RP – Kids Clothing Retail Store In East Sydney

Question:

Details regarding the business are as follows –

• Business structure – the business will be started as the company and will be registered in the name of Rose Petals. Mr John Steward will be the CEO and managing director of the company. The board will have another 5 executive directors and 3 non-executive directors.
• ABN – registered Australian business number or ABN number of the company is 11 223 479 606
• ACN – registered Australian company  number or ABN number of the company is 139 621 085
• Business location – The business will be located in East Sydney that is just 30 minutes away from centrally located Sydney Business Park.
• Date established – the business is planning to be started on 1^stJuly 2018
• Business owners – Mr John Steward will be the CEO and managing director of the company.  
• Owner experience – the CEO is experienced in the retail sector and was the executive director of a well known retail company for more than 12 years.
• Products – the company will sell various types of garments for the children of age group of 5 to 15 years.

1.2 The market

• Target market – Main targets for the company will be the children aged between 5 to 15 years
• Marketing strategy – Offer high quality products at lower possible price, manufacturing the products as per the customer needs and meeting marketing demand and supply the goods demanded as per required time without any hurdle or barrier

1.3 The future

• Vision – To become the distinguished retailer for kids clothing that will be known globally for the quality of the product, setting new lifestyles and trends
• Goals – to offer high value products to their customer on regular basis, achieve the financial objectives of the company and set the benchmark in the clothing industry as the cost leader through improving the performance and minimizing the waste

The key objectives of the business with regard to finance are as follows –

• To increase the sales by 125% till the 3^rdyear of business
• Increasing the number of target customers
• Minimizing the cost of goods sold by at least 2% from 2^ndyear of business.

Rose petal (RP) is the retail store that will deal in kids clothing and the business will be initially established in East Sydney. It will present wide range of the kids clothing that will be manufactured using various fabrics like wool, cotton and silk. The clothing will be designed keeping in mind the latest fashion trends.

2.2 Registration details

The business will be registered with Australian Securities and Investment Commission (ASIC) in the name of Mr John Steward under the brand name of Rose Petal. Further, before starting the business the company need to register with the Australian Taxation Office for complying with taxation requirements.

2.3 Business premises

The business will be located in East Sydney that is just 30 minutes away from centrally located Sydney Business Park.

The business will be owned by Mr John Steward. However, the organizational structure will include the production manager, who will be responsible for everyday decision making associated with manufacturing, HRD manager, who will be responsible for managing all the departments, Accounts manager, who will be responsible for taking all the finance related decisions (Schaper et al. 2014).   

2.6 Key personnel

Name	Designation	Responsibility
John Steward	CEO	All marketing and operational activities
Ricky Hudson	HRD Manager	Managing all the departments
Sally Armanda	Account manager	Making finance decisions

RP will offer its customers the below mentioned kids clothing and products –

• Sweaters
• Jackets
• Shirts
• Pants
• Shoes
• Hats
• Bags
• T-shirts

RP will use special cotton fibre for the garments that will be used by the kids during summer. This special fibre has never been used by its competitors and thereby it is expected that it will receive a positive feedback from the customers (Sadgrove 2016).

2.9 Insurance

The company will take insurance policies for its office equipments, warehouse products and various machineries in the manufacturing plant.

2.10 Risk management

Risk	Likelihood	Impact	Strategy
Increasing price of the fabric	Highly Likely	High	The company shall find out alternate fabric that will not compromise the comfort of the kids
Increasing maintenance cost	Likely	Medium	The company must depend on the insurance policies and servicing policies, to provide smooth services.
Retention of designers	Highly Likely	High	As the company has high competition in the garment market, the designers are likely to leave for additional benefits. Therefore, the company will hold regular meeting with the designer to know their demand and preference.

All the legal procedures will be adhered to as per the “Australian Business Licence and Information Service (ABLIS)” (Steingold 2015).

2.12 Operations 

RP will sell its products through following 2 methods –

• Retail sale – initially the retail stores will be opened in East Sydney location. However, within 2 years period it is planning to open the retail stores in other areas of Australia like Perth, Melbourne and Adelaide (Ward 2016).
• Online sale – main product of the company will be sold through online in addition from the retail stores. The delivery for online sales will be made within 7-10 business days.

Under the sustainability plan, the company will make the following plans –

• The company will take appropriate care with regard to environmental issues so that the harmful elements from manufacturing does not impact the community under which it will carry on the business
• It will prepare the strategies and action plans for the potential risks so that it has least impact on the business

Kids wear market in Australia is highly competitive and slowly the market is shifting from growth to maturity. However, the increase in the children’s age group for 15 years and under is supporting the growth in revenue (Massa and Tucci 2013). High rate of immigration also contributed for the growth of the target market. It is expected that the industry revenue will be increased by 3.9% that is $ 3.4 billion over next 3 years.

Main targets for the company will be the children aged between 5 to 15 years. The characteristics for the targeted customers will be as follows –

Description	%	Sales (amt)
Market total	100%	$     2,000,000.00
Boys clothing	40%	$        800,000.00
Girls clothing	40%	$        800,000.00
Boys and girls accessories	20%	$        400,000.00

Increase in the online shopping habits and social media has exposed the consumers to latest fashions and it influenced their desire for new trends and styles. Further, the weak sentiments of the consumers and subdued disposable growth in earnings over last few years influenced the popularity of fashion markets.

Various factors that will made RP as ideal choice of the customer will be as follows –

• Guaranteed quality goods
• Variety of clothes under same roof
• Customization facility
• Easy modes of payment like cash, debit cards and credit cards
• Delivery within time
• Ability to accept big order size

Strength	Weakness
· Wide range of products with great variance · Customized product can be ordered for the individual customers · Expert designers for following latest fashion trends · Discounts allowed on bulk purchase	· Comparatively new as against the competitors · In the initial stage the marketing expenses will be large as for establishing the brand lot of advertising campaign will be required. · Huge capital will be required for starting up the business as the company will not be able to avail credit initially (Blackburn, Hart and Wainwright 2013).
Opportunity	Threats
· There is huge demand for boys wear. Therefore, adding value to this category will be great opportunity · Animated movies character print has increased the demand among the children · The garment sector in Australia is growing fast and opening new opportunities for the (DaSilva and Trkman 2014)	· Owing to recession the people are now more conscious for the pricing and prefers the brand where discount is high · The high competition in clothing retail sector creating threat for the company.

Competitor	Established date	Size	Market share (%)	Value to customers	Strengths	Weaknesses
Phoenix and the Fox	Late 2014	2400	22%	This brand offers the offbeat clothing at reasonable prices that can be chosen quickly (Fox 2018).	100% organic cotton are used	Availability is not there all over Australia
Just Jack	2012	2700	17%	The main competitive advantage if this brand is that it truly cares regarding the feel and fit of the customers.	Manufactures all type of boys wear like swimwear, sleepwear, casual wear and sportswear.	Manufactures only for boys (Jack &nbsp 2018).
Huckleberry Lane	2008	2900	7%	This is the sleepwear brand and it makes comfiest and sweetest sleeping clothes for the people of all age groups (Huckleberrylane.com.au. 2018).	It is made from soft and quality fabrics that can be fitted easily.	Manufactures only sleepwear
Feather Drum	2016	1500	5%	Their designs include the pieces that are made by skilled artisans instead of the robots	Removes nasty chemical from clothes before launching it in the market	Comparatively new in the industry (Feather Drum 2018).
Little Edge Apparel	2012	1900	14%	Fully Australian made brand (Little Edge Apparel 2018).	High quality and everything is ethical	High price

Answer:

Various marketing channels like mailing, social media, direct sales, telephonic campaign will be used for marketing and advertising the brand. Further, the customer will be regularly updated on the upcoming clothes and discounts, if any.

To become the distinguished retailer for kids clothing that will be known globally for the quality of the product, setting new lifestyles and trends.

4.2 Mission statement

Mission of the company is to offer high value products to their customer on regular basis. For fulfilling this, they are focussed on the exceptional quality, design, convenience, interactive communication and innovation.

Major goals and objectives of the company are recognized with quality and cost efficiency. Other objectives are –

• to offer high value products to their customer on regular basis
• to achieve the financial objectives of the company
• set the benchmark in the clothing industry as the cost leader through improving the performance and minimizing the waste
• Offer high quality products at lower possible price
• Manufacturing the products as per the customer needs
• Meeting marketing demand and supply the goods demanded as per required time without any hurdle or barrier
• Develop the kid’s friendly decoration and environment in the store that will attract the parents for bringing their children in store.

The key objectives of the business are as follows –

• To increase the sales by 125% till the 3^rdyear of business
• Increasing the number of target customers
• Minimizing the cost of goods sold by at least 2% from 2^ndyear of business.

Further, the total requirement for start-up as estimated will be $ 21,09,000 for registration and other business needs and $ 33,50,000 for equipments. Therefore, total requirement will be $ 54,59,000, out of which 40% that is $ 21,83,600 will be raised through long term borrowings and 60% that is $ 32,75,400 will be raised through equity.

The assumptions made are as follows –

• Sales will increase by 12% in the 2^ndyear and further 14% in 3^rd year
• Due to winter season the sales during the month of September, October and November will fall significantly. However, during December the sales will be increased due to Christmas
• Cost of goods sold for the 1^styear will be 60% of sales. However, for net 2 years the COGS will be reduced to 58% of sales.
• Interest and loan repayments will be paid quarterly.

START-UP COSTS	Cost ($)	EQUIPMENT/CAPITAL COSTS	Cost ($)
Registrations		Business purchase price	$120,000
Business name	$3,000	Start-up capital	$800,000
Licences	$2,500	Plant & equipment
Permits	$2,000	Vehicles	$1,200,000
Domain names	$2,000	Computer equipment	$350,000
Trademarks /designs/patents	$10,000	Phones	$65,000
Vehicle registration	$15,000	Fax machine	$125,000
Membership fees	$12,000	Security system	$210,000
Accountant fees	$45,000	Office equipment
Solicitor fees	$2,000	Furniture	$300,000
Rental lease cost (Rent advance/deposit)	$120,000	Shop fit out	$180,000
Utility connections & bonds (Electricity, gas, water)	$50,000
Phone connection	$3,000
Internet connection	$7,500
Computer software	$120,000
Training	$75,000
Wages	$100,000
Stock/raw materials	$90,000
Insurance
Building & contents	$300,000
Vehicle	$260,000
Public liability	$50,000
Professional indemnity	$40,000
Product liability	$45,000
Workers compensation	$100,000
Business assets	$220,000
Business revenue	$55,000
Printing	$55,000
Stationery & office supplies	$150,000
Marketing & advertising	$175,000
Total start-up costs	$2,109,000	Total equipment/capital costs	$3,350,000

BALANCE SHEET FORECAST	[Year 1]	[Year 2]	[Year 3]
Current assets
Cash	$4,369,900	$4,231,000	$3,532,500
Petty cash	$25,000	$32,000	$29,000
Inventory	$350,000	$250,000	$150,000
Pre-paid expenses	$36,000	$23,000	$21,000
Fixed assets
Leasehold	$600,000	$600,000	$700,000
Property & land	$400,000	$500,000	$500,000
Renovations/improvements	$20,000	$500,000	$750,000
Furniture & fit out	$792,430	$800,000	$800,000
Vehicles	$126,500	$258,700	$221,500
Equipment/tools	$512,170	$460,953	$414,858
Computer equipment	$450,000	$450,000	$700,000
Total assets	$7,682,000	$8,105,653	$7,818,858
Current/short-term liabilities
Credit cards payable	$320,000	$380,000	$310,000
Accounts payable	$1,800,000	$2,020,000	$1,910,000
Interest payable	$3,000	$14,000	$16,000
Accrued wages	$45,000	$52,000	$51,000
Income tax	$55,000	$45,000	$390,000
Long-term liabilities
Loans	$2,183,600	$2,133,600	$2,083,600
Total liabilities	$4,406,600	$4,644,600	$4,760,600
NET ASSETS	$3,275,400	$3,461,053	$3,058,258

5.5 Profit and loss forecast

Particulars	Year 1	Year 2	Year 3
Sales	$   5,000,000	$   5,600,000	$   6,384,000
Cost of goods sold	$   3,000,000	$   3,248,000	$   3,702,720
Gross profit	$   2,000,000	$   2,352,000	$   2,681,280
Gross profit %	40%	42%	42%
Expenses
Accountants fees	$        55,000	$        55,000	$        60,500
Advertising and marketing	$      120,000	$      100,000	$        80,000
Bank fees and charges	$      120,000	$      105,000	$      110,000
Bank interest	$        12,000	$        10,500	$        11,000
Credit card fees	$          6,000	$          7,000	$        12,000
Utilities (electricity, gas, water)	$        35,000	$        40,000	$        45,000
Telephone charges	$          3,500	$          4,200	$          4,800
Loan payments	$        50,000	$        50,000	$        50,000
Rent and rates	$        60,000	$        60,000	$        66,000
Motor vehicle expense	$        22,000	$        24,000	$        31,000
Repairs and Maintenance	$          4,500	$          5,200	$          6,700
Stationary and printing	$          8,000	$        14,000	$        16,000
Salaries	$      140,000	$      140,000	$      208,000
Insurance	$   1,070,000	$      909,500	$      773,075
Superannuation	$        42,000	$        42,000	$        62,400
Total Expenses	$   1,748,000	$   1,566,400	$   1,536,475
Profit before taxes	$      252,000	$      785,600	$   1,144,805
Taxes paid @ 30%	$        75,600	$      235,680	$      343,442
Net Profit after tax	$      176,400	$      549,920	$      801,364
Profit/loss percentage	3.53%	9.82%	12.55%

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