219603291 business plan

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Pre-Feasibility Study(Footwear Retail Outlet Ladies & Children)

Small and Medium Enterprises Development AuthorityMinistry of Industries & Production

Government of Pakistanwww.smeda.org.pk

HEAD OFFICE4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,

LahoreTel: (92 42) 111 111 456, Fax: (92 42) 36304926-7

[email protected]

REGIONAL OFFICEPunjab

REGIONAL OFFICESindh

REGIONAL OFFICEKhyber Pakhtunkhwa

REGIONAL OFFICEBalochistan

3rd Floor, Building No. 3,Aiwan-e-Iqbal Complex,

Egerton Road Lahore,Tel: (042) 111-111-456Fax: (042) 36304926-7

[email protected]

5th Floor, BahriaComplex II, M.T. Khan Road,

Karachi.Tel: (021) 111-111-456

Fax: (021) [email protected]

Ground FloorState Life Building

The Mall, Peshawar.Tel: (091) 111-111-456


Bungalow No. 15-AChaman Housing Scheme

Airport Road, Quetta.Tel: (081) 2831623, 2831702


Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost

December, 2013
mailto:[email protected]:[email protected]:[email protected]://d/Cloud/02-FEB-2014/Downloads/[email protected]://d/Cloud/02-FEB-2014/Downloads/[email protected]://d/Cloud/02-FEB-2014/Downloads/[email protected]://d/Cloud/02-FEB-2014/Downloads/[email protected]://d/Cloud/02-FEB-2014/Downloads/[email protected]://d/Cloud/02-FEB-2014/Downloads/[email protected]:[email protected]:[email protected]

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Pre-Feasibility Study Footwear Retail Outlet (Ladies and Children)

TABLE OF CONTENTS

1 DISCLAIMER ......................................................................................................................................... 2

2 PURPOSE OF THE DOCUMENT ........................................................................................................ 3 3 INTRODUCTION TO SMEDA ............................................................................................................. 3

4 INTRODUCTION TO SCHEME .......................................................................................................... 4

5 EXECUTIVE SUMMARY ..................................................................................................................... 4

6 BRIEF DESCRITION OF PROJECT & PRODUCT .......................................................................... 5

7 CRITICAL FACTORS ........................................................................................................................... 5

8 INSTALLED & OPERATIONAL CAPACITIES ................................................................................ 5

9 GEOGRAPHICAL POTENTIAL FOR INVESTMENT .................................................................... 6

10 POTENTIAL TARGET MARKETS / CITIES .................................................................................... 6

11 PROJECT COST SUMMARY .............................................................................................................. 6

11.1 PROJECT ECONOMICS ................................................................................................................... 6 11.2 PROJECT FINANCING .................................................................................................................... 7 11.3 PROJECT COST ............................................................................................................................. 7 11.4 SPACE R EQUIREMENT .................................................................................................................. 7 11.5 FURNITURE & FIXTURE ................................................................................................................ 8 11.6 OFFICE EQUIPMENT ...................................................................................................................... 8 11.7 R AW M ATERIAL R EQUIREMENTS ................................................................................................. 9 11.8 HUMAN R ESOURCE R EQUIREMENT .............................................................................................. 9 11.9 R EVENUE GENERATION .............................................................................................................. 10 11.10 OTHER COSTS ............................................................................................................................ 10

12 CONTACT DETAILS OF GOVERNMENT INSTITUTIONS ........................................................ 11

13 ANNEXURE .......................................................................................................................................... 12

13.1 I NCOME STATEMENT .................................................................................................................. 12 13.2 CASH FLOW STATEMENT ........................................................................................................... 13 13.3 BALANCE SHEET ........................................................................................................................ 14 13.4 USEFUL PROJECT MANAGEMENT T IPS ....................................................................................... 15 13.5 USEFUL L INKS ............................................................................................................................ 15

14 KEY ASSUMPTIONS ........................................................................................................................... 17

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SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST - 2

1 DISCLAIMERThis information memorandum is to introduce the subject matter and provide ageneral idea and information on the said subject. Although, the material includedin this document is based on data / information gathered from various reliable

sources; however, it is based upon certain assumptions which may differ fromcase to case. The information has been provided on as is where is basiswithout any warranties or assertions as to the correctness or soundness thereof.

Although, due care and diligence has been taken to compile this document, thecontained information may vary due to any change in any of the concernedfactors, and the actual results may differ substantially from the presentedinformation. SMEDA, its employees or agents do not assume any liability for anyfinancial or other loss resulting from this memorandum in consequence ofundertaking this activity. The contained information does not preclude any furtherprofessional advice. The prospective user of this memorandum is encouraged tocarry out additional diligence and gather any information which is necessary formaking an informed decision including taking professional advice from a qualifiedconsultant / technical expert before taking any decision to act upon theinformation.

For more information on services offered by SMEDA, please contact our website:www.smeda.org.pk

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2 PURPOSE OF THE DOCUMENTThe objective of the pre-feasibility study is primarily to facilitate potentialentrepreneurs in project identification for investment. The project pre-feasibilitymay form the basis of an important investment decision and in order to serve this

objective, the document / study covers various aspects of project conceptdevelopment, start-up, production, marketing, finance and businessmanagement.

The purpose of this document is to facilitate potential investors in FootwearRetail Outlet (Ladies and Children) by providing them a general understandingof the business with the intention of supporting potential investors in crucialinvestment decisions.

The need to come up with pre-feasibility reports for undocumented or minimallydocumented sectors attains greater imminence as the research that precedessuch reports reveal certain thumb rules; best practices developed by existingenterprises by trial and error, and certain industrial norms that become a guidingsource regarding various aspects of business set-up and its successfulmanagement.

Apart from carefully studying the whole document one must consider criticalaspects provided later on, which form basis of any investment decision.

3 INTRODUCTION TO SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) wasestablished in October 1998 with an objective to provide fresh impetus to theeconomy through development of Small and Medium Enterprises (SMEs).

With a mission "to assist in employment generation and value addition to thenational income, through development of the SME sector, by helping increasethe number, scale and competitiveness of SMEs" , SMEDA has carried outsectoral research to identify policy, access to finance, business developmentservices, strategic initiatives and institutional collaboration and networkinginitiatives.

Preparation and dissemination of prefeasibility studies in key areas of investmenthas been a hallmark of SME facilitation by SMEDA.

Concurrent to the prefeasibility studies, a broad spectrum of businessdevelopment services is also offered to the SMEs by SMEDA. These servicesinclude identification of experts and consultants and delivery of need based

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capacity building programs of different types in addition to business guidancethrough help desk services.

4 INTRODUCTION TO SCHEMEPrime Ministers Youth Business Loan scheme, for young entrepreneurs, with anallocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to providesubsidised financing at 8% mark-up per annum for one hundred thousand(100,000) beneficiaries, through designated financial institutions, initially by theNational Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL).

Small business loans up to Rs. 2 million with tenure up to 8 years, inclusive ofgrace period of 1 year and a debt : equity of 90 : 10 will be disbursed to SMEbeneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa,Balochistan, Gilgit Baltistan, Azad Jammu &Kashmir and Federally AdministeredTribal Areas (FATA).

5 EXECUTIVE SUMMARYFootwear Retail Outlet is proposed to be set up in urban areas. The outlet wouldcater to the demand for ladies and children footwear, belonging to middle andupper middle income groups.

The demand for footwear is constantly rising and there are a number of localmanufacturers producing good quality footwear. The consumers are becomingincreasingly quality conscious and seek products offering value for money. Thistrend has led to strong growth in retail footwear outlets all across Pakistan.

The focus of the business would be to provide casual, semi-formal and formal,quality footwear at affordable prices. Shoes are assumed to be purchased fromdifferent subcontracted manufacturers and sold at the retail outlet.

The total project cost for setting up a footwear retail outlet is estimated at Rs.2.18 million out of which Rs. 1.01 million is capital cost and Rs. 1.17 million isworking capital. The project NPV is calculated to be around Rs 9.16 million, withan IRR of 50% and payback period of 2.58 years. This business will provideemployment opportunity to 6 individuals including the owner / manager. Theoutlet will remain operational for 12 hours per day, and with estimated sales of12,000 pairs of shoes in the first year. The legal business status of this project isproposed as Sole Proprietorship.

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6 BRIEF DESCRITION OF PROJECT & PRODUCTThis document provides information for setting up a Footwear Retail Outlet forladies and children. It involves purchase of ladies and children shoes from anylocal manufacturer and selling it through a retail outlet established in a rented

premise under a brand name, in any of the urban cities of Pakistan. The retailoutlet will have a covered area of 900 sq. ft. Shoes of the required quality andquantity will be sourced from wholesale markets and small shoe manufacturers.

The product mix would include ladies and children shoes in all sizes. Thisproduct mix is divided into further categories; casual, semi-formal and formalfootwear which includes pumps, heels, coat shoes, sandals, slippers, etc. madeof leather and other materials. The three categories among ladies and childrenshoes are further classified by proposed selling prices, ranging between Rs. 750

Rs. 1,125 for ladies shoes and Rs. 375 Rs. 675 for children shoes.

7 CRITICAL FACTORSFollowing factors are critical for the success of footwear retail business: Develop strong linkages with suppliers for sourcing good quality products at

competitive prices. Efficient management of stock to keep inventory cost at the minimum. Selection of a central location keeping in mind the target market. Knowledge about the latest market trends. Induction of trained sales personnel for efficient customer handling.

Strong competition with similar shops in the same commercial area.

8 INSTALLED & OPERATIONAL CAPACITIESSince the proposed venture is a trading business, there are no installedcapacities per se. The turnover will depend on seasonal sales and ability of theventure to attract customers through quality and price incentives. Experiencedand efficient sales staff also plays a critical role in determining the sales revenueof the business. The business is expected to have a capacity to sell 15,000shoes in one year.

The proposed project assumes to have a stock of 12,000 pairs at 80% capacity,out of which 500 pairs would be kept in inventory while remaining 11,500 pairswill be sold during first year of operation. The outlet will operate for 12 hoursdaily.

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9 GEOGRAPHICAL POTENTIAL FOR INVESTMENTThere is significant domestic demand for footwear in all the urban and semi-urban areas, year round. Thus, the outlet can be opened in any urban Location inthe country, where customers have an easy access to the outlet, like shopping

malls, busy markets or similar high traffic.

10 POTENTIAL TARGET MARKETS / CITIESMost of the shoe manufacturing units and a number of shoe stores are present incities like Lahore, Karachi, Faisalabad, Quetta, Hyderabad, Peshawar, Sahiwal,Gujranwala and Rawalpindi. Hence, these cities and other comparable cities inthe country are considered as a suitable option for setting up a footwear retailoutlet.

11 PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercialviability of Footwear Retail Outlet under the Prime Ministers Youth BusinessLoan scheme. Various cost and revenue related assumptions along with resultsof the analysis are outlined in this section.

The projected Income Statement, Cash Flow Statement and Balance Sheet areattached as appendix.

11.1 Project Economics A target sale of 12,000 shoe pairs would be achieved by footwear retail outlet inthe first year. The following table shows internal rate of return, payback periodand NPV:

Table 1: Project Economics

Description DetailsInternal Rate of Return (IRR) 50%Payback Period (yrs) 2.58Net Present Value (NPV) Rs. 9,160,841

Returns on the investment and its profitability are highly dependent on theefficiency of the entrepreneur in selecting the appropriate business location,hiring trained sales persons and maintaining good quality, in terms of shoedesigns and customer services.

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11.2 Project Financing

Following table provides details of the equity required and variables related tobank loan:

Table 2: Project Financing

Description DetailsTotal Equity (10%) Rs. 218,529Bank Loan (90%) Rs.1,966,760Markup to the Borrower (%age/annum) 8%Tenure of the Loan (Years) 8Grace Period (Years) 1

11.3 Project Cost

Following requirements have been identified for operations of the proposed

business.Furniture and fixture is required for display of shoes and storing of stock. Officeequipment such as computer, printer and air conditioner are essential for routinebusiness operations and for giving a professional outlook to attract customersand achieve customer satisfaction.

Table 3: Capital Investment for the Project

Capital Investment Rs.Furniture &fixtures 862,500

Office equipment 131,500 Pre-operating costs 22,283 Total Capital Costs 1,016,283 Working CapitalRepair material inventory 2,005

Opening inventory 837,000 Upfront building rent 180,000 Cash 150,000 Total Working Capital 1,169,005 Total Investment 2,185,288

11.4 Space Requirement

The area for the outlet has been calculated on the basis of space required fordisplay area, store, management space and washroom. Following table showscalculations for project space requirement.

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Table 4: Space Requirement

Space Requirement (in ft.) Rs/Sq. Ft. Area (Sq.Ft.)

Amount (Rs.)

Shop 50 900 45,000

11.5 Furniture & Fixture

Following table shows costs such as furniture, interior designing and electricalequipments etc.

Table 5: Furniture & Fixture Requirements

Description Quantity/ Area Cost / Rate Amount /

OtherFurnitureExecutive Chairs 1 7,000 7,000Counter 1 20,000 20,000

Seating for customers 8 1,500 12,000Floor equipment (baskets, mirrorsetc.)

1 15,000 15,000

Interior Designing 0Shoe racks with glass material 315 550 173,250False ceiling, front door & paint 450 500 225,000Flooring 450 sq ft 450 175 78,750Electrical equipment 0

Air conditioners(2 ton split)

1 65,000 65,000

Generator (5 KVA) 1 70,000 70,000Electric wiring & lighting 50,000Bracket fans 4 2,500 10,000Shoe Store 0Shoe racks with iron & Wood 280 300 84,000Lighting & wiring 30,000Wooden stools 5 1,500 7,500

Admin Office 0Desks and chairs 1 15,000 15,000Total Furni ture & Fixtures 862,500

11.6 Office Equipment

Computer and printer are required for routine office operations and recordmaintenance, similarly, barcode reader and inventory management software isnecessary for keeping track of inventory and for ease of reference for bothcustomer and owner.

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Table 6: Office Equipment Costs

Descrip tion Quantity Cost AmountComputers 1 25,000 25,000

UPS 1 10,000 10,000Computer printer (s) 1 15,000 15,000Bar code reader 1 15,000 15,000InventoryManagement/Acc software

1 25,000 25,000

Security Camera System 1 40,000 40,000Telephones 1 1,500 1,500Total Office Equipment 131,500

Rental vehicle is proposed as a mode of transportation of goods. Hence novehicle is proposed for this project.

11.7 Raw Material Requirements

Shoes will be purchased from manufacturers and wholesalers. Purchase priceper unit is depicted in the following below:

Table 7: Cost of Material

Purchase price per unit year 1 - Ladiesshoes Qty %age Price (Rs)

Pair A 20% 750

Pair B 50% 625Pair C 30% 500Purchase price per unit in year 1 - ChildrenshoePair A 20% 450Pair B 50% 350Pair C 30% 250

11.8 Human Resource Requirement

Table 8: Human Resource Requirement

Description No. ofEmployees Salary per Month

Store manager / Owner 1 17,000Salesmen 3 11,000Helper 2 10,000

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Total 6 38,000 The above table provides details of human resource required in the 1 st year torun this project. Salaries of all employees are estimated to increase at 10%annually.

11.9 Revenue Generation

Table 9: Revenue Generation in 1 st Year of Operation

Product Unit QtySalesPrice

(Rs./Unit)

First YearSales

Revenue(Rs)

Ladies ShoesPair A No. 1,840 1,125 2,070,000Pair B No. 4,600 937 4,312,500Pair C No. 2,760 750 2,070,000Children Shoes 0Pair A No. 460 675 310,500Pair B No. 1,150 525 603,750Pair C No. 690 375 258,750Total 9,625,500

* Figures are rounded off at zero decimal place.

11.10 Other Costs

Other costs include fixing and repairing material which is estimated at 0.50% ofsales revenue, transportation expenses 2.0% of cost of shoes purchased, salescommission is estimated at 2.0% of revenue and lump sum monthly provision ofRs. 10,000 for promotional expenses.

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12 CONTACT DETAILS OF GOVERNMENT INSTITUTIONS

PrincipalGovt. Institute of Leather

Technology, GujranwalaP.O Anwar Industry G.T.Road,GujranwalaPhone, 055 9230056

Principal

Footwear Training InstitutePlot # 24, Phase 5, Hayatabad,Peshawar091 9217244

PrincipalNational College of Arts4- Shahrah-E-Qaid-E-Azam, LahoreTel: +92 42 99210599, 99210601

PrincipalPakistan School of Fashion Design51-J/3, Johar Town, LahoreTEL: +92 42 3531 5401 08

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Pre-Feasibility Study Footwear Retail Outlet


13.4 Useful Project Management Tips

Marketing

Adverti sement & Promotion: Business promotion and dissemination through

banners and launch events is highly recommended. Product brochures shouldbe developed from good quality service providers.

Sales & Distribution Network: Expert's advise and distribution agreementsare required with shoes manufacturers.

Price - Bulk Discounts, Cost plus Introductory Discounts: Price should neverbe allowed to compromise quality. Price during introductory phase may be keptlower and used as a promotional tool. Product cost estimates should be carefullydocumented before price setting. Human Resources

Adequacy & Competencies: Skilled and expe rienced staff should be hired.

Performance Based Remuneration: Efforts to manage human resource costshould be focused through performance measurement and performance basedcompensation.

Training and Skills Development: Training to staff should be provided inareas of customer services and sales.

13.5 Useful Links

Prime Ministers Office, www.pmo.gov.pk

Small and Medium Enterprise Development Authority, www.smeda.org.pk National Bank of Pakistan (NBP), www.nbp.com.pk

First Women Bank Limited (FWBL), www.fwbl.com.pk

Government of Pakistan, www.pakistan.gov.pk

Ministry of Industries & Production, www.moip.gov.pk

Ministry of Education, Training & Standards in Higher Education,http://moptt.gov.pk

Government of Punjab, www.punjab.gov.pk

Government of Sindh, www.sindh.gov.pk

Government of Khyber Pakhtunkhwa, www.khyberpakhtunkhwa.gov.pk

Government of Balochistan, www.balochistan.gov.pk

Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk

Government of Azad Jammu Kashmir, www.ajk.gov.pk

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Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk

Securities & Exchange Commission of Pakistan (SECP), www.secp.gov.pk

Federation of Pakistan Chambers of Commerce and Industry (FPCCI),www.fpcci.com.pk

State Bank of Pakistan (SBP), www.sbp.org.pk

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14 KEY ASSUMPTIONS

Table 10:Capacity Utilization Assumpt ions

Starting Capacity Utilization 80% Annual Growth Rate 3%Maximum Capacity Utilization for the project 100%

Table 11: Economy-Related Assumpt ions

Electricity price growth rate 10%Wage growth rate 10%

Table 12: Cash Flow Assumptions

Accounts Receivable cycle Days Accounts payable cycle 30Raw material inventory 45Finished Goods Inventory 15

Table 13: Financial Assumptions

Project life (Years) 10Debt 90%Equity 10%Interest rate on long-term debt 8%Debt tenure (Years) 8Grace Period (Years) 1

Table 14: Revenue Related Assumptions

Sale price growth rate 10%

Purchase price growth rate 10%Percentage of Ladies shoes 80%Percentage of children shoes 20%

219603291 business plan

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