Business Feasibility Plan - edwards.usask.ca Painter/businesspl… · Web viewChapter 5.0The...

P r e p a r e d b y :A l e s h a G o o d w i n

T r a v i s M a g n u s

F i n a l B u s i n e s s P l a nC o m m 4 4 7

D e c e m b e r 2 , 2 0 1 1

Fresco Interiors [Business Feasibility Plan]

Table of ContentsPage

Chapter 1.0 Introduction

1.1 Company 51.2 Mission Statement 51.3 Goals and Objectives

1.3.1 Short Term 1.3.2 Long Term

5 6 6

1.4 Industry Overview 6

Chapter 2.0 The Operations Plan

2.1 Logistics and Operations 72.2 Suppliers 82.3 Location 2.3.1 Site Plan 2.3.2 Floor Plan2.4 Budget 2.4.1 Capital Budget 2.4.2 Operating Budget

999101011

Chapter 3.0 The Human Resources Plan

3.1 Roles and Positions 3.1.1 CEO 3.1.2 Design Consultant 3.1.3 Design Assistant 3.1.4 Key Holder 3.1.5 Retail Associates

111112121313

3.2 Structure3.3 Human Resources Challenges

1314

Chapter 4.0 The Marketing Plan

4.1 Market Analysis 15 4.1.1 Past Performance

4.1.2 The Market1617

4.1.3 Competition 18 4.1.4 Customers and Target Market 4.1.5 Product/Service Features 4.1.6 The Opportunity

192021

4.2 Marketing Strategy 4.2.1 Sales and Profit Objectives 4.2.2 Distribution

212121

Prepared by: Alesha Goodwin & Travis Magnus | 2


4.2.3 Pricing Policy 4.2.4 Product/Service Mix 4.2.5 Selling and Advertising 4.2.6 Implementation4.3 Marketing Budget 4.3.1 Figure 1: Projected Revenue Breakdowns 4.3.2 Figure 2: Marketing Budget Costs

21212222

2424

Chapter 5.0 The Financial Plan

5.1 Financing the Expansion 255.2 Break-Even Analysis 255.3 Critical Risk Factors 255.4 Contingency Plan 26

Chapter 6.0 Conclusion 26 Chapter 7.0 Works Cited 27

Chapter 8.0 Appendices8.1 Appendix A: Map of Saskatoon Location 288.2 Appendix B: Air Source Building Prototype 298.3 Appendix C: Proposed Floor Plan 308.4 Appendix D: Operating Budget (FM)8.5 Appendix E: Organizational Chart8.6 Appendix F: Projected Sales Schedule (FM)8.7 Appendix G: Positioning Map

31323334

8.8 Appendix H: Marketing Timeline 35



Executive Summary

The expansion of Fresco Interiors into a retail location makes logical sense at this point. There is a demand for their products to be more easily accessible to clientele as well as a need for more warehouse space to accommodate the inventory needed for Fresco Interiors projected rapid growth. This opportunity capitalizes on the businesses current success and repertoire with over 3000 clients. Providing a strong factor that mitigates risk in this expansion.

The decision to provide custom artwork will act as a point of differentiation for Fresco Interiors. Although the idea of custom artwork can be replicated, the pieces themselves cannot. Fresco will however have the first mover advantage.

There are a number of interior design businesses currently operating within Saskatoon. Fresco Interiors will be able to differentiate itself from competitors in the market place by offering the retail location for walk in customers. Another value added proposition for Fresco’s clients is Charlene’s ability to offer artwork custom to each individual’s specification to complete a room if artwork cannot be found to purchase.

Saskatchewan residents per capita currently spend the most on home décor out of any other province in Canada outside of Ontario. The housing market in Saskatoon has continued to expand thought the recent global economic recession, and forecasts are still projecting growth for 2012. These are indicators that the interior design industry in Saskatoon will have demand in the future. Sales projections of $52,000 have been predicted for 2012 based on the sales figures of 2010. Net profits are projected to be over $40,000 dollars after a salary has been taken out for the owner.

The owner of the business has built the company up to the point where last year the company had a net profit of $149,000 (before salary was taken). Before starting this business the owner had operated a retail outlet. The knowledge and reputation that Charlene has built up is her most valuable asset and will be the biggest competitive advantage.

There will be a total of six people involved in the company to make this expansion happen. Char currently has a full time designer hired along with a design assistant. Three additional employees will need to be hired to operate the retail side of the business.

The main critical variable in this venture is the number of design clients that the company can get. Each designer will need to have two to three design clients per week in order to break even if the sales of the retail outlet are slower than expected. Based on previous years we do not foresee this being an issue.

The potential returns on this venture are very large. However using financial ratios alone do not give an accurate depiction of the health of the company because there is such a low capital cost required expanding the company. The rewards far outweigh the risks in this feasibility study.



1.0 Introduction

1.1 Company Overview Fresco Interiors Design Group is an interior design company that provides clientele with expert advice, products and services for all of their interior design needs. This company was started in 2008 by Charlene Schumacher, the company’s sole shareholder and CEO, out of her private and personal office located in Delisle, Saskatchewan. Since first starting Fresco Interiors, Charlene has begun to expand product offerings and services to accommodate a wider variety of personal and commercial needs. When Fresco Interiors first began, it was a sole proprietorship; however with a growth in her customer base and expansion of business activities Charlene decided to incorporate her business under the official name of Fresco Interior Design Group. Since her incorporation, Charlene has continued to experience large growth in her customer base (over 3000 customers), as well as increased demand for her products and services. This increased demand and potential to capture more market share has lead Charlene to consider a new expansion for her company in the form of a retail location in Saskatoon, Saskatchewan. Charlene hopes that with this new opportunity, there will be potential for a long-term expansion of her company into some type of franchising or licensing agreements.

1.2 Mission Statement

“To gently serve our customers to make lives more beautiful, and leave homes filled with light

and kindness”

1.3 Goals and Objectives

1.3.1 Short Term

All of the following goals are preliminary to the opening of the new design store in Saskatoon.

Build on collection of exclusive design suppliers in order to be able to provide the

greatest variety



Develop new marketing communications strategies to make information flow more easily

between designers and consumers

Creation of a new inventory management system to ease the process of ordering and

reduce time between ordering and delivery of new inventory

Hire new employees, with design knowledge, skills, and abilities to work in the new

retail addition

Develop custom artwork showpieces for display in the store

Complete design plan for visual merchandising within store

1.3.2 Long Term

Develop extensive list of high profile clientele to expand company reputation with

stakeholders

To create a design center resource for Saskatoon and surrounding area, to build on market

share enough to reach 1 million + in sales annually by year five.

Utilize brand equity to capitalize on potential expansion options (ex.

licensing/franchising Fresco Interiors)

1.4 Industry Overview

Background that describes the industry in which the organization operates

Interior designers draw upon many disciplines to enhance the function, safety, and aesthetics of

interior spaces. Their main concerns are with how different colors, textures, furniture, lighting,

and space work together to meet the needs of a building's occupants (Bureau of Labour Statistics,

2011). Designers plan interior spaces of almost every type of building, including offices, airport

terminals, theaters, shopping malls, restaurants, hotels, schools, hospitals, and private residences.

Good design can boost office productivity, increase sales, attract a more affluent clientele,

provide a more relaxing hospital stay, or increase a building's market value (Interior Designers of

Canada, 2011).

The design industry has been gaining steady momentum in Canada. This growth is primarily

attributed to business professionals having more disposable income than individual in the past

and are willing to hire someone to aid them in defining their space. There are great opportunities

in this industry in the future, however there are challenges that affect the industry as a whole.

The most prominent threat to the industry has been the financial crisis and global recession that



started in 2007. A financial projection of spending on interior design is very hard to determine

because of the nature of the industry; many designers are independent which makes it very

difficult to determine the total spending on their services. However it is reasonable to assume

that the industry has faced significant decreases in spending on their services in areas hit hardest

by the recession.

This drop in spending on the design industry in Canada does not significantly impact our strategy

for Fresco Interiors. The business environment in Saskatoon has remained one of the strongest

economies in the country. The housing industry is still very strong, it is projected that 2,500 new

homes will be built in Saskatoon in 2012 and the market will increase in value by 1.4% from

2011 (Western Investor). This translates into short-term stability for Fresco Interiors as industry

and spending keep expanding in Saskatchewan.

2.0 The Operations Plan

2.1 Logistics and OperationsFresco Interiors currently provides personalized and commercial design consultation, furniture

staging/leasing, design research/planning, as well as a line of home interior design products for

sale through consultation only. To differentiate further, the company also offers customized

artwork to its clients. Moving the permanent location of Fresco Interiors into Saskatoon will

serve two primary purposes for the company. This location will carry on the current operations

of Fresco Interiors offering a more convenient location for clients to meet, and also allow the

company to expand to offer products in a retail environment for their clients.

The two revenue streams will operate somewhat independently of one another. The retail

location will be open two day per week. The days that the location will be open for walk in

customers will be on Wednesday and Saturday from 10:00am through to 6:00pm. The decision

to only have the doors open for walk in traffic only two days per week was made because of

number of factors. The primary consideration was the operating environment that Fresco

Interiors has. The design consultation will take place in the same space as the sales floor. Design

clients pay a premium for one-on-one time with designers so we need to make sure that the retail

floor is clear. The focus for the business is design, not retail sales. The location will be used the

Monday, Tuesday, Thursday, and Friday for design prep and consultations.



2.2 Suppliers

The Fresco Interiors products have been positioned as high end products that you can’t find at

big box stores that focus on home décor. This has led the company to seek out unique suppliers

for their products. The suppliers that Fresco Interiors all of their retail products are out of

Vancouver, Toronto and Quebec City. These suppliers provide all of the furniture and

accessories for home staging as well. The average delivery time for the products to arrive once

an order is placed is generally three weeks from any of the suppliers. There are currently not any

terms set up with any of the supplier to discount based on prompt payment of the delivery to the

Fresco. This is one area that we feel should be discussed with the individual suppliers in the near

future because the volume of the store will increase with the opening of the new location. The

suppliers of products used almost exclusively for design clients are flooring, cabinets, and

counter tops. For these items Fresco uses Western Carpet One for all flooring samples, Wood

Craft for cabinets, and FloForm for the countertops. These suppliers also provide the samples

that are to be used in the design center for clients and customers to access.

There are a number of external suppliers that will be required as support services for the

operations of the business. Trish McGreggor from 4M Management has been doing the

accounting and taxes for the company. We would suggest continuing using Trish for these

services. A web design company will also need to be utilized. Fresco Interiors has just

redesigned their website so there should not be any new costs in the near future however, it has

been budged to redesign the website in 2014. Twice a month professional cleaners will come in

to give the store a thorough cleaning. Professional photographers will also need to be hired to

take pictures of notable projects that Fresco Interiors is working on to add to their portfolio. A

lawyer will also need to be hired when required to give legal advice and recommendations. We

have chosen Sasktel as the communications provider of choice for the business. This is largely

because of their track record in the province and small business support and programming.



2.3 Location

2.31 Site Plan

The criteria that was used when looking into selecting a location for Fresco Interiors is as

followed: Located near the north end of Saskatoon; have one large overhead door for delivery of

large furniture; have at least 2000 square feet of usable space; availability of parking for at least

six customers at any given time; cost under $450,000 if building is purchased, or try to keep

lease costs under $2000 per month.

The location of the building that we selected satisfies these specific requirements. The site is on

the corner of Speers Avenue and Cynthia Street. This site is located about a block northwest of

the intersection of Circle Drive and Idylwyld Drive (Appendix A). This area is now the site of

the Air Source Building, which is currently under construction and scheduled to be ready for

business’ to move into by the spring of 2012. The office space that has been reserved for Fresco

Interiors is on the East end of the Air Source Building (Appendix B). The building will be leased

from the owner of the Air Source Center. This has option has been chosen for three reasons. The

first reason to lease a location rather than buy or build a structure was to mitigate risk. If for

whatever reason the business is in financial trouble in the next few years there are far fewer

commitments in a leased environment. The second motivator to lease a location was to

significantly reduce the capital investment required to open a business. The third deciding factor

that led us to lease rather than purchase a building was the lack of quality locations available that

were in the budget of $450,000 in the Saskatoon real estate market. A subsequent bonus added to

the chosen location suppliers Western Carpet One and Classic Wood Craft are very close in

proximately, making it easier for design clients to order and coordinate with Fresco and the

suppliers.

2.32 Floor Plan

The location we have selected has approximately 2,200 square feet of usable space. This space

will be divided up between the retail/staging areas, the design/office areas, and the storage/

warehouse area. The staging/ retail location will be the area a client first walks into as they open

the doors of the store. This area will be semi-divided into different rooms that will be staged with

the retail projects to give potential clients ideas of designs and products that they can use in their



own homes (See appendix C). There will also be a small till located at the opposite end of the

storefront in relation to the door. This has been designed to encourage customers to walk through

all the staging rooms before they get to the cash register. The retail space will be roughly 1,200

of the 2,200 square feet of floor space available in the building. Beyond the retail area will the

designated areas for office, design center, and drapery center. The office will be where the

administrative duties will be carried out and the day-to-day operations of the business will take

place. The design center will have numerous flooring, counter, and paint samples where design

clients and retail customers can look at options they have available to them for their own homes.

The drapery center will have a combination of different styles, color, and systems of blinds and

curtains that are available. These areas of the business are value added components of Fresco

Interiors product offerings where customers can leverage the knowledge and experience

professional interior designers. The back of the building is where the shipping and receiving

area, store bathroom, and warehouse/storage space are located for the building. The back of the

store is used for these functions because the overhead door will be located at the rear of the store.

2.4 Budget

2.4.1 Capital Budget

The capital budget for the expansion into Saskatoon is fairly low for Fresco Interiors. This is

partly because the building is brand new so there are not major renovations that need to be under

taken, and most of the inventory to fill the store has already been purchased and has been stored

in a warehouse in Delisle. There has not been a lease agreement signed as of yet so the cost

projections are subject to change as more details are disclosed with the location and the specific

upgrades that will need to be undertaken to renovate the interior of the location. We project that

the initial capital investment will be $35,000. $30,000 has been budgeted for leasehold

improvements on the building. This will cover things like the construction of interior walls,

paint, lighting, and flooring to ready the space for the retail/design requirements. The other costs

are allocated have been a computer we have quoted from Future Shop at $1,000, software for the

computer of $750, a point of sale system, and the purchase of a van from a private seller of

$2,000. The business has been operating with $30,000 for working capital and Fresco has been

keeping about $43,000 of inventory on hand. These expenses have not been added into the initial

capital required because they are carried over from years previous.



2.42 Operating Budget

The operating budget is quite a bit larger than the capital budget. The total operating expenses

for Fresco Interiors has been projected to be just under $245,000. The major costs are the wage

expense of $147,000, yearly rent of $30,000, utilities of roughly $20,000, employee benefits of

$22,000, and a marketing budget of $11,800. There are other miscellaneous costs that add up to

$13,250 that can further be examined in the financial model provided (Appendix D). We have

estimated the total cost of goods sold on the retail products to be just over $82,700. This is based

on an average of 100% margin on her products. The cost of goods sold for the design portion of

the revenue steam is accounted for in the wage expense for employees. Currently, there is no

credit offered to Fresco Interiors’ clients. This decision does not significantly affect the business

because the Fresco brand is known as high end, and customers are aware before entering a

design consultation that they need to have a larger budget as opposed to shopping at a typical

retail outlet for design products. Offering credit will not boost revenues, and credit will not have

to be offered to hit target sales projections for the company.

3.0 The Human Resources Plan

3.1 Roles and Positions

3.1.1 CEO

As we mentioned Fresco Interiors is owned and operated by Charlene Schumacher. She is the CEO of the company as well as the head designer. The company currently fairly small, there is three employees including Charlene at this stage. For this expansion there will need to be three additional employees hired to operate the retail location. The organizational structure for the design portion of the business consists of the Head Designer/CEO, another full time design consultant, and a part time design assistant that aids either of the design consultants. The retail side of the business will require a key holder/supervisor to open and close the store, and two retail associates. (Appendix E).



The CEO will be responsible for the organization as a whole. Charlene will need to oversee the day-to-day activities, as well as handle administrative duties, make strategic decisions, plan and execute marketing activities, be responsible for generating new clients, and managing employees. As the head designer, Char must also work as a full time interior designer as well as a mentor for the other designer in the business. She must also be in charge of hiring and firing new employees, and take care of the training of those employees. The CEO in a small organization such as Fresco Interiors need to perform a number of the day to day activities as well as the executive roles that are traditionally thought of as CEO duties. We have projected Charlene to draw a salary of $60,000 in year one of the expansion and then increase her salary by 10% for each of the next four years. This salary will ensure that there is enough cash staying in the business to mitigate risk during the expansion of the company.

3.1.2 Design ConsultantThe full time design consultant will primarily be looking after his or her own portfolio of clients. This person has been hired in the company already and is starting to consult on their own. This consultant works directly under Charlene and reports and gets a second opinion to clarify questions from her as well. The design consultant works roughly 40 hours per week. The mornings are generally set aside for prep time and research for clients, and the afternoons are generally reserved for client consultations. If consultations are not booked for the afternoons, then the consultant is expected to generate leads and finish up preparation work for other clients. The full time designer will be paid a wage of $15 per hour in year one. In year two a 30% wage increase will be in effect to account for the knowledge the individual has gained. In year 3, 4, and 5 the design consultant will receive a 5% pay increase yearly. 3.1.3 Design Assistant



The design assistant’s role is to support the head designer and the design consultants. This is a part time role in the organization. The daily activities include aiding the designers in staging process, tagging and counting inventory, and helping load and unload products. This role also does basic administrative functions in the business such as conducting supplementary research, emailing clients, ordering supplies, and generating invoices. This person will work primarily with the head designer, but also aid the other design consultant. The design assistant will be paid a wage of $12 per hour. This individual will work approximately ten hours per week but the hours fluctuate with demand.

3.1.4 Key HolderThe key holder/supervisor will be a part time position as well. This individual will be in charge of the cash in and cash out procedures, as well as opening and closing the door if Charlene is not in the building at opening and closing times. This employee will be expected to help out with the staging in the retail location, unloading product deliveries, managing and organizing the warehouse, counting inventory, interact and help customers, and work the cash register. This employee will report to the Charlene, and will also have loose authority and guidance over the other two part time retail associates. This person will be paid $12 per hour and work on Wednesday’s and Saturday’s from 10:00am through to 6:00pm with a half hour for lunch and breaks as in slow times of the day.

3.1.5 Retail AssociatesFresco Interiors will be hiring two retail associates. The retail associate position will be a part time position. The primary role for the these employees is to run the cash register, help with the staging of the retail store, unloading products deliveries, counting inventory, and interacting with customers. These associates will report to the retail supervisor, and if necessary, to Charlene. These employees will work from 10:00am-6:00pm



on Wednesday and Saturday. However there will be flexibility in the schedule. The retail associates will work roughly 15 hours per week and as needed when trucks deliver products to the location. The retail associates will make $10 per hour with wage increases of 2.5% each year to account for inflation over the next five years.

3.2 Human Resources StructureCharlene will manage human resources. She will ultimately oversee all employees in the company however; there will be a hierarchy of authority that is loosely established in our organizational chart (Appendix E). The hiring and training process will be fairly informal for this organization because of its small size. We recommend that Charlene try to leverage her personal network of family, friends, and clients to try and find her retail employees. If the positions cannot be filled we suggest she post ads on Kijiji to find employees. There will be no formal training process for employees because of the small size. Employees will be expected to learn quickly and through working with the people who are already in the organization. One requirement for the retail employees will be the there must be two retail associated in the store at all times. This is to ensure customer satisfaction, and to reduce the risk of theft. With three retail associates hired there should not be a problem working the hours necessary.

3.3 Human Resource ChallengesThere are a number of human resource challenges that Fresco Interiors will have to face as the company moves forward. In years previous, there were not any formal employees hired into the company. This raises the challenge of managing the individuals, as well as the business itself. Also, this means that CPP and EI have not had to be paid out until this year. The rules for paying CPP and EI have very well defined rules and procedures, however Charlene will need to make sure she is keeping up with the payments. As of right now there are no formal benefit packages available for employees in



the company. At this stage in the company, and because most of the employees are part time workers, benefits are not a major concern. For the full time designers it may make more sense to look at a commission structure for design hours worked rather that benefits to motivate the employee.

Charlene will start to take a salary this year. In the past, she has never paid herself a formal salary; dividends were taken out of the company with little profits remaining in the company. With the expansion of the business, we feel that it is necessary for the owner to take a formal salary to be better able to monitor the financial health of the business as well as be able to save for unexpected expenses that could arise.

To manage the information flow in the business a series of semi structured communication tools will be used. These methods include face-to-face conversations, phone calls, emails, and memos and notes. There will not need to be specific reporting procedures at the start of the expansion. This is primarily because their will be a very steep learning curve for all the employees in the company. Charlene will need to be flexible and open in her communication strategies with her employees.

The retail outlet will require at least two retail associates to be in the location at all times. This is to ensure that customers will get the attention and direction they require and expect in a high end, semi exclusive retail environment. A culture focused around customer attention and satisfaction must be established to foster customer loyalty. This means that lunch and coffee breaks will need to be staggered by the retail associates. The lunch breaks will be a half hour unpaid, and there will be two fifteen minute paid coffee breaks per retail employee.



4.0 The Marketing Plan

4.1 Market AnalysisFresco Interiors currently provides personalized and commercial design consultation, furniture

staging/leasing, design research/planning, as well as a line of home interior design products for

sale through consultation only. Based on the three previous years, the majority of this

company’s net profits came from design time about 65% of the company’s net sales (Appendix

F). The remaining 35% came from that of retail sales. Based on the projected operations

expansion, we are aiming for a 30% increase in net sales for the following year steadily

decreasing for the next five years. Bring next sales up to about one million by 2016 (Appendix

F). These projections are based on the store being open 2 days per week, 52 weeks/year, with 20

clients per day at an average of $200 per customer. This is assuming a 60% design hours, 35%

retail sales, 5% custom artwork breakdown at margins of 100%, 120%, and 150% respectively.

Fresco Interiors currently has a clientele base of over 3000, customers in Saskatoon and area. As

a result of her current location, Charlene and her one full time employee must spend numerous

hours per week travelling back and forth between the office/warehouse and the location of the

design consultation (which depends on who the consultation is for and where they live). These

additional hours travelling take away from time that could be spent doing other work. Although

this method of distribution was successful in the past, there is a pressing need for Charlene and

her products/services to be more accessible to her clients. For her promotional activities,

Charlene caters her activities to that of Saskatoon, attending the Saskatoon Home Show as a

vendor, advertising in home magazines, show home display cards, as well as being featured for

her work make up the majority of Fresco Interiors marketing activities for her. Many of her

clients are also put into contact with Charlene or her other designer through word of mouth from

her current clientele. Fresco Interiors current network of clients, as well as her untarnished

reputation are two things that will act as a strong competitive advantage for her when it comes to

making a success of her new store.

In May of 2008, Saskatchewan showed record amounts of growth in retail sales, reaching over

1.18 billion in the previous year (Government of Saskatchewan, 2008). Currently Fresco

Interiors main competitors include other interior design firms that cater to the Saskatoon market.



These competitors include: Atmosphere Design Inc., Metric Interior Design, Studio 2.0 Design

Consultants, Laurexa Design Inc., Garnish, and Funktional Space. As a result of Fresco Interiors

history in Saskatoon, they currently have connections with over 3000 customers, capturing a

substantial percentage of the Interior Design market.

By expanding Fresco Interiors to a visual presence in Saskatoon as well as enhanced retail

options for customers, Fresco Interiors will likely gain some clientele whom may not have

otherwise known they existed. Fresco Interiors will also be providing an entirely new design

experience with the largest product offerings, which may entice greater patronage. This new

expansion will act as a differentiating factor between Fresco Interiors and their current

competition, however in conjunction with that, it will also align with new competition and

substitute products.

Charlene intends to keep this company on a domestic scale for the entirety of her ownership.

She may seek out Canada wide expansion programs in order to capitalize on some of the bigger

markets; however, there is currently no intent to attempt international expansion projects in the

near future.

4.1.1 Past Performance

Fresco Interiors current target market is that of busy female professionals, age 35-55 seeking to

enhance the look of their homes in a convenient, carefree, and individualized setting. Fresco

Interiors has been successful selling to this market through their earned trust and integrity to their

clientele. This integrity has been built by a devotion to customer satisfaction. Customer

satisfaction has been attained through listening about what the consumer in conjunction with

providing the best professional advice to meet their needs as well. Fresco Interiors attempts to

do this have been so successful now that the level of trust between designers and consumers no

longer takes into account the financial requirements of the job. Many clients are willing to

relinquish all control of every aspect of design and purchase to Charlene, no matter what the

final cost. This trust and level of relationships with her clients is a substantial competitive

advantage, which Charlene holds over her competition, which will act as a continued resource to

her when it comes to opening her new store.



Charlene has had previous experiences in retail within some of the other ventures that she has

been a part of. Her previous experience with retail has lead her to develop some new changes

she wishes to make with her new retail store. Of those changes, the first one she wishes to make

is to create more of an exclusive feel to shopping in her store, by only being open 2 days per

week instead of the typical six. From past experience, she knows that the people who really

want her product and whom she really values as her customers will come to her store when it is

open, even if it is not the most typical hours to shop. Fresco Interiors has been and will continue

to be a premium priced product. In order to be seen as the best, the company must be the best.

Building exclusivity through hours of operation, as well as maintaining a premium price strategy

will enhance the stores ideal positioning in the mind of the consumer. With regards to

profitability, since Fresco Interiors currently has such a large margin 120% on all products they

carry, this reduces the number of items that need to be sold for profitability considerably.

4.1.2 The Market

All of the industry information provided is from Industry Canada in relation to the Furniture and

Home Furnishing sector of Canadian retailers. In 2009, the sales and operating revenues for this

sector we approximately 15 billion and increase of about 5 billion since 2000 (Industry Canada,

2011). The percentage of totally industry revenues attributed to chain and private retail stores is

a 50.9% to 49.1% split (Industry Canada, 2011). Ontario has the largest percentage of this sector

with 42.1%, followed by Saskatchewan at 20.2% (Industry Canada, 2011). Although these

numbers appear to be all positive, after the start of the 2007 economic recession, the value of this

industry has been declining.

4.1.3 Competition

This new venture will bring new alignments in competition; specifically pertaining to the new

retail availability of interior products such as furniture, drapery, artwork, and accessories. This

new competition will be companies such as: Palliser, Leons, Ashley, and Modern Country will

compete for product sales of interior furniture. New competition in direct relation for drapery,

artwork, and accessories will be Urban Barn, Jysk, Home Outfitters, and Home Sense. Further

competition for other products may include general merchandise stores such as Sears, The Bay,



and Walmart. In regards to positioning is which Fresco Interiors is placed within this new group

of competition, Fresco Interiors main alignments will be with that of Urban Barn, Jysk, Home

Outfitters, and Home Sense. In alignment with its current and projected positioning, Fresco

Interiors will be differentiated as the premium store with top of the line products and service

(Appendix G).

Many of these competitors have held a presence in Saskatoon for many years. The current

market for these products has reached maturity and thus the majority of the market share has

been captured. Referring back to the market research, approximately half of the market is chain

stores, while the other 50% is private stores. In regards to private stores who sell these same

products, there are very few within Saskatoon, thus although the market is heavily penetrated,

there is still opportunity for private firms to capture some market share

In general, the main strength of the competition in this market will be their size and ability to

capitalize on economies of scale. Their size allows for bulk purchasing from suppliers at a lower

rate, corporate mass marketing, and large scale distribution channels. Along with these

strengths, there are also some key weaknesses that should be mentioned, these include:

standardized products and services, larger operating costs, and negative associations to large

corporations with any negative media affecting all stores brand images.

By creating a store focused on personalized service, holistic home design, as well as customized

products (artwork) Fresco Interiors will have a potentially sustainable competitive advantage.

Although they will not be competing to win over the majority of the customer base, there is huge

potential to capitalize on the elite home design and décor clientele. Another advantage that

Fresco Interiors has in regards to this newly outlined competition is the idea of building

“complete rooms”. Those who come to this new retail store will be given design advice on how

to incorporate multiple items together to complete any room “beautifully”. They will not be

stuck with a lamp that they like, but not knowing where to put it, or a piece of artwork that they

bought, but don’t know where to hang it. Everything they like and buy from Fresco Interiors

will fit.



There is ultimately a legitimate opportunity for Fresco Interiors to take advantage of the segment

gaps for this market; however, it is likely that shortly after Fresco Interiors makes this move

there may be some other design firms who choose to take this root as well. There are some short

term and long term initiatives that will be implemented to reduce the threat of new entrants into

the market once Fresco Interiors makes the move to retail. These preventative measures include:

building a strong and loyal customer base through the use of customer satisfaction guarantee

programs, capitalizing on consumer conversations to deliver on customer wants, and developing

relationships with suppliers to build product lines exclusive to Fresco Interiors.

4.1.4 Customers and Target Market

The main customers who will be looking to purchase from Fresco Interiors are people who are

already clients of the design portion of the business. Typically these consumers repeat purchase

from Fresco an every few months basis; however with greater accessibility to products/services

as well as the introduction of new customized artwork, this usage rate may potentially increase to

a more monthly basis. When these customers purchase, it is most often for their own homes and

projects, it is projected that with this new store, purchases may also expand toward more gift

giving (wedding presents). The main factor that influences Fresco Interiors customers to

purchase is the idea of a complete room. They are seeking a fresh look or change, and are

willing to pay whatever it costs for a room that they love. Since this group also tends to have

higher disposable income and no longer has children to support, they are much more likely to

spend money on improving their home and lifestyles. This customer group has already been

targeted and partially captured by Fresco Interiors. Fresco Interiors will continue to cater and

accommodate the needs of this particular segment with this new venture.

4.1.5 Product/Service Features

Fresco Interiors key product/service features will be: unique customizable artwork, professional

design advice throughout the entire purchase process, new product introduction nights, as well as

convenience of all design needs in one place (consultation, design items, access to network of

other home suppliers). These features will be unique to Fresco Interiors and assist in giving it an

edge over other competitors. Threats from competition include: lower prices, higher frequency

of impulse purchased and greater product variety. Since Fresco Interiors has already focused on



capturing a target market seeking out prestige over price, and professionalism over doing it

themselves, there is a strong alignment in the products and services to be offered by Fresco

Interiors and the proposed target market.

4.1.6 The Opportunity

Based on the given information, there is an opportunity for Fresco Interiors to expand sales by

accessing a retail presence in Saskatoon. Fresco Interiors will be seeking out to expand sales to

current clientele (approx. 3000+) through increased usage situations and accessibility, as well as

gain some new customers seeking the same professional advice and exclusive products. Based

on this information it is projected that Fresco Interiors will grow by 30% for the first year of

having an active store in Saskatoon, growth will steadily decrease over the following three years

as the hype and novelty wears off. Based on these estimates, it is projected that Fresco Interiors

will reach sales of approximately $520,000 in year one and surpass $950,000 by year five

(Appendix F).

4.2 MARKETING STRATEGY

4.2.1 Sales and Profit Objectives

Fresco Interiors objective is to obtain a positive growth rate (30%, 25%, 15%, 10%, and 5%) for

the next five years in sales through an increase of customers on average to about 34 per day. If

these objectives prove to be accurate, that will leave Fresco Interiors with 50%+ of sales

contributing to gross profit annually, ultimately leaving the companies terminal value in year five

at roughly 650,000 (Appendix F). To coincide with these projections, net income is expected to

peak at $161,498 by year five with revenues at approximately $952,000.

4.2.2 Distribution

For the purpose of creating a more easily accessible line of products and services to clientele,

Fresco Interiors will utilize a single retail location in the North end of Saskatoon for distribution

of products and services. It is believed that this new approach to distribution will make Fresco

Interiors more reachable by their target market. This channel will require sales support in order

to appropriately accommodate clientele; however the benefits of these new attributed operating

costs far outweigh any additional costs.



4.2.3 Pricing Policy

Fresco Interiors will be taking a market-based approach to premium pricing. Margin on all

design time will be 100%, design products 120%, and custom artwork will be 150%. These

margins will provide a substantially higher cost of merchandise to consumers, increasing

perceived value in relation to low-cost competition. In order to achieve profit objectives stated

above, with the proposed profit margin a volume breakdown of 65% Design, 35% Retail, and 5%

Custom Artwork will be needed. This pricing strategy is to remain consistent in all markets in

order to maintain consistency, transparency, and perceived value. There will be discounts given

on damaged goods in order to maintain inventory turnover; however no discounts will be given

on all other saleable goods. In order to maintain consistency in pricing, prices will also be

adjusted annually to account for inflation (approximately 2.5% annually).

4.2.4 Product/Service Mix

Fresco Interiors intends to expand and dominate their current particular target market within this

segment of the industry. There are three advantages which will be very valuable to the company

in this process:

1. Since Fresco Interiors is the first design company to do this within Saskatoon, they will

be seen as having first mover advantage (the innovators who brought the idea to the

table) this builds credibility and reduces the chance of being seen as a “knock-off”

2. Charlene Schumacher is a renowned designer who is well known and in high demand

within the Saskatoon area. Her strong portfolio of work history as well as connections to

large clientele will be a resource that only her company has access to.

3. There has been a demand for specific artwork done by Charlene. These pieces are a trade

secret and not easily replicated by others.

With the given resources and capabilities as well as alignment with the target market, will

provide an excellent opportunity for Fresco Interiors that will not easily be replicated by

competition.

4.2.5 Selling and Advertising



Objectives:

Create hype around the Grand Opening of the store to attract new customer interest as

well as potential media coverage.

Introduce this new retail store as “Fresco Interiors Design Center” and play up the

introduction of Saskatoon’s first design center.

Capitalize on free media through interviews, articles, and publications

Cater communications to current clientele to build on the idea of exclusivity

Develop a continuous marketing program for clients to keep attention, excitement, and

focus (news letter system & product information nights)

Create a more visual presence of the Fresco Interiors brand in Saskatoon through the use

of signage

Invest in long term communications tools for clientele through an online information

system

Continue with all previous marketing efforts such as trade shows, brochures, and

magazine advertising

4.2.6 Implementation

The following will is the proposed implementation process to be utilized in accomplishing thee

afore named marketing objectives.

1) All of Fresco Interiors current marketing efforts will continue to be employed throughout

the expansion into the new retail location. This includes: feature articles and advertising

in Home magazine, website, and attendance of the Saskatoon Homes Show as an

exhibitor.

2) Effective immediately, Charlene will complete 500 personalized Christmas mail outs to

her top 500 clients. These cards will act as both a token of customer appreciation, as well

as a method of introducing the grand opening of Fresco Interiors as Saskatoon’s first ever

design center.

3) Also effective immediately, it is suggested that Fresco Interiors pay for Google

customization in order to draw more people to its website, creating more buzz around

what this company and its leading designer are doing next. The same IT company will

also be utilized to create an addition to the website for an online newsletter mail out list.



At the following Homes Show in March, Fresco Interiors will then promote their new

online information newsletter encouraging current and potential clients to sign up and

receive: fresh design ideas, updates, as well as introduction of new product lines into the

store.

4) The grand opening of Fresco Interiors Design Center is set to occur on May 1, 2012.

This opening will be celebrated with a huge unveiling of the new store, appetizers and

beverages provided to the invitees, as well as the introduction of Char’s newest product

lines and custom artwork.

5) On a bi-monthly basis, product and artwork introduction nights will be held to build

continued excitement around exclusive products as well as act as a reinforcement of

customer appreciation. These nights will again include food and beverages served to

those in attendance, as well as available interaction with Charlene and her full time

designer Brianna.

Appendix H exemplifies the immediate six month implementation plan for marketing and

promotions. In order to compensate for the projected increase in sales volume associated with the

marketing and advertising campaigns, Fresco Interiors will need to home some additional sales

staff at a cost of approximately $58,000 per $520,000 worth of sales (Appendix F). Sales staff

will be required to have a history with design consulting, full training in cash processes, and

ability to assist in movement of furniture and accessories. Customer service will be a vital aspect

in maintaining positive word of mouth, which will inevitably contribute to our critical variable of

customers per day.

4.3 MARKETING BUDGET

4.3.1 Projected Revenue Breakdown (Figure 1)

Category Average

Volume/ Year

Average

Price/ Unit

2012 2013 2014 2015 2016

Design 2858 hours $160 312,000 399,750 471,205 531,284 571,794

Retail 1334 customers $200 182,000 233,188 274,870 309,916 333,547

Custom Artwork 64 pieces $600 26,000 33,313 39,267 44,274 47,650

Total Revenues 520,000 666, 250 785,342 885,473 952,991



4.3.2 Marketing Budget Costs (Figure 2)

Category 2012 2013 2014 2015 2016

Employee Wages 72,716 102,082 124,731 145,258 161,102

Print Ads 2000 2000 2000 2000 2000

Trade Shows 3800 3800 3800 3800 3800

Vehicle Logo 1500 0 0 0 0

Signage 1500 0 0 0 0

Holiday Letters 500 500 500 500 500

Grand Opening Night 1000 0 0 0 0

Introduction Nights 1200 2400 2400 2400 2400

Newsletter System 1200 0 100 0 100

Search Optimization 1800 1800 1800 1800 1800

Photography 2000 2000 2000 2000 2000

Total Marketing Budget 89,216 114,582 137,331 157,758 173,702

1.0 Financial Plan

5.1 Financing The ExpansionSince the required capital necessary for this venture is substantially low, the Owner has chosen to finance the $35,000 of required capital through 100% equity financing. All equity financial will be provided by the current and sole investor, Charlene Schumacher, allowing her to remain the sole stockholder in Fresco Interiors. As a contingency for adequate working capital requirements, 50,000 of accrued cash as well as 60,000 of working credit will be available. Based on the given projections, profitability measures for this projected expansion prove both feasible and attractive. With net income equaling over $35,000 in year one and $160,000+ in the remaining four year estimates, and dividend payout to the sole share holder of $100,000 in the last three years, this business has the capability of achieving an IRR of over 200%.



5.2 Break-Even AnalysisBreak-even analysis in the financial model provided shows us that the minimal customers per day on average will need to be 21 people purchasing and average of approximately $200 per day on the two days that the store is open per week. We standardized all revenues into sales per customer for simplicity, however this break-even includes the clients from the design and custom artwork portion of the business as well. We did not use design projects for the break-even because the revenue is project based and unstable. The assumption of 21 customers per day the retail store is open to customers is both realistic and attainable based on historical data as well as this given business plan.

5.3 Critical Risk FactorsAlthough this is already a well-established business as far as start up ventures are considered, there is still risk associated with this potential expansion. We have examined the sensitivity of the current financial model to understand the key risk factors associated with this expansion. Based on this examination, we have determined that the single largest risk factor is the ability for the company to maintain current design hours for both full time designers. This means that the two designers much each spend approximately 30 hours per week doing things classified as design time. This is equivalent to about 2-3 design projects to be working on individually each week. Based on these risk factors and the current resources and capabilities available to the company in combination with relatively low capital requirements, the risk we have determined to be involved in this venture is moderate to low.

5.4 Contingency PlanIf for any reason the company is not able to have positive cash flows by year two, we will decide to leave the retail aspect of the business and focus simply on the design portion of the business. If by year five, the company has sales of over one million, we will look into potential expansion options once again.



1.0 Conclusion

Fresco Interiors has built up a profitable business under the owner and CEO Charlene

Schumacher. With the operations being out of Delisle, Saskatchewan there is no doubt that her

business could generate more revenue with a location closer to her target market in Saskatoon.

However, there would be considerable expenses with establishing a location and expanding into a

retail location. Through the analysis of the industry, target market, and current operations of the

business we were able to formulate an operations, human resources, marketing, and financial plan

for the business. With the projected costs and revenues that have been generated, the business will

be able to be profitable moving forward through this proposed expansion. The overall risk of the

expansion is moderately low for the business. We feel that strong financial performance in years

previous, along with the experience and expertise of the owner will significantly reduce the risk

of the venture. Based on the strategies we have outlined, we feel that the venture will be

profitable and sustainable and encourage Charlene to start this expansion moving forward.

7.0 Works Cited

Bureau of Labor Statistics, (2011). Occupational Outlook Handbook. Retrieved November 12, 2011, from The United States Department of Labor:http://www.bls.gov/oco/ocos293.htm#nature

Government of Saskatchewan. (2008 йил 22-May). Saskatchewan Retail Sales Highest in Canada. Retrieved 2011 йил 20-October from Government of Saskatchewan: http://www.gov.sk.ca/news?newsId=5d789b12-0615-4ee8-888a-f75e74f49642



Industry Canada. (2011 йил 13-September). Canadisn Industry Statistics- Furniture and Home Furnishings Stores (NAICS 442). Retrieved 2011 йил 31-October from Industry Canada: http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic442rdpe.html

Interior Designers of Canada. (2011). Retrieved November 16, 2011, from Interior Designers Of Canada:http://www.idcanada.org/

Western Investor. (2011, November 14). Saskatoon Housing Market Will Slow in 2012. Retrieved November 16, 2011from, The Western Investor:http://www.westerninvestor.com/index.php/news/sk/618-saskatoon-housing-market-will-slow-in-2012-outlook

8.0 Appendices

8.1 Appendix A: Map of Saskatoon Location



8.2 Appendix B: Air Source Building Prototype



8.3 Appendix C: Proposed Floor Plan



8.4 Appendix D: Operating Budget



Schedule 4: Operating Expenses 2012

Lease 30,084 Utilities 20,000

Insurance 648 Wages 147,416

Employee Benefits 15.21% 22,422 Repair and Maintenance 3,000

Other Variable Costs % Sales 1% 5,200 Capital Cost Allowance 1,800

Photography 2,000 Lawyer/Accounting Fees 600

Marketing Budget 11,800 Total Operating Expenses 244,970

Note: 5-year projections available in the Financial Model

8.5 Appendix E: Organizational Chart



8.6 Appendix F: Projected Sales Schedule

Income StatementFor the year ended 2012

Sales 520,000 COGS 249,127

Gross Profit 270,873 52%

Note: 5-year projections available in the Financial Model



8.7 Appendix G: Positioning Map



8.8 Appendix H: Marketing Timeline


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