Online Apparel Business - Coursework Example

 BUSINESS PLAN FOR AN ONLINE APPAREL BUSINESS 1.0 Executive Summary The modern way to do business is the B2C model and the internet and expansion of broadband connections have felicitated this greatly. The presentation deals with the various aspects of doing this business successfully in the current market. The chosen commodity is low cost fashion garments and there is a ready market for these items but 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 the promoters to do a robust business through e-commerce. The founders are looking for seed capital in the venture, having put in a major sum themselves, assuring good returns for the venture capitalist. For this purpose a business plan has been included in the paper. 2.0 Introduction 2.1 Company Profile We are a group of four students from different ethnic backgrounds who have formed a company to float an e-commerce site for selling apparels online. In view of the current worldwide recession there is a growing demand for low cost fashion garments, for men, women and children. The name of the proposed company is Bonanza and it will sell online only through it portal to be named bonanza.com Bonanza will be fulfilling the aspirations of the people and will have its office in Edinborough which is the undisputed commercial 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 of his/her choice 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 targeted customers. 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. 2.2 Addressing New Markets Bonanza will be looking to cater to the UK and EU markets where English is the spoken and understood language. The potential in these markets is tremendous as the population is educated and is net savvy. They are part of the post modern society that is far more liberal than its ancestors. Bonanza is also aware of the traditions of the area and respects the varied culture and customs of its people. Therefore, although it will offer all modern concepts, it will also 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 low cost fashion and comfort that gives them an opportunity to integrate with the cultures of the entire region and beyond. 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 customers. 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 Three or more organizationally distinct handlers of products, where products include physical goods, services and information, make a supply chain. Due to this multi-organizational nature the supply chain management has emerged as the core strategy of the firm for competitive advantage with a focus on building and maintaining inter-firm relationships. It has also been noted that it is now widely understood that since this has become core strategy, the competitive advantage is now sought not at the level of the individual firms but at the level of the entire supply chains that they work with. A large number of companies realize the route to becoming world class competitor’s lies in their ability to establish high levels of trust and cooperation with their suppliers Globalization has lent credence to this need more acutely and creating a cooperative relationship has now become a core strategy in supply chain management. Working in far flung markets, with varied requirements for different manufacturing units; with increased focus on cost, quality and flexibility, procurement has become the primary factor as the first step towards competitive advantage. 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. Many people think that extending business online just means launching a website about the products and/or services of their company. Whereas, to rollout a successful ecommerce initiative for extending business online one must first and foremost understand the needs and behaviour of the audience that the site is targeting. Then the design of the website has to be appealing; the content, Search Engine Optimized and the features and technology deployed, easy to use. Once the site is up and running one needs to execute several strategies to drive traffic to the site, on a daily basis, such as; linking with other sites, advertising where necessary, submitting to search engines, etc. Last but not the least there is need to maintain updated and relevant information on the site to retain the interest and loyalty of your customers. E-commerce although an integral part of extending business in this century, is not something that can be achieved without devoting a decent amount of time and effort. And unless executed with expertise, it is likely to flounder in the abyss of cyber space. Two of our promoters are experts at this and have acquired the necessary expertise for development and deployment of such a site. 3.0 The Product Line 3.1 Current Availability A study of the current availability of Apparels in the target market shows two different approaches by sellers. There are both traditional brick and mortar stores and online stores. The first set of trade banks on the customer visiting them and spending time with them to locate and find their needs. This means that the customer has to physically be present and give up on other activity to shop. On the other hand others are beginning to realise that the customer is rushed for time and offer their wares on the online shop thus reducing the visiting time for them. The shortcoming of the first model is that they are costlier to maintain due to the high cost of establishing and maintaining physical stores and filling them up with merchandise. This means heavy investments in inventory and maintenance of the stores. Naturally this makes the end product costlier. In the second model clothes are less costly but it requires extra effort to market as the customer is not aware of the existence of such virtual stores. 3.2 The Future Bonanza wants to change that. The company has surveyed the market and its members have a technical background that will enable them to put up an e-commerce site with a difference. 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 huge market awaiting the launch of such styles with new fabrics and designs at low cost but in good taste and fashion. In fact such customers are already patronizing similar business concepts and are hungry for someone who understands them better and able to enhance their web experience. 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. The have labels and such branded products are costlier. They do have the latest styles and fabrics but they do not cater to the new age young mobile customers who are looking for low cost fashionable garments. Their clothes are not entirely appropriate for this class of customers. 4.0 The Market 4.1 Trends 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 and the youth 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 and 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. They are now more aware and have an urge to look better at lower cost. 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 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 young and understand the needs of this large group of buyers 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. Connection with less expensive Asian manufacturing ensures quality as well as control on timely deliveries 8. Implementing an online solution will increase 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. Understanding the aspiration of the youthful customer 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. Often personal rapport means a lot and personal relations are supreme and this will be difficult to replace by a CRM software 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. The main segment will however be the youth between 20-30 years who are highly mobile and cost conscious. They are also fashion conscious but have limited budgets. They begin to have families around this age group and prefer their child to be well dressed too. This class of customers travels a lot and is not averse to fashions from foreign lands. 4.4 Purchase Psychology Purchase decisions are important in life. When we purchase a product the underlying objective is to either get some benefit or to be entertained. There can be numerous sub-categories but all fall within the parameters of the two main objectives. The word impulsive buying is a misnomer as it indicates a basic desire for acquisition but open to being attracted to it on the spot. This makes buying a planned decision Since buying is a pre-planned decision it becomes interesting to find when we arrive at such a decision and why we choose between products. This assumes significance for the marketers but if understood, will also make better buyers of the consumers. Normally surveys are conducted demographically to determine various segments of buyers according to age, sex, education, location and other factors. However this kind of division fails to highlight the motivation of the consumer and often marketing based on such results is disappointing. A good method of measuring this has been devised by SRIC-BI who has conducted psychological survey of thousands of consumers from every walk of life during 1987-92. They call it VALS. This survey attempts to analyze the inherent instincts or psychological traits of the consumer that have developed over his/her experiences and knowledge and have become the drivers of purchase decisions. This has provided an insight about why we buy. Under VALS terminology the three segmentations of consumers are determined by their motivation. These are Innovators, Thinkers and Survivors. The descriptions are indicative of their capabilities; the innovators are daring and will be easily induced to trying new products and experimenting with the unknown; the thinkers are conservatives but willing to try new products within the existing parameters of their attitudes and aptitudes; while the survivors are those who are practical and will make decisions only according to their means. Bonanza intends to use these and other new techniques to understand and motivate buyer behaviour to augment its marketing strategies. 5.0 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 too costly as they are all branded with famous names. This means that styles are not meeting the aspirations of the varied Communities who are looking for really low cost but fashion garments. 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 who have the time to shop personally. 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 young people. We understand the requirements, we understand the values and we are aware of the specific needs. For us it is easy to blend the two far apart concepts and produce clothing that is suitable yet modern and still within budget for use by our customers. We also offer the customer the convenience of shopping from homes and other locations of their convenience and at times of their choice. Bonanza also has tie-ups with far eastern manufacturers who are willing to support us at this stage as their own labels are far cheaper than the western labels. These manufacturers are also willing to offer supplies directly from their manufacturing plants to the logistics company who will then forward the goods to the ultimate consumers. This will save both on storage as well as logistics as shipment will be made directly by them to the customers. 6.0 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. With the spread of globalization companies have had to re-think their position in asset building for logistics. As the cost and expertise required was too much and the spread very wide there was a need for outsourcing these activities to specialists who could deliver the result at fixed costs and in an agreed time frame. Since these would leave the company free to concentrate on its core manufacturing and marketing activities, the idea was well received in the market. This gave impetus to companies like DHL and NYK logistics to develop the kind of expertise required for this work. They also had to arrange the assets like warehouses and owned transport to manage these logistics. The range is worldwide and some companies work on segmentation principles, allocating niches for best performance and results. 3PL then becomes a transactional based strategic move and managements are going for more of these arrangements as it is a two way gain for both the company and the contracted logistics services provider. This is effect becomes part of the overall supply chain of the company as it links the suppliers, the company and the final customers. Bonanza has managed the best of two logistics companies and has put together a fool proof system backed by contingency planning. 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. Being an on line site offers Bonanza the luxury of going to the entire market at one go. However the concentration will be on UK to begin with and will spread to the EU nations in the following months. Our business model spells out our annual targets and in later years the company expects to benefit more from the bigger European market. 7.0 Manufacturing 7.1 Production Planning Bonanza has tied up with three manufactures in Vietnam and two in Bangladesh. These manufacturers have been supplying to many Western brands for several years and have in-house designing capabilities. With the current economic crisis they are experiencing shortfall in orders from their traditional customers and have excess capacities that are becoming idle. Thus an opening has been created and they have agreed to back Bonanza in this e-venture. The Bonanza promoters will also be able to furnish them with designs from their own learning and that gleaned from the customers who are of their own age group. The manufacturers are guaranteed of payments as they will ship to customers only after receiving payment from Bonanza, who would have secured it from the customers. These companies have also been working with various international logistics companies and therefore have excellent partnerships with them for delivery to the customer’s doorstep. The arrangement is therefore a win-win situation for all the collaborating partners. 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. Finally our Presence in the market is already noticed. Our Beta Site is already in operation for the last six 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. 8.0 Financial Projections 8.1 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 10 12 15 20 WOMENS APPARELS 20. 30 40 50 CHILDRENS APPARELS 10 14 20 30 TOTAL 40 56 85 100 The above calculation is based on a CAGR of 30% per annum. The total Apparel Market for UK and Europe is about € 200 Billion with a CAGR of 10%. The promoters are aiming at getting about 1% market share in 4 years time. This is a modest figure but they wish to be on the conservative side. 8.2 Income Statement All figures are in £ Million Years 1 (Projected) 2 (Projected) 3 (Projected) 4 (Projected) Sales 40 56 85 110 Cost of Sales 30 30 45 60 Other Operating Expenses 15 17 20 25 Operating Income 5(Loss) 1 (Loss) 20 (Profit) 25 (Profit) Operating Margin 12.5% (Loss) 0.2% (Loss) 23.5% (Profit) 22.7% (Profit) Increase in Year-on-Year sales = 40% (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% + due to wider coverage of market 8.3 Cash Flow Statement Year One – Projected – All figures in $ Millions SOURCES OF FUNDS APPLICATION OF FUNDS EQUITY CAPITAL 1.0 PROPERTY 1.0 CASH IN HAND 0.5 OFFICE EQUIPMENT 1.0 DEPRECIATION 0.2 LOSS 5.0 DEFICIT REQUIRING FINANCING 5.3 7.0 7.0 Depreciation has been calculated at 10%. 9.0 Leveraging Investments The projections show that with current investment of £ 1 million that the promoters can put in; a further infusing of at least £ 5 million is required for the comfort level of the venture. The promoters have already invested £ 5 million in the venture. They need another infusion of capital for fresh investments in infrastructure, promotion and hiring of development and marketing staff. They have two options. One is to go for debt financing, but this involves interest and in present risk situation in the financal, 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 50% equity in the venture for a sum of £ 5 million. The promoters are confident that in three to four years time the venture capitalists will reap a huge benefit out of this investment. It can be observed that from the third year onward there is a fair return of over 50% 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 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. TOTAL 4486 WORDS (EXCLUDING TITLE, TABLE OF CONTENTS AND ABSTRACT). Read More