Financial Analysis Management & Enterprise

Assignment II milagros perez segura

student id: LM0014ASCASC0422 | AUGUST 5TH, 2022
Table of Contents
Executive Summary.........................................................................................................................2

New Venture....................................................................................................................................3

Business Model................................................................................................................................6

Business Risks.................................................................................................................................8

Necessary Conditions....................................................................................................................10

References......................................................................................................................................11

Appendix........................................................................................................................................12

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Executive Summary
This paper will serve as a comprehensive overview of a new business idea to present its features
and projections to potential investors and financial institutions to ensure the necessary funding.

The first section details the main characteristics of the new venture - Clother - describing not
only the product but also the opportunity gap in the market, as well as the feasibility behind the
idea of the start-up. There will be data included to support how the context presents an
opportunity for this business and to illustrate the industry (specifically the retailing clothing
sector in Malta). Furthermore, there is a business model that explains the financial planning and
the ways in which this new venture will eventually achieve positive results, with an estimate of
the time that it would take to get said results. There is also a wider description of the functions of
the business and the elements that would separate it from other competitors in the industry.

Then, a third section mentions the main risks that would become relevant to this business idea,
and what sort of strategy (accepting, avoiding, reducing, or transferring) will be employed to
face the probability of each risk. This will allow the start-up to count with a risk management
plan already in place to prevent negative outcomes.

The last section defines the conditions that must prevail to avoid failure, in a way that there is a
clear understanding of the possible sources of deficiencies in the business and the different
alternatives to deal with such threats.

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New Venture
The fact that the tourism industry is one of Malta’s biggest sources of income has different
repercussions in the local market. One of them is the rise in the prices of multiple products such
as food, household items, and clothing. Their value does not just go up because Malta is a
touristic destination, but also because the island imports most of this merchandise instead of
manufacturing it locally (NSO, 2022).

Additionally, in the last 10 years, Malta’s population has grown exponentially (Macrotrends,
2022) reaching a total of 533,286 habitants in 2022. Out of this total, 22.42% of the population is
foreign (Trading Economics, 2022). Immigrants are an expanding group with a crucial impact in
the local economy.

One of the first difficulties that immigrants can meet while trying to adjust to a new live on the
island lies in the process of finding affordable stores to cover the most basic needs. Any re-
location endeavor will carry a considerable investment to begin with (travel expenses, cost of
rent in a new place of residence, daily transport to name a few). On top of that, it can be rather
difficult to count with enough capital to cover all essential needs, especially when the prices are
aggravated not only by the importation fees but by other external factors like the current inflation
after the COVID-19 outbreak and ongoing armed conflicts. (Times of Malta, 2022)

From all the lines of products valued at prices hard to afford, the clothing industry in Malta is
one of the most important ones in the country’s economy (Manufy, 2022). The clothing retailing
market size in Malta reached a total of around €341.2 million in 2022 and it has been growing
about 4.3% per year on average for the last five years. As a promising niche, the number of
businesses in this sector has grown 3.9% per year on average since 2017, and today, the clothing
retailing industry in Malta employs over 3,912 people (IBIS World, 2022).

For those who just arrive to a new country and must deal with a tight budget, a high cost of
clothing might force some to delay the spend in new items until they can find employment and
then secure a more stabilized base of resources. The problem with this is that to start working,

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immigrants must go through a residency application process that will grant them the permission
to have a formal job in Malta. This process can take months, during which the only source of
funding are personal savings.

Considering this scenario, given that there are around 700 clothing retailing businesses in Malta
(IBIS World, 2022) and most of them have high prices compared to EU standards (NSO, 2021),
there is a gap in the market that cannot meet the needs of a larger group of customers, which is
only exacerbated by the fact that shipping prices have also increased substantially over the last
year (Business Now, 2021).

This business plan is based on the opportunity that the current market presents to start an online
clothing retailing company based in Malta, targeting both tourists and immigrants by offering a
low-cost wardrobe through a monthly subscription model, by which the clients would receive a
box with products of their selection.

The reason behind choosing an online model over a physical store is rooted on the needs of the
targeted consumer. By accessing the products online, customers would not be forced to use
transportation to get to a particular shop nor would they need to know the area. On the other
hand, even if those were not obstacles, people may not have the time to go shopping when they
have to prioritize looking for an apartment or a job position. With an online shop, the catalogue
would be accessible anytime, anywhere. Additionally, the brand would offer a free delivery
service around the island, which would also incentivize the decision of the customer.

Regarding the competitors within the clothing retailing sector, this business would be competing
against other online shops as well as other big-brand stores that are more known to the public
and therefore count with a wider reach thanks to the recommendation of long-time customers to
new arrivers.

About the organizational feasibility of the business, as an entrepreneur I am currently invested in

achieving a master’s degree in Business Administration to learn how to carry my own project.
Moreover, I count with extensive knowledge on the fashion industry due to previous working

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experiences in the sector. This experience has granted useful connections to obtain providers and
supplies. I have started a similar site in the past which taught me how to set up an e-commerce.

Another factor to consider related to the industry feasibility behind this opportunity is the cost
advantages that Malta has to offer to apparel businesses which include competitive tax rates,
medium-level salaries and wages, and a competitive labor force. These elements have a direct
impact on the possibility to earn higher returns on investment (Manufy, 2022).

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Business Model
About the identity of the brand, Clother is an e-commerce that would offer a monthly delivery of
a box with predetermined low-cost outfits for men and women, prepared according to different
occasions, such as job interviews, dinner-out or corporative events. That way, people that come
from abroad could rely on the website’s suggestions instead of depending on an adjustment
period to find affordable shops and learn what would be appropriate to wear at any given
circumstance. Also, customers would have the option to customize their own wardrobe, picking
items outside the recommendations of the fixed outfits in case they prefer a particular product.

The subscription will have a value of €59. This is the price for each box, and it will be sustained
monthly. The cost of sales will represent around 60% of the selling price. The costs considered in
the budget will include €2,500 to buy a van to handle the distribution of the boxes every month,
another €500 to support the design of the website platform, the logo of Clother and other
branding elements associated with the decoration of the boxes. There will be other €2,000 related
to initial costs to start the business.

At the beginning, there will be two employees. A fashion specialist, that will receive €2,000 in
payment, and a driver in charge of the delivery of the boxes, who will be paid €1,700. By the end
of the first year, there will be two drivers to handle the expected increase in subscriptions which
means an extra spend of €2,500 for a second van. The rent of the offices will take €750 while the
spend in marketing will start at €1,500 to increase a 5% each month.

According to these estimates, it will take the company nine months to become profitable.

Regarding inventory, the company will aim to always keep items in stock for the next month’s
sales, plus a 20% at a bare minimum. They payment of these purchases will be net 30, which
means that the payment will be incurred 30 days after the goods were delivered by the suppliers.

The maximum amount of funding needed will be of €28,347, which will be employed to cover
the costs of the first months. The net cash flow will be positive from the eighth month. This

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means that, from that moment on, the company will slowly start to become profitable, until the
fifteenth month when Clother will start making profit. Lastly, by the end of the first two years of
the project, it is expected that the total profit to be achieved will reach €297,002.

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Business Risks
To run a business like Clother, the supply of clothing needs to be always at hand. Customers not
only want their boxes to be ready on time, but they also expect the merchandise to be available in
the color and size they prefer. An excess inventory can also be a problem since it may force the
sale of costly items at discount prices, resulting in losses. Given that the purchase of clothes is
somewhat regular in a business like this, the risk associated with inventory management is high.
This risk can be reduced by selling through consignment, which means that the order of items for
the suppliers would only be sent after there has been a confirmed order.

Trend analysis can also represent a moderate risk because, even when there is a chance that the
company achieves a deep understanding of the taste of the clients, there is always a margin of
error when it comes to trends in the fashion industry, which are quite fickle and ever-changing. A
way to avoid this risk is to hire experienced sellers in the market while trading mostly
commercialized clothing instead of avant-garde items.

Another high risk for the business would be related to the subscription model because it has a
high cancellation rate. One of the most important metrics for e-commerce is customer churn,
which is the percentage of clients that stopped using the company’s product during a certain
period. To mitigate this risk, the company could update the offering on the content of the boxes
weekly, to keep the customers interested. It is also important to make it easy for them to cancel
their subscription, otherwise, the brand would receive negative feedback.

It is also imperative to be aware of compliance management. Since one of the first steps for the
business would be to research whether the boxes are taxable as well as the type of products
included, failing to track tax liabilities might be low risk. Nonetheless, to eradicate this risk it is
necessary to verify potential sale tax obligations existing in Malta through professional
counseling.

On the other hand, this is a digital start-up that would share information on prices (as well as
request financial information from the customers) on the website. This means that online security

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and data-privacy risks are highly likely. Hackers can deploy malware in fraudulent email links.
To avoid these risks, the staff must be trained and incentivized about data security policies.

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Necessary Conditions
To avoid failure, there are a series of conditions that need to prevail in the context of the new
venture.

One of these conditions is to ensure good quality when it comes to the design of the products.
Since the business is focused on the provision of clothing and apparel items, it is crucial to make
sure that the offering remains up to date according to fashion trends and the general preferences
of the targeted audience. A way to keep track of the needs of the clients is to base the selection of
suppliers on factors such as the quality of the fabric, colors, and confection.

Another possible cause of failure in this business would be an inefficient strategy to position the
brand which would prevent the boxes to reach the right customers. On top of that, advertisement
is a key factor in the fashion market. Clother would be targeting especially women from 17 to 35
years old, which means it is essential to build a digital marketing plan of action, to create and
promote content on social media platforms as well as including other similar methods like email
marketing. To achieve a successful reach and communication flow between the business and the
clients, it is necessary to hire a digital marketing specialist to handle the “voice” of the brand on
social media.

Since the quality of the products is intended to be one of the main elements to build the identity
of the brand, it is critical to prevent the cost of production to grow on a bigger scale that the
profits. As a start-up, Clother would offer a narrower range of styles as the first collection (three
to six options for the box), to prioritize quality over quantity.

To avoid failure when facing other competitors, one of the ways that Clother must deliver
superior value to its customers is the logistic advantage. Even when there are other companies
that offer similar subscription services in the clothing market, they are in European countries,
which means that consumers who live on the island would have to consider shipping expenses to
buy their products. Not only is Clother a Maltese brand, but it also offers free delivery to any

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point of the island, granting the option to the client to pick the day of the week when it better
suits them to receive their box.

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References
 Cefai, S. (11 October 2021) Retail prices continue steep climb, led by clothing & food
sectors. Business Now. [Online]. Available from: https://businessnow.mt/retail-prices-
continue-steep-climb-led-by-clothing-food-sectors/ [Accessed 23 July 2022]
 IBIS World (2022) Clothing Retailing in Malta. [Online]. Available from:
https://www.ibisworld.com/malta/industry-statistics/clothing-retailing/3060/ [Accessed
July 24 2022]
 Manufy (2022) Malta. [Online]. Available from:
https://www.manufy.com/countries/malta/ [Accessed 23 July 2022]
 National Statistics Office (2022) International Trade in Goods: March 2022. [Online].
Available from:
https://nso.gov.mt/en/News_Releases/Documents/2022/05/News2022_081.pdf [Accessed
July 20 2022]
 National Statistics Office (2021) Retail Price Index: January 2021. [Online]. Available
from: https://nso.gov.mt/en/News_Releases/Documents/2021/02/News2021_038.pdf
[Accessed July 25 2022]
 Times of Malta (2 June 2022) War, hunger, COVID-19 cast gloomy shadow over Europe.
Times of Malta. [Online]. Available from: https://timesofmalta.com/articles/view/war-
hunger-covid-19-cast-gloomy-shadow-over-europe.959125 [Accessed July 23 2022]
 Trading Economics (2022), Malta – Foreign-born population. [Online]. Available from:
https://tradingeconomics.com/malta/foreign-born-population-eurostat-data.html
[Accessed July 18 2022]

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Appendix1 - Business Model Financial Calculations

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To access the calculation behind the results of the Excel sheet, please refer to the following link:
https://docs.google.com/spreadsheets/d/1J2X6X8aFrNcGwCCN-v7yOWg8Yud_ICIv/edit?usp=sharing&ouid=107500173785096268192&rtpof=true&sd=true

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