Final Business Plan

BUSINESS PLAN

EXCLUSIVE TOYS SHOWROOM

Submitted by:

Popat Rajkumar C

Business Plan – Exclusive Toys Showroom

Executive Summary

Exclusive Toy Showroom offers the kids the most varied and lovable categories of toys which the parents would love their children to have for fulfilling their trifling needs.

Our clients are children aged between 0-14 yrs of age and the parents who want to shop freely in a shopping mall while their child is being pampered in the same way they do.

We offer a wide variety of toys catering to the emerging trends throughout the week.Throughout the country there is a surge in the disposable income of middle class and hence their shopping activities. Ahmadabad is the seventh largest urban agglomeration in India, with a population of almost 51 lakhs (5.1 million) growing at a rapid pace. The people would prefer good quality toys for their children especially with a play-zone. Our study shows that 8 out 10 parents (in the income group of greater than 2lakhs p.a.) would prefer to have toys from an organized retail showroom.

While there are currently many businesses offering toys but none offers exclusive toy showroom facility along with play-zone services.

Exclusive Toy Showroom’s marketing strategy is to emphasize the quality of the toys and services. Parents with children coming to malls, for instance, face problems while shopping and they would love to see their children being pampered when they are out for shopping.

The toys outlet will be manned by trained personnel in retail and childcare services. On start up we will have six trained staff to provide services and expect to hire four more once financing is secured. To begin with the co-owner Zafar Iqbal will be scheduling and coordinating services but we plan to hire a full time store manager this year itself.

The management consists of Rajkumar Popat. Rajkumar has extensive experience in business development .Based on the size of our market and our defined market area, our sales projections for the first year are Rs 95.81 lakhs.

We are seeking an operating line of Rs 25 lakhs to finance our first year growth. Together, the owners have invested Rs15 lakhs to meet the other capital requirements.

The lovely toys showroom and the play-zone that we will provide are bound to appeal to the children as well as the parents across Ahmadabad.

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Overview of the Industry

INTRODUCTION

The toy industry mainly concentrated in and around the metropolitan cities of New Delhi and Mumbai in India, is characterized by small-scale establishments. Of late, the toy industry has been internationalized. The application of new materials and technologies have added value to the variety of the toys. Today, the use of toys is unlimited. They are used for decorations by adults and for education & play by children. Toys are also being used for entertainment and child development. Plastic toys, along with soft toys (mainly dolls) and board games, make up about 80% of the Indian market in value terms. The change that is discernible is the decline in

Importance of board games (other than puzzles), which involve play by a group of children. Those in the trade argue that, with smaller family size today and the growing incidence of both parents working, there is little scope for board games, which families used to traditionally play together. The emphasis these days is much more on toys, with which a child can play on his/her own.

Market Dynamics of the Indian Toy Trade

The Indian toy market exhibits some of the characteristics common to any toy market while others have uniquely the Indian character. Individual toys have a short life cycle. There is a constant need for novelty. Consumer tastes change rapidly. Resurrection of old toys does not work – a new content has to be added or altered. These rules, in general, apply to most toy markets internationally. In addition, the Indian market has its own angularities.

Toy sales in India have well defined seasonal patterns coinciding with the festival season. Generally, the time period from July to November is the high season with temporary surges in some States in December & March. Toy selling in India often involves selling to 3 individuals simultaneously, namely the child, who will use the toy, the mother, who is concerned with safety, space to play, etc. and the father who controls the purse strings. The market is also highly price sensitive. This trend has been reinforced by the entry of large-scale imports of cheap and novel toys from China. These have mostly been unbranded, of low priced and indifferent quality toys.

The Indian toy market is presently characterized by limited product innovation and insignificant expenditure on advertising or brand building. The advertising expenditure is restricted to big toy manufacturers like the Mattel, Funskool & Lego. Even in their cases, this is minimal in India. Knock offs are commonly seen. Indeed some of the most successful toys in India in the recent past, such as toy mobile phones and puppy savings bank, have been knocked off as well. The fact that many of the Indian toy companies had started as workshops or small factories without sufficient training in the latest management techniques had left them without basic strategic thinking. Today, with the lowering of tariff barriers, the market is open and these industries are facing the challenge of ensuring their competitiveness in a sector where both distributors and multinational competitors play a major role. Yet another challenge is the availability of cheaper products from the South- East Asian countries.

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With the entry of global brands along with the availability of low priced Chinese inputs, the toy industry in India has undergone major changes. After removal of Quantitative Restrictions, the import of toys has jumped from around US$ 7.0 million to US$ 31.0 million in 2000-2001. Realizing its potential, the time is ripe to put the Indian toy industry on the world map. In 2003, the estimated global market of toys was around US$ 85 billion and the Indian toys can have a major share of the world market provided they are based on the latest technologies and are properly marketed for effective competing in the emerging global market.

The past decade has seen the Indian toy industry making quick strides in terms of production and exports. At present, India produces a wide range of toys, namely plastic and mechanical activity toys, plastic and soft dolls, stuffed toys, board games, puzzles, educational games and toys, metal toys, electronic toys and games. It is estimated that the toy production in India is around INR 5.50 billion in the organized sector and INR 12.50 billion in the unorganized sector with nearly 20% annual average growth rate. There are more than 3000 units in the small-scale sector including large number of units in the cottage sector. Some large/MNCs’ toy units like the Mattel, Lego and Funskool are also present in India. With international quality toys available in India now, the average spending on toys has increased substantially and this process is supported by an increase in disposable income at the customer end.

Introduction

“To every child, presenting a toy creates a special attachment between the two.”

We intend to satisfy the needs of the children mainly aged below 10yrs. by having an “EXCLUSIVE TOYS SHOWROOM” as a part of organized retail, catering to almost all the trifling requirements of kids.

Service will be one of our main focus areas wherein we intend to have a “play n feel the toys” zone attracting the kids to enjoy with toys. This facility will give a real feeling of amusement to children, hence attracting the kids and parents towards it.

Thereafter we will also provide a baby sitting facility for parents shopping throughout the mall and in the meantime the trifling needs of babies will be taken care of.

Secondly, we will focus on disintermediation of procurement channel by directly sourcing the finished products from the toy manufacturers mainly from China & other manufacturers from India.

Most importantly we are looking forward to revolutionize the toy industry by having merged quality with fun wherein all the safety issues would be taken care ensuring the source of playfulness not becoming a hysterical item.

Above all our long term goal is to make our retail outlets as a brand name well recognized in toy industry and increase the organized retail market share in toys segment.

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Management Team

POPAT RAJKUMAR C

Rajkumar was born and brought up in state of Gujarat and has great knowledge in understanding the culture and people of Gujarat. He has completed his graduation in B.E. Mechatronics from Gujarat. He is also doing is MBA (Finance) from ICFAI Business School which is ranked 8 th best B-School according to Outlook magazine in 2007. He is also been placed in Satyam Computers Limited 3rd best software solutions company in India. He was also been awarded 3rd in national level project presentation competition during his graduation. He has got very strong family background with father as a businessman and his brother working as a Senior Manager - Business Development in Elitecore Technologies in Ahmedabad (Gujarat). Rajkumar would contribute his knowledge and expertise in operations and marketing will be an asset for the team.

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Marketing Plan

SWOT Analysis

Strengths:

Our business would impart touch & feel factor to the child

We would impart child caring facility in our store where the parents can leave their child and go for shopping which will in turn lead to sales by having child for more hours in shops & can be addicted or fascinated to any of the toy

Presence in Malls (for maximum footfalls)

Large & Growing Population (Market Size data to found out) – Age group between 0-8 years

Maximum Loyalty towards shop

Demonstration Effect

Higher Margins due to large imports from China, Hong Kong & other countries

Wide range of products to choose

Fewer bargains for the products

Increase in disposable income of middle class

Weakness

Emotional attachment towards toy which leads to non repetitive buying

Price sensitivity market

Safety Issue in terms of lead contain, sharpness of toys etc

Individual toy have shorter life cycle & consumer taste changes rapidly

Opportunity

Untapped organized sector which consists of only 10% of total toy industry.

Better support from government

Demand for Educational toy in the market

Threats

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Due to large expansion of Mall Culture, there is increase in competition from the players

Big Fish with deep pockets will able to sell products at competitive price (Entry of global brands)

Marketing Mix

The marketing mix is often summarized as the four P’s – Product, Price, Place and Promotion.

Product

The type of product that would be placed in the store will be dependent on the age group. During the initial period the store would cater to age group of from the day child is born to 8 years. The later as the store expands and capital is generated the store would cater to toys catering to people with age more than 8 years and toys for adult.

The product that will be defined within age group is as follows

0-24 months: Teethers, squeaks, Tomy, balls, soft toys, baby education toys and others.

Photos of some of products are given below.

2 years to 4 years: puzzles, cars, Helicopters

Photos of some of products are shown below

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4years to 6 years: Magic tricks, electronic cars and helicopters, electronic gadgets and toys of film stars and other famous personality, famous cartoon character, Barbie & others.

Photos of some of products are shown below:

6years to 8 years: Tricycles, Bicycles, and other ride on toys. Apart from that the musical toys and electrical operated toys will also be placed in the shelves

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8 years to 10 years: Board room games, chess and other family games would be the major attraction

The stuffed toys and Plush toys would be all time major attraction towards the customers.

The above mentioned is only a part of whole list of offerings offered by the store. The main unique selling proposition would be the Indian touch in toys. We will also try to procure the toys of famous personalities –all time legends like Shahrukh Khan from film industry, Dhirubhai Ambani from business, Narayan Karthikeyan from F1 racing like all the famous personalities in their respective fields will be incorporated as toys. The toys projected in any of Bollywood and Hollywood industry will also be major attraction for the customers.

We will try to innovate and help suppliers to also make customized product if possible and thereby increasing the revenues. The key to business will be continuous innovation in all product ranges.

Price:

The price of the product sell in the shop will depend on the sourcing and also the total cost of procurement. In the initial years of opening of shop we will not be having competitive pricing but the prices would be at par with other competitors in the market. After years of experience in the business and due to strong hold with the suppliers, we will be having a bargaining power with the suppliers and will try to sell product at lower prices compared to competitor. We will be having Lowest Prices in the Town in one of product everyday to attract as many customers as possible. Moreover the product would be selling at par with our costing, so we won’t be able to generate from the product sold at lowest prices. The whole list of prices with the name of the product is attached in the annexure 8.

Place:

The majority of the product would be procured from China and also some of the product would be procured from India itself. The main source from India would be Chennai, Noida and Mumbai. The sourcing from China would be in terms of imports via sea route. The toys would be shipped to Kandla port, Surat port or Mumbai from where it would be taken to Ahmedabad. The cost of procuring of the product is already been included in the financials. The time for procurement of goods would be taking near around 28 days from the day of placing of order from China and the procurement from Chennai or Noida will take maximum four days and from Mumbai it would take one day lead time. The toys would be stock in the store itself; there won’t be any special storage place or another location of the toys. The toys would be readily available to the customers on demand if stock is available.

Promotion:

The less effort would be required in terms of promotion as the store will be located in the Malls. The malls itself are having the high foot falls rate compared to stand alone shop. But still promotion will be required to create a buzz in the city which would be carried out be two means.

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1) Print Ads in local newspaper. As maximum people in Gujarat are habituated of reading of local newspaper, so the ads would be given in local newspaper on repetitive basis. The ads will also be given in other non local newspaper but frequency of ads would differ in both the cases.

2) Advertisement would be carried out in radio stations. Continuous announcement would be given in all leading radio stations like Radio Mirchi and Big FM.

3) Distributions of pamphlets would also be one of the marketing strategies for carrying out promotion. As in the initial period it is not possible to be present in all the malls, so distribution of pamphlets in all the malls will be carried out on weekly basis.

4) All this promotion will in turn lead to Word of mouth marketing5) In later stages of business the viral marketing will also be carried out.

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OPERATION PLAN

Location

The location selected for opening an outlet is AHMEDABAD (Gujarat). Ahmedabad is the largest city in the state of Gujarat and the seventh-largest urban agglomeration in India, with a population of almost 51 lakhs (5.1 million). The city is witnessing a major construction boom and population increase. A rising centre of education, information technology and scientific industries, Ahmedabad remains the cultural and commercial heart of Gujarat, and much of western India. Since 2000, the city has been transformed through the construction of skyscrapers, shopping malls and multiplexes.

The main reason behind selection of this city is the city is developing stage & we witness tremendous opportunity in the coming years. Moreover the IT hub is been established in the Gandhinagar, town near Ahmedabad which is just 35kms from the city. The IT hub being established will lead to great rise in the disposable income of software professionals which will in turn lead to revenues in our business. The city is also gained the accreditation of MEGA CITY from the GOI. The real estate cost in the city are not very much high compared to MUMBAI & DELHI. The real estate boom will be going to come in the city so we don’t won’t to miss the opportunity to be there within couple of years.

The reason for selection of the city is its proximity to MUMBAI & DELHI which are considered to be the major supplier in these industries. The state has also having its shipping port (Mundra) near Surat which is around 260kms from Ahmedabad and also in Kandla port which is around 350kms from the city which will help in procurement of toys from CHINA. The proximity to the city will help in reducing the transportation cost and increasing overall efficiency and savings in operations.

The third reason for selection of the city is high rate of literacy and also the increased spending power of the people of Gujarat. The Gujarat stands 5th in India in terms of literacy combined with the size of the population.

The last but not the least reason for selection of the city is the knowledge about the city. The two of founder members of the team are basically from Gujarat which will help in better understanding the mindset of people of Gujarat. Moreover the contacts of the members and families will in turn help in growing and understanding of the business.

Type of Building

The location of the shop would be in the malls and supermarkets where the footfalls are maximum. The one of great mall currently half developed in Ahmedabad is the Iscon Mall in SG Highway in Ahmedabad. The other location for opening of store is the upcoming mall from DLF India on the same road. The prime concerns about the location of shop is the footfalls in the malls and also the malls becoming favorite pastime for all youth and leisure place to spend weekends for family. The Reliance Mart located in ISCON mall in Ahmedabad surveyed that daily footfalls in weekdays to be around 10000 people and in weekends the no. of footfalls to be reaching 15000. The ISCON mall also has Westside

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and other many branded shops apart from two major anchors which act as major attraction for the public. We would be targeting the Big Bazaar and Reliance Retail which cater to middle class customers which would be prime customers for our shops. Moreover the youth attracted by other branded shops in the mall would also be targeted customers.

Amount of Space

The amount of space needed would be around 2000 sq feet of area which would be more or less compared to any retail chains. The amount of space needed would be targeted in malls in the basement near around the entry of Reliance and Big Bazaar shops. We targeted the basement due to its cost effectiveness. The shop would be lease for 5 year period for the initial purpose and then if needed would be bought out. The general lease rental of the area in ISCON mall is around Rs 55-80 per sq feet. So the lease rental would be around Rs 150000 per month in the same mall. So we would target the under construction malls to reduce the cost of leasing.

Other Details

The transportation of items i.e. toys would never be the problem due to its presence in the malls and as these shops is located on SG highway in Ahmedabad, so it won’t be any problem.

The parking would never be the problem as it would be always take care by the mall owner and every mall is designed to accommodate maximum parking area. The ISCON Mall has currently the capacity of parking space of 610 cars and 795 two wheelers. So we don’t think parking as any problem for customers.

The business hours of the shop would last from 10am to 10pm as major mall timings. We see the timings to be getting extended at weekends. Moreover the timing would be subjected to the change.

Inventory

Items included would be toys of all kinds ranging from the toys that cater to just born babies to the age of 14 years. The shop would be exclusive toy shop and some of items included are there in the marketing plan. The major procurement of the toys would be from the China which leads to cost effective and remain competitive.

The list of items inventory or say SBUs are listed in the appendix 1. The appendix gives details of Items listed along with quantity and also the estimated price.

Lead Time

The main source of supplier would be from the Shantou in China and from Shanghai in China. The other supplier from India would be the Hanung toys in Noida, Mattel Inc. in Chennai and also the Funskool India Ltd in Chennai. The average lead time to reach the container full of toys and games from Shanghai to Kandla will take 28 days and from Shantou to Kandla will take 25 days to reach to the port of Kandla.

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After reaching the Kandla port and completing all the formalities of import it will take near around 8 hours to reach to our store in Ahmedabad at desired location. The toys procured from Chennai and Delhi, Noida will take 2-3 days to reach to the destination Ahmedabad to the store.

The cost of transport of freight from China to India ranges from 428 USD to 600 USD depending on the date of ordering. The other cost of transportation from Kandla to Ahmedabad would be around 5000 INR. The cost of procurement of consignment from Mumbai to Ahmedabad would be is 3000INR and from Delhi/Noida it is around 8000 INR.

So the lead time if calculated to import from toys from China would be around one month and from procurement from India only it would take around one week from farthest place i.e. Chennai in India for procurement of toys.

Sales Estimation

Due to prime location of the shop in the malls we expect the sales to be reaching high in the weekends and also in the festivals. As mentioned earlier we the average footfalls is around 10000 per day in weekdays and 15000 per day in weekends in alone Reliance Mart in ISCON mall, we expect sales of 6000 INR daily in weekdays and 10000in weekends in starting 4 months of the starting of the shop. After 4 months due to marketing and advertising and also through word of mouth marketing we expect the daily sales to be reaching 10000INR in weekdays and INR 15000INR in weekends.

This figure comes from the fact that out of 15000 people visiting ISCON Mall daily on an average, around 82% are parents and remaining are youth. So out of 82% of total population we average that around 35% of parents would be with child who comes for the shopping. As mentioned that we shall be a unique adventure in the shop as a playing area specially allotted for the kids to play with the toys which ever they want out of majority of samples placed in playing area. The other advantage is that the child would be taken care of specially trained employees and all this package would come for free. We expect the shopping time taken by any parents would be around 1 hour. So we provide facility for parents to leave their child to play in the shop and if they want they can buy the toy. We rely on the fact provided by the doctors that one hour is enough for a child up to 6 years to get addicted with the toy. Hence as a child gets addicted to play with the toy, they would force parents for purchase of same toy. We only expect 75 customers to get converted out of minimum 1500 people visiting per hour (which is around just 5% of total customers visited in the mall.)

The other occasion for increase in the sales would be the festivals and also the Valentine’s Day for the youth. The shop target customer is up to 14 years but due to presence of Splush toys and also teddies and fur toys which stand attraction for the youth, so we expect the sales to increase in valentine day.

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Production

Production Techniques and costs

The production of toys will take place in China but the design and style of toys to be made will be monitored by us. The Chinese production will help us in reducing the costs. For us the major costs would be the cost price +the cost of procurement +cost of inventory management.

Some of the factors which may work in favor of us are the following:

Proximity to Kandla port and Mumbai port Proximity to Mumbai &Delhi Direct Procurement

Some of the factors which may work in against of us are the following:

Direct procurement means heavy consignments to be ordered, this may lead to 1. Blockage of funds.2. There will always be pressure to sell at earliest as some of the toys may go out

fashioned.3. All procurement procedures like ordering, shipment, receiving etc. contains high risks.

We will face direct competition of both retailers as well as wholesalers

Quality Control

One of the major concerns related to Chinese imports is ensuring better quality throughout the product range consistently. Also, quality is one of the major issues which are directly related to children’s safety; therefore we intend to have two tier systems to control quality.

1) The set of general guidelines of Do’s and Don’ts for the exporter of toys.As for e.g.-None of the toys should contain any sharp material which may harm the child physically.None of them should contain any amount of Lead as swallowing of such material may lead to fatal consequences as has happened earlier also.

2) Standard Purchase Specifications for each order mentioning everything like size, weight etc in detail.

Some of the issues which we will take care of while handling quality of toys are:

Weight- Light weight items will be preferred and toys with weight which may become cumbersome for children will be avoided.

Anything which could be swallowed by child should be avoided Breakability-Shouldn’t be easily breakable Use of sharp material in the toys will be unacceptable In case of big toy easy assembling facility should be present with proper guidelines.

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Quality testing of toys

We will have quality testing norms based on US standards as there are not specific rules and regulation persistent in India. The rules of CPSC (Consumer Product Safety Commission) are followed in US for testing of toys for lead content in paint surfacing/coating. According to CPSC 16 CFR 1303 - Paint and similar surface-coating materials for consumer use that contain lead or lead compounds and in which the lead content (Pb) is in excess of 0.06%of the weight of the total nonvolatile content of the paint or the weight of the dried paint film are banned.

In addition to the prohibition of lead content, surface-coating materials shall not contain hazardous heavy metal compounds, of which their soluble contents exceed the levels by weight as summarized in the table below:Table 1 Maximum Soluble Migrated Element in ppm (mg/kg)

Toy material

Antimony Arsenic Barium Cadmium Chromium Lead Mercury Selenium

60 25 1000 75 60 90 60 500

The lab test would be done on every procurement of items which monthly. We will also ensure the supplier being selected is been certified by international standards. The supplier should be certified with ASTM F963.In the initial years we would be rely on the testing provided from the lab test. After 2-3 years and gaining some bargaining power with suppliers, we will ensure the following quality testing for every procurement.

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Customer Service

As our major way of attracting the customer is through touch and feel factor we intend to have a play zone where the children can come and feel the toys and then buy them. This may require close monitoring and assistance and so attendants will be present who can increase the customer satisfaction by suggesting the right product. Through this the sales can also be increased by adopting different techniques like link selling / cross selling.

Inventory Control

Inventory will be monitored in a similar fashion as of general retailers .We will have tags which could be punched in system with sales and hence a track record of sales of different product can be kept. This will help us to maintain a minimum stock available and have timely procurement.

Product Development

Products as such would majorly be sourced from the manufacturers but looking at the latest trends and character craze (like-Krissh, Hanuman based on latest movies) we will suggest them the same with design and other specifications.

Disposing of Used toys

There would be many toys kept in the playing area provided for kids. As per our estimation the toys would last for maximum 1-2 months depending on durability of the toys. After which toys become unusable. There should be some mechanism to dispose of the used toys, so we have decided we would keep the toys in following range and estimated salvage value after its useable life.

MRP(Rs ) Salvage value (Rs) (20%)

800-999 160-200

700-799 140-160

500-699 100-140

400-499 80-100

300-399 60-80

50-299 10-60

We shall sell the second hand toys to various local retailers or unorganized players in Ahemdabad. The unorganized

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Considering the display items we think they will be depreciating to a large extent so we have decided that at the end of one to two months period we shall be able to sell of the Rs 1000 item at Rs 200 (@ 20%) and toys lying in the range of 400 -50 will be disposed off in the range of 100-10 Rs.

As an organization policy we have decided not to keep toys whose value exceed Rs 1000 in display to avoid losses.

ABC Analysis

ABC analysis is a business term used to define an inventory categorization technique often used in materials management.

ABC analysis provides a mechanism for identifying items which will have a significant impact on overall inventory cost. Thus providing a mechanism for identifying different categories of stock that will require different management and controls

When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity issued/consumed in period) with the results then ranked. The results are then grouped typically into three bands. These bands are called ABC codes.

Range(Rs) Value in Rs Value (%)

29-499 (A) 2000000 49%

500-999 (B) 167000 41%

1000-2500 50000 10%

From the above analysis we see that the goods which were in the range of 29-499 have the largest volume as well as value. This is in contrast to the ABC theory which states that the "A class" group will typically account for a large proportion of the overall value but a small percentage of the overall volume of inventory. They are classified as A category since they constitute about 50 % of the total value. The toys which are in the range of Rs 500-999 contribute about 41% to the total revenue. They are categorized as B category of goods. Last but not the least is C category which contributes about 10% of the total value.

From the above analysis we can observe that category A and B goods are very fast moving and we have to focus more of our resources on these categories than C which is relatively less moving and expensive category. So demand for C category shall be less compared to A and B.

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Personnel

In order to manage the day to day operations we along with three partners have decided to keep the following personnel for smooth operations. In order to reduce our fixed expenses we have restricted ourselves to six employees in the initial three months of our operations. However with time and requirement we shall keep increasing the strength.

Number of employees:

Store Facilitators-3 Play Zone and baby sitting facilitator-01 Inventory management-01 Store Manager-01 Housekeeper-01

Type of labor

Knowledge of English and local language is a must for every employee

Semi Skilled with retail or sales experience for facilitators Experienced and skilled personnel for store manager and inventory management(prior

experience in retail industry required- 2years as manager/supervisor) We will try to have a mix of both experienced personnel and fresher giving a blend of passion

and experience.

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Financial Details

The financial detail of whole plan is attached in the appendices which include the balance sheet, profit and loss account and also the cash flow statement. The personnel cost and starting expenditure are also attached in the different sheets. The ratio analysis is been attached in the appendices.

The list of assumptions has been taken and also the projections have been made for the preparation of business plan. The descriptions of all the items are explained below.

Items in Appendix 9 Rent Expenses

1. The shop starts from procurement of land at prominent location. As already mentioned in operation plan the location selected for start of business is Ahmedabad, we have calculated the rent based on currently prevailing rents in the malls

As currently prevailing rent for is Rs 70 per sq ft in mall. We have taken inflation of 5% and calculated the one year hence rent which comes out to be 73.5 (70[prevailing rent]*1.05[Inflation]). The size of shop would be of 2000 sq feet including the playing area of kids. The total annual rent comes out to be 1.76lacs (2000*73.5).

Items in Appendix 1 – (Expenditure)

1. The flooring cost, false ceiling cost and lighting cost are taken at rate of Rs 125, Rs 100 and Rs 100 respectively per sq feet of area. The fixture, signs and equipment cost is calculated at rate of Rs 35 per sq feet. The A/Cs installations are assumed to be four in nos. at rate of Rs 1lac each. The security and CCTV cameras are assumed at rate of Rs 10000.

2. The startup inventory is calculated based on the Appendix 8 Prices

The prices of each item required and also the quantities to be ordered are used in calculating the Total price of inventory. The additional cost of Rs 4 lacs is added as the list of items are not the exhaustive list and hence to be on safer assumption the additional amount is been added. The other assumption taken is increase in prices of product by 10% due to assumed prices of product. The total cost is equal to startup inventory.

3. The items in sunk costs are assumed at rate that would be prevailing after one year taken inflation into account at rate of 5%. The insurance is taken as 3% of investment in depreciable assets and startup inventory. Hence the total startup Expenses comes to Rs 15.4 lacs.

The security deposit is taken as Rs 15lac. And hence a total asset comes out to be Rs 52lacs.

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Items in Appendix 2 - Profit and Loss Account

1. The sales figures are calculated based on

Revenue= No*of Footfalls*Conversion Ratio*Average Billing Size*store hours

No of footfalls = 75 (15000/10 hrs * 5%)

Number of footfalls for ISCON Mall 15000 per day as per estimation given in business line and their site. The mall remains open for 10 hours, hence 1500 visitors per hour. Only 5% of total visitors visit our store.

Conversion Rate = 10% (Conservative approach)

Conversion rate of footfalls for Pantaloons and Lifestyle are 40% and 58% respectively which they say is higher than the industry average. And since our store is a newer one more people would be visiting the stores in the initial months, but only few will purchase.

Average Billing Size (Rs.) 350 April '08 to September'08

420 Oct ‘08 to March '09 (350*1.2*)

546 April '09 to March '10 (420*1.3*)

764.4 April '10 to March '11 (546*1.4*)

* Increase in 10% in bill size every year

The average retail cost per item in store is Rs 500. Assuming that it will take some time initially for the customer to trust the store and its services the bill size is taken as Rs 350.

Store hours = 10hrs

Normal working hours for a specialty store in Ahmedabad is from 10:00 am to 10:00 pm.-Effectively 10 hours

2. Cost of Goods sold = % of Revenue

40% April '08 to March '09



A normally functioning specialty store will have COGS in the range of 25-30% of sales. So here, COGS is assumed to decrease gradually from 40% to 30% over a period of 3 years. In the initial years it will be

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high as the stores will take time to develop its supply chain and relationship with its suppliers and thereby procure goods at reduced cost.

3. Power & Fuel Cost =1.5% of Revenue (Industry Average)

4. Rent calculated based on Appendix 9

5. Repair and Maintence = .25% of Revenue (Industry Average)

6. Employee Cost

The store will be having one store manager and 5 sales staff and also one house keepers. The three owners would involve themselves in the finance, operations and marketing divisions respectively. The rate of each employee is given is Appendix 7 (Employee Cost)

7. Telephone cost and internet are assumed to be Rs 7000 per month for telephone and Rs 3000 per month for internet services.

8. Advertising and Marketing = 5% of Revenue

9. Selling and Administrative Expenses = 3% of Revenue(Industry Average)

10. Transportation and handling = 1.5% of Revenue(Industry Average)

11. Insurance based on Appendix 1

12. Interest on Loan is at rate of 16%

The interest would be on long term liabilities and working capital requirement. The long term liabilities is calculated based on security deposit to be paid which is Rs 15 lacs and working capital requirement is calculated on assumption of 70% of cost of goods sold.

The rate taken is 16% for the startup enterprises which face difficulty to obtain loan at low interest.

13. The miscellaneous expenses = 10% of startup expenses. (Industry Average)

14. Depreciation is calculated on WDV method.

Items Rates (p.a)

Computers and softwares 20%

A/Cs 10%

Furniture 15%

Vehicles 15%

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Miscellaneous 10%

Items in Appendix 3 – Balance Sheet

1. The Capital would be consisting of total of Rs 15 lacs. Each partner of business will bring the capital of Rs 5 lacs.

2. The long term liabilities would be consisting of security deposit needed for opening the shop in the mall. The amount for the same is Rs 15 lacs.

3. The working capital loan consists of 70% of cost of goods sold which is considered as a standard accounting practice.

4. The current liabilities are considered 15% of cost of goods sold which is same as that of industry average.

5. The gross amount is the total cost of all depreciable items.

6. Inventory consists of the total cost of all the goods stored i.e. the total inventory cost.

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Critical Risks:

There are few risks to the business which can affect the growth of business as a whole. There is no technological risk to business because we are the retailer of the toys and not the manufacturer. But yes there is always the risk of obsolesce of technology used by the supplier. As the whole business is based on import of toys from China and other developing countries like Malaysia and other South – East Asian countries, there is always the risk of regulatory changes made by government. Currently there is no regulatory cap been imposed from import of toys hence one import the toys of any amount. But if restriction is imposed it would directly affect the business. Hence the regulatory risk is the main factor that would affect the major to the business. As this sector is unorganized and no one dominates the market, so to increase the growth of this sector we think government will not put any cap on imports of toys from other countries for next 5 years.

The other risk to business is increase in competition as this sector is unexploited. The other thing is when companies with deep pockets try to enter there will be always price wars. But we are optimistic that as major companies enter into this segment so they come with a bang and great advertisement and hence there will be always increase in customers in this segment. If there is situation of price wars then we will have first mover advantage and also by the time they enter we would have string network of suppliers and also the customers. Moreover the hard fact is that this sector is price sensitive but also shows the highest loyalty in this sector. By the time big players enter we would be having an edge with greater customer base and also higher contact with the suppliers.

The one of other critical risk in the business is the quality testing of toys which are been imported from China and other countries. Currently there have been various issues regarding quality of toys which are been imported specifically from China. The lead content in the toys was found to be very high then the desirable limit and hence there was various problems leading to the health of children. The lead content in toys is above the desirable limit could cause severe harmonic disorder in the children, hence utmost care needs to be taken. The Indian government has not specified any rules for the quality of toys testing but it is clearly mentioned in the U.S standards. To overcome this risk we would have more stringent rules and methods for quality testing of toys before importing. We would also be very choosy in the selection of suppliers who got certified of ISO9002 QUALITY TESTING SYSTEM CERTIFICATE and passed EN71, EMC, EN50088, ASTM, etc.

The other critical and most important factor and not the risk is the need for continuous innovation. The retailing of toy store needs innovation in terms of service and also in term of designing of the product. We plan to be also the designer of the toys and provide our patterns and design to the manufacturer to make it. We expect this to be in plan of 15monthsdown the line or even earlier as depending on the relation with supplier and also with turnover expected in the business we could be very well in situation to bargain for the design. Moreover we currently witness the huge potential of sales of toys that appeared in the movies like Hanuman, My friend Ganesha and also Harry Potter series. The stick used in Harry Potter and also the mask of Krissh showed a tremendous increase in sales in many companies. So we think one of key concern would be the strength of our design team to suit the requirements of kids and providing continuous new things to the customers.

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The financial trouble would not be a problem if we are able to reach our sales target efficiently. We are having a break even in the very first year of the business so to be very realistic if everything goes well then it is happy going. But if say sales forecast are not achieved in two years and in worst condition we are able to achieve only 50% of our targets then also we would breakeven and make profit in 3 rd year with assuming the rate of increase in customers visiting our store and marketing of our store and unique feature of customer service.

Exit Strategies

Due to the two basic natures i.e. flexibility and scalability of our business the exit will be lot easier for the strategic investors. One can very easily exit the business.

Our business is flexible in the sense that its business model is quite simple and replicating it else was will not be so difficult. More over after establishing ourselves in the most happening city of Gujarat we would like to enter the markets of Surat, Vadodra in Gujarat and Mumbai in Maharashtra, Hyderabad in south and New Delhi. In a span of 3 to 5 years.

Few of the possible exit strategies which are possible are in the due course of time shall be :-

- By converting equity to debt and thereby getting a loan to pay back the investor within a span of 3 years.

-After having created a good brand and market share we might even think of selling the business to potential investors. With the present growth rate and development of Ahmedabad it shows a huge potential in the near future with regards to consumerism and disposable income. This is going to attract the attention of several investors .And its very much likely that the likes of Reliance Retail ,Bharti Wall- Mart ,etc. shall pave path for us to sell our business to potential entrepreneurs or investors.

-Other option could be by selling present investors stake to new investors by making them realize the hidden potential in the business and by highlighting the fact about the potential market .This shall be the possible within a span of three years .It shall be in line with the plans of scalability in terms of extending our stores to other parts of the country .this shall make the investment opportunity a lucrative one for the new investors.

-With the major expansion plans of presence pan India we can even think of coming out with Initial Public Offer whose size shall be decided in the due course of time as per needs and size of scalability .It should be within three to five years .This will make the exit route lot easier for the strategic investors.

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Documents

Final Business Plan