Business Plan: Footwear Company
The report is targeted towards venture investors and with the intend to discuss the bright potential in footwear industry, both casual and athletic, and why are the consumers giving preference for exclusivity and comfort at the time of their purchase.While the core objective of this report is to illustrate the financial opportunities from investing in footwear manufacturing venture, it is also important to project the current as well as future projections and purchase trends likely to prevail in the industry, and why we think that this whole idea will churn significant profits for them.
Why to invest in footwear industry?
Footwear industry has always been poised to accommodate new trends every time, and it is a no hidden fact that the overall rise in the retail culture is the driving force behind the growth of the global footwear market. Consumers do not hesitate to buy a new footwear if they find an exclusivity or design in the particular footwear segment, and also with easy availability of shelf in the retail outlets, footwear companies are largely benefiting from the trend of impulse buying of the consumers.
Accordingly, the global footwear industry is poised for expansion because of the huge demand volume for new and innovative products around the globe. The manufacturers are cashing on these opportunities by designing the most comfortable yet trend looking footwear for the consumers by taking assistance from technological innovation in the manufacturing process. Therefore, manufacturers are not only able to innovate the industry with revolutionary footwear, but are also doing that at reasonable cost structure, which eventually benefits the consumer only and ensure sustainable pace of demand for the manufacturers.
An additional factor that is favoring the footwear industry is the rise in sports activity. According to a report by Morgan Stanley, the athletic footwear industry has witnessed 48% growth in the past seven years, and by the year 2020, the industry will experience 30% additional growth. This ultra-bullish trend for athletic footwear is now enticing fashion brands to merge with athletic footwear manufacturers to add more products to their portfolio. Therefore, the trend of evolving footwear industry with manufacturing of technically sophisticated and innovative products is not only limited to casual or formal footwear, but also the athletic footwear. Therefore, versatility,comfort and style are the major factor that is driving the appeal of the footwear around the globe.
The global footwear market is projected to attain the market of $371.80 billion by 2020 where the rising discretionary spending amongst the middle class population is cited as the most important factor. Out of the total $371.80 billion expected market volume, $83 billion will be the market volume of athletic footwear, where the demand is being driven on account of inkling for a healthy lifestyle.
Every manufacturing entity must understand the significance of marginal costing before he initiates the actual production process as it is only through marginal costing statement, the entity is able to understand the total change in cost when different products are produced by it. Below we have introduced the proposed marginal costing statement for the footwer manufacturing concern:
We plan to introduce two products, casual footwear and athletic footwear in our portfolio and since we will be targeting towards economies of scale production and aims to benefit from the productive efficiency of the labor and the high-tech equipments, we are expecting a strong profitability from each product. However, we expect higher profitability for casual footwear segment citing our recently designed footwear through which we expect to revolutionize the footwear industry.
With the possibility of higher sales revenue on account of exclusive footwear model, the company will also be very cautious about its cost structure and will manufacture the product at a facility, which is partially owned by the founder only. Accordingly, the company will be saving significant amount on rental expense and will be a significant factor to contribute towards high profit numbers. In addition, the company will only hire skilled and experienced executives that will help us in achieving mass economies of scale in production. Therefore, in order to hire and retain this talent, we will be spending exorbitant amount on their salaries. Lastly, distribution and marketing expenses are assumed to be higher as with launch of new footwear, we will be required to communicate with the customers on a wider scale.
Even after considering all the expenses, we expect that the business venture will be able to earn a sustainable net profit margin of 7.80%, which is well in alignment with the industry standards. However, with establishment of trust and brand equity amongst the customers, we expect that over the years, the sales volume and net profit margin has the potential to double within three business years.
Since the business will be highly capital intensive, we will seek $2,500,000 loan from the banks and are expecting $700,000 from venture investors. However, since the business has enough potential to generate cash, we are not concerned over the repayment of our loans and also our optimism of generating sufficient return for our venture investors.
Footwear Industry Analysis. (n.d.). Retrieved May 13, 2016, from http://www.transparencymarketresearch.com/footwear-market.html
Morgan Stanley. (2015, Ocotber 30). Athletic Lifestyles Keep Apparel Sales Healthy. Retrieved March 4, 2016, from http://www.morganstanley.com/ideas/global-athletic-wear-geared-for-growth