UNLICENSED APPARELMIS 5403 – SUMMER 2015TEAM #1

MATTHEW COHAN | GREG EBBECKE | PAUL JACOBSON | DANIELLE MARTINEZ | CHRIS MCCOMISKEY

EXECUTIVE SUMMARYTeam loyalty runs deep in the Philadelphia area, but the options for apparel don’t. The licensed items are highly expensive and everyone is wearing the same thing. The unlicensed items are creative, but can sometimes be impossible to find. And with so many counterfeit items on the market, it is difficult to trust the quality of the products.

The T-shirt industry has three key pain points:• Higher profile increases risk so businesses can’t be scaled• Major inventory pressures include "dead" inventory for unpopular designs, supply

chain concerns and massive IP/content libraries to manage • Demand is impulse driven and spontaneous; missed opportunity may not be

recovered, copycats can seize on supply disruption

To address these pain points, we propose the creation of GARB. GARB will combine two distinct business services; centralized inventory management and inter-vendor logistic support. It will serve the mid-Atlantic area from Central New Jersey to Maryland, moving product throughout the region within a days notice. GARB will buy up “dead” inventory to be used as barter with third-world countries and will digitize content in order to supplement vendor printing services and have for posterity. As a regional player, GARB will dis-incentivize broad copycat behavior by leveraging market trends to drive demand for all partners in the network.

RESEARCHWe conducted 15 interviews with various stakeholders in the apparel industry including unlicensed vendors, licensed vendors, prospective buyers and law enforcement entities. We immersed ourselves into the culture to gain an understanding of the motivations of the players involved. We took 100 photos and 15 videos of our surroundings to get a true sense of the inner workings of the industry and where there may be untapped opportunities.

(Licensing costs)

$10,000 to $1

million in upfront

fees as well as a

recurring three to six

percent of revenues

from applicable

sales.

Owning a piece of

clothing with the

team logo means

you can bring Philly

with you and easily

recognize others

that do the same.

“Our products use team colors,

personalities, cultures, along

with a sprinkle of pop culture to

create unique offerings...We

want to offer something with a

little bit more attitude than what

you would find in a team store”.

“If somebody came in here with a cease and dissent notice of course I would comply but really nobody got time for that stuff, we ain’t a high volume operation. The amount of money someone would spend more on lawyers just to stop a couple shirts wouldn’t be worth it to them”.

With sales totaling nearly 100 orders per day, competitors and rights-holders began to take notice.

…fans no longer wanted

a plain shirt with a logo,

they were looking for

new colors and themes,

things unlicensed

merchants were able to

do at a very low cost.

…tastes on the Internet were either too niche (difficult to scale profitably) or too fickle (i.e. fads) to be economically viable.

…(the local vendor) has near exclusivity on the inventory she sells, but the niche nature can make for supply issues.

He dismisses the novelty T-shirt shops as a “tourist joke”, but readily admits he’ll probably buy 2-3 shirts by summer’s end... “It’s a group thing”.

When asked about the legality of an unofficial jersey purchase, though, Carl said that it didn’t really cross his mind… As long as his ultimate purchase made his son happy on his birthday, without putting him in a bad financial position, he was okay with it.

“Where I get my jersey doesn’t affect my fandom”.

Going after these people on the streets takes a tandem effort between cops, private industry investigators, and homeland security investigators.

…screen-printing is

"lucrative, and the

potential for criminal

proceedings is on

the lower side"

If the cops do pick one of them up, they just pay a fine and are back out on the street.

cops often overlook that kind of thing in large populations as there are bigger things to worry about

"It is impossible to stop the flow of counterfeit merchandise."

Law Enforcement

Unlicensed Seller

Licensed Seller

Buyer

LOCAL:•Team success•Social media•Fan economy/merchandise cost•Potential for tax free revenue•Uniqueness & “Cool” factor of clothing

MARKET FORCES

TECHNOLOGY’S ROLE:Current•Introduction of the Chinese Wholesaler to individual buyers•Comparison shopping•Digital storage design•Efficient, lean production process

Projected (through GARB)•Instant communication•Aggregating of data into trends•Businesses working together

STAKEHOLDERS:•Vendors of unlicensed apparel•Vendors of licensed apparel•Holders of intellectual property & official licensees•Consumers•Apparel wholesalers•Athletes•Law Enforcement & Homeland Security

GLOBAL:•Labor and material cost – Labor intensive markets•Athlete star appeal•Media exposure•League/team brand•Government policy

THE MARKET

148.1MM VISITORS TO REGION ANNUALLY

39.7MM Visitors to Philadelphia Annually

93.2MM Visitors to

Jersey Shore Annually

15.2MM Visitors to Delaware Beaches/ Ocean City, MD Annually

1% Visitors buy merchandise from Street/Stadium Lot Vendors5% Visitors buy merchandise from Boardwalk/Beach Vendors

$4.0MM in City T-Shirt Revenue Potential ($10 per shirt)$71.5MM in Beach T-Shirt Revenue Potential ($22 per shirt)

YEAR-ROUND

SEASONAL

Tourism Data via VisitPhilly.com, VisitDelaware.com, OCOcean.com, VisitNJ.org

Region Venues Players Competition Risk Profile

CityFlea Markets, Street Stalls, Stadium Lots, Limited Storefronts

Independent Sellers, Some Wholesale

Affiliates

Authentic Sellers, Internet Wholesellers,Local Screenprinters

Enforcement highest, mitigated by lack of physical presence

BeachDedicated

Storefronts, Flea Markets

Entrepreneurs, Boardwalk “Empires” Local Screenprinters

Legal enforcement minimal, copycat of IP

threat to business

THE MARKET IS HIGHLY LOCALIZED AND SUPPLY IS FRAGMENTED.ONLINE SALES RAISES LIKELIHOOD OF LEGAL ACTION, UNDERUTILIZED.

OPPORTUNITYIntroduction of a digital B2B peer marketplace and logistics service- Expand individual seller footprint without risk of exposure via website/digital sales- Easier transfer of inventory as demand dictates- Allow Seasonal sellers to offer merchandise inventory year-round - Aggregated inventory allows for inventory trending and market forecasting- Minimal direct interaction between competitors as inventory can be ordered/sold entirely

online- Industry has low fixed costs – Potential to take “service fee” from margin without affecting

pricing structure

PERSONAS - SELLERS

Age: 35Occupation: OwnerLocation: NJMarital status: SingleChildren: NoneIncome: $50K -$95KEducation: High School DiplomaHobbies: Sketching, Bowling, Tattoos

Nate LoganIndependent Screen Printer

Nate owns a custom screen printing shop where he creates his own designs and styles. He will not copy existing artwork, but will apply his own distinct changes to reinvent the brand.

Add a PHOTO

DRIVERS

Goals: Grow Business, Influence Current TrendsNeeds: Money, Validation from Customers, Artistic LicenseDesires: Become An Official BrandFrustrations: Fickle Customers, Lack of Market VisibilityPain Points: Unpopular Designs, Increased Input Costs, Cyclical Revenue Stream

“SHIRT DESIGN IS AN ART AND I PROVIDE CUSTOM ART TO THE PUBLIC”

Add a PHOTO

Age: 56 / 44Occupation: Manager / Street VendorLocation: Shanghai / PhiladelphiaMarital status: Married / MarriedChildren: 1 (26 yrs) / 2 (20 yrs, 17 yrs)Income: $200K / $50K (tax free)Education: Bachelor’s / Primary SchoolHobbies: Gardening / None

Lee Smith & Maggie YeungOnline Wholesaler/Street Vendor

Lee manages a large factory in China where he produces replica sports apparel. He sells these replica garments through his online website on Alibaba and exports them for sale in the US through vendors such as Maggie.

DRIVERS

Goals: Legacy, Prestige / Home OwnershipNeeds: Respect, Money, Power / SecurityDesires: Legitimacy / Financial StabilityFrustrations: Cultural Fads / Language, Inconsistent EarningsPain Points: Customs, Margins / Limited Opportunity

“I MAKE QUALITY PRODUCTS AT A DISCOUNT TO THE CONSUMER”

Age: 58 / 38 Occupation: Owner / ContractorLocation: NJ / PAMarital status: Married / SingleChildren: 3 (31, 26, 14 yrs) / 1 (19 yrs)Income: $250K / $40-80KEducation: Bachelors / HS DropoutHobbies: Family, Cars / Hunting, Gambling

Sandy Cohen & Robert BrownBoardwalk Baron/Flea Market Vendor

Sandy owns a half-dozen storefronts on the Jersey boardwalk. His stores stock over 6,000 designs which he sells at local flea markets through Robert during the offseason.

DRIVERS

Goals: Empire / Make MoneyNeeds: Respect, Influence / Shelter, FoodDesires: Generational Legacy / IndependenceFrustrations: Taxes, Rent / GovernmentPain Points: Seasonality, Inventory / Dependence, Travel

“I PROVIDE WHAT THE PEOPLE WANT”

PERSONAS - BUYERS

Age: 30 Occupation: Cable Company TechnicianLocation: PAMarital status: SingleChildren: NoneIncome: $45K Education: High School DiplomaHobbies: Cars, Gaming, Softball

Eric GreenAvid Sports Fan

Eric has loved the Eagles since he was a young child. As a diehard fan, he owns many jerseys and shirts. He is always looking for new and different apparel that shows his team love

Add a PHOTO

DRIVERS

Goals: Buy Apartment, See As Many Games as PossibleNeeds: New Ways to Express Fandom, Friends ApprovalDesires: Season Tickets Frustrations: Monotonous Selection, Blending InPain Points: Price of Licensed Shirts

“I LOVE MY TEAM BUT FIND THE LOGO BORING. I WANT SOMETHING CLEVER AND UNIQUE”

Add a PHOTO

Age: 46 Occupation: Mid-Level ManagerLocation: PAMarital status: MarriedChildren: 2 (7yrs and 9 yrs)Income: $75KEducation: Bachelor’s DegreeHobbies: Running, Sports, Little League Coach

John LewisKnock-Off Buyer

John is buying jerseys of his kids favorite players from the black market. He knows that they will outgrow them soon and wants to save money for when he needs to buy them again in larger sizes.

DRIVERS

Goals: Support Family, Run a Marathon, Pay for Kids’ CollegeNeeds: Respect, Money, Friendship, Validation from FamilyDesires: Professional SuccessFrustrations: Cost of LivingPain Points: Mortgage, Ungratefulness, Salary

“IT’S MY JOB TO PROVIDE THE TYPE OF LIFE MY FAMILY DESERVES”

Age: 22 Occupation: UnemployedLocation: NJMarital status: SingleChildren: NoneIncome: Weekly StipendEducation: Some CollegeHobbies: Music, Drinking, Video Games

Chester Allen IIICollege Student

Chester spends his summers renting a shore house with friends. His lifestyle is sustained by his parents. T-shirts represent an inexpensive way to make a statement and align his personal brand with the latest trends.

DRIVERS

Goals: Have Fun, Make MemoriesNeeds: Respect, Validation from Opposite Sex, ComraderieDesires: Infinite YouthFrustrations: Dependency on ParentsPain Points: Responsibility, Career Pressure, Social Faux Pas

“WHAT I WEAR IS A STATEMENT OF WHO I AM”

MARKET SYSTEMS & OPERATION

Base T-Shirts

delivered to two

destination types

Large scale factory

Custom t-shirt printer/artist

Knockoff apparel is copied from existing styles.

Originals put a twist on existing styles. Originals

become mainstream popular and are then

copied. Each market is dependent on the other

for idea generation.

Store Fronts

Flea Vendor/Street Seller

Online MarketConsumer decides

what market and product best fits their

needs. Their purchase provides direct

feedback to producers.

Indirect feedback about customer preferences and demand

Quick to MarketNot Scalable

Slower to MarketEasily Scalable

AUTHENTIC

INNOVATION

REPRODUCTION

Replica

Fusion

Inspired

LicensedImitation

Original

Hig

h R

isk

No Risk

Low/Medium Risk

•High Priced• High

Quality• Not Creative

•Medium Price• Unsure

Quality• Creative

• Low Price• Low Quality• Not Creative

Idea/Design Generation

Designs Added

Three Techniques to Adding Design

Distrib

utio

n

Distributio

n

Distrib

utio

n

External Influences

Market opportunity to alleviate risk!

Market opportunity increase speed and/or scalability!

Feedback Loop

For Influences

BUSINESS CASE

International Wholesalers manage relationships between producers and market, but may only

indirectly control inventory

Has great ideas, but cannot scale his business without increased risk to

livelihood

Has inventory to move, but limited distribution

beyond Internet

Has infrastructure to scale, but footprint is

limited/seasonal

Benefit Nate Lee/Maggie Sandy/Robert

Online B2B Marketplace Sell Designs & Inventory to Sandy/Robert

Sell Inventory to Nate, Sandy/Robert

Buy additional inventory as demand dictates

Regional Inventory Transit Reach beach customers Consolidated distribution Can transport inventory between

beaches easily

Centralized Storage Quicker distribution Centralized import More “active” shelf space

Ability to scale Reduces legal risk without own dedicated website Vendors deal with a “local” Sell inventory in city during

offseason

Market Insight Inspiration for new ideas Inventory management Inspiration/Inventory management

PRO

BLEM

S

CREATE A VENDOR “AMAZON” SERVICE FOR PA/NJ/DE/MD • Manage relationships between vendors, leave customer relationships for vendors• Need credentials to access – Only given to vetted vendors• Act as middleman for the distribution of inventory between city and beach sellers• Analyze inventory movement, pop culture to create market insight products• Purchase “dead” inventory and sell to third-world, discount chains, etc.

INSP

IRAT

ION

FINANCIAL DATA

BUSINESS ASSUMPTIONS• Given high variability of product demand and market seasonality, monthly projections are difficult• Business is able to achieve 4% of total potential shirts sold for transit, 0.5% in storage and 1.0% as distressed inventory• Service Fee percentages assume 30-50% margin on shirts, from which service fee is deducted• Calculations do not take into account potential growth of market by expanding seller footprint• Wage compensation based on $15/hour off-the-books

• Operational radius of ~100 miles from Vineland, NJ base• 41 miles to Philadelphia• 97/154 miles to Ocean City, MD• 43 miles to Wildwood, NJ• 106 miles to Asbury Park, NJ

• Transit Fee is 2.27% on Beach Shirts ($22), 5% on City Shirts ($10)• Storage Fee is 0.45% on Beach Shirts, 1% on City Shirts• Distressed inventory can be acquired from vendors at $1 per shirt

(sold $2 per shirt retail clearance) and resold for $2 per shirt

• Storage unit used for storing shirts, servers

• Mitigate legal risk as we are not selling inventory• Risk due to interstate transportation of counterfeit goods

• Risk of non-payment by “partner” vendors• Risk of vendor copycat rather than collaborative behavior• Risk due to low barriers to entry• Risk of violating storage lease by using unit as place of business

Income AmountApparel Transit Revenue 145,960 shirts 0.50$ /shirt 72,980$ Apparel Storage Revenue 18,245 shirts 0.10$ /shirt 1,825$ Distressed Inventory Revenue 36,490 shirts 1.00$ /shirt 36,490$ Market Research Revenue 10 clients 600.00$ /client 6,000$

117,295$

Expenses Amount8x12x8 Storage Unit 12 months 120.00$ /month 1,440$ Ford Connect Van Transit 12 months 400.00$ /month 4,800$ Employee Labor (30 hrs/week) 52 weeks 900.00$ /week 46,800$ Gas (25 mpg) 30,000 miles 3.00$ /gallon 3,600$ Tolls/Ferry 12 months 150.00$ /month 1,800$ Website Hosting 12 months 8.00$ /month 96$

58,536$

58,759$

Total Income

Total Expense

Income

Qty Rate

Qty Rate

T-Shirt Margin Data via UnitedPixelWorkers.com

CONCLUSIONWhile big, licensed players enjoy freedoms of scale, small and unlicensed sellers do not have this luxury due to market inconsistency, fads, and risks of law enforcement intervention. By taking on a share of these risks and building a connection between individual sellers in the region, the small sellers will be able to achieve scale.

This is where GARB comes into play by storing, logging, and transporting merchandise, connecting sellers, and providing market research that can lead to longer lasting trends instead of short lived fads. GARB will also provide a buyback service where “dead” merchandise will be recovered and turned for a small profit, allowing for further safety and confidence by sellers in the trends suggested.

Vendors will be charged per shirt sold and a small research fee per month, but stand to increase scale and revenues dramatically. The artist gains distribution and salesmen (essentially). The flea vendor gains consistent and fashionable product offerings. The foreign wholesaler gains a greater relationship through mitigated risks of ordering (GARB to use many different names and addresses now available in the network of participants). The buyer will enjoy better offerings and product availability. Each player stands to gain from unification. Further, while the sale of some of the merchandise involved is illegal, owning/transporting it is not necessarily a crime. GARB will operate in a “grey area” between laws.

As shown on the Financial Data slide, the company stands to make $58,759 in EBITDA or about 50% operating margin. Early success will rely on top notch market research that will lead others to seek involvement into the cooperative effort. By working together, scale can be achieved and risks alleviated.

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