Starting a Small-Scale Clothing Business: CHSR Clothing's Journey to Efficient Profit, Slides of Business

Download Starting a Small-Scale Clothing Business: CHSR Clothing's Journey to Efficient Profit and more Slides Business in PDF only on Docsity! CHSR CLOTHING: HOW TO START A SMALL BUSINESS CLOTHING LINE TO BE RUN EFFICIENTLY WITH MINIMUM CAPITAL AND MAXIMUM PROFIT by KAYVON BANISALAM A Senior Project submitted In partial fulfillment Of the requirements for the degree of Bachelor of Science in Industrial Engineering California Polytechnic State University San Luis Obispo Graded by:__________________________ Date of Submission:____________________ 2 Executive Summary Many clothing brands have failed because they did not design marketable products with a suitable business plan. Often times, clothing brand owners do not use the capital they possess in efficient ways. They can get caught off guard with unexpected costs and are not running the business in the most resourceful and professional way. The goal of this project is to create a clothing brand that portrays distinctive designs to go along with an effective business model. This includes implementing decision analysis at several points of the planning phase, along with quality and cost controls. Creating quality products while being as cost effective as possible is vital to be successful in the fashion industry. Implementing industrial engineering techniques along the way will be what makes this brand potentially separate itself from similar competitors. Each business strives for profitability, but this project will depict how to achieve that with a very minimal amount of initial capital. These methods along with unique designs will pave the way to a successful clothing line. 5 consumers using the online website, local store accounts, and at markets/festivals, etc. Keeping record of all finances with an income statement, cash flow statement, and balance sheet will be crucial in determining how much money can be invested at each time and making sure a profit margin is being attained. This report will discuss the several topics that are incorporated in the creating of a clothing brand, including the techniques that will be used to have a profitable brand. It begins with the business plan, and then determining the materials and processes of creating the clothing, followed by a discussion of marketing strategies. 6 Background/Literature Review This literature review will investigate several topics that are utilized in the creation of a clothing brand. It will incorporate several techniques that will be implemented throughout the project. These topics include a business plan, determining specific materials and manufacturing processes, marketing the brand, and determining how the brand can become profitable. Business Plan The brand I am creating will be identified as a “streetwear” brand, which is a distinctive style of fashion that has roots from hip-hop and skateboarding cultures. This style of fashion is noted with “in-your-face” graphics and sharp color schemes [1]. Over time, the quality of streetwear brands has increased and to be successful it is important to retain individuality and originality. When creating a brand the first thing that needs to be made is a formal business plan [2]. The plan should start with a brand overview of the business and product. It should describe exactly what is being designed and what market the products are targeted towards. It will also be important to determine a marketing strategy that discusses how to reach customers and the public relations efforts that are being planned to use [4]. The marketing and sales strategy is essential for success. Sales goals will outline the amount of product to be sold each season [11]. Determining the right pricing will be done at a later time once all the initial costs are determined. Actual numbers for expected sales will also be determined, as well as projected growth from season to season. 7 It is necessary to try to pinpoint the size of your market in terms of dollars and number of target customers. The target in this case will be men between the ages of 13- 25, since this the age group that generally relates to hip-hop, skateboarding, and trendy streetwear. Knowing the customer and being able to picture what they desire, will be kept as a mental image at all times to make sure their needs are satisfied. One of the most important parts of the business plan is the financial analysis. This portion will utilize Industrial Engineering techniques in order to manage cash flow and planning all finances. Several financial statements can be included in a business plan, but there are three key ones [4]. The first is the income statement. The income statement is the summary of all projected income and expenses by month. The difference between income and expenses will be the profit margin. The next one is the cash flow statement. This is very important to a clothing business because it shows precisely when and how cash flows in and out of the business each month. I will create a cash flow statement initially for an entire year, but once the business becomes operational a statement will be made each month. The last document is the balance sheet, which results from the income statement and cash flow statement. It will be used to report all assets and liabilities at the end of a year. Every financial transaction will be kept on record to track all expenses in an organized matter. Setting up a business will also require a trademark. A trademark contains the words and/or logo by which the products will be identified [2]. It is important to conduct a trademark search online. If the trademark is available, the next step would be to apply to register it both as a trademark with the U.S. Patent and Trademark Office and as an Internet domain name. 10 Printing Once the blank shirts have been decided, the next step would be to choose the printing method applied to each shirt. There are 4 types of methods that I will choose from depending on the shirt I am printing. The methods are screen-printing, heat transfer, embroidery, and digital printing [5]. Screen-printing, also know as silk screening, is the most popular method for t- shirt printing [7]. The process is known for offering speed and cost-effective production, while able to work with brilliant colors and durable imprints. It is a technique that uses a woven mesh to support an ink-blocking stencil. Ink is transferred through the mesh created by the stencil and then a roller is moved across the screen stencil to pump ink in the cotton. This is the likely choice for the majority of the t-shirts that will be produced for this project. Heat transfers are iron-on images that differ in quality and appearance depending on the printing method, but it still operates on the same application principle and method. Heat and pressure are applied to a special release paper, which conducts the transfer of ink to the fabric [5]. Heat transfers have also advanced to include transfer papers for use with computer printers at home. Embroidery on t-shirts is another popular method to use. Embroidery however, is not an optimal solution with the application of large designs [7]. It requires a higher cost compared to other methods, and it basically limits your options to only creating small designs and logos. The last method is digital printing, also known as direct-to-garment printing. This method was introduced shortly after the breakthrough of large inkjet printers and the 11 development of washable inkjet inks. It’s slower production speed makes large-volume orders very cost-prohibited in comparison to screen-printing [7]. However, it holds the advantage of applying any number of colors required. It doesn’t require the screen- printing set-up process, which makes it ideal for smaller quantity production runs. Product Development Product development is an essential and exciting part of design [6]. When designing new products it is important to have your specific target customer in mind as the line is developed. It is also important to have a unique point of view to differentiate the brand from competitors in order to make it special. In my case, the brand “Constant Hustle Shall Reward”, CHSR, is uniquely catchy and almost anyone can relate to. Everyone in life is chasing after something, or constantly working in order to achieve success. Whether you’re after money, the opposite sex, paradise, dreams, etc., each person is passionate about one thing or more. Continually working hard and “hustling” towards that passion is what this brand is all about. Each design will be focused on a different entity that a person is chasing after. Having a sense of trends is another important factor in product development [2]. If a designer is not aware of what is on the streets and they ignore fashion, then it can make it more difficult to know what your customer wants. Staying in touch with everything going on around you may create fresh opportunities to grow a business to which one can respond in a unique manner. In fashion, there are typically “collections” that are released at the start of every season [2]. The plan will be to design a new collection every 3-4 months, but there is a 12 strategy involved in planning the release each season. One important principle is to smart small. It’s best to start with a small number of pieces and expand over time. Resources are limited in the beginning, but gradually everything will expand. Another principle is to have a balanced collection. Each release should have an overall direction, and the pieces should work together as a group. Random designs that don’t fit with the rest of the collection can ruin the balance and image of what the brand is trying to say [3]. A third principle to follow is to keep the collection focused. It’s not necessary to cover all the possible fashion items from sweaters, shirts, tank tops, hats, etc. Focusing on one or two items for each release is also more efficient because it keeps down the costs of development and production [2]. In conclusion, this project is one that will require a lot of hours to execute at a high level. Plenty of hours will be allocated to designing shirt ideas, researching various topics, marketing the brand, creating an ergonomic website, etc. Although this project will not necessarily improve upon an existing process or product like the majority of senior projects do, it will consist of designing and creating a product/brand with the aid of several Industrial Engineering courses. Industrial Costs and Controls will be used continuously throughout the duration of the project to maintain three key financial statements; the income statement, cash flow statement, and a balance sheet. Maintaining track of all expenses and staying within budget will be one of the most important factors if I want this business to become successful. Project management, ergonomics, human factors, and manufacturing processes will be utilized to try to ensure as efficiently run clothing line as possible. Running a business is no easy task, and this project will require high commitment and effort in order to flourish. 15 slanted bars were influenced from the logo of BMW’s M-class of automobiles, which is a high-performance series that is respected by many car enthusiasts. It seemed fitting to add that detail, which is another underlying message in the logo. High-performance will lead to a sure reward. Funding and Forecasting Costs After determining the brand name and logo other items of action were necessary before brainstorming shirt designs. A crucial part of starting a clothing line is to determine what source will fund the business. The goal of the project is to determine how to create maximum profit with minimum capital. A suitable amount of money was sitting in my bank account, so the funding was in place. Family members offered loans in case it was necessary, but in the mean time the offers were respectfully declined. Anticipating all costs to run a business is vital in determining when or if it will be profitable. These costs can include materials, supplies, manufacturing, advertising, marketing, and other items required to legally set up a business. A cash budget should always be prepared for any business because it forecasts the incoming and outgoing of 16 products, which can help determine whether there will be a shortage or surplus. This factors in deciding inventory capacity needed, order quantity sizes to reduce inventory size and other aspects of the business. For a clothing business the start-up costs can greatly vary depending on how many items of clothing the owner wants to print before selling any pieces. There is greater risk if you invest too much money by printing high bulks of clothing before selling any merchandise because there is a high possibility that consumers may not desire the brand. Instead, the approach for CHSR Clothing was to take minor steps to keep the business near a breakeven point or profitable in a short amount of time. These minor steps mean that it wasn’t necessary to print several designs initially, as well as defining the proper amount of shirts required to raise awareness of the brand. Printing in higher bulks reduces the cost of each item of clothing, but without demand there is absolutely no reason to print in high bulks. The approach taken was that there would be a budget of $2,000 to obtain the legalities of starting a business as well as the first batch of shirts. Legalities Multiple licenses and permits must be acquired before moving forward with a clothing line. The business structure is a sole proprietorship, which means there is a single owner that runs all aspects. The proprietor owns every asset of the business and all debts are the proprietor’s. To set up a sole proprietorship the first step is to attain a fictitious business name. In other words one must go to the county clerk office and register the name of the business. Once that is completed, a business license and tax certificate application must also be obtained from the county office. The origin of CHSR clothing is San Luis Obispo, CA and the county requires all businesses to specify where 17 the business will be operated. These operations take place in either a retail space or at a household. In this case operations take place at home, a home occupation permit must also be approved before proceeding with business activities. Once approved, the next option is to decide whether a business account is necessary to open with a local bank. As a sole proprietor it is not required to do so, but it is a safer and more organized option to keep personal currency separate from business currency. That being said, a business account was indeed set up under the name “CHSR Clothing.” To finalize the legalities of starting up a business it is required in the state of California to get a seller’s permit, so that each sale can be taxed. This permit is acquired through an online application that is free of charge. Businesses require a tax ID number, but for a sole proprietorship a social security number can be used as the tax number. Once the state approves the seller’s permit, the legal portion of setting up the business is complete. Creative Design Building the brand and exploring designs is the most enjoyable portion of creating a clothing line. How the brand is set up will define what people associate with the line, so it essential to do research and decide whom the target market will consist. Knowing whom the competition will be is also important when designing because all designs must be original. CHSR is a streetwear brand, which is a distinctive style of fashion that has roots from hip-hop and skateboarding cultures. This style of fashion is noted with “in- your-face” graphics and sharp color schemes. The competition is substantial because there are already several established brands in this category, but it takes creativity and patience to reach that desired level. Some examples of streetwear competitors are Supreme, Diamond Supply Co., The Hundreds, Pink Dolphin, and many more. 20 The decision tree below shows an analysis of how the selection of shirt blanks was conducted. An explanation of the decision tree and its content follows. The quality, material, and fit of the shirt were measured on a scale of 1-10 with 10 being the best. A probability ratio was assigned to each factor based on a survey amongst peers of the most important factor. Consumers most important factor is the quality of a shirt, followed by the fit, and then the material. The boxed values above the circles represent the score of that shirt based on the 3 factors. American Apparel clearly has the highest, but this is without factoring in the cost of each shirt. American Apparel 2001 21 costs $6 per unit whereas Alstyle’s 1701 has a unit cost of $4. Therefore, Alstyle 1701 is the best combination and was ultimately chosen. Screen-printing After I chose the shirt blanks and had the designs that were to be implemented, I went to a local screen-printing shop called Left Coast Tees. The designs below were the shirts produced for the initial batch. There were 60 shirts produced for each with the same size breakdown that you see. The amount of ink colors and the color of the shirt are the two factors that varied the costs. As you can see, black shirts are slightly more expensive to produce. The total cost of this order 1283 dollars for 180 shirts, so roughly $7 a shirt. 22 Methods Website The shirts have been printed and are ready to be worn by consumers. There are several ways to market a brand, but some can be much more efficient than other techniques. There are inexpensive ways to market, but there are also costly methods. Researching the different methods of marketing and selling products providing vast knowledge of determining the most economical solution. Before marketing the business to the public an online store must be created. Online stores have great advantages because it is more cost-effective than other methods of selling. In addition, it can target potential customers from across the world and gain exponential profits. The three most notable eCommerce (shopping cart) websites that host online stores are Big Cartel, Shopify, and Bigcommerce. Each site offers several pricing options for different features, but the chart below displays the costs of the basic plans of each. Site Monthly Cost ($) Yearly Cost ($) Big Cartel 9.99 119.88 Shopify 29 348 Bigcommerce 24.95 299.4 25 The graph to the right shows a break-even analysis. Shirts were sold for $20 each in person via cash/check and in a few cases were sold for 15. On the website they were sold for $22 to account for transaction fees. The breakeven was reached after selling 100 shirts, which took about 3 and half weeks to achieve. The green line represents the fixed cost. The blue line represents fixed plus variable costs. The red line represents the sales revenue gained for the amount of units sold. About 1 month after the initial order it was time to make a new order for new products. This time a pull over hoody was introduced using the same currency design in a new color scheme. These hoodies were printed on American Apparel 5495’s. A new design was also introduced as seen below on the far right. The size breakdown allocates more quantity towards large and extra large since they were the best sellers for the previous release. 36 units were produced in each of the designs for a total cost $1386. $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 0 1 5 3 0 4 5 6 0 7 5 9 0 1 0 5 1 2 0 1 3 5 1 5 0 1 6 5 1 8 0 S a le s UNITS Breakeven Analysis 26 The website was slightly redesigned once the second batch was made available for sale. Color schemes were altered to give a more easy-to-use computer interface. These changes were adopted and implemented from user feedback of the site. The improvements can be seen below in a screenshot of the home page. 27 Financial Statements The following Statements were made and updated to keep track of all finances. Looking at the income statement you can see that to this date there is a net income of negative $840. But that’s because the second batch of products was just recently picked up. There is over $4000 of inventory on hand to account for much of the assets. There are no long-term assets or liabilities yet, but those will come with time. The sales revenue for the initial shirts was successful considering the time frame and I hope the second batch is even more successful. Once two thirds of the inventory on hand is sold off, it will be time to make the next order. 30 By getting accounts with local skate shops and clothing stores consumer awareness will see a significant rise. The next few months also offer several chances to attend clothing conventions and trade shows in order to gain respectable exposure for my line. One trade show was attended during the course of this project to gain a first-hand understanding of what is expected if one were to attend. Clothing releases will be seasonal collections starting in 2013, beginning with a spring release in March. The success of the brand between now and then will determine the size and specifications of the purchase order. Marketing will be vital to keep gaining exposure if goals and deadlines want to be met. Only time will tell. Bibliography 1. Vogel, Steven. Streetwear: The Insider’s Guide. New York, Chronicle Books, 2007. 2. Gehlhar, Mary. The Fashion Designer Survival Guide: Start and Run Your Own Fashion Business. New York: Kaplan Publishing, 2008. 3. Tungate, Mark. Fashion Brands: Branding Style From Armani to Zara. Philadelphia: Kogan Page Limited, 2005. 4. McKeever, Mike. How to Write a Business Plan. Berkeley: NOLO, 2010. 5. Mongiello, Charese and Anthony. Start Your Owen Screen-Printing Business. Bloomington; iUniverse, 2008. 6. Morgenthal, Deborah. The Ultimate T-shirt Book: Creating Your Own Unique Designs. New York: Lark Books, 2008. 7. Schmidt, Christine. Print Workshop. New York: Potter Craft, 2010. 8. Easey, Mike. Fashion Marketing. Oxford: Blackwell Publishing, 2009. 31 9. Parrish, David. T-shirts and Suits: A Guide to the Business of Creativity. Liverpool: Merseyside ACME, 2007. 10. Peutrell, Sarah. A Cotton T-shirt. Milwaukee: Gareth Stevens Publishing, 2006. 11. Ferrell, O.C. and Hartline, Michael. Marketing Strategy. Mason: South-Western Cengage Learning, 2011. 12. Mitchell, Scott. Create Your Own Website. USA: Pearson Education, 2009. 13. MacDonald, Matthew. Creating a Website: The Missing Manual. Sebastopol: O’reilly Media, 2011. 14. Lupton, Ellen and Phillips, Jennifer C. Graphic Design: The New Basics. New York: Princeton Architectural Press, 2008. 15. Eskilson, Stephen. Graphic Design: A New History. New Haven: Yale University Press, 2007. Appendix Website The screenshots below are the different pages of the website as of November 27th, 2012. Social Media Page Social Media ed RAE mee eerie) Cort Cord Cm) Cay Pee ey rong Cae rasa oe’ About Page About ‘CHSR Is a unique and cunning clothing line that exemplifies dedication and hard work, Each individual has a personal goal and the brand represents the prominent way of chasing that dream. CHSR, a lifestyle for the ambitious. ar ord Co cd Contact 32