It Shoes Business Plan - Term Paper Example

IT Shoes Business Plan Table of Contents Executive Summary 4 Mission 4 Business opportunity 4 PESTLE Analysis 4 Industry Environment 7 Projected Position for the Future 8 Potential Customers 8 Direct Competitors 9 Marketing 9 Business Opportunities 9 Company Impact & Company Strategy 10 Benefits Matrix 11 SWOT Analysis 12 Operational Plan 13 Organizational structure 13 Capital requirements 14 Core operations 15 Financial Projections 16 Key Assumptions 16 Income Statement Projections 17 Executive Summary Mission IT shoes has the mission to offer stylish and trendy shoes to ladies and the shoes will provide comforts to their feet while enjoying time inside the bar and restaurants. Business opportunity The French market is complemented with optimism for players planning to enter shoe business. Women in France do not prefer to wear uncomfortable high heel shoes while dancing inside bar and restaurant hence there is a possibility that they will chose ballerinas for the sake of self comfort (Kelly, “Coming to a Club Near You: Disposable Shoes in a Vending Machine”). The vending machine installed by IT Shoes will sell ballerina at €7 which is cheaper in comparison to branded shoes offered by companies like Adidas, Nike and Puma to people of France. Although companies like Rollasole and Afterheels are selling ballerina shoes through vending machines in countries like UK, USA and Australia but they their penetration in French market is low hence IT shoes has the opportunity to cater to the demands of an untouched market (Fleming, “Flat shoes in a flash! Vending machines that dispense ballet flats to stiletto-sore party girls take U.S. clubs by storm”). The business venture has the opportunity to consolidate business opportunities in the country due to absence of any market leader. PESTLE Analysis In the next section, the study will try to analyze macro environment of France in terms of political, economical, sociological, technological, environmental and legal perspective. Political Stable political environment of France has increased the business opportunity for both foreign companies who planning to invest in the country and domestic players who planning to diversify existing business portfolio. Market line (2012) has reported that, government of France has restricted foreign direct invest up to 1, 500, 000 Euros for foreign companies planning to expand business in territories such as Saint Pierre, Miquelon, Wallis and Futuna etc. Government has imposed high corporate tax on foreign players in order to protect interest of domestic players. There is no doubt that favorable government policy will protect IT shoes from competitive threat of foreign players. Economic Conjoint effect of economic recession and sovereign debt crisis has decreased the GDP growth rate and purchasing power parity of people of France. French government is trying to compensate high level of external debt by increasing tax rate on people. Market line (2012) has reported that tax burden on people of France has increased by 20% to 30% within last few years. Increased tax burden has reduced amount of disposable income for French people, which has resulted in reduction in demand for retail merchandises. It is evident from the economic analysis of France, IT shoes should think about using competitive pricing in order to generate demand among customers. Social Market line (2012) has reported that almost 35% of population in France belongs to the age group of 15yrs -30yrs and education level of the country is almost 99%. Market line (2012) has reported that demand for spending time in Night Club is increasing sharply among teenagers. IT shoe has the opportunity to increase market penetration by targeting teenagers of the country. Technological France is one of the leading technology hubs of Europe and government of France provides specialized benefits to companies who emphasize on achieving high degree of technology integration in business operation. French government provides research credit tax which is basically corporate tax relief to firms who spend huge amount of money on research and development. There is opportunity for IT shoes to avail research credit tax from French government by increasing spending on research & development activities. Environmental Government of France has forced both domestic and international companies to reduce carbon emission in the value chain operation by imposing high carbon tax on them. Companies planning to expand business in France need to think about decreasing carbon footprint in the operation in order conduct business in a sustainable manner. Legal According to French employment law, employers cannot terminate employees without specifying claws which are reasonable on merit. The country follows legal norms of European region; hence companies planning to expand business in France should have proper understanding of legal frame of Euro Zone in order to handle legal issues in the country. Industry Environment Although the shoe industry in France is multidimensional due to presence of various players but such multidimensionality is absent in disposable Shoes industry. At the present situation, there are no direct competitors for IT shoes in France. At present, very few companies are selling disposable shoes through vending machines hence competitive threat for IT shoes is low in French market. There is possibility that foreign players such as Rollasole, Afterheels etc might enter in disposable shoe industry of France in near future. The idea of buying flat shoes from vending machine installed in the night club is literally new for French people. Disposable shoes are targeted towards female clubbers in the age group of 18 to 35 years who visit bars and night club frequently (British Broadcasting Corporation, “Students steps to help clubbers”). Ladies do not prefer to wear high heel during tiring dance session in night club in order to save their feet from pain and discomfort. Partners of IT Shoes like Night club owners, third party contractor and suppliers play crucial role in deciding the direction of the business for disposable shoes. Companies in Shoe industry of France need to outsource the production facility in order to decrease overall cost of value chain and cost of goods sold. Schmél (2000) has pointed out that production cost for 10 shoes in France is $350.00 whereas Moroccan American Trade & Investment Centre (2007) has reported that production cost for 10 shoes in Morocco is $219.71. Hence, IT shoes will outsource the production activity to Morocco in order to reduce cost of production. The disposable shoe industry is dominated by two players such as Rollasole and Afterheels. These players offer disposable shoes at competitive price but their offering lacks in style and aesthetics. For example, Rollasole’s shoes are handy because customers can roll it inside the bag but their offering fails to deliver the aesthetics and style statement to ladies while Afterheels offer environment friendly ballerina but their offering also lacks style quotient and aesthetics. Projected Position for the Future The market size for the ‘IT Shoes’ is expected to increase at double digit growth rate for next three years. It is expected that market share of the company will increase by more than fifty percent in next three and half years. IT shoes need establish partnership with local club owners in a systematic manner in order to increase penetration. Initial cost for setting up the business venture is as high as 55000 € while IT shoes need to invest significant amount of money in maintaining distribution channel and advertising in order to fulfil all the marketing obligations. Potential Customers IT shoes has identified that female party hopers in the age group of 18-35 years are the potential customers for the business. Girls who love to visit night club has been selected as primary target market for the IT shoes. Girls in this age group do not prefer to wear high heel shoes while dancing hence centrally placed flat shoe selling vending machine inside the nightclub can create impulse buying stimuli among them. IT shoes will be offered at two price bands such as €10 for fashionable category comprised of ladies in the age group of 22 to 35 years and €3 for regular customers like girl students (Ferrell, and Hartline 1). Questionnaire used by the study shows that target market can be segregated in the following manner. 75% of target customers belong to the age group 19-29 years 37% of customers are students, 45% of them are employed and 18% of partygoers are unemployed Direct Competitors IT shoes is following the business model and product offering of Rollasole’s and Afterheels hence there is possibility in future that the business venture will competitive threat from its two competitors in France. Currently there is very little competitive threat for IT shoes in France due to absence of major competitors. A future competitive scenario for the company can be drawn by using the following chart. Rollasole Afterheels Sales £8.00 *100*52= £ 41,600 £5.00*100*52= £26,000 Net Profit 51% profit margin (“Rollasole Ad-Vend Venture”) More than 45% of gross sales (Meinhold, “Afterheels Vending Machine Offers Compact, Biodegradable Shoes to Go”) Market Share N/A for France N/A for France Marketing Business Opportunities IT shoes has the opportunity to enter business without investing huge sum of capital while joint venture model will help them decrease financial and social risk (French people might not accept the idea of disposable shoes in positive manner) of associated with new venture. The company has the opportunity to enter cities like Paris and Lyon which have maximum number of night clubs. Company Impact & Company Strategy IT shoes is basically a product marketer rather than a service provider hence the company can create impact on business environment by adopting diversification strategy (Griffin 218-220). The business venture has the capability to create impact on business partners such as bar and night club owners, vending machine manufacturers, designer of the shoes, distribution channel partners and others. Impact of marketing mix of IT shoes on the industry can be analyzed in the following manner. Product IT shoes is offering fashionable and trendy disposable shoes to female clubbers and party hopers who visit nightclub at least twice a week. Such business offering will motivate big players to implement diversification in offering in order to fulfil multidimensionality of customer requirement. IT shoes will emphasize on using good quality leather for manufacturing disposable shoes, using good smooth and good quality leather will not only provide comfort to feet of ladies but enhance durability of shoes also. Price IT shoes is offering disposable shoes at price range of €10 while their competitors such as Rollasole is offering shoes at €9.82 and Afterheels is offering shoes at €6.14. It can be understood from the price comparison that IT shoes needs to work on the price in order to create point of differentiation (Gitman, and McDaniel 295). IT shoes will sell its low end shoes at €3 in order to attract price sensitive customers. Selling disposable shoes at €3 will help IT shoes to sell large volume of disposable shoes by maintaining minimum amount profit margin. Promotion The company will use vending machine as promotional tool in order to decrease advertisement cost. Strategic location of the vending machine inside the night club can generate buying impulse among customers while they are suffering from pain caused by high heel shoes. The company can also use social media platform like Facebook in order to generate buzz among party hopers. The promotional model of the company will encourage other players to adopt low cost advertising strategy (Lamb, Hair, and McDaniel, 42). The business will offer free samples of disposable shoes to French celebrities in order to encourage them to wear the IT shoes in nightclubs; such promotional strategy will help the business to earn free publicity among people of France. For example, photograph of a celebrity wearing IT shoes published in news papers will enhance brand visibility of IT shoes among news paper readers. Place Strategic partnership with night clubs will help IT shoes to install vending machine in numerous night clubs across the country. Strategic partnership will help them to synchronize forward and backward integration in a cost effective manner in order to increase overall profitability. Partnership model of the company can force industry players to design distribution channel in cost effective manner (Capon and Hulber 472). Benefits Matrix Customer Pain Points Benefits Pain caused by high heel shoes IT shoes is offering flat shoes which can provide comfort to legs Customers can not carry the shoes in flexible manner IT shoes can be rolled inside the bag and ladies can carry it in a convenient manner SWOT Analysis Strength Weakness Ladies can roll IT shoes inside the bag which increases the convenience for using the product. Wide distribution network will help the business to offer product to more customers. High price of shoes might not attract price sensitive customers. Outsourcing activities might decrease IT shoes control over the value chain. Opportunity Threat The company has the opportunity to cater increasing demand for comfortable shoes among teenagers of the country. The business has the opportunity to decrease it operation cost by implanting e-business model. Concept of IT shoes is still not very popular in France hence there is possibility that people might reject IT shoes. Local players might copy the business model of IT shoes which can increase the competitive threat for IT shoes. Operational Plan Organizational structure The IT shoes business would not be requiring much man power in the company payroll because the point of sales would be discotheques, parties, night clubs, etc. So there is no requirement of a company owned shop for sales. The owners would be the two partners, and manufacturing would be outsourced to a company in Morocco, so workforce and resources for manufacturing would not be required. Morocco was chosen to outsource the manufacturing of IT Shoes because of cheap labor and availability of good quality leather for the shoes. However, skilled personnel would be required to install the vending machines in the required places, and also monitor the sales in the respective night clubs, logistics network to deliver the products to the clients on right time and place, office assistant to handle administrative activities, sales personnel to create demand and push product sales, and financial staffs to maintain the books of accounts. The four departments would be monitored by two vice-presidents who would report to the owners. The operation and logistics department would be managed by one vice-president and the finance and marketing department would be managed and monitored by another. Further each department would have a manager to monitor the activities, such as the operations manager would be responsible for the management of employees who would install and repair vending machine (Daft, Murphy, and Willmott 94-100). Similarly the supply chain manage would be taking care of logistics chain of IT shoes, finance manager would be monitoring the accountants, coordinators and office assistants, and the marketing manager would be responsible to keep track of the sales persons, customer care executives, etc. Figure 1: Organization Structure of the Company Capital requirements The assumptions for the capital requirements can be made after listing the essential obligations that would be required to start the business. Table 1 states the initial requirements which can be considered to initiate the business of IT shoes. Since these IT shoes are low priced convenient products that would be sold through vending machines, so the capital required to initiate the business would be obviously low compared to the capital requirements of big businesses. The company would not be manufacturing the products, as they would be importing it from Morocco. So a start-up inventory would be required to initiate the business. Cash requirements for operational functions would also be there. Other expenditures for setting up the office, renting spaces for vending machines in the night-clubs, legal expenses, website establishment, and miscellaneous costs would be considered for measuring the initial capital requirements. Table 1: Start-Up Summary Start-Up Cost Particulars Amount (in €) Inventory for Star-up 10000.00 Cash 10000.00 Other Current Assets 2500.00 Office Furniture and Equipments 2500.00 Legal Expense 500.00 Supplies 500.00 Website 500.00 Recruitment Expense 250.00 Vending Machine 1500.00 Capital Requirements 28250.00 Core operations The IT shoes would be specially sold in the night clubs and parties for the female party hoppers. The direct customers for the company would be the night clubs, hotels, etc, while the indirect customers are the party hopping females. For the assistance of the direct customers, order placing system would be made easy. They would be offered an online order placing system through the company website. Even orders can be placed with the company through telephone. The customers can assess their stock and inform the support staffs to deliver the order. The order placed by the customers would be delivered to them within 2-4 hours at the stated location. If the ordered color is out of stock then it would be delivered within a time span of maximum three working days. The communication system with the client would be superior and special feedbacks from them would be taken from them from time to time for improvement and social learning (Baum and Locke 587-598; Bandura 37-39). For monitoring the sales and collecting orders from the night-clubs, employees would be recruited on part-time basis. A small space would be rented in the night club for installing the vending machine of IT Shoes, which would cater to the female customers. The night club would be receiving a commission on the sales of shoes, so they would motivate their customers to buy the IT shoes more. Risk Management plans for managing the financial, operational and supply chain risks would be laid down. Liquidity in business would be maintained by keeping provisions for adequate working capital. Regular feedbacks regarding product quality and technical issues related to the vending machines would be taken care-off by the company (Aldrich and Wieden-mayer 45-195). The company would manage transportation for good and maintain close relationship with the carrying agents. Financial Projections The financial projections would be made for a time-span of five years. The initial start-up summary above in table 1 states the initial capital requirements for the business. The business would be financed from two major sources, namely partners’ capital and bank term loans. The partners would be funding 30 percent of the business, while 70 percent of the business would be financed through bank term loans. In order to explain the projected financial statements, the key assumptions, projected income statement, cash flow statement, break-even analysis, and balance sheet has been presented below. Key Assumptions The star-up has been assumed to be €27,750, based on Table 1. 70% of the capital would be bank financed and 30% would be borne by two partners The rate of interest on loan is 13% The Tax rate on Income is 30% Depreciation rate is 4 %, and is calculated on straight-line method. Rent and Miscellaneous Expenses has been considered same for all 5 years Income Statement Projections The profit and loss statement has been prepared to give a projected view for 5 years. This would give the partners of IT Shoes Company regarding revenue generation and also assist them to assume a future trend of their business through Figure 2. Table 2: Income Statement Projections Projected Profit and Loss (in €) Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Sales 105000.00 117000.00 125000.00 130000.00 135000.00 Cost of Sales 65000.00 69500.00 72000.00 68000.00 70000.00 Gross Margin 40000.00 47500.00 53000.00 62000.00 65000.00 Gross Margin (in )% 38.10 40.60 42.40 47.69 48.15             Salaries 25000.00 30000.00 35000.00 40000.00 45000.00 Promotion 2000.00 1000.00 1500.00 2000.00 2500.00 Rent 1800.00 1800.00 1800.00 1800.00 1800.00 Utilities 960.00 1100.00 1200.00 1300.00 1400.00 Insurance 1800.00 1850.00 2000.00 2200.00 2250.00 Website maintenance 370.00 370.00 370.00 370.00 370.00 Miscellaneous Expenses 450.00 450.00 450.00 450.00 450.00 Depreciation (4%) 100.00 100.00 100.00 100.00 100.00 Total Operating Expenses 32480.00 36670.00 42420.00 48220.00 53870.00             Profit Before Interest and Taxes 7520.00 10830.00 10580.00 13780.00 11130.00 EBITDA 7520.00 10830.00 10580.00 13780.00 11130.00 Interest Expense (@13%) 2525.25 2126.25 1711.25 1294.25 878.25 Taxes on Income (@30%) 2256.00 3249.00 3174.00 4134.00 3339.00 Net Profit 2738.75 5454.75 5694.75 8351.75 6912.75 Net Profit/Sales (in %) 2.61 4.66 4.56 6.42 5.12 Figure 2: Projected Trend Cash Flow Projections The projected cash flow statement has been prepared for a period of 5 years taking into consideration only the cash inflow and outflow from operational functions. A positive growth in the cash balance has been recorded in comparison to the yearly net cash flow. Table 2 gives a comprehensive analysis of the cash receipts and the cash payments during a span of five years of business. This is followed by a graphical representation in Figure 2. The graphical representation would give a quick view of the trends through which it would be easier to get an overall assumption of the cash flows and the cash balances in the IT Shoe business. Table 3: Cash Flow Projected Cash Flow (in €) Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Cash Inflow           Cash Sales 105000.00 117000.00 125000.00 130000.00 135000.00 Sales Tax, VAT, HST/GST Received 0.00 0.00 0.00 0.00 0.00 New Current Borrowing 0.00 0.00 0.00 0.00 0.00 New Other Liabilities (interest-free) 0.00 0.00 0.00 0.00 0.00 New Long-term Liabilities 0.00 0.00 0.00 0.00 0.00 Sales of Other Current Assets 0.00 0.00 0.00 0.00 0.00 Sales of Long-term Assets 0.00 0.00 0.00 0.00 0.00 New Investment Received 0.00 0.00 0.00 0.00 0.00 Total Cash Inflow 105000.00 117000.00 125000.00 130000.00 135000.00 Cash Outflow           Cash Spending 25000.00 30000.00 35000.00 40000.00 45000.00 Bill Payments 70000.00 83700.00 84513.00 82720.00 81542.00 Sales Tax, VAT, HST/GST Paid Out 0.00 0.00 0.00 0.00 0.00 Principal Repayment of Current Borrowing 0.00 0.00 0.00 0.00 0.00 Other Liabilities Principal Repayment 0.00 0.00 0.00 0.00 0.00 Long-term Liabilities Principal Repayment 3185.00 3185.00 3185.00 3185.00 3185.00 Purchase Other Current Assets 0.00 0.00 0.00 0.00 0.00 Purchase Long-term Assets 0.00 0.00 0.00 0.00 0.00 Dividends 0.00 0.00 0.00 0.00 0.00 Total Cash Outflow 98185.00 116885.00 122698.00 125905.00 129727.00             Net Cash Flow 6815.00 115.00 2302.00 4095.00 5273.00 Beginning Cash Balance 10000.00 16815.00 16930.00 19232.00 23327.00 Cash Balance 16815.00 16930.00 19232.00 23327.00 28600.00 Figure 3: Cash Flow Trend On the basis of the projected cash flow, an operational breakeven analysis has been shown in Figure 4, which would give an idea as to when the owners of IT Shoes Company can achieve a break-even. The diagrammatic representation reveals that in the 2nd year, the company can achieve a break-even, and further an increase in revenue has been recorded. Figure 4: Break Even Analysis Projected balance Sheet The last section would be including the projected balance sheet statement for a time span of five years. The balance sheet of the company for five years would give an assumption of the assets and liabilities of the IT Shoe Company. Table 4 would be giving a comprehensive view of the balance sheet of the company for 5 years. Projected Balance Sheet Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Assets           Current Assets           Cash 16815.00 16930.00 19232.00 23327.00 28600.00 Inventory 13894.00 9631.00 5330.00 2500.00 2000.00 Other Current Assets 2500.00 2500.00 2500.00 2500.00 2500.00 Total Current Assets 33209.00 29061.00 27062.00 28327.00 33100.00 Long-term Assets           Office Furniture and Equipments 2500.00 2500.00 2500.00 2500.00 2500.00 Vending Machine 1500.00 1500.00 1500.00 1500.00 1500.00 Depreciation 100.00 100.00 100.00 100.00 100.00 Total Long-term Assets 3900.00 3900.00 3900.00 3900.00 3900.00 Total Assets 37109.00 32961.00 30962.00 32227.00 37000.00             Liabilities and Capital           Current Liabilities           Accounts Payable 7859.00 6641.00 7712.00 11977.00 17350.00 Current Borrowing 0.00 0.00 0.00 0.00 0.00 Other Current Liabilities 0.00 0.00 0.00 0.00 0.00 Total Current Liabilities 7859.00 6641.00 7712.00 11977.00 17350.00 Long-term Liabilities 19425.00 16425.00 13425.00 10425.00 7425.00 Owners Capital 8325.00 8325.00 8325.00 8325.00 8325.00 Total Capital 27750.00 24750.00 21750.00 18750.00 15750.00 Total Liabilities and Capital 35609.00 31391.00 29462.00 30727.00 33100.00             Net Worth 35609.00 31391.00 29462.00 30727.00 33100.00 Reference Aldrich, H. 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