boutique business

Pre-Feasibility Study BOUTIQUE

(Women Designer Wear)

Small and Medium Enterprise Development Authority Government of Pakistan

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May, 2007

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Pre-Feasibility Study Boutique (Women Designer Wear)

DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/ her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL

Document No. PREF-57Revision 2Prepared by SMEDA-PunjabApproved by GM PunjabRevision Date May 14, 2007Issued by Library Officer

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RECOMMENDED MODE FOR RENTING AINFRASTRUCTURE REQUIREMENTS.


1 INTRODUCTION ............................................................................51.1 PROJECT BRIEF............................................................................51.2 OPPORTUNITY RATIONALE...............................................................51.3 PROPOSED CAPACITY....................................................................51.4 TOTAL PROJECT COST...................................................................6

2 CURRENT INDUSTRY STRUCTURE .................................................6

3 MARKETING..................................................................................61.1 TOTAL.......................................................................................7

4 RAW MATERIAL.............................................................................84.1 RAW MATERIAL...........................................................................8

5 PRODUCTION PROCESS FLOW ......................................................85.1 PRODUCTION PROCESS FLOW .........................................................8

6 PRODUCTS ...................................................................................96.1 PRODUCT MIX.............................................................................9

Ethnic Wear ..................................................................................9Contemporary Wear .......................................................................9Western Wear ...............................................................................9

2.1 COSTS OF GOODS SOLD AND OTHER EXPENSES..................................107 HUMAN RESOURCE REQUIREMENTS ...........................................10

8 MACHINERY/EQUIPMENT DETAILS ...............................................11

9 PREMISES FOR SHOP AND STITCHING UNIT .................................119.1 SHOP......................................119.2................................................................................................12

10 PROJECT ECONOMICS ..............................................................133.1 PROJECT COST ..........................................................................134.1 PROJECT RETURNS......................................................................135.1 FINANCING PLAN .......................................................................13

11 KEY SUCCESS FACTORS ...........................................................14

12 THREATS FOR THE BUSINESS ...................................................14

13 FINANCIAL ANALYSIS.................................................................1513.1 PROJECTEDI NCOME STATEMENT..................................................1513.2 PROJECTED CASH FLOW STATEMENT............................................1613.3 PROJECTED BALANCE SHEET.......................................................17

.. ERROR! BOOKMARK NOT DEFINED. 14 KEY ASSUMPTIONS ..................................................................18

3 PREF-57/May, 2007/ Rev 02

Pre-Feasibility Study

14.1 PRODUCTION ASSUMPTIONS...14.2 OPERATING ASSUMPTIONS...14.3 CASH FLOW ASSUMPTIONS...14.4 EXPENSE ASSUMPTIONS...14.5 FINANCIAL ASSUMPTIONS...

PREF-57/May, 2007/ Rev 02

Boutique (Women Designer Wear)

..18.18.18..18..18

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1 INTRODUCTION

1.1 Project Brief

The pre-feasibility study focuses on the establishment of women designer wear Boutique including the operations of apparel designing, manufacturing, selling and marketing. The study has been designed to capture the dynamics of the Boutique industry, with its many components and possible strategic opportunities.

1.2 Opportunity Rationale

Clothing is a beautiful visual demonstration of the social and emotional needs of people wearing it. It also portrays in a clearly understood visual manner, what people of different cultures and styles want socially. Fashion, through times, has gone through so many rapid changes and bizarre extremes that it has examples of nearly every kind of clothing function. However, in a boutique business, the specifications and descriptions of the designs and clothes are so general that they can fit more than one costume, which actually are quite different in nature from each other and this is solely dependent on the taste of the people. The range of Pakistani dresses is remarkably wide, according to the vast cultures, geographical differences, purchasing capacities, influence of the western culture, and bewildering diversities of the ethnic groups. One has, therefore, to sift and isolate, and then relate and bring together, the ideas for creating various designs, which can fit in the context of the fashion in vogue and the culture in practice. In reference to Pakistan, the Boutique business is quite in vogue but has yet to be formalized. The market of this enterprise is quite scattered and unorganized. There are a few major players in Boutique business and these entrepreneurs have also taken an initiative based on their caprice and experience in the field of fashion design. However, there is a massive potential in this field, if one has the ability to design and market his/her products through introducing innovative designs both in stitching as well as the fabric sector. Furthermore, there is massive export potential in this sector, as the demand of Pakistani dresses, especially in countries like UAE, USA, and UK, is massive due to a high number of Pakistani expatriates who have settled in these countries. The Boutique business can also be expanded into a more profitable venture by providing stitching facilities to other boutiques, which do not own a stitching unit or are lacking this facility.

1.3 Proposed Capacity

The Boutique business capacity is greatly dependent on the market size and the number of potential clientele one can attract. Furthermore, the women fashion wear

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garments will be designed through a contracted designer and then stitched through in-house stitching unit. On average, a designer can supply forty designs per month from which nearly thirty designs are selected on average. Approximately, total capacity of the defined unit with 5 stitching machines (basis on 8-10 hours shift) will be about 7501 dresses. The breakup of the total number of dresses will be as follows: Total designs selected by designer 30Number of dresses in each design 5Number of dresses in each size 5Total Number of dresses 750This production and sales capacity is estimated to be economically viable and justifies the capital as well as operational costs of the project.

1.4 Total Project Cost

The Boutique shop needs a total investment of about Rs. 1.83 million. This includes a capital investment of Rs.1, 299,430 and a sum of Rs.530, 680 as working capital.

2 CURRENT INDUSTRY STRUCTURE Currently, the boutique industry is relatively unorganized and is scattered in and around the posh areas of the metropolitan cities of Pakistan i.e. Lahore, Islamabad, Karachi, Peshawar, and Quetta. The boutiques in Peshawar and Quetta, mostly sell the traditional dresses having indigenous/local designs, whereas the ones in Lahore, Islamabad, and Karachi deal in fashion wear greatly influenced by the west and the local trends in vogue. As such, there is no exact detail available of the number of boutiques, especially in women wear, because there is no association or link between these enterprises. The reason being the business rivalries and the competitive structure of this industry. However, one can name a few major players in the business such as Indifference, Generation, Parahan, Nee Punhal, Bossini, Kapre Waghera, Maria B, Nina’s, and some individual designer players like Beegee’s, Nilofar Shahid, Nadia Mistri, Amir Adnan, Shayan Malik, and Sahar Saigol.

3 MARKETINGThe marketing of boutique follows the conventional marketing pattern which is dependent on selection of venue of the outlet/s and the product mix (designs and sizes), as well as the promotional strategy. Furthermore, the boutique owner has to marketing techniques like:

x Usage of print media i.e. printing of posters and pamphlets as well as displaying it and distributing it at proper places x Advertisement in print media i.e. newspapers and fashion magazines, etc.

1 This production also includes additional suits that will be prepared on orders/outsourcing/CMT (Cutting, Manufacturing and Trimming) per month in order to utilize the maximum capacity of the stitching unit.

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x Usage of electronic media i.e. projection of the boutique in fashion programs, advertisement on television, and provision of dresses to various television plays and films. x Event arrangement like fashion shows and photo-shoots. x Usage of e-commerce i.e. launching of website and advertising on web.

Moreover, in order to keep abreast with the emerging trends and client tastes, surveys regarding customer satisfaction/needs should be a regular feature of this project. As this project of Boutique deals in designer women wear, therefore the product mix will comprise of different styles of the female dresses in different sizes. Whereas, the styles will be Shalwar Kameez, Q-lots, Pajama Kameez, Frocks, Kurta, Peeshwaz, Party dresses, Casual Dresses and other prevalent dresses based on the market trends. Apart from this, there is a vast export potential in this industry, which is evident from the export figures of 1998-99 (available from the data of Federal Bureau of Statistics-FBS).SITC2 Code Product Classification

8422102 Suit women cotton not knitted8422103 Suit women synthetic not knitted8422104 Suit women (other textile material not knitted)8422202 Ensembles women cotton not knitted8424002 Dresses women not knitted8424003 Dresses women man made fiber not knitted8424004 Dress women other textile not knitted8424006 Shisha embroided dresses of cotton8427006 Baluchi Kameez of Silk

1.1 TotalSource: Federal Bureau of Statistics

2000 - 2001Value (Rs. “000”)

1,415,124501,91746,8612,107

463,34663,43817,723

28627

2,510,826

Even these figures represent the formal export patterns of women dresses from Pakistan and are not representative of the export of these dresses taking place on informal level. Most of the women dresses prepared in Pakistan are exported to USA, UK, Germany, UAE, Saudi Arabia, France, Belgium, Netherlands, and South Africa. The end users of these dresses in foreign countries are mostly Pakistani

and Indian women who have immigrated to these countries.

2 Standard International Trade Classification7



4 RAW MATERIAL

4.1 Raw Material

The raw-material required for such sort of projects, would be as follows: x Fabric: The fabric, which is the basic raw material requirement for a boutique and a major component of the cost, can be obtained from wholesale markets or from markets specializing in designer cloth at Faisalabad, Karachi, and Lahore. x Accessories: Accessories such as buttons, laces, zippers, elastics, threads,

needles, embroidery threads, glasses, etc. will be procured from the local market at competitive rates.

x Labels, tags and packaging: Labels and tags can be obtained on order, as these serve as an identity for the boutique and are useful for promotion.

5 PRODUCTION PROCESS FLOW

5.1 Production Process Flow

The process for converting fabric in designer wear garments follows the below mentioned sequence:

x Design: The initial process starts from the designing phase. Various patterns of clothing and the fashions in vogue, which also relate to the tastes of the concerned clientele, are designed. This is done by the contracted designer as

he/she will provide the basic designs of which the fabric will be converted into the designer wear garment. On average, a designer is supposed to provide 40 designs per month or 100-120 designs per season i.e. three months. From these designs, approximately 50% of the designs are selected for further development of clothes.

x Pattern Making/Cutting: Based on the designs selected, patterns for cutting are developed and based on these patterns, fabric is cut, embroided, block printed, and processed accordingly. x Stitching: The cutting is then followed by stitching, which can either be done by the in-house stitching unit or by outsourcing.it3Labels are also attached to the apparels in this process. x Finishing: The final phase is that of finishing, in which the garment will be checked for quality control and will cleaned (if required) for final

presentation at the outlet. The garments will also be tagged for identification of sizes, prices,

addresses, handling instructions, etc. x Presentation/Market: Once the designer wear garment is ready after going through the above-mentioned process, it is presented at the outlet/shop for sale to the clientele.

3 In case of over-lock stitching, it will be done in-house. The stitching of buttonholes as well as elastic embedding will be outsourced. This will cost approximately @Rs.5 per dress.

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Designing Pattern Making Embroidery

Finishing Stitching Cutting

Presentation Market/Clientele

6 PRODUCTS

6.1 Product Mix

Products will be priced at the high end to reflect the quality and exclusiveness associated with the brand. High-end materials such as Crinkle Chiffon, Georjot Chiffon, Chinese Raw Silk, Medium Silk, Leafy Print Jamawar, Chamose Silk etc will be used. This boutique will offer following product categories of women wears:

ƒ Casual Wear ƒ Semi Formal Wear ƒ Formal Wear

Each product category will include the following product lines: Ethnic Wear Formal Wear - Party dresses and special occasion dresses Contemporary Wear Fusion Wear- Combination of eastern and western wear, suitable for theinternational market as well.Western Wear Tops, Pants and various other styles The combination of outfits for the proposed outlet will be as follows

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Table 6-1 Product MixCategory % Of Total OutfitsCasual Wear 34%Semi Formal Wear 33%Formal Wear 33%

Table 6-2Average Sale PriceCategory Ave. Price per outfitCasual Wear 3,200Semi Formal Wear 6,000Formal Wear 15,5002.1 Costs of Goods Sold and other Expenses Cost of goods sold has been taken as a percentage of the sale price. The percentage of cost for each product category is as below: Table 6-3 Percentage of Cost Category Cost (percentage of sales)Casual Wear 35%Semi Formal Wear 32%Formal Wear 30%

7 HUMAN RESOURCE REQUIREMENTSThe project of Boutique requires the following Human Resources/Staff:

Table 7-1 Staff SalariesPositions Required Salary per Month Salary per AnnumProduction StaffDesigner 1 15,000 75,000Tailor 5 7,000 175,000Press/iron man/finishing 1 4,000 20,000Dyer 1 5,000 25,000Total 295,000Administrative SalariesSales girl 2 6,000 144,000Office boy 1 3,500 42,000Guard 1 5,000 60,000Peon/sweeper 2 2,500 60,000Total 14 306,000

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8 MACHINERY/EQUIPMENT DETAILSThe boutique will require a small in-house stitching unit. The cost of the stitchingmachinery will be as follows:

Table 8-1Machinery Detail4Stitching Machinery 5 No. Rs/Unit RsSingle needle lock stitching machine 4 19,900 79,600Over lock Machine 1 56,800 56,800Embroidery 1 29,900 29,900Total 166,300Furthermore, the following will also be required to setup a Boutique:

Table 8-2-Office EquipmentOther Equipment No. Rs/Unit RsComputers 1 25,000 25,000Computer printer 1 12,000 12,000Telephones 2 3,500 7,000Fax machines 1 12,000 12,000Software 1 30,000 30,000Total 86,000

9 PREMISES FOR SHOP AND STITCHING UNIT

9.1 Recommended Mode for Renting a Shop

It is recommended that the proposed location for the said enterprise be a posh area, where people have the buying capacity for women fashion wear. The size of the shop should be at least 800 Sq.ft i.e. 20 feet front and 40 feet depth. Furthermore, a small building will be required to establishing the stitching unit. One viable option is to rent a small house for this purpose. The shop will be obtained on rental basis, and the rent estimation for such a shop is Rs 56,000/month. According to the prevailing practice, 6 months rent as advance and three months rent as security would be required for renting the shop. It is assumed that security is a one-time expenditure, whereas pre-paid rent will only be given at the beginning, while establishing the boutique. After first six months, rent will be paid on monthly basis. The cost estimates for setting up the Boutique are as follows:

4 Prices has been quoted by SINGER sewing company, Pakistan 5 Though the prices here are given of the new machines but second hand machines are also widely available which can function properly and can reduce the project cost too.

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Table 9-1 Rent Cost Detail

Security for renting shop/outlet (Rent @ Rs.56,000 per month. 3 months rent as security)Interior decoration (installing lighting, mannequins, hanging racks, mirrors, glass panes, cash counter, and other décor, etc.)Security for renting a house for installing the stitching unit (Rent @ Rs15,000 per month)

9.2 Infrastructure requirements


Rs168,000

437,884

45,000

The project will have the following infrastructure

components: Table 9-2-Infrastructure Requirement Description Sq.ftMain shop 600Try Room 36Small Store 100Kitchen 64Building for Stitching Unit 10 Marla House

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10 PROJECT ECONOMICS

10.1 Project Cost

Description Cost (Rs.)Machinery & equipment 166,300Furniture & Fixture (Interior Decoration) 437,884Office equipment 86,000Security Deposits for Premises6 213,000Pre-operating expensesSalaries7 31,000Promotional Expenses 67,246Total Capital Cost 1,299,430Working CapitalRaw material (Fabric & Accessories) 104,680Prepaid Rent (Boutique and Stitching Unit) 426,000Total Working capital 530,680Project Cost 1,830,110

10.2 Project Returns

Internal Rate of Return (IRR) 67%Payback Period (Years) 1.50Net Present Value (NPV) 3,684,374

10.3 Financing Plan

Financing Rs.Equity 60% 1,098,066Debt 40% 732,044

6 Security Deposit for Boutique and for Stitching Unit 7 One month salary of Production staff

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11 KEY SUCCESS FACTORS There are a number of factors, which contribute towards the success of a project. In case of the project of Boutique, some of the Key Success Factors are as follows: x Proper care while producing dresses should be adopted

x Proper Inventory management i.e. keeping minimum inventory as per past sales trends. x The dress designs should be according to the emerging trends and fashions. x Designing of dresses according to the consumer tastes/preferences gathered through consumer surveys. x The location of the outlet should be properly selected and attractively decorated so as to target the clientele effectively. x The customer satisfaction should be given due importance, because it is the customer satisfaction, which can increase the sales. Hence, excellent customer service should be provided.

12 THREATS FOR THE BUSINESS x Competitive Structure of the market

The market of the boutiques is highly competitive; therefore if the entrepreneur is not well responsive to the tastes and response of the clientele as well as the fashions in vogue he/she may not be able to capitalize the opportunity properly.

x Pilferage in the designs The designs which a designer produce can be sold by the staff even before that design is launched and that can pose serious threat to the business because in the fashion industry it is the uniqueness of the design which matters.

x Selection of the wrong venue Selection of the wrong venue can be a major hurdle in achieving the desired business objectives.

x Selection of the wrong design If the designs are not selected according to the tastes of the clientele then it can be detrimental for the business, so the clientele taste should be properly tracked. x Tax Improper documentation of the sales receipt record may lead to problems with Tax department.

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13 FINANCIAL ANALYSIS

13.1 Projected Income Statement

Rs(000)Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - X

Sales/Revenue 3,362 3,920 4,533 5,206 5,943 6,749 7,631 8,595 9,646 10,225Cost of Sales 1,428 1,606 1,806 2,027 2,269 2,545 2,836 3,153 3,500 3,701Gross Profit 1,934 2,315 2,727 3,179 3,674 4,204 4,795 5,441 6,146 6,524Operating Expenses:

Administrative Expenses 534 563 595 629 666 705 336 360 386 402Rent 852 937 1,031 1,134 1,247 1,372 1,509 1,660 1,826 2,009

Operating Profit 548 814 1,101 1,416 1,761 2,127 2,950 3,421 3,934 4,113Financial Charges 97 77 56 36 10 - - - - -L C + Bank Charges - - - - - - - - - -

Profit before Taxation 450 737 1,045 1,380 1,750 2,127 2,950 3,421 3,934 4,113Taxation 20% 90 147 209 276 350 425 590 684 787 823

Profit after Taxation 360 590 836 1,104 1,400 1,702 2,360 2,737 3,147 3,291

Acc. Profit b/f - 360 950 1,786 2,890 4,290 5,992 8,352 11,089 14,236

Accumulated Profit c/f 360 950 1,786 2,890 4,290 5,992 8,352 11,089 14,236 17,527

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13.2 Projected Cash Flow Statement

Rupees(000)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Profit before FinancialCharges & Taxation 548 814 1,101 1,416 1,761 2,127 2,950 3,421 3,934 4,113Amortization 32 27 23 20 17 14 12 10 9 7Depreciation 25 23 20 18 17 15 13 12 11 10

605 864 1,145 1,454 1,794 2,156 2,975 3,443 3,954 4,130Working Capital Change 67 8 8 9 10 12 12 13 14 9

Cash from other SourcesOwners 1,098 - - - - - - - - -Bank Finance 732 - - - - - - - - -

1,830 - - - - - - - - -

Total Sources 2,502 872 1,153 1,463 1,804 2,168 2,987 3,456 3,968 4,139Applications:Fixed Assets 252 - - - - - - - - -Preliminary Expenses 213Re -Payment of Loan 244 223 203 182 157 - - - - -L C Charges - - - - - - - - - -Tax 90 147 209 276 350 425 590 684 787 823

799 371 412 458 507 425 590 684 787 823

Cash Increase/(Decrease) 1,703 501 741 1,005 1,297 1,743 2,397 2,772 3,181 3,316

Opening Balance - 1,703 2,204 2,945 3,950 5,247 6,990 9,387 12,159 15,340

Closing Balance 1,703 2,204 2,945 3,950 5,247 6,990 9,387 12,159 15,340 18,656

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13.3 Projected Balance Sheet

Rs(000)Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - X

Tangible Fixed Assets 227 204 184 166 149 134 121 109 98 88Preliminary Expenses 181 154 131 111 95 80 68 58 49 42Current Assets:

Accounts Receivable 67 78 91 104 119 135 153 172 193 204Cash in Hand / Bank 1,703 2,204 2,945 3,950 5,247 6,990 9,387 12,159 15,340 18,656

2,178 2,641 3,351 4,331 5,609 7,339 9,729 12,497 15,680 18,991

Owners Equity:Capital 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098Accumulated Profit 360 950 1,786 2,890 4,290 5,992 8,352 11,089 14,236 17,527

Long Term Loan 586 439 293 146 - - - - - -

Current Liabilities:Current PortionAccounts Payable 135 153 174 197 221 249 279 311 346 366

2,178 2,641 3,351 4,331 5,609 7,339 9,729 12,497 15,680 18,991

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14 KEY ASSUMPTIONS

14.1 Production Assumptions

Number of Stitching MachinesProduction Capacity (No. of dresses per month) Capacity Utilization for the first year Self Production (% of total production)


5750

55%60%

Dresses manufactured on CMT basis (% of total production) 40%

14.2 Operating Assumptions

Hours operational per day 8Days operational per month (Production) 25Days operational per month (Boutique) 25

14.3 Cash flow Assumptions

Account Payable Cycle (Days) 10Account Receivable Cycle (Days) 15(of 30%

of sales)

14.4 Expense Assumptions

Promotion Expenses after Year 1 (% of expected sales) 2%Machine Maintenance 1%of

machinerycost

Raw Material Price Growth rate 1%Payroll growth rate 5%Machine Maintenance growth rate 5%Rent growth rate 10%

14.5 Financial Assumptions

Project Life 10 YearsDebt: Equity 40:60Interest Rate on Long Term Debt 14%Debt Tenure 5YearsDebt Payment per year 2

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boutique business

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