Business Strategy for a Clothing Retail Store - Case Study Example

? Business Proposal: A Clothing Retail Store Inserts His/Her Inserts Grade Inserts (05, March, 2012) Introduction The demand for clothing has always been high in the United Kingdom. The majority of UK consumers also enjoy a relatively high living standard therefore they demand good quality products. Sophisticated demand and changing fashion trends makes retail clothing industry quite lucrative. This is why we have decided to start a retail clothing outlet in London. This business proposal will cover in detail major areas relating to the start up including start up costs, hiring of employees, manufacturing, and store design. It will also talk about the overall business strategy of the business and main target markets. Immediate and long term objectives will also be discussed in this business proposal. The clothing retail store will be a medium end clothing store that will provide high quality garments to customers at lowest possible prices. The main differentiating factor of the business will be lower prices but no compromise will be made on quality. This will mainly be achieved through outsourcing the production to third world developing countries. Clothing Retail Industry The clothing retail store will be similar to a conventional store where people will get good quality clothes at lower prices. The store will not cater to high end fashion consumers but to buyers with medium to lower levels of budget. High end fashion stores are plenty and market is limited therefore it is not possible to make a name in the industry easily. The unique selling proposition we will be offering is the lower prices with high quality of garments. Everyone looks for good quality clothes and no one hates to save money. This is the whole idea behind our clothing retail store. The main strength of UK clothing retail industry is the developed markets of the country which are mature. Also general income level (normally) increase in the country which gives people a chance to upgrade their life styles. Consumption patterns also increase every year as people spend more and more. All this makes UK clothing retail industry attractive for small start-ups. Also 57 percent of consumers in UK use value retailers (Verdict Consulting, 2011).This is a good sign for the industry as a whole. Growing competition from international players has affected the UK clothing retail industry (University of Cambridge, 2006). Third world countries are winning the battles on the basis of their cheap cost. Also UK industry has not focused on innovation like other developed economies and this is why international competition plays a major role in limiting the clothing sector. This has also contributed to an increasing trend of outsourcing as businesses narrow their focus on specialization. All major companies have production units outside of the country and they are able to exploit the cheap labour of the third world countries. But this has also started a price competition in the industry where everyone is lowering prices to attract customers. Keeping all the information about the clothing retail industry in mind we will be talking about different areas of our business proposal below in detail. Basic Business Strategy The basic business strategy will be a blend of cost leadership strategy and differentiation. Lower prices will be our unique selling proposition as we will be offering high quality clothing to the customers at lowest possible rates. The aim is to gain a competitive advantage over other competitors by lowering manufacturing and distribution expenses. We will also pursue differentiation by making our products unique so customers do not find anything similar anyplace else. Research has suggested that companies who use both cost leadership and differentiation have better odds of achieving success than companies that pursue one of these strategies (Peter, et al. 1990). Our products will include regular jeans, t shirts, tops, jerseys, and other accessories. All these products will be designed by local designers keeping in mind the latest trends. Unlike conventional stores we will focus on trend setting instead of following established trends. Products will be aimed at younger generation who look for new stylish designs. They will constitute our target market. Cost leadership strategy will also work for students well because they usually are short of cash and therefore they look for cheaper products. We will be catering to them with our stylish products at lowest possible rates. Innovation is extremely important in the clothing retail industry. Everyone knows how Zara, fashion retail client, has created a sustainable competitive advantage through its innovation and quick response to changing trends (Hristov & Reynolds, 2007). There is a lot to learn from Zara’s success story. We being a small store will be able to innovate on a regular basis by using our unique designs. At the same time we can ensure quick delivery of products by because our orders will small. Promotion is another important part of our business strategy and we will be using every possible means to market our products. Social media will be used for this as our main target market is the younger generation who is accustomed to Twitter and Facebook. Online advertisements will be used for promotion purposes. Also university events and college parties will be sponsored so that teenagers are aware of our store and products. Objectives of the Business We have to set both short term and long term objectives for our clothing retail store. Short term objective is to achieving sales of more than $100,000 a month after 6 months of operations. This is a difficult target because response of the customers is not easy to predict but with hard work and dedication this can be achieved. The aim is to come in the market with a bang so that loyal clientele can be created. The long term objective is expansion plan for establishing stores in multiple locations. In the longer run third party retailers can also be used to sell our products to the consumers. It is important to set competitive targets for any business because it serves as a motivation (Gerding & Morrison, 1980). This is our rationale behind setting audacious objectives for our store. We will be using promotion and innovation together to create a strong brand in a short time. The aim is to set targets that can enhance the productivity of owners and employees alike so that they can be pushed to their limits. The long term objective is to expand the business because our focus is on building a brand based on differentiation and cost leadership strategies. Also it is important to think on a large scale for creating a sustainable business. Start up Costs and Raising Capital Initial start up cost will include a year’s rent of store, store decoration costs, promotion costs, and employee related costs. Money will also be required to pay salaries initially to employees and designers. All these expenses will cost between $600,000 and $800,000 and this will be total start up costs. This does not include cost for raw materials because we will outsource our manufacturing to India or China. When importing goods we will be working on letter of credit therefore we will use local banks to finance our manufacturing costs. The start up capital will be raised partly through individual savings and partly through other private loans. We will not be using equity to finance our clothing retail store because debt is cheaper than equity (Nemethy, 2012). Private loans will be taken on personal relationship basis and banks will not be involved. Equity will not be used to raise capital because equity holders will hold a claim on profits while debt holders will only claim a certain fixed percentage (interest) on their debt. This is why private debt will be used to cover start up expenses. Banks will not be involved because we will use banks for working capital financing and for letter of credit. Banks are usually not as flexible as private lenders therefore they will not be used for initial capital financing. For working capital financing and manufacturing costs bank will take a charge on the sales and will provide loan relatively easily. Raising capital through debt will also allow us to fully control the operations of the store because private lenders will not have any ownership of the business (Casparie, 2008). This is a great advantage of raising capital through debt because with the controlling power owners can make decisions that are fit for the long term survival of the firm. Sometimes equity owners are myopic and want immediate profits which might force managers to take decisions that may hurt the company in the long run. This is why raising capital through debt is a good thing for a newly established business. Manufacturing of Clothing Manufacturing of our main products is the most important part of the business. We will be outsourcing our production to third party in the developing countries. This is the only way we can sustain in the competitive clothing retail industry. The low cost advantage that third world countries offer is important to support the cost leadership strategy of our business. Local designers will be used to design new style clothing for the younger generation and those designs will be given to our manufacturer in China or India for mass production. Designing is not something that can be outsourced because it is a part of our unique selling proposition. We are planning to offer innovative and stylish designs to our target market and therefore designing become core business function. Outsourcing of non core activities is logical because it helps the company focus on its main business but core functions should be performed in house. Also local designers will know about the existing trends and therefore they will be better off designing clothing than someone sitting miles away. China and India are both giants in clothing and textile industry (Shah, 2003). These two countries have cheap skilled labour and clothing industry in general is capital intensive therefore they offer significantly lower costs for retailers in developed economies. This gives low wage countries comparative advantage over other countries (Barnes & Morris, 2009). The choice between the two countries will be based on the lowest possible manufacturing and transportation costs. For safety purposes suppliers from both the countries will be chosen so that in case of any emergency supply can be guaranteed. Hiring for the Store and Store Design The hiring process for the store will be important because without good workforce no business can succeed. We will be hiring both full a part time employees for the clothing store. Full time employees will include managers and designers only while the rest of employees including sales men and account related employees will be part time employees. Hiring part time employees gives organisation flexibility and is also economical for the firm (Clifford, 2011). All the potential employees will be invited for interviews through personal contacts and advertisements. Screening will be done keeping in mind the business strategy of the firm. Creative people will be hired for designing. For the manager post people who are able to run a tight ship will be hired so that costs can be saved. The design of the store will be such that a large number of customers can come and shop from the store. Extra space will be left in front of the clothing racks so that many people can at once view the products. This is important because we want to attract a large clientele. Also younger generation (our target market) is not shy and they do not need great privacy. Our store is also not catering to high class customers who need personal attention. Store will be designed keeping all these things in mind. Conclusion Clothing retail industry offers good opportunity in UK because of the developed consumer markets and better than average life styles. Our clothing retail store will use innovative designs to attract consumers. Target market is the younger generation of the country who are fashion conscious yet price sensitive. The business strategy is cost leadership and differentiation. Our products will be stylish and innovative, but they will also be cheap. The focus will be on attracting more and more clientele. Capital will be raised through personal savings and private lenders. Manufacturing will be outsourced to India or China. Both part time and full time employees will be hired. Bibliography Barnes, J. & Morris, M. 2009. Globalization, the Changed Global Dynamics of the Clothing and Textile Value Chains and the Impact on Sub-Saharan Africa. United Nations Industrial Development Organisation. Accessed on March 5, 2012 from < http://www.unido.org/fileadmin/user_media/Publications/Pub_free/Globalization_changed_global_dynamics_of_clothing_and_textile_value_chains_and_impact_on_subSaharan_Africa.pdf> Casparie, J. 2008. Raising Capital While Retaining Control. Forbes. Accessed on March 5, 2012 from < http://www.forbes.com/2008/08/16/small-business-exchange-ent-fin-cx_jc_0815askanexpertjimcaspariecake.html> Clifford, C. 2011. Need a job? Forget benefits. C.N.N Money. Accessed on March 5, 2012 from < http://money.cnn.com/2011/08/11/smallbusiness/hiring_cost_of_benefits/index.htm> Current trends and future opportunities for the UK Clothing Industry. 2011. Verdict Consulting. Accessed on March 5, 2012 from Gerding, B. & Morrison, D. 1980. Selecting Business Targets in a Competitive Environment. Interfaces, 10, (4), pp. 34-41 Hristov, L. & Dr. Reynolds, J. 2007. Innovation in the UK Retail Sector. The Oxford Institute of Retail Management. Accessed on March 5, 2012 from < http://www.nesta.org.uk/library/documents/inno-in-services-retail-report.pdf> Nemethy, L. 2010. Why equity can be so much more expensive than debt. Warsaw Business Journal. Accessed on March 5, 2012 from < http://www.wbj.pl/blog/Corporate_Finance/post-209-why-equity-can-be-so-much-more-expensive-than-debt.htm> Shah, S. 2003. Textiles to be the next major outsourcing area. Rediff India. 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