Tom Ford Richemont Business Case Final

Tom Ford_Richemont Watch Business Plan

1.0 Executive Summary

TFR Ltd (Tom Ford Richemont Ltd) is a start-up watch producer and distribution
company, which will be fully owned by Richemont. Its strategy is to serve the upscale
niche markets of the watch industry. It will capitalize on the Swiss engineering and
manufacturing used to build the watches and the universal appeal of Tom Ford’s designs
to carve a niche in the accessible luxury watch industry. There are many untapped
potential markets within this industry that desire high-quality, stylish goods, and a
combination of Richemont and Tom Ford will help both the companies to effectively cater
to these markets.

It will be the firm's intention to build and export its products to the major markets in the
world. To do this the company's long-term goals are to achieve a major market share in
the U.S in its price segment, make significant progress in key European markets like
Italy, France and Germany and build a substantial presence in Asia, specifically in Hong
Kong, South Korea and China. The firm aims to build brand image and brand equity
through marketing, achieve a sustainable 70% gross profit margin, and eventually
produce luxury watches in addition to the initial, mid-level price segment.

The Company

TFR Ltd will be a privately held company belonging to Richemont.

Production will take place in Geneva, Switzerland. Richemont will earmark space in one
of the existing manufacturing units and invest in segregating an exclusive facility for the
manufacture of TF watches. The factory will be of 1,000 square meters and should be
large enough for the first three years of the company's growth

Sales and marketing are focused on the United States; Germany, France and Italy in
Europe; Hong Kong, South Korea and China in Asia and Dubai in the Middle East.
Expansion into further markets will be planned out after 5 years of operation.

TFR's sales force consists of President based out of Geneva with key functions of
Manufacturing, Marketing, Commercial and Supply Chain, Vice Presidents for America,
Europe and Asia, who will have a team of 2-3 sales managers to look after the
distribution channels.

The Products

The initial product line will be elegant analog, mechanical and quartz watches with
characteristics in line with the core values of Tom Ford. The watches will be water
resistant to 100 meters of depth.


The pricing strategy will be to directly compete with the other major competitors in the
accessible luxury watch segment example Gucci, Hermes and Dunhill. The price per
watch will range between $1000 and $3000. A select and limited range will also be
launched in the vicinity of $4000 which will be advertised and be the face of the brand.

The Market

Entry into the mid-level luxury watch industry comes at a right time, with some key
consumer buying behavior changes after the 2008 recession. Over the past two years,
the purchase of mid-level and high-level European watches has increased by 50 percent
in the U.S. and this trend is expected to continue.

One of the most important recent trends is that potential watch buyers are willing to
spend higher amounts on watches because of the enhanced image appeal. Therefore, a
company that can build a substantial brand image in this industry gains a significant
competitive advantage. It is the aim of TFR Ltd to capitalize on the image of Tom Ford
and the high quality of Richemont while pursuing the innovative styles necessary for
brand building.

Financial Considerations

The company's start up costs will be $25 million. Richemont will initially fund the venture
completely. The majority of the start-up costs will consist of investing in a
manufacturing facility, research and development, initial inventory, marketing and a
strong cash account. The Break-even Analysis shows TFR Watches will be able to make a
steady profit from the first year itself.

Chart: Highlights


1.1 Objectives

1. To make TF Watches one of the top 10 selling European watch brands in the
accessible luxury segment.
2. To eventually produce luxury watches in addition to the moderately priced line.
3. To achieve a 70% gross profit margin.
4. To achieve appreciable market share in the U.S, French, German, Italian, Middle East
(Dubai), Hong Kong and Chinese markets.

1.2 Mission

TFR Ltd is a watch company that produces wrist-watches for sale across the key markets
in the world. The company will build its image based on the style quotient of Tom Ford
and the quality quotient of Richemont, and then will begin selling higher profit, luxury
watches.

1.3 Keys to Success

To succeed TFR Watches must:

• Build and sell high quality products which are high on style and dream factor coupled
with a unique timeless appeal.
• Achieve 100% customer satisfaction.
• Build brand image and brand equity through marketing.

2.0 Company Summary

TFR Ltd will sell quality watches and provides excellent customer service for customers
seeking a reliable watch within the accessible luxury watch market.

2.1 Company Ownership

TFR is a privately held international corporation. Production takes place in Geneva,
Switzerland and sales and marketing will be focused on the United States, Germany,
France and Italy in Europe, Hong Kong, South Korea and China in Asia and Dubai in the
Middle East.

Ownership:

• Richemont – 100%


2.2 Start-up Summary

Sixty percent (60%) of start-up costs will go to assets. Start-up costs will be financed
through the owners' investments, and loans. The assumptions are shown in the following
tables.

Table: Start-up Expenses


Table: Start-up Funding

2.3 Company Locations and Facilities

• The Switzerland factory is situated at Geneva.
• The factory is 1000 square meters and should be large enough for the first three
years of the company's growth.
• The watches will be shipped and distributed from Switzerland.

3.0 Products

The watches will be mid-level all-around high-quality watches with a style quotient in
sync with Tom Ford’s designing expertise. The watches will be water resistant.

The price will be very competitive: $1000-$3000. A few offerings will be done in the
range of $4000.

3.1 Product Description

Tom Ford watches are to be a combination of unconventional design and the creative
source. The collection will encompass a common passion for design, functionality,
craftsmanship, quality, and lifestyle. We partner with Richemont to develop two basic


lines. A new idea that redefines a highly crafted but yet accessible lifestyle watch, and
another line is to be elegant, sleek and yet classical men’s watch. Our watches will have,
besides functionality, an uncompromising style. A perfect combination of analogue dial,
quartz and automated mechanical movement will deliver style and function, without
having to compromise on one or the other. Our elegant line will be analogue watch line
with a quartz movement. All TF watches will be water resistant to 100 meters of depth.

Lifestyle watch line

Skeletonised This model shows Skeleton dial
titanium case and through a skeleton automatic
dial; the most dial and a clear mechanical
expensive piece of sapphire crystal movement;
the sports collection case back an
using rose gold and automatic Titanium case,
alligator strap mechanical titanium dial
(different colors); movement.
Strap – spido textile
automatic
The surface will be material;
mechanical
movement hand treated with a black
Basic silver titanium
finished in Diamond-Like-
color.
Richemont factories Carbon coating
ateliers. which is 3 times
harder than steel,
and second only to
diamond. Strap –
spido textile
material.


Elegant, quartz watch line

This model is This model comes
produced with with a kautschuk
analog dial display band bracelet –
which may come in because of the
different colors, specific kautschuk
quartz movement; smell the bracelet is
made with light
Sleek, elegant with a cedar wood perfume
note; kautschuk and
titanium band
dial may come in
bracelet; comes with
different colors
interchangeable
bracelet – leather in
different colors

3.2 Competitive Comparison

TF Watches will have the following sustainable competitive advantages:

1. Swiss technology, experience, proficiency, and reputation.
2. High quality and style at an accessible price.
3. Elegant and ergonomic styling.
4. Devoted Swiss work force.
5. American marketing skills.


3.3 Sales Literature

TF Watches will use advertising, public relations, and sales programs to make the public
aware of the watches.

1. Advertisements and public relations pieces in local newspapers.
2. Full-color brochures will be distributed at the various outlets where the watches are
sold.

3.4 Sourcing

TFR Watches will only sell watches produced at its Swiss factory, therefore additional
sourcing of watches will not be necessary. However, the sourcing of parts for the
manufacturing of the watches will play a constant role in the firm's profitability.

3.5 Technology

PC-based software will be used for accounts receivable/payable, inventory, purchasing,
sales, shipping, and returns.

3.6 Future Products

A luxury watch is the current main focus for a future product. Other future products
could include alarm clocks, wall clocks, and clocks for luxury automobiles built in
Germany.

4.0 Market Analysis Summary

The purchase of accessible luxury watches has increased considerably over the past one
year. We expect the sales to continue growing, and to capitalize on this ever-present
market for watches - people will always need and buy watches.

4.1 Market Segmentation

In the table Price segmentation in the watch market, four different segments are
distinguished within the watch market according to pricing. They are exclusive luxury,
accessible luxury, mid price and low price. Luxury watches are defined as being those with a
factory-gate price of over CHF 500 (553$), which corresponds more or less to a retail price
in excess of CHF 1500 (1660$). Accessible luxury watches are defined as those being sold
for factory prices between CHF 500 (553$) and CHF 3000 (3320$), which corresponds to a
retail price between CHF 1500 (1660$) and CHF 9000 (9955$). The technologies used are
mainly based on mechanical movements and to a lesser extent quartz movements. The
exclusive luxury segment represents watches with a factory-gate price in excess of CHF
3000 with no upper limit given. The production involves sophisticated craftsmanship and
technologies are usually exclusively based on top-grade mechanical movements.


Source Pictet, FH

Q – Quartz movement, M – Mechanical movement

Our strategic positioning will be in the accessible luxury segment with our average price
being between 1000$ – 3000$. Only certain limited collection pieces will be priced at 4000$
and will be featuring precious metal and hand made mechanical movement.

Also, on the Matrix chart for the watch industry the most important brands in the watch
industry are displayed. They can be grouped into five different profiles resulting from their
consumer image. The categories are the following:

• Connoisseurs/Specialists

• Sport

• Fashion

• Lifestyle

• Jewellery

The chart is additionally showing the division into four regions using three criteria: the price
(low price – accessible luxury – exclusive luxury), the type of movement (mechanical and
complication versus quartz) and the technology grade (technical content versus design
content).

Our brand will be positioned in the accessible luxury segment as a lifestyle/fashion watch.
Majority of the pieces sold will be from our fashionable elegant quartz line with some of the
sales coming also from our more upscale lifestyle line. As it is seen from the chart our major
competitors will be Dunhill, Gucci and Rado.


Chart: Matrix for the Watch Industry

4.2 Target Market Segment Strategy

The watch industry, particularly the accessible luxury segment, has witnessed a good
growth in 2010. Potential watch buyers are willing to spend moderate to high amounts
on watches because they can make the customer look good - and hence feel good about
themselves. In addition, TF Watches will be built to last a lifetime - battery replacement
every 5 years will be the only necessary maintenance, therefore customers will see the
inherent value in the watches. The materials employed like titanium are easy and light
to wear and have extreme durability.

The upscale niche market that TF Watches has targeted is competitive because of the
competitors and the discerning consumers it serves. However, the competition is based
more on quality than price unlike the discount market.

4.2.1 Market Needs

The upscale watch industry is currently in a growth period, so now is an ideal time for
entry.


4.2.2 Market Trends

TFR Ltd will distribute the watches across the key markets across the world.

• The cost of marketing the new product is expected to be the biggest challenge for
TFR Ltd. The initial use of Richemont’s facilities as a distribution channel will allow for
cost savings.

• Strong Brand names – Tom Ford and Richemont have very strong resonance with
consumers in the luxury industry.

4.2.3 Market Growth

Consumers often only buy a new watch every 5 to 10 years, yet they purchase them
often as gifts. Therefore, advertising will be increased during the Christmas holiday
season.

The intended retail outlets are full price and full service, and moreover the company will
take advantage of the extensive Richemont distribution channel across the world.

4.2.4 Main Competitors

The main competitors are Gucci, Hermes, Dunhill, and Rado. These brands have strong
equity, but there is room in this market for a new company as brand loyalty is not high
on potential consumers' reasons for purchasing and moreover, Tom Ford’s popularity will
help in establishing the brand quickly across the key markets.

5.0 Marketing Strategy and Implementation Summary

TFR Watches' strategy is to serve the accessible luxury markets of the watch industry. It
will capitalize on the Swiss engineering and manufacturing used to build the watches.
There are many untapped potential markets that desire high-quality goods which are
high on the style quotient. TFR Watches' marketing strategy will alleviate this problem.

TFR’s business mission will be composed of 3 main pillars:

• Purpose

• Business domain

• Major Objectives

The purpose of TFR is to offer products of the highest quality combined with a reputation
as an authoritative purveyor of style. This purpose has the legitimacy to succeed
because of the inherent strengths of the two partners.

The business domain of TFR is watches, whilst the major objective of TFR is to become
the one of the key players in the accessible fashion segment.


The market positioning snapshot provides TFR with a relevant indication for high
potential success in the watch market. TFR shall differentiate itself attractively from its
major competitors securing profit in the Lifestyle Fashion market segment.

TFR shall leverage on the very specific capabilities of Richemont Group in order to
successfully serve the market, and second, compare its current state in relation to the
corresponding characteristics of its major competitors.

The international success of TRF will depend entirely on how closely the skills of the
company’s personnel match the expectations and aspirations of customers and other
important stakeholders in the market. The blend of knowledge and the ability to apply
this knowledge appropriately embodies the skill set of the HR structure of TRF. Also by
combining the resources of Richemont Group and TF, TRF consolidates a unique portfolio
of financial, technological, stylistic, production, information and organizational elements.

Global Core Strategy

Core Value Proposition

TRF offers unequalled quality timepieces by striking a delicate balance between
craftsmanship, technology, the exclusive use of the highest quality materials and the
endorsement of an authoritative purveyor of style.


5.1 Marketing Strategy

The marketing strategy will focus on two segments:

1. The company will benchmark the objectives for promotion, outlet selling, and
personal selling.
2. The marketing budget will be $10 M per year.

The marketing of the Tom Ford watches will be aligned on a macro level with the
marketing of the Tom Ford brand worldwide. The TOM FORD collection encompasses an
extensive range of high level luxury men’s clothes, tailoring, dress shirts, suits,
accessories, footwear and leather goods as well as women’s wear. The watch line is an
organic extension of the product range which serves as an extension to the modern
wardrobe.

The underlying objective of the campaign is to increase awareness of the line of
watches. It is of paramount importance that the desired brand awareness level is
reached without compromising the mission statement of TFR. The main lever which shall
enable the company to achieve such goals is the legitimacy that Richemont Group
through its manufacturing capabilities can bring to the brand.

The marketing communication structure needs to be conceived as an organic extension
of the distribution policy. More specifically the communication campaign is an
institutional one where the initial € 10 Million marketing budget is allocated in such a
way that a unified consistent brand message is delivered throughout the collection
lifecycle. The elements of the institutional campaign are numerous and can vary
depending on the distribution type of the business. As a general outline – the philosophy
is to have a targeted global expansion plan leveraging an extensive network of POS and
DOS that are slated to open or are already existing, including flagships, free standing
stores, shops in shops and multi-brand distributors. Another characteristic of the Tom
Ford distribution strategy is to undersign agreements with high profile franchise partners
in key cities in Europe, South America, Asia and the Middle East. Franchise partners are
to invest and operate the store under the strict guidelines of Tom Ford International. Of
course this entails a certain degree of parity between business partners which can be
exploited in the benefit of TFR as well, more specifically sharing the costs of Institutional
Direct Marketing Tools is a normal business practice in such business models.

As a definition we classify as TFR marketing tools the following:

1. Advertising
• Advertorials
• Editorials
• Outdoor Print
• Outdoor Media (LED, LCD etc.)
2. PR:
• Materials,
• Richemont manufacture events,
• Prepared campaign video
3. Events:
• Animations
• Cocktail events


4. Direct Marketing Tools ( Seasonal Institutional Tools ):
• Catalogues
• Flyers
• Posters
• Samples
• Show cards
• Thank you notes
• Client information card

5. Window materials:
• Window images
• Sales stickers
• Printed guideline
• Special window props
• Special window stickers
• Themed windows

The marketing approach of the TFR product line launch lies within the clear focus on
two communication pillars. In order to initiate and educate the customer about the
essence of the Tom Ford brand of watches, contacts with consumers must be given
priority at the initial phase and so the communication shall stress the investment into
in-store events like DM tools and window materials. The second pillar on which the
awareness shall be built on will be “word of mouth”. It is expected that the incredible
awareness and appeal that Tom Ford has as a designer and as a successful
Hollywood movie director will be a big opportunity to generate buzz and augment the
initial editorial coverage of the product line launch. The communication campaign
shall be initiated by using a viral video clip shot in a Hollywood movie trailer style
featuring Tom Ford in a story about style, time, seduction and competition. The
movie trailer itself shall not feature any kind of hint or clue as to what it may be
pertaining to – it could be a movie of Tom Ford or one of his latest fashion endeavors
– the focal aspect being able to create a buzz and hype with a sense of secrecy
surrounding the actual product line. The product related visuals / ads will be released
after a month of the teaser campaigns in the relevant media platforms and also on
internet such as youtube and facebook posting wherein the tagline be revealed to
maximize the number of engaged social media users.

Having covered the institutional tools it is important to mention that through
Richemont’s expertise the intention is to carefully establish a set of guidelines for
tactical communication in selected regions of the world where more locally adapted
scenarios can be implemented while adhering to the two main marketing pillars.

5.1.1 Pricing Strategy

The pricing strategy will be to be directly competitive with the other major competitors.

The price will be very competitive: $1000-$3000. A few offerings will be done in the
range of $4000.


5.1.2 Promotion Strategy

Promotion will be initially spearheaded by public relations because of its low cost, and
then through advertising once the company begins to increase cash flow to an
acceptable figure.

5.2 Sales Strategy

TFR's sales force will consist of a President based out of Geneva with key functions of
Strategy, Manufacturing, Marketing, Commercial and Supply Chain and Vice Presidents
for America, Europe and Asia, who will have a team of 2-3 sales managers each to look
after the distribution channels.

5.2.1 Sales Forecast

The following table and chart show our present sales forecast.

Chart: Sales by Year


Table: Sales Forecast

Sales Forecast is segregated to Tom Ford stores, POS and Departmental stores. Detailed below are the
forecasts calculated for each of the segments.

Sales Projections: Tom Ford stores

Sales Projection: POS


Sales Projection: Departmental stores

5.2.2 Sales Programs

Sales will be made by Richemont. Outlets that achieve the highest figures in sales will
receive 1% discounts as sales incentives in order to encourage increasing sales. The
costs will be a part of the marketing expenses.

5.3 Milestones

This table lists important program milestones, with dates and managers in charge and
budgets for each. The milestone schedule indicates our emphasis on planning for
implementation.

Table: Milestones

Milestones

Milestone Start Date End Date Budget Manager Department
Business Plan 4/16/1998 4/16/1998 $4,000 FG Devpt
Factory Selection 5/5/1998 5/5/1998 $6,000 FG Finance
Retainer Contracts 6/1/1998 6/1/1998 $2,500 HW Sales
Brochures 6/11/1998 6/11/1998 $5,500 HW Marketing

Copywrite 6/28/1998 6/28/1998 $6,500 WY Legal
Totals $24,500

6.0 Management Summary

TFR Watches will have 5 members in the board of directors including one representative
from Tom Ford organization. The company will initially work on a flat organizational
structure

6.1 Organizational Structure

TFR Watches is split by both location and functionality. The production division is located
in Switzerland where the factory is, and owned by Richemont. The central sales and
marketing, and finance and administration divisions are located in Geneva and are run
by President of the company with the help of 6 personnel overseeing different functions.
The sales divisions are present in Europe, America and Asia which will oversee the local
market strategy implementation.

Organization Chart

6.3 Management Team Gaps

The following important gaps exist:


• Territory-wise dedicated financial and commercial personnel to take care of import
duties and taxes.
• Dedicated training personnel to train sales consultants on nuances of product
knowledge and selling skills.

Influx of manpower can be planned from Year 3 to take care of the increase of business
turnover and complexity in the various regions.

6.4 Personnel Plan

The personnel plan calls for adding two employees by the end of the first year for a total
of eighteen. After the third year, employment is expected to increase by another ten.
These new employees will go into sales, commercial and training functions.

7.0 Financial Plan

Growth will be supported by cash flow and owner investment. Further investments will
be funneled through debt financing. Given the financial and distribution muscle of
Richemont, the growth will be fast paced. Moreover, it will allow the management to
have complete control over the firm.

7.1 Important Assumptions

TFR's financial plan relies on several important assumptions - most of which are shown
in the following table.

The key assumptions are:

• Sufficient access to capital.
• Steady economy without a major recession.
• No unforeseen drastic technology changes.

7.2 Key Financial Indicators

• Keeping average collection days at 60 days or below is very important as this could
become a major cause of cash flow problems for the first year.
• Gross margins must remain above 65%.

7.3 Break-even Analysis

The Break-even Analysis chart and table show that if the costs stay at the current, or
relatively stable, level TFR Watches will be able to make a steady profit from the first
year.


Table: Break-even Analysis

Chart: Break-even Analysis

7.4 Projected Profit and Loss

The following table and chart shows TFR's expectations for profit and loss. The company
will begin to make a profit in its first year of operation. Detailed in the annexure are
monthly sales forecast and P&L for the period 2013-2017.


Chart: Profit Yearly

Table: Profit and Loss


7.5 Projected Cash Flow

Table: Cash Flow


7.6 Projected Balance Sheet

As seen in the balance sheet, a strong growth in net worth is expected over the next
three years.

Table: Balance Sheet

7.7 Business Ratios

Standard business ratios are provided in the following table. The ratios show a strong,
yet safe growth.


Table: Profit and Loss


Appendix: Scenario 2 with less sales projections to factor uncertainties in market dynamics.

Table: Cash Flows @ 33% less sales projections


Table: Balance Sheet @ 33% less sales projections


Table: Ratios @ 33% Less sales projections

Tom Ford Richemont Business Case Final

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Tom Ford Richemont Business Case Final

Similar to Tom Ford Richemont Business Case Final (20)

Recently uploaded

Recently uploaded (20)

Tom Ford Richemont Business Case Final