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Fragrance Store Business Plan

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Thu, 21 Jun 2018

Business Name: FRAGRANCES

Company Summary

Fragrances is a new natural and herbal cosmetics company proposing to set up a signature herbal cosmetics store in Central London. The store will deal in herbal cosmetics including perfumes.

The company has been setup by a team of three members who have years of experience in understanding and managing cosmetics business, channel marketing and high-level sales. The promoters will initially fund the business themselves as they believe strongly in their product idea. Market research among over 1000 women in various age groups shows that there is a demand for such products.

Sales projections for Fragrances are estimated be over £1 million for the first year, with a decent net profit.

The promoters feel that, by creating awareness of their products, many women will prefer to purchase their products for their own use, as will friends and family members.

Objectives

  • Create a niche market in herbal cosmetics industry
  • Generate retail sales of over £1,000,000 in year one.
  • Maintain a gross margin of over 65%.

Mission

To give an unlimited opportunity to women of all ages to become beautiful naturally

Keys to Success

Fragrances will:

  • Offer a unique line of herbal cosmetics that will take into account the differences in requirements of diverse age groups. Herbal cosmetic products are currently in demand today and are also available but there are no differences in cosmetics available for different age groups.
  • Satisfy the demand of women who do not want to use cosmetics containing harmful chemicals
  • Execute a targeted marketing campaign to generate awareness of the their products

Fragrances will be a UK-based herbal cosmetics company offering its customers a series of unique herbal cosmetics including skincare products, hair care products and perfumes. There will a wide variety in these cosmetics and will take the differences in requirements of diverse age groups. The store will have two product experts who will help the customers choose the right products according to their ages and requirements. The company will reach out to customers through their own signature store as well as its website.

In the future, the company will also explore the possibility of expanding to the entire UK by setting up a chain of such stores.

Company Ownership

Cosmetics industry in the UK is a growth industry dominated by a few key players. Fragrances needs to pool funding to be able to make its presence felt in the industry. It will be set up as a private limited company as the three promoters will pool in their funds and will form the core management team. As a private company it will be able to achieve its initial standing which would not have been possible as a sole proprietorship or partnership firm.

Start-up Summary

Start-up costs for Fragrances include legal costs, computer supplies, new product marketing, website design and regulatory costs for cosmetics[1]. Start-up assets are mostly dedicated to start-up stock.

Start-up Expenses

 

£

Legal

1,000

Computer Supplies

1,250

Marketing

15,000

Web design

2,500

Regulatory

4,000

General Administration (including rent and salaries)

137,000

Total Start-up Expenses

£160,750

Start-up Assets

Cash

£10,000

Start-up stock

£60,000

Other current assets

0

Fixed assets (Including fixtures)

£20000

Total assets

£90,000

Total Requirements for Expenses and assets

250,750

To start with, Fragrances will introduce its herbal range in skincare products perfumes.

Skincare products

These will include day creams, night creams, exfoliating creams, anti-wrinkle or anti-ageing creams. Within these there will be creams for specific age-groups and skin types.

Perfumes

Fragrances will start-off with a limited range of perfumes for the working women. In stage two, more variety will be introduced.

Source: National Statistics, accessed from http://www.statistics.gov.uk/cci/nugget.asp?id=6

Market Segmentation

The three main segments of the market who would buy herbal cosmetics are working executives, college and university students and ageing women. There will also be those who would shop for women, perhaps a husband, friend or a family member. Though the store will be in Central London it will cater to the needs of entire UK. Women living outside London will buy the cosmetics online through the company website. The absence of a store in small towns will not impact the sale as the product will be extremely effective and safe. The confidence will be based on additional expenditure on creating awareness about the products.

As per the mid census estimates, the total women population in all age groups in UK is 30,730,300 (Source: NSO Statistics). In addition, statistics indicate that on an average 93% of total women in all age groups buy cosmetics. The potential market may be set at 28,579,179 (93% of total women). Based on the primary and secondary segments, the projected sales forecast is conservatively set at less then 1% of the total potential market (285,790), as highlighted in the following table and chart.

Potential Customers

Growth

2008

2009

2010

CAGR

Working women

0%

142,895

142,895

142,895

0%

Young girls

0%

107,171

107,171

107,171

0%

Ageing women

0%

26,793

26,793

26,793

0%

Others

0%

8,931

8,931

8,931

0%

Total

0%

285,790

285,790

285,790

0%

Product Elasticity:

The product is a necessity and is not highly price elastic. Consumers are ready to pay a higher product if they become aware of the unique benefits from the product.

Industry Analysis

The UK cosmetics industry accounts for £5 billion sales. (Source: Euromonitor – Consumer Europe 2002/3 – 18th Edition Pub. Euromonitor International Plc)) 93% of British women use cosmetics in some shape or form making us one of the highest users in Europe. (Source: Key Note Report – Cosmetics & Fragrances – A Market Sector Overview 10th Edition, Ed. By Eleanor Hughes) Convenience and benefits continue to be a key trend for British cosmetics consumers. Easy application and usage, as well as effectiveness, are the main requirements. Some of these products have a higher price positioning, but consumers appear willing to pay higher unit prices if products can offer genuine benefits in terms of saving time.

Fragrances will be a small segment of the cosmetics industry. The market is dominated by major players. Significant shifts in overall value share in this sector have primarily been achieved through major mergers and acquisitions such as L’Oréal’s purchase of The Body Shop.

Competition Analysis

Natural and herbal cosmetic products is a growing sector with the presence of a few big players such as L’Oréal’, Bodyshop, Boots and Johnson and Johnson. It is becoming stronger in the UK and UK is now competing with other European countries for product launches. There has been a 170 per cent increase on launches from the comparable period in 2006. According to a recent Mintel report, the UK has seen the largest increase in herbal beauty products of any European country even in the first quarter of 2007. The country accounted for a mere five per cent of the 1600 organic cosmetics launched worldwide in 2006, which has now risen to 19 per cent of the 1053 products that have already been launched globally in 2007.

In recent years there has been an explosion of activity as consumers have become more aware of the health benefits of using natural ingredients. Supermarkets have now begun to pick up on this trend, with leading chains such as Asda, Tesco and Waitrose all developing own brands to capitalise on the growing consumer demand for organic and ethical products.

Our marketing strategy is to create product awareness among women using cosmetics by strategically placing Internet ads, using direct mailers and generating PR.

Competitive Edge

The present herbal cosmetic retailers carry a mainstream line of cosmetics that are appealing to the masses. Due to their mass distribution model, it would not be prudent for them to carry small amounts of specialty items for specific age groups. By positioning in the market as a specialty store, Fragrances is confident that word of mouth will help to create product awareness across UK.

Fragrances unique selling proposition is that its products will be exclusive and customised for women in accordance with their age groups, skin types etc. Currently, no major cosmetic retailer and online stores offer such customised herbal cosmetics.

The primary weakness of Fragrance will be to generate awareness about the cosmetics and highlight how these are different from the other products available in the market. To generate sales, there is a need to first create awareness about the existence of the product and make it easy for potential customers to locate the speciality store. However, it will not be difficult to establish its presence in the cosmetics industry.

Marketing Strategy

Fragrances marketing strategy is crucial to its success. The company will need to create awareness of its products through:

  • Strategically-placed ads in women’s magazines and women related websites
  • Direct mail and e-mail advertising to working women
  • New product PR in publications for women

Sales Strategy

Sales are dependent upon creating awareness and generating excitement about the herbal cosmetics. The company will strategically place pop-up and banner ads on web-sites relevant to both women, use direct mail and e-mail lists and seek public relations coverage in relevant media sources.

Fragrances will fulfil orders through its speciality store. It will also offer returning customers an option to place their orders on the company’s official website, or fax in orders to the company.

E-orders: Customer can purchase online 24-hours a day, seven days a week.

Fax orders: Customers can fax in an order 24-hours a day, seven days a week.

Sales Forecast

The sales forecast for First Year 2008 takes into account slower sales at the beginning as the company creates awareness of its product and website. Initially the company will be selling limited range of skincare products and perfumes. As the company grows, it will explore the demand for other types of customised products.

The following table illustrates unit sales of 109,500 units for the first year. This would require the company to sell to less than 1% of its target market.

 

FY 2008

FY 2009

FY 2010

Unit Sales

     

Units Sold

109,500

115,000

121,000

Average unit price

£ 10

£10

£10

Sales Revenue

£ 1,095,000

£1,150,000

£1,210,000

Direct Unit Costs

£3

£3

£3

Direct Cost of Sales

£ 328500

£345000

363000

Initially the company will be managed by its promoters. They will oversee product development, the online store, speciality store and marketing efforts. Outsourcing will be used on some initial tasks, specifically the website design and maintenance.

Personnel Plan

As the company’s launch date approaches, two product experts will be hired to help with the speciality store sales. As the company grows, more personnel will be added as needed.

Personnel Plan

 

FY 2008 (in £)

FY 2009 (in £)

FY 2010 (in £)

Management team for 3 Members

£45,000

£45,000

£45,000

2 Employees

£20,000

£21,000

£22,050

Total People

5

5

5

Total Payroll

£65,000

£66,000

£67,050

Fragrances project the gross margin to be healthy percent (70%). Sales projections for 2008 are at over £1 million. Refer appendix for a projected profit & loss account, projected cash-flow statement and projected balance sheet for the period 2008-2010.

Start-up Funding

The promoters of the company will use personal funds to finance the start of this business. The primary start-up costs are as follows:

Start-up Expenses

 

£

Start up Funding

 

Start up Expenses to fund

160,750

Start up Assets to fund

90,000

Total Funding Required

250,750

Assets

 

Non-cash assets from start-up

80,000

Cash

10,000

Additional cash Raised

0

Cash Balance on Starting Date

10,000

Total Assets

90,000

Liabilities and Capital

 

Liabilities

 

Current Borrowing

0

Fixed liabilities

0

Accounts payable

0

Other current liabilities

0

Total Liabilities

0

Capital

 

Planned Investment

 

Shareholders equity

250,750

Investor

0

Additional Investment Requirement

0

Total Planned Investment

250,750

Loss at Start-up

(160,750)

Total Capital

90,000

Total Liabilities and Capital

90,000

Break-even Analysis

The following Break-even Analysis shows what is needed in monthly sales to break even.

Break-even Analysis (Year 2008)

Monthly units break-even

1,914

Monthly Revenue Break-even

£19,140

   

Assumptions:

 

Average per-unit revenue

£10

Average per-unit variable cost

£3

Estimated monthly fixed cost

£13396

This Confidentiality Agreement (the “Agreement”) is by and between (hereinafter “Disclosing Party”) and the undersigned recipient of information. (hereinafter “Recipient”)

Recipient and its Representatives shall not disclose any of the Confidential information in any manner whatsoever, except as provided under Permitted Disclosures. Recipient hereby agrees to indemnify Disclosing Party against any and all losses, damages, claims, expenses and legal fees incurred or suffered by Disclosing Party as a result of breach of this Agreement by Recipient or its Representatives

Appendix A

Projected Profit & Loss

 

2008 (£)

2009 (£)

2010 (£)

Sales

1,095,000

1,150,000

1,210,000

Direct cost of goods

328,500

345,000

363,000

Other costs

Cost of goods sold

328,500

345,000

363,000

Gross Margin

766,500

805,000

847,000

Gross Margin %

70%

70%

70%

Total Operating Expenses

396,025

375,667

352,917

Profit Before Interest and Taxes

370,475

429,333

494,083

EBITDA

370,475

429,333

494,083

Interest Expense

Taxes

148,190

171,733

197,633

Net Profit

222,285

257,600

296,450

Projected Cash Flow

 

2008 (£)

2009 (£)

2010 (£)

Cash Received

     

Cash from Operations

     

Cash sales

1,095,000

1,150,000

1,210,000

Subtotal cash from operations

1,095,000

1,150,000

1,210,000

Additional cash received

     

VAT received

0

0

0

New current borrowing

0

0

0

New other liabilities

0

0

0

Sale of other current assets

0

0

0

Sale of fixed assets

0

0

0

New Investment received

0

0

0

Subtotal cash received

1,095,000

1,150,000

1,210,000

Expenditure

     

Cash spending

58,000

86,000

95,000

Bills payment

652,232

691,342

727,276

Total spent on operations

710,232

777,342

822,276

VAT paid

0

0

0

Repayment of current borrowing

0

0

0

Purchase of other current assets

0

0

0

Purchase of fixed assets

0

0

0

Dividends

0

0

0

Subtotal Cash Spent

710,232

777,342

822,276

Net Cash Flow

384,768

372,658

387,724

Cash Balance

394,768

767,426

1,155,150

Projected Balance Sheet

 

2008

2009

2010

Assets

     

Current assets

Cash

394,768

767,426

1,155,150

Stock

60,000

60,000

60,000

Other Current Assets

0

0

0

Total Current Assets

454,768

827,426

1,215,150

Fixed Assets

Fixed assets Accumulated

20,000

20,000

20,000

Depreciation

0

0

0

Total Assets

474,768

847,426

1,235,150

 

2008

2009

2010

Liabilities and Capital

     

Current Liabilities

Accounts payable

53,900

57,085

60,020

Current borrowing

0

0

0

Other current liabilities

108,583

220,456

308,795

Long term liabilities

0

   

Total liabilities

162,483

277,541

368,815

Capital including profits

312,285

569,885

866,335

Total liabilities and Capital

474,768

847,426

1,235,150

Bibliography

  1. Barrow Colin, Barrow Paul, Brown Robert, The Business Plan Workbook, (2001) Kogan Page Ltd
  2. Blackwell Edward, How to Prepare a Business Plan, (2004) Kogan Page Ltd
  3. Branson, Richard, The Best-Laid Business Plans: How to Write Them, How to Pitch Them (Virgin Business Guides), (2005) Virgin Books; New Ed edition
  4. Covello Joseph, Hazelgren Brian, The Complete Book of Business Plans (Jan 1993), Sourcebooks
  5. Eleanor Hughes, Key Note Report – Cosmetics & Fragrances – A Market Sector Overview 10th Edition
  6. Euromonitor – Consumer Europe 2002/3 – 18th Edition Pub. Euromonitor International Plc
  7. Finch Brian, How to Write a Business Plan, (2006), Kogan Page Ltd
  8. McKeever Mike P., How to Write a Business Plan,(1992) Nolo Press
  9. UK Population data accessed from http://www.statistics.gov.uk/glance/#population

Footnotes

[1] The UK cosmetics industry is regulated under the the Department of Trade and Industry’s 1996 Cosmetic Products (Safety) Regulations.


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