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LETTER OF TRAN
SMITTAL
Date: November 16, 2015 To: Professor Conner, Professor Javadi, Professor Penrod, Professor Reynolds, Professor Riedel From: Mallory Bar, Maggie Bosu, Oliva Kuhn, Dillion Krantz, Sam Smith Subject: Apparel industry Analysis Senior Copeland Associates, As requested, Team 8 was asked to analyze and prepare a report of the apparel industry, then build and analyze the feasibility of opening up Copeland Associates’ own apparel retail store. With extensive research, Copeland Associates discovered opportuniVes for success within the retail apparel industry to open a women’s acVvewear store based on increasing trends within this specific industry. It was chosen to target women ages 18-‐35 years old. Then, the locaVon was determined to be Bloomington, Indiana because of the young populaVon contributed by Indiana University. The women’s acVvewear store is called “SOUL” and is located on North College Avenue in the high traffic downtown area. To determine customer demand, Copeland Associates developed two demand scenarios: • Primary data from benchmark compeVtors • Secondary data from industry research
Based on these demand scenarios it was determined that SOUL will be a feasible project. The report includes an environmental analysis over the apparel industry as a whole, as well as an analysis covering the acVvewear industry, with emphasis on the desired locaVon of Bloomington, Indiana. Within the report is SOUL’s complete business concept, markeVng strategies, and a projected financial analysis for the first 5 years of business. A`er evaluaVng and weighing the two demand scenarios, SOUL can expect to see an average of 59 potenVal customers each day. If there are any further quesVons about SOUL, please contact Team 8 with the contact informaVon listed below. Sincerely, PPM101 Team 8 Contact – E mail Mallory Bar [email protected] Maggie Bosu [email protected] Dillion Krantz [email protected] Olivia Kuhn [email protected] Sam Smith [email protected]
COPELAND ASSOCIATES @OHIO UNIVERSITY: INTEGRATED BUSINESS CLUSTER
PREPARED FOR:
PROFESSOR BRANDT CONNER PROFESSOR SIAMAK JAVADI
PROFESSOR CATHERINE PENROD PROFESSOR TAMMY REYNOLDS
PROFESSOR RALPH RIEDEL
PREPARED BY:
GROUP 8 – PPM101 MALLORY BAR MAGGIE BOSU OLIVIA KUHN
DILLON KRANTZ SAM SMITH
EXECUTIVE SU
MMARY
Copeland Associates were first asked to perform an in-‐depth research report of the apparel industry, leading up to the development and a feasibility analysis of a retail store. Team 8 of cohort PPM101 chose to develop and open up a women’s athleVc retail store in Bloomington, Indiana named SOUL. Team 8 chose to locate SOUL in Bloomington, Indiana because of minimal compeVVon and high populaVon of young females, due to the college life of Indiana University. The report includes a macro and micro industry analysis, SOUL’s business concept, two demand scenarios, a markeVng strategy, and a financial analysis to determine SOUL’s feasibility. Industry Analysis The apparel retail industry is molded to the needs of consumers and the average amount of disposable income they have. From 2014 through 2015, the apparel industry market grew at a rate of 14.2% and is expected to be valued at $500 billion in 2018. The acVvewear industry is also experiencing a posiVve trend, as a result of sales in acVvewear topping sales of the apparel industry as a whole. SOUL, located in Bloomington will be a successful project because of low levels of compeVVon in the market. Business Concept Copeland Associates recommend a women’s acVvewear store for Bloomington based on the external analysis and the demographics of the region. The market share of acVvewear in the industry is 16% and projected to grow in coming years. SOUL is focused on providing young women with quality premium acVvewear so they are feeling comfortable and confident. SOUL will partner with top brands such as Nike, Adidas, Under Armour, and LuluLemon to ensure quality and saVsfacVon of consumers’ needs. Demands In order to reach a projected number of daily customers, Copeland Associates analyzed the industry trends and demographics of Bloomington, Indiana. During this process two demand scenarios were formed. Demand scenario one is comprised of primary data received from SOUL’s benchmark compeVtors. The second demand scenario was formed using secondary data from the environmental research of the industry. The two demand scenarios were weighed and it was concluded that SOUL’s average daily customers would be 59. MarkePng Campaign Copeland Associates have designed a markeVng campaign that will effecVvely appeal to the target market. SOUL will be adverVsed on social media accounts including Facebook and Instagram. SOUL will also have its own website for customers to browse online for merchandise and submit comments, concerns, or suggesVons. Copeland Associates chose to promote SOUL using an internet radio site, Pandora Radio, to anract customers from a specific region and target market. The last promoVon strategy used was a 10% off coupon for the customers’ first purchase. SOUL will uVlize these markeVng strategies to draw more customers into the store each day. Financials The financial analysis within the report includes summaries of the Statement of Financial PosiVon, Statements of OperaVon, Capital BudgeVng Analysis, and Weighted Average Cost of Capitol. The project was determined to be feasible based on the calculaVons of net present value, internal rate of return, and payback period. In year 2, SOUL will generate $43,692, which is the first year with a posiVve net income. Conclusion In the future, SOUL plans to create and manufacture their own products. Based on the industry examinaVon, business concept, business strategies, demands, and financials, Copeland Associates will proceed to open the acVvewear retailer, SOUL.
Table of Contents
IntroducPon………………………………………………………………………………………………. Overview…………………………………………………………………………………………………………………………… SOUL…………………………………………………………………………………………………………………………………. Macro Environment Analysis……………………………………………………………………… Overview…………………………………………………………………………………………………………………………… OpportuniVes/Threats………………………………………………………………………………………………………. Trends………………………………………………………………………………………………………………………………. Micro Environment Analysis………………………………………………………………………. Overview…………………………………………………………………………………………………………………………… Demographics…………………………………………………………………………………………………………………… Market Analysis………………………………………………………………………………………………………………… CompeVtors……………………………………………………………………………………………………………………… Business Concept………………………………………………………………………………………. Overview…………………………………………………………………………………………………………………………… Business Model…………………………………………………………………………………………………………………. Brand………………………………………………………………………………………………………………………………… LocaVon……………………………………………………………………………………………………………………………. Target Market…………………………………………………………………………………………………………………… Consumer Profiles…………………………………………………………………………………………………………….. Wholesalers………………………………………………………………………………………………………………………. Inventory………………………………………………………………………………………………………………………….. Employees………………………………………………………………………………………………………………………… Demand Scenari1……………………………………………………………………………………. Overview…………………………………………………………………………………………………………………………… Development……………………………………………………………………………………………………………………. Demand Scenario 2……………………………………………………………………………………. Overview…………………………………………………………………………………………………………………………… Demand Forecast Matrix…………………………………………………………………………… Overview…………………………………………………………………………………………………………………………… MarkePng Campaign Product Price Place PromoVon…………………………………………………………………………………………. Atmosphere and Design……………………………………………………………………………………………………. Social Media……………………………………………………………………………………………………………………… Facebook…………………………………………………………………………………………………………………………..
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Instagram…………………………………………………………………………………………………………………………. Website…………………………………………………………………………………………………………………………….. Coupon……………………………………………………………………………………………………………………………… Pandora Radio…………………………………………………………………………………………………………………… MIS……………………………………………………………………………………………………………. ShopKeep…………………………………………………………………………………………………………………………. Sales Management……………………………………………………………………………………………………………. Employee Management……………………………………………………………………………………………………. Customer Management……………………………………………………………………………………………………. Inventory Management……………………………………………………………………………………………………. Product Management………………………………………………………………………………………………………. Financial Analysis………………………………………………………………………………………. Statement of Financial PosiVon………………………………………………………………………………………… Statement of OperaVons…………………………………………………………………………………………………… Capital Budget Analysis…………………………………………………………………………………………………….. Feasibility………………………………………………………………………………………………………………………….. Conclusion…………………………………………………………………………………………………. Appendix A.1: Statement of Financial PosiVon………………………………………………………………….. Appendix A.2: Statement of OperaVons……………………………………………………………………………. Appendix A.3: Capital Budget Analysis………………………………………………………………………………. Appendix A.4: Quarterly Cash Flows…………………………………………………………………………………. Appendix B: Inventory………………………………………………………………………………………………………. Appendix C: SWOT Analysis………………………………………………………………………………………………. Appendix D.1: Business Model Canvas……………………………………………………………………………… Appendix D.2: Business Model Canvas……………………………………………………………………………… Appendix E: MIS Dashboard……………………………………………………………………………………………… Appendix F.1: Macro Environment……………………………………………………………………………………. Appendix F.2: Macro Environment……………………………………………………………………………………. Appendix F.3: Macro Environment……………………………………………………………………………………. Appendix G: CompeVtors………………………………………………………………………………………………….. Appendix H: Products Offered ………………………………………………………………………………………….. Appendix I.1: Interior Layout ……………………………………………………………………………………………. Appendix I.2: Interior Layout ……………………………………………………………………………………………. Appendix J: Facebook………………………………………………………………………………………………………. Appendix K: Instagram……………………………………………………………………………………………………… Appendix L: Website…………………………………………………………………………………………………………. References………………………………………………………………………………………………………………………… References…………………………………………………………………………………………………………………………References…………………………………………………………………………………………………………………………
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List of Figures
Figure 1.1…………………………………………………………………………………………………… Figure 1.2…………………………………………………………………………………………………… Figure 1.3…………………………………………………………………………………………………… Figure 2……………………………………………………………………………………………………… Figure 3……………………………………………………………………………………………………… Figure 4……………………………………………………………………………………………………… Figure 5……………………………………………………………………………………………………… Figure 6……………………………………………………………………………………………………… Figure 7……………………………………………………………………………………………………… Figure 8……………………………………………………………………………………………………… Figure 9……………………………………………………………………………………………………… Figure 10……………………………………………………………………………………………………. Figure 11……………………………………………………………………………………………………. Figure 12.1………………………………………………………………………………………………… Figure 12.2………………………………………………………………………………………………… Figure 13……………………………………………………………………………………………………. Figure 14.1………………………………………………………………………………………………… Figure 14.2………………………………………………………………………………………………… Figure 15.1………………………………………………………………………………………………… Figure 15.2………………………………………………………………………………………………… Figure 16……………………………………………………………………………………………………. Figure 17……………………………………………………………………………………………………. Figure 18.1………………………………………………………………………………………………… Figure 18.2………………………………………………………………………………………………… Figure 19…………………………………………………………………………………………………….
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It was decided the best possible opportunity within the retail apparel industry was in the women’s acVvewear segment of the market, which is growing at a rate faster than any other segments in the industry (Fashionista, 2015). The locaVon chosen for the store is in Bloomington, Indiana. The target market consists of female college students and women in the community ages 18-‐35 as primary consumers. This locaVon allows us to enter a fitness apparel market that has yet to be saturated by compeVtors, while markeVng to a populaVon that is becoming increasingly more acVve. In order to conclude if this project is feasible, Copeland Associates must derive two demand scenarios for the company that would help accurately hypothesize the financial numbers of the retail business.
Copeland Associates has shown interest in running a startup business in the industry of retail apparel. This report will give a clear and concise analysis of the current retail apparel industry market and what behavior is expected of that industry in future years. A`er undergoing in depth research,
Overview
SOUL’s Mission Statement
“Crea&ng a lifestyle that inspires women to reach their full poten&al by ac&vely pursuing happiness and serenity within.”
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Figure 1.3 (DapperQ, 2013)
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Overview
The retail apparel industry revolves strictly around the buyer. Consumer trends help to mold the types of apparel retailers are buying and reselling. Baseline data for consumers begins with the average household income of consumers and how much of that income is considered disposable. This number can help tell retailers how to price their specialty products. In 2014, the retail apparel industry reached sales of $22 trillion, and is expected to keep growing. The US is one of the global leaders in retail apparel sales, only behind China. By 2018, the US retail apparel market is expected to be valued at around $500 billion. The market conVnued growing at a rate of 14.2% from 2014 to 2015, showing that consumers are beginning to spend again a`er the recession in 2009 (eCommerce). With this drasVc growth the industry is currently experiencing, it creates a great opportunity for new businesses to enter the market.
Trends OpportuniPes & Threats
Macro-‐Environment Analysis
The athleVc apparel industry has been growing at excepVonal rates in recent years and is showing no signs of slowing. This growth can be anributed to several different factors including the growing number of individuals exercising, new “athleisure” fashion trends, and advances in technology that have made new, innovaVve fabric materials available to manufacturers. More women are using acVvewear as a fashion statement, and less as strictly gym atre. The global sports apparel market, driven by women’s acVvewear, is expected to grow to $178 billion by 2019 (figure 3). In 2013, women’s acVvewear sales reached $11.5 billion in the US, a 9% increase from 2012, while acVvewear as a whole accounted for 16% of the total apparel market (Sherman, 2014).
Since the retail apparel industry has been growing at such rapid rates, small startup businesses have conVnued to anempt joining the market. The ease at which these businesses are entering the industry has given the industry a relaVvely high threat of new entry. However, compeVVon remains high. Thus far, nothing suggests that the retail apparel industry is fighVng for business with other industries. Consumers will always need clothing, and stores will always exist. Retail apparel stores have to compete with online shopping and the costly expenditure that running a retail apparel store can be. Buying large amounts of inventory from wholesalers can prove to be costly if not managed correctly (Wagner).
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Overview
The specific market focused on is women’s athleVc wear. The athleVc apparel industry has been growing at rapid rates. In 2013, women’s acVvewear sales reached $11.5 billion in the US alone, a 9% increase from 2012, while acVvewear as a whole accounted for 16% of the total apparel market (Sherman, 2014). The U.S is the largest acVvewear consumer in the world. The U.S. sales in 2014 increased by 8% compared with the second largest consumer, China’s 5% increase in sales. Retailers are entering the industry due to athleVcwear becoming the new casual fashion trend and the posiVve expenditure growth rates. These new entrants include specialized acVvewear stores and department stores.
Demographics
In order for specialty apparel stores to be successful in any market, it’s important for the store to have a specific target market focused on the areas demographics. Overall, athleVcwear has experienced a posiVve current value growth of 3% since 2010 (figure 3). The posiVvity of the market has inspired retailers to enter the athleVcwear market at a casual end (Passport, 2015). With acVvewear rapidly becoming the new casual fashion apparel trend in the U.S., specialized athleVcwear companies are focusing on the trend. Figure 4 below shows how U.S. women’s acVvewear purchases are on an upward trend and increasing about 2 million each year. Indiana’s household income average is lower than the U.S.’s household average. Bloomington, Indiana’s average is $56,264 and the U.S.’s average is $84,337 (SimplyMap, 2015). While income is lower customers will value quality over the price of SOUL’s premium products. By SOUL favoring quality over inexpensive prices it will increase the store’s reputaVon and product loyalty, keeping the store sustainable in the future (BusinessDicVonary, 2015).
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Expenditure Growth of Women’s AcPvewear in the U.S. (2008-‐2014)
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Market Analysis
The current state of the acVvewear industry is being transformed as more young consumers accept acVvewear as everyday street wear. Frequent consumers of the specialized industry are between the ages of 18-‐35. These consumers prefer acVvewear apparel that is versaVle, comfortable, durable, and stylish. Copeland Associates’ mission is to market affordable and stylish name brand acVvewear to young female consumers. In order to locate a successful region to target the female populaVon of 18-‐35 years old, Copeland Associates researched a locaVon with a college town and large female populaVon. This is why it was chosen to locate in Bloomington, Indiana, where Indiana University enrolls 40,000+ students. Young adults contribute not only the most to the apparel industry as a whole, but specifically to the acVvewear industry. The female populaVon of Bloomington makes up approximately half of the overall 83,458 populaVon. In 2014, 40% of apparel was purchased by these women (SimplyMap, 2014).
CompePtors
A growing business challenge for specialized sportswear companies is compeVVon from mass merchants. Large discounters such as Wal-‐Mart with big sports departments have rapidly expanded in recent years. Wal-‐Mart carries a more limited selecVon of acVvewear, but they are sVll considered the largest retailer of sporVng goods. Mass merchant compeVVon can cause specialized sportswear companies to reduce prices and increase spending on adverVsing (Passport, 2015). In order for specialty acVvewear stores to be successful in the apparel industry targeVng a niche market is crucial. Specialty stores try to differenVate themselves from larger department stores by hiring knowledgeable staff and connecVng to the community through sponsoring local events (Hoovers, 2015). The threat of new entry for acVvewear apparel within Bloomington, Indiana is low given the low level of compeVVon in the surrounding area. The toughest level of compeVVon that SOUL would have to compete with is external compeVtors. With many department stores in the area SOUL is compeVng against Target, Macy’s, Dunham’s, Dick’s, MC Sports, and Wal-‐Mart. All of these retailers are mass merchandisers that sell mulVple other goods and products asides from women’s acVvewear, which SOUL will be specializing in. SOUL also has local specialized compeVtors including Seaview and Indiana Running Company. Seaview acquires a more premium inventory including brands such as Patagonia, Ray Bans, Oakley. Their focus is to target outdoor adventure enthusiasts. Indiana Running Company on the other hand does not focus on the athleisure trend, they target experienced athletes (refer to figure 4 for compeVtor analysis). In order for Copeland Associates to differenVate from compeVtors, SOUL entered into a niche market not yet introduced in Bloomington, Indiana.
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Refer to Appendix G for compe&tor informa&on
Overview
Copeland Associates’ business concept is a women’s acVve wear store located in Bloomington, Indiana. Indiana ranks near the middle of the most acVve states, which allows to enter a market with few compeVtors (StaVsta, 2015). With four yoga studios located in a one-‐mile radius from the store locaVon, and very few direct compeVtors, SOUL will have potenVal to dominate the market. The leading product will be yoga pants but the store will also carry tops, shorts and sweaters. SOUL will offer high quality brands such as Nike, Lululemon, Under Armour and Adidas. SOUL’s target market includes women ages 18-‐35 which pairs well with Bloomington’s large female populaVon. SOUL is located in the Gateway Plaza (figure 5) where there will be a significant amount of foot traffic due to the plaza containing three other retail stores and two floors of apartments.
Business Model
SOUL will carry premium name brands that are associated with quality. This will require Copeland Associates to develop relaVonships with apparel wholesalers. Since SOUL is located in a college town, it is important to take advantage of busy seasons like spring and fall, and adjust accordingly for the summer when most of the students return to their hometown. SOUL will provide value by being the only store in the area that specializes in women’s acVvewear. Excellent customer service will be a driving factor for SOUL. Employees with communicaVve skills will allow customers to feel comfortable in the store and make them excited to return to SOUL.
Brand
SOUL’S vision is to supply women with high quality and luxury acVve wear that can be fashionable in the gym or in public. In the future, SOUL has goals to manufacture their own products. The current mission of SOUL is to create a lifestyle that inspires women to reach their full potenVal by acVvely pursuing happiness and serenity within themselves.
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Gateway Retail Plaza
Figure 5 (Gateway, 2015)
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The locaVon of SOUL is crucial to the success of the business. With Indiana University Memorial Stadium and four local yoga studios within walking distance, customers will have easy access to SOUL. 1280 N College is a prime locaVon for the store because of its proximity to campus and the high amount of daily traffic that passes the store front. With 18,717 cars driving by everyday, SOUL will be recognized by a wide variety of potenVal customers (Gateway, 2015). The building finished construcVon in 2015, which will give SOUL the modern look it is striving for. The space is 1,330 square feet and will be leased for five years. This space gives SOUL the ability to provide the perfect amount of inventory to customers and make the women feel like they are shopping in a comfortable environment. Around the area of Bloomington are 4 different yoga studios (figure 6). These studios are within a ten minute commute to SOUL which is perfect for the store’s locaVon. Lastly, the storefront overlooks Miller-‐Showers Park which is a beauVful view. While people leisure their way around the park, SOUL will be in sight for the community of Bloomington as well.
Target Market
SOUL’s business model is based upon selling high-‐quality and luxurious acVvewear to women. SOUL will market to women ages 18 to 35. These women will consist of students from Indiana University's campus and young women within the Bloomington community. The school populaVon consists of 46,416 students, 51% of these students being women and the community of Bloomington consist of 23,810 woman ages 18-‐34 (SimplyMap, 2015). SOUL will seek to target these young women and capture a porVon of their purchases. These women will be anracted to the store due to the modern environment and premium brands sold. With trends showing acVvewear being worn for everyday purposes and casual wear, women will want to buy from SOUL. Copeland Associates believe this is a likely statement because there is no other store in the area who specialize in women’s acVvewear, which provides a unique opportunity for this target market.
SOUL, 1280 N College, Bloomington Indiana
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Figure 6 6
:Yoga Studio
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SOUL will be selling products from Nike, Under Armour, Lululemon, and Adidas. The process of applying to become authorized users of these products will take place a year in advance prior to SOUL’s grand opening. On average, a`er applying to become a Nike retailer it takes up to 60 days for the applicaVon to be reviewed and processed (Nike, 2015). Both Addidas and Under Armour have similar applicaVon processes. Lululemon’s review process is more extensive because they wholesale to a limited amount of partners. They are looking for partners who share their values; a passion for elevaVng the level of health in the community and being a stand for greatness in the world. SOUL’s mission is creaVng a lifestyle that inspires women to reach their full potenVal by acVvely pursuing happiness and serenity within. SOUL’s goal is to establish business in Bloomington first and then reach out to the yoga studios located near SOUL to create partnerships. Combined with this future goal and SOUL’s atmosphere, it leaves SOUL as the perfect candidate for a partnership with Lululemon.
Wholesalers
Riley is a 20 year old female who anends the Big 10 college Indiana University, located in Bloomington, Indiana. Riley works at her campus rec center making $4,524 a year (minimum wage). She is a very up-‐beat and posiVve person who loves to stay acVve. She is in the yoga club at her school and works out four Vmes a week. Riley’s style is important to her, as she wants to be comfortable and trendy. Her everyday style consists of yoga pants, running shoes, t-‐shirt, and a hoodie. On the week days her goal is to have comfortable atre, while balancing her classes and acVve lifestyle. During the Fall and Spring semester at school, Riley usually hangs outside with her friends or at the local yoga studio in Bloomington. At these hangout sites she listens to music and enjoys the outdoors. She is always keeping up with the latest trends and news on social media. Her favorite sites are Instagram and Facebook where she can find and connect with everyone. While Riley is walking to work at the rec center, she comes across a table on campus handing out promoVon cards for a new acVvewear store, SOUL, five minutes off campus. She takes the card and immediately looks them up on Instagram. There, she is able to see the inside look of the store and some of the clothing and accessories they sell. Riley falls in love with SOUL. She can’t wait to go to the grand opening and shop for some new yoga clothes!
Brynn is a 32 year old female who lives in the downtown city of Bloomington, Indiana. She has been working for a company making approximently $50,000 a year and also sings in a band with her friends on the weekends. Brynn is a friendly person who is very acVve within her community. In her free Vme she enjoys listening to the radio staVon Pandora Music, anending yoga classes three days a week, and spending her money shopping for the latest trends. Brynn chooses to stay comfortable with her style by pairing her favorite Lululemon yoga pants with a comfortable hoodie. While driving to her yoga class and listening to Pandora Radio, Brynn hears a commercial about a new retail store opening minutes away from her yoga studio. She drives passed the locaVon of SOUL everyday on her way to work and is excited to check it out during the grand opening! Brynn loves the “athleisure wear” trend and is interested to shop the premium brands offered. Brynn has reviewed the acVvewear store on their website and immediately falls in love with the accessories and clothing. She is excited to let all her co-‐workers and friends in the community know about SOUL’s grand opening.
Consumer Profile A Consumer Profile B
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Inventory
In order to acquire inventory for SOUL, Copeland Associates will have to contact the name brand wholesaler to find out the minimum price or quanVty required for a wholesale purchase. Specifically, SOUL will carry Nike, Adidas, Under Armour, and Lululemon (refer to Appendix B for a detailed inventory list). To avoid purchasing knock off brands, Copeland Associates plan to only purchase from authorized suppliers. The inventory management system that Copeland Associates recommends using is the point of sale cash register. The POS tablet system will help the business operate more efficiently by using a cloud based plazorm. This system allows easy access to past transacVons and payment acVvity. The system comes in a package that includes the iPad POS tablet, cash drawer, receipt printer and credit card reader (POS Tablet).
Employees
SOUL plans to hire 7 employees to effecVvely run the store. Each day, two employees will be working, one assisVng customers and one as a cashier. Along with these part Vme employees, a full Vme manager will be working everyday. The part Vme employees will work 29 hours a week and be paid $10 per hour. This wage was decided a`er reviewing the Indiana minimum wage law and the retail apparel industry averages. The middle ground is $10, which is between the state minimum wage of $7.25 and the industry hourly wage average of $12.32 (US Department of Labor, 2015). The managers will work 40 hours a week and be paid $15 per hour. This falls between the retail floor workers’ and cashiers’ $10 wage and the manager industry hourly wage average of $20.17 (US Department of Labor, 2015). Cashiers are paid above minimum wage in order to give them incenVve to provide quality customer service. Managers earn a higher wage because they have more responsibiliVes such as opening and closing the store, managing inventory, and keeping the store organized (figure 7). In the future, SOUL plans to expand to more cashiers and sales assistants working at the same Vme.
Business Concept
Figure 7
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Hours/Week Pay/Hour Pay/Week Weeks/Year Pay % Benefits given Total Employee Cost
Part Time Employees
Cashier 1 29 $10.00 $290.00 52 $15,080.00 -‐ $15,080.00
Cashier 2 29 $10.00 $290.00 52 $15,080.00 -‐ $15,080.00
Floor Worker 1 20 $10.00 $200.00 52 $10,400.00 -‐ $10,400.00
Floor Worker 2 20 $10.00 $200.00 52 $10,400.00 -‐ $10,400.00
Floor Worker 3 20 $10.00 $200.00 52 $10,400.00 -‐ $10,400.00
Full Time Employees
Manager 1 40 $15.00 $600.00 52 $31,200.00 20% $37,440.00
Manager 2 40 $15.00 $600.00 52 $31,200.00 20% $37,440.00
$136,240.00
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Overview
To calculate the first demand scenario, Copeland Associates benchmarked three companies to help generate an esVmate of how many customers SOUL will have on a daily basis. These companies included Athleta, Seaview, and Lululemon. These benchmarks were helpful when determining esVmates because of their similar product lines and demographics. Copeland Associates weighed each compeVtor based on female populaVon, store square footage, and average daily customers to calculate the projected number of customers that will walk into SOUL daily. (See Figure 8)
Development
Copeland Associates used a series of calculaVons in order to determine the expected amount of daily customers. This process began with extensive primary research of the benchmark companies through phone interviews with store employees. From there, Copeland Associates retrieved the female populaVon of each benchmark’s city and the square footage of each benchmark’s store. A more accurate comparison could be drawn a`er calculaVng the square footage of the benchmark locaVons relaVve to the store size of SOUL. A`er dividing the square footage of each store by the daily customers, Copeland Associates had an accurate number to mulVply SOUL’s store square footage. By mulVplying that number by SOUL’s store square footage, it was calculated that SOUL would receive, on average, 70 customers per day. Seaview was given the highest weight because they are located in the same market as SOUL. They receive the majority of their business from the students of Indiana University and the locals of Bloomington, which is similar to SOUL’s target market. Athleta received the second highest weight because of their product line and locaVon. Athleta specializes in women’s acVvewear, the same product line as SOUL. Athleta is also located in the college town of Madison, Wisconsin. Lastly, Lululemon was given the lowest weight because they do not meet the same requirements as SOUL.
Figure 8
9
Madison, WI Bloomington, IN Indianapolis, IN
CompeVtor Store Athleta Seaview Lululemon
Female PopulaVon 124,936 41,375 403,560
Square Footage of Store 3,850 1,500 2,800
Daily Customers 350 25 200 Daily Customers/Square Foot .0909 .0167 .0714
Weight 30% 45% 25%
Weighted Customers/Square Foot/ Day .027 .007515 .01785
(.052365) Weighted Customers/ Square Foot/ Day
x 1,330 Square Feet =
70 Customers/ Day
Demand Scenario 1: Primary Data
Demand Scenario 2: Secondary Data INTRO
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Female PopulaVon in Bloomington
% of Women who Purchase AcVvewear
Market Share of AcVvewear
Avg. # Days Women Shop/ Year
# of CompeVtors
# Days of OperaVon
41,375
30 x
x 16%
20.65% x
3.5
355
÷
÷
Avg. Customers/ Day 33
Overview
To determine the amount of potenVal customers each day, Copeland Associates started by researching the total female populaVon of Bloomington. This number is 41,375 and includes the female populaVon enrolled at Indiana University (SimplyMap, 2015). Next, the average number of days that women make a trip to an apparel store every year was taken into account. This number is 30 days and was mulVplied by the female populaVon to get how many days women will go to an apparel store every year, which is 1,241,250. The market share of acVvewear and the percent of women who purchase acVvewear was mulVplied by how many days women will go to an apparel store every year. Based on this, 41,010.9 women purchase acVvewear per year. Copeland Associates divided this number by 3.5, which was the amount of compeVtors in the area. Indirect compeVtors were counted as .5 of a compeVtor. Lastly, the days of operaVon per year was divided by the compeVtors to find the average amount of customers that will be in SOUL everyday. Copeland Associates calculated each day approximately 33 customers will be in the store. (See figure 9)
Figure 9
10
Demand Forecast Matrix
Overview
Based on the first and second demand scenarios, Copeland Associates weighed each scenario to find the esVmated average amount of customers that will enter SOUL daily. Based on the use of benchmark companies who had similar business concepts and demographics as SOUL, Copeland Associates weighed the first demand scenario at 70%. This informaVon is the most relevant to find how many customers will actually be in SOUL on a daily basis. The second demand scenario, which is based off of secondary data was given the weight of 30%. A`er weighing each demand scenario, Copeland Associates found 59 customers are expected to come into SOUL each day. The average Vcket price and the conversion rate were determined based on the benchmark companies informaVon from demand scenario one. The daily amount of sales is determined by mulVplying daily customers Vmes the conversion rate Vmes the average Vcket price. (See figure 10)
Customers Weight Weighted Customers
Demand Scenario 1 70 70% 49
Demand Scenario 2 33 30% 10
Total Customers/Day 59
Demand Forecast Matrix
Figure 10
11
$100
Average Ticket Price
59
Customers/Day
x 35%
Conversion rate
x = $2,065
Daily Sales
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• Place • Promo-‐Von
• Price • Product
CreaVng Value Capturing Value
Delivering Value
CommunicaVng Value
MarkePng Campaign
Product, Price, Place, and PromoVon Decisions
The Four P’s diagram below shows SOUL’s main product, price, place, and promoVon decisions for their business (figure 11). The diagram starts off with SOUL’s product. The main purpose of the product is to create value by supplying different offerings. SOUL will sell acVvewear brands such as Nike, Lululemon, Under Armour, and Adidas. SOUL’s employees will provide great customer service by having one employee always working with customers on the floor. Next in the diagram is price. The purpose of price is to capture value for the customer (McGraw Hill Irwin, 2015). This includes everything SOUL’s customers will give up in exchange for the products they purchase including Vme, money, and energy. Most customers will be willing to pay $100, which is SOUL’s average Vcket price. Place is another aspect of the 4 P’s. Place can be described as supply chain management that accounts for getng the product to the correct customer exactly when the customer needs it (McGraw Hill Irwin, 2015). SOUL will get their products by purchasing from the wholesalers of each brand provided in the store. The products will then be sent to SOUL where consumers will be able to shop a variety of premium brands. PromoVon is a key aspect of the 4 P’s. Marketers communicate promoVon by informing, persuading, and reminding customers about a product. SOUL will market to their customers through social media sites such as Facebook and Instagram, as well as SOUL’s own website. Coupons will be given out to anract customers into the store. Product, price, place, and promoVon will be crucial when determining the success of SOUL.
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©Nike
©BloomingtonGateway
Figure 11
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MarkePng Campaign Atmosphere and Design
SOUL will acquire a modern and relaxed feel throughout the enVre store, with conVnuous upbeat music playing to provide the customers the feeling of excitement while shopping. SOUL’s store will be approximately 1,330 square feet designed with an assortment of light wood flooring, shelving, and tables, giving the customer a comfortable feeling. When a customer walks in, she will be greeted immediately by a SOUL employee and offered any assistance she may need throughout her shopping experience. The mannequins and tables located by the entrance will be featuring SOUL’s most recent merchandise. The new trends shown on the mannequins will help to anract daily customers. SOUL will have cubic shelving units around the store containing most of the merchandise such as leggings, shorts, and tees. Clothing racks will be used to display other items such as zip-‐ups and hoodies along with SOUL’s more popular items. When the customer is ready to check out, a SOUL employee will place their purchase in a recycled bag, thank them for coming, and ask them to visit again. SOUL’s great customer service will help the store retain customer loyalty and stay true to their mission statement. Refer to Appendix I for detailed store layout.
13
Social Media
Copeland Associates recommend the use of social media to market SOUL to potenVal customers due to the high usage performed by individuals ages 18-‐34 in the US. In the 18-‐24 age group, 62% of these individuals are weekly users of social media sites, while 58% of individuals ages 25-‐34 are also using social media weekly (StaVsta, 2014). Figure 12.2 shows the share of internet users in the U.S. who used social media in January 2014. With this data Copeland Associates chose to market on Facebook, Instagram, and SOUl’s own website. Refer to Appendix J, K and L for site graphics.
WEBSITE
0
20
40
60
80
100
18-‐29 30-‐49 50-‐64 65+
Share of internet users who use social networking in the United
States in January 2014, by age group
Figure 12.2 (StaVsta, 2014)
Facebook is a social networking website that allows users to connect and share with family, friends, and businesses online. Facebook has 157.1 million users as of 2015 and is expected to reach 172 million users by 2019 (StaVsta, 2015). SOUL will be able to reach a wide customer base due to how many users are projected. There are 32.1 million U.S. Facebook users between the ages of 25 and 34 years old are using Facebook the most on a daily basis; followed by 26.2 million people using the site between the ages of 18 and 24 (StaVsta, 2015). The two highest users of Facebook are between the ages of 18-‐34 which is within SOUL’s target market. This is a great opportunity for SOUL. Customers who follow SOUL’s Facebook page will be able to share it will all their friends and spread the word to people naVonwide. Facebook will offer coupons and special promoVons within the store, and provide benefits to people who like and share the page. By users sharing SOUL’s page, it will become visible to all of their friends, expanding SOUL’s market area .
Figure 12.1
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MarkePng Campaign
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Instagram is an online mobile applicaVon that allows the user to share photos, videos, and social network with various other users. Once a video or photo is taken the user can share them on other social networking plazorms, such as Twiner, Facebook, Tumblr, and Flickr. Instagram is expected to grow at an upward trend. In 2015 the acVve number of users is 77.6 million and in 2019 that number is expected to grow to 111.6 million acVve users (StaVsta, 2015). In 2014 Instagram gained 23% in acVve users and is considered the fastest growing social media site. Instagram will be an asset for SOUL because it directly targets the corresponding age target market. The two highest percentages of age groups using the social media site are 27.6% of users ages 18-‐24 and 32.2% of users ages 25-‐34 (StaVsta, 2015). Facebook acquired Instagram in 2012; because of this acquisiVon when signing up for an Instagram account the user goes through Facebook. The user can then add friends on Facebook who use the Instagram account. SOUL would be able to acVvely follow the friends they have on Facebook. SOUL will be able to follow Indiana University students and the local yoga studios to keep up with current events and trends, and use these to market their brand.
Website
With SOUL’s target market between the ages of 18-‐35 years old, it is necessary to have a strong online markeVng component. SOUL created an easy to use browser that allows customers to learn about SOUL. On the website users can parVcipate in a store blog that discusses SOUL’s products. The blog allows customers to list any comments, concerns, quesVons, and suggesVons to SOUL. The website contains a gallery of SOUL’s current products. There is a component to SOUL’s website that is unique. A customer may purchase a product from the website and pick it up in store at their earliest convenience. This helps the customer avoid shipping costs and encourages them to visit the store. SOUL’s website also lists all contact informaVon including the store email, phone number, and other used social media. Like SOUL’s atmosphere in the store, the website is designed to be modern and trendy. SOUL will be using Website Builder to create and manage their ecommerce website. The cost of Website Builder is set at an affordable price of $7.38 a month.
Figure 13
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Coupon
15
To raise brand awareness Copeland Associates decided to create coupons in the form of business cards to anract customers into SOUL. These coupons will be placed at the four local yoga studios and around Indiana University’s campus. SOUL’s coupon is 10% off the customer’s first purchase within the first year. SOUL will use VistaPrint to produce 5,000 coupons for the price of $80. It is proven 95% of all shoppers like coupons, and 60% of consumers acVvely look for coupons (A.C. Nielson Co., 2014). The coupon would convince customers who have been shopping at SOUL’s compeVtors to come into the store, create brand awareness, and increase the market area. Customers will view the coupon as an opportunity to come into SOUL and look for new types of apparel that are not offered at compeVtor’s stores. For example, Lululemon is not offered at Dicks, MC Sports, Wal-‐Mart, and other chain department stores in Bloomington. The coupon will create brand awareness as more customers visit SOUL. This creates a cause and effect approach, as more customers visit the store and tell their friends about SOUL and the coupon. When customers come into the store and conVnuously purchase the same product, the SOUL employees will noVce trends and up-‐sell the products purchased.
Pandora Radio
Copeland Associates chose the popular Pandora Radio app to adverVse SOUL. Pandora allows users to create and keep playlists in their profile and introduces users to new music based on their preferred playlists. The internet radio has 80 million loyal monthly listeners (Pandora, 2015). With Pandora Radio’s advanced technology, they are able to track a specific targeted region and age group, and from there are able to suggest music that fits into the lifestyle of the user. SOUL will uVlize this technology by targeVng the 18-‐35 year old age group in Bloomington, Indiana, who listen to upbeat music. SOUL’s radio adverVsement will run for fi`een seconds with a visual display ad on screen. For every one thousand adverVsements played, the cost will be $10.
Figure 14.1
Figure 14.2
Management InformaPon System
16
ShopKeep
Running a startup retail store requires SOUL to have an efficient point of sale (POS) management system. This system must be able to track inventory, product sales, customer and employee management, and report vital informaVon on a daily basis. With that, SOUL has chosen ShopKeep, a cloud-‐based point of sale system for the store. ShopKeep is capable of providing SOUL with all the key management system elements it will need to run effecVvely.
Order and Sales Management
ShopKeep allows employees to easily record an order sale in the system by simply tapping the item on the iPad register, which places the item in the customer’s shopping cart above the products offered dashboard. From there, the employee can change the quanVty of the item if needed. The order receipt is shown on the right side of the screen with the tax setngs already included. Customers have the opVon of paying with cash or credit, and also have the opVon of having their receipt printed out or emailed to them. All sales per day are recorded in the BackOffice feature of ShopKeep.
Customer and Employee Management
ShopKeep allows the store great access to new and exisVng customers. When a customer is checking out, the cashier can click on the walk-‐in tab above the sale receipt, which will create a drop down list of exisVng customers. If the customer is not on this list, the cashier can simply add them and their contact informaVon to the list. A`er the transacVon is recorded, cashiers can look in the BackOffice feature of ShopKeep to monitor any customer’s purchasing frequency over the past 90 days as well as what they bought and the price of that item. As for employees, ShopKeep allows them to clock in and out by simply typing in their 4-‐digit password, same as an iPhone or iPad.
ReporVng and AnalyVcs
ShopKeep offers a number of different analyVcs channels that can be found under the analyVcs dashboard in the back office program. This reporVng allows employees to set a recommended inventory amount that noVfies the store when inventory has fallen below the recommended amount. This applicaVon also allows in depth reporVng on customer history, tender transacVons, employee Vme clock records, and markeVng campaigns. See figure X for a back office visual.
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©Shopkeep Figure 15.1
©Shopkeep Figure 15.2
17
The inventory management system for ShopKeep is extremely user friendly and makes it easy to add, change, or remove product informaVon. New inventory can easily be added to the system by using the Bluetooth scanner. One of the most effecVve inventory management features ShopKeep offers is the inventory alerts. This feature will make an alert when the inventory reaches a certain level. These alerts make sure the store will never run out of the top selling items. This system also has a feature to automaVcally repurchase inventory from a supplier.
Inventory Management Product Management
Another crucial feature that ShopKeep offers is the sales reports that it provides on a daily, weekly, and monthly basis. Not only does it provide informaVon, but also analyzes data and gives feedback to help Copeland Associates make bener business decisions. ShopKeep provides daily comparisons, top selling items, and the most profitable items. For every item, ShopKeep keeps track of the cost and profit margin. Products can be arranged by department, category, or supplier. Refer to figure 16 for the ShopKeep cashier transacVon screen. Refer to Appendix E for MIS dashboard.
Management InformaPon System Cont. INTRO
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©Shopkeep Figure 16
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Pro Forma Statements of Financial PosiPon Pro Forma Statements of OperaPon
Financial Analysis
The cost necessary to start the business is $227,298.50. This cost includes the capital necessary for inventory, property and equipment. More informaVon about start up expenses can be found in Appendix A.1. The company’s long term liabiliVes are 30% of the assets and 70% of the company’s assets are paid in equity capital. There are no accrued expenses or accounts payable at this Vme. The owner will receive 15% of profits and the rest of the profits will be saved as cash. It is Copeland Associates’ goal for SOUL to have enough cash saved at the end of year five to start manufacturing their own products.
Based on the demand scenarios Copeland Associates created, 21 customers will purchase products at the store everyday. A`er finding the average transacVon price of the benchmark companies, SOUL’s average transacVon is esVmated to be $100 per customer. It is expected by year two SOUL will reach its demand and by year five 35 customers will be making purchases everyday. More informaVon about the cost of goods sold and store expenses can be found in Appendix A.2. The sales tax is recorded as an expense on the income statement and the state and federal incomes taxes are taken into account to find the income tax rate. (See figure 17)
SOUL Pro Forma Statements of Operations
Year 1 Year 2 Year 3 Year 4 Year 5
Sales (a) $639,000 $745,500 $852,000 $1,029,500 $1,242,500 Cost of goods sold and occupancy costs (b) 469,000 543,550 618,100 742,350 891,450
Gross profit 170,000 201,950 233,900 287,150 351,050
Direct store expenses (c) 142,563 139,196 138,520 142,115 138,115
General and administrative expenses 1,000 1,000 1,000 1,000 1,000 Pre-opening expenses 106,898
Operating income (80,461) 61,754 94,380 144,035 211,935
Interest expense (6,437) 4,940 7,550 11,523 16,955
Income before income taxes (74,024) 56,814 86,829 132,512 194,980 Provision for income taxes (12,214) 13,123 32,432 46,823 85,462
Net income $(61,810) $43,692 $54,397 $85,689 $109,518
Figure 17
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Financial Analysis Capital Budget Analysis
The start up costs necessary for SOUL to operate efficiently are $227,298.50. A`er reaching the demand forecast of 21 customers in year two, sales are predicted to increase 14% in year three, 20% in year four, and 20% again in year five. These predicVons are based off markeVng investments and informaVon from benchmark companies. In year five, SOUL will generate income of $109,518. The horizon value of the company is $847,739 at the end of year five, based on a market mulVple of four. The net present value of SOUL is $154458 and Copeland Associates predict the internal rate of return is 23.5% with a payback period of 2.75 years. Based on analysis of this decision making criteria, Copeland Associates determined that SOUL is a feasible project. Detailed capital budget analysis and decision making criteria can be found in Appendix A.3.
Feasibility of SOUL
Required Rate of Return
Weighted average cost of capital (WACC):
Capital x Cost of x After-Tax = WACC Structure Capital Adjustment
Debt 30% x 8% x 66% = 1.57%
Equity 70% x 8% = 5.52%
7.09%
Decision-Making Criteria
Net present value = 154,458
Internal rate of return = 23.50%
Payback period = 3.29
The capital budget analysis starts out by determining the EBIT and finding the operaVng profit a`er tax. Next, the depreciaVon and amorVzaVon expenses are added back because these are non cash expenses. This number is the operaVng cash flow. Copeland Associates then subtracted the change in net working capital and capital spending to find the free cash flow of each year. To conVnue the capital budget analysis, Copeland Associates determined the weighted average cost of capital to be 7.09% (figure 18.1). Finally, in order to determine whether or not the project is feasible, the net present value, internal rate of return, and payback period were calculated (figure 18.2).
Figure 18.2
Figure 18.1
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Conclusion Summary
The global acVvewear market, driven by women’s acVvewear, is expected to grow to $178 billion by 2019. U.S. women’s expenditure is increasing at approximately $2 million each year. The increase of size and expenditure on women’s acVvewear can be anributed to the new and casual fashion trend where people are using acVvewear as casual atre. This growth creates an opportunity to open a specialty women’s acVvewear store focusing on the emerging “athleisure” trend. For this reason, Copeland Associates predict success for women’s acVvewear in the retail industry. Copeland Associates developed a business concept that involves creaVng a premium women’s acVvewear store located in Bloomington, Indiana. The store, SOUL, has a compeVVve advantage because of the lack of direct compeVtors in the surrounding area. SOUL offers high quality brands such as Nike, Lululemon, Under Armour, and Adidas to women ages 18-‐35. SOUL’s business model strives to create a modern and upbeat atmosphere that will get women excited to shop. Copeland Associates developed two demand scenarios based on SOUL’s benchmark companies, Bloomington demographics, and industry averages. The first demand scenario was calculated using primary data research that was found by conducVng phone interviews with store employees. A`er retrieving the correct informaVon, SOUL predicted it would have an average of 70 customers per day. The second demand scenario was calculated using secondary research such as Bloomington’s female populaVon, women’s acVvewear market share of the total apparel industry, the percentage of women who purchase acVvewear, number of local compeVtors, and SOUL’s days of operaVon. This second demand scenario suggested that SOUL would have an average of 33 customers per day. These two demand scenarios were weighed against each other. Demand scenario one received a weight of 70% because of the realisVc numbers provided by already exisVng benchmark companies. Demand scenario two received a weight of 30% because the data was extracted from secondary research on the acVvewear market and demographics of Bloomington. Following the weights of the two demand scenarios, it was calculated SOUL would have a final average of 59 customers per day.
Figure 19
APPENDIX
21
APPEN
DIX A.1 Statement of Financial PosiPon
Start-Up Year 1 Year 2 Year 3 Year 4 Year 5
Cash $119,800.50 $39,232.54 $62,162.21 $88,741.34 $136,169.22 $202,951.49 Inventory $100,935.00 $101,935.00 $98,385.00 $100,285.00 $107,935.00 $116,485.00 Prepaid expenses
Prepaid Insurance $600.00 $600.00 $600.00 $600.00 $600.00
$840.00 $600.00
Total current assets $221,335.50 $141,767.54 $161,147.21 $189,626.34 $244,704.22 $320,036.49 Property and equipment, net (a) $5,863.00 $5,217.00 $4,571.00 $3,925.00 $3,279.00 $2,633.00 Intangible assets, net $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 Total assets $227,298.50 $147,084.54 $165,818.21 $193,651.34 $248,083.22 $322,769.49
Accounts payable - - - - - - Accrued expenses - - - - - - Current portion of long-term debt $6,134.71 $6,134.71 $6,134.71 $6,134.71 $6,134.71 $6,134.71
Total current liabilities $6,134.71 $6,134.71 $6,134.71 $6,134.71 $6,134.71 $6,134.71 Long-term debt $62,054.84 $43,650.71 $25,246.58 $6,842.45 -$11,561.68 -$29,965.81
Total liabilities $68,189.55 $49,785.42 $31,381.29 $12,977.16 -$5,426.97 -$23,831.10 Paid-in equity capital $159,108.95 $159,108.95 $159,108.95 $159,108.95 $159,108.95 $159,108.95 Retained earnings (b) - -$61,809.83 -$24,672.03 $21,565.22 $94,401.24 $187,491.63
Total equity $159,108.95 $97,299.12 $134,436.92 $180,674.18 $253,510.19 $346,600.59 Total liabilities and equity $227,298.50 $147,084.54 $165,818.21 $193,651.34 $248,083.22 $322,769.49
(a) Property and equipment, net:
Fixtures and equipment $5,275.00 $5,275.00 $5,275.00 $5,275.00 $5,275.00 $5,275.00 Computer hardware and software $588.00 $588.00 $588.00 $588.00 $588.00 $588.00
Less: Accumulated depr and amort $646.00 $1,292.00 $1,938.00 $2,584.00 $3,230.00 Property and equipment, net $5,863.00 $5,217.00 $4,571.00 $3,925.00 $3,279.00 $2,633.00
(b) Retained earnings:
Balance, beginning of year - $- -$61,809.83 -$24,672.03 $21,565.22 $94,401.24 Net income -$61,809.83 -$61,809.83 $43,691.53 $54,396.77 $85,689.43 $109,518.11 Less: Distribution to owner - $- $6,553.73 $8,159.52 $12,853.41 $16,427.72
Balance, end of year -$61,809.83 -$61,809.83 -$24,672.03 $21,565.22 $94,401.24 $187,491.63
22
APPEN
DIX A.2 Statement of OperaPons
Year 1 Year 2 Year 3 Year 4 Year 5
Sales (a) $639,000 $745,500 $852,000 $1,029,500 $1,242,500 Cost of goods sold and occupany costs (b) 469,000 543,550 618,100 742,350 891,450
Gross profit 170,000 201,950 233,900 287,150 351,050 Direct store expenses (c) 142,563 139,196 138,520 142,115 138,115 General and administrative expenses 1,000 1,000 1,000 1,000 1,000 Pre-opening expenses 106,898
Operating income (80,461) 61,754 94,380 144,035 211,935 Interest expense (6,437) 4,940 7,550 11,523 16,955
Income before income taxes (74,024) 56,814 86,829 132,512 194,980 Provision for income taxes (12,214) 13,123 32,432 46,823 85,462
Net income $(61,810) $43,692 $54,397 $85,689 $109,518
(a) Sales:
Number of customers per day 18 21 24 29 35 x Average transaction value 100.00 100.00 100.00 100.00 100.00
Sales per day 1,800 2,100 2,400 2,900 3,500 x Number of days open per year 355 355 355 355 355
Sales $639,000 $745,500 $852,000 $1,029,500 $1,242,500
(b) Cost of goods sold and occupancy costs:
Cost of goods sold $402,570 $469,665 $536,760 $648,585 $782,775 Sales Tax $44,730 $52,185 $59,640 $72,065 $86,975 Rent 19,950 19,950 19,950 19,950 19,950 Utilities
Electric 800 800 800 800 800 Phone Bill 250 250 250 250 250 Internet 500 500 500 500 500 Water 200 200 200 200 200 Cost of goods sold and occupancy costs $469,000 $543,550 $618,100 $742,350 $891,450
(c) Direct store expenses:
Store payroll, payroll taxes, and benefits $136,240 $136,240 $136,240 $136,240 $136,240 Store supplies 150 150 150 150 150 Depreciation and amortization 1,173 1,806 1,130 725 725 Advertising 5,000 1,000 1,000 5000 1,000
Direct store expenses $142,563 $139,196 $138,520 $142,115 $138,115
23
APPEN
DIX A.3 Capital BudgePng Analysis
Project Cash Flows
0 1 2 3 4 5
EBITDA $ (80,461) $ 61,754 $ 94,380 $ 144,035 $ 211,935 - Depreciation and amortization 1,173 1,806 1,130 725 725
EBIT (81,633) 59,949 93,249 143,309 211,209 x (1 - tax rate) 0.835 0.785 0.685 0.685 0.655
Operating profit after tax - 68,163.72 47,059.81 63,875.70 98,166.97 138,342.18 + Depreciation and amortization 1,173 1,806 1,130 725 725
Operating cash flow $ - $ (66,991) $ 48,865 $ 65,006 $ 98,892 $ 139,067 - Change in net working capital (215,201) - 79,567.96 50,647 (19,925) (64,172) (105,280) - Capital spending (5,963)
Free cash flow $ (209,238) $ 12,577 $ (1,782) $ 84,931 $ 163,065 $ 244,348 + Horizon value (end of year 5) 847,739
Project cash flow $ 1,092,087
EBITDA (year 5) $ 211,935 x Market multiple 4.0
Horizon value (end of year 5) $ 847,739
Required Rate of Return
Weighted average cost of capital (WACC):
Capital x
Cost of x
After-Tax = WACC
Structure Capital Adjustment
Debt 30% x 8% x 66% = 1.57%
Equity 70% x 8% = 5.52%
7.09%
Decision-Making Criteria
Net present value = 154,458
Internal rate of return = 23.50%
Payback period = 3.29
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DIX A.4 Quarterly Cash Flows for Year 1
Quarterly Projected Cash Flows
Quarter 1 Quarter 2 Quarter 3 Quarter 4
1 2 3 4
EBITDA -
$16,092.12
$(24,138) $(24,138) -
$16,092.12
- Depreciation and amortization 293.15 293 293.15 293.15
EBIT -
$16,385.27
$(24,431) $(24,431) -
$16,385.27
x (1 - tax rate) 0.835 0.835 0.835 0.835 Operating profit after tax
-$13,681.70 (20,400) -$20,400.16
-$13,681.70
+ Depreciation and amortization 293.15 293 293.15 293.15
Operating cash flow -
$13,388.55
$(20,107) -$20,107.01 -
$13,388.55 - Change in net working capital -19,891.99 (19,892) -19,891.99 -19,891.99 - Capital spending
Free cash flow $6,503.44 ($215) ($215.02) $6,503.44
Based on seasonality, the EBITDA will be high is quarter 2 and quarter 3.
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DIX B Inventory Leggings Price QuanVty Total Cost Under Armour $179.99 40 $7,199.60 Under Armour $89.99 65 $5,849.35 Lulu $98.00 60 $5,880.00 Lulu $88.00 65 $5,720.00 Lulu $92.00 65 $5,980.00 Nike $100.00 50 $5,000.00 Nike $150.00 40 $6,000.00 Adidas $100.00 50 $5,000.00 Total $46,628.95
Tank Tops Lulu $64.00 50 $3,200.00 Lulu $64.00 50 $3,200.00 Nike $50.00 50 $2,500.00 Nike $40.00 60 $2,400.00 Adidas $55.00 50 $2,750.00 Under Armour $64.99 50 $3,249.50 Total $17,299.50
Jackets Under Armour $84.99 40 $3,399.60 Under Armour $69.99 50 $3,499.50 Lulu $98.00 50 $4,900.00 Lulu $108.00 50 $5,400.00 Nike $65.00 50 $3,250.00 Total $20,449.10
Shorts Nike $55.00 40 $95.00 Nike $45.00 40 $85.00 Lulu $58.00 40 $98.00 Total $278.00
Accessories Lulu-‐Yoga Mat $78.00 30 $2,340.00 Lulu -‐ Water Bonle $18.00 30 $540.00 Adidas-‐Yoga Purse $80.00 30 $2,400.00 Adidas-‐Backback $120.00 25 $3,000.00 Under Armour-‐Headband $19.99 30 $599.70 Total $8,879.70
Sports Bras Lulu $48.00 50 $2,400.00 Adidas $45.00 50 $2,250.00 Nike $55.00 50 $2,750.00 Total $7,400.00
Total Inventory 1400 $100,935.25
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DIX C SWOT Analysis
• Complete online stores where customers do not physically have to go into a store to purchase clothes
• Lower priced stores, customers may feel
that SOUL is not giving the best deal for their merchandise
• Knowledge – our employees will be well rounded and knowledgeable about what they are selling
• RelaVonship – with SOUL being a smaller store and smaller staff, our employees will work one on one with customers and really interact with them
• Merchandise – we are a high quality reseller of altheVcwear’s most popular brand names
• Brand power – we are a new store in town with no brand, consumers do not know who we are yet
• High prices – SOUL is considered more of a premium retailer which means we have the best quality but with being in a college town will consumers pay these prices?
• By being just a women’s athleVcwear retailer we have the opportunity to be very successful based on projected sales within this industry
• If SOUL is as successful as projected, we are interested in creaVng and manufacturing our very own athleVcwear brand to sell
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DIX D.1
Key Partners:
Key AcPviPes: SOUL currently works to sell a variety of premium athleVcwear brands to women ages 18 to 34.
Key Resources: • Retails in Bloomington,
Indiana • Wholesales 4 premium
brands
Value ProposiPons:
Customer Segments: SOUL has many different segments due to the fact they sell a variety of brands such as Lululemon, Nike, Under Armour, and Adidas. SOUL also offers different types of acVvewear including leggings, sports bras, tank tops, outerwear, and accessories.
SOUL offers name brand acVvewear at a premium value. Through SOUL’s website customers are able to purchase acVvewear online which will then be delivered to the Bloomington store where customers can pick up their purchases. In the future, SOUL will offer yoga classes and different acVviVes for their customers.
SOUL partners with a few brands which they sell to customers including: • Nike • Under Armour • Adidas • Lululemon In the future SOUL plans to partner with the yoga studios around Bloomington, Indiana to offer a variety of acVviVes for customers.
Business Model Canvas
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DIX D.2
Cost Structure:
Revenue Streams: $
Customer RelaPonships: Channels: Due to the increasing demand in “athleisure wear” SOUL must have a strong relaVonship with their customers. SOUL does not have many compeVtors in the Bloomington area, so markeVng their store to Indiana University and community members is key.
Products are distributed through wholesalers. In the next 5 years SOUL will manufacture their own products. SOUL markets to women college students and community members ages 18 to 34 using direct sale methods.
SOUL is a premium brand, therefore their products are a linle more expensive. Their average Vcket price is $100. SOUL has seven employees, therefore they do not need to provide pay and benefits for as many people. Small benefits will only be given to the two managers.
Business Model Canvas
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DIX E MIS Dashboard
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APPENDIX F.1
PoliPcal macro-‐environment Increasing numbers of manufacturers in the apparel industry are outsourcing to manufacture their goods. The US, European Union and Japan are the largest importers of apparel and together account for 90% of imported apparel (Mintel, 2015). This is due to the lower labor costs and the high labor content of products located abroad. While outsourcing is an opportunity for companies to be profitable they must depend on trade regulaVons. Import protecVon is provided through a series of tariffs that limit the quanVty of imports from specific countries. Recently, the US has lowered its protecVon of the apparel industry and the trend is expected to conVnue. An opportunity the US and EU are pursuing is sourcing in Africa. The free-‐trade agreement allows African countries to grow their own conon, which shortens the supply chain allowing clothing manufactures to go from fiber to factor in a single place.
Social macro-‐environment Athleisure-‐wear Market: trend towards casualizaVon as people are shi`ing towards acVve wear other than other categories. Market boundaries are blurring together as acVve wear for exercise blends into every day wear. Fitness clothing is becoming more fashionable for many people, therefore retailers are conVnuing to provide a wide variety of opVons for styles such as panerns, colors, fabric, and technology. Fitness apparel is not just for fitness anymore, consumers want clothing that is comfortable, durable, performance oriented, and stylish. Wear athleVc clothing in gym, yoga studio, home
Comfort is the top most important anribute in fitness clothing with 69% of responses. This is due to the casualizaVon trend and desire for athleVc wear to become day wear as well Threats: raising obesity rates
Table: social environment Source: lightspeed GMI/Mintel
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DIX F.2 Technology macro-‐environment “People want clothes that feel luxurious, but have performance anributes to support a full-‐contact lifestyle,” said Shannon Wilson, the co-‐founder of luxury acVvewear brand Kit & Ace, and ex-‐head designer for Lululemon (Forbes, 2015). In recent years, luxury acVvewear, coined as “Athleisure”, has become a prominent trend in the world of women’s fashion. Designers and manufacturers face the daily banle of creaVng a product that is of the latest technological quality yet is fashionable enough to wear out in daily casual setngs. C-‐Dri technology is the process of uVlizing a moisture-‐management fabric aimed at keeping athletes cool and dry. The fabric has engineered yarn that is sVtched in a unique panern, allowing moisture to move from the skin through the fabric, helping individual’s to stay cool and dry. This fabric has been seen as a bener alternaVve to tradiVonal 100% or polyester fabrics because of its unique drying and cooling abiliVes (Chasse). C-‐Dri was originally introduced as a fabric used for cheerleading uniforms, but since has begun to be used by Colosseum AthleVc CorporaVon for the company’s women’s acVve wear line. The company uses C-‐Dri in products such as cross-‐body sweaters, slub-‐knit sweats pants and mesh tanks (Fashionista, 2015). Space Dye fabric has become a staple in the world of yoga wear, specifically yoga pants. This technique involves the use of the chemical mordant, which helps to fixate the dye to the yarn a`er the process is complete (Fabriclink, 2013). Space dye has become synonymous with the mulV-‐colored, striped, blurred dye look it creates. The dyeing method gained notoriety when popular yoga brand Lululemon began uVlizing the technique for their yoga pants in 2011 (Self, 2011). Recently, the technique was used by yoga brand Beyond Yoga, who used Space Dye as the fabric foundaVon for a new yoga collecVon collaboraVon with Gwyneth Paltrow in 2014 (Fashionista 2015).
Other new technology in women’s acVve wear include using ballet warm up gear for the basis of top and bonoms, snakeskin leggings, and basic non print-‐crazy athleVc styles that can be easily used in everyday ouzits (Fashionista 2015). As large and compeVVve the fashion industry is, it’s difficult for companies and designers to respond and keep up with current trends in the industry. With only access to data from previous seasons and inspiring trend sites for the next season, the industry as a whole o`en experiences waste because it is hard to give the right price to the right product at the right Vme. This issue has led to the creaVon of the big data warehouse ‘Editd’ based in London, which is currently the largest apparel data warehouse in the world with more than 53 billion data points. The tools on Editd’s site are there to help fashion industry professionals track and understand the compeVVon as well as to help them product plan. Instead of going through the long process of compeVVve shopping, industry professionals can simply run a query on Editd and receive the informaVon they need in a categorized manner.
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DIX F.3 Environment macro-‐environment Consumer disposable income plays a significant role in apparel retail sales. Increase in household income is directly proporVonal with consumer spending on nonessenVal items. The way that consumers measure economic prosperity is called “consumer confidence.” If consumer confidence is high, demand for clothing increase and if it is low, demand decreases. In Vmes when low consumer confidence exists, stores with more bargains tend to perform bener than stores with more expensive prices. Retailers can sVll be successful during Vmes of low consumer confidence by focusing on keeping prices lower than their compeVtors. Also, they can increase sales by trying to encourage more customers to make less expensive purchases rather than fewer customers making more expensive purchases. The price of conon is criVcal for retail manufacturers. An increase or decrease in the price of conon will directly affect the price that retailers pay for their product. Higher conon prices forces retailers to either take a cut in profit margins or raise their prices. Since 2010, the price of conon has decreased almost 30 cents per pounds and is expected to increase next year. (IBISWorld)
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Appendix: CompePtors
Store Avg. Price Brands
Target $30 Champion Tulah by Soybu
Macy’s $50 Nike, Calvin Klein, Ideology, North Face, Under Armour, Adidas
Dunham’s $30 Champion, Under Armour, 90 Degree
Dick’s $60-‐$70 North Face, Nike, Calia by Carrie Underwood, Reebok, Lucy
MC Sports $25-‐$30 Under Armour, Nike
Walmart $10-‐$15 Danskin, Hanes, Fruit of the Loom, Avia
Seaview $110 Patagonia, Kuhal, W’s, Ray Bans, Columbia, Oakley, Vineyard Vines, Pelican
Indiana Running Company
$80 Nike, Puma, Adidas, New Balance, Reebok
Athleta $90 Their own brand
LuluLemon $100 Their own brand
TIS Bookstore $60 Under Armour, Adidas
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DIX G
34
Appendix: Products Offered
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DIX H
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Appendix: Interior Layout of SOUL
The interior of the store will have a modern and relaxing feel. Upbeat music will be playing during store hours to make women feel excited to shop.
Source: (DapperQ, 2013)
Source: (DapperQ, 2013)
Source: (DapperQ, 2013)
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DIX I.1
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Appendix: Interior Layout of SOUL APPEN
DIX I.2
SOUL Floor Plan 1280 N. College Avenue provides SOUL with a quality commercial area to promote its brand. This retail space is 50 feet long and 26 feet wide, allowing for a comfortable but spacious environment throughout the store. Upon entry, customers will see new products on display tables. Two of these display tables are circular and have mannequins on them showcasing SOUL’s apparel. On the right side of the store are four changing rooms with upper hanging and display shelving on both sides. On the left side of the store is SOUL’s cash register counter with SOUL’s logo on the wall behind it. In the middle of the room is a hanging display rack. The back left corner of the room consists of a new product display table on the left wall followed by a window display with three mannequins. Below is the floor plan for SOUL’s interior layout.
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DIX J Appendix: Facebook
Facebook page on browser
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DIX K
Appendix: Instagram
Instagram mobile app on iphone
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DIX L Appendix: Website
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