Fragrance Store Business Plan

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
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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
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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

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Footnotes

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