Executive Summary
India’s fashion industry is on a growth trajectory, thanks to the country’s burgeoning economy, a vibrant movie industry and the ever increasing sense of fashion, among others. ABC is a start up company which seeks to exploit the available opportunities in this market. This business will be located in Mumbai and will draw its customers from the strong middle class population and low income earners resident in the area. The business will be a partnership between two highly qualified designers and will have a start up capital of GBP 5,000 . Together with the partners, the firm will start with 4 people, one accountant and one intern. Our core competency will lie in the design of unique, stylish and compelling fashion items. We will put in place effective IP policies, prudent risk management strategies, good corporate governance and other best practices so as to attain our primary objectives. We expect to break even after three years and attain a market share of 1.6 percent in the first year. Our projections favour an annualized growth of 10 percent, with a modest net profit in the second year of operation. In the long term, we hope to obtain franchise outlets and integrate vertically by establishing our own distribution outlets.
Business Description
Our Line of Business
The main business of our firm will be to design fashion items for women, men and children
Mission Statement
To continuously expand our market share by providing innovative, stylish and high quality fashion items and accessories which are affordable.
Vision
We aspire to be a leading fashion house in India through provision of high quality and innovative fashion items.
Financial Objectives
The financial objectives of our business are threefold. First, we seek to increase earnings growth by 10% annually. In order to achieve this, we shall endeavour to capture 1.6 percent of the domestic market in our first year of operation and subsequently grow it by an annual compounded rate of 10 percent. Secondly, we shall strive to achieve an annual return on equity investment of 10% in the first year and boost it by 15% every year for the next three years. We shall also strive to maintain total debt to capital ratio of 30% or less.
Strategic Objectives
Our strategic objectives are to surpass competitors on the quality of products made, to become the undisputed leader in India’s fashion industry, to become an industry leader in technology uptake and to pioneer process innovations in India’s fashion industry. To do this, we shall integrate stylish designs with
Business Philosophy
Our business philosophy is that the needs of our customers will be put ahead of any other consideration.
Company Ownership
The company vehicle to be used will be a partnership with finances sourced from the partners’ savings. A Benefits of Partnership Agreement has been drawn. This will help forestall major disagreements and provide an amicable resolution of disputes. The partnership option was selected because of the ease of formation and tax advantage benefits and. Besides, the availability of several partners is advantageous to the business as it gains from complementarities of skills, and the partnership can raise more capital since there is pooling of resources by more than one person (Hornby, Gammie and Wall, 2001).. For this reason, the business will be organized as a partnership
Industry Overview
India’s Fashion Industry
India’s fashion industry is worth an estimated $40 million (or Rs.270 cr). The industry is however experiencing heady growth and it is forecast that the market will expand almost threefold to reach Rs.750 cr (about $500 million) by 2012. This expansion will be driven by an increasingly strong middle class, good economic performance, a fashion conscious populace and increased exposure to the Western media. A proliferation of retail outlets stocking designer items is also seen to aid further expansion of the industry. Another factor that continues to positively impact on the fashion industry is the burgeoning Bollywood film industry which has helped shape Indians sense of style (Doshi, 2006; Bremner and Lakshman, 2007; “India Fashion Design”, 2007; Nobrega and Ashish, 2008; Ramat-Gan, 2007).
Competitive Environment
For a long time, fashion houses have played a peripheral role in India’s fashion industry. Rather, individual designers dominate the industry. A complete list of all the leading designers is given in the appendix. However, removal of legal restrictions imposed on retailers with single brands has seen an influx of renowned brands such as Gucci and Giorgio Armani into India. This is not expected to affect our operation significantly as these designers mainly target the upper end market. In addition, the government slaps a 16 percent ad valorem duty on branded clothing items. Prices range from 500 to 10,000 rupees for the “pret-a-porter” (ready-to-wear) products and between 10,000 and 30,000 rupees for diffusion segment products. For the high end products, prices exceed 30,000 rupees (India: Fashion to Business, 2003)
Strengths and Core Competencies
Our strengths, which will help us gain a foothold in the market and drive our growth strategy, include a skilled, highly trained and experienced workforce, a flexible ownership structure which allows for quick decisions, less legal restrictions, and fewer taxes and lower overheads compared to bigger fashion houses. Others are a wide and deep product mix, changing customer preferences favouring high quality designs, and marketing which will help differentiate ABC’s products from other designers’ offerings. Besides, our reputation will be ensured by cultivating and sustaining a reputation for excellence and being the employer of choice in the fashion industry. We will attain profitability by controlling costs and managing budgets in accordance with company goals, adhering to strategic business plans for growth and expansion and reinvesting in the business and its employees. Our diversification strategy will help us overcome obstacles occasioned by insufficient clients and inadequate contracts. Our core competence is in design.
Products and Services
Our products will consist of designer clothing items consisting of children wear, men’s wear, and women’s wear
Marketing and Communication
This section describes our target markets and the 4p’s of marketing which the business will adopt
Target Market
We will target both the middle class and lower end segments of the Indian market. We will not compete for the premium market as the high brand identity of more established players, the proprietary learning curve, cost advantages and high capital needs pose significant entry barriers. Consequently, we will concentrate on the prêt (ready to wear outfits) and the diffusion segments. We will target only the domestic market to forestall foreign exchange losses occasioned by the weak Indian rupee (Nashrulla, 2008, p.1). To lock in these markets, we will alternately use the cost leadership strategy for the mass market and the focus strategy for the middle class market with highly differentiated products.
As concerns women’s wear, we will target the haute couture and high end (non couture) segments. We will use the focus strategy for the designer, classic, middle, market and high street niches of the haute couture segments and the cost leadership strategy for the budget segment. For the high end (non couture) segment, we will target the designer, missy, young designer, better, bridge, contemporary, moderate, junior, budget, and private label items niches with the low cost leadership strategy for the budget segment.
With regard to menswear, we will target the bespoke tailoring segment with specific focus on the designer, high street, sportswear, casual, and budget niches. We will also target the custom tailoring sub segments with offerings for the furnishings, moderate, sports and active, sports, and bridge categories niches. On children’s wear, we will seek to satisfy the mid market segment, the designer segment and the budget segment.
Promotion
We shall promote our products using fashion weeks such as the Wills Lifestyle Indian Fashion Week in New Delhi and the Lakme Fashion Week in Mumbai. Other promotional strategies which we shall make use of include the internet where we will maintain a well–designed website which shall feature our work, network of professional associates, college mates and friends and brochures and posters. We shall also have letterheads, signage and interior décor designed to bring out the image of high quality products. Additionally, we shall use publicity to promote our products. In this regard, we will build and sustain relationships with fashion writers in magazines such as Marie Claire and Vanity Fair who will give us positive coverage. W e shall also promote our products by advertising through the mass media.
Consequently, we will buy air time and space in selected radio and TV stations, magazines, newspapers and billboards. An important part of our promotional activities will include testimonials and endorsements by renowned Bollywood celebrities. In this regard, we will stock their wardrobes in return for favourable endorsements and testimonials. Other promotional activities which we will make use of include sales promotion where we will provide free samples and organize contests and sweepstakes. To achieve all these, we have come up with a promotional budget worth 20, 000 rupees in the first year.
Location of Business (Place)
Our business will be located in Mumbai because the rents here are cheaper. Additionally, the location in Mumbai was selected as it is along a major road, is secure and has ample parking space. The location is also ideal as it has reliable power supply and public transport system and reliable water supply and internet connection. It is situated close to a sprawling middle class residential area.
Pricing
We shall adapt different pricing mechanisms depending on the products on offer. For mass products, we will use the budget pricing strategy. As such, our products will cost the same as similar products in the market. For differentiated products, we will use the penetration pricing strategy. Here, our products will be charged 5 percent lower than the average price of the products presently in the market. As such, our charges for the ‘ready to wear’ products will range from 500 to 10,000 rupees depending on the particular product. Diffusion segment products will range from 9,500 to 28,500 rupees which is slightly lower than the average market charges of 10,000 and 30,000 rupees. The prices will be reviewed once the desired market share has been attained
Distribution Channels
We will use both the intensive and extensive distribution strategies. For products targeted at the mass market, we’ll use the extensive strategy while for differentiated products we’ll use the intensive strategy, placing them in specific target outlets. To distribute our mass products, we will make use of multiple stores, factory shops, convenience stores, and discount stores. On the other hand, our differentiated products will be sold through malls, the internet, boutiques, catalogues and mail order services, independents, department stores and franchised outlets.
Operational Plan
Our office and studios are located in Mumbai. The headquarters is partitioned into two – office and studio. The premise is well served by power, internet connection, water, telephone lines and all other important utilities. It is located along one of the major roads and is easily accessed by public transport and has ample parking and security.
Legal Environment
ABC has complied with all the licensing and regulatory requirements and the trademark rights for our company’s name secured
Number of Employees and Staffing
We will commence our operations with four workers and increase the number as the need arises. Two of the employees are professionals with wide experience in India’s fashion industry. The third worker is a certified accountant while the fourth one is an intern who has received higher training in fashion and design. Among others, we will draft a salary scheme, carry out regular needs assessment for training so as to determine current skill levels and perform staff appraisals annually as the basis for promotion. Schedules and written standard operating procedures to guide our employees will be formulated in a bid to offer high quality products. Detailed job descriptions will also be drafted and availed to all the workers to help them understand our expectations. Contract workers will be engaged in emergency situations.
Inventory
An inventory of all the supplies will be kept. This will include our average value in stock, rate of turnover and how it compares with the industry standard, Seasonal build-ups and, lead time for ordering.
Suppliers
A list of suppliers who will provide us with inputs is given in the appendix. All these suppliers have been selected because they have an excellent reputation for supply of fabrics and accessories of high standards as well as good delivery policies. They also have flexible credit policies. For backup purposes, we will raise RFPs for extra suppliers for all the products we need. In order to protect ourselves against fluctuating supply costs, we intend to purchase in volumes. This will also help us to achieve economies of scale. We will strive to build very strong relationships with the suppliers in order to further reduce the risks of delays in supply.
IPR Strategy
Protection of our designs and other innovations will be crucial to the growth of our organization. As such, we will create an Intellectual Property Rights (IPR) Policy. This policy will help us to not only prevent our ideas from being stolen by others but also shield us from potentially costly litigation due to breach of other people’s rights. On confidentiality, the IPR Policy will put in place guidelines which describe the processes and designs to be treated as confidential. As such, all employees present and future will be required to sign a confidentiality clause and or a non disclosure agreement which prevents them from disclosing company secrets and any other material, process or design classified as confidential. We will limit access to sensitive documents so that only authorized persons can view them. In this regard, we will classify sensitive documents as ‘Top secret’ and ‘classified information’ depending on their content.
We will actively seek patents for all our products and ideas which meet the minimum patentable standards described by India’s intellectual property organization. Towards this end, our IPR Policy will describe the procedure to be followed whenever novelties are deemed to have occurred. We will do this in consultation with our attorney who will also help us carry out patentability searches in order to ensure that our creations are innovative and in no way infringe on others. Importantly also, we will require that workers keep a log book which details exhaustively all the steps carried out in the course of developing any product or design. The log books will be tamper-proof and signatures of witnesses will be required
Additionally, we will secure trademark rights for all our business names, symbols, brands, music logos, and sounds by registering them. We will own the copyrights of all the creations made by our employees and accordingly have all these copyrighted. This will be done my etching the symbol © on all our designs followed by the company’s name and the year the creation was made. We shall uphold our design rights and seek to register our designs as each case may warrant. Regular audits will be conducted in order to take stock of intellectual property in the business, the owners of intellectual property rights and the value of these rights. A logbook will be used to administer the properties. All employees will be required to sign employment contracts which, besides having a confidentiality clause, clearly state that their creations will remain the exclusive property of the organization. However, employees will be allowed to retain moral rights over these works and this will also be specified in the contracts.
The business will enforce its implied right to utilize intellectual property in instances where freelance contractors have been hired. Accordingly, we will have written contracts giving our business both moral and legal rights to all the work created by the contractor signed by both parties before commencement of the work. We shall also retain an attorney who will help use to enforce our intellectual rights as well as advise us against any infringements or legal action.
Credit Policies
Credit will not be extended to any customer under any circumstances. This will help us to avoid obstacles due to non-payment
Risk Management
We will have an active risk management process whose primary objective will be to reduce the threats facing our business to the minimum possible level. Our risk management process will be built along the lines of the ALARP (As Low As Reasonably Practical) model as described by Main (n.d). The process will be integrated in all design processes and will aim at identifying all the threats facing the business, evaluating the risk posed, reducing the risk and documentation of the outcomes. It will stress on safety in the workplace and hence regulations put to ensure that the threats to the health and safety of workers are minimized. A scoring system will be utilized in order to help rank the risks in order of importance and hence prioritize responses. An active fire policy will be adopted and employees trained on fire hazards and their prevention. Regular drills will be conducted and care taken to ensure that fire extinguishers are available and in good working condition. We will also set up benchmarks and enforce them. Risk assessment will be carried out by the partners and trainings on risk assessment will be conducted for all employees. The process to be adopted by the business is summarized by figure 1, appendix
Startup Expenses and Capitalization
Fiscal responsibility will be overseen by the accountant, xxxx. It is estimated that a total of £5,000 or 363, 203.30 Indian rupees will be required to start up the business (see table 2 below). These costs will be financed using the partners’ personal finances. yyyy will contribute 51 percent of the finances while Rehan Shah will contribute the remaining 49 percent. A list of start-up expenses is provided in the balance sheet in the appendix.
Financial Plan
Key Financial Indicators
We project a gradual growth in sales underpinned by increasing number of clients in need of designer products. The raw gross margin is expected to remain stable with an increase in operating costs caused by the rising client base. To achieve our targets we must attract an average of 10 new clients every week.
Pro Forma Financial Data
According to our financial objectives, we hope to attain an annualized growth of 10 percent. The market value of the fashion industry in India is 270 crores and is expected to rise to 750 crores by 2013. Our strategic aim is to capture at least 1.6 percent of this market in our first year of operation. This means that we need to gross in sales of at least 427,682 rupees in the first year. The table below illustrates our expected financial position
Projected Cash Flow
We have provided cash projections for our first year of operations. Our total capital outlay will be 5,000 GBP which translates to 363,203.3 rupees or 3.63 lakhs. We estimate that we will achieve break even in the third year with a cash surplus of 584,548.7 rupees which will grow to 2,676,924.7 rupees in year 4 and eventually reach rupees 9,243,971.7 in the fifth year. A detailed cash flow statement for the first year is annexed in the appendix.
Projected Profit and Loss
We project that sales will increase from the first through the third years. With gross margins of 16 percent, we will make a loss of Rs 65,318 in the first year but recover in the second year to make a net profit that is 0.005% of the revenues. This is expected to rise to Rs 399,655 by the end of year three (see the profit and loss table below)
Long Term Goals
The long term goals of the company include its conversion to a limited liability company. Additionally, it is hoped that the business will achieve vertical integration in a year’s time. This will be attained by setting up an exquisite boutique in the designers name in suburbs where there are many Bollywood personalities. Other long term goals include showcasing our products in international events such as the Miami Fashion Week, the Hong Kong Fashion Week, and the Paris Fashion Week besides getting franchise outlets.
References
- Bremner, B. & Lakshman, N. 2007, April, “India craves the catwalk; the nation’s fashion industry has ambitions for a design style mingling Indian craftsmanship and Bollywood-style cool to tempt buyers worldwide. (Asia)(Industry overview)” Business Week Online, General One File. Gale. Apollo Library. 15 Nov. 2008 [Online] http://find.galegroup.com/ips/start.do?prodId=IPS [Accessed on 19th February, 2009]. Gale Document Number: A161613698
- Doshi, G. 2006, Indian fashion industry. [Online] <http://ezinearticles.com/?Indian-Fashion-Industry&id=364064> [Accessed on 20th February, 2009]
- Hornby, W, Gammie R, and Wall S. (2001). Business Economics. Financial Times / Prentice Hall. ISBN: 0273646036, 9780273646037
- “India: fashion design industry is set to grow.” IPR Strategic Business Information Database (Nov 27, 2007). General One File. Gale. Apollo Library. 15 Nov. 2008
<http://find.galegroup.com/ips/start.do?prodId=IPS>. Gale Document Number: A171815594 - Indian fashion, 2008, [Online] <http://www.indiavisitinformation.com/indian-fashion/index.shtml> [Accessed on 20th February, 2009]
- Nashrulla, T. 2008, Mar 26, “Fashion: industry overview”, McClatchy – Tribune Business News, [Online] <http://proquest.umi.com.ezproxy.apollolibrary.com/pqdweb?did=1451281321&sid=1&Fmt=3&clientId=13118&RQT=309&VName=PQD> [accessed on 20th February, 2009]
- Nobrega, William and Sinha, Ashish, 2008, riding the Indian tiger: understanding India–the world’s fastest growing market, New York: J. Wiley & Sons.
- Ramat-Gan. 2007, Nov 27, Fashion design industry is set to grow, Info – prod research (Middle East), [Online] <http://proquest.umi.com.ezproxy.apollolibrary.com/pqdweb?did=1389119191&sid=2&Fmt=3&clientId=13118&RQT=309&VName=PQD> [Accesses on 16th February, 2009]
- Worldwide tax. 2009. [Online] <http://www.worldwide-tax.com/india/india_tax.asp> [Accessed on 20th February, 2009]
