Fragrance Store Business Plan

Fragrance Store Business Plan Business Name: FRAGRANCES Company Summary Fragrances is a new natural and herbal cosmetics company proposing to set up a signature herbal cosmetics store in Central London. The store will deal in herbal cosmetics including perfumes. The company has been setup by a team of three members who have years of experience in understanding and managing cosmetics business, channel marketing and high-level sales. The promoters will initially fund the business themselves as they believe strongly in their product idea. Market research among over 1000 women in various age groups shows that there is a demand for such products. Sales projections for Fragrances are estimated be over  £1 million for the first year, with a decent net profit. The promoters feel that, by creating awareness of their products, many women will prefer to purchase their products for their own use, as will friends and family members. Objectives Create a niche market in herbal cosmetics industry Generate retail sales of over  £1,000,000 in year one. Maintain a gross margin of over 65%. Mission To give an unlimited opportunity to women of all ages to become beautiful naturally Keys to Success Fragrances will: Offer a unique line of herbal cosmetics that will take into account the differences in requirements of diverse age groups. Herbal cosmetic products are currently in demand today and are also available but there are no differences in cosmetics available for different age groups. Satisfy the demand of women who do not want to use cosmetics containing harmful chemicals Execute a targeted marketing campaign to generate awareness of the their products Fragrances will be a UK-based herbal cosmetics company offering its customers a series of unique herbal cosmetics including skincare products, hair care products and perfumes. There will a wide variety in these cosmetics and will take the differences in requirements of diverse age groups. The store will have two product experts who will help the customers choose the right products according to their ages and requirements. The company will reach out to customers through their own signature store as well as its website. In the future, the company will also explore the possibility of expanding to the entire UK by setting up a chain of such stores. Company Ownership Cosmetics industry in the UK is a growth industry dominated by a few key players. Fragrances needs to pool funding to be able to make its presence felt in the industry. It will be set up as a private limited company as the three promoters will pool in their funds and will form the core management team. As a private company it will be able to achieve its initial standing which would not have been possible as a sole proprietorship or partnership firm. Start-up Summary Start-up costs for Fragrances include legal costs, computer supplies, new product marketing, website design and regulatory costs for cosmetics[1]. Start-up assets are mostly dedicated to start-up stock. Start-up Expenses  £ Legal 1,000 Computer Supplies 1,250 Marketing 15,000 Web design 2,500 Regulatory 4,000 General Administration (including rent and salaries) 137,000 Total Start-up Expenses  £160,750 Start-up Assets Cash  £10,000 Start-up stock  £60,000 Other current assets 0 Fixed assets (Including fixtures)  £20000 Total assets  £90,000 Total Requirements for Expenses and assets 250,750 To start with, Fragrances will introduce its herbal range in skincare products perfumes. Skincare products These will include day creams, night creams, exfoliating creams, anti-wrinkle or anti-ageing creams. Within these there will be creams for specific age-groups and skin types. Perfumes Fragrances will start-off with a limited range of perfumes for the working women. In stage two, more variety will be introduced. Source: National Statistics, accessed from http://www.statistics.gov.uk/cci/nugget.asp?id=6 Market Segmentation The three main segments of the market who would buy herbal cosmetics are working executives, college and university students and ageing women. There will also be those who would shop for women, perhaps a husband, friend or a family member. Though the store will be in Central London it will cater to the needs of entire UK. Women living outside London will buy the cosmetics online through the company website. The absence of a store in small towns will not impact the sale as the product will be extremely effective and safe. The confidence will be based on additional expenditure on creating awareness about the products. As per the mid census estimates, the total women population in all age groups in UK is 30,730,300 (Source: NSO Statistics). In addition, statistics indicate that on an average 93% of total women in all age groups buy cosmetics. The potential market may be set at 28,579,179 (93% of total women). Based on the primary and secondary segments, the projected sales forecast is conservatively set at less then 1% of the total potential market (285,790), as highlighted in the following table and chart. Potential Customers Growth 2008 2009 2010 CAGR Working women 0% 142,895 142,895 142,895 0% Young girls 0% 107,171 107,171 107,171 0% Ageing women 0% 26,793 26,793 26,793 0% Others 0% 8,931 8,931 8,931 0% Total 0% 285,790 285,790 285,790 0% Product Elasticity: The product is a necessity and is not highly price elastic. Consumers are ready to pay a higher product if they become aware of the unique benefits from the product. Industry Analysis The UK cosmetics industry accounts for  £5 billion sales. (Source: Euromonitor – Consumer Europe 2002/3 – 18th Edition Pub. Euromonitor International Plc)) 93% of British women use cosmetics in some shape or form making us one of the highest users in Europe. (Source: Key Note Report – Cosmetics Fragrances A Market Sector Overview 10th Edition, Ed. By Eleanor Hughes) Convenience and benefits continue to be a key trend for British cosmetics consumers. Easy application and usage, as well as effectiveness, are the main requirements. Some of these products have a higher price positioning, but consumers appear willing to pay higher unit prices if products can offer genuine benefits in terms of saving time. Fragrances will be a small segment of the cosmetics industry. The market is dominated by major players. Significant shifts in overall value share in this sector have primarily been achieved through major mergers and acquisitions such as L’Orà ©al’s purchase of The Body Shop. Competition Analysis Natural and herbal cosmetic products is a growing sector with the presence of a few big players such as L’Orà ©al’, Bodyshop, Boots and Johnson and Johnson. It is becoming stronger in the UK and UK is now competing with other European countries for product launches. There has been a 170 per cent increase on launches from the comparable period in 2006. According to a recent Mintel report, the UK has seen the largest increase in herbal beauty products of any European country even in the first quarter of 2007. The country accounted for a mere five per cent of the 1600 organic cosmetics launched worldwide in 2006, which has now risen to 19 per cent of the 1053 products that have already been launched globally in 2007. In recent years there has been an explosion of activity as consumers have become more aware of the health benefits of using natural ingredients. Supermarkets have now begun to pick up on this trend, with leading chains such as Asda, Tesco and Waitrose all developing own brands to capitalise on the growing consumer demand for organic and ethical products. Our marketing strategy is to create product awareness among women using cosmetics by strategically placing Internet ads, using direct mailers and generating PR. Competitive Edge The present herbal cosmetic retailers carry a mainstream line of cosmetics that are appealing to the masses. Due to their mass distribution model, it would not be prudent for them to carry small amounts of specialty items for specific age groups. By positioning in the market as a specialty store, Fragrances is confident that word of mouth will help to create product awareness across UK. Fragrances unique selling proposition is that its products will be exclusive and customised for women in accordance with their age groups, skin types etc. Currently, no major cosmetic retailer and online stores offer such customised herbal cosmetics. The primary weakness of Fragrance will be to generate awareness about the cosmetics and highlight how these are different from the other products available in the market. To generate sales, there is a need to first create awareness about the existence of the product and make it easy for potential customers to locate the speciality store. However, it will not be difficult to establish its presence in the cosmetics industry. Marketing Strategy Fragrances marketing strategy is crucial to its success. The company will need to create awareness of its products through: Strategically-placed ads in women’s magazines and women related websites Direct mail and e-mail advertising to working women New product PR in publications for women Sales Strategy Sales are dependent upon creating awareness and generating excitement about the herbal cosmetics. The company will strategically place pop-up and banner ads on web-sites relevant to both women, use direct mail and e-mail lists and seek public relations coverage in relevant media sources. Fragrances will fulfil orders through its speciality store. It will also offer returning customers an option to place their orders on the company’s official website, or fax in orders to the company. E-orders: Customer can purchase online 24-hours a day, seven days a week. Fax orders: Customers can fax in an order 24-hours a day, seven days a week. Sales Forecast The sales forecast for First Year 2008 takes into account slower sales at the beginning as the company creates awareness of its product and website. Initially the company will be selling limited range of skincare products and perfumes. As the company grows, it will explore the demand for other types of customised products. The following table illustrates unit sales of 109,500 units for the first year. This would require the company to sell to less than 1% of its target market. FY 2008 FY 2009 FY 2010 Unit Sales Units Sold 109,500 115,000 121,000 Average unit price  £ 10  £10  £10 Sales Revenue  £ 1,095,000  £1,150,000  £1,210,000 Direct Unit Costs  £3  £3  £3 Direct Cost of Sales  £ 328500  £345000 363000 Initially the company will be managed by its promoters. They will oversee product development, the online store, speciality store and marketing efforts. Outsourcing will be used on some initial tasks, specifically the website design and maintenance. Personnel Plan As the company’s launch date approaches, two product experts will be hired to help with the speciality store sales. As the company grows, more personnel will be added as needed. Personnel Plan FY 2008 (in  £) FY 2009 (in  £) FY 2010 (in  £) Management team for 3 Members  £45,000  £45,000  £45,000 2 Employees  £20,000  £21,000  £22,050 Total People 5 5 5 Total Payroll  £65,000  £66,000  £67,050 Fragrances project the gross margin to be healthy percent (70%). Sales projections for 2008 are at over  £1 million. Refer appendix for a projected profit loss account, projected cash-flow statement and projected balance sheet for the period 2008-2010. Start-up Funding The promoters of the company will use personal funds to finance the start of this business. The primary start-up costs are as follows: Start-up Expenses  £ Start up Funding Start up Expenses to fund 160,750 Start up Assets to fund 90,000 Total Funding Required 250,750 Assets Non-cash assets from start-up 80,000 Cash 10,000 Additional cash Raised 0 Cash Balance on Starting Date 10,000 Total Assets 90,000 Liabilities and Capital Liabilities Current Borrowing 0 Fixed liabilities 0 Accounts payable 0 Other current liabilities 0 Total Liabilities 0 Capital Planned Investment Shareholders equity 250,750 Investor 0 Additional Investment Requirement 0 Total Planned Investment 250,750 Loss at Start-up (160,750) Total Capital 90,000 Total Liabilities and Capital 90,000 Break-even Analysis The following Break-even Analysis shows what is needed in monthly sales to break even. Break-even Analysis (Year 2008) Monthly units break-even 1,914 Monthly Revenue Break-even  £19,140 Assumptions: Average per-unit revenue  £10 Average per-unit variable cost  £3 Estimated monthly fixed cost  £13396 This Confidentiality Agreement (the â€Å"Agreement†) is by and between (hereinafter â€Å"Disclosing Party†) and the undersigned recipient of information. (hereinafter â€Å"Recipient†) Recipient and its Representatives shall not disclose any of the Confidential information in any manner whatsoever, except as provided under Permitted Disclosures. Recipient hereby agrees to indemnify Disclosing Party against any and all losses, damages, claims, expenses and legal fees incurred or suffered by Disclosing Party as a result of breach of this Agreement by Recipient or its Representatives Appendix A Projected Profit Loss 2008 ( £) 2009 ( £) 2010 ( £) Sales 1,095,000 1,150,000 1,210,000 Direct cost of goods 328,500 345,000 363,000 Other costs Cost of goods sold 328,500 345,000 363,000 Gross Margin 766,500 805,000 847,000 Gross Margin % 70% 70% 70% Total Operating Expenses 396,025 375,667 352,917 Profit Before Interest and Taxes 370,475 429,333 494,083 EBITDA 370,475 429,333 494,083 Interest Expense Taxes 148,190 171,733 197,633 Net Profit 222,285 257,600 296,450 Projected Cash Flow 2008 ( £) 2009 ( £) 2010 ( £) Cash Received Cash from Operations Cash sales 1,095,000 1,150,000 1,210,000 Subtotal cash from operations 1,095,000 1,150,000 1,210,000 Additional cash received VAT received 0 0 0 New current borrowing 0 0 0 New other liabilities 0 0 0 Sale of other current assets 0 0 0 Sale of fixed assets 0 0 0 New Investment received 0 0 0 Subtotal cash received 1,095,000 1,150,000 1,210,000 Expenditure Cash spending 58,000 86,000 95,000 Bills payment 652,232 691,342 727,276 Total spent on operations 710,232 777,342 822,276 VAT paid 0 0 0 Repayment of current borrowing 0 0 0 Purchase of other current assets 0 0 0 Purchase of fixed assets 0 0 0 Dividends 0 0 0 Subtotal Cash Spent 710,232 777,342 822,276 Net Cash Flow 384,768 372,658 387,724 Cash Balance 394,768 767,426 1,155,150 Projected Balance Sheet 2008 2009 2010 Assets Current assets Cash 394,768 767,426 1,155,150 Stock 60,000 60,000 60,000 Other Current Assets 0 0 0 Total Current Assets 454,768 827,426 1,215,150 Fixed Assets Fixed assets Accumulated 20,000 20,000 20,000 Depreciation 0 0 0 Total Assets 474,768 847,426 1,235,150 2008 2009 2010 Liabilities and Capital Current Liabilities Accounts payable 53,900 57,085 60,020 Current borrowing 0 0 0 Other current liabilities 108,583 220,456 308,795 Long term liabilities 0 Total liabilities 162,483 277,541 368,815 Capital including profits 312,285 569,885 866,335 Total liabilities and Capital 474,768 847,426 1,235,150 Bibliography Barrow Colin, Barrow Paul, Brown Robert, The Business Plan Workbook, (2001) Kogan Page Ltd Blackwell Edward, How to Prepare a Business Plan, (2004) Kogan Page Ltd Branson, Richard, The Best-Laid Business Plans: How to Write Them, How to Pitch Them (Virgin Business Guides), (2005) Virgin Books; New Ed edition Covello Joseph, Hazelgren Brian, The Complete Book of Business Plans (Jan 1993), Sourcebooks Eleanor Hughes, Key Note Report – Cosmetics Fragrances A Market Sector Overview 10th Edition Euromonitor – Consumer Europe 2002/3 – 18th Edition Pub. Euromonitor International Plc Finch Brian, How to Write a Business Plan, (2006), Kogan Page Ltd McKeever Mike P., How to Write a Business Plan,(1992) Nolo Press UK Population data accessed from http://www.statistics.gov.uk/glance/#population Footnotes [1] The UK cosmetics industry is regulated under the the Department of Trade and Industrys 1996 Cosmetic Products (Safety) Regulations.