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Business plan presentation 3.31

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Sterling Kane

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Business plan presentation 3.31

  1. 1. HBS Business Plan Contest Pitch April 3, 2012Feel free to direct any questions / inquiries to jmendal@mba2012.hbs.edu
  2. 2. IntroductionBefore you dive in, three things to know…1. Sterling Kane is the Warby Parker formen’s leather goods. Think Gucciquality at Calvin Klein prices2. Team has extensive experience andunique ‘unfair’ advantages in leather3. What is our brand persona? Let’s justsay Sterling Kane runs in the samecircles as our friend over here 2
  3. 3. TeamBrothers with deep family roots in leather. 3rd generation in familybusiness, Pan American Leathers Jayme Abe• HBS – Class of 2012 • Pan American Leathers – VP of Finished Product Sourcing for• Li & Fung – World’s largest supply customers including Polo, Johnchain manager for apparel / fashion Varvatos, J. Crew, and many more household brands• AirLinke – Founded regional air • PAL has also supplied Coach,charter company LVMH, Hermes, etc.• Monitor Group – Growth Strategy •AJSkins.com – Co-founded online wholesaler, retailer of private label• AJSkins.com – Co-founded online men’s leather goods in collegewholesaler, retailer of private labelmen’s leather goods in college • Blackrock – Analyst 3
  4. 4. Problem – Retail Supply Chain 101 Product is complete Product sold to here. Cost to Traditional Retail: customer here. Sale produce is $50. price is $500. Brand / Craftsman Retailer Customer Wholesaler 2x 2x 2.5xThe Pain is Simple:• People pay up to 10X what it cost to produce high end leather goods• Given relatively high cost of goods in leather, dollar markups can be ridiculous• Examples of products we’ve sourced for brands through Pan Am Leathers: • Nice leather bag at Nieman Marcus… Cost $500. Price $3,500 • Private label alligator belt at Dept. Store X… Cost $50. Price $400 4
  5. 5. How big is this problem?High end men’s leather goods market is $2.7B (in U.S) and growing rapidly Market Size Market Growth• $2.7B market for high end U.S. men’s • ‘Mens’ category is growth engine forleather goods business in fashion at the moment • Calculated using data on Coach’s sales and market share • Luxury menswear market is growing at • Represents 14% of $19.6B U.S. ~14% / year, double the pace of luxury luggage and leather goods market womens wear, according to Bain Select Examples: •“Coach is banking on more business from men…expects sales of mens products this year to reach $400 million, and climb to $1 billion within a few years.” • “Hugo Boss targets sales gains of 50% to €3 billion by 2015, helped by cultural shift that has led more men to be interested in fashion and invest in appearance.” 5 Source: http://www.reuters.com/article/2012/03/29/us-usa-retail-luxury-idUSBRE82S15R20120329; http://www.wikinvest.com/stock/Coach_%28COH%29 ; http://www.marketresearch.com/MarketLine-v3883/Luggage-Leather-Goods-United-States-6854915/
  6. 6. Solution – Sterling Kane• E-commerce brand of luxury quality men’s leather goods,priced 40-60% lower than other brands of comparablequality (e.g., Tod’s, Gucci, Varvatos).• Achieve price advantage by eliminating cost + risk fromvalue chain after the product has been created. Quality ofproduct never compromised. … How do we deliver on this? 6
  7. 7. Solution – Sterling Kane Quality – Value –• Suppliers: Same leather, Cut Middlemen: Receive goods fromcomponents used by leading luxury the factory and ship direct to customer.brands Eliminates cost, markups• Manufacturers: Same Minimize Overhead Costs:manufacturers used by leading Predominantly online retail - no bigluxury brands stores, salespeople, etc.• Design: Designers who have Minimize Inventory Cost, Risk:designed for leading luxury brands Products made to order in batches Sell only through channels which provide us with price control: Eliminates channel pricing conflict with traditional retail partners 7
  8. 8. Solution – Sterling KaneSnapshot from website: 8
  9. 9. Our Edge Keys to success Our Edge uality Raw Materials: Quality can’t be faked in leather. Need • 60 years in leather goods good suppliers supply chain > network of suppliers, manufacturersCompetitors roduction: Need to navigate • ‘Friendly’ supplier (Pan / New fragmented, global, old school American) charges us cost forEntrants supplier network materials!!! • Made-to-order biz model -> negative working capital . Cashflow Management: eed to control materials cost • Fashion press contacts + good inventory management • Story resonates – HBS, two brothers in leather family 9 . Branding / Traffic: Press/buzz
  10. 10. Unit Economics Current Highlights Future Improvements • 45-50% unit gross margin • Minimal overhead • Existing numbers based on • Negative working capital domestic productionUnit Economics (‘average’ product) • Currently preparing production capabilities inPrice $200 Colombia Cost of Goods $100 • Result will be 40-50% lower Free Shipping $10 COGS -> GM increases to 70%Gross Margin $90 10
  11. 11. Go to Market Strategy3 priorities: 1) Create brand awareness 2) Establish credibility for product quality 3) Drivesales. Have begun firing on all cylinders below with great results so far Channel ExamplesEditorial / Press • GQ, Urban Daddy, Esquire, ThrillistRetail Editorial • Gilt, Fab, UD PerksRetail Partnerships • Bespoke Custom Suit Co’s, Boutique Store-in-StoreTrunk Shows • HBS, university partnerships, pop-up storesReferral Marketing • Incentives for customers to refer via FB, Twitter, e-mailCorporate Gifts • Sell into leadership/HR of select companiesSEO • On selective, non-competitive keywordsSelective PPC • On low cost, non-competitive products 11
  12. 12. Competitive Landscape We expect to steal share primarily from three categories of customers a,b) Accessible Luxury and Niche High End Brand customer: Guy who pays $1,000 for a nice leatherQuality / Brand weekender bag now gets one of comparable or higherPerception quality for $495 High Hermes c) Mass market brand Mass Luxury Fashion Houses – Gucci, Tod’s, customer: Guy who Sterling Kane pays $300 for a Louis Vuitton decent quality ‘Accessible Luxury ‘Brands – Coach, Cole Hann; AND briefcase from Popular Niche Brands: Jack Johnston and Murphy Spade, Billy Reid, now pays $275 for a Trafalgar, John Varvatos much nicer one Mass Market Brands – Johnston Murphy, Calvin Klein Low Low High Affordability 12
  13. 13. Financial Projections Expect cash need of ~$350K to reach $10M in revenue and $4.2M EBIT by 2017. This represents just 0.01% of a huge, growing, men’s luxury leather goods market Rest of 2012 2013 2014 2015 2016 2017Total SKUs 20 50 100 150 250 350Total Units Sold 500 2,000 5,000 10,000 25,000 50,000Average Price per Unit 200 200 200 200 200 200Average GM/Unit 90 135 130 130 130 130 *Note gross margin bump as we shift production to Colombia in 2013Total Revenue 100,000 400,000 1,000,000 2,000,000 5,000,000 10,000,000Total Contribution 45,000 270,000 650,000 1,300,000 3,250,000 6,500,000Personnel 38,000 250,000 620,000 680,000 960,000 1,030,000Customer Acquisition 12,500 46,000 112,000 224,000 535,000 1,070,000Product Development 5,000 30,000 50,000 50,000 100,000 100,000PR 3,000 32,000 35,000 40,000 40,000 40,000Media / Copy 3,500 5,000 7,000 9,000 9,000 9,000Facilities - - 60,000 60,000 60,000 60,000EBIT (17,000) (93,000) (234,000) 237,000 1,546,000 4,191,000 13 *See appendix for more detailed breakout of costs
  14. 14. Current Status Current Status• Product Line: Initial line developed (12 SKUs). Doubling SKU count over next 2 months• Website: Beta is live. Re-design and significant improvements planned in next 2 months• Press: Coverage from Urban Daddy. Sale planned with Gilt. Interest from GQ, others…• Financial: $5,000 in sales in first month (with mediocre site, very limited selection) Vision for Future 1. Quickly establish leadership position among e-commerce leather goods brands 3. Expand into other related product categories to become first stop for men’s leathers goods and accessories 14
  15. 15. The Ask1. Vote in the Business Plan Contest • We’re serious about this. Demonstrated progress. Well positioned to become leading e-commerce men’s accessories brand.2. Contacts: We would appreciate introductions to… • Angel investors: Plan to raise $200K in next few months. Cash will be used for new product development, full time tech lead, merchant/designer, PR agency. Candidates currently being vetted. • People who have scaled e-commerce companies!3. Feedback? 15
  16. 16. AppendixSG&A and Product Development Cost Details Rest of 2012 2013 2014 2015 2016 2017 Headcount (full time) 2 5 10 12 15 15 Founder(s) 30,000 60,000 120,000 120,000 160,000 160,000 Technical Lead 8,000 70,000 140,000 140,000 210,000 280,000 Add full time sales / marketing / social media - 60,000 60,000 120,000 120,000 120,000 Add full time designer / merchant - 60,000 120,000 120,000 180,000 180,000 Utility players - - 70,000 70,000 70,000 70,000 Customer Service - - 60,000 60,000 120,000 120,000 Logistics / Packaging / Shipping - - 50,000 50,000 100,000 100,000 Office / Warehouse Rent - - 50,000 50,000 50,000 50,000 Utilities + Supplies 10,000 10,000 10,000 10,000 *Shared space with Pan Am Leathers until 2014 PR Management Hire PR agency 0 20,000 20,000 20,000 20,000 20,000 Press Kit / Gifts / Samples 2,000 10,000 10,000 10,000 10,000 10,000 Events 1,000 2,000 5,000 10,000 10,000 10,000 Media / Copy Video 2,000 3,000 4,000 5,000 5,000 5,000 Photography 1,500 2,000 3,000 4,000 4,000 4,000 Customer Acquisition Sponsored search + Facebook Ads 2,000 5,000 10,000 20,000 30,000 60,000 Commission to Sales Partners 10,000 40,000 100,000 200,000 500,000 1,000,000 Print marketing materials 500 1000 2000 4000 5000 10000 New Product Development Product Development Costs 5000 30,000 50,000 50,000 100,000 100,000 16

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