business plan presentation 3.31
DESCRIPTION
Sterling KaneTRANSCRIPT
HBS Business Plan Contest Pitch
April 3, 2012
Feel free to direct any questions / inquiries to [email protected]
Introduction
1. Sterling Kane is the Warby Parker for men’s leather goods. Think Gucci quality at Calvin Klein prices
2. Team has extensive experience and unique ‘unfair’ advantages in leather
3. What is our brand persona? Let’s just say Sterling Kane runs in the same circles as our friend over here
Before you dive in, three things to know…
2
Team
Jayme Abe
Brothers with deep family roots in leather. 3rd generation in family business, Pan American Leathers
• HBS – Class of 2012
• Li & Fung – World’s largest supply chain manager for apparel / fashion
• AirLinke – Founded regional air charter company
• Monitor Group – Growth Strategy
• AJSkins.com – Co-founded online wholesaler, retailer of private label men’s leather goods in college
• Pan American Leathers – VP of Finished Product Sourcing for customers including Polo, John Varvatos, J. Crew, and many more household brands
• PAL has also supplied Coach, LVMH, Hermes, etc.
•AJSkins.com – Co-founded online wholesaler, retailer of private label men’s leather goods in college
• Blackrock – Analyst
3
Problem – Retail Supply Chain 101
The Pain is Simple:
• People pay up to 10X what it cost to produce high end leather goods
• Given relatively high cost of goods in leather, dollar markups can be ridiculous • Examples of products we’ve sourced for brands through Pan Am Leathers:
• Nice leather bag at Nieman Marcus… Cost $500. Price $3,500
• Private label alligator belt at Dept. Store X… Cost $50. Price $400
CraftsmanBrand /
Wholesaler
Retailer
Customer
Traditional Retail:
2x 2.5x
Product is complete here. Cost to
produce is $50.
2x
Product sold to customer here. Sale
price is $500.
4
How big is this problem?High end men’s leather goods market is $2.7B (in U.S) and growing rapidly
• ‘Mens’ category is growth engine for business in fashion at the moment • Luxury menswear market is growing at ~14% / year, double the pace of luxury women's wear, according to Bain
Market Size Market Growth
Source: http://www.reuters.com/article/2012/03/29/us-usa-retail-luxury-idUSBRE82S15R20120329; http://www.wikinvest.com/stock/Coach_%28COH%29; http://www.marketresearch.com/MarketLine-v3883/Luggage-Leather-Goods-United-States-6854915/
• $2.7B market for high end U.S. men’s leather goods
• Calculated using data on Coach’s sales and market share• Represents 14% of $19.6B U.S. luggage and leather goods market
Select Examples:
•“Coach is banking on more business from men…expects sales of men's products this year to reach $400 million, and climb to $1 billion within a few years.”
• “Hugo Boss targets sales gains of 50% to €3 billion by 2015, helped by cultural shift that has led more men to be interested in fashion and invest in appearance.”
5
Solution – Sterling Kane
• E-commerce brand of luxury quality men’s leather goods, priced 40-60% lower than other brands of comparable quality (e.g., Tod’s, Gucci, Varvatos).
• Achieve price advantage by eliminating cost + risk from value chain after the product has been created. Quality of product never compromised.
… How do we deliver on this?6
Solution – Sterling KaneQuality –
• Suppliers: Same leather, components used by leading luxury brands
• Manufacturers: Same manufacturers used by leading luxury brands
• Design: Designers who have designed for leading luxury brands
Value –
Cut Middlemen: Receive goods from the factory and ship direct to customer. Eliminates cost, markups
Minimize Overhead Costs: Predominantly online retail - no big stores, salespeople, etc.
Minimize Inventory Cost, Risk: Products made to order in batches
Sell only through channels which provide us with price control: Eliminates channel pricing conflict with traditional retail partners
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Solution – Sterling KaneSnapshot from website:
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Our Edge
• 60 years in leather goods supply chain > network of suppliers, manufacturers
1. Quality Raw Materials: Quality can’t be faked in leather. Need good suppliers
2. Production: Need to navigate fragmented, global, old school supplier network
3. Cashflow Management: Need to control materials
cost + good inventory management
4. Branding / Traffic: Press/buzz and brand is key. Can’t build business on PPC, SEO, etc...
Keys to success
Competitors / New Entrants
Our Edge
• Fashion press contacts• Story resonates – HBS, two brothers in leather family
• ‘Friendly’ supplier (Pan American) charges us cost for materials!!!• Made-to-order biz model -> negative working capital
9
Unit Economics
• 45-50% unit gross margin• Minimal overhead• Negative working capital
Unit Economics (‘average’ product)
Price $200
Cost of Goods $100
Free Shipping $10
Gross Margin $90
Current Highlights
• Existing numbers based on domestic production
• Currently preparing production capabilities in Colombia
• Result will be 40-50% lower COGS -> GM increases to 70%
Future Improvements
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Go to Market Strategy
SEO
Channel Examples
• GQ, Urban Daddy, Esquire, Thrillist
Referral Marketing
Editorial / Press
Retail Editorial
Retail PartnershipsTrunk Shows
• Gilt, Fab, UD Perks
• Bespoke Custom Suit Co’s, Boutique Store-in-Store• HBS, university partnerships, pop-up stores
• On selective, non-competitive keywords
• Incentives for customers to refer via FB, Twitter, e-mail
Selective PPC • On low cost, non-competitive products
3 priorities: 1) Create brand awareness 2) Establish credibility for product quality 3) Drive sales. Have begun firing on all cylinders below with great results so far
Corporate Gifts • Sell into leadership/HR of select companies
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Competitive Landscape
Hermes
Quality / Brand Perception
Affordability
Sterling Kane
Low
High
Low High
Mass Luxury Fashion Houses – Gucci, Tod’s, Louis Vuitton
‘Accessible Luxury ‘Brands – Coach, Cole Hann; AND Popular Niche Brands: Jack Spade, Billy Reid, Trafalgar, John VarvatosMass Market Brands
– Johnston Murphy, Calvin Klein
We expect to steal share primarily from three categories of customers
c) Mass market brand customer: Guy who pays $300 for a decent quality
briefcase from Johnston and
Murphy now pays $275 for a much
nicer one
a,b) Accessible Luxury and Niche High End Brand customer: Guy who pays $1,000 for a nice leather weekender bag now gets one of comparable
or higher quality for $495
12
Financial Projections
Rest of 2012 2013 2014 2015 2016 2017
Total SKUs 20 50 100 150 250 350
Total Units Sold 500 2,000 5,000 10,000 25,000 50,000
Average Price per Unit 200 200 200 200 200 200
Average GM/Unit 90 135 130 130 130 130
Total Revenue 100,000 400,000 1,000,000 2,000,000 5,000,000 10,000,000
Total Contribution 45,000 270,000 650,000 1,300,000 3,250,000 6,500,000
Personnel 38,000 250,000 620,000 680,000 960,000 1,030,000
Customer Acquisition 12,500 46,000 112,000 224,000 535,000 1,070,000
Product Development 5,000 30,000 50,000 50,000 100,000 100,000
PR 3,000 32,000 35,000 40,000 40,000 40,000
Media / Copy 3,500 5,000 7,000 9,000 9,000 9,000
Facilities - - 60,000 60,000 60,000 60,000
EBIT (17,000) (93,000) (234,000) 237,000 1,546,000 4,191,000
Expect cash need of ~$350K to reach $10M in revenue and $4.2M EBIT by 2017. This represents just 0.01% of a huge, growing, men’s luxury leather goods market
*See appendix for more detailed breakout of costs
*Note gross margin bump as we shift production to Colombia in 2013
13
Current Status
• Product Line: Initial line developed (12 SKUs). Doubling SKU count over next 2 months
• Website: Beta is live. Re-design and significant improvements planned in next 2 months
• Press: Coverage from Urban Daddy. Sale planned with Gilt. Interest from GQ, others…
• Financial: $5,000 in sales in first month (with mediocre site, very limited selection)
Current Status
1. Quickly establish leadership position among e-commerce leather goods brands
2. Expand into other related product categories to become first stop for men’s leathers goods and accessories
Vision for Future
14
The Ask
1. Vote in the Business Plan Contest • We’re serious about this. Demonstrated progress. Well positioned
to become leading e-commerce men’s accessories brand.
2. Contacts: We would appreciate introductions to… • Angel investors: Plan to raise $200K in next few months. Cash
will be used for new product development, full time tech lead, merchant/designer, PR agency. Candidates currently being vetted.
1. People who have scaled e-commerce companies!
3. Feedback?
15
AppendixSG&A and Product Development Cost Details
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Rest of 2012 2013 2014 2015 2016 2017Headcount (full time) 2 5 10 12 15 15 Founder(s) 30,000 60,000 120,000 120,000 160,000 160,000 Technical Lead 8,000 70,000 140,000 140,000 210,000 280,000 Add full time sales / marketing / social media - 60,000 60,000 120,000 120,000 120,000 Add full time designer / merchant - 60,000 120,000 120,000 180,000 180,000 Utility players - - 70,000 70,000 70,000 70,000 Customer Service - - 60,000 60,000 120,000 120,000 Logistics / Packaging / Shipping - - 50,000 50,000 100,000 100,000
Office / Warehouse Rent - - 50,000 50,000 50,000 50,000 Utilities + Supplies 10,000 10,000 10,000 10,000
*Shared space with Pan Am Leathers until 2014PR ManagementHire PR agency 0 20,000 20,000 20,000 20,000 20,000Press Kit / Gifts / Samples 2,000 10,000 10,000 10,000 10,000 10,000Events 1,000 2,000 5,000 10,000 10,000 10,000
Media / CopyVideo 2,000 3,000 4,000 5,000 5,000 5,000Photography 1,500 2,000 3,000 4,000 4,000 4,000
Customer AcquisitionSponsored search + Facebook Ads 2,000 5,000 10,000 20,000 30,000 60,000Commission to Sales Partners 10,000 40,000 100,000 200,000 500,000 1,000,000Print marketing materials 500 1000 2000 4000 5000 10000
New Product Development Product Development Costs 5000 30,000 50,000 50,000 100,000 100,000