Boutique Proposal

FINANCIAL MANAGEMENT

PRESENTED TO, MR SAJJAD SIRAJ PRESENTED BY, RAZIA NASRUDDIN 2002-1-8-2791

COLLEGE OF BUSINESS MANAGEMENT KORANGI CREEK KARACHI DESIGNER’S BOTIQUE

September 6, 2003 Mr. Sajjad Siraj Institute Of Business Management Korangi Creek, Karachi – 75190 Pakistan Dear Sir: The attached report authorized by you in the beginning of the term of summer 2002 of MBA (Exec.) to meet the requirement of the course, describes the complete feasibility report about the Boutique The research on this report is mainly done by visiting different top ranking boutique in the market, people working in the fashion industry, a lot more information were gathered form the internet, and then summarized in the form of this report. I have tried my level best to meet your level of requirement. I would be pleased to discuss this report and its conclusions with you at your request. I thank you for your guidance to prepare this comprehensive report. Yours sincerely, Razia Nasruddin

DESIGNER’S BOTIQUE

ACKNOWLEDGEMENTS Completing any report requires a lot of time, energy and effort. However, we must acknowledge the sincerity and help that MISS NADIA MISTRY, AND MR ADNAN KAISAR AND MISS NADIA DR AHMAD extended to us, which has brought us to this wonderfully complied project. Not to forget the efforts of our teacher MR SAJJAD SIRAJ who helped me throughout the project.

DESIGNER’S BOTIQUE

TABLE OF CONTENTS

        

Letter of Transmittal Acknowledgement Project Brief Key Assumptions Depreciation and Amortization Schedule Income Statement Balance Sheet Cash Flow Reference

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PROJECT BRIEF 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. DESIGNER’S BOTIQUE

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. 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 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 twenty 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 500 1 dresses. The breakup of the total number of dresses will be as follows: Total designs selected by designer 20 Number of dresses in each design 5 Number of dresses in each size 5 Total Number of dresses 500 This production and sales capacity is estimated to be economically viable and justifies the capital as well as operational costs of the project. 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.

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MARKETING The 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: Usage of print media i.e. printing of posters and pamphlets as well as displaying it and distributing it at proper places Advertisement in print media i.e. newspapers and fashion magazines, etc. 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. Event arrangement like fashion shows and photo-shoots. 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. The average sale price per dress is assumed to be Rs.2100. 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) SITC 2 Code 8422102 8422103 8422104 8422202

8424002 8424003 8424004 8424006

DESIGNER’S BOTIQUE

Product Classification

2000 – 2001 Value (Rs. “000”) Suit women cotton not 1415124 knitted Suit women synthetic not 501917 knitted Suit women (other textile 46861 material not knitted) Suit women (other textile 2107 material not knitted) 46,861 Dresses women not knitted Dresses women man made fiber not knitted Dress women other textile not knitted Shisha embroided dresses of cotton

463346 63438 17723 286

8427006

Baluchi Kameez of Silk Total (Source: Federal Bureau of Statistics)

27 2510826

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. RAW MATERIAL The raw material required for such sort of projects, would be as follows: 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. A  ccessories: Accessories such as buttons, laces, zippers, elastics, threads, needles, embroidery threads, glasses, etc. will be procured from the local market at competitive rates. 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. PRODUCTION PROCESS FLOW: The process for converting fabric in designer wear garments follows the below mentioned sequence: D  esign: 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. The contracted designer as does this 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. 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 3 . Stitching: The cutting is then followed by stitching, which can either be done by the in-house stitching unit or by outsourcing it 4 . Labels are also attached to the apparels in this process. 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. DESIGNER’S BOTIQUE

 resentation/Market: Once the designer wears garment is ready after going P through the above-mentioned process, it is presented at the outlet/shop for sale to the clientele. Designing

Market / Clientele

Pattern making / cutting

Presentation

Stitching

Finishing

PREMISES FO R SHOP AND STITCHING UNIT 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 30,000/month. According to the prevailing practice, six 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: Security for renting shop/outlet (Rent @ Rs.30, 000per month. 3 90000 months rent as security) Interior decoration (installing lighting, mannequins, hanging racks, 300000 mirrors, glass panes, cash counter, and other furnitures, etc.) Security for renting a house for installing the stitching unit (Rent @ 6000 Rs.6, 000 per month) INFRASTRUCTURE REQUIREMENTS The project will have the following infrastructure components: INFRASTRUCTURE REQUIREMENTS Main shop Try room Small store DESIGNER’S BOTIQUE

Sq .fts 600 36 100

Building for stitching unit

10 Marla house

MACHINERY AND EQUIPMENTS Single needle lock-stitch machine 4 Over-lock stitch machine 1 Accessories (Scissors, Cutting Board, Table, stools, carpet, etc.) Air-conditioner 1 Stereo System 1 Computer and Printer 1 Telephone & Fax 1

20,000 50,000 50,000

80,000 50,000 50,000

30000 23000 35000 10000

30000 23000 35000 10000

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: Proper care while producing dresses should be adopted. Proper Inventory management i.e. keeping minimum inventory as per past sales trends. The dress designs should be according to the emerging trends and fashions. D  esigning of dresses according to the consumer tastes/preferences gathered through consumer surveys. The location of the outlet should be properly selected and attractively decorated so as to target the clientele effectively. 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. THREATS FOR THE BUSINESS C  ompetitive 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. 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. Selection of the wrong venue

DESIGNER’S BOTIQUE

Selection of the wrong venue can be a major hurdle in achieving the desired business objectives. 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. Tax Improper documentation of the sales receipt record may lead to problems with Tax department.

KEY ASSUMPTIONS PRODUCTION ASSUMPTIONS Number of Stitching Machines Production Capacity (No. of dresses per month) Capacity Utilization for the first year (No. of dresses per month) Self Production (% of total production) Dresses manufactured on CMT basis (% of total production) Monthly self production (Year 1) Monthly Dresses manufactured on CMT basis (Year 1)

5 500 200 60% 40% 120 80

COST ASSUMPTIONS Material & Fabrics Accessories Embroidery Cost Direct Labor Cost Direct Electricity Cost Machine Maintenance Cost Admin & Rent expenses & promotional expenses Fixed electricity Average unit cost per dress (Rs.)

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400 25 100 280 20 4 446 30 1305

SALES ASSUMPTIONS: No. of dresses sold per month (Year 1) Average unit price per dress (Rs.) Average Monthly Sales through retail outlet (Rs.) No. Of dresses sold on CMT basis per month (Year). CMT manufacturers are garments manufacturer, they are like the out source for the company, In boutiques such garments are also available. Average unit price per dress on CMT basis (Rs.) Average Monthly Sales through outsourcing (Rs.) Total Average Monthly Sales (Year 1) (Rs.) Sale growth rate (Units) Sale growth rate (price)

120 2100 252000 80 250 20000 272000 10% 13.33%

OPERATING ASSUMPTIONS Hours operational per day Days operational per month (Production) Days operational per month (Boutique)

8 25 25

CASH FLOW ASSUMPTIONS Account Payable Cycle (Days) Account Receivable Cycle (Days) Raw Material Inventory (Days)

10 10 15

EXPENSE ASSUMPTIONS Initial Promotional Expenses (Year 1) (%age of expected sales) Promotion Expenses after Year 1 (% of expected sales) Machine Maintenance per annum Direct Electricity per month (Year 1) Fixed Electricity per month (Year 1) Telephone and Internet charges (Year 1) Raw Material Price Growth rate Payroll growth rate Machine Maintenance growth rate Direct electricity growth rate Fixed electricity growth rate DESIGNER’S BOTIQUE

3% 1.5% 10000 4000 6000 3000 11% 7% 2% 10% 10%

Rent growth rate Telephone and Internet charges growth rate Depreciation Method

5% 5% STRAIGHT LINE

FINANCIAL ASSUMPTIONS PROJECT LIFE DEBT: EQUITY INTEREST RATE ON LONGTERM DEBT DEBT TENURE TAX RATE

10 YEARS 50:50 18% 5 YEARS 40%

PROJECT COST DECRIPTION Machinery & equipment Furniture & Fixture (Interior Decoration) Security Deposits for Premises Pre-operating expenses Salaries Promotional Expenses Total Capital Cost Working Capital Raw material (Fabric & Accessories) Accounts Receivable Prepaid Rent (Boutique and Stitching Unit) Total Working capital Project Cost SOURCES DEBTS EQUITY DESIGNER’S BOTIQUE

725760 725760

COST (RS) 278000 300000 108000 98000 97920 881920 28800 108800 432000 569600 1451520

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