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Clark’s Ultimate Apparel and Sporting GoodsPrepared for: Dave Clark

Prepared by: SEGMOS ConsultingKeith EdwardsMatthew GreenbergDavey McLellanOyinkan ObikoyaJason SchellJen Schmid

July 17, 2008

Clark’s Ultimate Apparel and Sporting Goods Dave Clark

TABLE OF CONTENTSEXECUTIVE SUMMARY............................................................................................................................. 2

INTRODUCTION......................................................................................................................................... 3

THE MARKETING PLAN............................................................................................................................. 4

I. Market Analysis.................................................................................................................................... 4

II. Target Market...................................................................................................................................... 6

III. Situation Analysis............................................................................................................................... 7

IV. Marketing Objectives and Strategies (The Four “P’s”).......................................................................9

Table 1 - Products............................................................................................................................. 10

V. Summary of Marketing Strategy........................................................................................................11

OPERATIONS PLAN................................................................................................................................. 12

HUMAN RESOURCES PLAN................................................................................................................... 15

FINANCIAL PLAN...................................................................................................................................... 19

CONCLUSION........................................................................................................................................... 22

ATTACHED SCHEDULESSchedule 1 – Year 1 by Month

Schedule 2 – Five Year Projection

Schedule 3 – Cost of Sales

Schedule 4 – Operating Expenses

Schedule 5 – Capital Expenditures

Schedule 6 – Employee Costs

Schedule 6a – Employee Costs Inputs

Schedule 6b – Normalized Annual Employee Costs (2009)

Schedule 7 – Marketing Expenses

Schedule 8 – Net Income Sensitivity

Schedule 9 – Floorplan

Schedule 10 – Location

Schedule 11 – Staffing Schedule

S E G M O S C o n s u l t i n g P a g e | 2


EXECUTIVE SUMMARYDave Clark is opening Clark’s Ultimate Apparel and Sporting Goods (Clark’s) in Saskatoon, Saskatchewan. Dave recently graduated from university and is excited to pursue his entrepreneurial dreams.

Clark’s plans to specialize in Ultimate Frisbee and Disc Golf, as well as offer all of the brand name athletic clothing and apparel. To date, there is no store in Saskatoon that caters specifically or sufficiently to all the needs of these sports in one location or with sufficient expertise.

The industry for athletic apparel and sporting goods in Saskatoon is a large market with stiff competition from large corporate stores and a few smaller owner-operated businesses. Although there is strong competition in this industry, there is also a unique opportunity for niche players to steal market share from the large corporate stores and also from the smaller owner-operated stores if a strong and sustainable niche market can be identified and exploited.

Clark’s plans to meet this need by being the market leader in Ultimate and Disc Golf apparel and sporting goods in Saskatoon. To accomplish this, Clark’s will carry the largest and most complete selection of Ultimate and Disc Golf apparel and sporting good brands in the city. Clark’s staff will also have specialized expertise in these sports to offer consumers superior customer service and satisfaction.

Hours of operation are Monday to Friday, 11:00 am to 9:00 pm, Saturday 9:30 am to 9:00 pm, and Sunday 9:30 am to 6:00 pm. The store is therefore open seven days a week year round to best serve its customers. The store will have three employees and Dave himself to cover all of the operations, and two people on hand to help customers for the bulk of the day.

All of the important aspects of running a retail operation have been covered in the planning. Some of these include inventory management, store security, managing suppliers, capital budgeting, etc. As a new business, Dave will need to invest significant hours into ensuring the success of the store.

In order to launch Clark’s, financing in addition to Dave’s $30,000 equity investment will be required. An operating line of credit from the bank is necessary to finance inventory purchases initially, as well as when cash flow is tighter. There is also an additional equity investment of $40,000 required to fund the start up costs of the store. All of the parties will receive a return on their investment: the bank will receive interest owed, and the investors have the potential to receive dividends in 2012 and on if operations continue to be successful. The expected rate of return for the store is 37%.



INTRODUCTION

The man behind Clark’s Ultimate Apparel and Sporting Goods (Clark’s) is Dave Clark. Dave is a recent graduate from the Edwards School of Business at the University of Saskatchewan, and is excited to begin his first foray into entrepreneurship. In one of his final course projects, Dave conducted a market demand analysis for a sporting goods store in Saskatoon, Saskatchewan, and is confident that the opportunity exists to be a huge success. Dave has already obtained $30,000 as a graduation gift from his father which Dave is planning on using to open the store.

Clark’s is a sports clothing and apparel store, which targets disc sports specifically. The clothing and apparel will be all of the popular brand names in sports today, and has the versatility of being transferable among almost any sport. The disc sports (notably Ultimate Frisbee and Disc Golf) are an up and coming market, and Clark’s wants to become the pre-eminent supplier to the sport in Saskatoon and area.

Mission Statement

“To become the ultimate retailer of athletic clothing and apparel in Saskatoon and area and to propel disc sports in the province to new heights.”

The mission statement of the company drives its short term and long term goals.

Short Term Goals1. To achieve positive net income within 3 years.2. Host a successful Ultimate Frisbee tournament in the first year of operations.

Long Term Goals1. Increase sales volume by 30% over 5 years.2. Achieve brand recognition synonymous with quality products and service.



THE MARKETING PLANI. Market Analysis

The Industry Environment and Analysis

Political

The political environment in Saskatchewan and in Canada is favourable for business with the Saskatchewan Party and the Conservative Party in power. These governments favour lower corporate and individual tax rates as well as offer numerous incentives and support for small business. One example is the new tax credit for children involved in sport.

Furthermore, the sport of Ultimate and Disc Golf is free from restrictive laws and regulations that are imposed on some industries such as pharmaceuticals and alcohol sales.

Economic

According to the Saskatoon Regional Economic Development Authority Inc (SREDA), Saskatoon ranks as one of the fastest growing economies in Western Canada and in Canada as a whole with expected GDP growth averaging 2.5% in the coming years and retail spending as a percentage of total consumer spending increasing 5% year over year.

Also, current interest rates are also very low, which promotes additional consumer spending. However, given that interest rates are at historic lows, it can be expected that interest rates will increase in the future and thus somewhat reduce consumer spending. That said, the current interest rate environment is favourable and rising interest rates should have a relatively negligible effect on consumer spending given the strength of the Canadian economy.

On the other hand, the state of the Canadian economy is tied to the economy in the United States. If the economic recession in the U.S. persists, this could negatively impact consumer spending in Canada. However, because Canada’s economy is strongly based in commodities, which are trading at strong prices and expected to continue to grow, it is likely that Canada will be able to sustain its strength going forward and avoid a recession. Social

There are currently strong trends towards health consciousness and increased participation in sports in Canadian society, with Saskatoon being no exception. Saskatoon is also home to the Saskatoon Ultimate Disc Sport Society (SUDS), a non-profit organization that promotes, supports, and runs the leagues for Ultimate and Disc Golf.

The sports of Ultimate and Disc Golf have seem tremendous growth in popularity across North America in recent years and Saskatoon has also experienced much of this growth with more teams and players joining SUDS leagues each season. From a business perspective, both Ultimate and Disc Golf can be played year round in Saskatoon, even in the winter, with SUDS operating the Ultimate league in the indoor soccer arenas in town. Saskatoon also has numerous outdoor fields and green spaces that are conducive to Ultimate and Disc Golf as well as two certified Disc Golf fields, and would allow for substantial growth in both sports.

Technological

There is low risk of dramatic technological changes in the industry as the apparel and sporting goods for Ultimate and Disc Golf are not complicated. However, there are still developments with new materials and new styles of clothing and apparel that come out every season



Internet sales in the sporting goods and apparel industry are quite prevalent, as sizes and shapes of most equipment are largely standardized in North America.

Porter’s Five Forces – A Model for Industry Analysis 1

Supplier Power

Because Clark’s is just in the starting phase and is a relatively small player, it will not have significant purchasing power with suppliers. As a result, Clark’s does not expect to receive significant discounts from manufacturers or wholesalers. However, as Clark’s becomes more established and develops strong relationships with its suppliers, there is strong potential to receive discounts, favourable credit terms, and return policies in the future. Overall, supplier power will be high initially, but is expected to decrease in the long run.

Threat of Substitutes

Given that sports in general as an industry is dependent on active lifestyles, the substitutes are other leisure activities. These can include reading, watching television, playing board games, etc. There are separate and distinct markets for these substitute products and activities, and there is not a great deal of substitution. However, being active requires effort on the part of participants, and therefore the threat of all less active options as substitutes is moderate.

Degree of Rivalry

There are numerous athletic apparel and sporting good stores in Saskatoon, which carry substantially similar brands of clothing and apparel. None of them however are currently focusing or catering specifically to the disc sports. Competitors currently carry bits and pieces of the apparel and merchandise necessary for Ultimate and Disc Golf, but not a full line and they do not have specialized expertise in these areas. Despite this, the degree of rivalry will still be very high. This high rivalry is mitigated somewhat in Clark’s approach of niche marketing and first-mover advantage.

Buyer Power

As there are no significant switching costs, buyer power in retail will be high. However, because other businesses will not carry the same depth and variety in their line of Ultimate and Disc Golf products and pricing points, the buyer power will be reduced somewhat because Clark’s will be the only location that a customer can purchase all their Ultimate and Disc Golf needs and receive exceptional service and knowledge in these sports. Initially, the buyer power is moderate, given the first-mover advantage and limited availability of comparables products. Over time, as disc sports become more popular, more retail outlets will carry wider ranges of products, and the buyer power will increase to high.

Barriers to Entry

The barriers to entry in the athletic apparel and sporting good industry in Saskatoon are low, despite the numerous large corporate and small owner-managed businesses. There are several critical components necessary to entry, which include somewhat significant start-up costs, finding a location and purchasing store equipment and inventory, not to mention a significant investment of time. However, it is important to note that internet retailers do not have the same start-up costs (most notably with regards to accessing new customers) and could potentially steal market share. However, given the convenience that Clark’s will offer to Saskatoon residents, this competition from internet retailers should be sufficiently mitigated.

In terms of the barriers to entry in the Ultimate and Disc Golf apparel and merchandise industry, there is a high risk that the current players in the athletic apparel and sporting goods industry will start offering a 1 Model accessed online at http://www.quickmba.com/strategy/porter.shtml


http://www.quickmba.com/strategy/porter.shtml


larger product line of Ultimate and Golf Disc products. This threat to entry will be mitigated by the first-mover advantage that will accrue to Clark’s. This will create a barrier to entry in the Saskatoon market as the market is not as large as other major urban centres that could support several specialized retailers in one geographic area. That is, Saskatoon’s market will be profitable for Clark’s, but will not be worth the time, or return adequate profits for those looking to compete directly with Clark’s because the market will not be large enough to support two specialized stores.

Overall

In sum, supplier power is high, threat of substitutes is moderate, degree of rivalry is high, buyer power is medium-high, and barriers to entry are low.

The industry for Ultimate and Disc Golf apparel and merchandise is poised to be taken advantage of. Although supplier power and degree of rivalry are high initially, these assessments are projected to be more favourable in the long run once Clark’s executes its business plan and becomes are more established business in Saskatoon. In order to mitigate the unfavourable factors revealed in Porter’s Five Forces, Clark’s will use niche marketing and the first-mover advantage in the short-term to succeed, and brand recognition in the long term to maintain the success. The retail industry is very competitive, and Clark’s needs to stick to its plan in order to succeed.

II. Target Market

Geographic

Saskatoon, Saskatchewan, Canada (and surrounding area) Population: 233,923 (2006 Census, Statistics Canada, Census Metropolitan Area)

Target Consumer

Age 15 to 40 years (approx. 150,000 persons per Statistics Canada, 2006 Census, Saskatoon Census Metropolitan Area)

Individual consumers, sport league teams, corporate merchandise

Moderate to high income levels, including studentsa. Income (Statistics Canada, 2006 Census) for Saskatoon CMA:

i. Median before tax: $73,480ii. Median after tax: $39,400

Lifestyle characteristics (psychographics)a. Activeb. Athleticc. Competitived. Likes the outdoorse. Interest in Ultimate and/or Disc Golff. Fashion consciousg. Married, family and single

Purchase characteristics:a. When: average 2 times a yearb. What: apparel, shoes, accessories, equipment, other merchandisec. Where: at the stored. How much (volume/price): average $150/visit or 3-5 items/visit

What are the reasons the target consumer purchases the product:



a. High quality and durability of productb. Variety and selection of various unique brand namesc. Superior staff knowledge and customer serviced. Value for price

III. Situation Analysis

Strengths

- Premium, convenient location on 8th Street in Saskatoon- Athletic clothing and apparel transferable to other sports and outdoor activities such as running,

soccer, basketball, football, track & field, hockey, rugby, hiking, camping, etc.- Specialized, niche market product line of discs and equipment that is differentiated from

competition- Exceptional staff knowledge and customer service- “One stop shop” for all Ultimate and Disc Golf apparel and merchandise needs- Ability to provide customers with custom apparel and merchandise for teams or individual

preferences- First-mover advantage into niche market

Weaknesses

- Management lacks practical experienceo Mitigation Factor:

Hired consulting firm to develop and implement a business plan and provide ongoing advice and consulting

- Seasonality of saleso Mitigation Factor:

Transferability of apparel to other sports and activities which operate throughout the year will help to offset the seasonality of Ultimate and Disc Golf

Ultimate is played year round in Saskatoon – outdoors in the spring, summer, and fall, and at indoor soccer fields in the winter

- Ultimate and Disc Golf are low equipment sports and are thus relatively cheap to begin playing compared to other sports

o Mitigation Factor: Transferability of apparel to other sports and activities as well as complementary

sports equipment being carried

Opportunities

- No competitors currently specialize in a complete product line of Ultimate and Disc Golf apparel and merchandise in Saskatoon

- Potential for significant and tremendous growth in the sports of Ultimate and Disc Golfo Fastest growing sport in North Americao Disc sports are starting to be televised

Threats

- Potential for other competitors to carry additional Ultimate and Golf Disc apparel and merchandise

o Mitigation Factors: Obtain exclusivity contracts from smaller brand names not currently sold in

Saskatoon to maintain differentiated and unique products



First-mover advantage will establish Clark’s as the “place to go” for Ultimate and Disc Golf apparel and merchandise

Clark’s exceptional staff and knowledge and expertise will continue to differentiate it from its competitors

- Potential for high turnover in staffo Mitigation Factor:

Clark’s compensation package will be better than its competitors to help maintain key employees

There is a large untapped labour pool of Ultimate and Disc Golf players in Saskatoon

- Potential that the sports of Ultimate and Disc Golf will not grow as fast as anticipated in the Saskatoon market

o Mitigation Factor: Clark’s line of apparel and merchandise is transferable to many other sports and

activities such as soccer, running, football, basketball, hiking, rugby, etc.

Analysis of Competition

What is the competitive situation?

- Competition in apparel is strong locallyo SportCheko Foot Lockero Al Anderson’s Source for Sportso Olympia Sporting Goodso Escape Sportso Running Room

- Additional competition from internet based companies

How many competitors?

- Approx. 3-4 large sporting good stores- Approx. 5-10 smaller owner-operated stores- Dozens of internet companies from Canada and U.S.

What are relative market shares?

- Large corporate stores have majority- Owner-operated and internet split the remaining

What is the nature of the competitors’ strategies?

- Big stores are low cost, however they are also low quality, low service, and only offer few Ultimate and Golf Disc apparel and merchandise

- Local owner-managed stores offer more selection of Ultimate and Disc Golf products than the big stores, but still not to the same extent as Clark’s product line and staff is not specialized or particularly knowledgeable about the sports of Ultimate and Disc Golf or the products

What are competitors’ strengths and weaknesses?

Strengths- Price- Established business and well known



Weaknesses- Depth of product line- Specialized/knowledgeable staff in the area of Ultimate and Disc Golf

IV. Marketing Objectives and Strategies (The Four “P’s”)

The Product

Objectives and policies for the product

Clark’s will carry an in-depth and unique line of Ultimate and Disc Golf apparel and merchandise at various price points that will meet all the needs of Ultimate and Disc Golf players. As well, other athletic clothing and apparel is transferable to many other sports and activities.

How will the product be manufactured?

Apparel and merchandise will be purchased from manufacturers and wholesalers.

Estimated length of the life cycle for the product

The product life cycle for all of the clothing, apparel and equipment are estimated to be approximately one year given the new trends in fashion for apparel and merchandise. Clark’s will continue to be at the cutting edge of the product lifecycle by maintaining strong inventory control and carrying the most recent styles and products on the market.

Factors that may accelerate product adoption

Clark’s has budgeted for a large promotional campaign in the first year to get its name out in the community. This will include advertising on the radio, newspaper, billboards, and the internet, as well as sponsoring the Saskatoon Ultimate Disc Sport Society, hosting two annual Ultimate tournaments, and having two discount promotions during the year. Clark’s also expects to benefit significantly from word of mouth advertising as well.

How does target consumer classify product?

Clark’s predicts that its product line will be classified as specialty products by its target consumers. That said, contrary to most specialty products, Clark’s products will be conveniently located and offer various price points.

What are the product quality, depth, and variety?

The products that Clark’s intends to carry are detailed in Table 1.



Table 1 - ProductsClothing Shoes Merchandise Brands

T-shirts Soccer cleats Ultimate discs Under ArmourCut-off T-shirts Football cleats Disc Golf discs Nike

Tank tops Running shoes Gloves GaiaLong sleeve T-shirts Turf shoes Water bottles Patagonia

Sweatshirts Basketball shoes Head bands VC UltimateHoodies Wrist bands The Wright LifeShorts Sport bags Huk LabPants Hats Innova

Underwear Visors Dare DevilSocks Toques Discraft

Specialty shorts Sunglasses ReebokJackets AsicsJerseys New Balance

Adidas

What warranty and service standards will be set?

- 30 day return policy for store credit- Manufacturer warranty on applicable products (i.e. shoes)

Distribution

Where we get our products?

- From manufacturers and wholesalers in Canada and U.S.- See Operations and Financial Plans for inventory control and ordering policies and procedures

How we get our products to our customers?

- From the store on 8th Street East, Saskatoon, Saskatchewan- Potential for Internet sales and deliveries in the future

Price

What are the pricing policies?

- Cost based pricing when Clark’s is the only store to carry the product- Competition based pricing when other competitors carry the same products

How important is price to target consumer?

Target consumer is looking for value for their dollar. As such, Clark’s will offer various price points in its product line to meet the needs of its target consumers. Overall, Clark’s estimates that consumers will be more concerned with quality, product variety, and customer service than price, however, Clark’s recognizes that price will still be a factor for some consumers.

What levels of markup are required to cover selling and overhead costs?



Clark’s is currently estimating an average of 70% markup over cost to meet pricing policies noted above and be competitively priced in the industry. See Schedule 8 for scenario analysis with higher and lower markup percentages.

What are competitors’ prices and how do they compare with our prices?

Clark’s will be competitively priced for all products carried by its competition. For unique products and brands, Clark’s will be able to charge a slight premium because of the uniqueness and scarcity of the product.

Promotion

What types of promotion will be used?

In the first year, Clark’s has budgeted for a significant promotional campaign that includes radio, newspaper, billboards, and webpage advertising as well as sales promotions that include a discount sales in May and December. There is also public relations advertising in the form of sponsoring two Ultimate tournaments during the year as well as the Saskatoon Ultimate Disc Sport Society.

In the second year of operations and subsequently, Clark’s plans to scale back its advertising once it has become more established in the city and rely more heavily on word of mouth advertising. However, Clark’s will continue to have its sale discount promotions and sponsorship of SUDS and the two annual Ultimate tournaments.

How much will be spent on promotion?

See Schedule 7 for details of the marketing budget.

Will the business offer credit? If yes, what procedures will be followed to screen, monitor, and collect accounts?

Clark’s is estimating that 5% of sales will be on credit to teams and corporate businesses that are a low collection risk and assuming that have established a strong relationship with the store.

V. Summary of Marketing Strategy

Clark’s Ultimate Apparel and Sporting Goods’ marketing strategy is to enter a niche market by offering a complete line of Ultimate and Disc Golf apparel and merchandise. Clark’s also plans to take advantage of the growth in these sports and the new players continuing to join the sport.

Clark’s competitive advantage will be the depth, variety, and uniqueness in its product line as well as its exceptional customer service through specialized and knowledgeable staff. Clark’s will maintain this competitive advantage by benefiting from its first-mover advantage in a niche market and by Clark’s desirable location and competitive pricing.



OPERATIONS PLANOrganizational Structure

Clark’s will be set-up as an incorporated business in Saskatoon. The reasons for incorporating are as follows:

Personal liability in the case of any litigation, bankruptcy or covenant violation is limited to the investors’ investment in the business

Clark’s will be eligible for the small business deduction which taxes small businesses at a lower rate than other corporations

Dave’s future or current family can own shares in the business and provide income splitting opportunities

It is easier to obtain financing through equity investors by issuing shares

However, incorporation would mean additional expenditures for legal services and registration in the first year of operations. In the long run, incorporating Clark’s will provide greater benefits than the costs of doing so.

Incorporation gives the option of taking on an equity partner. As Dave has little or no practical business experience, and very little sporting good retail experience, someone with expertise in these areas would be an excellent addition to the company and allow Dave to gain additional financing while still retaining control of the business.

Site Layout

Apparel will be the main focus of your business, as such; it should be front and center in the store, surrounded by the complementary sports gear that has been chosen to carry as well. Similar sports should be grouped together in the layout of the store to facilitate shopping. There is a store design that reduces the chance of shoplifting and will direct customers around the entire store in an eye appealing layout (see Schedule 9). The employees hired need to be familiar with the goods sold and their location in the store so they can help customers find what they are looking for. As a retail store, there will be shrinkage from shoplifting, damage from shipping, etc. Shrinkage has been incorporated into the projection model in Schedule 3 - Cost of Sales. In addition, the following should be done to reduce shrinkage and the ease of shoplifting from the store:2

1. Checkout: Design the store lay out so customers must pass the register area and staff to exit the store. Never leave the register unlocked or unattended. Do not display merchandise near the store exits.

2. Tidy Up: Keep the store neat and orderly. Full displays and straightened shelves allow employees to see at a glance if something is missing.

3. View All: Use mirrors to eliminate blind spots in corners that might hide shoplifters. Maintain adequate lighting in all areas of the store; keep fixtures and displays low for better visibility.

4. Under Lock and Key: Place small, expensive items in locked cabinets or behind the counter. Dressing areas are in view at all times. Keep dressing rooms locked and limit the number of items taken in by each customer. Use alarms on unlocked exits and close or block off unused checkout aisles.

5. Signage: Signs and posters reinforcing security messages should be used. Post anti-shoplifting signs in clearly visible locations.

6. Security: Use security equipment such as closed circuit television, security tags and two-way mirrors. Uniformed security guards are also powerful visual deterrents to the shoplifter.

For simplicity, the costs of mirrors and the security system have been incorporated into the costs of remodelling the store. Monthly costs of monitoring have been included in utilities in operating expenses.

2 List prepared by Shari Waters, “How to use store design to reduce shoplifting.”



Average Business Day

Similar stores (SportChek, etc.) open at 9:30 am and close at 9:00 pm every day except for Sunday, when they close at 6:00 pm. As Dave will likely have to put a significant amount of his own time into the business in the first few years of operations, it is proposed that the store doesn’t open until 11 am and close at 9:00 pm. It provides a minimal impact on profitability, as retail sales tend to be slow during the morning, and sales are typically offset by the incremental costs of operations (i.e. ages, utilities, etc.). However, to maximize total revenues, Clark’s should be open all weekend (Saturday 9:30 am to 9:00 pm and Sundays 9:30 am to 6:00 pm). Employees will need to take shifts. A trusted employee could open the store in the morning, with Dave being responsible for the closing and cash outs at night. There should be weekly and monthly variance analyses in order to track popularity of items sold as well as costs and margin analyses and seasonality of any items. Cycle counts should be done monthly to reconcile any discrepancies to the perpetual system. Yearly items would include a full inventory count, compiling financial statements for tax purposes and to draft a budget for the upcoming year

Inventory system

As Clark’s will be carrying full lines of apparel and certain sporting gear, it will need a large inventory of goods. There should be a perpetual inventory tracking system to track items in stock to facilitate just in time inventory management. The simple computer system accounted for in the financial plan and capital budget has an inventory management function that will facilitate inventory tracking and ordering. For the purposes of this analysis, it is assumed that there is a 30 day lead time for ordering, based on double the average retail inventory lead time of two weeks. The model assumes a start up inventory value of $125,000 and a reorder value point of $62,500 (half of the total), which results in a reasonable safety net of goods and basic stock value.

Supply Analysis

Clark’s will need to procure inventory from suppliers in the area. However, some of the types of sporting goods that are carried means that the supplies will likely need to be shipped from larger urban centers such as Calgary or the United States. There are several different suppliers to choose from, however as Clark’s is a start up business, it will likely not be able to get credit terms from suppliers, as well as having to pay a deposit on any orders made until the store is well established. For simplicity, the cost of shipping these items to Saskatoon has been built into the cost of sales in the financial analysis. Having a close and reliably steady relationship with suppliers will be beneficial as discounts and better credit terms are available once there are proven stable cash flows. The marketing plan has described who the suppliers are.

Service Providers

As with other retail outlets, Clark’s will be receiving electricity, water, and heat from local suppliers. There are no options in Saskatoon, given that the utilities are owned by the provincial government (SaskPower, City of Saskatoon, and SaskEnergy respectively). Clark’s will also need a telephone and internet services, which can be obtained through SaskTel (though other options are available, prices are comparable). Estimates were researched on each provider’s website and broken down by provider in Schedule 4.

As Clark’s is a privately owned company, financial statements do not need to be in accordance with Generally Accepted Accounting Principles, and no audit is required. It is recommended that financial statements are complied however, as they are a good indicator of financial position and will likely be required by the bank if financing is obtained from them. Also, given Dave’s minor (if any) accounting or tax experience, the services of a tax advisor for tax planning and completing tax returns would be recommended. Also, depending on the type of financing obtained, an audit may be required or restrictive covenants may be placed on loans from financiers such as the bank. It is unlikely that legal services will be required unless there are changes to the legal structure of the business after incorporation. Limited accounting and legal services have therefore been estimated and included in operating expenses after the first year incorporation expenditures.



Capital Budget

Space is needed to house the store, and there are two main options: buying or leasing. The region of 8 th Street East in Saskatoon was chosen for the store, as it is a high traffic area that will expose the store to lots of foot and vehicle traffic. Based on other retail locations, Clark’s will need approximately 2,000 square feet of property for the store. Given the large amount of financing already required, it is not feasible to purchase property in the location desired. Rental is therefore the only alternative available in the situation. Rent costs have been based on average annual lease rates per square foot in Saskatoon, which is currently $18 per square foot per year.

Other capital property required would be shelving and display cases, racks, benches, counters, change rooms and a cash register at a cost of approximately $20,000 (including renovations for a storage space, change rooms and painting). Recurring annual costs of replacement for shelving and other furniture and equipment is estimated to be $2,000. For a breakdown of these expenditures, refer to Schedule 5.

Cost of Sales

A sporting goods store of Clark’s size and location can average $500,000 to $1 million dollars in sales per year. The analysis assumes that Clark’s will likely be below this estimate for the first few years. It is assumed there will be revenues of $350,000 over the first 10 months of operations. For the subsequent years, this amount has been grossed up to reflect a full twelve months, and assumed a nominal growth rate equal to the rate of inflation (2.5%). The model assumes that inventory can be turned over every six months in the first and second years, and then inventory turnover improves by one month for the third and fourth years and then steadies in the fifth year at turnover every four months. The model assumes cost markup of 70%, which is a conservative markup for clothing as average retail markup is usually 100%. Average margin for a clothing store is 50.7%, whereas average margin for a sporting goods store is 38.2%3. Given the 70% markup, Clark’s is estimated to have a 39% margin, which is reasonable, as the store has both clothing and sporting goods, as well as being in a competitive market. These assumptions mean that the cost of sales for the first year would be $208,000 in the first year of operations. Including 2% allowance for shrinkage, the total cost of sales in year one will be approximately $215,000.

3 Obtained from Statistics Canada.



HUMAN RESOURCES PLANStaffing Requirements and Job Descriptions

Based on the hours of operations for the store, the following are the minimum staff members required.

1. Owner-Manager (OM): Dave Clark will be the owner of the company who is also the manager/supervisor. Since

the personnel requirements for the store are minimal (see below), he is ultimately in charge of all aspects of operations.

Major operational functions which the OM is responsible for include:i. Operations:

a. Inventory Managementb. Advertising Strategyc. Store Security

ii. Accountinga. Bookkeepingb. Cash Managementc. Accounts Receivable Collectiond. Accounts Payable Disbursementse. Payroll

iii. Human Resourcesa. Hiring/Terminating Employeesb. Staffing the Storec. Training Employees

The OM needs to be passionate about the store, and the products it carries. There needs to be a drive to become an expert in the products.

The OM needs to be personable with the customers in order to create the atmosphere of expertise that is necessary for the store’s success.

The OM must continue training himself in order to gain the skills necessary to capably operate a retail store. This could include taking courses or seminars which supplement the knowledge from university with practical application.

There will a significant amount of time spent running the business in the first few years of operations, as the Dave gets everything running the way he wants it to, and building the customer base.

2. Full Time Employee (FTE): The FTE is subordinate to the OM, but in the OM’s absence he or she has responsibility

for the smooth daily operation of the store. When the FTE is paired with the PTE or FIE, he or she is the supervisor.

Supervisor duties include:i. Ensuring the store is kept clean, and the inventory kept in placeii. Ensure store securityiii. Resolving minor conflicts or questions with the customers

Daily operation duties include:i. Helping customersii. Manning the registeriii. Cleaning the storeiv. Stocking the shelves

The ideal candidate should have a love for the games of disc sports, and ideally participate in organized games and leagues. The candidate should be enthusiastic and personable, and able to communicate effectively. Previous retail experience, especially some supervisory roles is preferred. The ability to stay on top of current events and advances in technology in the sports and products that the store carries is a must.



This position should ideally be occupied for long periods of time by the same person so that he or she can build the expertise necessary to provide the customer with superior service.

In order to find the ideal candidate, the OM should get in touch with local Ultimate leagues and Disc Golf courses, and let them know that the store is opening, and the type of employees that it is looking for. Local job advertising websites and circulars can also be used to get the word out to anyone else who might be qualified for the positions.

3. Part Time Employee (PTE): He or she has essentially the same duties and qualities as the FTE, but without the

supervisory duties or need for supervisory experience. This position would also ideally be occupied for long periods, though it is more likely to

have higher turnover given the lower number of hours and wage. If the FTE leaves, this employee should be the first evaluated for the FTE position.

4. Fill-in Employee (FIE): He or she has essentially the same duties as the PTE, but can potentially be with less

experience. The nature of the job is such that it is more of an introductory job, and therefore many of the skills can be learned while on the job. The ability to interact positively with customers is still a very important skill.

This position would be ideal for a high school or university student, or a family member or relative, as there are likely very few shifts in a year, as is more on an ‘as-needed’ basis.

This position will likely have the highest turnover given the low number of hours and wage.

Salary, Wages, and Benefits

The pay structure for the employees is standard to the retail industry, where hourly wages are used.

There were two factors to consider in choosing the rates for each of the positions:1. The minimum wage in Saskatchewan is currently at (as of May 1, 2008) $8.60, and increases to

$9.25 on May 1, 2009. For simplicity sake, as the business will begin in March 2009, a minimum of $9.25 is used.

2. Based on statistics from the Saskatoon Regional Economic Development Authority Inc (SREDA), the average wage for a retail salesperson is currently (2008) $13.06 for full time, and $9.18 for part time. In order to adjust the statistics for the 2009 minimum wage increase, these averages are estimated to be $13.71 for full time, and $9.83 for part time.

The labour market in Saskatoon is currently experiencing a low unemployment rate of approximately 3.4% (SREDA), compared to the national average of 6.2% (StatsCan). The low rate indicates that there is a high demand for labour. Many local businesses are having difficulty filling staff requirements as the entry level and minimum wage positions are experiencing high turnover as it is easy for the people to change these jobs.

FTE: In order to attract a longer term employee with the necessary skills, as well as to reflect an increased responsibility, a wage above the current average was selected. The wage was set at $15.65/hour, which represents annual pay of approximately $4,500 more than the average full time wage and $15,000 more than minimum wage.

PTE: In order to attract a capable candidate for this position, the average full time wage was used, as this position will get nearly full time hours. The wage was set at $13.65/hour, which represents annual pay of approximately $7,000 more than the average part time wage and $8,000 more than minimum wage.

FIE: As this position has the least number of hours scheduled, it is likely to experience the highest employee turnover rate. To reflect this added cost, but in order to still attract candidates, and amount



slightly above the average part time wage was used. The wage was set at $10.65/hour, which represents a nominal amount above the average part time and minimum wages (given the low number of hours estimated per year).

Increases in the hourly wages are assumed to be inflation. There is an assumed increase of inflation (2.5%) per year for the FTE and PTE, while only a nominal increase (1%) for the FIE as high turnover and minimal skills are required. There are no set increases tied to performance, as such a plan would be difficult to administer for the OM. Raises are discretionary above the inflation amount, and the OM can revise the policy should the need arise.

OM: Dave has indicated that he will be able to get by on a salary of $2,000/month. As he is the owner, he has the ability to issue dividends or a bonus at the end of the year (based on the store’s performance, and how much profit is needed for reinvestment into the store) to increase his cash flow. He also has the ability to increase his own salary, and it is assumed that at a minimum there is an inflation increase (2.5%) every year.

Given that cash flows are critical to the success of small businesses in the first few years, the ability to offer benefits is limited. Intrinsic motivation is the primary driver for the employees, as they should have a love of sport, and the ability to work close to the industry is a benefit in and of itself. The following are two proposed benefits which have no cost to implement, and require little cash to fund, but provide the employee with some extra extrinsic motivation:

1. Employee Discount – This is a standard benefit to the retail industry. Given that one of the criteria for selecting employees is an interest in the sports represented in the store, the employees will likely find getting a discount on their equipment purchases beneficial. There is a small opportunity cost associated with the lost margin, but no cash outflows required. The recommended discount is 25% off of the retail price, which still allows for a markup on these sales, but can represent significant savings to the employees.

2. Christmas Bonus – Given that the Christmas shopping season is the busiest time of the year for almost all retail stores, there is no reason to assume that this store will be any different (the financial model also weights sales heavier at the end of the year). In order to reward the employees for their efforts over the busy season, a Christmas Bonus can be declared. This has a close proximity between their effort and the reward, which is positive reinforcement. Christmas is also a time when personal finances are at a low, so a cash injection is likely going to be appreciated. An amount of $200 was selected for the FTE and PTE, and a lower amount of $50 was selected for the FIE (who likely works more hours at this time of year).

Legislated Requirements and Other Payroll Costs

The following are several legislative requirements associated with payroll:

1. Canada Pension Plan (CPP) – The employer is required to withhold CPP from employee wages, as well as contribute an equal amount. The total CPP is required to be submitted to CRA monthly4.

2. Employment Insurance (EI) - The employer is required to withhold EI from employee wages, as well as contribute an amount equal to 1.4 times the employee amount. The total EI is required to be submitted to CRA monthly. The OM is exempt from this amount.

3. Income Taxes – The employer is required to withhold taxes from employee wages, and submit them to CRA monthly. There is no employer portion of taxes.

4. Holiday Pay – This is an additional amount required to be paid to all employees, and is calculated as 5% of the employee's wages over the prior four week period. There are 10 holidays in Saskatchewan. The OM is exempt from this amount.

4 As the store will be considered a “new remitter,” the payroll withholdings and employer portions are due on the 15th day of the month following the month when the payroll was paid (Canada Revenue Agency, 2008).



5. Worker’s Compensation Board (WCB) – There is an annual assessment premium due to the Saskatchewan WCB, which is based on a rate derived from the type of business and the annual estimated payroll costs. There are two instalments of the assessment due during the year: April 1 and September 1.

6. Vacation – The Saskatchewan labour standards require a minimum vacation for employees of three weeks. The assumption in the employee costs in Schedule 6 is that the vacation pay is paid when the employee takes it, and therefore the costs are uniform over the year for the FTE, PTE and OM. In order to compensate for the unfilled shifts, the FIE is assumed to work for a minimum of 9 weeks during the year, to cover the other 3 staff’s vacation (assuming the OM will take time as well, or he will take less, and the remainder are sick days amongst the 3 regular staff).

See Schedule 6b for a breakdown of how these influence actual costs.

Employee Training

Before the grand opening on March 1, 2009, the OM should hold a two day training session for the three employees. The purpose of this session is to train the staff on the register and check-out procedures, get an understanding of the products carried, inform of the timesheet and payroll procedures, and generally become familiar with the store. During this time, the OM and the employees can place the inventory on the floor, and perform a thorough clean-up before the opening. The two day training is included in the employee costs for February 2009. On a go-forward basis, new employees will be trained on-the-job.

In order stay current on products that the store carries, the store can get the vendors to hold in-service sessions to explain new products. These sessions should be documented, and then filed into a reference binder that old and new staff can refer to. There is no specific cost associated with the vendor sessions, as vendors will often include a brief session with the purchase of inventory. The employees who are not working the day of the session can receive a summarized version from either the OM or FTE on their next shift.

Staffing Schedule

Based on the hours of operations, a possible staffing schedule has been prepared, and is available in Schedule 11. The following are some of the basic assumptions used in preparing the schedule:

In order to best serve the customers, there are 2 staff members in the store for the majority of the day. If customer demand is higher than anticipated, an extra employee (or more) could be added to peak hours.

The hours that the store is open every day is divided into 2 staggered shifts of 8 hours plus a 1 hour unpaid lunch (7.5 hours plus a 1 hour unpaid lunch on Sundays).

The owner-manager and the full time employee each get 5 shifts per week, and the part time employee picks up the remaining 4 shifts.

There are some further assumptions required that are not reflected in the schedule: For the first several months of operations, the owner-manager should be the one to open and

close the store. The OM can transfer these duties to the full time and part time employees as required once he feels they are trust-worthy. Despite the increased hours for the OM, there is no impact on the employee costs, as he is drawing a salary not based on hours of work.

During slow times, the OM can do administrative work (such as ordering, taking inventory, payroll forms, etc) while the other employee handles the floor.

A third employee (the “fill-in employee”) is required to pick up shifts that the OM is not able to. This is especially important when staff goes on vacation, or extended sick leaves. Although the fill-in employee is not on the regular schedule, he could fill any gaps.



FINANCIAL PLANA detailed financial model has been developed, and is attached in Schedules 1 and 2.

Accounts Receivable

As this is a retail business, sales will mostly be point of sale, credit card and cash purchases instead of credit purchases from customers. A small amount (5%) of sales are estimated to be on credit as there may be bulk orders from teams or leagues that may have credit terms of net 30 days attached.

Accounts Payable

Accounts Payable in the business will be minimal save interest and tax payables as credit terms will likely not be available to you from vendors. As such, Clark’s will need to buy inventory on a cash basis. However, if Clark’s is able to get credit terms when proven established, the terms will likely be net 30 days.

Operating Line of Credit

As Clark’s is a start up business, it is likely that it will only be able to get an operating line of credit at 70% of inventory, which calculates to approximately $87,500. The model assumes that the line of credit will carry an interest rate of 10%, and payments on the debt are to be made when cash is available.

Capital Budgeting and Depreciation

Per the capital budget (Schedule 5), $20,000 is needed in the first year in February. If all of the financing requested is obtained, then there will be no problem obtaining the capital purchases. It is also expected that there will need to be a purchase of other capital assets after year six and perhaps update the premises with new equipment and fixtures, so there is an estimate of at least $10,000. However, the model is only five years and therefore this hasn’t been reflected in the model. Cash balances in the company can be used to finance the purchases at that time.

Depreciation is calculated according to the Capital Cost Allowance for taxes, and is 20% on equipment such as shelving, 55% on computer equipment, and 10 year straight line depreciation for leasehold improvements.

Financing

Financing is important to the business. On incorporation, Clark’s should issue 100 common voting shares for $1,000 each. Of these, 40 shares will go to an outside investor giving him a 40% interest in Clark’s. The remaining 60 shares (60%) will go to Dave in return for his $30,000 cash and $30,000 of ‘sweat equity’. This is common in business; one receives additional shares in return for efforts in continuing to run the business.

There is an expectation of little long term debt as there will be relatively small capital expenditure requirements in the long run.

Another form of potential financing that has not been included in financial projections is government grants. The government has grants available to help grow small business in the country, and given that Dave is a young entrepreneur, he is eligible for many of them. There are currently 39 Federal and 57 Provincial programs available, offering between $1,500 - $500,000 worth of funding. There are currently 83 Federal and 82 Provincial low or no-interest loan programs available, offering between $1,500 - $10 million worth of funding. 5 These have not been included in the business plan because they are not a guaranteed source of financing.

5 Grants listed online at http://www.govermentgrants.grants-loans.org/programs.php


http://www.govermentgrants.grants-loans.org/programs.php


Income Tax

As Clark’s is incorporated and eligible for the small business deduction, a combined federal and provincial (Saskatchewan) tax rate of 17% was applied in the model.

Dividend Policy

Per the financials in Schedule 2, there are significant cash excesses by the end of year five. It is proposed to begin paying dividends to shareholders at this time. However, there needs to be sufficient cash on hand to cover operations; therefore the recommendation is to pay 80% of any excess cash over $100,000 at the end of five years out of the company as a dividend to shareholders.

Economic Forecast

The model reflects a reasonable inflationary growth rate of 2.5% per year. Real growth has been reflected in the increase in sales volume over the five year projection through gradual increases in inventory turnover as discussed in the operating plan.

Accounting Information System

The accounting system (QuickBooks Premium) recommended for purchase in the projection has the following features:

Advanced tools include sales and expense forecasting Advanced inventory management including tracking inventory, purchase orders and inventory

costs Customer, Employee and Vendor management Remote access abilities Can be customized to a retail business (entering and voiding sales, setting prices, applying

discounts, etc.) Monitoring of the business through over 135 reports (profit & loss, sales reports, etc.) Ability to create custom financial statements Strong accounting controls and audit trails to prevent, find and correct errors easily

This accounting system will enable management the business efficiently and effectively.

Financial Analysis

In year one, the cash flow is positive but there are periods throughout the year where cash is scarce. However, the business shows strong cash flows from year 3 forward. Furthermore, there is some latitude in managing cash flows, particularly if the cash flow problem is due to lower than expected sales volume. Clark’s can decrease the level of staffing or pay less on the operating line of credit in response. As it stands, the current ratio is rising from 1.6 in year one to over 4 by year two.

In Schedule 2, the internal rate of return (IRR) or expected return is projected to be higher (at 37.48%) than the required rate of return of 25% on after-tax cash flows. However, this IRR is most sensitive to changes in level of sales. The IRR if the entire project were to be financed with equity would be 29.81% which may be a more accurate portrait of annual compounded return on investment as by year 4 there is very little debt financing.

The IRR of Dave’s cash investment is 46.00% compared to an IRR of 28.77% for the other investor(s). This is because Dave receives 60% of the common shares even though he only contributes $30,000 of the $70,000 in equity. The reason for this is he is contributing “sweat equity” in the form of planning and managing the business.

Risk Analysis



The cash flow is most sensitive to fluctuations in sales volume. If inventory is turned over every 7 months (see Schedule 8) as opposed to every 6 months, as expected, then the value of the equity investment decreases from $117,295 to negative $65,426. Conversely, if inventory turns over every 5 months instead of 7 months, the IRR on equity increases from 37.48% to 93.84%. This high degree of variability represents a change in value of over $180,000. This increases the risk significantly as sales volume is very susceptible to variance. Whereas sales price is easy to determine (based on management decisions), sales volume is difficult to predict (based on customer demand).

Changes in the mark up on inventory do have an effect on the cash flows; however the effect is minimal in comparison to changes in sales volume. Furthermore, the risk of price fluctuations is low due to the fact that most sporting goods retailers have similar markup policies.

Overall, the greatest risk is that sales volumes will be less than expected. The location and higher than average spending on promotion will work to mitigate this risk.



CONCLUSIONBased on the discussions included in each section of the business plan, and the forecasts included in the financial analysis, Clark’s Ultimate Apparel and Sporting Goods will succeed. The first major hurdle to success is securing the line of credit from the bank and the additional equity investment. If the extra financing is secured, Clark’s is green-lit for success.



REFERENCESAnytimeProducts.com. (2008). Retrieved July 14, 2008, from http://anytimeproducts.com

Canada Revenue Agency. (2008, July 7). Retrieved July 14, 2008, from http://www.cra-arc.gc.ca

QuickMBA. (2007). Porter’s Five Forces – A Model for Industry Analysis. Retrieved July 4, 2008, from http://www.quickmba.com/strategy/porter.shtml

Retail Council of Canada. (n.d.). Retrieved July 14, 2008, from http://www.retailcouncil.org

Saskatchewan Labour. (n.d.). A Retailer’s Guide to Labour Standards in Saskatchewan. Retrieved July 14, 2008, from http://www.labour.gov.sk.ca/LS/

Saskatchewan Labour. (2007). The Minimum Wage Regulations. Retrieved July 14, 2008, from http://www.labour.gov.sk.ca/LS/

Saskatchewan Worker’s Compensation Board. (n.d.). Premiums and Rate Setting. Retrieved July 14, 2008, from http://www.wcbsask.com/book_employers/page_employer_premiums.page

Saskatoon Regional Economic Development Authority (SREDA) Inc. (2007, September 4). Saskatoon Labour Force Statistics. Retrieved July 14, 2008, from http://www.sreda.com/resources/statistics.php

Saskatoon Ultimate Disc Sport Society. (2008, July 7). Retrieved July 14, 2008, from http://www.saskatoonultimate.org/

Small Business Funding Centre. (2008). Government Grants and Loans: Funding Program Types. Retrieved July 16, 2008, from http://www.govermentgrants.grants-loans.org/programs.php

Statistics Canada. (2006). Retrieved July 14, 2008, from http://www.statcan.ca

Statistics Canada. (2008, July 11). Latest Release from the Labour Force Survey. Retrieved July 14, 2008, from http://www.statcan.ca/english/Subjects/Labour/LFS/lfs-en.htm

Statistics Canada. (2008, May 5). Retail trade, operating statistics, by province and territory. Retrieved July 14, 2008, from http://www40.statcan.ca/l01/cst01/trad38a.htm?sdi=retail%20gross%20margin

Store Fixtures, USA. (n.d.). Retrieved July 14, 2008, from http://onsmartpages.com/storefixturesusa/showcasescounters/

Waters, Shari. (n.d.). How to use store design to reduce shoplifting. Retrieved July 14, 2008, from http://retail.about.com/od/lossprevention/ht/design_theft.htm

Cover Page Graphic: http://home.swbell.net/z0rt/icons/frisbee.gif


http://home.swbell.net/z0rt/icons/frisbee.gif

http://retail.about.com/od/lossprevention/ht/design_theft.htm

http://onsmartpages.com/storefixturesusa/showcasescounters/

http://www40.statcan.ca/l01/cst01/trad38a.htm?sdi=retail%20gross%20margin

http://www.statcan.ca/english/Subjects/Labour/LFS/lfs-en.htm

http://www.statcan.ca/

http://www.govermentgrants.grants-loans.org/programs.php

http://www.saskatoonultimate.org/

http://www.sreda.com/resources/statistics.php

http://www.wcbsask.com/book_employers/page_employer_premiums.page

http://www.labour.gov.sk.ca/LS/

http://www.labour.gov.sk.ca/LS/

http://www.retailcouncil.org/

http://www.quickmba.com/strategy/porter.shtml

http://www.cra-arc.gc.ca/

http://anytimeproducts.com/

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