Appendix 3
Breakeven Analysis chart for the year 2014
Breakeven Analysis chart for the year 2015
Appendix 4
Margin of Safety for the year 2014
Margin of Safety for the year 2015
Appendix 5
Ratio Analysis for the year 2015 and 2015
Fixed Assets and Expenditures
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