Children S Clothing Boutique Business Plan

Business Plan

Enfant is a children's clothing boutique in Park Slope, Brooklyn. The business model is to bring in unique lines of children's clothing, sourced from around the world if need be. Unique items, coupled with a focus on customer relationship management and social media promotion form the differentiation strategy. The target market is fairly wealthy, educated and stylish. They are willing to spend on their children's clothing as they see their children as reflections of their own style.

The shop will lose some money in the first year, but will be profitable in subsequent years, and be able to pay the proprietor a salary. The proprietor is 30% owner, with the uncle as a silent partner who contributes all of the capital in exchange for a 70% cut.

The clothing will be high end, not made in sweatshops, stylish in design and unique to the store in most cases. This allows the store to charge premium pricing, as it is basically skimming the cream of the children's clothing market. The industry is competitive, but Enfant will be sufficiently differentiated to excel, based on both its attention to customer relationship building and in the exceptional quality and uniqueness of its clothes.

2.0 Financial Objectives

This business plan is focused on the first three years of operation for the boutique. The reason for this timeframe is that small business owners often budget for losses in the first year, but by the end of the third year if the business is still not meeting objectives, then the business is often folded. The financial objectives for the clothing boutique, Enfant, are to break even in the first year, and then turn profits in the second and third years. These profits will be increasing. By the end of the third year, it is expected that the business will be strong enough that a second location can be considered. A key financial objective is that after the first year, the business needs to be sufficiently profitable for the owner to draw a salary for it. This is because the owner's opportunity cost is relatively high and there needs to be reasonable return on investment not just of money but of time as well.

3.0 Startup Funding and Costs

The startup financing required is less than the $200,000 that the uncle is offering. The startup costs are two months' lease, a damage deposit pursuant to the lease, one season's worth of inventory, three months' worth of wages for a part-time sales assistant, three months' worth of utilities, and a cash float of $5,000. The total startup cost will therefore be:

Startup Capital

Cash

Inventory

18750

Wages

Operating

Equipment

Expected Loss

41500

With the uncle able to commit up to $200,000 to this business, and the startup costs plus expected first year losses, there is no reason to take on debt. This is a positive for the business, because of the negative aspects of debt financing. First, it will actually be costlier than my uncle, who has no immediate demands with respect to payback. More important, avoiding debt means avoiding the sort of restrictive covenants that banks typically place on small businesses to whom they lend money (Investopedia, 2015).

4.0 Business Description

Enfant will be a children's clothing boutique, located at the edge of the Park Slope neighborhood in Brooklyn. The store will sell high-end children's clothing. The key point of differentiation with the store is that it will bring in lines that are sourced mainly from Europe, Canada, Australia and Japan. The clothing will therefore have fresh, sophisticated designs, will typically be produced in those countries so will be sweatshop free, and the lines chosen for the boutique will typically not be found in many other place in the United States, and in particular not in this part of New York.

The unique inventory will be a key point of differentiation. There are many competitors not just in New York but in this neighborhood, so it is important to offer the customer something unique. This goes not just for product but for service. It is almost more difficult to differentiate with service because anybody can do service well. The reality is that there will need to be a combination of strengths that put together results in a rare store.

High end customer service is going to be one such strength. The owner, who will be principally running the business, is an expert at customer relationship management, and social media strategy, so will put those competencies to good use. It is imperative that strong relationships are built with the customers. With the proprietor so active in the business, and a database of names, birthdates and past purchases, it will be easier to target customers directly with texts or emails when new collections arrive, or if there is a piece of clothing that is particularly well-suited to a specific child. That level of customer knowledge is easier to acquire when the proprietor is active in the everyday business, but also can be a function of effective customer relationship management.

Sourcing is another area where this company can excel. It is easy to forget that all over the world there are excellent designers working on children's clothing. Many are small shops looking for markets. With so many design hubs in the world today, the options are nearly limitless. For the owner, this is actually the fun part of the job, scouring websites from Cape Town, Stockholm or Vancouver -- wherever unique suppliers can be found. The ability to bring unique products to the boutique is not a sustainable competitive advantage -- with effort and a good eye anybody can do it -- but it is a competitive advantage that when combined with high-end service can differentiate the boutique from the host of other children's clothing boutiques in the city. Furthermore, charging premium prices, essentially skimming the high end of the market, is only a viable strategy when it is backed with quality clothing and high-end service, so it is important that these elements are combined. In terms of product positioning, this implies that the brand will slot into a zone on the product positioning map below the true luxury brands but above the pricier mainstream stores. This is classic boutique positioning -- such stores need to cultivate a certain amount of exclusivity, but the inability to spread fixed costs around multiple outlets makes it imperative that the product is accessible enough that the store can move volume. This is doubly important in clothing, where seasonality and fashion trends create considerable risk for old inventory.

5.0 Pricing Plan

There are several different pricing strategies. The most common one for a small business is cost-plus, where goods are marked up by a certain set amount over their cost. This is a simple method, and easy to work with.(NetMBA, 2010). Cost plus is most effective when the goods are differentiated and the buyers are not price sensitive. With the inventory that Enfant plans to carry, there will be few if any other stores to carry these lines. This means that the customers are not going to be able to comparison shop for the exact items. The benefit of this is that the store can set prices using cost-plus, which essentially ignores the prevailing market for the goods. Only where the goods can be purchased online is there any possibility of price competition. Thankfully, children's clothing is hard to buy online -- you need to size clothing and children are constantly growing. There is too much risk for most parents to buy high-end children's clothing online, so price competition is not expected to be a significant factor. Thus, cost-plus is a reasonable pricing strategy. It allows the business to ensure that its fixed costs are covered, first and foremost, and it is easy to implement.

This pricing strategy will result in high prices because of the nature of the products. That is why location is critical to the success of the business. Furthermore, it is important that the clothes live up to the promise implied by such pricing -- they have to be ethical, stylish and sweatshop-free. What this strategy also implies is that the company, on a macro-level, is skimming the cream of the market, the early adopters, the people who are legitimately willing to spend a lot of money on their children's clothing, and ultimately this is a niche market within the overall children's clothing market in New York; niche markets just happen to be perfect for the boutique store format when the niche is geographically-concentrated.

It is worth noting that discounts are unlikely. When you are basically skimming, discounts make no sense. That said, unsold merchandise that is out of season is a drag on working capital, so there does need to be a strategy to move those goods. Consignment elsewhere is one potential approach, online sales is another, and a third option might be to have a wholesale buyer for the goods, in order to at least recover cost.

6.0 Market Analysis

The market for high-end children's clothing is strong. Disposable incomes are high in many places, Brooklyn being one of them. This market is growing, with the number of high income earners, and this market tends to be recession-proof (Peck, 2010). There are 65,000 people in Park Slope, 2.6 million in Brooklyn and 8.5 million in the five boroughs. There are 10 public schools in the neighborhood and 11 private ones, which tells us that not only are there a lot of children -- thousands of them -- but many are from well-off families. Growing children require new clothes, sometimes several times per year. New York has four distinct seasons, plus there are also the back-to-school and Christmas shopping seasons with fall and winter clothes respectively. With four seasons, growing children are not likely to be able to wear last year's clothes again the following year, so there is a need for high turnover. This creates the opportunity to foster loyal customers. Some customers will buy all of their clothing through the boutique, while others will be occasional purchasers. It is expected that the 80/20 rule will apply here, with 20% of the customers accounting for 80% of sales. This is why customer relationship management is so important to succeeding in this market.

7.0 Market Segmentation and Targeting

The boutique will be selling clothes to all children, from the infancy to the age of around 12, when children hit puberty, move towards adult sizes and have more input into their own fashion choices. The marketing objective is that the boutique and grow with a family, taking the parents through those first 12 years with new clothes. Special attention will need to be paid to inventory to facilitate this, ensuring that sizing of items is available. Thus, the market segment for the end user is 0-12, but for the payer will be anywhere from 25-45, or even 50 for parents who have had children in their late 30s.

The target customer is someone who lives in the general Park Slope are, with some draw to other fashionable areas of the Brooklyn, and potentially other parts of New York. The target market consists of white collar workers who make comfortably in excess of $100,000 as a family, have young children, and are interested in looking fashionable. They want the best things for their children. However, like themselves, they want to impart on their children a unique sense of style, rather than simply buying famous name brands, or cheap sweatshop clothes. The target market is willing to pay more for stylish designs, for uniqueness and for clothes that have been produced ethically. For this audience, dressing their children in mainstream clothing from the Gap or similar store would be considered uncool, let alone Walmart, a store most of the target market has never set foot in.

The average customer is not only going to have a fairly high income, but will also be well-educated, and often well-traveled. These customers are likely to range from their late-20s and their early 40s, as they have young children but likely invested time building successful careers before having kids. The target market is discerning, and difficult to impress, but they are also loyal to businesses that are dialed in to their needs.

8.0 Industry Analysis

Children's clothing is a highly competitive industry. Competition is intense in almost any neighborhood where concentrations of children live, and is intense across all spectrums of price and quality. At the higher end price points, there is also some differentiation. The customers in the target market for Enfant are likely to shop within a range either side of our position in the marketplace. Thus, the competitive environment has to be looked at from both the macro and micro perspectives. From the macro perspective, there is a wide range of options for people who need children's clothing. Most of the target market has no interest in the low end, but may have some interest in the high end. The target market therefore skews towards the high end of the overall market. This means that even global luxury brands that do children's clothing can be seen as competitors.

More likely, competition will come from mainstream chain brands and from other boutiques. The mainstream chains offer a fairly poor cost-quality ratio, as they tend to produce mediocre quality with mediocre designs, yet charge fairly substantial markups. The discerning buyer likely has less interest in those types of stores, but for many buyers those stores (Gap Kids, etc.) are the norm and higher-end clothes are discretionary purchases. Many buyers have the mindset that children's clothing need not be of particularly high quality because kids grow out of their clothes so quickly -- spending a premium on children's clothing is only something to be done when there is a special occasion.

There are other boutiques that also have a similar target market to Enfant. There are only a handful of children's clothing boutiques in Park Slope that can be considered to be direct competitors in that sense, though there are others in Brooklyn, such as tinybrooklyn. The typical competitor will serve a fairly broad geographic area, but will serve a fairly narrow demographic and psychographic market. Boutique competitors tend to be small stores -- no more than 1000 square feet, and they are often one-off shops, not chains. So the profile of competitors is usually a store that is similar in size and strategy to Enfant. Service is usually a differentiating factor, though some do seek to promote less-known high-quality lines and local designers. Still, the competitive landscape is relatively thin, as much of the high end in children's clothing is concentrated in the ritzier arears of Manhattan.

The Internet is also a threat. While unpredictability in sizing is a barrier to buying children's clothes online, most companies do offer this. This is probably more of an opportunity for Enfant, because of its unique clothing lines, than it is a competitive threat. But many leading retailers are options, ranging from Amazons to bricks-and-mortar stores that do not have a presence in Brooklyn.

8.1 Supply Chain

The supply chain is a critical element of this business. Finding the right designers is the fun part, but getting the goods to the store can be complicated. First, if they are not presently sold in the U.S., then they must be imported. This entails a substantial amount of paperwork. The trade-off is that wholesalers typically charge more than buying directly from the producer. A strategy that can balance this trade-off might be to have a couple of lines through local wholesalers, and then bring in one or two other lines to ensure that the store is differentiated, but is not doing too much paperwork.

The other issue, particularly with foreign suppliers, is that the store must balance economies of scale in shipping with the cost of holding inventory. Normally, this would be done through careful demand forecasting, but that is not possible because a new business has no data points. So the company will have to carefully weigh its options with respect to this dilemma. Ordering from overseas implies quarterly shipments from key suppliers, but the same can be said about local suppliers. The company will work closely with its suppliers, but ultimately it is the amount of inventory on hand that is the risk factor in the supply chain. At least this is something over which Enfant has some control.

9.0 Sales and Promotion Plan

There are two key elements to promotion. Boutiques typically operate with minimal marketing budgets, and must work carefully to get value for their money in marketing. Further, because the boutique's core audience is in a limited geographic area, and most media outlets service a larger area such as Brooklyn or all of NYC, the cost of advertising with those outlets will be prohibitive for the benefits that the exposure would bestow. This puts significant emphasis on digital marketing. Social media and customer relationship management are going to be critical elements of the marketing strategy. It has been noted already that these are core competencies for this business. CRM helps to build strong relationships with the key customers who are going to make up the majority of sales. Social media is a good exposure tool, and will be used extensively as it is a good way to reach the busy parents who form the target market. Twitter, Instagram and Facebook will all feature in the social media strategy, and the company will consider signing up with Hootsuite or a similar service to manage the social media marketing. The company will need a coherent brand identity, and be able to tell stories, making full use of visual media.

Other means of marketing are less important to the strategy. Free samples are unlikely, unless partnerships with things like artisan coffee roasters or chocolatiers can be worked into the marketing mix. Gimmicks to attract attention such as sweepstakes or whatever are not in line with the image that the store is presenting. Attention to personal detail is a much greater selling strength. The shop window is also critical, especially during the first year when walk-by traffic will be what gets people in the door. It may be worth paying a professional consultant to set up the window initially. Also, the shop must be located in an area with significant walk-by traffic. Locations adjacent to stores the target market frequents -- coffee shops are good -- are among the best locations. When the storefront is a critical marketing element, location is of utmost importance.

While there is little cost associated with social media as a promotional tool, a lot of time will be required to build and maintain the electronic presence. The more of this the owner can handle the better, given the cost of hiring others to do it. One form of physical marketing that can be utilized is to print postcard-sized ads and distribute them to local coffee shops, in particular the coffee shops where moms go with their strollers mid-morning. The rationale is simple -- a mother who doesn't work in Park Slope is definitely in the right income bracket, and the coffee shop mid-morning is a ritual for these parents. This is a low-cost way to gain initial exposure. Moreover, within this group, some people will be the early adopters that are required to build the business. The cost of this will be in the $5,000 range for professional design and a print run of 1000 cards. Discounts are not a good draw, though, as they cheapen the brand before it has even been established. Photography and layout are much more important -- you have to show off the merchandise to entice the target market.

10. Financial Plan

What follows are the pro-formas for the first, second and third years of the business, including both standard GAAP financial measures and sales/square foot, which is a common measure in retail. With a strategy that emphasizes high-end clothing for young children, the sales per square foot should be relatively high, given a reasonable level of turnover. Turnover should be a minimum of four times per year, reflecting New York's four distinct seasons.