1. business and industrial
2. advertising and marketing
3. marketing

 Business Plan November 27th, 2008 1 Table of Contents Executive Summary .............................................................................................................................. 4 Business Overview................................................................................................................................ 5 Mission Statement ............................................................................................................................................ 5 Value Proposition ............................................................................................................................................. 5 Product/Market Definition ........................................................................................................................... 5 Company Description...................................................................................................................................... 5 Management Team........................................................................................................................................... 6 Board of Advisors ............................................................................................................................................. 7 Value Proposition.................................................................................................................................. 7 The “Burning” Problem .................................................................................................................................. 7 Description of Service ..................................................................................................................................... 7 Benefits................................................................................................................................................................. 8 Market Opportunity ............................................................................................................................. 8 The Industry ....................................................................................................................................................... 8 The Market .......................................................................................................................................................... 9 Competitors ..................................................................................................................................................... 10 Direct Competitors .....................................................................................................................................................10 Indirect Competitors .................................................................................................................................................10 Competitive/Market Entry Strategy ....................................................................................................... 10 Competitive Advantage .....................................................................................................................11 Differentiation ................................................................................................................................................ 11 Imitations .......................................................................................................................................................................11 Improvements ..............................................................................................................................................................12 Entry Barriers ................................................................................................................................................. 12 Partnerships .................................................................................................................................................... 12 Long­Term Growth ........................................................................................................................................ 13 Capabilities ...................................................................................................................................................... 13 Business Model ....................................................................................................................................14 Success Metrics............................................................................................................................................... 15 Scale and Expansion...................................................................................................................................... 15 Marketing & Sales Plan .....................................................................................................................15 Communications Strategy........................................................................................................................... 15 Pricing Strategy .............................................................................................................................................. 16 Distribution Strategy.................................................................................................................................... 17 Sales Strategy .................................................................................................................................................. 17 Marketing and Sales Costs .......................................................................................................................... 18 Operations Plan ...................................................................................................................................18 Base of Operations and Courier Optimization .................................................................................... 18 Product Research and Purchasing........................................................................................................... 19 2 Product Cleaning, Assessment and Maintenance............................................................................... 20 Product Rental, Delivery, and Return .................................................................................................... 20 Inventory Management ............................................................................................................................... 20 Website Development and Maintenance............................................................................................... 21 Development Plan...............................................................................................................................21 Pre­launch (Dec ’08­Jan ‘09)...................................................................................................................... 21 Launch (Feb ‘09)............................................................................................................................................. 22 Post­Launch and Beyond............................................................................................................................. 22 Key Start­Up Costs ......................................................................................................................................... 23 Critical Risks and Contingencies....................................................................................................23 Competitive Entry.......................................................................................................................................... 23 Retail Partnership ......................................................................................................................................... 24 Target Market ................................................................................................................................................. 24 Inventory Management ............................................................................................................................... 24 Financing .......................................................................................................................................................... 25 Financial Plan .......................................................................................................................................25 Key assumptions ............................................................................................................................................ 26 Breakeven/Sensitivity Analysis ............................................................................................................... 27 Appendices ............................................................................................................................................28 Appendix A ­ CV’s of Management Team ............................................................................................... 29 Appendix B ­ Bagnifique Marketing Survey Results.......................................................................... 30 Appendix C – Financial Model ................................................................................................................... 33 Appendix D – Operational Local Responsiveness in Metro Areas................................................ 34 3 Executive Summary Canadian fashionistas have been anxiously awaiting the arrival of Bagnifique, a unique online rental service for luxury designer handbags. A phenomenon that is in its infancy, online handbag rental services have been rapidly increasing in popularity in both the US and the UK markets. However, there remains large untapped opportunity in Canada! There are 5.8 million women in Canada between the ages of 20 and 44, most of whom do not have a high enough disposable income to buy the luxury bags that many so desire. Why not give them a chance to satisfy their cravings for wearing beautiful things? We are proposing to give these women a taste of the good life. Bagnifique will cater to the urban fashionista who would die to wear Louis, Prada and Chanel, but who could never afford to pay the high price tags. For these women, wearing a knockoff would be blasphemy. Bagnifique will solve this burning problem by giving women the opportunity that they have missed for so long. Whether it’s for that special night out, or just to feel put‐together, confidant, and beautiful, Bagnifique allows the young fashion‐conscious woman to affordably achieve the image she desires without diving too deep into her pockets. We are convinced that Bagnifique will be a great success in the Canadian market for a number of reasons. First, the Canadian market is rife with fashionable women with minimal disposable incomes, a fact made obvious by the proliferation of stores like Zara and H&M. The market is there. Second, Bagnifique will leverage a powerful and growing trend toward seeking the experiences of luxury, rather than ownership. This is proven by the success of our counterparts in the US and the UK as well as by other luxury rental service for such items as cars, travel destinations, and formal wear. Finally, we will be applying and improving upon a business model that has proven extremely successful in other markets. An untapped market opportunity combined with a strategic business plan, and a passionate and capable management team, well‐positions Bagnifique to become an entrenched Canadian national brand. 4 Business Overview Mission Statement We will give young, fashion forward women the opportunity to rent luxury, designer handbags they desire but are unable to afford. Value Proposition Keeping up with the latest fashion trends can be very expensive. With short‐lived fashion cycles and astronomically priced handbags, it is impossible for many middle‐class women to keep up with the trends and buy all the beautiful bags and accessories they desire. Bagnifique is proposing to solve this problem by offering these women temporary ownership of the bags they love at fraction of the retail price. Product/Market Definition Bagnifique will mostly cater to middle to upper‐class, fashionable, cosmopolitan women, ages 20‐44 with income ranging from $40,000 to $80,000. These women are fashion‐
forward, value their appearance and likely live close to Canadian metropolitan centres. They have the disposable income to shop but not to spend on high‐end luxury accessories. They cannot afford the high‐priced designer bags they so covet. For many of them, carrying a knockoff is not an option. Bagnifique’s online rental service will provide these women with access to designer handbags fulfilling their desires for the luxury experience. It will allow them to carry a like‐new bag as often as they would like for as long as they would like for a fraction of the retail value of the bag. Our business strategy will allow us to satisfy these women’s craving and need for luxury items and capture a portion of the disposable income they are prepared to devote to fashion. Company Description The idea for Bagnifique came from its CEO – Joanna Lasko. Last summer as Joanna was getting ready for a wedding, she put on that same black dress she wore a number of times before wishing she could afford to dress up her look with a gorgeous purse. Knowing that plenty of other women face the same problem – a business idea was born – an on‐line rental of luxury, designer handbags. Bagnifique is a low capex investment that can be successfully run by an already established management team. Bagnifique will leverage the knowledge and business acumen of its founder and management to create an entrenched national brand through operations and marketing excellence, to create widespread awareness of our service, to surpass the capabilities of our competitor and future competitors, and to ensure customer loyalty in the face of potential growth in competition. Bagnifique will differentiate itself in the following ways: • We will be the first in Canada to offer a bilingual Web site making us the first mover in Quebec. 5 •
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We will attempt to create an exclusive partnership with Holt Renfrew. This will provide us with a cost advantage as we will procure bags at a discounted price. This will give us an inventory advantage through access to partner resources. We will employ an optimized courier network to ensure fast and timely delivery. We will offer same day service to customers in our local area. The combination of market need, low initial investment required by the business and the expertise of its well‐rounded and diverse management team will make Bagnifique a successful venture. Management Team President/Chief Executive Officer/Director of Marketing – Joanna Lasko Joanna is the visionary and inspiration behind this venture. She has a passion for luxury brands and is a self‐proclaimed fashionista. She also brings with her a background in advertising and marketing for several multi‐national consumer brands and is an MBA Candidate of the Rotman School of Management, class of 2009. Joanna will combine her passion and her experience to acquire and maintain inventory that meets customer demand, to build strong supplier relationships and to create marketing that connects with and inspires consumers. Chief Operations Officer – Salvatore Provvidenza The COO's primary responsibilities will be to scout potential couriers, set‐up relationships with these couriers, and develop an effective communication network between the couriers and the Bagnifique packaging representatives. The COO will also monitor handbag rental frequencies and will work closely with the CEO to utilize rental analytics in order to guide handbag purchasing and set price points. Salvatore has a Mechanical Engineering background and has developed a knack for operations management. During venture concept development and the creation of this business plan, Salvatore used his operational knowledge and out‐of‐the‐box thinking to generate a value added and efficient operations plan. Salvatore was also a strong contributor to many other components of Bagnifique’s business plan. Chief Technology Officer/Director of Finance – Arif Bandali The CTO will be responsible for the design, development, and upkeep of the website. He will, with cooperation from the Director of Marketing, provide analytic tools to study and capitalize on the usage behaviours of Bagnifique’s clients on the web site. He will be responsible for hiring the contractors who will develop the site and, in a pinch, will be happy to sit down and code alongside them. As the Director of Finance, he will be responsible for analyzing the revenue/cost model and making sure Bagnifique does not stray too far from projections. Arif has 5+ years of experience in the software industry, first with a startup in New York, and then 4 years consulting for Workbrain Inc. He spent a summer as an associate, working on the trading desk of UBS Securities Canada, and is currently finishing up his MBA at the Rotman School of Management. 6 Board of Advisors The Board of Advisors and their credentials was listed here. Value Proposition The “Burning” Problem Fashion is an expensive prospect. With fashion‐cycles that are short‐lived, and bags that are astronomically priced, it’s impossible for many fashion‐conscious women to keep up with trends and to buy all the beautiful bags and accessories they wish they could. Bagnifique is proposing to solve this problem by offering these women temporary ownership of the bags they love at fraction of the price. Rental of luxury goods, such as yachts, jets, and formal wear has been available for many years. Why not handbags? According to our survey results, where we asked 100 women how often they wish they could buy a new designer handbag, 24% responded every 1 to 3 months while another 24% responded every 3‐6 months. However, as seen by their average annual handbag expenditures, most are seldom able to make such purchases. This indicates that the women in our target market have desires that are currently unfulfilled due to personal‐finance shortcomings. Our service will provide a solution to this problem. It will allow users to carry a like‐new designer handbag as often as they would like for as long as they would like for a fraction of the cost of buying the bag outright from a traditional retailer. No commitment is required. Furthermore, in today’s economic downturn, women have less to spend on the purchase of luxury items; renting may be the solution. Our service will cater to fashionable cosmopolitan women between the ages of 20 to 44. These women have some disposable income to spend on fashion items but cannot afford to pay the high price tags of designer bags they so covet. For them, carrying a knockoff would be blasphemy. Bagnifique’s online rental service will provide women with access to these handbags, fulfilling their desires for the luxury experience. Description of Service We will create a unique online service in Canada that gives young, fashion forward women the opportunity to rent handbags for a weekly or monthly fee. Our collection will consist of high‐end brand name bags, from everyday totes to formal evening bags. To order a bag, customers will simply have to browse the collection of current designer bags that are offered, place the order and it will be shipped to them directly within 3 days. When they are ready to return it, they simply have to slip the bag into the pre‐addressed shipping box that will be included when the bag is sent, and drop it off at the post office to be shipped. Customers can keep the bag for as long as they would like and return it when they are ready to update their look. Recognizing that different bags serve different functions, the 7 service will eventually allow customers to rent up to 3 bags at time. This will ensure that our customers have the right bag for every occasion. We also understand the personal connection that women have with the bags once they begin to wear them. For this reason, we will offer them an option to purchase our bags. Benefits There are two primary benefits to this service: 1) We will allow the fashion‐forward woman to affordably achieve the image she desires. Luxury handbags can cost upwards of $600. In fact, it is not uncommon to see retail prices over $2,000. The retail industry for luxury products has traditionally catered to a niche target market: the very wealthy. Through their marketing efforts, designers have created high demand for these bags as they are seen as very exclusive. Today, it has become a status symbol to be seen carrying a Prada or a Chanel. This service will make these bags accessible to an aspirational market segment as our rental prices will meet our market’s willingness to pay. Although our survey results showed that women’s willingness to pay was a bit lower than what we are expecting to charge, we feel that our sample may not have been entirely representative of our target as over 60% of respondents had income levels below $50,000. 2) We will allow the fickle fashionista to frequently update her look. Bagnifique will offer a rental service. Therefore, no commitment is required. Our customer will be able to change her bags more frequently than if she was buying them. Furthermore, by frequently renting her bag, she will be able to update her entire look by changing that one very important accessory. For instance, a woman will feel much better about wearing her go‐to little black dress for the twentieth time if she knows that she has a new beautiful handbag to pair it with. Market Opportunity The Industry We are operating in the Luxury Rental Services Industry. Inclusive in the industry are rental providers of goods and services such as Yachts, Cars, Jets, Bridal, Formal Wear and Costumes. A new segment has recently emerged – high‐end accessories rentals. This particular segment is in its infancy but growing rapidly. Bag, Borrow and Steal was the first to launch in 2004, but serves only the US domestic market. Since its launch in 2004, it has developed a 250,000 member base. Another US counterpart, From Bags to Riches, who also launched in 2004, has seen 57% growth in 8 revenue. This industry has shown proven demand in the US market but there is still untapped opportunity in Canada. The Internet is becoming an increasingly significant distribution channel. In 2005, online retail revenue totaled 7.9Bn, according to Statistics Canada, which is a threefold increase from 2003. Furthermore, 7M Canadians made an online purchase in 2005, which accumulated to over 49M transactions. The survey also showed that 57% of purchases were made on Canadian Web sites, the remainder from US vendors. As the CDN dollar continues to weaken, we believe this trend will begin to change in our favour. We believe that now is the critical time to enter this industry. In the wake of an economic downturn, consumption of luxury goods will slow. Bain and Co. predicts that global growth in luxury spending will plunge to 3% in 2009 compared to 6.5% in 2008 and 9% in 2007. Most relevant to our business are the changes in spending activities of the middle to upper income segment. Women that once may have considered an expensive bag purchase are beginning to become much more prudent with their finances. Renting designer handbags will become the better alternative, as it will still give them the emotional experience they desire. This phenomenon will serve to hasten the growth in an already rapidly growing industry. The Market This trend is driven by the growth of transumerism. Transumers are defined as “consumers driven by experiences instead of the ‘fixed’, by entertainment, by discovery, by fighting boredom, who increasingly live a transient lifestyle, freeing themselves from the hassles of permanent ownership and possessions.” We will thus be targeting middle to upper‐class, fashionable, cosmopolitan transumer women, ages 20‐44 with incomes ranging from $40,000 to $80,000. These women are fashion‐forward, value their appearance and likely live close to Canadian metropolitan centres. They have the disposable income to shop but not to spend on high‐end luxury accessories. As a secondary market, we are also expecting to appeal to fashionable university students. These women will be an important source for word‐of‐mouth advertising as they are highly influenced by their peers. As they graduate, they will help drive the growth of our market. In Canada there are approximately 470,000 women concentrated in the four primary metropolitan centres – Toronto, Montreal, Calgary, and Vancouver. Our survey found that 40% of women would be interested using our service. However, because of the small concentrated sample size, we are going to apply a more conservative estimate and assume 10% of Canadian metropolitan women would be interested in our service. Thus the size of our market is approximately 47,000 excluding university students. 9 Competitors Our target market is made up of women who reap as much or more satisfaction from the experience of wearing the item than from purchasing the item. Currently, this need is not being met in Canada. Direct Competitors We have only one direct competitor in Canada: Got2haveithandbags.com. Got2haveithandbags.com launched in February 2008 and does not appear to be managed very well. It is difficult to locate online and the collection is small and lower end than what ours will be. Its marketing is unsophisticated and amateur. Furthermore, in speaking with many potential customers, we have not found one person that has even heard of this company. Thus, they currently have almost no brand equity. Got2haveithandbags.com has a first mover advantage. However, we feel this can be easily mitigated with Bagnifique’s superior offering, as well as its excellence in marketing and operations. Indirect Competitors Bagnifique competes with eBay which occasionally gives consumers the chance to purchase bags at a lower price than offered at Canadian retailers. However, deals can be hard to find. Additionally, as the CDN dollar weakens, the opportunity to find a deal on eBay lessens. In addition there is a high probability of being charged duty at Canadian customs so the price of the bag is never guaranteed upon purchase. It should be noted that although we are competing somewhat with traditional high‐end fashion retailers like Holt Renfrew, and designer stores like Gucci, Prada, and Louis Vuitton, our threat to them is minimal. Even in the wake of a slowing economy, women who would normally purchase many luxury handbags will still purchase them, but at a lesser rate. We do not believe that these women are our customers. In fact, we believe we could potentially expand the market for such retailers, as Bagnifique will be purchasing our bags from them. Competitive/Market Entry Strategy Upon analysis of our competitors and target market, Bagnifique should be able to capture at least 70% of the market. Bagnifique will leverage our superior marketing and operations skills to connect with and retain our customers. Bagnifique will also offer a level of sophistication that our competitor is lacking. To do so, Bagnifique plans to enter the market with an inventory of 50 of the most sought‐after bags, an attractive and user‐
friendly website that induces repeat visits, and hopefully, an article placement or television appearance through a medium popular with potential customers. 10 Competitive Advantage Differentiation As mentioned, our direct competitor does not display the management expertise to satisfy consumer demand. Additionally, we have spoken to the founder of FromBagstoRiches.com in the United States, and it does not appear that she has any intention of entering the Canadian market because of her unfamiliarity with the Canadian consumer. Thus, we feel the competitive threat to be minimal. Our service will leverage the knowledge and business acumen of its founders to create an entrenched national brand through operations and marketing excellence, to create widespread awareness of our service, to surpass the capabilities of our competitor and future competitors, and to ensure customer loyalty in the face of potential growth in competition. Our primary point of differentiation will be our focus on the more classic, and high‐end handbags. Our bags will have long product lives and will not go out of style very quickly, if at all. We will carry bags only from the most exclusive designers. We will imitate many of the best practices of our U.S counterparts as well as other online rental services with similar business models. We will also make a number of improvements to ensure that we maintain a competitive advantage. Imitations • We will create an attractive website with high emphasis placed on user‐interface principles, making it easy for our customers to find the bags they are looking for. We will segment our collection into smaller segments based on categories that are relevant to our target market such as “Price”, “Brand”, “Occasion”, “Style” • We will invest heavily in search engine optimization so our potential customers will be able to find our Web site quickly and easily. • We will offer membership options that will provide members benefits and cost savings. • We will create a loyalty program through our membership plan that functions on a point system. Customers will automatically collect points for each rental and will be eligible for a free rental once they’ve collected a specific number of points. • We will leverage an efficient inventory management system that will ensure that we have the requested bag in stock at least 80% of the time. • We will ensure that we develop a thorough understanding of our customers to keep them satisfied with our service and by using their feedback to make any necessary 11 changes. For instance, we will provide an opportunity for our customers to tell us if there is a bag that we are missing that they would like to see. Improvements • We will be the first in Canada to offer a bilingual Web site of this nature making us the first mover in Quebec. • We will attempt to create an exclusive partnership with Holt Renfew. This will provide us with a cost advantage as we will procure bags at a discounted price. This will give us an inventory advantage through access to partner resources. • We will employ an optimized courier network to ensure fast and timely delivery. We will offer same day service to customers in our local area. • We will offer our members rewards for referrals to create brand awareness via word of mouth. • We will offer new members a style assessment via a virtual stylist and will frequently recommend bags to those customers that we believe will suit their style profiles. Entry Barriers Although our business model requires a low capex, which may make it easier for new entrants, we will erect entry barriers in a number of ways. First, we believe that we have the marketing capabilities to garner high brand‐equity with Canadian consumers to discourage them from using a competitive service. Furthermore, through marketing and PR initiatives such as referral programs and magazine appearances, we believe our service will achieve scale rapidly which will also help prevent new entrants. Second, we will create switching costs for our consumers via a loyalty program. Finally, by securing an exclusive partnership with Holt Renfrew, we will incur a cost advantage as we will be able to purchase our bags at a lower price than our competitor(s). These savings can be passed on to our customers. Partnerships A number of partners will have vested interest in our service. Because we will be buying bags at relatively low volumes, and because many luxury vendors are exclusive and difficult to partner with, we will have to buy most of our bags at full retail value. We will thus develop relationships with local retail partners that have relationships with these vendors who will help us to provide the hottest handbags. In return we will purchase our handbags from these retailers. We are hoping to exclusively partner with Holt Renfrew to do so. In that case, Holt Renfrew would benefit from our success. In addition, we would like to put our flyers at the front of small clothing boutiques that our customers frequent. In return, we will consider including their name or logo on our website, as well as a link to their website. As our site garners more visits, this may help our retail partners increase their own customer base. 12 Long‐Term Growth Within five years, Bagnifique will offer a vast selection of handbags, anywhere from 300‐
500, based on consumer demand. Although at first we will buy our bags at retail value, we would like to eventually form vendor relationships to ensure that we are able to procure at least 75% of our bags at wholesale prices. Furthermore, we would like to expand our product offerings to include designer jewellery and other accessory rentals as well. Capabilities Together, the Bagnifique team has many of the capabilities, as well as the business acumen, to achieve success. However, we have recruited an excellent board of directors to compensate for the expertise we may lack. Our board will be able to provide us with helpful and timely advice in understanding the luxury apparel and accessories industry, keeping up with consumer demand, remaining customer‐focused in the ever evolving world of fashion, and in efficiently operating a Web‐based business. Through on‐going contact and communication with our board, as well as through the hands‐on experience we will gain by operating, our capabilities will continuously evolve as needed. 13 Business Model Bagnifique’s primary source of income will be the fees garnered from the rental of handbags. Supplemental income will come from handbag rental insurance, the purchase of handbags by interested buyers (at latter stages of functional life), and from annual membership fees. The primary operational expenses will be derived from the maintenance and replacement of existing handbag inventory, courier fees (however, these are passed on to the consumer), management fees, marketing costs, and website maintenance. Since part of Bagnifique’s value proposition involves keeping the consumer up‐to‐date with respect to handbag news, website maintenance will be a daily or at the very least, a weekly, operation and key success factor. Secondary expenses exist in the form of warehousing/overhead, packager/cleaner wages, and research costs. Since the initial start‐up will be operated out of a member of the management team’s residence, warehouse costs will be minimal. Also, since the tasks performed by the packagers/cleaners are unskilled and are limited in terms of hours worked, the wages paid will be low ($12/hr). Further, depending on the labour intensity of these tasks, the packager/cleaner responsibilities may be performed by members of the management team. Although training to package, clean and assess bags is necessary, the time and money needed to facilitate it, is trivial. In terms of research, tasks are primarily human capital intensive, will be performed by the management team, and thus are included 14 in management fees. Sample costs that do fall under research are the purchase of fashion magazines or tickets to a trade show; these are seasonal and sparse expenses. Success Metrics There are numerous metrics Bagnifique must monitor to track and fine‐tune success. As an overall metric, Bagnifique will use profit margin (or EBITDA) to track operational efficiency and ensure Bagnifique is capturing maximal value at minimal cost. Inherent to efficiency will be the tracking of rental frequencies and handbag rental utilization to ensure that the handbags offered are indeed the handbags with the greatest demand among consumers. To optimize the value generated from membership fees, Bagnifique will track the correlation between the rental frequencies of members and non‐members versus rental price and membership fees, in order to optimize the price points of both, and capture the greatest value. Since the consumer will not look favourably among constantly fluctuating price points, the results of this analysis will only be realized on an annual basis. The same type of optimization analysis will also apply to handbag insurance. In terms of customer satisfaction, Bagnifique will include customer surveys in order to gain feedback on current functionality, methods of operation, and means to improve. Scale and Expansion The original Bagnifique business model and operational concept of local responsiveness was designed for Toronto, home to 46% of the target market. As a result, continued inventory expansion and evolving operational efficiency, with Toronto as the centerpiece, is a key objective for Bagnifique. This is not to say that, pending a cost‐benefit analysis, Bagnifique would not consider expanding components of the business model into other metropolitan areas. If this was the case, an opportunity to capitalize on scalability would present itself. This scalability would include, but would not be limited to: • Increased brand awareness due to availability of local responsiveness in other metropolitan centers • Stronger partner/vendor relationships due to increased use of service, larger handbag volumes, and increased geographic reach • Stronger relationships with local couriers which operate in multiple metropolitan areas • Additional marketing economies • Research benefits from a larger and more diversified customer base Marketing & Sales Plan Communications Strategy Bagnifique’s marketing strategy aims to attract, capture and retain its customers. We will attract potential users to our website through a number of communication techniques. First, since we operate in the online arena, search engine optimization will be key to increasing traffic to our site. We must ensure that potential clients searching the web for a 15 bag rental service in Canada see our site as one of the first hits on that search. Next, we will build a strong online presence by advertising on fashion and lifestyle websites (such as www.sweetspot.ca) frequented by our potential clients. Furthermore, 50 visitors to our site each month throughout our first year will have a chance to obtain a $20 gift certificate. Also, the management team will leverage the company’s unique proposition to get publicity through talk shows appearances and article placements. Finally, we will engage in traditional advertising and distribute promotional coasters to martini bars as well as advertise in Canadian fashion magazines such as Lou Lou or Elle Canada. Once individuals are at our site, our strategy will focus on capturing and enticing them to become regular users of our services. To accomplish this Baqnifique will have a yearly membership fee ($10/yr) offering very attractive benefits. First, with each rental, members will collect loyalty points which they can put towards a free rental. In addition, Bagnifique members will receive a free weekly rental on their birthday. Finally, members will also have access to various promotions (such as “rent one bag and get another one for 20% less”) throughout the year. Thus, the membership commitment will be used to retain our customers and increase their rental habits. Finally, to stimulate further demand, we will also offer loyalty points to users who refer their friends to our website. In order to retain our customers in the long run we will use “new arrivals” notifications and the Bagnifique newsletter as methods of connection with our clientele. We will tailor the “new arrivals” emails to match our customers’ preferences as indicated in their membership form. This push strategy can increase our sales due to the minimal effort required on the customer’s side. Our clients will also receive Bagnifique newsletter informing them of any new fashion trends, new designers etc. Our marketing strategy efficiently communicates the benefits of our services at each stage of user interaction. Pricing Strategy Bagnifique’s pricing strategy will be based on the percentage of the bag’s retail value. As the retail value of the bag increases, the percentage of the value will be decreased and thus the rental price will not increase in a 1:1 relationship with the retail value (see the table below). This strategy is designed to entice users to rent higher‐priced bags. More importantly, according to our research of handbags’ retail values and our competitor’s pricing, we found that our strategy will make Bagnifique’s rentals very competitive. Bagnifique will have two price points: weekly and monthly. The monthly price will equivalent to two and a half weeks’ rental. This heavily discounted monthly price was designed to stimulate longer rental periods which, in turn, will decrease our costs associated with shipping and cleaning of the bags. 16 Bag's Retail Price % of Retail Value Weekly Price Monthly Price $ 500.00 6.00% $ 30.00 $ 75.00 $ 600.00 $ 700.00 $ 800.00 $ 900.00 $ 1,000.00 $ 1,100.00 $ 1,200.00 $ 1,300.00 $ 1,400.00 $ 1,500.00 5.75% 5.50% 5.25% 5.00% 4.75% 4.50% 4.25% 4.00% 3.75% 3.50% $ 86.25 $ 96.25 $ 105.00 $ 112.50 $ 118.75 $ 123.75 $ 127.50 $ 130.00 $ 131.25 $ 131.25 $ 34.50 $ 38.50 $ 42.00 $ 45.00 $ 47.50 $ 49.50 $ 51.00 $ 52.00 $ 52.50 $ 52.50 Payback Payback Period Period (months) (weeks) 16.67 6.67
17.39 18.18 19.05 20.00 21.05 22.22 23.53 25.00 26.67 28.57 6.96
7.27
7.62
8.00
8.42
8.89
9.41
10.00
10.67
11.43
To illustrate this pricing scheme, consider a Louis Vuitton Monogram Speedy 30 bag that retails for approximately $626 CAD. According to our pricing strategy (at 5.75% of the bag’s value), this bag would rent for approximately $35/ week or $86/month. The same bag can be rented at our competitor – Got2HaveitHandbags – for $66/week or $165/month. Our scheme will give us competitive pricing that should allow us to capture our competitor’s customer base. Of course, we understand that our pricing strategy will also have to be dynamic and consider competitors’ pricing, style and functionality of the bag. Thus, at times it may be necessary for Bagnifique to price a bag according to outside research or findings, rather than follow a strict percentage‐based pricing. For example, if we notice competitors are offering the same purse at a price lower than our pricing strategy would indicate, we will need to adjust that rental price. Also, trendy purses with a short lifespan may require a higher price while classic purses with long‐term rental potential could be priced lower as their costs can be recouped over a longer period of time. We will also consider adjusting our pricing strategy as we learn more about the rental habits of our users and the popularity of our products. Distribution Strategy Since Bagnifique is an on‐line service there is no comprehensive distribution strategy. The bags will be delivered directly from our garage warehouse to our clients using local couriers (see Operations for more details). Sales Strategy Due to the nature of Bagnifique’s business and its on‐line presence, we will not need a dedicated sales force. The 3 MBA students starting this business will focus on marketing, advertising and operations. Members of the marketing department will also work on any partnership opportunities. For example, we might be able to partner with bridal stores or 17 movie production companies interested in renting our bags to complement their products or services. As Bagnifique grows, we will add two service staff who will handle general tasks including cleaning and sorting the bags. Marketing and Sales Costs Our marketing costs are directly associated with the initiatives described above. Largely, our marketing strategy is low‐cost. Our major expense will be advertising in the leading Canadian fashion magazine and thus we will only take out two 1/3 page ads in the first year. We believe the market need, along with our search engine optimization, on‐line presence and publicity will be sufficient to draw a large number of customers. For details on the marketing costs, please see financial model in Appendix C. A summary is included below: Operations Plan Our operations plan focuses on delivering our value proposition to the customer through an efficient and cost effective manner with an emphasis on quality and flexibility. Base of Operations and Courier Optimization Bagnifique will operate out of Toronto, not only because it is home to the venture development team, but also because 46% of the target market resides in the city. Headquartering in the heart of Toronto will facilitate a courier optimization approach to handbag delivery and return, which will minimize costs and serve as a point of differentiation from Bagnifique’s competitors. Bagnifique’s courier optimization approach consists of teaming with numerous couriers in order to minimize costs and add responsiveness to the region of focus – Toronto. Bagnifique is currently seeking out couriers in Toronto and the Greater Toronto Area (GTA) which match our operational needs profile: timeliness, range, quality service, and cost effectiveness. The numerous local couriers in the city lowers their supplier power, and will enable Bagnifique to command competitive prices. In terms of serving the rest of Canada, Bagnifique is seeking out a major courier (FedEx, Purolator, Canada Post, etc.) to meet its needs. 18 The diagram above depicts the idea of courier optimization. Each red ellipse represents the area coverage of a Bagnifique courier, with several local couriers serving Toronto and the GTA, and one major courier serving the rest of Canada. Note that only the customers found within Toronto and the GTA will be able to utilize the local responsiveness value added feature of Bagnifique. Pending the success of the venture in other major markets such as Montreal, Vancouver, and Calgary, Bagnifique will consider adopting the same courier optimization approach in these markets. The decision will hinge on a cost‐benefit analysis between the additional warehousing costs and inventory management requirements versus reduced shipping costs and added revenue as a result of the local responsiveness service. Please see Appendix D for a diagram depicting local responsiveness in multiple metropolitan areas. Product Research and Purchasing Part of the Bagnifique appeal will be in maintaining a selection of both classic staples and trendy handbags. In order to stay at the forefront of handbag fashion, Bagnifique’s product research will include style magazines, trade shows, retail channel data mining, and respected designer critiques. Also, the website will facilitate consumer feedback and primary analytics derived from the rental frequencies of individual handbags, various handbag types (clutch, hobo, satchel, etc.) and most popular designers. Bagnifique intends to develop a relationship with a high‐end luxury retailer of handbags, such as Holt Renfrew, in order to purchase its preferred volume and scope of handbags. Establishing this type of relationship will not only guarantee instance access to most luxury 19 handbags, but will also allow Bagnifique to reach purchasing scale with a single retailer and gain discounted pricing. The sum of these benefits serves as a competitive advantage over competitors who cannot create the same type of relationship. In the event that this type of relationship is not possible, handbag purchasing will be at retail price until Bagnifique can establish sufficient brand equity and scale in order to position itself to purchase at a discounted price. Relationships with designers will be sought during initial development, but we do not anticipate capitalizing on these relationships until the second and third years of operation. Product Cleaning, Assessment and Maintenance To ensure that all handbags are rented at the absolute best quality, each handbag will be evaluated after each rental when returned to the Bagnifique warehouse. All employees will be trained to handle the various materials used in our designer handbags, and will learn to value all items in inventory, which will be a function of condition and recouped handbag capital costs to date. Since part of the Bagnifique model allows customers to purchase handbags at a latter stage of life, valuation skills are a necessity. Product Rental, Delivery, and Return Customers will be able to place their rental requests through the website. These requests will then be relayed to the warehouse in Toronto where a team will fulfill the order. Depending on the location and the needs of the customer, the team will select the optimized courier, and fulfill the order. Each handbag will be carefully packaged, complete with instructions for the customer, and with a prepaid return slip. Each morning, couriers will pick up their relevant orders from the Bagnifique warehouse. As per Bagnifique’s delivery policy, these couriers will have 1 to 2 days to deliver the packages, which must be delivered during the time of day specified by the consumer. In the case of a local responsive delivery, consumers can request a rental until 3 hours before the relevant courier closes for the evening. Also in the case of a local responsive delivery, the package will be picked up by said courier from the Toronto warehouse as soon as possible after the order is placed. When the handbag needs of the customer have been met, they need only follow the outlined instructions (found both with the initial package and online) to return the handbag. The return procedure fundamentally consists of repackaging the handbag in the delivery box, and dropping it off at a major courier outlet of Bagnifique’s choice. Directions to the courier outlet will also be included within the initial package. Inventory Management To ensure that Bagnifique has a sufficient number of handbags (models, styles, and designers) to match consumer needs, and looking ahead to a future which may include numerous warehouses throughout Canada, Bagnifique will have an inventory management 20 system in place. This system will utilize rental frequency, rental period, and waitlist lengths for individual bags, in order to determine if it is financially feasible to purchase another handbag of the same style. Website Development and Maintenance Initial website development will be outsourced to a team of 2 developers and 1 designer. The makeup of the Bagnifique website will be a function of the image we would like to project, the value added services we will be providing, and the strengths and weaknesses of competing websites. Website maintenance will be performed in‐house, and will consist of updating handbag inventory, improving basic functionality, and updating other Bagnifique features. Development Plan Given the fast‐moving nature of our business medium, the web, we feel it is imperative to bring our service to live status as soon as possible. Too often on the web, a viable venture is proposed but because of a lack of execution, or at least a lack of speed of execution, the business does not succeed, as a competitor beats them to market. At this point we have established customer interest through a survey (Appendix B) as well as the successful franchises in the United States. Further, a Canadian competitor discussed above, has just begun business. We have had discussions with those in the fashion industry to learn the basics of various aspects of the business such as procurement and keeping up with the latest trends. An advantage of a business such as Bagnifique is that requirements for employees, real estate, and thus, capital are relatively low. Even still, we find it helpful to delineate the timeline of our business into 3 distinct stages as they correspond to our requirements for capital: pre‐launch, launch, post‐launch. Pre‐launch (Dec ’08‐Jan ‘09) Fortunately for Bagnifique, the requirements for capital and real estate at this stage are extremely low; labour is the only significant expenditure. Given that our customers are going to be highly fashion‐conscious, we deem design of our site as extremely important. We classify design into 2 distinct buckets: i) ease‐of‐use/general user interface principles and ii) pleasing to the eye. We feel we can greatly separate ourselves from the incumbent based on both of these metrics. In order to enforce this, we will, prior to development of the site, contract a web designer who places a high emphasis on user interface design to mock up wireframes of the different pages of the site. He/she will be fairly experienced and therefore will command in the neighbourhood of $75‐100/hr. After wireframes are created, she will mock up/create the design of the site with, basically, HTML. At that point, 2 web developers will be hired to code the backend or logic of the site. These 2 need to be 21 potent developers however, the primary requirement will be that they are adept with platforms such as Ruby on Rails which emphasize convention over configuration and drastically reduce the time of development of typical database‐driven web applications. They will likely command $50‐75/hr. We envision the design of the site taking 1 designer 3‐4 weeks and the development and testing taking 2 developers 12 weeks. We envision this stage beginning in December 2008. Launch (Feb ‘09) A 2nd relatively major infusion of capital is necessary at this point as we need to purchase the actual base inventory of handbags. We will start the business with an inventory of 50 bags at an average price of $900. The web developers will continue working on the site during this period. We will also hire a Search Engine Optimization Expert at this time; with the site up and running he/she could begin to strategize and implement a plan to ensure Banifique is at the top of the major search engines following the most applicable contextual searches. Our requirements for real estate at this point, even though we will be going live, are nil as the CEO and founder, Joanna Lasko, has sufficient space at her residence to store the bags. We envision this stage beginning in February 2009. Post‐Launch and Beyond Post‐launch, we plan on continually monitoring the business to adjust to demand. Therefore, the following is very much in the air. However, we plan on adding 3 bags to our inventory throughout our first year. We plan on requiring a web developer very sparingly during this time, primarily because one of our executives has a programming background. However, a small provision for one developer has been inserted into the financials. Year 2 forward calls for an increase in the number of bags added per month, to 5. We also call for some temporary help‐approximately 1000 hours of unskilled labor to help with cleaning, sorting, and packing the bags. We forecast requiring the services of a web developer for 2 weeks of each year going forward. Beginning in Year 4, we will start retiring bags because of their ‘loved’ appearance. It is envisioned that 20 bags a year will need to be removed from our inventory. We hope to sell these bags at a significant discount to our members. We also will require some additional part time help. Forecasts have moved up to 2000 hours, which is equivalent to one full‐time helper. At year 5 we will evaluate whether it is prudent to begin offering accessories and jewelry for rent. This horizontal expansion will allow our growth to continue as the Canadian market is not large enough to sustain our early years’ growth numbers. 22 Throughout the life of the business we will keep our ear to ground for potential suitors to acquire the company. Our earnings will drive these attempts, if any, and if an appropriate multiple is offered, we will certainly entertain and evaluate the offer. Key Start‐Up Costs Startup Costs
Cost of goods
Labour (web site)
Inventory
Operating Expenses
Promotions
Utilities
Office Salaries
Overhead
Marketing
SEO
Coasters
Fashion Magazines
Postcards
AdWords/Fashion blog ads
TOTAL
Dec. 2009 Jan. 2009 Feb. 2009
28,000
28,000
16,000
45,000
400
150
$28,000
$28,000
12,000
1,500
8,000
850
200
$84,100 Critical Risks and Contingencies Competitive Entry Since luxury handbag rental services are relatively new and the Canadian market for this type of service is virtually untapped, there is great opportunity for Bagnifique to capture value. Along the same logic, there is also great opportunity and strong incentive for competitive entry. Bagnifique is mitigating this risk by learning from incumbents and is improving the luxury handbag rental business model in order to become truly differentiated. Also, by being the first mover with this improved business model, Bagnifique will be able to gain significant scale over existing Canadian competitors. This scale, combined with Bagnifique’s other differentiators, will lead to a sustainable competitive advantage. 23 In terms of foreign entry, the development team contacted an American incumbent (Bags to Riches) as part of our market research and learned that they are not interested in expanding into Canada. This lack of interest may or may not hold pending Bagnifique’s success, but the entry lag will allow Bagnifique to establish a foothold in the market, which will mitigate market share loss and may even make Bagnifique an attractive takeover prospect. Retail Partnership Part of Bagnifique’s competitive advantage involves a partnership with a high‐end retailer of luxury handbags such as Holt Renfrew. Since negotiations for such a partnership have yet to take place, there is risk that a high‐end retailer may not find it in their best interests to sell their luxury goods to a rental service, even with a confidentiality agreement in place. Taking this risk into account, Bagnifique prepared the financial projections on the side of conservatism and used the full retail value when inputting the cost of the handbags. The development team has also begun developing relationships with traditional retail channels in order to gain access to the necessary volume and scope of handbags. Also inherent in attempting to develop a relationship with a high‐end luxury retailer, whether or not the relationship reaches fruition, is the mitigating of risk of another entrant attempting to adapt the same model. By being the first mover in this sense and exhausting partnership options, Bagnifique all but eliminates future entrants from applying the partnership model. Target Market In spite of Bagnifique’s existing market research, there is still the potential risk that the Canadian market does not have the sufficient scale or density to make a luxury handbag rental service feasible. Bagnifique plans to mitigate this risk by exploring the market with more in‐depth surveys and analysis prior to any major capital expenditures. Even if the market opportunity results yield a false positive and Bagnifique enters into a less than favourable industry, operating costs are minimal, and Bagnifique can remain functional until costs are recouped. Bagnifique also plans to maximize salvage value by carrying handbags that remain in style for long periods of time and can sustain use without physical degradation. If necessary, Bagnifique intends to capture the salvage value of the handbags by selling to an American counterpart or by selling online (Bagnifique website, eBay, etc.). Inventory Management One of the difficulties inherent to a rental service is deciding what inventory to carry and the quantity of said inventory. Bagnifique intends to mitigate underutilized inventory by performing comprehensive handbag research, and by only investing in handbags which carry stable, long‐term demand. This research will include surveying the target market prior to launch, surveying users of the Bagnifique service, speaking with professionals in industry (critics, retailers, etc.), and monitoring the rental frequencies of handbags already available through Bagnifique. Bagnifique will also analyze the wait lists of currently offered 24 bags to determine if it is financially favourable to purchase additional handbags of the same model. Financing Raising sufficient capital to get off the ground is a risk for any start‐up. Bagnifique mitigates this risk by using a business model which requires minimal capital outlay. Bagnique’s management team also mitigates investment risk by staking roughly 25% of the initial start‐up costs. Raising this capital internally not only reduces the capital required from outside investors, but also instills an increased level of ownership and responsibility among the management team, which investors will see as a driver toward success. Financial Plan The key drivers in terms of financials are, on the revenue side, bag rentals, and on the cost side, bag inventory and labour. The projections have been done with an eye towards conservativism as we would much rather be surprised towards the upside rather than to the down. A key point is that our venture is quite lean, both in terms of employees as well as in capital investment required. Therefore, while the financials may not show extravagant profits, they are quite strong for an initial $190,000 investment. Financial projections have been developed for Bagnifique extending out for five years from initial launch. The table below summarizes the model included in Appendix C. As the year 1 costs occur prior to anything in the way of revenues is earned, we would need an initial investment of nearly $190,000. This would cover our initial labour (2 web developers, 1 web designer, 1 search engine optimization expert) and our initial inventory (50 bags at an average of $900/bag). Just prior to a year into business, we are self sufficient and will be able to sustain without additional outside capital. On‐going, we envision adding 3‐5 bags of inventory per month. This combined, with our marketing costs, notably the fashion magazine ads, will be our large expenditures going forward. 25 Key assumptions The key assumptions going into the key summary figures above include: • Utilization of our bags begins at 10% and ramps up at 5% per month until it hits a max of 70% near the beginning of year 2 • We have 80‐odd bags for rent at the end of year 1, 140‐odd bags at year 2, 200‐odd bags at the end of year 3, 260 at end of year 4, and 320 at end of year 5. Inventory, or lack of, is the limiter in terms of revenues; all demand projections we have conducted lead us to believe there is more demand than we can satisfy with the modest inventory we are planning on carrying. However, we would much rather lose some short‐term revenue rather than overshoot our purchase of inventory. Bagnifique, of course, can simply purchase additional bags should demand justify it. • Average rental period is 2 weeks • The average rental price for the 2 week period is $146.25 (which corresponds to a $900 bag) 26 Breakeven/Sensitivity Analysis As is apparent from the chart above, Bagnifique breaks even just before the 2nd year of operation. As is also apparent, the venture is much more sensitive to revenue changes than it is to cost changes. Therefore, although we will be running a lean, cost‐conscious operation, we will not refrain from quickly ramping up our inventory nor will we skimp on revenue generating activities, such as marketing, if demand exceeds our projections. 27 Appendices 28 Appendix A ‐ CV’s of Management Team The CV’s of the Management Team were included here. 29 Appendix B ‐ Bagnifique Marketing Survey Results Total Respondents: 100 Question 1: How old are you? Under 25 25‐34 35‐45 Older than 45 10.0% 86.0% 2.0% 2.0% Answered Question – 100 Skipped Question ‐ 0 Question 2: On average, how much do you spend a year on handbags? Most frequent responses: $1000 $500 $200 14.1% 12.1% 11.1% Answered Question – 99 Skipped Question – 1 Question 3: What proportion of this would be spent on brand name bags? 0% I don’t buy brand name bags Less than 25% Between 25% and 50% Between 50% and 75% More than 75% 100% Answered Question – 100 Skipped Question ‐ 0 Question 4: What is your annual income? 0 – I’m a student Under $30,000 $30,000 ‐ $50,000 $50,000 ‐ $70,000 $70,000 ‐ $90,000 Over $90,000 20.0% 18.0% 9.0% 15.0% 21.0% 17.0% 37.4% 8.1% 15.2% 18.2% 12.1% 9.1% Answered Question – 99 Skipped Question – 1 30 Question 5: On average, how much do you spend per handbag? Under $50 $50 ‐ $100 $101 ‐ $200 $201 ‐ $500 Over $500 18% 26% 17% 34% 5% Answered Question – 100 Skipped Question ‐ 0 Question 6: What Brand name bags do you currently own and wear? Most common Responses: Gucci Louis Vuitton Coach 15.4% 15.4% 39.5% Answered Question – 91 Skipped Question ‐ 9 Question 7: What brand name bags would you like to wear? (can choose more than one) Fendi Marc Jacobs Gucci Prada Miu Miu Balenciaga Chanel Louis Vuitton Coach Other 19.3% 48.9% 35.2% 39.8% 26.1% 25.0% 44.3% 30.7% 42.0% 25.0% Answered Question – 88 Skipped Question – 12 Question 8: How often do you wish you could buy a new brand name bag? Once a week Once a month 2.0% 14.0% 31 Every 1 to 3 months Every 3 to 6 months Every 6 months to 1 year Less frequently than once a year 24.0% 24.0% 22.0% 14.0% Answered Question – 100 Skipped Question – 0 Question 9: If you could afford it, would you use a service that would allow you to rent brand name bags for a defined period of time selected by you? Yes No 39.4% 60.6% Answered Question – 99 Skipped Question – 1 Question 10: What would you be willing to pay to rent a brand name bag for a month? Under $25 $25 ‐ $50 $50 ‐ $100 $100 ‐ $150 $150 ‐ $200 Over $200 45.3% 41.1% 9.5% 4.2% 0.0% 0.0% Answered Question – 95 Skipped Question – 5 32 Appendix C – Financial Mode
33 Appendix D – Operational Local Responsiveness in Metro Areas 34