mgb223: ‘pedi-couture designs’ business plan web viewentrepreneurship and innovation ....

Jessica Ferguson, n9190368

MGB223: ‘Pedi-Couture Designs’ Business Plan Entrepreneurship and Innovation

Jessica Ferguson; n9190368

Due Date: Saturday 6th June 2015

Tutor: Dr Alireza Javanmardi Kashan

Word Count: 4063


Table of Contents1.0 Executive Summary 4

2.0 Company Overview 62.1 Mission Statement 62.2 Company history 62.3 Business goals 6

3.0 Opportunity and Market Analysis 73.1 The problem and solution 73.2 Industry 73.3 Target Segments 93.4 Value Proposition 103.5 Competitive Positioning 10

3.5.1 Product Line Pricing 103.5.2 Product Development 11

3.6 Customers’ Decision Making Process 113.7 Marketing Objective 123.8 Growth Strategy 12

4.0 Marketing and Sales 134.1 Marketing Goals and Objectives 134.2 Product Description 134.3 Promotion and Advertising 144.4 Pricing 15

4.2.1 Competition 154.2.2 Cost and Price Strategy 154.2.3 Customers 164.2.4 Channel Members 16

4.5 Distribution 16

5.0 Manufacturing/Operations 175.1 Manufacturing 17

5.1.1 Production processes 185.2 Inventory 185.3 Legal and Licensing Requirements 19

5.3.1 Business name and legal structure 195.3.2 Operating laws and licenses 19

5.4 Insurance and security issues 205.5 Equipment required and general costs of business operations 20

6.0 Team and Organisation 226.1 Background and Roles of Management Team 226.2 Organisational Structure 236.3 Staff Salary 23

7.0 Finance 247.1 Analysis of financial forecasts 24

7.1.1 Sales Mix Forecast 257.1.2 Set Up Costs 267.1.3 Running Costs 277.1.4 Staffing Costs 287.1.5 Summary Cash Flow 297.1.6 Summary Balance sheet 30

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7.1.7 Projected Profit and Loss statement 317.1.8 Financial Assumptions 32

7.2 Sensitivity Analysis 33

8.0 Risk Analysis 34Investment risk 34Operating Risk 34Environmental Risk 34Other risks include: 35

9.0 Reference List 38

10.0 Appendices 40Appendix 1: Potential Competitor Analysis Table 40Appendix 2: SWOT Analysis 41Appendix 3: STP Analysis 42

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1.0 Executive Summary

The problem that has been identified in the Australian market is that customers,

who require orthopedic, podiatrist-trusted shoes, cannot find them in

fashionable designs. This deters customers from buying and wearing them if they

are conscious of aesthetics. This is a big problem as research from the ‘Australian

Podiatry Education & Research Fund’ revealed 60% of all Australians have

experienced foot pain sometime in their life. Furthermore, orthopedic shoes can

provide a great alternative as a preventative measure from future foot troubles.

Customers should be willing to invest in orthopedic shoes in order to counteract

present foot troubles and/or perhaps avoid future problems.

There are many business ventures that produce orthopedic shoes on the market;

however, they are not specifically designed for the customer to allow for a stylish

shoe, and most importantly, supreme comfort. Pedi-Couture Designs aims to fill

this gap in the market, allowing customers to personally design their own shoe,

whether it be a ballet flat, oxfords or heels, with orthopedic benefits on the

website. The shoes are then hand-made and sent to the customers address. The

target market for this business venture was middle aged to elderly female

Australians, who suffer from foot pain and/or want to prevent future foot

problems. There is a growing population trend of an ageing society, potentially

reporting greater health problems such as foot pain (Hugo, 2014). There is also a

growing market of the ‘single women’ within Australian society, as 42% of the

adult female population is made up of this demographic (Sheather, 2015).

The team at ‘Pedi-Couture Designs’ is made up of a small team, all members

having clear goals as outlined in the yearly Business Budget. Four co-founders

will direct the business in the first year of operations. Three additional

employees will be recruited within the first year in the areas of marketing,

production and partnership manager. Key partnerships are in place between

Australian leading podiatrist clinics in order to sell the product to customers

visiting the clinic. Furthermore, an online retail store will be set up as the main

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distribution channel, offering customers free shipping. This allows the business

to target the wider population who do not visit podiatrists.

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2.0 Company Overview

2.1 Mission Statement

The executive team developed the company’s mission statement that reads: ‘our

mission is to establish a successful stylish, orthopedic shoe brand that will offer

to the market place an original, inspired and trusted product.’

2.2 Company history

The business is a new venture and therefore does not have any previous

operating or investment history. The company executives identified a problem in

the market and started the business from a Sydney based office. After receiving

interest from podiatrists and potential customers in the market, it was decided

the business would begin operations in Sydney and manufacture the products in

China. The four co-founders who will run the business in the first year all have

previous experience in the field, so the business was worthwhile. The business

will be in partnership with leading podiatrists, who will stock and sell the

product in their clinics.

2.3 Business goals

The business’s goals were to focus on large, highly competitive segments in

order to establish a good customer base, to produce products that are trusted by

podiatrists and consumers alike and to allow customers to design their own

personal shoe to allow ultimate satisfaction. Our competitive posture was to

build a market position and defend it and to be the leader of quality in the

market.

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3.0 Opportunity and Market Analysis

“Thank you so much Pedi-Couture Designs! After receiving my very own designed shoes in the mail only 4 weeks after ordering them, I am now wearing them everyday! I get so many complements on them where ever I go. All my friends and family are now designing their own shoes too! My feet, after so many years, are finally not painful in the evenings after a busy day.”

Helen Funk; Customer of Pedi-Couture Designs.

3.1 The problem and solution

The problem that has been identified in the Australian market is that customers,

who require orthopedic, podiatrist-trusted shoes, cannot find them in

fashionable designs. This deters customers from buying and wearing them if they

are conscious of aesthetics. Research by the ‘Australian Podiatry Education &

Research Fund’ revealed that one in three Australians aged 65 and over are

suffering from a foot problem, with ultimately 60% of all Australians having

experienced foot pain sometime in their life. This problem needs to be addressed

by visiting a podiatrist and investing in orthopedic shoes to provide a level of

comfort and support to chronic foot conditions and pain (Footcare Express,

2010). However, due to the typically unappealing nature of these shoes, women

are discouraged from wearing them in public, despite their benefits.

The problem needs to be addressed in how to encourage middle aged to elderly

women to invest in and wear orthopedic shoes. Therefore, a solution to this

problem is the business venture of ‘Pedi-Couture Designs’, an online shoe store

where individuals have the opportunity to design their own orthopedic shoe,

with variations in fit, fabric, colour and style. The projected price of the base

model (ballet flats) is $220. This opportunity is providing a new application for

an already existing product by allowing complete customisation for the

individual.

3.2 Industry

In order to analysis whether the entrepreneurial opportunity will sustain value

and wealth in the industry, a market feasibility analysis will be undertaken. The

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theoretical approach of Porter’s framework identifies five forces that determine

the attractiveness of an industry (Schaper, Volery, Weber, & Gibson, 2014). As

shown in figure 1, the five forces are: the risk of new competitors entering the

industry, the threat of potential substitutes, the bargaining power of buyers and

suppliers and the degree of rivalry between existing competitors.

Figure 1: Porter's Five Forces

There is fierce competition of established firms in the retail footwear industry

with 1,568 businesses nationally (IBIS World, 2014). The annual growth rate

from 2010-2015 for the footwear retailing industry has been underwhelming,

with -1.2%. However, over the next five years, improvements in the industry are

expected. Growth opportunities lie in niche markets that offer differentiated

products like Pedi-Couture designs. Niche markets will be best filled with smaller

players, able to provide individualised products and services, rather than big

corporations that provide impersonal services. It is projected that over the five

years through 2019-20, industry revenue is expected to grow by an annualised

0.9% to reach $3.5 billion (IBIS World, 2014).

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Bargaining power of suppliers will be an important force to contend with in the

initial stages of business. Components and materials being supplied to Pedi-

Couture Designs are an important influence on quality.

The industry is facing strong external competition from other retailing

industries, such as Department Stores, Clothing Retailing and Online Retailing.

The economic macro-environment factor of the strong Australian dollar over the

past five years has lead customers to turn to overseas retailers for cheaper

alternatives in footwear.

The current market context is favourable as there is expected growth in the

industry in the next five years. Challenges to Pedi-Couture Designs include

competing with established businesses and attracting potential customers to

employ their online retailing. Refer to appendix 1 for the potential competitor

analysis table. An aggressive marketing strategy will be put into place in order to

target potential customers and exude the brands image of quality and

uniqueness.

3.3 Target Segments

The target market for this business venture was middle aged to elderly female

Australians, who suffer from foot pain and/or want to prevent future foot

problems. There is a growing population trend of an ageing society, potentially

reporting greater health problems

such as food pain (Hugo, 2014).

Furthermore, the housing boom and

rapid increases in government

payments to pensioners has allowed

for 55+ year olds to potentially

increase their disposable income

(Daley & Wood, 2014). As seen in

graph 1, the level of disposable

income per household reached its

peak between the years of 45-54,

Source 1: (Beech et al., 2014)

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with the second and third largest age groups being 35-44 and 55-64 respectively

(Beech, Dollman, Finlay, & Cava, 2014).

Furthermore, there is a growing target market of the ‘single women’ with

Australian society. In a recent Australian magazine, Michael Sheather wrote that

single women make 42% of the adult female population (Sheather, 2015).

Research indicated that nearly 300,000 single women have incomes in excess of

$52,000, with 33,000 of them earning $104,000 or more, allowing for a greater

disposable income to purse interests and focus on health and fitness. Therefore,

as well as elderly women of 65+, the ‘single women’ group will be targeted in the

business venture.

3.4 Value Proposition

The aspect of a stylish, orthopedic shoe is ideal for middle-aged to elderly

women who suffer from foot problems or wish to prevent future foot problems.

It is a unique brand because customers can design their shoe entirely, with

orthopedic features.

3.5 Competitive Positioning

The product produced will have a competitive advantage to the products already

on the market as the customer has complete customisation over their desired

shoe. The shoe is then made to order either through the online or podiatrist

order and is sent to the customers address. Free shipping is included as it is a

competitive advantage over overseas retailers. Pedi-Couture Designs will apply

two dominant strategies to position itself as a competitive footwear brand.

3.5.1 Product Line Pricing

We intend to price our shoe designs at different prices depending on the fabric

or type of shoe ordered. This process is used by retailers to separate goods into

various cost categories creating different quality levels in the mind of their

customers. This will also reflect an exclusivity and premium quality image of the

products on offer.

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3.5.2 Product Development

Pedi-Couture Designs will create growth by developing new designs once initial

interest has been shown to the business. More exotic fabrics will be imported as

well as different designs for men and children will be released.

3.6 Customers’ Decision Making Process

It is expected that the customer decision maker with the purchasing power is the

customer that will wear the shoes.

The buying influences are:

Cost – Pedi-Couture Designs is a high cost producer and is intending

to remain in this position due to the made to order nature of the

business.

Speed – The business has a relatively short production turn over, 4

weeks from order placement to delivery of the product. Our larger

competitors either import in large batches from overseas factories or

manufacture in large batches with little alteration.

Design and Comfort - Each customer has different foot

measurements and style preferences therefore, customers will be

attracted to the element of complete design control over the product

they are buying.

Knowledge and expertise – There is a service line linked to the

website if customers have difficulty with the process. Furthermore,

the podiatrist clinic that is in partnership with the business will be

able to provide their expertise to the customer in need.

Pedi-Couture Designs has segmented the current customer base into two

categories:

- The User buyer

- The Technical buyer

The User Buyer

Typically the buying customers are deemed the end-users in the buying cycle.

Our ability to out do other firms customer service efforts and minimise risks due

to the online nature of the business will be important to gain market share.

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The Technical Buyer

Typically an agent working for the end user who ensures that the supplier

company and its supplied product provides a solution that is a fit to their clients’

expectations. The ability of Pedi-Couture Designs to build a relationship between

Podiatry Clinic professionals will enable solid growth.

3.7 Marketing Objective

Pedi-Couture Designs intends to build a competitive business identity within the

competitive footwear market. The representation of the product in podiatry

clinics will assist in building market superiority and intelligence so that the

product is promoted as an effective solution to relieving foot pain.

A attractive web page will be presented to the market. ‘Shopping cart’ technology

will be installed to the website to allow customers to design and purchase online.

PayPal and afterpay technologies will also be installed. PayPal allows for safe

transitions over the Internet and afterpay allows customers to pay for their

order over 60 days, with no additional fees.

Due to the customised nature of the products, orders will be produced for a high

cost. The product is targeted to the user/technical buyer through marketing

efforts of infomercials, magazine advertisements and advertisements positioned

in podiatry clinics.

3.8 Growth Strategy

After 5 years of operations, it is a strategy of the business that global

partnerships with international podiatry clinics and international shipping from

the online store will take place. This will assist in growing the business

financially and ultimately, improve the global problem of podiatry related issues.

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4.0 Marketing and Sales

4.1 Marketing Goals and Objectives

Pedi-Couture Designs aim to develop their market share with a non-monetary

focus of increasing sales by 30% in the next five years and with a monetary focus

of increasing profit by 20-30% yearly. Within this performance benchmark,

there is an expectation that the range of styles and fabrics will extend within the

product line, the online website will become global and products will also be

added for men and children.

As stated in the marketing goal, Pedi-Couture Designs want to increase sales in

the mature industry of footwear retailing. As identified in the SWOT analysis

(appendix 2), the brands strengths highlight that the products are hand-made,

with orthopedic benefits, tailored to the customer. A weakness of the brand is

that it isn’t well known. With equal opportunities and threats to the product,

there is a need to use aggressive ‘push’ marketing to promote the product.

In appendix 3, the STP analysis showed that demographically, the targeted age is

35+ year-old women in Australia. Only the female population is the target at this

point in the brands lifecycle. In product development, men and children will be

catered for in future designs. Consumers’ behaviours also affect buying patterns.

Pedi-Couture Designs shoes are an occasional product so it is important that the

product is accessible on the Internet to the total market.

4.2 Product Description

Pedi-Couture Designs is an Australian

retail footwear brand that enables

customers to design their own

orthopedic shoes online. The business is

changing the way women shop for

orthopedic shoes as it allows women to

be comfortable, yet stylish. Since 2015,

Figure 2: The final product

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the company has specialised in flats, sandals and heels where the customer can

design their desired shoe with an orthopedic quality sole.

Using the online designer (figure 3), customers choose the colour, style and

fabric of their shoes and designs are handmade and delivered to the customer. As

well as an online store, customers can visit podiatry clinics where professionals

can tailor the shoe to their client’s specifications, with podiatry concerns in mind.

Figure 3: Online Designer

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4.3 Promotion and Advertising

Due to the new nature of the product the communication goal is to appropriately

use company resources (an allocated $50 000) to market the product to capture

new customers.

The integrated marketing communication (IMC) strategy highlights that the

advertising strategy should use informative and persuasive advertising.

Television infomercials and advertising in magazines and podiatrist clinics are

the chosen promotional mediums that will promote the brand.

An infomercial is a program-length advertisement spanning anywhere from 30

minutes to two hours, promoting an organisation’s product or image through

information or persuasion (Chapman and Beltramini, 2000; Douthu and Gilliland,

1996). Benefits that characterise the effectiveness of direct marketing, such as

convenience and choice, often apply to infomercials (Evans, Patterson and

O’Malley, 2001; Feinberg and Eastlick, 1997). Studies have shown that

consumers in the 40-plus-age bracket perceived infomercials as more effective

than younger consumers (Martin, Bhimy, & Agee, 2002). Infomercials for Pedi-

Couture designs will feature on morning talk shows on main commercial

television in Australia.

‘The Women’s Weekly’ is the chosen magazine that the advert for Pedi-Couture

Designs’ will be displayed in. Highlighting the quality and ultimate customisation

over the design will influence new consumers to try the product. Furthermore,

advertisement stands in podiatry clinics will be featured with a display shoe and

key features highlighted.

4.4 Pricing

4.2.1 Competition

The footwear retail market has monopolistic competition, where there are

differentiated products at different prices developed by many firms (Grewal,

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Levy, Mathews, Harrigan, & Bucic, 2014). Due to the ever-increasing number of

brands of footwear, Pedi-Couture Designs need to distinguish themselves so that

consumers are more aware of the product and its unique offerings in comparison

to competitors.

4.2.2 Cost and Price Strategy

Consumers base purchase decisions on the perceived value for a product

(Grewal et al., 2014). The overall costs of products are important so that it is

viewed both competitively and appropriately in the market. Due to the

competition already present in the market with footwear specific brands,

Department Stores and Clothing Retail Stores, it is important to enter the market

competitively so the brand is perceived as strong and premium. Therefore, the

strategies of product line pricing and premium pricing, was how the business set

the prices of the products.

4.2.3 Customers

As Pedi-Couture Designs is a new product in a mature market, the perceived

value of the product from a consumer’s perspective is crucial.

4.2.4 Channel Members

As discussed the price of the product will remain at higher than the average

footwear brand due to the status the company is trying to portray. Due to the

manufacturers producing unique shoes, higher than average pricing is needed to

cover the costs of production.

4.5 Distribution

The company distributes its products through business-to-business markets:

selling through business partnerships with podiatry clinics (also known as

selective distribution), and business-to-consumer markets: selling through the

retail website. Having both options caters to the large customer market the

product caters for. Pedi-Couture Designs follows the direct (internet store) and

in-direct marketing method (through intermediaries – podiatry clinics). Similar

products that deploy the direct marketing strategy are Dell, where the

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computers are built to order. These associations will provide opportunities to

gain sales as a consequence of the marketing undertaken.

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5.0 Manufacturing/Operations

5.1 Manufacturing

Manufacturing for Pedi-Couture Designs was decided early on to take place

offshore in China. By utilising the efficient Chinese manufacturing industry,

coupling with the skill levels of the Australian staff at Head Office, the business

can create an in demand product.

There are several reasons why the business decided to source the products

required overseas. Firstly, the business could not hire people in Australia with

the skills required for hand-made shoe making. Shoe making is a highly skilled

task, taking years to master the process. In order to manufacture in Australia,

extensive training and hiring would need to commence years before operations

commenced. In the city of Gyangzhou, China, the art of shoe making has been a

process taught through generations (Fox, 2011).

Secondly, the wages are too high in the Australian market. All our shoes are

handmade and labour is the most significant cost in production. Retail prices

would increase by double if manufacturing was to occur in Australia due to

Australian wages.

Thirdly, the Australia-China Free Trade Agreement (FTA) removes tariffs making

it cheaper for businesses to manufacture goods. Offshoring activity can consist of

two elements – production of final goods overseas or the use of imported

components or semi-processed materials in domestic production. Clothing and

footwear (15.7%) was the highest Chinese finished good sourced by Australian

businesses (graph 2) (Ridout, 2006).

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Graph 2: Chinese finished goods as a proportion of sales

Source: Ridout, 2006.

5.1.1 Production processes

Once the order has been processed, the details are sent to the manufacturing

warehouse located in China. Firstly, the pattern is cut for the desired shoe design.

Pattern cutting involves creating the shape of each component of the shoe. As

each order is different, a unique pattern is cut. Secondly, the last (a foot shaped

piece of material where the shoe is molded) is used to create the shape of the

shoe (Shoes of Prey, 2015). Edging (the process of flattening the edge of the

pieces of leather) is then done to create neat joins between pieces of leather

giving a comfortable fit and quality finish (Shoes of Prey, 2015). Stitching and

trimming is done to create the base model of the shoe. The heel (as desired by

the customer) is selected and incased in leather. The orthopedic sole is chosen

based on the specifications of the customer’s foot. The logo is printed on the

insole and the outersole is affixed to the shoe. The final cutting, cleaning and

polishing of the shoes is completed and the shoes are boxed. Finally the shoes are

shipped to the customer within a month of ordering.

5.2 Inventory

As a consequence of the made-to-order design of the shoes, there is no inventory

held in the warehouse.

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5.3 Legal and Licensing Requirements

5.3.1 Business name and legal structure

Pedi-Couture Designs Pty Ltd (ABN 78 132 567 890) is a proprietary limited

company. A legally binding contract between the customer and Pedi-Couture

Designs exists and applies to ordering, purchasing, fulfillment and delivery of

Direct Imported Goods from the top level domain name

pedicouturedesigns.com.au (website).

The company structure has already been registered and established with four

shareholders:

Joanne Pray (25% shareholding)

Steven Pray (25% shareholding)

Harvey Fox (25% shareholding)

Tony Brian (25% shareholding)

who also serve as directors and Co-Founders of the business.

5.3.2 Operating laws and licenses

After checking with the Small Business Development Corporation’s Business

License Centre, it appears that the following licensing requirements need to be

addressed at the start of business operations:

- Australian Business Number (ABN) Registration- Employer Requirements – Superannuation Guarantee- Fair Work Information Statement- Goods and Services Tax (GST) Registration- National Business Name Registration- Occupancy Permit- Pay-roll Tax Registration, Registration as an Australian Company- Registration of a Trade mark- TFN Application/Enquiry – Partnership or Joint Venture- Workers’ Compensation Insurance

The following Codes of Practice need to be followed:

- Approved Occupational Clothing Guidelines- Code of Practice – Manual Tasks/Prevention of Falls at

Workplaces/Violence, Aggression and Bullying at Work- Franchising Code of Conduct

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- National Employment Standards- National Standard for Manual Tasks - Occupational Safety and Health - Workers’ Compensation Code of Practice (injury Management) 2005- Workplace Amenities and Facilities Code of Practice - Workplace Gender Equality (Minimum Standards) Instrument 2014

Small Business Insurance (NSW) will be required which is quoted as approximately $500 per annum.

5.4 Insurance and security issues

The following insurance will be required for the business:

- Product liability - Public liability - Professional indemnity - Work cover – NSW

It is estimated that the combined cost for these insurances will be approximately

$2500 in Year 1.

Necessary security precautions for the business property and equipment will

need to be organised (for example, surveillance cameras, alarms). Online security

for the website will be required and electronic data backups from the website

will need to be stored off online.

5.5 Equipment required and general costs of business operations

As the business requires a Head Office in Sydney, equipment is required to fill

out the office space. The equipment required for the business includes:

- Telephone line- Answering machine- Computers, printers, scanners, fax- High-speed wireless internet access- Filing Cabinets- Desks and Chairs

Quotes from suppliers indicate that the total cost of these items will be

approximately $14000. Future needs may include more desks, chairs, computers

and filing cabinets depending on future staff employment.

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Furthermore, business trips to China of two employees quarterly will occur. This

will occur so operations staff can gauge the capacity of the business in the

warehouses and meet with suppliers in China. Flights and accommodation for

two adults four times a year, will cost approximately $8000 a year.

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6.0 Team and Organisation

6.1 Background and Roles of Management Team

Pedi-Couture Designs is currently managed by four of the founders, Joanne Pray,

Steven Pray Harvey Fox and Tony Brian.

From a background in Marketing/Public Relations and Law, Joanne Pray,

manages product development, public relations and Marketing for the business.

Joanne is the face of the company.

Former Apple executive, Steven Pray manages manufacturing, logistics and

customer service at Pedi-Couture Designs, ensuring customers receive the best

experience possible. He has been awarded several Industry Recognition awards

for his previous start-up business.

Previously a software engineer for Apple, Harvey Fox now manages the Pedi-

Couture engineering team. His keen interest in cutting-edge technology and

online retailing has lead him to producing the most attractive shoe design

interface software package for the business.

Previously CFO for Sydney Trains, Tony Brian manages the finances of Pedi-

Couture Designs. He liaises with shareholders, partners and organises

investment. Furthermore, he works with employees in relation to wages and

strategises in relation to business planning and performance.

At the commencement of business, not all positions will be staffed. Positions that

will be filled within year 1 of operations include: a production manager, a digital

marketing director and strategic partnership manager who will liaise with

podiatrists nationally to sell our products.

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An investor with manufacturing experience in China was used in the initial

stages of the business setting up manufacturing operations and organising

suppliers. No board members are apart of the business.

6.2 Organisational Structure

The organisational structure of Pedi-Couture Designs is depicted in figure 4 below.

Figure 4: Organisational Structure Chart

6.3 Staff Salary

The following table (table 1) is the intended staff salaries for the first year of

operations:

Table 1: Final staffing and salary

Staff Member SalaryJoanne Pray (Co-Founder) $60,000 per annum (+ 0.1875% of

retained earnings from year 2 onwards)Steven Pray (Co-Founder) $60,000 per annum (+ 0.1875% of

retained earnings from year 2 onwards)Harvey Fox (Co-Founder) $60,000 per annum (+ 0.1875% of

retained earnings from year 2 onwards)Tony Brian (Co-Founder) $60,000 per annum (+ 0.1875% of

retained earnings from year 2 onwards)(Future) Digital Marketing Director

$50,000 per annum

(Future) Production Manager $50,000 per annum(Future) Strategic Partnership Manager

$50,000 per annum

Labour – Manufacturing (China) $100,000 per annum

Co-Founder - Joanne Pray

Manages Product Development, Public

Relations and Marketing

Digital Marketing Directior

Co-Founder - Steven Pray

Manages Manufacturing,

logistics and Customer Service

Production Manager

Co-Founder - Harvey Fox

Manages Engineering

Co-Founder - Tony Brian

Manages Finances

Strategic Partnership

Manager

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7.0 Finance

7.1 Analysis of financial forecasts

The business intends to achieve annual sales of $1,772,900 in year 1, increasing

to $2,589,784 in year 2, with a 40.6% net profit margin after year 3 (industry

average being 34%). Revenue for year 1 of the business was lower than the

industry average however; this was to be expected with set up costs.

Market research has provided evidence of a strong consumer demand for the

product we are offering. Our product is unique with podiatrist technology and

the quality is unmatched by any other shoe brand on the market. Our distributor

agreement will ensure consumer exposure and ease of access to the product

online and in podiatry clinics. We will carefully monitor sales targets and

customer satisfaction (though market research) and make adjustments to our

marketing strategy if required.

The required funding in order to meet market and product milestone goals from

the first month of operations is $80,000, $50,000 of which the

owners/shareholders of the business initially invested and the rest was sourced

from a bank loan. This was to cover wages and business expenses in the first few

months of operations, where sales were low. A partner investor could be used

instead of a bank loan; percentage of shares for $30,000 would need to be

negotiated. A potential partner investor can expect to see the business double its

revenue within three years of operations, and company growth increase by 20-

30% yearly.

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7.1.1 Sales Mix Forecast


7.1.2 Set Up Costs

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7.1.3 Running Costs

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7.1.4 Staffing Costs

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7.1.5 Summary Cash Flow

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7.1.6 Summary Balance sheet


7.1.7 Projected Profit and Loss statement


7.1.8 Financial Assumptions

a) Goods and services tax

No GST figures are shown in any of the financial forecasts or summaries; all

figures are net of tax.

b) Calculation of income and expenses

Expenses have been calculated based on marketing research and the owner’s

own knowledge of costs (Schaper et al., 2014). It is assumed that all accounts

payable and receivable will be paid or received within the month, so there is no

delayed income on a monthly basis. No inventory is held and the cost of

inventory is included in Cost of Goods Sold (COGS). Tax liabilities are no included

on the balance sheet. No provision has been made for the impact of inflation or

increases in cost to running or set up costs. Pricing and projected expenses for

the second and third years of operations will be reviewed in the following year’s

business plans.

Depreciation of equipment items purchased in June 2015 is calculated using the

straight-line method at 10% per annum of total initial outlay (Schaper et al.,

2014). The depreciation amount is only considered for the capitalised set up

costs.

c) Financing of the business

The co-founders will equally provide an initial capital contribution to the

business, as they are equal 25% shareholders. Either a bank loan of $30,000 or

an investor will be required to increase the initial contribution to $80,000. The

overall financing strategy is it always increase sales and operate full-time, with a

cash surplus in the bank account at all times.

d) Distribution of profits

Profits in Year 1 will be retained in the business. In future years (after year 1),

annual net profit after tax will be divided in the following manner: three quarters

will be paid to the co-founders at the end of the financial year as well as their

salary, and the remaining quarter will be kept as retained earnings for the

business (Schaper et al., 2014). The retained earnings will be used to upgrade

office space, website design, equipment and make available more styles (for men

and children), fabrics and designs. Earnings will also be used if any unforeseen

financial issues or events impact on the business.


7.2 Sensitivity Analysis

In order to reach the break-even point, the business will have to reach $988,229

before it makes a profit. The first 37% of year 1 (or 136 days of business) is

covering costs.

$0 $1,000,000 $2,000,000 $3,000,000$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Break Even Point

SalesTotal costsVariable costsBreakeven

Sales

To

tal R

even

ue

/ C

ost

s

Figure 5: Break Even Point Analysis

It was expected that revenue would be less than average the industry rate of $1,

991, 465 per annum in the first year of business. Pedi-Couture Designs projected

revenue was $1,772,900 in year 1, $2,664,7844 in year 2 and $3,488,219 in year

3.

8.0 Risk Analysis


There are many uncertainties and risks involved in owning and running a small

business. Ambiguity and constant change in the market is a given as well as

major fluctuation in sales income, profitability, government regulations,

competitors and market dynamics (Schaper et al., 2014). In the mature industry

of footwear retailing, competition is fierce and probably one of the most

influential risks on a businesses success. The following table (table 2) displays

the risks that may influence the success of the business and how the business

will mitigate and reduce these risks.

Investment risk

Investment in the business is not without risk to the new owner’s as they are

investing their own finances, however, the owners are confident that risk will be

adequately monitored and managed when the business comes to face with it.

Operating Risk

The business has committed to developing strategies in order to mitigate issues

with workplace effectiveness and efficiency. Regular business trips will occur

quarterly in order to meet with suppliers and the manufacturing team. This will

make sure that production teams are following procedures as agreed upon and

health and safety regulations are being followed.

Environmental Risk

At all times the business will follow ethical and sustainably green development

procedures in all aspects of operations. A strategy will be followed in order to

reduce the business’s carbon footprint in the importing and manufacturing

process.

Other risks include:

Table 2: Identification of potential risks and risk mitigation

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Risk Outline Risk Mitigation

A change in the industry needs – market is not attracted to the product.

Market research was included in the costs of the business. This will be employed to understand the market and customer needs. If the market is not attracted to the product at first, different marketing techniques will be employed to attract more customers. If this does not work, then a physical retail store may be considered over an online store to sell the products. A risk from targeting an older market is that they may not have the technological skills to place an order through the online store. Therefore, a physical retail store might be more appropriate.

Revenue expectations are not met. The primary strategy of the business to increase revenue is to increase the marketing budget and to have an international online website, to attract new customers to the new brand.The main area for decreasing costs is to remove or reduce co-founder wages, move the office to a home-based office (no rent costs) and put off employing additional employees until the business is earning greater revenue.

Marketing via franchise partner – Is the business too reliant on the franchisers to sell products?

Yes, to the extent that the business has not chosen to sell the products on the retail market. The podiatry clinics are to refer their clients to the product’s website and give specific recommendations on the orthopedic aspects to the shoes design. If clinics do not continue to make sales, a review of the business relationship will occur. Possible percentage of sales made by the clinics could be considered.

Competitor challenges such as underpricing or new products that make yours obsolete.

Discount sales (for example) of the products will occur online in order to attract more sales and customers. Regular sales and benefits for the customer will allow for the business to compete in the market. New product lines and developments will occur as business operations grow, such as designs and styles for men and children and new fabrics and embellishments becoming available.

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Market developed either more slowly than anticipated or more quickly than anticipated.

If the market has developed slower than anticipated, either greater marketing efforts will be employed or the products will be made available to the global market via the website.If the market developed quicker than anticipated, a greater manufacturing team will need to be employed and more staff in Sydney will be employed to make sure business runs smoothly.

Are there specific areas of weakness in the business operations?

Importing product: a good working relationship is essential therefore, regular business trips to the warehouse are organised four times a year. Employing a facilitator company to ensure supply and production processes meet expectations and specifications of the orders should be arranged.Brand: No trademarks or licenses were included in the set-up or running costs of the business. Therefore, the business is not fully secure in brand or business identity and must rectify this to secure competitive advantage. Insurance and an ABN were organised instead.

Expectations are not met by manufacturing labour team.

Regular business trips are organised quarterly in order to check the manufacturing teams in China are meeting expectations. If they are not, the co-founders will address the problem to the leader of manufacturing and propose a solution. If this is not accepted, negotiations will take place with another manufacturing team/warehouse and the former business relationship will end. Quality of the product is essential to the brand’s reputation.

What if relocation of office space is not possible or is significantly delayed?

The business has budgeted for the relocation of the head office after three years of operations. Retained earnings over the first two years of operations should allow for the business to grow financially and therefore, be able to afford a larger office space.

Is the company over reliant on few suppliers?

Yes, as offshore manufacturing is taking place in China, the business has only one supplier of the products. This

38


can be a danger if the business breaks the professional contract and there is no means to producing the required units. Another supplier/manufacturer (as a back-up) should be found in order to reduce this problem.

Monitoring Cash Flow – Finance. External accountants will be employed in order to outsource competent bookkeeping skills and to develop management accounting systems within the business. This will ensure cash flow success into the future.

There are gaps in skills and knowledge in the company?

External accountants and recruiters will be employed when needed in order to fill the gaps in skills of the small team at Pedi-Couture Designs.

9.0 Reference List

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Beech, A., Dollman, R., Finlay, R., & Cava, G. L. (2014, March). The Distribution of Household Spending in Australia. Retrieved March 26, 2015, from Reserve Bank of Australia: http://www.rba.gov.au/publications/bulletin/2014/mar/2.html

Chapman, P., & Beltramini, R. (2000). Infomercials revisited: perspectives of advertising professionals. Journal of Advertising Research , 40 (5), 24-31.

Daley, J., & Wood, D. (2014, December 9). The wealth of generations. Retrieved March 26, 2014, from Grattan Institute: http://grattan.edu.au/report/the-wealth-of-generations/

Donthu, N., & Gilliland, D. (1996). Observations: the infomercial shopper. Journal of Advertising Research , 36 (2), 69-76.

Evans, M., Patterson, M., & O'Malley, L. (2001). The direct marketing-direct consumer gap:qualitative insights. Qualitative Market Research , 4 (1), 17-24.

Feinberg, R., & Eastlick, M. (1997). Direct marketing in the USA: past failures and future promises. International Journal of Retail & Distribution Management , 25 (8), 256-61.

Footcare Express. (2010, July 16). Benefits of Orthopedic Shoes. Retrieved March 25, 2015, from Footcare Resource Centre: http://footcarexpress.com/foot-orthotics/benefits-of-orthopedic-shoes/

Fox, M. (2011, August 1). Shoe Manufacturing in China v Australia. Retrieved May 2015, from Power Retail: http://www.22michaels.com/2011/08/shoe-manufacturing-in-china-v-australia.html

Grewal, D., Levy, M., Mathews, S., Harrigan, P., & Bucic, T. (2014). Marketing. North Ryde, NSW: McGraw-Hill Education Australia.

Hugo, G. (2014, February). The Demographic Facts of Ageing in Australia: Patterns of Growth. Retrieved March 26, 2014, from Australian Population & Migration Research Centre: https://www.adelaide.edu.au/apmrc/pubs/policy-briefs/APMRC_Policy_Brief_Vol_2_2.pdf

IBIS World. (2014, December). Footwear Retailing in Australia: Market Research Report. Retrieved May 2015, from IBIS World: http://www.ibisworld.com.au/industry/default.aspx?indid=408

Martin, B., Bhimy, A., & Agee, T. (2002). Infomercials and advertisingeffectiveness: an empiricalstudy. Journal of Consumer Marketing , 19 (6), 468-480.Ridout, H. (2006, August). Australian Manufacturing and China. Retrieved May 2015, from Australian Industry Group: http://www.aigroup.com.au/portal/binary/com.epicentric.contentmanagement.

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servlet.ContentDeliveryServlet/LIVE_CONTENT/Publications/Reports/2006/Australian_Mfg_and_China_Aug06.pdf

Schaper, M., Volery, T., Weber, P., & Gibson, B. (2014). Entrepreneurship and Small Business: 4th Asia-Pacific Edition. QLD: John Wiley & Sons Australia.

Sheather, M. (2015, April). The Power of the Single Woman. The Australian Women's Weekly , 98-102. Sydney, NSW, Australia: Bauer Media Group.

Shoes of Prey. (2015, February). How we make our shoes. Retrieved June 2015, from Shoes of Prey: https://www.shoesofprey.com/content/bespoke.html

The Australian Podiatry Education & Research Foundation. (2015). Australian Podiatry Education & Research Fund. Retrieved March 26, 2015, from Australiasian Podiatry Council: http://www.apodc.com.au/index.php/education-research/aperf/

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10.0 Appendices

Appendix 1: Potential Competitor Analysis Table

Factor Competitor 1 Shoes of Prey

Competitor 2 Department Stores (Myer/David Jones)

Competitor 3 NIKEiD

Pedi-Couture Designs

Uniqueness Custom Shoe Online retailer

Not unique as different brands are stocked

Designed by customer

Custom orthopaedic online shoe retailer

Quality Hand Made Low-High depending on brand

Medium High – hand made

Price $159AUD (base price)

$50-$500 $100-$400 plus shipping to AIS

$220AUD (base price)

Service Online Moderate – retail assistants

Online, In-store, iPhone App, Nike PHOTOiD

Online. Customer service high.

Convenience High Moderate High in overseas countries – more time consuming for AUS

High

Reputation High Moderate –high

Medium – Sweat Shop Scandal

New brand

Location Sydney Capital cities in AUS

World Sydney

Marketing David Jones Television, social media, Magazines.

World marketing

Television, magazines

People Small team Large team Large team Small team of

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Factor Competitor 1 Shoes of Prey

Competitor 2 Department Stores (Myer/David Jones)

Competitor 3 NIKEiD

Pedi-Couture Designs

7.Manufacturing scale

Off-shoring Stocks manufactured products from other brands

Off-shore Off-shore

R&D activity Unknown Unknown High- research and development team in operations

Not in first year of operations

Product range High – woman’s shoes

Extensive Extensive Woman’s shoes. Future men, children

Design Designed by customer

Designed by customer

Designed by customer with orthopaedic insole

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Appendix 2: SWOT Analysis

Appendix 3: STP Analysis

Pedi-Couture Designs Target Market/Consumer Profile

Target Market Female Australians that require orthopedic shoes, but want stylish options.

Demographic:Age, Gender, Income

34-95 year old women, middle to high-income consumers.

Psychographic:Lifestyle, self-values

Stylish, willing to spend money on quality products and is open to technology.

Behavioural Occasion - consumers at the most will shop for shoes once every month for shoes, which highlights the importance of selling online for convenience.

Offering Stylish, design-your-own orthopedic shoes

Product/Service category or concept Footwear RetailingUnique points of difference and benefits

Easy-to-navigate website where the customer can design their ideal shoe, orthopedic benefits without the unattractive look, easily accessible from the online store or podiatry clinic.

StrengthsHand-madeOrthopedic benefitsEasy navigation on website

WeaknessesUnknown brandPrice possibly too expensive for total population

ThreatsLots of competitionCheaper optionsSimilar products

OpportuntiesExtend product lineExtend target market to men and childrenReach global market

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