Velo Final Merged

Section
106

Section
106

VELO: Children’s Clothing Rental
Austin Menefee
austin.menefee@colorado.edu
Darrel Trinh
darrel.trinh@colorado.edu
Bre Williams
breanna.williams@colorado.edu
Ellie Wroble
eleanor.wroble@colorado.edu

Table of Contents
I. EXECUTIVE SUMMARY ...........................................................................................1
II. INTRODUCTION........................................................................................................2
A. Business-to-Consumer................................................................................................3
1. TARGET MARKET
2. GENERAL OVERVIEW OF SERVICES PROVIDED
3. DETAIL ON WHY THIS MARKETS AND SERVICES
B. Competitive differentiators from current e-commerce applications...........................6
III. OVERVIEW OF THE DATA USED IN ANALYSIS .............................................7
A. Data sources................................................................................................................7
B. Data contents...............................................................................................................8
C. Data analysis...............................................................................................................9
IV. PHYSICAL LOCATION, INITIAL CAPITAL OR LEASE TERMS &
FINANCING PLAN ..........................................................................................................9
V. PRODUCT PLAN.......................................................................................................17
A. Winter: Boys Aged 8-15 Years ................................................................................18
B. Winter: Girls Aged 8-16 Years.................................................................................19
C. Winter: Male Toddlers (2T-5) ..................................................................................20
D. Winter: Female Toddlers (2T-5)...............................................................................20
E. Formal: Boys Aged 8-15 Years ................................................................................22
F. Formal: Girls Aged 8-16 Years.................................................................................23
VI. SUPPLY CHAIN AND INVENTORY MANAGEMENT PLAN.........................25
VII. HUMAN RESOURCES STAFFING PLAN & COST ANALYSIS....................33
A. Number and type of personnel required ...................................................................34
B. Cost analysis of proposed human resources staffing plan ........................................37
VIII. NON-HUMAN RESOURCES COST ANALYSIS .............................................38
IX. REVENUE ANALYSIS............................................................................................44

X. THREE YEAR FINANCIAL ANALYSIS...............................................................48
A. Income Statements....................................................................................................48
B. Balance Sheets ..........................................................................................................51
XI. PROCESS MAPS......................................................................................................52
A. Process Flowchart.....................................................................................................52
B. Relationship Map......................................................................................................53
C. Cross-Functional Relationship Map .........................................................................54
XII. FINAL SUMMARY ................................................................................................56
A. Austin Menefee.........................................................................................................56
B. Darrel Trinh ..............................................................................................................57
C. Bre Williams.............................................................................................................59
D. Ellie Wroble..............................................................................................................60
XIII. APPENDIX.............................................................................................................62
XIV. REFERENCES.......................................................................................................64

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I. Executive Summary
Committed to providing an easy and accessible clothing rental service for children, Velo is a
subscription-based venture allowing customers to rent clothes at a click of a button. Located at 554
Adams Street in Memphis, Tennessee, Velo will help middle-class families overcome the ongoing
problem of kids outgrowing winter wear and formal attire. Because e-commerce is a popular outlet for the
retail industry, Velo is accommodating the busy and financially constrained lives of families through the
use of time and place utility.
Velo offers two packages to choose from (formal attire and winter attire) but may look to expand
its offerings in the future. The company specializes in customer satisfaction by paying for shipping costs
even if the consumer is not satisfied with the product. Velo also offers a rewards program in order to
maintain the quality of the products and to ensure customer loyalty.
A review of Velo’s competitors shows that the company will be competing against two other
global establishments, Le Tote and FiveFour Clothing. These businesses, however, have different target
markets, pricing arrangements, and marketing styles in mind. The customer service programs
incorporated distinguishes Velo from other e-commerce retailers.
In planning for Velo’s launch, its executives put together a financial plan based on forecasts for
the first three years of operations. Velo will acquire a loan in the amount of $1.9 million and accrue $1.9
in start-up costs. During the first year of business, Velo plans to make $2,516,472 in sales revenue,
hoping to increase revenue to $3,019,766.40 for the second year of operations and $3,623,719.68 for year
three.
After taking costs into account, the net profit for the first year of business is expected to be -
$282,894.60. Net profit will increase to $406,474.80 and $1,177,911.78 in the second and third year.

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II. Introduction
Kids are expensive. Winter clothing and suits are outgrown in less than a year, making
the purchases even more burdensome. From a parent’s perspective, she wants her child to stay
warm, comfy, and stylish but doesn’t want to spend $120.00 every season to get her child a
jacket that will fit. Suits are ever more expensive and to be able to fully outfit your child, a
considerable chunk of change has to be spent.
Velo is the newest development in the sale of children’s clothing. At Velo, we want to
alleviate the financial stress placed yearly on parents of growing children. Velo allows parents to
rent winter outfits and high quality suits for a low cost and allows the parents to return the
clothing at season’s end.
By choosing Velo, parents are choosing quality. From winter wear brands such as North
Face and Columbia to formal wear such as Calvin Klein and Ralph Lauren, parents are
guaranteed product consistency by brand association. By renting through Velo, consumers are
guaranteed choices from the top brands and are at a peace of mind knowing that their child will
be able to grow out of the clothing without much overhead cost.
However, Velo is not only offering a jacket or a simple suit. If a parent chooses the
Winter Apparel package, they receive a waterproof jacket, a hoodie, snow pants, and a beanie. If
parents choose the Formal Apparel package, they receive a full suit, dress shoes, and a tie. One
of the major advantages of Velo is convenience. They are able to fill out their child’s size
information, color preferences, and for the winter clothing, the warmth of the clothes needed. If
something does not fit, they can easily return the piece and get a replacement.

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The most important part of Velo is the ease of returns. Parents are able to specify the
length of time that they need the clothes to be rented. For winter clothes, it can be for the entire
winter season or just for a ski weekend in the mountains. For the formal wear, parents could rent
for a wedding weekend or for an entire year. When clothes are returned at the end of the rental
period, parents receive “Velo Punctis.” Depending on the condition of the clothing when
returned, parents receive a certain amounts of points. They can accumulate points and use those
points to either pay for their subscription or buy a piece of clothing.
If the child or parent is infatuated with an item that they receive from Velo, they can
purchase the piece of clothing. From the smallest of items such as beanies or ties to shoes, suits,
or winter jacket, the Velo Punctis can be used to assist in the purchase of the item if the parents
are interested.
Velo aims to change the clothing purchase process for both parents and children while
reducing costs for parents and allowing them convenient access to the highest quality items.
A. Business-‐to-‐Consumer
Since Velo specializes in electronic commerce clothing sales for young children, it will
implement the business-to-consumer marketing approach in order to persuade mothers to use the
clothing rental service for their growing children. E-commerce is universally accessible to large
populations, so Velo can easily reach any market segment. Today, customers are conscientious
about their spending, and Velo’s rental service will serve the current needs of consumer behavior
and solve the problems that the target market has with retail for children. Due to quick growth in
e-commerce, there are four dimensions that Velo needs to consider in order to effectively reach
the market: information content, design, security, and privacy (MaGee). By successfully

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achieving all four factors, Velo will be able to obtain a desirable target market and effectively
communicate business-to-consumer marketing.
1. Target Market:
According to Consumer Behavior, children’s clothing is primarily a wife-dominant decision.
Consequently, Velo will focus its marketing efforts on mothers from 27 to 40 years old while
appealing to children since kids play a vital role in household decisions by influencing their
parents’ purchase decisions (Hoyer, 2015). Ultimately, parents exert legitimate, expert, and
directive strategies over their children, especially since middle class parents have strict
discretionary income (Carmichael, 2012).
While Velo targets families with a middle class and higher socioeconomic standing, Velo
understands that the core contributor of the buying decision starts with the mother. In Velo’s
analysis of a report produced by Mintel, Velo determines that maternal buying power, as of
2011, was $2.4 billion. The Mintel Report also states that mothers enjoy delivery services and
“making memories” (Mintel, 2011). Velo will, therefore, gain market share in this lucrative kids
retail market by tailoring its product lines to this money-wielding “mom” segment. Not only has
Velo made its rental-based service appealing to customers, Velo will ultimately help a family
make memories by supplying families with cost-effective rental clothes that, in turn, will free up
disposable income for these families to use towards vacations or trips to the amusement park.
These memories and loyalty to Velo will soon appear on social media (refer to Appendix B).
Fortunately, the distribution center located in Memphis, Tennessee will serve a
considerably large market since those who are looking to save money on clothes for children are
predominantly middle class citizens living in the Midwest (Ranganathan, 2015). Velo will

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operate in the United States because fashion trends are similar across regions, it is easier to
distribute clothes in a timely manner, and the company must account for shipping costs.
2. General overview of services provided:
Velo follows a rental-based service similar to Netflix. The consumer, or a parent, rents
out clothes for a desired amount of time. Customers are able to not only choose the length of
time but they can also input their color and fit preferences. There are two packages to choose
from: the formal attire and the winter attire.
The consumer is able to easily return the entire package or specific items if they are
unsatisfied with the product. They will receive a return shipping address over email, which they
can either request on the Velo site if they need an early return or receive at the end of the
package rental time. When they return the item they get Velo Punctis depending on the quality
of the items returned and they are able to use the points for purchasing a specific item if they are
highly satisfied with it.
3. Detail on why this markets and services:
Through e-commerce, Velo is able to support the exchange of goods (in this case, clothing) and
market the company’s uniqueness through time and place utility. Consumer products depend on
the season, and Velo adapts to this changing environment by offering a rental service so
consumers can rent necessary clothing items seasonally. At one click of a button on Velo’s
website, consumers are able to sort through different clothing options, making it easier to access
items that best suit the consumer and their seasonal needs in a timely manner. Velo also makes it
more convenient for the consumer to rent clothes online as opposed to driving to a store. With a
wide variety of options in stock, Velo can meet customers’ rapidly evolving tastes.

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B. Competitive differentiators from current e-‐commerce applications
When it comes to the clothes rental industry there is not much competition primarily
because clothes generally have short, fashion lifecycles; however, knowing this, companies have
made it work to their advantage. There are two main competitors in Velo’s industry: Le Tote and
FiveFour Clothing.
FiveFour Clothing is based on four values: “value, exclusivity, convenience, and style”
(FiveFour, 2014). FiveFour Clothing is tailored towards young men who want to stay
fashionable without the hassle of shopping. FiveFour possesses features that Velo would like to
incorporate into its business model. FiveFour manufactures clothing, and their clientele pays $60
in order to access a monthly “package valued at $120 in clothes” (FiveFour, 2014). This is
different from Velo because there is no rental involved with FiveFour’s business model because
when FiveFour sends their clientele something, it belongs to the customer. Therefore, FiveFour
saves money by vertically integrating their clothing into the club, hence, producing a larger profit
margin. Because Velo provides brand names to its consumers, it will not be able to vertically
integrate. However, Velo differentiates itself by marketing the long-term savings when renting
clothes. FiveFour may have its differences, but it does host similarities; however, Velo’s
business model more closely mocks Le Tote’s model.
For a subscription-based fee of $50 a month, Le Tote’s clients receive a “tote” filled with
“three articles of clothing and two accessories” (Le Tote, 2014). The client can hold the clothes
for as long as they want, keep what they like, and send back what they do not. Operating under
the premise of “unlimited clothes,” Le Tote has successfully targeted young adult women as their

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target market. Le Tote has been successful thanks to contracts with well-known brands such as
Lord & Taylor, Nordstrom, and Anthropologie. With these contracts, Le Tote has positioned
themselves as a monopoly in the industry.
This industry is relatively young, and Le Tote and FiveFour clothing have paved the way
for companies like Velo to enter the industry. Before advancements in e-commerce, the idea of
renting out clothes was inconceivable. However, thanks to these advancements, parents are now
able to order and manage wardrobes that keep up with their kids’ growth from year to year.
Instead of shopping for, finding, and purchasing a $300.00 winter jacket or suit that their child
can only wear for about three months, parents can rent these items through Velo from the
convenience of a laptop. Velo’s selection will also be as extensive as any major retailer because
Velo will contract its inventory to companies like Nordstrom since they are an intermediary for
many clothing manufactures, like The North Face. This business model allows Velo to keep the
client happy by providing name brands at a fraction of the price. The aforementioned
convenience of Velo rentals adds to the total product offer as well. Velo is aware that shopping
for and especially with children is frustrating. Children will fuss over spilled milk, much less
having to spend time running errands at the mall. Therefore, the idea of having clothes show up
to your doorstop will save the customer time and headaches from shopping with their children.
Velo and the industry of e-commerce clothes rentals are in their infancy, however we see
potential growth and our competitive differentiators clearly exemplify that.
III. Overview of the Data Used in Analysis
A. Data Sources

1) Where did the data come from?

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Our data came from scholarly articles, current businesses within the retail and e-
commerce industry and online data sources.
2) Why did you use these data sources?
These data sources gave us the information that we needed in order to plan out what
goods and services to provide and what customers would be interested in. It also allowed us to
see who are target markets were, if there were any competitors and then how to differentiate our
company from the competitors.

B. Data Contents
1) Which data did you use and why?
We used date from Mintel on qualities of a good mother, which allowed us to understand
the mentality behind mother’s purchasing decisions. Since Velo is a company that heavily relies
on mothers being attracted to the goods sold, it was important for us to understand why a mother
would be attracted to Velo and what options that we could have as a company to best suit her
needs.
2) Which data was unnecessary and why?
We had a study from Mintel where we only needed a portion of the information and had
to work through the study and the chart in order to find the pertinent information. Although it
was great to have a ton of data available to us, we simply did not need all of it.

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C. Data Analysis

1. Multidimensional analysis strategies
Multidimensional data analysis allows Velo to look at large amounts of data and
better understand them. Velo used Multidimensional analysis to look at smaller portions of data
in order to make more informed business decisions. This allowed Velo to better predict
consumer purchasing trends and see what products Velo should provide in order to optimize
revenue.
2. Drill down/Roll up strategies
We used drill down analysis method in order to examine the data. Drill down made more
sense for our data because drill down has an increased level of data as you go farther.

IV. Physical Location, Initial Capital or Lease Terms and
Financing Plans
When deciding where Velo’s headquarters should be located, there were five key factors
considered. In order from most important to least important location factor: proximity to major
shipping centers, proximity to consumers, cheap land values, business climate (business tax
favorability), and cost of living. Due to rapidly evolving consumer tastes and fashion fads, it is
imperative that Velo’s clothes are turned over rapidly before they become unfashionable. Velo
realizes that turning inventory over expediently requires that those inventories be 1.) Close to
major shipping hubs and 2.) Close to consumers. Therefore, those two factors are the most
imperative to Velo’s long-term financial health. In addition to the aforementioned factors, cheap

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land values are crucial to economic sustainability. If Velo requires a new operations facility in
the future, it will be beneficial to locate in a city where the land is cheap. In any instance, the
cheaper option, all else equal, is better. However, cheap cities are typically cities distant from
large population centers (i.e. Billings, Montana; Fairbanks Alaska), which needs to be avoided
for the sake of shipping expediency. Business climate and cost of living are important for the
long-term solvency of the company as well, but both measures have the same limitations as land
values. Using these factors and a simple weighted matrix shown below, Velo was able to narrow
down the options and pick the eventual champion, 554 Adams Street in Memphis, Tennessee.
Table 1
Composite location scores for various cities
Note: data in Composite location scores for various cities for Tax Climate and Cost of living from Tax Foundation
(2015), data for shipping access from Airports Council International [ACI] (2014), data for consumer access from
U.S Census (2011), data for land values from National Association of Home Builders (2014).
Memphis is an ideal fit for Velo due in large part to it’s proximity to FedEx’s primary
distribution center and Memphis International Airport, which is the busiest airport by throughput
cargo volume in the United States (ACI, 2014).
The choice to buy, lease, or build a warehouse in Memphis came down to time and initial
costs. Velo compiled research from various online resources to compile a table illustrating the
initial costs of each option, holding all else constant.

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Table 2
Year 1 total cost for each buy, lease, build alternative
Note: cost figures for building in Memphis based on figures from RSMeans (2014), cost figures for buying based on
real estate listing from LoopNet (2015), and cost figure for leasing based on real estate listing from Loopnet (2015).
All year 1 cost projections scaled for hypothetical 15,000 square foot facility.
These figures do not take into account property insurance expense for building and
buying facility or zoning permits for building facility. These figures also exclude the opportunity
cost of lost time from waiting for the facility’s construction in the build case. Due to the high
initial costs to buy or build a warehouse, it is in Velo’s best interest to lease a facility.
Fortunately,
Velo has located a
facility on Loopnet that
can be subdivided into
an 18,000 square foot
warehouse. Velo has
decided to allocate
3,000 square feet of that
18,000 square foot
usable space for
administrative

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purposes. Velo believes that the close proximity between the warehouse and administrative
office will allow for better communication and a reduction in variable expanses such as heating
and cooling. The property owner requires a five-year lease and an annual payment of $2.95 per
square foot per year (Loopnet, 2014). This cost is extremely economical for Velo, especially in
the company’s infantile and cash strapped stage. In the event that Velo’s operations grow
significantly in that five-year lease span, Velo is able to acquire an additional 22,000 square feet
in the same facility for use. The cheap cost per square foot and the ability to scale up operations
give Velo the most economic flexibility of any of the three ownership options.
To maximize floor space, Velo has identified a great floor plan that would allow
operations to do so. The floor plan will look similar to this:
Note: floor plan
retrieved from
artposters.org
[2014]

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Example of warehouse space layout. Picture from emrackinternational (2014).
The main difference between our facility and the example is that the example does
doesn’t account for our 4,000 square foot used inventory space. Velo consulted with Cisco Eagle
packing solutions and obtained this personalized estimate for a 40x65x24 room to configure a set
up for 86,000 pounds of clothes - about 150,000 thermal jackets at a 10 ounce weight. The
configuration guarantees an 8-foot clearance between each successive pallet rack so forklifts are
able to move pallets in and out effectively. The estimate leaves about half of the facility left for
use.

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Clothes will be boxed in 40’’x 48’’ pallets that will each be able to hold roughly 1000
pounds of compressed clothing articles. This gives Velo the ability to house returned inventories
as well as new inventories for the foreseeable future. In addition to pallet racks, Velo has other
warehouse costs as follows in table 3.
Table 3
Warehouse costs
Note: pallet rack cost from Cisco Eagle [2015], semi truck cost from Ryder [2015], conveyor belt cost from
ConveyorsDirect.com [2015], Forklift and Telxon cost from Ebay [2015].
From tracking orders and sending assignments out via Telxon, to using a conveyor belt to
package customer orders, these expenses are necessary in order to create an efficient operations
management system capable of delivering products to customers quickly.

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Examplex of office equipment: Pallet racking from DIYtrade (2015). Telxon from opal (2015).
Semi from velocitywebdesign (2015). Conveyor belt from conveyor belt (2015).

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In addition to warehouse costs, Velo must incur administrative costs. The costs are listed
in table 4 below.
Table 4
General administrative costs
note: all data compiled is from Office Depot Office Max [2015].
These costs guarantee that orders and day-to-day operations are being properly managed.
With strong computing power, Velo will ensure great customer service and fast response times to
customer demands.
Example of office space. Picture from milesconsultancy (2015).

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Velo’s capital costs and warehouse cost are roughly $292,300. Buying these items
outright will make it easier to get small business loans because they will act as forms of
collateral. In order to pay for these costs and costs mentioned later in the paper, Velo will seek a
$1.3M line of credit from various creditors to pay for these expenses. According to Wells Fargo,
a small business line of credit (up to $2M) can be acquired for a twelve percent variable interest
rate.
V. Product Plan

Velo’s product plan will primarily focus on two occasions: winter attire and formal attire.
By contracting our services through Nordstrom, it would allow Velo access to these types of
clothes. Nordstrom hosts many brands, such as The North Face, Columbia, Calvin Klein, and
Ralph Lauren, and it is essential that Velo offers these renowned brands in order to appeal to
parents and promote product excellency. Winter and formalwear are generally very expensive,
and this expenditure is magnified for families because children outgrow their clothes from one
season to the next. However, Velo offers a cost-effective clothing solution to families eager to
save—rentals.
By packaging our attire, Velo creates a one-stop shop for parents to clothe their children
for the winter. Winter clothes are extremely expensive, especially when kids grow out of them
every season. If a parent buys a similar package to the one Velo offers from The North Face at
MSRP it would cost about $345 before taxation. Velo will be able to acquire this for a cheaper
price because contracting through Nordstrom is much cheaper, as told by our source at Le Tote.

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Velo sees formal attire as an issue parents constantly face—needing their child to look
formal for a few times a year but having to spend hundreds of dollars to do so. As mentioned
earlier, Nordstrom hosts brands like Calvin Klein and Ralph Lauren, both of which are
prominent suit makers in the market for children’s dress clothing. When purchasing these items,
it can easily sum to over a thousand dollars over the lifespan of a child. However, renting these
items can save the parents significant money over the lifespan of the child. In addition to savings,
Velo can provide the luxury of brand names to families that may not normally get access to such
brands, once again creating a competitive differentiation.
Velo’s winter line will be wholesaled through a clothing conglomerate called VF
Corporation. One popular brand under VF Corporation’s wing is “The North Face;” this brand
name is essential to Velo’s success. In another case study performed by Mintel, “Women will
pay for—and be loyal to—quality, durable brands.” (Mintel, 2014). Mintel also mentions that
The North Face is one of the leading clothing companies in brand loyalty based on factors such
as perceived quality and durability.
A. Boys Aged 8-‐15 Years

Boys’ Glacier
Pant
Boys’ Glacier ¼
Zip
Boys’ Down
McMurdo Parka
Youth Slopeside
Beanie

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Through research performed by Mintel, Velo found that boys within this age range
enjoyed less vibrant colors. So instead of choosing vibrant colors, Velo decided on a neutral
colored product line that exhibits distinct quality and durability. Therefore this product line
satisfies parents because they are getting quality clothes that keep their child warm while
meeting the demands of teenage boys.
B. Girls Aged 8-‐16 Years

Girls’ Aconagua
Jacket
Girls’ Glacier
Leggings
Girls’ Surgent
Pullover Hoodie
Youth Cable Minea
Beanie
According to Mintel’s case overview of children and outerwear, “Girls like to make a
statement when it comes to their clothes; therefore, when marketing to girls make it vibrant.”
(Mintel, 2013). The North Face handed picked the above set of clothes calling it, “The Winter
Outing.” The North Face intentionally put these clothes together as a set to give girls the bold
fashion statement they want while giving them warm, durable winterwear.

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C. Male Toddlers (2T-‐5)
Toddler Boys’
Glacier Pants
Toddler Boys’
Canyonlands Hooded
Jacket
Toddler Boys’ Full
Zip Hoodie
Toddler Slope Side
Beanie
Mintel performed multiple case studies on mothers raising children at different points in
their lives. The study done on toddlers stated, “Children typically don’t have too much autonomy
in their choices early in their lives [from ages five and earlier]; therefore, mothers maintain the
power in the decision making and purchasing.” Kids may be indifferent to what they wear, but
mothers still want their kids to maintain a good appearance, so Velo picked warm clothes that
would look good in any cold situation (refer to Appendix A).
D. Female Toddlers (2T-‐5)
Toddler Girls’ Denali
Jacket
Toddler Girls’
Glacier Leggings
Toddler Girls’ Reversible
Grizzly Peak Lined Wind
Jacket
Youth Cable Minea
Beanie

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The decision making for toddler girls entailed the same parameters Velo considered in
the clothes for toddler boys; however, Velo went with more vibrant colors than with the toddler
boys.
Each article of clothing was chosen because Velo believes that they could keep anyone
warm in very versatile areas, whether that is in the slopes of Colorado or in the harsh winters of
Minnesota. Each line had to consist of a water resistant bottom, a warm layer to go above a base
layer, a water resistant outer shell, and a beanie to keep the ears warm. The clothes Velo provides
have a high initial cost. The Velo team believes, that since t-shirts and jeans are not a high initial
cost, it makes sense to sell more costly products.
All of the product lines fall above the $300 mark at MSRP. For instance, the boys’
product line alone costs $355 before tax. Our rental service allows clients to wear very expensive
clothes for a fraction of the cost, and by paying to be a member of Velo, customers will
continuously receive clothes that will fit their child as they grow older. As a symbiotic
relationship, Velo generates revenue and the parents order and receive clothes for their kids that
will save them both money and time. This type of service has yet to be offered to this segment of
the market, which is another way Velo will differentiate itself from the competition and create a
competitive advantage.
Along with winter attire, Velo will be wholesaling clothing from Nordstrom in order to
provide formal attire for children. Velo wants to offer formal attire to its clientele because of the
high initial investment. Instead of mothers taking on the financial burden of buying dress clothes,
Velo, instead, would bear this cost because the company could make the clothes more

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worthwhile by being able to provide formal wear to multiple children who are in different stages
in their lives. Suits need to be properly fitted in order to have the right feel and look right.
Therefore, it is hard to justify putting down money on a suit for a child this young when they will
grow out of it in a matter of months. Velo has made it so the child will always have a properly
fitted suit for whatever stage of life they are in, and parents would not have to pay an exorbitant
amount of money to get their child suited.
E. Boys Ages 8-‐15
Nordstrom Tanner Loafer Appaman Two-Piece Suit Nordstrom Dress Shirt Nordstrom Zipper Tie
This set of formal clothes for young boys is target marketed towards mothers. A case
study on Mintel shows, “In a sample of 2000 18+ year old mothers, we found that mothers like it
when their kids look well-dressed because it is a sign that they are well off in a socioeconomic
sense and that their kids are perceived as well-behaved.” (September 2013) Therefore, a standard
two-piece suit would be ideal for any occasion as long as it fits the child properly; however, a
suit must be accompanied by proper shoes, a dress shirt, and tie in order for it to be a complete

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formal outfit. The colors displayed above are neutral and they are very traditional in nature,
justifying Mintel’s findings.
F. Girls Ages 8-‐16
Nordstrom Bella Ballet Flat Miss Behave Sofia White
Dress
The premise that was drawn upon discussing why the boys’ clothes were picked out is the
same reason why the girls’ clothes were selected. The colors are neutral and traditional. The
items go together instead of matching, since according to women that Mintel pooled, “Women
do not want to ‘match’ their clothes but instead go together (2014).” This means that the clothing
work well in a sense and that the colors do not argue with each other from rivaling palettes.
Velo knows that parents want to be proud of their child and what they are wearing. Velo
decided that it would be best to only offer formal attire to children in the young stage of their
lives as well as into their early pre-teen years. This was done primarily because Mintel posted a
case study stating, “Children typically begin being cognoscente around 4-5 years old and as they
get older continue to master motor skills (September 2012).” It means around that age, families
can start bringing their kids to more formal functions, such as weddings and business functions.

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Therefore, kids have to look clean cut and civilized for the event, as Mintel produced the
following chart:
This chart shows the results of a survey conducted amongst 1400 mothers. It asked the
mothers what they believe makes a good mother. In the chart, 84% of all mothers note,
“Maintains a good appearance.” However, a good appearance is by no means inexpensive.
Formal clothing requires a high initial investment and the girls’ formal attire product line alone
costs $120 before tax. By purchasing these articles of clothing from Nordstrom wholesale, Velo
can afford to charge its clientele a substantial fee to keep their child clothed for any formal
occasion. By saving money by using the Velo service, kids could get “plenty of exercise” and be
“provide[d] healthy snacks.” Plenty of exercise can be a ski trip that the family can afford to go
on now from the money they saved from clothing expenditures and the money saved could be
used to purchase healthier food for the family. This makes the mother look better among her
peers.

25

As Velo grows, so will its clothes within the product lines. However, Velo has to make a
name for itself because no one currently knows the company and what the company does. After
taking a high initial investment, Velo has no doubt that the community will take notice of its
accomplishments. In turn, this success will invite and welcome bigger designers that want to
deepen their reach into the children’s clothing market, bringing Velo more investors and clothes.
Brands, ranging from Vans and The North Face to smaller, “up and coming” designers, will want
their name attached to Velo.
VI. Supply Chain and Inventory Management
Velo’s supply chain is different compared to most traditional clothing businesses.
Typically when a children’s clothing store sells a product to a customer, it is the end of the
business/customer relationship. Velo has added a whole new element of complication by
classifying itself as a rental service. The supply chain for Velo must consider another element
that most businesses don’t have to worry about. However, Velo is similar to companies like
Netflix, sporting equipment providers (like ski and snowboard rentals), and car rental services
(Enterprice, Hertz). The graphic below is a general framework upon how Velo built its supply
chain:

26

The following image is from Clermiston Consulting. Velo thinks this photo perfectly
illustrates the communication and organization of the supply chain. The customer portion of the
graphic refers to the mothers that Velo is targeting in its marketing schemes. The supplier portion
refers to Velo and the clothing suppliers, Nordstrom and VF Corporation. In the middle of this
system are inventory, cash that goes back to Velo, and information flowing from both Velo and
its customers. Information such as “expected delivery date to the customer” and “what Velo has
in stock” are examples of essential information that both the customer and Velo need to know in
order to run an effective supply chain. The arrows running between the suppliers represent the
same three arrows between customers and suppliers. Velo and its suppliers need to know how
many articles of clothing are needed, the type of clothing, and the size requested in order to keep
the business running smooth. This information needs to be communicated so Velo does not run
across any shortages and maintain the proper amount of material and cash flowing through each

27

entity. Also, customers will most likely exchange information between each other. Word of
mouth is paramount when it comes to Velo’s success.
While studying consumer decision-making, Mintel surveyed 2,000 mothers aged 18 and
above and found that 97% heavily consider their peers’ opinions. It is absolutely imperative that
Velo maintains state-of-the-art customer service and suitable products. If positive information
about Velo is flowing from customer to customer then more mothers will be willing to try it
when clothing their kids. Thus, the expected growth and extra volume of inventory needed
means more revenue for Velo and its suppliers.
Velo’s inventory management is essential due to the fact that Velo is a company with the
rental aspect to it. Therefore, Velo will need to be on top of what is going out to customers, what
is coming back from customers, and how much inventory is coming from suppliers.
The following programs that will be used to aid in Velo’s inventory management
processes are ShipStation, NetSuite, and SquareSpace website hosting. SquareSpace is essential
for Velo because it is the customer’s portal into the inventory. After the customer places an
order, the database will make note of it in order for Velo to fulfill the order. Also, SquareSpace
has several website templates that are simple to navigate, which is essential because Mintel
found that, “When marketing towards women, especially mothers, simplicity is key. They are
already taking care of kids, [they] have a household to run, and, in today’s market, [there is] a
rise in mothers joining the workforce” (October 2013). Velo plans on implementing the
following template:

28

This is a popular template on SquareSpace for many e-commerce businesses and is also
visually alluring in both a mobile platform and desktop. This is essential considering that
computing is heading in a direction of primarily mobile computing, as Noah Zikmund said in
lecture. NetSuite is important in order to keep track of inventory that is inside or outside of Velo
at any point in time. In fact, a company in Boulder, Colorado called Rally Software Development
uses this software to keep track of purchase orders, bills, accounts payable, etc. The Velo team
had a chance to talk to an intern at Rally regarding the system and saw how beneficial NetSuite
would be for Velo. The following graphic was given to Velo, showing what the interface looks
like in NetSuite:

29

The beauty in NetSuite is its cloud-based computing interface. A member of Rally
Software’s accounting team says, “NetSuite is awesome in the sense that I can add a vendor in
five minutes. All I need is a copy of their W-9 and now I can put them as a vendor in our system
and can link them to invoices and statements we get. We have so many vendors and customers
that we need linked to these important documents so that we know who we need to pay back and
who can wait” (March 2015). Velo will use NetSuite in a similar manner, as it will be used to
keep track of how much inventory is coming in from VF Corporation and Nordstrom and, in
turn, be able to keep track of cash needed to cover the cost of this inventory and other various
suppliers that come with running a business like Velo.
ShipStation will focus more on Velo’s business-to-consumer side of transactions. The
following graphic is a screenshot of the ShipStation interface provided by ShipStation:

30

ShipStation is invaluable because it flawlessly integrates with SquareSpace. As a result,
when a customer places an order on Velo, ShipStation notifies the team in order to process the
order and follow the package from when it leaves Velo’s warehouse to when it reaches the
customers’ door and then when it is finally delivered back to Velo. Since ShipStation is cloud-
based, it instantaneously changes when someone alters an aspect to the interface; thus, it will
provide information quicker and allow for fast paced decisions to be made. All these important
pieces of software will communicate together in order to successfully manage the inventory
moving to and from Velo’s warehouse.
The following graphic is from YFS India, a consulting company that specializes in
inventory management solutions, which will help Velo illustrate the process.

31

This process begins with the arrival of goods. Velo contacts its suppliers (Nordstrom and
VF Corporation) and reports how many articles of clothing is needed, the sizes, and the colors.
All of this information will be recorded into NetSuite via purchase orders, invoicing, etc. This
should take no longer than one day since Velo is paying for overnight shipping for each order.
Once the goods have arrived to Velo’s warehouse, it will be barcoded and scanned into NetSuite
to keep track of how many articles of clothing it has per category (pants for boys, pants for girls,
coats for girls, etc. all by size and product line). This process should only take, at most, one
business day using detail-oriented staff. The Storage of Goods consists of placing the received
clothes into bins within each product line. These processes will happen in the same business day
of barcoding and scanning the articles of clothing. Since the product lines are rented as sets, it is
imperative that they are stored in bins arranged by our product lines. If a mother orders a set of
winter clothes for a boy in a size small, Velo’s warehouse workers won’t have to run around the
facilities fetching every article of clothing but, instead, they will already be placed with the
articles of clothing in the same size. This will save time and increase efficiency by allowing the
saved time to be put into shipping the clothes and processing the clothes that come back from
previous orders so that they are ready to go back out to fulfill other customers’ orders.

32

Once each article of clothing is packed with its proper sizing and product line, it will be
stored within Velo’s own facilities and entered into ShipStation via barcode so that the customers
know that the products are available for rental and Velo knows that it is in stock within the
facility. Updates will constantly be managed through ShipStation’s dashboard (displayed
previously). The software is intuitive in the sense that when the shipping label is made it links
the package to that label and allows Velo and the customer to be notified on its whereabouts.
This makes the updates of product detail easy for Velo and allows for efficiency in the
management of inventory because the dashboard tells the team what is going on with each
package. When a customer places an order into SquareSpace, it will notify ShipStation, a label
will be made, and the package will be shipped in one business day. After leaving Velo’s
warehouse, it will only take two days to reach the customer’s door because ShipStation is
partnered with mega e-commerce companies, like Amazon, Etsy, UPS, and FedEx, allowing for
packages to be moved quicker to achieve economies of scale. The customer can then hold on to
the package as long as they want, and ShipStation immediately provides the customer with a
return label for when she is ready to ship it back. Once the clothes are on their way back to the
facility, via the scanning of the barcode at the shipping facility, Velo will fulfill the mother’s
next order within the same timetable.
Once the package is officially back at Velo’s warehouse, it will be processed to make it
ready for the next child that needs that specific fit and style. This entails whatever maintenance
needs to be done to bring the clothing back to its best condition. Processing the clothes and
getting them back into rotation should take no longer than six hours. After processing the
clothes, they will go back to being barcoded and put back into ShipStation as available. This

33

ultimately covers Velo’s inventory management on the business-to-consumer side of
transactions.
As demand grows, Velo will grow its inventory as well. Using ShipStation to forecast
future orders and NetSuite to keep track of Velo’s accounts, both programs will provide
information on whether or not to expand clothing inventory. Clothes will be liquidated into
irregular overstock stores for a fraction of the price so that Velo can keep its styles up to date in a
fast paced society. This will be done on a triannual basis because a Mintel survey done with kids
ranging from ages 5-13 stated, “Market research has concluded that children’s clothing is not too
concerned about whether or not it is ‘in season.’ They are more concerned about [looking] cool
amongst their peers.” (June 2012) Velo wants to do this every three years because it will help
save revenue since clothing won’t have to be constantly liquidated, and it gives the clothes a
longer useful life. Then, an order will take place six months before the liquidation for the newest
collection of clothes to be unveiled to the target market of mothers. Velo doesn’t want to
blindside the consumers by surprising them with new clothes, in turn, causing an influx of orders
and returns. The new collection will be integrated slowly over the course of six months to test for
popularity, and once it proves to be a favorable line, the entire process shown in the graphic
borrowed from YSF India will be set in motion. All transactions will be entered into NetSuite to
make sure all contracts are taken care of promptly and in a professional manner and keep track of
what is coming to Velo’s door. This is how Velo’s business-to-business transactions will be
taken care of.
VII. Human Resource Staffing Plan:
Tennessee does not have their own Minimum Wage laws (NCSL) so Velo is going to
base wages of the national minimum wage which is $7.25 an hour. (Department of Labor) In

34

order to be competitive in the market, Velo is going to pay $0.75 above minimum wage so the
base pay for any of the employees is $8.00 an hour.
A. Number and type of personnel required

Job Title Job Pay Job Description
CEO $35,000 The CEO provides strategic leadership for
Velo and works with management to
establish long-term goals, strategies, and
policies.
COO $35,000 The COO helps various departments within
a company work together to meet the final
goal while also hiring people, negotiating
contracts with suppliers, reassessing the
budget, and understanding Velo’s
operations. Most importantly, the business
operations manager makes decisions that
involve what clothes customers are most
likely to buy.
General Warehouse -5 $8 per hour,
45 hours per
week, 50
weeks a year
$18,000 a
year
x 5 =
$90,000
The General Warehouse position ensures
that orders will be sent out in a timely
manner.
• Prepares orders by processing requests
and supply orders; pulling
materials; packing boxes; placing
orders in delivery area.
• Completes deliveries by driving truck or
van to and from vendors.
• Maintains truck or van by completing
preventive maintenance
requirements; arranging for repairs.
• Maintains inventory controls by
collecting stock location orders and
printing requests.
• Maintains quality service by following
organization standards.
• Maintains safe and clean work
environment by keeping shelves,
pallet area, and workstations neat;
maintaining clean shipping supply
area; complying with procedures,
rules, and regulations.
• Completes reports by entering required
information.

35

• Maintains technical knowledge by
attending educational workshops;
reviewing publications.
• Contributes to team effort by
accomplishing related results as
needed.
(Monster, Warehouse Worker)
Facility Administrators - 1 $10 per
hour, 40
hours per
week, 50
weeks a year
$20,000 a
year
X 1 =
$20,000
A general upkeep position. Make sure that
the warehouse runs the most efficiently as
possible and streamlines any upkeep
necessary.
• In charge of warehouse and equipment
longevity.
• Keeps track of maintenance for all
equipment.
• Make sure there are not ceiling leaks,
burst pipes, etc.
• Keep all logs on equipment up to date
and accurate.
IT Support - 1 $25,000 The IT Support position assists in all
technological aspects of the business.
• Installing and configuring computer
systems.
• Diagnosing and solving
hardware/software faults.
• Logging customer and employee queries.
• Analyzing call logs to spot trends and
underlying issues.
(Total Jobs.com)
Customer Support - 3 $20,000
each per
year
X 3 =
$60,000
The Customer Support position is there to
assist the customers with anything they
want or need.
• Attracts potential customers by
answering product and service
questions; suggesting information
about other products and services.
• Opens customer accounts by recording
account information.
• Maintains customer records by updating
account information.
• Resolves product or service problems by
clarifying the customer's complaint;
determining the cause of the
problem; selecting and explaining
the best solution to solve the
problem; expediting correction or

36

adjustment; following up to ensure
resolution.
• Maintains financial accounts by
processing customer adjustments.
• Recommends potential products or
services to management by
collecting customer information and
analyzing customer needs.
• Prepares product or service reports by
collecting and analyzing customer
information. (Monster, Customer
Service)
For Velo, customer support covers emails,
phone calls, website form requests and any
tweets or Facebook posts. Since the
Customer Support Position covers so
much, and is so essential for the success of
the business, we will need two customer
support positions.
Administrative
Assistant/Human Resource
Manager - 1
$10 per
hour, 40
hours per
week, 50
weeks a year
$20,000 a
year
X 1 =
$20,000
While being supervised by the chief
officers, the administrative assistant
supports the administrative and secretarial
side of Velo. Not only does the assistant
type, file, schedule, and perform financial
record keeping and payroll, the
administrative assistant also coordinates
meetings, obtains supplies, and works on
various projects.
Also takes care of all HR issues
Shipping Employees - 5 $8 per hour,
45 hours a
week, 50
weeks a year
$18,000
X 5 =
90,000
Shipping employees unload FedEx vehicles
after accepting the deliveries and unpack
the packages. These employees verify the
item that is shipped, inspects the condition
of the shipment, and notes discrepancies.
After the inspection stage, shipping
employees document the items shipped to
the warehouse and transfers the clothes to
the designated area in the warehouse. With
damaged items, the shipping employee
requests a replacement for damages. For
outgoing deliveries, this job entails
preparing shipments by packing and
labeling packages and determining the
destination, items to be shipped, and time
designated for shipment. The clerk

37

documents the products being shipped and
their transportation information. The most
important, and often repetitive, aspect of
this job is that the clerk constantly checks
the stock to determine the inventory level.
Quality Inspector - 2 $8 per hour,
45 hours per
week, 50
weeks per
year
$18,000
X 2 =
$36,000
Check clothes as they enter the warehouse
to determine their quality and see how they
need to be cleaned.
Washing, Altering,
Reprocessing – 4
$8 per hour,
45 hours per
week, 50
weeks per
year
$18,000
X 4 =
$72,000
These employees will be taking clothes
from the quality inspector and processing
them through the washing system. They
will be making any necessary alterations
and then re-packaging the clothes in order
to have them sent back out to the
customers.
Business Development $30,000 In charge of predicting market trends and
staying on top of fashion trends.
B. Cost analysis of proposed human resources staffing plan

Based on the wages and number of workers for each job responsibility in the table above,
Velo will incur $513,000 in base salary expenses annually. In the first three years of business,
every employee at Velo has at least two weeks worth of non-paid vacation time. After the third
year, however, Velo plans on adding more specific and specialized jobs, such as equipment
operators, inventory managers, and an e-commerce manager, in order to increase efficiency
among workers.

38

VIII. Non-‐Human Resources Cost Analysis:
In
addition
to
classic
expenses
such
as
product
costs
and
personnel
costs,
Velo
has
non-‐HR
costs.

Non-‐HR
expenses
are
typically
workspace,
shipping,
utilities,
property
insurance,
and
property
tax

expenses.
In
order
to
keep
the
lights
on,
literally,
Velo
must
incur
expenses
like
utilities
expense.
The

other
non-‐HR
expenses
serve
different
but
equally
vital
operational
roles.

Beginning
with
Office
and
Warehouse
costs,
Velo
has
compiled
a
table
to
illustrate
costs

associated
with
leasing
its
properties.

Table
5

Leasing
expenses

Note:
All
space
costs
from
Loopnet
(2014).

All
surveillance
costs
from
ezwatch.com
(2014).

Note:
Surveillance
cost
based
on
recommended
16-‐camera
system.
Costs
allocated
where
each
camera
is
around
$300.

In
total,
Velo
will
incur
just
under
$60,000
worth
of
expenses
in
year
one
just
to
have
a

functional
facility
to
operate
out
of.
Velo’s
property
costs
are
the
most
simple
of
all
costs
thanks
to
the

terms
of
Velo’s
lease.
The
lease
stipulates
that
the
tenant
is
locked
into
the
property
for
five
years
at

$2.95
per
square
foot.
In
regards
to
maintenance
and
grounds
keeping,
commercial
leases
usually

require
the
tenant
to
pay
for
normal
“wear
and
tear”
but
tenants
aren’t
normally
required
to
pay
for

structural
damages
such
as
a
roof
collapsing
(Miller
Thompson
LLP,
2012).
Velo
also
believes
that
the

facility
is
unlikely
to
succumb
to
structural
problems
because
the
facility
is
less
than
ten
years
old.

Therefore,
Velo
doesn’t
believe
that
it
will
have
any
costs
to
maintain
the
property
in
the
immediate

future.
However,
to
minimize
any
risk
created
by
ambiguous
lease
terms,
Velo
has
insured
its
property.

39

The
property
insurance
terms
will
be
explained
in
greater
detail
later
in
the
project.
Lastly,
Velo
will

invest
in
a
state
of
the
art
surveillance
system.
The
system
will
cost
about
$4500.
Velo
believes
this
is
a

reasonable
expense
due
to
Memphis’
crime
riddled
nature.
In
fact,
Memphis
has
the
sixth
highest
crime

rate
index
for
a
city
in
the
United
States
(US
News,
2011).

These
expenses
seem
expensive
on
paper,
but
what
these
expenses
will
allow
Velo
to
do
is
vast.

With
an
18,000
square
foot
office
and
warehouse
space,
Velo
will
be
able
to
hold
up
to
120,000
pounds

of
clothing
inventory
as
discussed
in
section
II.
Velo’s
office
space
gives
Velo
the
technological
and

administrative
resources
such
as
computing
power
to
interact
with
customers,
process
orders,
and
run
a

smooth
e-‐commerce
based
business.
Lastly,
the
surveillance
system
comes
with
sixteen
high
quality

cameras
that
give
Velo
the
resources
needed
to
monitor
its
facility
and
prevent
theft
in
a
crime
filled
city

such
as
Memphis.
The
combination
of
property
size
and
security
is
vital
to
the
day-‐to-‐day
operational

success
of
Velo
and
it
aids
Velo
in
getting
products
off
the
shelves
and
into
the
customers’
hands.

The
next
two
Non-‐HR
costs
are
property
insurance
and
property
tax.
Velo
has
compiled
a
table

below
to
list
these
costs.

Table
6

Property
tax
and
insurance
costs

Note:
property
tax
cost
from
Memphis
Chamber
of
Commerce
(2015).
Property
insurance
cost
from
Loopnet
(2015).

40

Fortunately
for
Velo,
Memphis
has
no
state
property
tax.
Therefore,
the
only
property
tax

comes
from
Memphis
itself
and
is
3.4%
times
the
land
value
(Memphis
Chamber
of
Commerce
2015).

Property
insurance
on
similar
warehouses
can
be
obtained
for
$.07
per
square
feet
(Loopnet,
2015).

Property
insurance
is
great
to
have
on
hand
in
the
event
of
a
natural
disaster.
As
mentioned
before,

most
of
the
time
the
property
owner
is
liable
in
the
event
of
structural
damage.
However,
Velo
decided

that
it
didn’t
want
to
be
financially
responsible
for
flood
damage
or
other
freak
accidents.
Instead,
Velo

will
pay
a
small
lump
sum
for
property
insurance
to
ensure
that
doesn’t
happen.

The
next
non-‐HR
cost
to
be
considered
is
shipping.
Shipping
expenses
are
incurred
each
and

every
time
a
package
is
delivered.
Velo
has
compiled
a
list
of
products
and
inventory
size
to
forecast

shipping
costs.
The
table
can
be
found
below.

Table
6
a

Product
inventory

41

Note:
inventory
configured
to
fill
half
of
the
building’s
shelving
capacity.
Inventory
size
also
based
on
size
of
Retail
Company
with
.015%
market

share.

Velo
didn’t
pick
these
inventory
sizes
out
of
a
hat.
Instead,
Velo
researched
and
dissected

competitors
in
the
market
such
as
Abercrombie
and
Fitch,
Gymboree,
and
GAP
Kids.
Gap
Kids

commands
1.4%
of
the
total
kids
retail
market
share
while
earning
revenues
of
$157
million
(IBIS
World,

2014).
Velo
believes
that
$2.5
million
in
revenues
or
.015%
of
market
share
is
obtainable
in
year
one.
To

illustrate
the
relationship
between
revenues
and
inventory
size
and
cost,
refer
to
table
8.

Table
7

Inventory
size
and
cost

42

Note:
pricing
received
from
Nordstrom’s
VF
Corporation
representative.

The
total
inventory
cost
is
about
$1.9
million.
Based
on
a
conservative
retail
markup
of
30%,

which
is
20%
less
than
the
50%
retail
markup
industry
average
(Forbes,
2012),
Velo
will
earn
roughly

$2.5
million
in
revenues
for
year
1
which
is
the
desired
.015%
market
share.

After
determining
a
suitable
inventory
size
from
Table
8
of
65,000
clothing
items,
Velo

configured
the
total
weight
of
the
inventory.
The
total
weight
amounted
to
50000
pounds
of
inventory

based
on
the
average
weight
of
a
light
jacket
at
twelve
ounces.
Because
Velo
typically
ships
out
three

items
in
each
order
(about
2.6
pounds),
Velo
realized
that
it
would
be
cheaper
to
ship
all
three
items
in

one
box
rather
than
three
individual
boxes.
From
an
operations
standpoint,
it
is
also
easier
to
keep
track

of
one
box
rather
than
multiple
boxes.
Therefore,
Velo
decided
on
a
one
box
to
one
order-‐shipping

platform.
To
illustrate
shipping
costs,
Velo
created
a
table
8
below.

Table
8

Shipping
costs

Note:
fuel
cost
from
Seattleweekly
(2014).
Box
cost
from
StarBoxes
(2015).)
Shipping
cost
from
FedEx
(2015).
Washing
machine
cost
from

Alibaba
(2015).

Recommended
box
size
for
suits
and
shoe
combination
from
Bagn’BoxMan
(2015).

Note:
truck
fuel
based
on
40
mile
total
round
trip
and
truck
that
obtains
10
mg.
Number
of
boxes
per
day
based
on
total
clothes
units
(65000)

divided
by
number
of
items
in
each
box
(3)
divided
by
number
of
days
in
the
year
(365).
For
boxes,
Velo
assumes
customer’s
return
all
boxes.

Dry
cleaning
units
based
on
number
of
suits
and
dresses
(2000)
divided
by
365
days.
Shipping
units
based
on
units
of
boxes
shipped
per
day
x
2

(includes
cost
of
retrieving
rental).

These
costs
are
necessary
for
many
reasons.
Fuel
costs
are
obviously
expected
to
move
clothes

to
shipping
hubs
from
the
warehouse.
Shipping
boxes
are
needed
to
ship
individual
orders
in
while

giving
customers
shipping
materials
they
can
use
to
send
back
rentals
to
Velo.
Dry
cleaning
services
will

Cost%type Cost%per%unit Number%of%units%per%day Units%per%year Yearly%cost
Truck&fuel&(per&gallon) 3 4 1460 4380
24x14x14&shipping&boxes 0.7 59 21535 15074.5
2&day&shipping&cost&(per&pound) 2.41 118 43070 103798.7
Washing&machine 1000 na 2 2000

43

be
used
to
clean
children’s
dress
clothes
and
to
prepare
them
for
re-‐rental.
Lastly,
the
two-‐day
shipping

cost
will
be
needed
in
order
to
gain
a
competitive
advantage
from
creating
a
better
total
product
offer

than
the
competition.
Fortunately,
due
to
the
proximity
of
Velo’s
warehouse,
shipping
is
only
$2.41
per

pound
for
orders
over
100
pounds.

Total
shipping
costs
round
to
$124000
per
year.

Utilities
are
the
last
non-‐
HR
cost
to
be
considered.
This
graph
from
the
EPA
demonstrates

average
energy
costs
for
non-‐
refrigerated
warehouses
such
as
Velo’s.

Source:
EPA
2015.

In
the
Memphis
region,
the
average
annual
energy
cost
for
warehouses
such
as
Velo’s
is
$.83

per
square
foot.
Therefore,
Velo’s
18,000
square
foot
facility
will
cost
roughly
$15,000
per
year.
Velo
will

seek
to
keep
energy
costs
as
close
to
that
benchmark
as
possible.
This
energy
cost
includes
the
cost
of

electricity,
natural
gas,
heating,
and
air-‐conditioning.

In
total,
non-‐HR
costs
are
totaled
in
table
9.

Table
9

Total
non-‐HR
cost

44

IX. Revenue Analysis
By calculating wholesale cost by stock keeping unit, Velo has a clear idea of what it takes
to make a profit. These costs are listed below in table 10.
Table 10.
Wholesale cost by SKU
Note: package cost from table 7 in section two. Box cost, 2-day shipping cost, is from table 9.
Direct labor tabulated from HR costs table.
Each wholesale package cost is found in table 7 of section two. Each package cost was
divided twice to represent the number of product turnovers per year. Box costs were pulled from
table 8. The two-day shipping cost is based on a conservative estimate that each package ways
the same as three adult jackets, which weigh about 12 ounces apiece. Using this approach, each
package will weigh two and a half pounds which runs Velo $2.41 per pound to ship based on the
shipping figure from table 9. Direct labor cost is the hourly wages of one shipping and one
processing team member ($16 an hour) multiplied by one-fourths because Velo will train
employees to process each package in 15 minutes. The 5-month allocation cost is just the
summation of the clothing cost, shipping cost, box cost, and direct labor cost. This is what it
costs Velo for each clothing package regardless of size (small, medium, large, etc.)

45

Using the wholesale cost by SKU, Velo identified the optimal retail price for each
clothing package. Using the assumed 50% industry average markup from section two and the
wholesale package cost, Velo found the optimal price point per package. However, Velo will
mark up packages by 60% because Velo provides a service that most retailers don’t provide-
temporary rentals. This price is illustrated in table 11.
Table 11
Retail price by SKU
These retail prices reflect what it will cost the consumer to rent each package, regardless
of size, for a 5-month period. Velo believes that these retail prices reflect the value added to the
customer and their children, from renting clothing packages, who will likely outgrow these
clothes in a year’s time.
After calculating the retail price and the wholesale price for each package, Velo decided
that it needed to forecast its sales volume. According to the Washington Post, as much as 30% of
a retailer’s inventory can go unsold. Recall from section two of this paper that Velo calculated
the required inventory necessary to obtain .015% of the market. Using this calculated inventory
and reducing it by a conservative 30% gives Velo it’s expected sales by SKU. Forecasted sales
quantity by time period by SKU is tabulated in table 12 below.

46

Table 12
Sales volume by package by year
Note: percentage of turnover reduction from Washington Post (2010).
Velo believes that the 30% reduction to package turnover is an accurate representation of
how much inventory will go unsold. Velo assumes that each product line and each package size
will be affected by 30% just for simplicity. Velo’s conservative projection will ensure that Velo
will not go into financial ruin.
However, Velo expects its sales to grow by roughly 20% for the first three years. Based
on an article from Mastercard, small retailer’s sales grow at roughly 2.7% per month. Thus, Velo
can reasonably expect to grow by roughly 20% in sales for the infancy of the company.
Using the above charts for retail price, sales volume, and wholesale price, Velo was able
to calculate its gross sales per SKU for the first three years. These tabulations can be found in
table 12 below.

47

Table 13
Gross profit by SKU
Sales volumes were each scaled by 120% to account for the 20% in sales growth per
year. Gross margin was calculated by subtracting the wholesale price from the retail price.
Taking the package turnover and multiplying it by the gross margin allowed Velo to calculate
each SKU’s gross profit on a yearly basis.
Using this info, Velo tabulated that total gross profit will be around $943,700 in year one.
The total year one gross profit number is the sum of each product line’s total gross profit in the
given fiscal year. Velo’s profit numbers account for a 30% margin of safety reduction and
expected sales growth of 20% in the first three years. These gross profit numbers can be found in
the next section’s accounting statements as well.

48

X. Three Year Financial Analysis
A. Income Statement

Gross Sales 2,516,472.00$
Less: Sales Returns and Allowances -$
Net Sales 2,516,472.00$
Beginning Inventory -$
Add Purchases 1,860,750.00$
Freight-in -$
Direct Labor 100,800.00$
Indirect Expenses 169,470.00$
Inventory Available
Less: Ending Inventory
Cost of Goods Sold 2,131,020.00$
Gross Profit 385,452.00$
Depreciation 59,286.60$
Property Insurance 1,260.00$
Interest 140,000.00$
Lease Payment 53,100.00$
Supplies 1,000.00$
Telephone 1,500.00$
Wages Expenses 412,200.00$
Total Expenses 668,346.60$
Net Income (Loss) (282,894.60)$
Revenue
Cost of Goods Sold
Expenses
Income Statement
Velo, LLC
January 1, 2015-December 31, 2015

49

Gross Sales* 3,019,766.40$
Net Sales 3,019,766.40$
Add Purchases** 1,674,675.00$
Freight-in -$
Inventory Available
Gross Profit 1,074,821.40$
Supplies 1,000.00$
Telephone 1,500.00$
Net Income (Loss) 406,474.80$
Income Statement
*Velo is under the assumption that with us targeting a segment of the market that hasn't
been touched yet, on top of being first to an industry that is new with very little competition
we believe 20% growth in sales within our first 3 years is a reasonable assumption.
**Velo is under the assumption that 9% of inventory cost can be deducted annually until the
end of our third year because we will be able to increase our efficiency and on top of that
our conglomerates will be able to provide us with better prices due to a proven track record
over time. Therefore reducing our Cost of Goods Sold.
Revenue
Cost of Goods Sold
Expenses
Velo, LLC

50

Gross Sales 3,623,719.68$
Net Sales 3,623,719.68$
Add Purchases 1,507,191.30$
Freight-in -$
Inventory Available
Gross Profit 1,846,258.38$
Supplies 1,000.00$
Telephone 1,500.00$
Net Income (Loss) 1,177,911.78$
Velo, LLC
Income Statement
*Velo is under the assumption that with us targeting a segment of the
market that hasn't been touched yet, on top of being first to an industry
that is new with very little competition we believe 20% growth in sales
within our first 3 years is a reasonable assumption.
**Velo is under the assumption that 9% of inventory cost can be deducted
annually until the end of our third year because we will be able to increase
our efficiency and on top of that our conglomerates will be able to provide
us with better prices due to a proven track record over time. Therefore
reducing our Cost of Goods Sold.
Revenue
Cost of Goods Sold
Expenses

51

B. Balance Sheet

Balance Sheet
FY-2015 FY-2016 FY-2017
Current Assets
Cash 17,903.00$ 555,882.08$ 1,839,220.98$
Inventories* 1,860,750.00$ 1,674,675.00$ 1,507,191.30$
Pre-paid insurance expenses 1,260.00$ 1,260.00$ 1,260.00$
Total 1,879,913.00$ 2,231,817.08$ 3,347,672.28$
Fixed Assets
Property and equipment** 291,933.00$ 233,546.40$ 186,837.12$
Leasehold improvements 4,500.00$ 3,600.00$ 2,880.00$
Less accumulated depreciation (Negative Value) (59,286.60)$ (47,429.28)$ (37,943.42)$
Total 237,146.40$ 189,717.12$ 151,773.70$
Total Assets 2,117,059.40$ 2,421,534.20$ 3,499,445.98$
Current Liabilities
Note Payable (VF Corporation @ 3% Interest)*** 300,000.00$ 300,000.00$ 300,000.00$
Note Payable (Nordstrom @ 3% Interest)*** 300,000.00$ 300,000.00$ 300,000.00$
Total 600,000.00$ 600,000.00$ 600,000.00$
Long-term Liabilities
Note Payable (Wells Fargo @ 10% Interest) 1,300,000.00$ 1,200,000.00$ 1,100,000.00$
Total 1,300,000.00$ 1,200,000.00$ 1,100,000.00$
Owner Equity
Investment capital (@ 10 people at $50,000 a person) 500,000.00$ 500,000.00$ 500,000.00$
Accumulated retained earnings (282,940.60)$ 121,534.20$ 1,299,445.98$
Total 217,059.40$ 621,534.20$ 1,799,445.98$
Total Liabilities & Stockholder Equity 2,117,059.40$ 2,421,534.20$ 3,499,445.98$
*Velo is under the assumption that in the first 3 years of the company we can discount our inventory by 9% every year because we
will get more efficient and our suppliers will be willing to give us a cheaper wholesale price for our business due to a proven track
record over time.
**This encompasses all of the equipment mentioned within the entire project.
***The conglomerates (VF Corporation and Nordstrom) Velo have decided to do business with have provided Velo with $300,000
each and an agreement to be the sole suppliers of Velo's clothing.

52

Based on ability to pay, Velo developed a simple payback period model to demonstrate to
investors how long it will take to pay them back. The table was created below.
Simple
payback

Every year, Velo assumes that its interest payment is $140000. The $140,000 payment is
meant to serve as a line of best fit to account for the annual interest payments. For example, Velo
owes Wells Fargo $130,000 based on the $1.3 M dollar loan Velo took out. Velo also owes 3%
interest per year to each VF Corporation and Nordstrom. Based on $600000 owed to the two
corporations by 3% interest, the annual interest payment is 18,000 total to the two companies.
So, the $140,000 interest payment is $82,000 greater than the actual payment required by Velo to
make on an annual basis. In years 2, 3, and 4, Velo assumes that it will pay half of its net income
to pay off debt. From years 4 on, Velo assumes no sales growth. Hence, Velo believes this model
to be pretty conservative. Subtracting principal and adding Net income or loss from year to year,
Velo computed a payback period of roughly 7.4 years. This seems like a long payback period;
however, when considering Velo’s high initial cost, it is pretty reasonable.

XI. Process Maps
A. Process Flowchart: Customer Order Fulfillment
This process is essential in the success of Velo because obviously we need happy
customers in order to be a successful business. Especially considering that our service is
Year 1 2 3 4 5 6 7 8
Principal)debt .1,900,000 .2,320,000 .2,260,000 .1800000 .1220000 .640000 .340000 380000
Interest .140000 .140000 .140000 .140000 .140000 .140000 0
NI)Debt/)earnings .280000 200,000 600000 720000 720000 720000 720000

53

completely subscription based. Our Customer Order Fulfillment process involves information
controls centered on our data cloud. Information from all three teams within Velo will be in the
cloud to keep information current so the customer has the most fluid experience possible. Velo
wants to reduce moments where customers will face shortages or UI problems on our end
because that will cost them time and that will cost us money. Below is the flow chart of what this
process will entail:

B. Relationship Map
The chart below shows how Velo communicates across channels to provide a fluid
experience for the customer. Our primary goal is to make it as intuitive as possible for the
Order Receipt
Enter order into
NetSuite
Returning
Customer?
Check for pending
order receipts
Yes
Enter new user
information into
data cloudNo
Check Inventory
Once subscribed to Velo
Did customer
return previous
order?
Yes
Notify Customer
that order can t
proceed w/o
previous order
Once order is on it s way
to the warehouse
Is item in stock? Schedule shipment
Order clothes
No
Wait
Receive clothing Inspect Clothing
Confirm delivery
date with customer
Schedule production
ofclothing packs
Inspect packs
Are all contents
present in pack?
Ship order
Yes
No
Yes
Notify customer that
they arebeing
charged for the
order
Finish
Good
Condition
Bad
Condition
Vendor
Send back to vendor
for good
conditioned clothes

54

company; therefore, Velo overlapped our reprocessing team and warehouse team as one to make
it easier to illustrate.
The three teams within Velo must maintain a synergy when it comes to communication.
The entire company should know across the board what is going in and out of the facilities, what
needs to be ordered, and all the other logistics that come with operating a firm like Velo. The
following chart below illustrates these relationships:

C. Cross-‐Functional Relationship Map: Inventory Receipt
Velo wanted to properly illustrate how our clothes come back from the client to another
client. Velo calls this the Inventory Receipt because every order will come with a receipt as a
control procedure. This control procedure is to ensure all departments within Velo know that all

55

of the inventory is accounted for within the confines of our warehouse. The receipt serves as a
physical piece of data that serves multiple purposes.
The technical team uses the inventory receipt to help process orders. They need this data
in order to see if Velo has it in stock and how many items are outstanding. Warehouse team uses
the inventory receipt to keep the technical team up to date on what orders can be made, what is
moving in/out of Velo’s facilities, and forecasting futures on clothes. Reprocessing’s primary
purpose is to get clothes that come back to Velo’s warehouse and get the clothes back to a
condition that another client could rent it without noticing that it was clearly rented previously.
Reprocessing clears inventory receipts so that warehouse can confirm with the technical team
that the inventory matches numbers across the board. Note the following graphic below to see
the process in creating an inventory receipt.

56

XII. Final Summary
A. Austin Menefee
In this project, I learned about myself and my ability to work in a group. In the final week
of the project, one of our group members became very ill with mononucleosis. The illness
couldn’t have occurred at a worse time for our group, but we did everything possible to
coordinate and edit the paper with her. Whether it was text messaging or over the telephone, we
still found a way to work together and make a great end product. This semester has definitely
been the most difficult of my collegiate career, and for the first time I really had to rely on other
people to help me overcome obstacle after obstacle.
With data, I learned how to use forecasting techniques such as Time series to determine
the optimal place to locate Velo’s business. Our group also rolled up and drilled down financial
statements in order to give end users the right information they need.
Process mapping allowed our group to determine necessary job positions that Velo
needed to create in order to have a high functioning warehouse. Process -mapping also helped us
figure out which jobs could be combined which saved Velo money.
Time management was key to our success throughout the paper because we were able to
coordinate schedules well. For example, I had four exams in one week and my teammates
understood and they took on some additional work to compensate for my lack of time.
For future BCOR 2500 students, I highly recommend having consistent financials and
thorough financials. If your financials are a disaster, your end product will be equally as
disastrous.

57

B. Darrel Trinh
When I first enrolled into BCOR 2500 I had a rough idea of what to expect because of
students who have taken the class previously telling me various OPIM anecdotes. This class
really taught me a lot about both my peers and myself. This project has taught me about working
in groups, with data, process mapping, and time and project management.
I got a lot out of this project from working in a group. What made my group special is
that we are all friends and know each other fairly well; therefore, that made it easy for anyone to
voice their opinion without having to fear judgement. This ability to voice our opinions made it
easy for us to create the best possible project because no one was holding back for another
person’s feelings because we knew the opinion came from a place of constructive criticism and
not hate. One hardship I discovered from working in a group is getting synergistic movement
going amongst all four of us. What I mean by that is getting Austin, Ellie, Bre, and myself all
moving at once was difficult because we are all super involved; therefore, we would always have
to consult 4 different schedules in a group text and meet at some obscure time to get the work we
needed done. Even though the times would be obscure the project would get done.
Working with data over the course of this semester I found rather fun. I am glad I chose
Information Management as one of my majors because it has a lot to do with data and I had a
good time working with it. When I was helping out with the target market research I got to
search for data in IBIS World and Mintel and compile information into Microsoft Excel to find
how big the market was for kid’s clothes and how much Velo could potentially grab within the
defined strata. I realized all the powerful tools at my disposal when I used Excel, and I look
forward to using it in the future in many other projects. I enjoyed taking massive walls of data
that my group would hand me and crushing them down to manageable bits that anyone looking

58

at our project could understand. This project helped me realize how cool it is working with data
and all the stuff you could do with it once you have it.
Process mapping was a bit of a challenge for me at first. I had to consult my tutor many
times while making mine because I didn’t realize there were a few rules in the aesthetic of these
maps. For example, when you are doing a decision within the process the arrows can only go to
the right or down when labeled yes or no. Realizing this helped me in the making of the process
map because I saw steps crucial in the process missing. These missing steps would’ve made the
process look incomplete. Not to mention that a lot goes into one single process for a business. I
find it absolutely incredible that massive companies like GM and Boeing can create process
maps with how massive their operations are, considering Velo is only nationally run.
When it came to the management of our time and project management it was pretty easy.
Doing this project with my friends made it so that we already knew each other very well and
knew where our strengths and weaknesses fell. Knowing all of this allowed us to consolidate our
time and divide out each portion of the project to people that were skilled enough to write about
it. This made doing the project easier because we would bring it all together and required
minimal effort after that. However, some difficulties we found were when one of our group
members got a severe case of mono. Each one of us is an integral member within this project so
when one of us was out it makes it difficult to pick up the slack; but nonetheless, we were able to
pick up the slack to the point where the student could pick themselves up and hit the grown
running at full health. I learned that time and project management are essential in the completion
of a project of this scale and having good friends makes it easier to do plan.
For the future students of BCOR 2500 I recommend doing this with friends. But I am not
saying like your “best friend” (although I do consider these people my best friends) but a type of

59

people that you could be around for hours and not want to kill them that are similar in your
mindset. Because if you surround yourself with that type of caliber of people and you like them,
then there is nothing that you can’t accomplish.
C. Bre Williams
While working on the e-commerce project, I quickly realized that my teammates
responded differently to motivation and work ethic. Some members of the group managed their
tasks well ahead of time while others typed up their portions of the paper 24 hours before each
deadline. Additionally, because we all had busy schedules, it was easier to communicate via
group message and remind each other when each deadline was approaching.
In regards to data, I found that it was particularly hard to project the amount of inventory,
warehouse space, and assets needed in order to break-even or make a profit. I learned that it vital
to go in depth and research companies similar to Velo in order to make these projections,
especially for balance sheets and income statements. Thus, my group and made accurate
predictions based on the financial and accounting history of similar companies.
Additionally, what I learned from process mapping is that there are multiple steps and
various alternatives for an e-commerce business. What shocked me were the back-and-forth
relationships for Velo, such as the customer having access to the technical team and
warehouse/reprocessing team. The process maps were revised many times in order for them to be
concise and easy to read.
For future BCOR 2500 students, I suggest that they choose teammates who specialize in
skills that the student is only proficient in. Even though many students are motivated to sign up
for the same recitation with their friends, they will be successful if, and only if, they find team
members that complete the group dynamics: time and project management, data and revenue

60

analysis, relationships within the industry, finance and accounting, marketing, writing, etc. One
of the biggest pieces of advice that I can give is to make sure that everyone in the group is on the
same page and has the same numbers. In order to do this, future BCOR 2500 students should
give themselves enough time to edit each submission and meet with their teammates.
D. Ellie Wroble
The BCOR 2500 project has developed a legendary quality among all the business school
students. From the moment you enter as a freshman in Intro to Business, you hear how much
work and effort and time the project takes. You hear horror stories about friendships and groups
torn apart and you also hear people’s pride when they describe their finished project.
The main difficultly around the project, besides its size, is the fact that you are working in
a team. Team dynamics are never easy which sometimes caused tensions as everyone had a very
different way of doing things. It was important in times when anyone got stressed to take a step
back so that everyone could understand the issue and the perspective. Our greatest strength in our
group was that each team member had very different strengths. By having such a diverse team,
we were able to have very strong submissions because everyone took the parts that they felt
comfortable with and were able to excel at it. Being flexible was also very important. For our
team, we were all so busy that we worked better when we could just communicate with each
other over a group message instead of meet at a set time every week.
For me, learning to work with data had a big learning curve. I struggled with every
submission on where to start to get the information that we needed. As the semester went on, I
became more comfortable working with so much nuanced information. I found that it was
important to keep all the information clear and concise.

61

I loved getting to work with process maps. For a business like Velo that has so many
different steps between the company and consumer, the process maps allowed us a medium to
clearly track the information. I like the visual aspect of it and found that I am a very visual
person who works best when they can see all the aspects involved. The process map allowed me
to do this.
When you are taking OPIM you are taking at least three to four other classes. I learned
that having some time management is essential not only to allow you to complete the project but
also to allow yourself some sanity in the process. I found that our group struggled with
communication when we got close to the submissions because we would push the deadlines a
little too tight which created so much stress for everyone and would lead everyone to be snippy
with each other. I learned that it’s important to not only have a group timeline of when to get
things done but also have personal timeline of completing your own goals.
My suggestions for 2500 students in the future is to pick groups not based on your friends
but on people who compliment your own strengths, to have superb time management skills, and
to utilize applications such a GroupMe and Google Drive. Additionally have weekly checkup
either in person or over text message to check up with everyone in the group to make sure that
everyone is on the same page.

62

XIII. Appendix
Appendix A: Examination on the Lives of Mothers

I. Appendix A-Examination on the lives of mothers
InfographicthatVelousedwhendecidingontargetmarkets.Velowantedtoknowifwecouldfitourselvesintotheir
lifestyles.

63

Appendix B: Social Media Usage
II. Appendix B-Social Media Usage
This graphic provided essential data in how our advertising and marketing would work when tending to
our target market. It was used in our paper but there wasn’t any room to put it in the actual paper
because of how strange it looked with the other graphics. So Velo figured it’d make more sense to just
put it in our appendix to view.

64

XIV. References
554 Adams St, Memphis, TN 38103. (n.d.). Retrieved February 11, 2015, from
http://www.loopnet.com/Listing/15186428/554-Adams-St-Memphis-TN/
2015 state business tax climate index. (2014, October 28). Retrieved February 11, 2015.
Advanced handheld computer. (n.d.). Retrieved April 2, 2015, from
http://www.opal.ch/Produkte/telxon/telxonptc-610.htm
Alibaba. (n.d.). Retrieved March 13, 2015, from
http://www.alibaba.com/showroom/commercial-laundry-machine-price.html
Average Energy Use and Costs Throughout the United States. (n.a.). Retrieved March 11,
2015, from
http://www.seco.cpa.state.tx.us/TEP_Production/c/EPAEnergyStarSmallBusiness
Guide.pdf
Belt conveyors and belt conveyor systems. (n.d.). Retrieved February 11, 2015, from
http://www.conveyorsdirect.co.uk/
Camara Sodero, A. (2013, January 1). Optimizing the Inbound Supply Chain Enables E-
Commerce Growth. Retrieved March 7, 2015, from
http://images.fedex.com/us/ecommerce/pdf/E-Commerce Drop Shipping
Solutions_FNL_9_16_13_BA.pdf
Carmichael, M. (2012, March 19). The demographics of retail. Retrieved February 15, 2015.

65

Carroll, M. (2012, February 22). How Fashion Brands Set Prices. Retrieved March 8,
2015, from http://www.forbes.com/sites/matthewcarroll/2012/02/22/how-fashion- brands-
set-prices/
Carson, P.A. (2012, December 18). Repair and Maintenance Obligations Under the
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