Pre-Feasibility Study
BOUTIQUE
(Women Designer Wear)

Small and Medium Enterprise Development Authority
Government of Pakistan www.smeda.org.pk HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk Helpdesk@smeda.org.pk
REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk

8th Floor LDA Plaza Egerton Road, Lahore Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk helpdesk@smeda.org.pk May, 2007

Pre-Feasibility Study

Boutique (Women Designer Wear)

DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/ her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Revision Prepared by Approved by Revision Date Issued by PREF-57 2 SMEDA-Punjab GM Punjab May 14, 2007 Library Officer

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1

INTRODUCTION ...........................................................................................5 1.1 1.2 1.3 1.4 PROJECT BRIEF ............................................................................................5 OPPORTUNITY RATIONALE ...........................................................................5 PROPOSED CAPACITY ...................................................................................5 TOTAL PROJECT COST ..................................................................................6

2 3 4 5 6

CURRENT INDUSTRY STRUCTURE .........................................................6 MARKETING..................................................................................................6 1.1 4.1 5.1 TOTAL .........................................................................................................7 RAW MATERIAL ...........................................................................................8 PRODUCTION PROCESS FLOW .......................................................................8 RAW MATERIAL...........................................................................................8 PRODUCTION PROCESS FLOW ................................................................8 PRODUCTS .....................................................................................................9 6.1 PRODUCT MIX..............................................................................................9 Ethnic Wear.......................................................................................................9 Contemporary Wear ..........................................................................................9 Western Wear ....................................................................................................9 2.1 COSTS OF GOODS SOLD AND OTHER EXPENSES ............................................10

7 8 9

HUMAN RESOURCE REQUIREMENTS ..................................................10 MACHINERY/EQUIPMENT DETAILS.....................................................11 PREMISES FOR SHOP AND STITCHING UNIT .....................................11 9.1 9.2 RECOMMENDED MODE FOR RENTING A SHOP ...............................................11 INFRASTRUCTURE REQUIREMENTS ..............................................................12 PROJECT ECONOMICS..........................................................................13 PROJECT COST ...........................................................................................13 PROJECT RETURNS .....................................................................................13 FINANCING PLAN ....................................................................................... 13 KEY SUCCESS FACTORS.......................................................................14 THREATS FOR THE BUSINESS.............................................................14 FINANCIAL ANALYSIS........................................................................... 15

10 3.1 4.1 5.1 11 12 13

13.1 PROJECTED INCOME STATEMENT .............................................................15 13.2 PROJECTED CASH FLOW STATEMENT.......................................................16 13.3 PROJECTED BALANCE SHEET ...................................................................17 ....................................................................... ERROR! BOOKMARK NOT DEFINED. 14 KEY ASSUMPTIONS................................................................................18
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14.1 14.2 14.3 14.4 14.5

PRODUCTION ASSUMPTIONS ....................................................................18 OPERATING ASSUMPTIONS ......................................................................18 CASH FLOW ASSUMPTIONS ......................................................................18 EXPENSE ASSUMPTIONS ..........................................................................18 FINANCIAL ASSUMPTIONS .......................................................................18

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1

INTRODUCTION

1.1 Project Brief The pre-feasibility study focuses on the establishment of women designer wear Boutique including the operations of apparel designing, manufacturing, selling and marketing. The study has been designed to capture the dynamics of the Boutique industry, with its many components and possible strategic opportunities. 1.2 Opportunity Rationale Clothing is a beautiful visual demonstration of the social and emotional needs of people wearing it. It also portrays in a clearly understood visual manner, what people of different cultures and styles want socially. Fashion, through times, has gone through so many rapid changes and bizarre extremes that it has examples of nearly every kind of clothing function. However, in a boutique business, the specifications and descriptions of the designs and clothes are so general that they can fit more than one costume, which actually are quite different in nature from each other and this is solely dependent on the taste of the people. The range of Pakistani dresses is remarkably wide, according to the vast cultures, geographical differences, purchasing capacities, influence of the western culture, and bewildering diversities of the ethnic groups. One has, therefore, to sift and isolate, and then relate and bring together, the ideas for creating various designs, which can fit in the context of the fashion in vogue and the culture in practice. In reference to Pakistan, the Boutique business is quite in vogue but has yet to be formalized. The market of this enterprise is quite scattered and unorganized. There are a few major players in Boutique business and these entrepreneurs have also taken an initiative based on their caprice and experience in the field of fashion design. However, there is a massive potential in this field, if one has the ability to design and market his/her products through introducing innovative designs both in stitching as well as the fabric sector. Furthermore, there is massive export potential in this sector, as the demand of Pakistani dresses, especially in countries like UAE, USA, and UK, is massive due to a high number of Pakistani expatriates who have settled in these countries. The Boutique business can also be expanded into a more profitable venture by providing stitching facilities to other boutiques, which do not own a stitching unit or are lacking this facility. 1.3 Proposed Capacity The Boutique business capacity is greatly dependent on the market size and the number of potential clientele one can attract. Furthermore, the women fashion wear
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garments will be designed through a contracted designer and then stitched through in-house stitching unit. On average, a designer can supply forty designs per month from which nearly thirty designs are selected on average. Approximately, total capacity of the defined unit with 5 stitching machines (basis on 8-10 hours shift) will be about 7501 dresses. The breakup of the total number of dresses will be as follows: Total designs selected by designer Number of dresses in each design Number of dresses in each size Total Number of dresses 30 5 5 750

This production and sales capacity is estimated to be economically viable and justifies the capital as well as operational costs of the project. 1.4 Total Project Cost The Boutique shop needs a total investment of about Rs. 1.83 million. This includes a capital investment of Rs.1, 299,430 and a sum of Rs.530, 680 as working capital.

2

CURRENT INDUSTRY STRUCTURE

Currently, the boutique industry is relatively unorganized and is scattered in and around the posh areas of the metropolitan cities of Pakistan i.e. Lahore, Islamabad, Karachi, Peshawar, and Quetta. The boutiques in Peshawar and Quetta, mostly sell the traditional dresses having indigenous/local designs, whereas the ones in Lahore, Islamabad, and Karachi deal in fashion wear greatly influenced by the west and the local trends in vogue. As such, there is no exact detail available of the number of boutiques, especially in women wear, because there is no association or link between these enterprises. The reason being the business rivalries and the competitive structure of this industry. However, one can name a few major players in the business such as Indifference, Generation, Parahan, Nee Punhal, Bossini, Kapre Waghera, Maria B, Nina’s, and some individual designer players like Beegee’s, Nilofar Shahid, Nadia Mistri, Amir Adnan, Shayan Malik, and Sahar Saigol.

3

MARKETING

The marketing of boutique follows the conventional marketing pattern which is dependent on selection of venue of the outlet/s and the product mix (designs and sizes), as well as the promotional strategy. Furthermore, the boutique owner has to marketing techniques like:  Usage of print media i.e. printing of posters and pamphlets as well as displaying it and distributing it at proper places  Advertisement in print media i.e. newspapers and fashion magazines, etc.

1

This production also includes additional suits that will be prepared on orders/outsourcing/CMT (Cutting, Manufacturing and Trimming) per month in order to utilize the maximum capacity of the stitching unit. 6

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

Usage of electronic media i.e. projection of the boutique in fashion programs, advertisement on television, and provision of dresses to various television plays and films.  Event arrangement like fashion shows and photo-shoots.  Usage of e-commerce i.e. launching of website and advertising on web. Moreover, in order to keep abreast with the emerging trends and client tastes, surveys regarding customer satisfaction/needs should be a regular feature of this project. As this project of Boutique deals in designer women wear, therefore the product mix will comprise of different styles of the female dresses in different sizes. Whereas, the styles will be Shalwar Kameez, Q-lots, Pajama Kameez, Frocks, Kurta, Peeshwaz, Party dresses, Casual Dresses and other prevalent dresses based on the market trends. Apart from this, there is a vast export potential in this industry, which is evident from the export figures of 1998-99 (available from the data of Federal Bureau of Statistics-FBS). SITC2 Code 8422102 8422103 8422104 8422202 8424002 8424003 8424004 8424006 8427006 Product Classification Suit women cotton not knitted Suit women synthetic not knitted Suit women (other textile material not knitted) Ensembles women cotton not knitted Dresses women not knitted Dresses women man made fiber not knitted Dress women other textile not knitted Shisha embroided dresses of cotton Baluchi Kameez of Silk 1.1 Total
Source: Federal Bureau of Statistics

2000 – 2001 Value (Rs. “000”) 1,415,124 501,917 46,861 2,107 463,346 63,438 17,723 286 27 2,510,826

Even these figures represent the formal export patterns of women dresses from Pakistan and are not representative of the export of these dresses taking place on informal level. Most of the women dresses prepared in Pakistan are exported to USA, UK, Germany, UAE, Saudi Arabia, France, Belgium, Netherlands, and South Africa. The end users of these dresses in foreign countries are mostly Pakistani and Indian women who have immigrated to these countries.

2

Standard International Trade Classification 7

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4

RAW MATERIAL

4.1 Raw Material The raw-material required for such sort of projects, would be as follows:  Fabric: The fabric, which is the basic raw material requirement for a boutique and a major component of the cost, can be obtained from wholesale markets or from markets specializing in designer cloth at Faisalabad, Karachi, and Lahore.  Accessories: Accessories such as buttons, laces, zippers, elastics, threads, needles, embroidery threads, glasses, etc. will be procured from the local market at competitive rates.  Labels, tags and packaging: Labels and tags can be obtained on order, as these serve as an identity for the boutique and are useful for promotion. 5

PRODUCTION PROCESS FLOW

5.1 Production Process Flow The process for converting fabric in designer wear garments follows the below mentioned sequence:  Design: The initial process starts from the designing phase. Various patterns of clothing and the fashions in vogue, which also relate to the tastes of the concerned clientele, are designed. This is done by the contracted designer as he/she will provide the basic designs of which the fabric will be converted into the designer wear garment. On average, a designer is supposed to provide 40 designs per month or 100-120 designs per season i.e. three months. From these designs, approximately 50% of the designs are selected for further development of clothes.  Pattern Making/Cutting: Based on the designs selected, patterns for cutting are developed and based on these patterns, fabric is cut, embroided, block printed, and processed accordingly.  Stitching: The cutting is then followed by stitching, which can either be done by the in-house stitching unit or by outsourcing it 3. Labels are also attached to the apparels in this process.  Finishing: The final phase is that of finishing, in which the garment will be checked for quality control and will cleaned (if required) for final presentation at the outlet. The garments will also be tagged for identification of sizes, prices, addresses, handling instructions, etc.  Presentation/Market: Once the designer wear garment is ready after going through the above-mentioned process, it is presented at the outlet/shop for sale to the clientele.
3

In case of over-lock stitching, it will be done in-house. The stitching of buttonholes as well as elastic embedding will be outsourced. This will cost approximately @Rs.5 per dress. 8

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Designing

Pattern Making

Embroidery

Finishing

Stitching

Cutting

Presentation

Market/Clientele

6 PRODUCTS
6.1 Product Mix Products will be priced at the high end to reflect the quality and exclusiveness associated with the brand. High-end materials such as Crinkle Chiffon, Georjot Chiffon, Chinese Raw Silk, Medium Silk, Leafy Print Jamawar, Chamose Silk etc will be used. This boutique will offer following product categories of women wears:  Casual Wear  Semi Formal Wear  Formal Wear Each product category will include the following product lines: Ethnic Wear Formal Wear – Party dresses and special occasion dresses Contemporary Wear Fusion Wear – Combination of eastern and western wear, suitable for the international market as well. Western Wear Tops, Pants and various other styles The combination of outfits for the proposed outlet will be as follows

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Table 6-1 Product Mix Category Casual Wear Semi Formal Wear Formal Wear Table 6-2Average Sale Price Category Casual Wear Semi Formal Wear Formal Wear 2.1 Costs of Goods Sold and other Expenses Cost of goods sold has been taken as a percentage of the sale price. The percentage of cost for each product category is as below: Table 6-3 Percentage of Cost Category Casual Wear Semi Formal Wear Formal Wear Cost (percentage of sales) 35% 32% 30% Ave. Price per outfit 3,200 6,000 15,500 % Of Total Outfits 34% 33% 33%

7

HUMAN RESOURCE REQUIREMENTS

The project of Boutique requires the following Human Resources/Staff: Table 7-1 Staff Salaries Positions Production Staff Designer Tailor Press/iron man/finishing Dyer Total Administrative Salaries Sales girl Office boy Guard Peon/sweeper Total Required 1 5 1 1 Salary per Month 15,000 7,000 4,000 5,000 Salary per Annum 75,000 175,000 20,000 25,000 295,000 144,000 42,000 60,000 60,000 306,000

2 1 1 2 14

6,000 3,500 5,000 2,500

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8

MACHINERY/EQUIPMENT DETAILS

The boutique will require a small in-house stitching unit. The cost of the stitching machinery will be as follows: Table 8-1Machinery Detail4 Stitching Machinery 5 Single needle lock stitching machine Over lock Machine Embroidery Total No. 4 1 1 Rs/Unit 19,900 56,800 29,900 Rs 79,600 56,800 29,900 166,300

Furthermore, the following will also be required to setup a Boutique: Table 8-2-Office Equipment Other Equipment Computers Computer printer Telephones Fax machines Software Total No. 1 1 2 1 1 Rs/Unit 25,000 12,000 3,500 12,000 30,000 Rs 25,000 12,000 7,000 12,000 30,000 86,000

9

PREMISES FOR SHOP AND STITCHING UNIT

9.1 Recommended Mode for Renting a Shop It is recommended that the proposed location for the said enterprise be a posh area, where people have the buying capacity for women fashion wear. The size of the shop should be at least 800 Sq.ft i.e. 20 feet front and 40 feet depth. Furthermore, a small building will be required to establishing the stitching unit. One viable option is to rent a small house for this purpose. The shop will be obtained on rental basis, and the rent estimation for such a shop is Rs 56,000/month. According to the prevailing practice, 6 months rent as advance and three months rent as security would be required for renting the shop. It is assumed that security is a one-time expenditure, whereas pre-paid rent will only be given at the beginning, while establishing the boutique. After first six months, rent will be paid on monthly basis. The cost estimates for setting up the Boutique are as follows:

4 5

Prices has been quoted by SINGER sewing company, Pakistan Though the prices here are given of the new machines but second hand machines are also widely available which can function properly and can reduce the project cost too. 11

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Table 9-1 Rent Cost Detail Rs Security for renting shop/outlet (Rent @ Rs.56,000 per month. 3 months rent as security) Interior decoration (installing lighting, mannequins, hanging racks, mirrors, glass panes, cash counter, and other décor, etc.) Security for renting a house for installing the stitching unit (Rent @ Rs15,000 per month) 9.2 Infrastructure requirements The project will have the following infrastructure components: Table 9-2-Infrastructure Requirement Description Main shop Try Room Small Store Kitchen Building for Stitching Unit Sq.ft 600 36 100 64 10 Marla House 168,000 437,884

45,000

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10 PROJECT ECONOMICS
10.1 Project Cost Description Machinery & equipment Furniture & Fixture (Interior Decoration) Office equipment Security Deposits for Premises6 Pre-operating expenses Salaries7 Promotional Expenses Total Capital Cost Working Capital Raw material (Fabric & Accessories) Prepaid Rent (Boutique and Stitching Unit) Total Working capital Project Cost 10.2 Project Returns Internal Rate of Return (IRR) Payback Period (Years) Net Present Value (NPV) 10.3 Financing Plan Financing Equity Debt Rs. 60% 40% 1,098,066 732,044 67% 1.50 3,684,374 Cost (Rs.) 166,300 437,884 86,000 213,000 31,000 67,246 1,299,430 104,680 426,000 530,680 1,830,110

6 7

Security Deposit for Boutique and for Stitching Unit One month salary of Production staff 13

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11 KEY SUCCESS FACTORS
There are a number of factors, which contribute towards the success of a project. In case of the project of Boutique, some of the Key Success Factors are as follows:  Proper care while producing dresses should be adopted  Proper Inventory management i.e. keeping minimum inventory as per past sales trends.  The dress designs should be according to the emerging trends and fashions.  Designing of dresses according to the consumer tastes/preferences gathered through consumer surveys.  The location of the outlet should be properly selected and attractively decorated so as to target the clientele effectively.  The customer satisfaction should be given due importance, because it is the customer satisfaction, which can increase the sales. Hence, excellent customer service should be provided.

12 THREATS FOR THE BUSINESS
 Competitive Structure of the market The market of the boutiques is highly competitive; therefore if the entrepreneur is not well responsive to the tastes and response of the clientele as well as the fashions in vogue he/she may not be able to capitalize the opportunity properly.  Pilferage in the designs The designs which a designer produce can be sold by the staff even before that design is launched and that can pose serious threat to the business because in the fashion industry it is the uniqueness of the design which matters.  Selection of the wrong venue Selection of the wrong venue can be a major hurdle in achieving the desired business objectives.  Selection of the wrong design If the designs are not selected according to the tastes of the clientele then it can be detrimental for the business, so the clientele taste should be properly tracked.  Tax Improper documentation of the sales receipt record may lead to problems with Tax department.

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13 FINANCIAL ANALYSIS
13.1 Projected Income Statement
Rs(000) Year - I Sales/Revenue Cost of Sales Gross Profit Operating Expenses: Administrative Expenses Rent Operating Profit Financial Charges L C + Bank Charges Profit before Taxation
Taxation 20%

Year - II 3,920 1,606 2,315 563 937 814 77 737 147 590 360 950

Year - III 4,533 1,806 2,727 595 1,031 1,101 56 1,045 209 836 950 1,786

Year - IV 5,206 2,027 3,179 629 1,134 1,416 36 1,380 276 1,104 1,786 2,890

Year - V 5,943 2,269 3,674 666 1,247 1,761 10 1,750 350 1,400 2,890 4,290

Year - VI Year - VII Year - VIII 6,749 2,545 4,204 705 1,372 2,127 2,127 425 1,702 4,290 5,992 7,631 2,836 4,795 336 1,509 2,950 2,950 590 2,360 5,992 8,352 8,595 3,153 5,441 360 1,660 3,421 3,421 684 2,737 8,352 11,089

Year - IX 9,646 3,500 6,146 386 1,826 3,934 3,934 787 3,147 11,089 14,236

Year - X 10,225 3,701 6,524 402 2,009 4,113 4,113 823 3,291 14,236 17,527

3,362 1,428 1,934 534 852 548 97 450 90 360 360

Profit after Taxation Acc. Profit b/f Accumulated Profit c/f

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13.2 Projected Cash Flow Statement
Rupees (000) Year 1 Profit before Financial Charges & Taxation Amortization Depreciation Working Capital Change Cash from other Sources Owners Bank Finance Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

548 32
25

814 27
23

1,101 23
20

1,416 20
18

1,761 17
17

2,127 14
15

2,950 12
13

3,421 10
12

3,934 9
11

4,113 7
10

605 67

864 8

1,145 8

1,454 9

1,794 10

2,156 12

2,975 12

3,443 13

3,954 14

4,130 9

1,098 732 1,830 2,502 252 213 244 90 799 1,703 1,703

872 223 147 371 501 1,703 2,204

1,153 203 209 412 741 2,204 2,945

1,463 182 276 458 1,005 2,945 3,950

1,804 157 350 507 1,297 3,950 5,247

2,168 425 425 1,743 5,247 6,990

2,987 590 590 2,397 6,990 9,387

3,456 684 684 2,772 9,387 12,159

3,968 787 787 3,181 12,159 15,340

4,139 823 823 3,316 15,340 18,656

Total Sources Applications: Fixed Assets Preliminary Expenses Re -Payment of Loan L C Charges Tax

Cash Increase/(Decrease)

Opening Balance Closing Balance

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13.3 Projected Balance Sheet
Rs(000) Year - X 88 42 204 18,656 18,991

Year - I Tangible Fixed Assets Preliminary Expenses Current Assets: Accounts Receivable Cash in Hand / Bank 227 181 67 1,703 2,178 Owners Equity: Capital Accumulated Profit Long Term Loan Current Liabilities: Current Portion Accounts Payable

Year - II 204 154 78 2,204 2,641

Year - III 184 131 91 2,945 3,351

Year - IV 166 111 104 3,950 4,331

Year - V 149 95 119 5,247 5,609

Year - VI 134 80 135 6,990 7,339

Year - VII 121 68 153 9,387 9,729

Year - VIII 109 58 172 12,159 12,497

Year - IX 98 49 193 15,340 15,680

1,098 360 586

1,098 950 439

1,098 1,786 293

1,098 2,890 146

1,098 4,290 -

1,098 5,992 -

1,098 8,352 -

1,098 11,089 -

1,098 14,236 -

1,098 17,527 -

135 2,178

153 2,641

174 3,351

197 4,331

221 5,609

249 7,339

279 9,729

311 12,497

346 15,680

366 18,991

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14 KEY ASSUMPTIONS
14.1 Production Assumptions Number of Stitching Machines Production Capacity (No. of dresses per month) Capacity Utilization for the first year Self Production (% of total production) Dresses manufactured on CMT basis (% of total production) 14.2 Operating Assumptions Hours operational per day Days operational per month (Production) Days operational per month (Boutique) 14.3 Cash flow Assumptions Account Payable Cycle (Days) Account Receivable Cycle (Days) 14.4 Expense Assumptions Promotion Expenses after Year 1 (% of expected sales) Machine Maintenance 2% 1%of machinery cost 1% 5% 5% 10% 10 15(of 30% of sales) 8 25 25 5 750 55% 60% 40%

Raw Material Price Growth rate Payroll growth rate Machine Maintenance growth rate Rent growth rate 14.5 Financial Assumptions Project Life Debt: Equity Interest Rate on Long Term Debt Debt Tenure Debt Payment per year

10 Years 40:60 14% 5Years 2

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