LUXURY MEN‘S APPAREL 2014 EXECUTIVE SU M M ARY www.paolopoffandi.com
CONTENT
INTRODUCTION
i
BRANDING
1
THE COMPETITION
2
THE POFFANDI BRAND
13
THE CUFF BAR
14
THE MARKET PLACE
16
MARKETING
18
OPERATIONS
20
ORGANIZATIONAL CHART
21
TEAM
22
FINANCIALS
23
INVESTMENT
30
CONCLUSION
31
APPENDIX A
32
i
INTRODUCTION
Launching a men’s luxury fashion line is this man’s dream. Who is Paolo Poffandi? His origins are from Corfu, and further back from Italy. He has lived in nine countries and describes himself simply as tanned and tonned. He likes to play ten-minute chess and can speak French, Greek and Italian. No one can guess his age. Eight years as a stockbroker and ten years in project finance have given him insights into the world of finance. He understands the importance of “quality”. The Paolo Poffandi Brand targets the super-affluent. It will manufacture its apparel and accessories in Italy ensuring that “quantity” does not take precedence over “quality”. It plans to open storefronts in Dubai, Beverly Hills, Milan, New York, London, Paris, Moscow, Shanghai, Beijing, Macau, and Monte-Carlo over the course of seven years. Apart from storefronts, we will also market on the Internet, through a direct sales force, and high end retailers. The apparel will be ready to wear, as well as custom fitted. The average suit will retail for $3,500. Accessories, like the signature piece “Cuff Bar” made of diamonds and 23Kt gold will retail for $90,000. In keeping with the “exclusive and scarce” formula, the patterns and brand will not be licensed. In fact patterns for ties and accessories will be destroyed after limited production has been accomplished.
ii
INTRODUCTION
There are two possible approaches to launch the brand: Fast Track, and Slow Track. Fast track will require an initial investment of $2,000,000 secured by inventory and store improvements, and company equity. This will ensure the opening of a storefront along with the deployment of other marketing strategies. The Slow Track will require an investment of $100,000 to produce inventory which once sold to select retailers and clients will form a test case by which to plan further growth. The financials presented in this plan reflect only the Fast Track approach.
1
BRANDING
Apart from the sophisticated logo and stylish clothing, how does the Poffandi brand distinguish itself from the competition? Let’s review the competition. Below, and in no particular order, featured are suits by Fendi, Burberry, Louis Vuitton, Canali, Dolce & Gabbana, Calvin Klein, Gucci, Armani and Hugo Boss. Which one is the Armani suit?* It appears that if we did nothing else but imitate the competition, we would still be able to carve a niche in the marketplace. But, that would be too simple.
* The second suit from the right
2
THE COMPETITION Hugo Boss
Armani
Isaia
Brioni
Jacob Cohen
Brunello Cucinelli
Just Cavalli
Burberry
Kiton
Calvin Klein
Maison Martin Margiela
Canali
Ralph Lauren
Corneliani
Stefano Ricci
Fendi
Tommy Hilfiger
Givenchy
Valentino
We really have only one competitor Stefano Ricci
3
THE COMPETITION
In order to fully appreciate the Stefano Ricci Brand, we devoted a few pages to his impeccable good taste in clothing, storefronts, and web site.
4
THE COMPETITION
5
THE COMPETITION
6
THE COMPETITION
7
THE COMPETITION
8
THE COMPETITION
9
THE COMPETITION
Steffano Ricci Apparel
10
THE COMPETITION
Steffano Ricci Apparel
11
THE COMPETITION
Steffano Ricci Pen
12
THE COMPETITION
Steffano Ricci web site http://www.stefanoricci.it
13
THE POFFANDI BRAND
Key to Branding is innovation. The creation of the Cuff Bar and Pocket Bar by Master Jewelers, are never before seen innovations created exclusively for the Paolo Poffandi Brand.
Diamond Studded Cuff Bar and Buttons
Diamond Studded Cuff Bar - Replacing Buttons
Diamond Studded Cuff Bar and Pocket Bar
14
THE CUFF BAR See Through View Shirt Sleeve Jacket Sleeve
24 Kt Gold Buttons
24 Kt Gold Cuff Bar
1.5 inches
.25 Kt Diamonds 3.5 inches
Cross Section View Stem: 1/8 inch thick
1.5 inches
5/8 inches
Cuff Bar: 1/8 inch thick Button: 1/4 inch thick Space between Cuff Bar and Button: 1/8 inch
15
THE CUFF BAR
The Cuff Bar is a signature Paolo Poffandi accessory. Made of 9 ounces of 24 kt gold with 10 AGS certified Flawless Diamonds, it will cost an average $35,000 per pair to make and will add in excess of $90,000 to a suit’s or jacket’s retail value. It will set the Poffandi Brand apart as an innovator in men’s top luxury clothing. Cuff Bars will be considered more of an objet d’art than an accessory, making the suit an irreplaceable investment. The Cuff Bar may also be made of Platinum, Palladium, White Gold, Emeralds, Sapphires, Rubys, Peridot set in combination with other precious stones or as solitaires to compliment various fabrics. We are conservatively estimating 100 pairs of Cuff Bars to be sold in Year 1 at an average price point of $90,000 for an additional $5.2 Million in profit.
16
THE MARKET PLACE
The retail experience for Luxury goods is evolving. The luxury consumer expects craftmanship and ease of purchase, as has always been the case. 1. From a Forbes article(a) : “Gucci for example has made Amazon.com their official authorized online retailer. Why? Again, because people look to these services more and more to make purchases rather than purchase decisions. They are learning about products elsewhere such as via advertising, social media, and more traditional media. The comfort and sophistication of buying via the internet’s largest retailers is both trusted by and appealing to consumers. In the end consumers are looking for an easy way to get the things they want. The hassle of the traditional luxury buying experience is the industry’s biggest threat. Today successful luxury brands have taken responsibility over manufacturing, creating retail demand, and finally fulfilling the demand by selling direct to consumers. The value of the middle-man third party retailer is quickly evaporating. Conclusion: Online marketing should be an integral compoment of the marketing mix. 2. From a Business of Fashion (BOF) article(b) : “One of the most exciting findings is that by 2018, in the next five years, based on our predictions and based on how fast the region is growing, Asia Pacific will be the biggest region in the world for luxury goods,” Fflur Roberts, the head of luxury goods research at Euromonitor, told BoF. “This is predominantly due to China, but also the emerging Asian markets like Malaysia and Indonesia. India is also a major contributor.”
17
THE MARKET PLACE
Since the start of the firm’s luxury goods research practice back in 2004, Western Europe has been the “clear leader” in luxury consumption and has accounted for more than 33 percent of all luxury spending in the past year. However, with luxury consumption in Asia Pacific expected to grow 170 percent over the next five years, the region is set to dethrone Western Europe as early as 2018.” Conclusion: Penetrate the Asia Pacific market. 3. From a Sphere article(c) : “Rebecca Robins and Manfredi Ricca, directors at brand consultancy Interbrand, and co-authors of 2012’s Meta-Luxury: Brands and the Culture of Excellence argue that Luxury as a term has become bloated, overused and meaningless. They call for a refocusing on true luxury, luxury as a pursuit of painstaking craftsmanship, quality and excellence, to maintain consumer confidence and impress today’s discerning connoisseurs who aren’t fooled by luxury that isn’t credible. They argue that true luxury brands such as Hermès and perfumer Francis Kurkdijan put excellence and product first, and let business follow, and are still a commercial success because people believe in them. “It makes the brand irreplaceable, rather than disposable. Something truly unique. Consumers today are looking for something with meaning and longevity and this is the way to achieve that,” explains Robins.” Conclusion: Put excellence and product first, and let business follow. Become irreplaceable.
MARKETING
18
The marketing mix will incorporate advertising campaigns to complement direct in-home sales, an Internet portal, corporate storefronts, and affiliated retail chains. The Public Relations effort will consist of sponsoring artists, white paper research, TED Talk participation, social media curators, interviews on magazines and television, and fashion shows. There will be four primary sales channels:
Sales Revenue By Channel Internet
Storefront
Direct
20% 40% 20% 20%
Retail
19
MARKETING
Internet Integrating a central manufacturing hub with the internet is a matter of necessity, not choice. The internet experience must also be multi-lingual. Traffic will be directed to the web site through advertising and public relations campaigns. Internet marketing provides the most lucrative profit margins.
Storefront For those consumers who are not as adept with the internet, there is the storefront experience (and in-home direct sales). We are projecting opening one store per year in the first five years. The assumption is that it will cost $100,000 to furnish a store and $200,000 per year to operate. Storefronts are capital-intensive and must be located in the most prestigious locations in order to succeed. The interior design must border on palatial. Profit Margins are expected to be the least generous. Potential cities for storefronts include Beverly Hills, Paris, Dubai, Abu Dhabi, New York, Beijing, Monaco and London.
Direct (In-Home) Equipped with a laptop, a catalog, a tape measure and swatches, direct sales reps can visit their clients in their homes or offices. A laptop will serve to transmit the client’s order directly to the manufacturing center. Profit margins are expected to be greater than those derived from Storefronts but not as great as the Internet portal.
Retail This entails establishing relationships with luxury retailers such as Harrod’s of London. The profit margins are expected to be modest, even though revenues from this channel are expected to be double that of other marketing channels. We expect retailers to command a 200% markup on our apparel, and a 100% markup on accessories. If our suits cost $250 to make, and we wholesale them for $1,000, the retail price will be somewhere around $3,000. For accessories such as a pair of Cuff Bars, which may cost $30,000 to manufacture, the wholesale price is expected to come at $45,000, and retail at $90,000.
OPERATIONS
20 MANUFACTURING
In keeping with the exclusivity of this luxury Brand, designing, fabric purchases and manufacturing will be done in Italy.
PERSONNEL An Operations Manager centered in Italy will coordinate the manufacturing of clothing and accessories. He will report to the President in Year 1. The VP Operations position will be created in Year 2. He will direct the Operations Manager and Store Managers. The Store Manager will manage commissioned Sales Associates in storefronts and report to the President in Year 1, and to the VP Operations as of Year 2. The VP Marketing will coordinate Retail Chain sales, overlook Advertising with the President, coordinate with the Webmaster and direct the Sales Director. An in-house Webmaster will coordinate Internet sales who will report to the VP Marketing. The Sales Director will oversee a commissioned direct sales force. New territories will be added every 6-12 months in major cities worldwide as storefronts open. The VP Finance will plan financing strategies, This position will be created in Year 2. He will have oversight of Accounting and Investors. The President will have oversight of Designers, Store Managers, the Operations Manager, Public Relations, Investor Relations, and Human Resources. An Administrative Assistant will be retained in Year 2 to assist the President and VP’s.
21
ORGANIZATIONAL CHART
PRESIDENT
VP FINANCE
VP OPERATIONS
OPERATIONS MANAGER
STORE MANAGER
MANUFACTURERS
SALES ASSOCIATE
Year 1 Year 2
VP MARKETING
WEBMASTER
DIRECT SALES ASSOCIATE
SALES DIRECTOR
ADMIN ASSISTANT
RETAIL CHAINS
DIRECT SALES ASSOCIATE
FINANCIALS
23
5 Year Personnel Salaries ($000) Year 1
Year 2
Year 3
Year 4
Year 5
President
120
140
180
220
300
VP Marketing
100
120
150
200
250
VP Operations
n/a
100
120
140
160
VP Finance
n/a
100
120
140
160
Operations Manager
100
150
200
225
250
Store Manager
80
160
240
320
400
Webmaster
75
90
120
150
150
Director of Sales
50
160
170
230
290
Admin. Assistants
n/a
120
120
120
120
Total
525
1,140
1,420
1,745
2,080
FINANCIALS
24
5 YEAR SALES PROJECTIONS ($000) Year 1
Item/Year
Channel
Year 2
Year 3
Year 4
Year 5
Retail
Internet
Direct
Store
Retail
Internet
Direct
Store
Retail
Internet
Direct
Store
Retail
Internet
Direct
Store
Retail
Internet
Direct
Store
Suits
200
100
100
100
400
200
200
200
600
300
300
300
800
400
400
400
1000
500
500
500
$3,500 R $1000 W
$200
$350
$350
$350
$400
$700
$700
$700
$600
$1,050
$1,050
$1,050
$800
$1,400
$1,000
$1,750
$1,750
$1,750
Shirts
400
200
200
200
800
400
400
400
1200
600
600
600
1600
800
2000
1000
1000
1000
$400 R $100 W
$40
$80
$80
$80
$80
$160
$160
$160
$1,200
$2,400
$2,400
$2,400
$1,600
$3,200
$2,000
$4,000
$4,000
$4,000
Jackets
80
40
40
40
120
60
60
60
160
80
80
80
200
100
100
100
240
120
120
120
$800 R $200 W
$16
$64
$64
$64
$24
$48
$48
$48
$32
$64
$64
$64
$40
$80
$80
$80
$48
$96
$96
$96
Cuff Bars
40
20
20
20
60
30
30
30
80
40
40
40
100
50
50
50
120
60
60
60
$1,800
$1,800
$1,800
$2,700
$2,700
$2,700
$2,700
$3,600
$3,600
$3,600
$3,600
$4,500
$4,500
$5,400
$5,400
$5,400
$5,400
$500
$250
$250
$250
$90,000 R $1,800 $45,000 W
Other*
$100
$50
$50
$50
$200
$100
$100
$100
$300
$150
$150
$150
$400
$200
Total
$2,156
$2,344
$2,344
$2,344
$3,304
$3,708
$3,708
$3,708
$5,732
$7,264
$7,264
$7,264
$7,340
$9,380
Total
$9,188
$14,428
$27,524
* Other items include belts, shoes, fragrances, socks, cufflinks, watches, sweaters, pants and ties. R = Retail Price W = Wholesale Price, represents the price Retail channels pay to purchase our products
$1,400 $1,400 800
800
$3,200 $3,200
$4,500 $4,500 $200
$200
$9,380 $9,380
$35,480
$8,948
$11,496 $11,496
$43,436
$11,496
FINANCIALS
25
5 YEAR COST OF GOODS SOLD PROJECTIONS ($000) Item/Year
Year 1
Year 2
Year 3
Year 4
Year 5
Suits
500
1000
1500
2000
2500
$300 per
$150
$300
$450
$600
$750
Shirts
1000
2000
3000
4000
5000
$40 per
$40
$80
$120
$160
$200
Jackets
200
300
400
500
600
$100 per
$200
$300
$400
$500
$600
Cuff Bars
100
150
200
250
300
$35,000 a pair
$3,500
$5,250
$7,000
$8,750
$10,500
Other*
$100
$200
$300
$400
$500
Total
$3,990
$6,130
$8,270
$10,410
$12,550
FINANCIALS
26
5 YEAR P&L ($000) Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$9,188
$14,428
$27,524
$35,480
$43,436
COGS
$3,990
$6,130
$8,270
$10,410
$12,550
Gross Profit
$5,198
$8,298
$19,254
$25,070
$30,886
Retired Debt*
150
150
150
150
1,650
Accounting/Legal
200
200
200
200
200
Storefront Overhead
300
500
700
900
1,100
Personnel**
222
443
690
938
1,185
Personnel
525
1,140
1,420
1,745
2,080
Advertising/PR
600
1,200
2,000
2,000
2,000
Total Operating Expenses
$1,997
$3,633
$5,160
$5,933
$8,215
Net Profit Before Tax
$3,201
$4,665
$14,094
$19,137
$22,671
* Debt represents a $1.5 Million obligation to investors, repaid with interest only payments at 10% p.a. and the principal in one balloon payment at the end of the 5th year ** 20% commissions paid to sales associates involved in Storefront and Direct Sales, which collectively make up 40% of Gross Revenues
27
FINANCIALS YEAR 1- CASH FLOW PROJECTIONS (BEST CASE - $000) Q1
Q2
Q3
Q4
Cash at Beginning of Year $1,500
Operations Cash Receipt from Clients
$200
$900
$2,700
$5,300
$9,100
Inventory
-$460
-$810
-$810
-$1,890
-$3,970
Wage Expenses
-$187
-$187
-$187
-$187
-$748
General & Administrative
-$50
-$50
-$50
-$50
-$200
Advertising / PR
-$150
-$150
-$150
-$150
-$600
-$150
-$150
Cash Paid for
Interest Net Cash Flow from Operations
-$647
-297
$1,503
$2,873
$3,432
Cash paid for Storefront
-$150
-$50
-$50
-$150
-$400
Net Increase in Cash
-$797
-$347
$1,453
$2,723
$3,032
Investing Activities
* Estimated time to remodel a store is 3 months at a cost of $100,000
30
INVESTMENT
FAST TRACK We are looking for an initial investment of $2,000,000 in the form of equity or an interest bearing note secured by inventory and store improvements with an interest rate of ten (10%) percent per annum. Interest only payments to be paid quarterly over the first five years. The principal to be repaid in its entirety at the end of the fifth year.
or
SLOW TRACK We are looking for an initial investment of $100,000 in the form of equity or an interest bearing note secured by inventory with an interest rate of ten (10%) percent per annum. Interest only payments to be paid quarterly over the first 2 years. The principal to be repaid in its entirety at the end of the second year.
31
CONCLUSION
The climate for luxury goods is always good, and improving in parts of the world where affluence never goes out of style. Above all, quality and personalized service trumps any other consideration. The Paolo Poffandi Brand is inherently a strong brand that can easily be associated with superbly crafted luxury goods made in Italy. The competition has a proven business model which has weathered the test of time and which can be replicated given the right capital, creativity, and commercialization. In addition, the Paolo Poffandi Brand offers innovative signature accessories which will go far in distinguishing the Brand as an innovator in the luxury men’s fashion industry. Finally, at the heart of the Brand is it’s creator, an unorthodox irreverent iconoclastic visionary. Not many sixty-one year olds can walk down a runway looking in this shape. From a PR perspective, Paolo Poffandi was made for the fashion industry.
32
APPENDIX A
References: (a) http://www.forbes.com/sites/arieladams/2013/05/23/luxury-consumers-value-products-not-buying-experiences/ (b) http://www.businessoffashion.com/2013/10/euromonitor-coach-michael-kors-louis-vuitton-versace-fflur-roberts.html (c) http://www.spherelife.com/future-trends/
LUXURY MEN‘S APPAREL
www.paolopoffandi.com