SETH BREEDLOVE

Salvador MascareñasFeasibility Assessment

Seth Breedlove – Brett Kladney – Salvador Mascareñas8/6/2009

Abstract: The launch of Salvador Mascareñas has been has been decided as favorable as a web-based

business to business operation; with a start-up cost of less than five-thousand dollars.

Table of Contents

I. Executive Summary……………………………………………………………….…….Pg...2

II. Feasibility: Problem and Decision…………………………………………….……...…Pg.2

III. Business Concept………………………………………………………………………...Pg.3

IV. Industry Analysis………………………………………………………………………...Pg.8

V. Entry Strategy Analysis……………………………………………………………,..…Pg.23

VI. Marketing Tactical Plan……………………………………………………….….……Pg.28

VII. Production/Service Tactical Plan………………………………………………….…..Pg.49

VIII. International Business Competencies Required for Implementation – Italy…….…Pg.55

IX. International Business Competencies Required for Implementation – India….…...Pg.61

X. Human Resources Tactical Plan………………………………………………………Pg.63

XI. Break Even Analysis………………………………………………………….………...Pg.69

XII. Sales Forecast…………………………………………………………………....……..Pg. 72

XIII. Financial Tactical Plan………………………………………………………………...Pg. 79

U.S. Census…………………………………………………………………………………..Appendix A

Store and Web Start Up Costs………………………………………………………….…...Appendix B

Store and Web Yearly Estimated Budget……………………………..……….……….….Appendix C

Store and Web Estimated Timeline………………………………………………….…….Appendix D

Advertising Costs and Demographics……………………………………………………...Appendix E

Environmental Guide Lines for Tanning and Leather Finishing……………….……….Appendix F

City of San Francisco and State of California Programs…………………………………Appendix G

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I. Executive Summary

Salvador Mascareñas will launch as a web-based, business-to-business operation. This will allow us to keep

our start-up costs under five-thousand dollars and avoid the risk of inventory costs.

II. Feasibility Decision:

Store based or Web Based Decision:

Opening a physical location is the most costly decision and with it carries the most risk. In addition, print

advertising to reach consumers is the most costly expense. With this in mind, we believe that opening up

Salvador Mascareñas as a web-only business for the first year of operation offers the least risky option and the

highest financial return for the money spent. By advertising on-line with the magazines 7X7, 944 and Esquire,

we can still reach our target audience at minimal upfront costs. In addition, a web-based business will allow us

to pay our most expensive costs on a pay-as-we-go basis with less commitment. Work may be done mostly at

home and no additional equipment would need to be purchased. Major resources needs required to open a store,

such additional labor, can be indefinitely delayed. With a web-based only business, we currently have the

resources required, the human and technological capital from the founding team members. Rather than own

production and the necessary raw materials, these services will be outsourced. Salvador Mascareñas will

operate as a net-work business, allowing the burden of ownership to be on suppliers rather than on our own

company.

Business to Business or Business to Consumer Decision

While maintaining a web-based only operation, Salvador Mascareñas will start as a business to business

supplier rather than selling directly to consumers. This will allow us to delay advertising costs to consumers. By

selling to retailers, we can avoid inventory production and holding costs. Retailers will have a minimum

purchase order requirement of one hundred pieces and a fifty-percent deposit requirement. This way we can

avoid the risk of unsellable inventory or not having the necessary funds to fulfill an order. A fifty percent

deposit will cover our production costs. For example a solid silver belt will average thirty dollars, which would

be sold to a retailer for ninety dollars and then marked up for the consumer at two-hundred-ten dollars. A

forty-five dollar deposit will cover production and administrative costs for that belt.

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As our web-site has now launched, only moderate additional resources are needed such as advertising dollars

for brochures and upfront production fees. The fewer costs with a solely web-based launch allows for an eleven

percent greater profit margin than a store based. (Eighty-four percent vs. seventy-three percent.) This

calculation assumes a limited product offering in silver only. Most of these expenses such as advertising, even

at one-thousand-dollars a month, can be split between three people more readily. Also, with a web-based

business, we may also keep our day time employment without putting our current standard of living at risk.

Due to the small size of the business, we do not wish to seek outside investors and further dilute the percentage

of ownership. In this particular situation, the founding team members are the investors.

After a web-based-business to business launch has been successful and our financial reserves can compensate

for advertising, inventory production and holding costs, then a web-based-business to consumer site may be

launched. After a second year, if sales justify it, a store based operation may be launched.

III. Business Concept

A. Summary: Salvador Mascareñas’ mission is to dress men in the highest quality luxury accessories that

allows for relaxed confidence and self-assurance of their appearance so their personalities may shine

through. Our accessories will provide our customers enjoyment and usefulness throughout their lifetime

and for future generations.

B. Customer Identification: Our customer is the both the fashion conscious wealthy male and aspiring

male shopper that desires premium, one of a kind or rare accessories, flawless customer service, and the

consistent luxury experience.

C. Customer Benefits: Shoppers benefit from our products by wearing unique objects of beauty that

reflect their style, status and social well-being. Customers will derive pleasure from the purchase

experience and owning our products. Salvador Mascareñas will provide our customers with a lifetime of

customer service, repair and/or replacement of an item for a fee with the purchase of a product.

D. Potential for Growth and Spin Off: Currently, in 2009, the potential company growth including spin

offs are enormous. According to the U.S. Census Bureau in 2002, eight-hundred-eighty-one

establishments produced men’s accessories in the United States. In 2007, before the start of our current

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economic recession, that number jumped to one-thousand-four-hundred-twenty-four. (Likewise, the

number of stores that sold men’s accessories more than doubled as well.) However, since the economic

downturn, that number decreased to eight-hundred-twenty-six in 2008 and is still declining, indicating

that many startups and established business are not surviving. Salvador Mascareñas believes when the

economy recovers, there will be a large pent up demand for our products and room for growth due to the

‘clearing of the field’ of other businesses due to the current economy.

Other accessories luxury good providers have experienced growth despite the poor economic outlook.

One such example is Hermes, who has recently opened up twelve new shops all over the world,

including San Diego, CA and additionally renovated thirteen existing stores. Hermes sells fine leather

goods and accessories with an average price point of four-hundred-fifty dollars. Their sales have

increased every year for the past five years, including an eight and one quarter percent increase overall

in 2008 for global sales and by fifteen percent in 2008, specifically in the United States. We believe the

reason that Hermes and other producers have been successful, versus the many that have failed is

simple; many new providers were not willing to spend on the advertising necessary to reach their target

customer. A producer cannot produce top quality merchandise and simply hope that someone finds their

website. Hermes is successful because the company advertises and opened up store locations to reach

their customers.

Another new producer is ‘Kale Miles’. ‘Kale Miles’ was actually created by Bill Miles, who is currently

creating platinum belts ranging up to eighteen-thousand dollars. (Most items in his collection range from

two-hundred-forty to four-hundred dollars (Bornrich). In an interview with Misstropolis Style reporter

Robin Hauck, he had not sold any of his eighteen-thousand dollars belts as of 2007, though, they were a

new offering. However, since then he has lent his designs to actors such Taylor Kitsch of Friday Night

Lights and has used local media to promote his designs. While we don’t have access to his sales figures,

he’s still in business and his belts can be found on various luxury websites. What’s the greatest sign of

success; imitation. Now another designer Roland Iten has created the eighteen-thousand dollars platinum

belt (Bornrich). This new must have item is providing men with the ability to express themselves

artistically, when in the past they have had few options. This new trend seems to be inspiring a new

trend of ‘who can make the world’s most expensive belt?’ As these belts grow in popularity and then

become staples in the wealthy man’s wardrobe, the aspiring customer base is sure to increase and belts

in the two-hundred-fifty dollar and up range is sure to increase as well. Not to be outdone, we predict

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this will later this will spill over into women’s belts as well; providing additional future opportunities for

growth.

FIGURE 1 HERMES GROSS SALES AND NET INCOME SOURCE: HERMES 2009 LETTER TO

STOCKHOLDERS

Differentiation / Sustainable Competitive Advantage: Salvador Mascareñas is differentiated form

our competitors in that we offer our customers the option to have couture accessories vs. mass produced

items. We will design and/or fit any accessory specifically for the individual. In addition, Salvador

Mascareñas will be able to cater to the emerging minority market, producing styles that reflect the

consumers pride in their heritage.

In addition, we will have unique talent and human capital with participation of Brett Kladney, Vice

President of Research and Development at William Sonoma and our designers.

E. Business Model: Salvador Mascareñas (S.M.) generates revenue by providing the wealthy and fashion

conscious urban male with unique and timeless luxury accessories. Our products will be available to

consumers via a physical retail store, online and phone. S.M. will be designer owned and will retain

rights to almost one-hundred percent of its designs. We will distribute our own products at the start of

the business. As the company expands nationally and overseas, distribution will be outsourced.

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F. Value Chain

Salvador Mascareñas creates value for its customers by coordinating information, designers, resources

and suppliers to create wearable works of art, which most consumers would not be able to do on their

own.

FIGURE 2 VALUE CHAIN

G. Impact on Environment: Salvador Mascareñas will take care to only choose providers in the U.S. that

meet the highest environmental standards. We believe that we must ensure that the commons, i.e. land,

air or other public goods are cared for by properly disposing of toxic materials, not polluting, recycling

and using recycled materials when available. Suppliers will be monitored yearly to verify that

environmental laws are being followed through visitation, government reports and media coverage. We

recognize that suppliers in foreign countries may not have the same standards in the U.S. and/or the

ability to meet such standards. In such cases when foreign suppliers must be used, Salvador Mascareñas

will not use any supplier that engages in unethical practices such as toxic dumping of materials and we

will obtain a supplier that meets the highest environmental standards as possible. Page 6 of 85

In addition to the environmental well-being, we wish for customers to derive pleasure from our products

beyond the point of purchase. When our customers view our products, we believe they should have the

assurance that the product was made in an environmental sustainable manner, thus protecting their

emotional well-being, the emotional well-being and pride of our employees and the brand image of

Salvador Mascareñas.

H. Ethical/Social Responsibility Concerns: As well as well-being of the environment, Salvador

Mascareñas recognizes that all stakeholders are important and contribute to our success.

Employees and other stakeholders will have the right to full discloser of any event or activity that

may bring present or future harm.

Salvador Mascareñas will provide scholarships for local colleges and universities.

Salvador Mascareñas will participate, promote or provide programs and activities that promote

environmental health and sustainable business practices.

Salvador Mascareñas will promote diversity in race, gender, ethnic background, sexual identity and

sexual orientation.

Employees will be paid competitive wages and provided a safe working environment.

Employees will be offered tuition/book reimbursement and assistance with career planning.

Salvador Mascareñas believes that a happy employee is a more productive employee. This includes

personal development and goal building both internal and external to the company. We will assist in

the development of those goals by offering our support and providing a flexible schedule when

available. Organizational studies by the Center of Advance Human Studies, myself (Seth Breedlove)

on the behalf of Starbucks and other independent studies show that when an employee’s personal

and career goals are in alignment with his or her company (Whether or not they are directly related

to the company), employee satisfaction, performance, and retention increases.

Salvador Mascareñas will only work with suppliers that pay employees fair wage and provide a safe

working environment.

Customers will be provided only the highest quality products that are produced at the highest ethical

standards and receive the highest level of customer service.

Salvador Mascareñas accessories are made from animal products such as leather, beaver pelts and so

on. We recognize that some individuals and organizations such as PETA will have issue with some

or all of the animal products used in manufacturing. We do not predict an overwhelming response

from critics since leather goods are common and beaver and rabbit pelts when turned into felt do not

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have the same appearance as per se a fur coat, and do not draw the same type of attention. Salvador

Mascareñas will research alternative materials and monitor suppliers for animal cruelty.

IV. Industry Analysis

A. Summary: 2008 was a difficult year for consumers, the luxury goods industry and apparel industry.

Consumer confidence is low and this was reflected by a shortened holiday season. Department stores have

experienced a seven percent decline in sales from 2007 (Standards and Poor). The main reasons for the

decline are the current housing crises and poor economy. During high growth periods, many consumers

were using their credit lines secured on the equity in their homes. With home values declining and high

unemployment aspirational shoppers have reigned in their spending. (Thus the stock-market and home

equity loans are a key indicator for the luxury goods market.)

Online retail has performed better than department stores, experiencing a five percent decline in December

after last year’s sales, however online retail had experienced a nine percent growth rate during the first ten

months of 2008. Retailers have responded to the decline with deep slashes in prices to keep inventory

moving. This discounting has motivated aspirational shoppers; however this has tarnished luxury brands

and lowered profit margins.

Some, but not all luxury brands are experiencing declining profit margins and are tempted to increase their

products scope by creating second tier lines also known as diffusionals. These diffusionals are provide for

an even lower profit margin but can appeal to a broader audience (Luxury Essentials). These brands should

be aware that what drives their wealthier consumers and their higher margin lines is the exclusivity of the

product. This could lead to their prime customers abandoning those brands altogether.

Standard & Poor’s reports in 2009 that some speculate that consumer behavior may be turning “away from

immediate gratification toward fewer, but better things.” In addition, with government bailouts, high

unemployment rates and taxpayer criticism, many high profile wealthy people are not as willing to flaunt

their wealth. The fear of negative publicity during these hard economic times are causing some to

reconsider their spending and make purchases that are more conservative and not draw attention to

themselves. (Wall Street Journal) (Wealth Report)

Despite these setbacks, the Accessories and Luxury Goods industry is expected to recover and to grow. By

2013, the global apparel, accessories and luxury goods market is forecasted to grow to one-thousand-nine-

hundred-four billion dollars (USD) in sales. This would represent a forty-two and three-quarter percent

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increase from 2008 sales and a compound growth rate of seven and a half percent from 2008 to 2013.

(Datamonitor 2009) The United States currently provides twenty-three and a half percent of these sales, with

Europe providing thirty-three and a half percent, Asia providing thirty percent, and rest of the word thirteen

percent. Asia is the fastest growing market due to a growing upper and middle class that are hungry for

goods to show their new status in life.

Salvador Mascareñas will be in the position to take advantage of this change in behavior and future industry

growth by offering luxury items that are beautiful in their simplicity and that may be used for years and

passed down for generations.

B. Industry Defined: DataMonitor defines the industry as “The apparel, accessories and luxury goods market

that consists of men’s, women’s and infant’s clothing, jewelry, watches and leather goods. Infants wear is

defined here as clothing for children under the age of two, with all other children’s clothing included in the

menswear and women’s wear sectors. The leather goods sector consists of handbags, wallets and luggage.”

(Datamonitor 2009). The industry is a large mature industry, which historically has had a slow yet stable

growth rate. The industry is global is scope, with single producers selling their products in several different

countries and having brand recognition in even remote areas. Companies may be producers, manufactures as

well as own their own retail stores. The industry has a low barrier to entry and is highly fragmented, though

it is also highly competitive.

.

C. Industry Overview:

1. Structure:

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FIGURE 3 SOURCE DATAMONITOR 2007

6. Life Cycle State: Technology is making the industry more competitive by shorting the time it takes to

bring a new product to market. Products have a short life cycle and vary from season to season and

competitors must pay close attention to trends and consumer tastes.

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FIGURE 4 SOURCE DATAMONITOR 2008

D. Future Trends:

Socio-Economic – Price Competition:

During good economic times, luxury brands have a broader market to tap into due to higher wages. However,

during poor economic times, this pool of course decreases and some companies may be tempted to drop their

prices due to the decrease in volume. This trend should be avoided, since it is during tough times that brands

need to re-affirm their elite status. A decrease in price may damage a brands exclusive image. Wealthy

consumers will continue to spend on brands that “…connect with them on an emotional level for their quality,

associated prestige and outstanding customer service.” (Wealth Report) Individual attention to the customer,

customer service and a high level of problem resolution (I.e.: refunds, returns etc.) without regard to rules and

procedures is what matters to this segment of the population.

Lifestyle Brands

Consumers are demanding more lifestyle brands (Standard and Poor’s 2009) Lifestyle brands are lines that

create an emotional connection with their by describing a way of life and being that their customers desire.

Hats: Hats sales have experienced high growth starting at U.S. sales of eight-hundred-seventy and a half

million dollars in 2003 to nine-hundred-eighty and a half million dollars in 2007. They also have high gross

margins averaging around forty-seven percent for a thirty-dollar hat.

Hat styles are closer to the face, with turned down brims for a slight retro look. Multipurpose hats to serve as

sun protection in 2007 were the best sellers. Dress hats also were strong sellers.

For men and women, newsboys and knitted styles were strong and in addition, berets especially in wool flannel

were particularly strong and featured in many fashion shows.

In 2008, hats became big and floppy very wide brims for a glamorous look. (Accessories Magazine)

We expect sales for hats to stay strong, mostly due to the growing awareness of the need from protection from

the sun. Hats also have a longer product life cycle with an annual turnover of two to three times a year, vs. four

times a year (seasonal) for most other apparel and accessories.

Belts: Luxury belts are a growing segment in the industry segment in the industry. Belts ranging from two-

hundred-fifty to twelve-thousand-five-hundred dollars are selling in stores such as Louise Vuitton, Prada and in

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smaller luxury boutique stores. Chief Executive of the research firm the Luxury Institute is quoted saying,

“Expensive belts will become mainstream like $1,000 jeans,” The Luxury Institute is a research firm in New

York that specializes in researching the spending habits for the top ten percent earners in the U.S. These top ten

percent are responsible for 80% of the profits in the Luxury Goods industry and comprise of about eleven

million households (Forbes).

Men & Belts: Men are the fastest growing segment on this trend. Per Todd Rauchwerger of J.W. Cooper

stores “Besides a watch, most men don’t wear a lot of jewelry. They’ll wear a $20,000 or $30,000 watch and a

$3,000 or $4000 dollar suit and a 25-cent belt buckle. Why not wear a belt buckle that goes with the rest of the

wardrobe?” (Forbes)

Women: Even though women’s apparel is the largest segment in this industry, the luxury market has mostly

targeted men. However, with more women advancing in the work force there is an increase in demand in luxury

apparel for the work place and a higher demand of luxury goods for women to state their independence.

(Forbes) With women’s purchasing power increasing, Salvador Mascareñas believes this market will be

important to market to after men, since women may purchase clothes for their husbands and boyfriends as well

as other male family members.

Minorities: Minorities are a rapidly growing segment of the wealthy population. This is due in parts to

entrepreneurship and in part due to the breaking of the glass ceiling and reaching the executive level of

employment in the work force. This group represents new money with a demand for luxury (The Wise

Marketer). In the near future, we should see more brands specifically targeting Asian and Hispanic markets and

blending in their cultural preferences to create new designs and labels.

The Web: It is becoming more common for wealthy consumers to purchase directly from designers on the

web. Savvy consumers will avoid unknown sellers and purchase only from the designer or well-known

authorized retailers. (Chief Monitor) It will be important for Salvador Mascareñas to advertise in well known

and respected magazines to gain the trust of first time buyers. Some of the sites currently in vogue are Esquire

and Mensstyle.com. Consumers expect to be able to find all the information desired on a particular product

and/or customize a product online. Dee Salomon, the senior vice president of sales for CondèNet says,

“Marketers need to understand that the Web is only theoretically ubiquities; in practice it is not, because people

will only pursue that which interest them. ……. It spells great advantage for the luxury sector.” (Wealth

Report) It is important to note that wealthy consumers except sales and customer service to be consistent

regardless if a purchase is made in store or online.

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E. Competitor Analysis: The Apparel, Accessories & Luxury Goods industry is highly fragmented and in

constant flux. To state that an individual company is a market leader is at best a statement about a particular

moment in time rather than a constant fact. No individual company holds more than 2% of the market on

any giving day. Christian Dior in 2008 held 2% of the market, an increase of 0.6% from 1.4% in 2007.

However, this increase in share may be more due to the decrease in smaller firms that have been unable to

weather the current economic crisis. I expect their share to decrease again when the economy recovers and

independent designers emerge and re-emerge, including Salvador Mascareñas. The VF Corporation and

Jones Apparel come in a close second. As it can be seen by the proceeding charts, no one company can

claim to control the market and the industry is open to much competition. Apparel, Accessories & Luxury

Goods Market Share:

Share, by Value, 2006

FIGURE 5 -SOURCE: DATAMONITOR A T A M O N I T O R 2009

FIGURE 6- SOURCE: DATAMONITOR 2008

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FIGURE 7 -SOURCE: DATAMONITOR 2007

FIGURE 8 - SOURCE: DATAMONITOR 2006

Key Players

Providing exact information in the Luxury Goods industry is challenging. Many companies are privately owned

and their information closely guarded.

Kale Miles:

As a web-based operation, Kale Miles would be our main competitor; retailing only via the web, directly to

retailers and consumers. Kale Miles produces arguably the world’s most expensive belts at eighteen-thousand

dollars for an eight-ounce platinum belt. This designer produces men’s belts, cuffs and other jewelry. While it

is difficult to measure his success, I can personally note that his items have been rising from obscurity from just

a year ago; to appearing on several other luxury sites. In addition, his website has progressed from a few-

simple pages to being able to take consumer orders on line. More information may be found at

www.kalemiles.com

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Wilkes Bashford

“Wilkes Bashford is an upscale department store in the Union Square Shopping District in San Francisco,

California. It was established in 1966 by Wilkes Bashford and has long catered to the elite, including former

San Francisco Mayor Willie Brown.

The store was the first in the United States to carry Ermenegildo Zegna, which is still sold alongside other

prestigious brands such as Brioni, Kiton, Oxxford (Sic) Clothes, Issey Miyake, Oscar de la Renta and Dolce &

Gabbana, to name a few. The store has a shoe department featuring Bontoni, John Lobb and Gravati.

The company has expanded in recent years to include other stores in California including a Palo Alto store as

well as a store in Carmel in 2006. Currently, the Carmel location is the only store maintaining a beauty

department, which includes cosmetics from Shu Uemura, skincare from Creme de la Mer and the full line of

Kiehl's apothecary products. Wilkes Bashford also has a smaller satellite shop called Wilkes Sport, located in

Mill Valley, California.” (Source: Wilkes Bashford – Wikipedia) Wilkes Bashford would be our main

competitor in San Francisco, offering made to measure clothing, accessories and even beauty products in their

San Francisco location. Wilkes Bashford was noted as being one of the top twenty-five independent retailers in

the U.S. in George Whalin’s book ‘Retail Superstars’. However, in this current economic client, even Wilkes

Bashford is feeling the pain. In Oct, 2008 he wrote a letter to customers offering a three hundred dollar

discount off all purchases over eight hundred dollars. While he insisted that his store was in no danger of

closing, the letter openly asked customers to continue shopping despite the economic decline. He is quoted in an

interview, “"I'm not saying I don't recognize a lot of people, for whatever reason, need to curtail their spending,"

he said.”But if you can continue shopping as usual, I urge you to do so, because it's important not only for this

store, but for the retail industry.” (Colliver)

Coach: While, not listed on the charts above, almost anyone in an urban area have seen individuals wearing

Coach Accessories. Coach began as a family business providing leather goods in 1941, passing down skills

down through the family. Coach was first known for creating fine leather goods, and custom fabrics with high

product quality, durability that came with top-notch customer service. In the last decade Coach has successfully

made the leap from manufacture to designer, producer and marketer of fine accessories, wallets; outwear

gloves, scarves and fine jewelry. Today Coach falls into what would be considered the affordable luxury

category, selling a three to four hundred dollar handbag vs. a thousand dollar one such as Gucci. Coach has

also licensed its name to provide a larger scope of products such as watches, footwear, home and office

furniture and even business cards (Marketwatch). However, by doing this, Coach endangers itself by diluting its

own brand image.Page 15 of 85

There are more than two-hundred Coach stores in the U.S and the company is still rapidly expanding. The

company has both its own boutiques as well as taking up shop in department stores. Coach also has its online

store at www.coach.com. The company also plans to expand internationally, with a specific focus in Japan. In

addition to the U.S. market, Coach has over two-hundred stores and shops in eighteen other countries (Asset

Management).

Once a private company; the company has since gone public and is experiencing rapid growth. The company

has a strong brand name that is recognized worldwide. Coach is one of the few companies experiencing rapid

growth in the industry and increasing profit margins. In 1999 its operating margin was just under four percent.

In 2003 it was twenty-five and a half percent. The industry average is nine and a half percent. (Gucci‘s is just

over twelve percent) (Asset Management). One major weakness the company needs to be aware of is over

licensing of its brand and diluting its image. As with any luxury provider; the threats of copycats and fakes are

sure to creep in as the company becomes even more popular with consumers.

Jones Apparel Group: Many people are familiar with Jones Apparel Groups brands, but not with the

company itself. Their most popular brands are Dockers, Givenchy Jewelry, and Energie. Mostly the company

markets towards women, with the exception of its Dockers brand. Jones Apparel Group is a leading designer,

marketer and wholesaler of branded apparel, footwear and accessories. The company markets directly to

consumers through its chain of specialty retail and value-based stores (www.jonesapparel.com). Jones Apparel

outsources most of its manufacturing through a large variety of suppliers, though it does manufacture some of

its own clothes. Like its other competitors, the company has licensed its brands with companies such as Jones

New York and Anne Kline’s. The company’s main targets are both male and female young professional

consumers. Jones Apparel Groups’ sales, although strong at close to five billion dollars a year, has been steadily

shrinking since 2004, mostly due to the consolidation of department stores (Wikiinvest). (The consolidation of

department stores is an important trend in the industry.) While revenues have been declining, the company has

been heavily reinvesting by remodeling its flagship stores. The outlook of this company is hard to access. It is

in a strong position of having strong cash reserves and appears to be healthy; however it is weathering poor

economic times, as it has experienced a ninety-three percent drop in income in the third quarter of 2008. (Wall

Street Journal) Its margins have been a roller coaster. My personal assessment is that the company is strong

financially and will be able to hold out until more prosperous times. Jones Apparel has also taking a fifty

percent stake in the emerging luxury company Rachael Roads in Nov, 2008 (Wall Street Journal). My personal

assessment is that while many companies have had stable sales, it seems that most of the growth and future in

the industry lies with new designers who can appeal to consumers desiring new and unique products. Jones

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Apparel Group’s strengths are that it offers a wide variety of products and has strong channels of distribution.

Its threat is the current economy in 2009.

Louise Vuitton: Louise Vuitton in one of the most famous luxury brands out there. Its most important

customers are celebrities, who have the disposable income to buy their products and help the company to keep

its exclusive image. Louise Vuitton is most famous for its handbags. It also makes hats and caps in the two-

hundred-forty to three-hundred dollar range. In early 2000 it had started to enter the apparel market buying

other brands such as Donna Karan. It even now owns Dom Perignon. Louis Vuitton now produces wines and

spirits, fashion, leather goods, perfumes, cosmetics watches and jewelry.

The company’s strength is its brand name and its diversity of products. Its weakness is that it does have low

returns and slow revenue growth (Wall Street Journal). In my personal opinion, Louis Vuitton’s biggest threat

is its own success. The brand is widely popular with more counterfeits in the markets than the real thing. My

own experience is that I automatically assume that every Louis Vuitton bag I see is a knock off. While I would

like to have faith in the products I see, when I’m watching the checker at Safeway get off work with her Louis

Vuitton handbag and lights up a cigarette while she waits for the bus, I pause to wonder.

Gucci: Gucci is one of the most famous luxury brands in the industry. It also has one of the highest margins in

the industry next to Coach. Its operating margin is at 12.02% and its net profit margin is 8.91%.

The company is famous for its fashion and leather goods. It is considered to be one of the most prestigious of

brands. The company was created in 1921 by Guccio Gucci and is now owned by Pinault-Printemps-Redoute.

(Pinault-Printemps-Redoute also owns Yves Saint Laurent, Sergio Rossi, Boucheron, Bottega Veneta, Bédat &

Co, Alexander McQueen, Stella McCartney, and Balenciaga.) Gucci earned 7.7 Billion dollars in 2007. That is

only second to Louise Vuitton, though Gucci is the world leader in Italian goods. (Business Week) Like

Louise Vuitton, Gucci is often associated with celebrities, movies and music. (Yet personally, I do not see as

many individuals (on Muni) with Gucci bags and the brand in my opinion, has not been diluted by fakes to the

extent that Louise Vuitton has.)

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FIGURE 9 PRODUCT POSITIONING

F. Differentiation from competitors: Salvador Mascareñas will be differentiated from its competitors in

several different ways.

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Salvador Mascarenas Saks

Nordstrom’s

Men’s Warehouse

Gucci

Low Product Offerings --------------------_High Product Offerings

High Q

uality------------------------Low Q

uality

KAY MILES

1. Salvador Mascareñas will be known as the place to go for couture men’s hat that will perfectly fit a

customer’s head and be designed to their personal taste. In addition, Salvador Mascareñas will be the

place to go for couture belts, jewelry and other accessories. Our couture and made to measure hats will

be designed with the use of a conformateur. An old fashioned device from the 1840’s, a conformateur

is still the most accurate way to measure the shape of the customers head, not just their hat size. This

ensures a perfect fit.

PHOTO 1 USED WITH PERMISION OF SCOTT FARRELL - ALL RIGHTS RESERVED

2. Salvador Mascareñas will be known for its luxury belts that can range up to $20,000 USD retail.

3. Salvador Mascareñas will be known to the Latino and Asian community for its designs that reflect their

heritage.

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G. Salvador Mascareñas in addition will sell its own line of body and feet lotions.

H. SWOT and Porter’s Five Analysis

Salvador Mascareñas has the competitive advantage over new entrants in that its founding members are already

experienced in locating suppliers and designers. This has allowed us to keep research and development costs

down and to be able to produce a product at a much lower price. In addition, the most expensive production

costs for us are variable costs, ensuring that we can weather periods of poor sales.

For now our largest weakness is that we are a new entrant in the market and have not created a buzz or brand

recognition for our products. However, there are many opportunities, and in some sense, that weakness can be

turned into a strength. As uniqueness and rareness are values in the luxury goods industry, being known as an

up and coming artist can be used as an advantage. In addition, emerging markets are hungry for luxury goods

and there is room for new brands; as these new markets represent a more level playing field for those starting to

enter. Emerging economies have fresher eyes and each brand will have to re-prove themselves to consumers.

The largest threat is that as Salvador Mascareñas becomes more recognized, the threat of copy-cats is a very

real possibility. A possible solution to this is to provide each piece with a serial number that consumers can

verify on-line if the number is valid. Even if all copy-cats could be prevented, another competitor could create

a similar product. For this reason, it is important that Salvador Mascareñas diversify its products as soon as

possible.

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Figure 10: Salvador Mascarenas SWOT ANALYSES: Overview of the Company’s Strengths, Weaknesses,

Opportunities and Threats.

Figure 11 Porter's Five Force Analysis

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I. Optimal Positioning: The optimal positioning for Salvador Mascareñas is to position the goods as ‘works

of art’ for self expression. These goods are not merely accessories but rather extensions of people’s

personalities. Each product is unique, just like our customers.

J. 2009 is an excellent time to start a business; since so many retail stores are going out of business. This is

the time to take advantage of the opportunity to buy necessary equipment, fixtures and to obtain leases at

slashed prices. In addition, it is proper timing to be ready for the economic recovery to take advantage of

pent up demand and to enter the market before possible competitors do. Just like the number of men’s

accessories producers almost doubled from 2002 to 2004 (before declining back to 2002 numbers due to the

economic decline), the numbers are sure to rise again in 2010.

V. Entry Strategy Analysis

A. Summary

The launch of Salvador Mascareñas will be the most difficult and risky times of the business. For this

reason, we have worked to identify the least risky ways to start; including taking advantage of various local

and state programs to reduce costs.

B. Entry Strategy Identification

1. Salvador Mascareñas will enter the market through differentiation. Our company will be known for

focusing solely on exclusive or rare male accessories. We will market ourselves as the one place to

meet all of a man’s luxury accessories needs. Unlike, designers such as Kay Miles which also offers

a eighteen-thousand dollar platinum belt, we will also offer other accessories (rather than one sole

product) such as couture hats, jewelry, and even organic feet and body lotions. These lotions are

created by the Bay Area local producer, Julian Villanueva, and will be marketed under the Salvador

Mascareñas brand. I’ve personally used these products and tested them on friends. These creams

hydrated and softened even the roughest of feet throughout the day and I currently send products to

friends out of the country since they are not able to find products of the same quality in their local

community. With this in mind, we will also offer one of a kind platinum and silver shave kits. Our

store will be a men’s-man store which will allow them to explore their creative side in a masculine

environment. Women of course will also be welcome to purchase and wear our products as well.

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C. Pricing and Location Entry Strategy

1. Salvador Mascareñas will enter the market using a two-prong pricing strategy. For our first target

customer, we will use luxury pricing for our customers earning $250,000 or more per year. Luxury

pricing will be used to aid the perception of exclusivity and our luxury priced items will be unique,

only available in one store, in one city or made to order via stores or the web. Tight control will be

kept over the distribution of our luxury products. For our second target customer, we will use

premium pricing. Premium pricing is paying for top quality while luxury pricing is paying

exclusivity. Our second pricing strategy will cater to the aspirational shopper who wishes to belong

to the exclusive group.

The justification for the two-prong pricing strategy is to one, attract a wealthy customer base and

two attract a broader customer base. Having a broader secondary market (premium pricing) would

help should sales from the luxury market not meet expectations. We feel this would not be a dilution

of our brand image due to the fact that each couture hat we produce is still exclusive to the customer

that purchases it and our premium priced belts would still be made of sterling silver. Unlike a

designer producing a pair of jeans or bag for a lower-end consumer, we would make no sacrifices in

the quality of the materials or quality of craftsmanship. The difference would be either a one of a

kind platinum belt, or a limited edition of sterling silver belts. Our hats and other products, ranging

from the $250 - $750 range would remain the same for both consumers, never sacrificing in quality

or in flawless service.

2. Our initial market penetration could take one of three forms, which the advantages and

disadvantages of each will be discussed and the final decision. All three options will include

establishing an online presence and a physical location in San Francisco. The reasons for locating in

San Francisco, rather than the fashion hubs of New York and Los Angeles are that 1.) San Francisco

is the gay capital of the United States and also our first target customers. Gay men have been

fashion trendsetters and are the first buyers (Who will pay first.) of our product (Appendix A). In

addition, San Francisco is highly concentrated city and the main activities highly centralized. The

gay community in this city is highly connected with often only one degree of separation while rest of

the nation has up to six degrees of separation. The straight community here is highly connected as

well. This will contribute to world of mouth and creating a buzz. Likewise, there are many

individuals here that also do business, live and play in Los Angeles and this will help to spread the Page 24 of 85

word there as well. One might ask, “Why not the other way around from Los Angeles to San

Francisco?” The reason being is that San Franciscans are fashion wise much more conservative than

Los Angeles. A new fashion trend originating in Los Angeles may not as accepted in San Francisco.

However, a trend originating in San Francisco will be viewed by San Franciscans as more down to

earth and belonging to them. Starting in San Francisco, then Los Angeles, it will then be easier both

marketing wise and financially to move in New York City and other locations in the word.

a. Our first option is to establish an online presence and to open our first boutique store in San

Francisco’s Union Square or the immediate area. The store window must be large and easily

visible to traffic and pedestrians. The advantage of this is that having a store front in Union

Square will provide ample advertising via our store window to both the local community and

tourists and will help spread the word not just here in California but overseas as well. Having

a storefront will encourage the public to wander in, browse and become familiar with our

designs. In addition, having our own boutique store will help lend legitimacy to our brand

image. The disadvantages are the expense to own and operate a store and the commitment to

a leasing contract.

b. A second option would be renting retail space from a high-end department store such as

Nordstrom’s. The advantages of this could be lower costs, however this is not guaranteed.

Obtaining a place in high-end department stores can be very political. Even if obtained, we

would be liable for all renovations, overhead; a lower rent is not guaranteed and may have to

pay a share of sales. In addition, even department stores such as Nordstrom have experienced

a decline in sales during these poor economic times. Another downside is that by having a

section in a department store with wide open space, it would be more difficult to have

adequate store security, prevent merchandise from passing the point of sale, since they have

more than one avenue of exit and providing our customers with privacy.

c. A third option would be to lease retail space in one of the local four to five star hotels. The

advantage of this would be possible lower rental costs and access to wealthy customers who

are either on business or vacation and looking to spend. Also, the association of the brand

image of a four to five star hotel would aid in the prestige of the brand image of Salvador

Mascareñas. In addition, travelers in the hotel will have the opportunity to spread the word

of our products when they return to their home. The disadvantage is that we may not reach

the local community and are at the whim of the business fluxuations and the amount of

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travelers’ bookings in the hotel. Like a department store, a lower fixed cost structure is again

is not guaranteed and we may be responsible for additional costs and turning over a

percentage of our sales.

d. The fourth option would to be a web-based only operation.

e. Final Decision: The final decision is to start off as a web-based operation. When sales are

high enough and we have proved the concept, then at that time we will open our first store.

We will acquire small retail space near, but not in Union Square. This option will give us the

maximum control over the store space and the appearance, and incur lower rental fees than

available in Union Square. In addition, having a store front on the street level will give more

advertising exposure than a presence in a high-end department store.

In 2008, the vacancy rate in Union Square was eight percent. Now, in 2009 it is at fourteen

percent. However, Landlords in Union Square are choosing to wait out the recession, rather

than give deal to prospect tenants. Currently, rates are still going for an average of three-

hundred dollars per square foot. When deals are struck, they often involve pop up leases (SF

Business Times). Pop up lease or temporary leases are becoming available, however the

term would need to be for at least two years. While that is enough time to test the store in

Union Square, and earn enough revenue to compensate for remodeling and moving expenses

in the future, the high cost presents more risk. Even if available, there are better

opportunities near Union Square, particularly Bush St. that is currently experiencing a high

vacancy rate (SF Business Times).

D. Additional benefits of San Francisco and the Union Square Area

Union Square and the surrounding area in San Francisco is part of the city and the State’s ‘Enterprise

Zone’ and is eligible for benefits and services from both programs. While some feared that these tax

incentives might be cut due to the current State budget crisis, the cuts were tabled (SF Business Times)

Per the San Francisco Incentive fact sheet – (Appendix G)

“Hiring Tax Credit: Employers can claim more than $37,000 in state income tax credits over a

five-year period when they hire qualified employees. An employee can qualify under any one of

thirteen different categories.

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Sales or Use Tax Credit: Business in the EZ can receive a state income tax credit on the

amount of sales or use tax paid on qualified machinery, including data

processing/communications equipment including computers, telephone systems, fax machines

and copiers. This credit is good for the sales or use tax paid or incurred to purchases up to

twenty million dollars in equipment per year.

Business Expense Deduction: Businesses in the EZ can deduct the cost of qualified property

purchased for exclusive use in the EZ as a business expense in the first year it is placed in

service.

Net Operating Loss Carryover: Businesses in the EZ can carryover one-hundred percent of

their losses from business activity until exhausted or for a period not to exceed fifteen years.

Net Interest Deduction for Lenders: Lenders can deduct from net income the interest earned

on a loan made to any business located solely in the EZ.

Unused Tax Credits: Businesses can apply unused tax credit to future tax years.

In addition to these benefits, the City of San Francisco will free of charge a) assist in locating a suitable

place for our business b) assist in recruiting eligible employees c) provide technical training including

human resource training and addition offer payroll tax credit and other incentives. These incentives will

assist with the startup of the business, obtain loans if necessary and significantly lower operating costs for

the first five years of business as well as provide other benefits for up to fifteen years.

E. Impact on Environment

Salvador Mascareñas is conscious of the importance of its role in maintaining a safe and green

environment. To help limit our carbon footprint in creating our business, we will make every

attempt to use existing and used fixtures when possible to prevent the production of new green house

gases associated with new products. This also includes vehicles and office equipment when

possible. We will purchase energy efficient equipment and use power save modes. In addition, we

will make every attempt to use software with efficient algorithms. (Computers use energy with every

calculation they perform. The more efficient the algorithm is, the fewer calculations there are to be

performed and therefore less energy is used.) In addition, we will use cloud computing services to

avoid the purchase of unnecessary hardware. These strategies will not only produce less greenhouse

gases, but will provide cost savings for the company as well. Page 27 of 85

We will use recycled materials, including paper when applicable. However, being a provider of

luxury goods, presentation is critical to our success. This includes items such as letterhead, tissues,

boxes and wrapping paper. Due to the high quality of materials needed, recycled paper goods may

not always be an option. To counter this waste, we will include a small note on our receipts to

please recycle and will donate to have trees planted. Currently as a student, I donate to the American

Forestry Society one dollar that will plant one tree for every book I purchase. This relatively small

donation helps to offset carbon emission and contributes to sustainable forestry. For our company,

this would translate into a nominal amount, ranging from fifty to one hundred dollars per month.

Likewise, due to the need for presentation, energy efficient lighting may not always be appropriate.

In addition to donating to the American Forestry Society, Salvador Mascareñas will participate in

PGE’s Climate Smart program. This inexpensive program supports several initiatives to prevent and

slow global warming. The cost is a donation of less than one percent of the total electric bill and is

calculated to negate one hundred percent of the carbon emissions created by the customer’s

electricity usage. An electric bill of fifty dollars would have a donation of fifty cents added to the

total and is tax deductable. (PGE)

For our employees, we will use direct deposit and will use a payroll service that makes all paystubs,

w2’s, timesheet and other communications available on line, rather than use paper goods. Salvador

Mascareñas will make every effort to be a green business and to be able to provide evidence of this

when required to the public.

F. Ethical/Social Responsibility Issues

The gay community will be our first target consumer. With this in mind, it is important that Salvador

Mascareñas supports this community and other human causes by supporting political equality, local

programs that provide health and legal services, and organizations that promote civil liberty and equality

for all.

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VI. Marketing Tactical Plan

A. Summary

We have researched multiple ways of reaching our target consumers and have discovered that there are

much less costly ways of reaching our customers than print advertising.

B. Photos

All Photo’s and images in this report are the property of Salvador Mascareñas. No images may be reproduced,

copy or distributed without express permission. Express permission is giving to Seth Breedlove and Prof.

Connie Gaglio of San Francisco State University for educational purposes only.

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.5 License.

The collection below is designed by Salvador Mascareñas and is representative of our premium lines, made

with Italian leather and sterling silver handcrafted in India.

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PHOTO 2 COLECTION DE SALVADOR MASCAREÑAS

PHOTO 3 COLLECTION DE SALVADOR MASCAREÑAS

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PHOTO 4 & 5 COLECTION DE SALVADOR MASCAREÑAS

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PHOTOS 6, 7 & 8 COLECTION DE SALVADOR MASCAREÑAS

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PHOTOS 9 & 10 COLECTION DE SALVADOR MASCAREÑAS

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PHOTOS 11, 12 & 13 COLECTION DE SALVADOR MASCAREÑAS

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PHOTOS 14, 15 & 16 COLECTION DE SALVADOR MASCAREÑAS

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PHOTOS 17 & 18 COLECCION DE SALVADOR MASCAREÑAS

THIS WORK IS LICENSED UNDER A CREATIVE COMMONS ATTRIBUTION-NONCOMMERCIAL-NODERIVS 2.5

LICENSE .

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PHOTOS 19 & 20 COLECCION DE SALVADOR

FIGURE 12 COLECCION DE SALVADOR BUSINESSES TO CONSUMER PRICINGPage 37 of 85

Business to Business (Retailer) pricing would vary upon negotiations. A guideline is for an item that cost us

thirty-dollars to be produced, would be sold to a retailer for ninety-dollars and then priced for a consumer

between two-hundred-twenty to two-hundred-fifty dollars. Purchase Orders would require a fifty percent

deposit and a lead-time of sixty to ninety days.

C. Promotion

1. Message to target consumer

Salvador Mascareñas represents a lifestyle. Wearing our objects of beauty reflects our customer’s

style, status and social well-being. Customers will derive pleasure from the purchase experience and

owning our products. Salvador Mascareñas will provide our customers with a lifetime of customer

service, repair and/or replacement of an item for a fee with the purchase of a product. Whether a

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customer purchases a one of a kind piece of art or limited edition, they are welcoming a treasure into

their lives that will be loved for life times.

2. Message Placement to reach target consumer

We will work with local fashion magazines such as 7X7 and 944 to hold private parties in our store

with their readers that match our target demographics. 7X7 reaches eighteen thousand affluent male

& female subscribers per issue and forty-four thousand readers in the bay area (7X7). We will also

include local readers for national magazines such as GQ, Esquire, Men’s Vogue, Detail Magazine

and Fantastic Man Magazine.

Salvador Mascareñas will advertise online and in limited amount in print with 7X7, Menstyle.com

(the online site for GQ and Details) and with Esquire. Rates for one full page add in Esquire starts at

one-hundred-three-thousand dollars (Appendix E). Due to the high cost of print advertising, we will

seek print advertising with magazines that have a long life after publication. The reason why

advertising in a magazine such as Esquire is justified is a) Esquire reaches our target customer

directly. b) advertising is a world-wide recognized magazine will assist in building an instant global

brand image c) due to the pricing of our luxury items (~ fifteen-thousand USD), a handful of sales

will offset the cost of advertising and d) consumers that purchase luxury goods on web, will only do

so if the feel secure and familiar with the brand (See section VII Future Trends) and e) Esquire and

similar magazines can have a life of years after initial publication, finding their way into salons,

doctor’s offices and being read countless of time.

Both magazines have demographics and psycho-graphics that fit the target market for Salvador

Mascareñas. The print pricing is of course more costly.  Their on-line pricing is much more

reasonable for the number of impressions provided and presents much less risks. For example they

sell a package of fifty-thousand impressions for five-hundred dollars, or only once cent per

impression. A few sales could easily make up for online pricing costs. 7X7's rates are less than 944's

(See Appendix E for 7X7, 944’s Media kit may be viewed on line at http://944links.com/mediakit).

Either magazine would be a good experiment in advertising with little risk. Additionally, Microsoft's

new search engine www.bing.com is another reasonable alternative. While their market share is

much less than Google, browsers on bing.com represent a much higher percentage of serious buyers,

rather than window shoppers on Google. Additionally, the demographics for www.bing.com

represent a higher income and educated user.  The min cost for bing.com starts out at five dollars per

month, then depending on the key word used by the consumer, each hit would range from thirty-nine Page 39 of 85

cents to fifty-six cents for each time they clicked on an add. The nice thing is that a spending limit

may be set so that advertising budget is not gone over.  For example, a budget as little as one-

hundred dollars could be set. Another big plus is that as of July 29th, 2009 an agreement between

Microsoft and Yahoo has been met that increases their market share substantially, making them a

large second place to Google rather than a small second and third. Bing.com also allows for ads to be

targeted and limited to chosen geographic areas and has other options as well.

Salvador Mascareñas will seek to be included in GQ’s one-hundred best stores for men. (Five are in

San Francisco also indicating that San Francisco is an ideal location to launch)

Salvador Mascareñas will also negotiate to have its own designs sold in Nordstrom & Saks. (But will

not seek to have our own retail space in their stores.)

We will also seek to build relationship with stylists in Los Angeles, San Francisco and New York

City to gain exposure in film and video. Product placements will also be negotiated with actors and

singers to gain additional exposure.

In addition to advertising, Salvador Mascareñas will use public records to a) locate old and new

home sales registered to two males and b) male domestic partner registrations to directly market to

affluent gay males across the nation.

3. Frequency Penetration

Advertising in magazines such as Esquire will at first at most be twice a year. Sales must be

measured and the response (such as consumer questions) high enough to justify the high costs.

However, this will take an effort to truly measure, such as surveys asking where customers heard of

us, using technology to determine the general location of customers viewing our website via the web

and the total dollar amount of sales. Local advertising will be continuous via our store front window

and ad placements in local fashion magazines and outside placements in Union Square.

4. Website

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Our website is completed and will be available for viewing shortly. Salvador Mascareñas’ website is

currently registered at www.salvadormascarens.com.

We’ve kept our costs down by doing our own photography. Salvador Mascareñas is our model and

by doing our own digital photography, the only cost for the photography was in our time and labor.

The site design was designed by Smooches Inc. At this time, we wanted to keep the site simple. The

site was created with the retailer in mind and not as a point of sale for consumers. No pricing is

included at this time or other features. The cost to create the site was one-thousand-five-hundred

dollars. Site maintenance is approximately one-hundred-twelve dollars per year.

Before advertising on Bing, some minor modifications would need to be done to the website, for

example the landing page would have to be all in English (Collection rather than Coleccion).

However, that is easily solved by having an option to view or enter the site in English or Spanish. 

Plus more information about the collection and what benefits are offered should be on the landing

page.  Additionally, it would be good to have some sort of social cause on the site.  It is very

important to have a sustainable business policy.

After testing the website, we learned additional modification need to be made.

The site should be using the latest version of Flash and updated as new versions come out. A

link or notice that Flash is used with a link for a Flash download should be on the site.

Site should have two versions, a Flash and HTML for those without flash or a slower connection.

Navigation bars best on the left side or top. People look at the top.

About Bar: The about bar should also be on left side or top. It is preferred that some type of

statement is on the landing page.

Contact Bar: This should be in two places, on the navigation bar and on the bottom. People look

on the bottom.

Email Addresses: Email addresses such as yahoo, hotmail are not professional. If even one

buyer is turned off by that, it could be a loss of hundreds of dollars. It is preferred to have a

contact window, where the user enters in their email address with a message and clicks to send.

That way changes in our email address and other issues can be avoided.

Easier Navigation: The user should be able to click on other product lines without closing other

windows with out

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Multiple languages: Make the site accessible to global users searching with keywords in foreign

languages.

Sustainable Business/Corporate Social Responsibility: Consumers are growing savvier and more

concerned with environmental and human issues. Leather production for example is highly

toxic.

Some of the text on the site is misaligned and unreadable.

5. First Production Run

Our first production run for the purpose of sample products and promotion material is completed and

these costs are now sunken costs. Like the initial costs of the website, these are not future costs and

not included in our future startup costs.

D. Distribution Channels and Penetration Strategy

1. The leather for our products is manufactured in Italy. No other country currently has the appeal of

Italian leather. Italian leather dominates the fashion and automotive industry and is associated with

quality, fashion and good taste. Our consumers benefit by having the made in Italy tag on their

products and the knowledge that it is the best leather in the world. Salvador Mascareñas will be

using Faeda Coneria, located in Chiampo, Italy (www.faeda.com). The benefit of using this

company is their research team that travels the world and attends trades shows to adapt to seasons

trends. This is important because we as a new business may not always be available to attend trade

and fashions shows all over the world. This will benefit our customers by being able to provide

them with a wide array of options to suit their particular style. The costs for leather will vary greatly

according to the type of product (i.e. belt, bag etc) and the leather chosen. A belt’s cost will range

from fifteen to twenty-five U.S. dollars per strap.

The silver and platinum parts of our accessories will be produced in India in order to take advantage

of the highly skilled labor and lower labor costs. The total labor costs are determined by how long it

takes to create each piece and how much handwork is required for each piece. So costs for each

piece varies tremendously. It takes a very skilled artisan to be able to create these pieces. Silver and

platinum is priced in India at the going daily market rate per (Troy) ounce, fluxuating broadly. The

pieces are made from solid silver, not silver plate and platinum pieces are ninety-five percent

platinum. So each piece requires a tremendous amount of silver or platinum and highly skilled

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labor. (See report, doing business in India) To take advantages of the growing Latin luxury

consumer segment, we did attempt to work with suppliers in Mexico. While the costs were similar,

the quality of work by the Indian silver experts was far superior to those we found in Mexico.

A couture hats millinery at this time has not been agreed upon. However, there is a wide range of

options. Our first option is to contract with O’Farrell Hat Co. in Santa Fe, New Mexico. Scott

Farrell has decades of personal experience creating hats with the use of a conformateur and uses the

highest quality materials necessary for our success.

2. We will be using UPS as our logistical service provider to ship our products both domestically and

internationally. From personal experience, we have experienced better service from UPS than from

other providers. UPS also provides warehouse management and order fulfillment services that may

aid our company as it grows. (Another option would be the Kenco group.) However, due to our

small size, our company, for now, benefits from skipping the middle men and use the provider for

shipping only. Since every individual has their own preferences, as a service to our customers, we

will upon their request, use any provider that they may choose if available.

3. For the first few years we expect the majority of our sales to be in the U.S. When necessary, we will

enlist the aid of customs brokers to arrange clearance of products through customs. In addition we

will use foreign distributers, agents, and manufacturer’s representatives to handle marketing

functions such as sales, promotion and after sales service on behalf of our company. This will be

important as we branch into countries where we lack experience with the culture, political issues and

ways of doing business.

E. Pricing

See Section VIII. Entry Strategy Analysis part C

F. The Deliberate Mistake:

Our deliberate mistake upon opening a store in San Francisco will to be advertising on websites such as

http://sf.ruggedelegance.com. This website provides the service of locating luxury items with in San Francisco.

G. Justification of Marketing Tactics

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It is important that Salvador Mascareñas quickly establish itself not only as a luxury brand, but a global luxury

brand. Advertising in magazines such as 7X7, also where Wilkes Bashford advertises, will help us reach our

target audience in San Francisco. 7X7 claims it makes over one-million impressions per month and its readers

fit the following criteria (See Appendix E).

Trendsetters

25% spend $5,000+/year on apparel

60% spend $100+/month on personal care

Purchase Power

Avg. HHI: 152k

Jetsetters

90% travel 1-4 times/month

60% research/plan travel online

Educated

57% have a bachelor’s degree

37% have a graduate degree

90% of their readership is in San Francisco

Reaching a consumer that is affluent and travels often will help to promote our product in other locations than

San Francisco.

Just as 7X7 will help us reach our luxury consumers, 944 will help us reach our aspiring consumers. These

readers, as stated by 944 magazine, are younger, ages twenty-one to thirty-eight, have an average income of

$87,268, interested in staying on top of the latest fashion trends and sixty-six percent make purchases based on

seeing it published in 944. 944 readers fit the following psychographics:

74% wear designer labels

78% of females purchase a new handbag each season

68% drive a foreign car

63% are single

60% dine out 10 times or more per month

71% order drinks by brand name

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84% are credit card users

85% thrive on physical activity

50% attend sports events

TV vs. the Internet

A February 2007 study conducted by Accenture and UCLA’s business school found that less

and less people are watching TV at night and spending more time online. By 2010, 48% of

consumers will obtain their media online — be it streaming television shows or movies,

reading e-magazines and newspapers, or listening to music.

Online Shopping

63% of men and 48% of women use 944.com as their primary source of lifestyle,

entertainment and shopping information.

Bars/Clubs

81% of 944.com members entertain at clubs and bars more than four times per month.

42.6% dine out 1 – 2 times per week

41.9% dine out 3 – 4 times per week

Travel

59% of consumers travel three to four times each year.

Of those, 33% plan their travel online.

944.com Members Who Have Traveled to Las Vegas, Los Angeles, Miami, New York or

Phoenix in the Past Six Months

6% none

41% 1-3 times

27% 4-6 times

26% 7+ times

Likewise, the magazine Esquire reaches our target consumer, well educated, affluent men. The

magazine has a paid readership of over seven-hundred-thousand and their website has over twelve-

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million unique users per month (Appendix E). In addition, there readership numbers are the highest in

the cities that we wish to target, such as San Francisco, Los Angeles, Chicago and New York.

In addition, advertising on line with Esquire will give us an instant global presence. Readers of Esquire

are affluent, well educated, well traveled and highly engaged in social activities that will help globally

spread awareness of our brand.

FIGURE 13 - SOURCE: ESQUIRE MAGAZINE

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FIGURE 14- SOURCE: ESQUIRE MAGAZINE

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FIGURE 15 - SOURCE: ESQUIRE MAGAZINE

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Advertising with these three magazines, both in hard print, online, including social events, and having our

location in Union Square in San Francisco fits our concept of being a luxury brand by advertising in luxury

magazines. It is reaching directly to our target customers and to those who will pay first. These are the

consumers that will keep Salvador Mascareñas in business as we later reach out to other market segments. In

addition, it fits our entry strategy by differentiation ourselves as a luxury brand with unique product offerings.

H. Impact on the Environment

Calculating the exact impact on the environment is not an exact science, however a few assumptions can be

made. For example, a one page ad in a magazine with a circulation of seven-hundred-thousand would be

the equivalent of seven-hundred-thousand pages. An average text-book has around four-hundred pages, so

one could assume that a one page ad in Esquire would take the same amount of paper as one-thousand-

seven-hundred-fifty text books. To replace this in the environment, Salvador Mascareñas would donate one

dollar for each equivalent book to plant the same amount of trees: i.e. one-thousand-seven-hundred-fifty

dollars to plant one-thousand-seven-hundred-fifty trees. In addition, we will donate a smaller amount and

work to promote clean water and carbon-dioxide production to erase our carbon and pollution foot prints

due to the energy used and waste materials from advertising. We will work to promote sustainable

businesses practices with those we advertise with, inquire into their policies and their estimation of the foot-

print our activities make on the environment. While it is important that we are able to reach our target

consumer, otherwise we cannot stay in business, we will make every effort to negate any effect our

advertising makes on the environment.

I. Ethical/Social Responsibility

While advertising our products, we strive to promote an image of respect and equality for all ethnic groups,

gender, and sexual orientation. We will not glamorize images of tobacco, alcohol abuse or any images that

may negatively influence a reader, especially youths.

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VII. Product/Service Tactical Plan

A. Summary

We have completed our prototypes for the first line of products and generated interest in possible

buyers.

B. Product Description

Salvador Mascareñas produces hand-made men’s accessories such as hats, belts, cuff-links, jewelry, and

lotions. These creations are constructed in leather, felt, precious metals, precious stones and other

natural materials.

C. Concept Test

We are pleased to say that response to our products has been very positive. While testing our website,

we were approached by Vivre (www.vivre.com) and currently negotiating to have our products offered

via their website.

D. Prototype

Our first line of solid silver men’s accessories has been completed (See photos 2 – 20). The prototypes,

including both Italian and Indian samples came to a cost of one-thousand-three-hundred-three dollars

and seventy-five cents. We were able to keep costs lower due to Brett Kladney’s experience and

connections; therefore being able to locate suppliers much more efficiently. We are currently designing

our first line of platinum men’s accessories. These designs are scheduled to be completed January 2010.

The costs of a platinum line are more prohibited and can be as much as seventeen-hundred dollars for

one sample. Due to the high costs, we may be limited to one prototype. Our lotions have already been

created by Julian Villanueva and it is now a matter of designing and testing the appropriate label. Since

these lotions are also hand produced, they will currently be sold only on an onsite location rather than on

the web, until another manufacture is found that can handle large scare orders. We are in negotiations

with Julian Villanueva to assist him with the production of his product, in exchange for continued low

cost procurement costs.

E. Technological RequirementsPage 50 of 85

The technological requirements to produce our products have existed for centuries and are steeped in

tradition. The obstacle in production is not being able to procure the appropriate tools, but rather

locating the artisans with the skill level to produce flawless works of art, rather than simply a leather

strap. The exception to this is the conformateur used in hat making to create a flawless fit. An eighteen

century tool, these items are no longer in production and rare to come by. They are from time to time

listed on auction sites; however to ensure that we have one for each possible store, we may have to pay

for one to be especially created for us. This could add an addition two to ten-thousand dollars in start-up

costs.

Other technological requirements needed are for our web-site for design and maintenance. These are

easily outsourced at a cost of one-hundred dollars per year.

F. Production Plan

Salvador Mascarenas has the benefit of having Brett Kladney as a founding member. His global

experience with suppliers allowed us to locate and contract with suppliers without the aid of an agent. In

addition, this has helped us to substantially keep start-up costs low by avoiding paying an agent fees or

commission.

The leather for our products is manufactured in Italy. No other country currently has the appeal of Italian

leather. Italian leather dominates the fashion and automotive industry and is associated with quality,

fashion and good taste. Our consumers benefit by having the made in Italy and the knowledge that it is

the best leather in the world. Salvador Mascareñas will be using Faeda Coneria, located in Chiampo,

Italy (www.faeda.com). The benefit of using this company is their research team that travels the world

and attends trades shows to adapt to seasons trends. This is important because we, as a new business,

may not always be available to attend trade and fashions shows all over the world. This will benefit our

customers by being able to provide them with a wide array of options to suit their particular style. The

costs for leather will vary greatly according to the type of product (i.e. belt, bag etc) and the leather

chosen. A belt’s cost will range from fifteen to twenty-five U.S. dollars per strap. Rather than handle

complete leather production, Faeda Coneria will only be responsible for the tanning of the leather. The

leather will then be shipped to India.

The silver and platinum parts of our accessories will be produced in India in order to take advantage of

the highly skilled labor and lower labor costs. As stated previously, the labor costs are determined by

how long it takes to create each piece and how much handwork is required for each piece; so costs for

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each piece varies tremendously. It takes a very skilled artisan to be able to create these pieces. Silver and

platinum is priced in India at the going daily market rate per (Troy) ounce, so it does fluctuate broadly.

The pieces are made from solid silver, not silver plate and platinum pieces are ninety-five percent

platinum. So each piece requires a tremendous amount of silver or platinum and highly skilled labor.

(See report, doing business in India) To take advantages of the growing Latin luxury consumer

segment, we did attempt to work with suppliers in Mexico. While the costs were similar, the quality of

work by the Indian silver experts was far superior to those we found in Mexico. Detail silver work is a

centuries old craft in India. While other countries are able to produce works of silver, India has a

competitive advantage in this area.

Final construction of the products will be completed in India. This is due to the lower cost of shipping

the leather to India, rather than the metal work to Italy. While we would like the leather to have the

made in Italy stamp, India is known worldwide for their jewelry work and is recognized as a luxury

producer in this category. The largest expense beyond the prototyping is the minimum order

requirement of 100 pieces. This is the largest barrier to selling directly to consumer and the large

inventory costs required to do so.

A couture hats millinery at this time has not been agreed upon. However, there is a wide range of

options. Our first option is to contract with O’Farrell Hat Co. in Santa Fe, New Mexico. Scott Farell

has decades of personal experience creating hats with the use of a conformateur and uses the highest

quality materials necessary for our success.

In addition to belts, hats and other accessories, Salvador Mascareñas will be offering a line of body

lotions created and produced by Julian Villanueva in San Mateo, CA. These lotions are made by hand

and will be distributed by Julian Villanueva and labeled and sold under the Salvador Mascareñas brand

name.

G. Packaging

Packaging design is scheduled to begin October 2009. At this time no packaging decisions have been

made.

H. Costs

As stated previously, the costs for each piece varies greatly upon the design, amount of raw materials

and labor needed for each product. The following is a guide to estimate costs for each item. Raw Page 52 of 85

material costs will vary day to day and from country to country. (The costs for lotions are in

negotiations and will be one of the last steps in production activities.)

FIGURE 16 MANUFACTURING COSTS ESTIMATES

Platinum per Troy ounce $844

Platinum per gram = 844/31.1035 = $27.14

Leather $15 per Strap

Manufacturing Per Belt $5

Average Cost per platinum belt = $1708

10 Platinum Belts 2 ounces platinum $17,080.00

Silver per ounce $18

Silver per gram = $18/0.03527396 = $0.64

Leather $15 per Strap

Average Cost per Silver Belt = $38

100 Silver Belts 2 ounces silver + $5 Manufacturing P/B $3,800

Beaver Pelts (For Hats) $100 a piece

European Hare Pelts $25

Satin (For Lining) $3

Ribbon $0.50

Porous Goat/Sheep Skin $15

Hat Band (Gold, Silver, Bead, Horsehair) $18

Manufacturing Per Hat $20

Average Cost per hat = $181.50

100 Hats $18,150.00

Average Cost of Manufacturing per Unit hat/belt/hat = $181.86

Subtotal $39,030.00

Jewelry

Silver per ounce $18

Platinum per Troy ounce $844

Diamond per carrot $1500

Labor $25

Average Cost per unit $200

50 pieces of Jewelry 10,000

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Subtotal $10,000

Wallets whole sale $75 per unit

50 Wallets $3,750

Misc Accessories $3,750

Subtotal $7,500

I. Timeline to completion

FIGURE 22 PRODUCTION LINE TIMELINE

J. Intellectual Property Protections

The fashion industry is fraught with knock offs. Limited fashion copy right protection was enacted by

the U.S. Congress in 2006 to include fashion design. Such items include:

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A. An article of men's, women's, or children's clothing, including undergarments, outerwear, gloves,

footwear, and headgear;

B. Handbags, purses, and tote bags;

C. Belts; and

D. Eyeglass frames.

Items must be registered with in three months and protection will last up to three years. If the item is not

registered, it is not protected. Even with these protections, enforcement is extremely difficult, due to the

limited time frame, effort and expense, especially if the knock-off is produced in a different country than

the original design.

K. Justification of Production Tactical Plan

It is important that the luxury items we offer are produced in areas that are both perceived as being the

hubs of fashion and have the necessary talent to create flawless accessories. This is the means in which

we may offer our customers items that are perceived as unique or for the elite and match are entry

strategy through differentiation.

L. Impact on Environment

Salvador Mascareñas is highly aware of the environmental impact of leather production. The preserving

and tanning process can produce waste that has high chrome levels, salts, acidic and alkaline liquors,

sulfide, nitrogen and chloride. The dehairing process releases hydrogen sulfide and the deliming process

releases ammonia (See Appendix F). The company Fraeda has stated that it has put forth an effort to be

environmentally responsible. Fraeda has reengineered much of its machinery to produce less pollution

and holds patents for chrome free production. Monitoring their activities from overseas will be difficult,

as with any foreign provider. However, we will tour their facility and monitor Italian local news to keep

an eye out for any possible poor practices. We have requested their company’s sustainable business

policy, yet we have as now not received a comprehensive policy. This is of concern and may later lead

to another supplier than can provide and verify this information.

The silver and platinum production poses another serious issue. Mining for these minerals can pose

serious environmental threats should an accident/spill occur. Obtaining the original source of these

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metals can be cloudy at best. More research is needed in this area so that we may have better

sustainable business practices.

M. Ethical/Social Responsibility Concerns

The production process includes the use of animal products such as leather, goat skins, beaver and rabbit

pelts. Some individuals and organizations, such as PETA, may have issue against the use of animal

products. While we do not expect an outcry since we do not sell lavish fur coats and our hats are made

from felt and not obviously a fur product, we do recognize this will be a sensitive issue.

What Salvador Mascareñas can do, is use suppliers that have an ethical treatment of animals policy.

(Though for many this will be an oxymoron; such as free-range chickens where chickens are giving

additional space and fresh air, yet still are consumed.) In addition, we can offer substitutes such as

embossed canvas to meet the needs of other consumers.

VIII. International Business Competencies Required for Implementation - Italy

Italy, while a developed economy, is still a difficult country to do business in. Italy is ranked sixty-five out of

one hundred-eighty-three countries in ease of doing business. To give some perspective, Mexico is ranked

number fifty-six, while China is ranked number eighty-three.

FIGURE 15 SOURCE: ‘DOING BUSINESS IN ITALY’

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.

FIGURE 16 DOING BUSINESS IN ITALY 2009

Most business people in Italy speak English. If we were to open a business in Italy, rather than to outsoure , top

management should be fluent in both written and spoken English and Italian as many lower-rank employees do

not speak English well (Executive Planet). Bilingual management is a necessary business componet to faciliate

communication and trust between both the U.S. and Italian units.

It also is necessary to be educated in the culture of Italy in order to do business. For example, Italians tend to

act with great formality at all times. This is known as bella figura, translated as beautiful figure. All actions

must appear to be hornable and ‘doing the right thing’. In addition, in Italy, loyality towards family and friends

come first. at all times. What other people think of you, is very important in Italian culture. It is these beliefs

that give Italians a sense of beauty and order in the world (Executive planet). All presenations, gifts etc. should

be pleasing to the eye.

Italians have a greater tolarance for power-distance than those in the U.S. and title and the chain of command

are highly respected and observed. They are open to new ideas and critisim, as long as it is not thrust upon them

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or overly blunt. Decisions making will take a long time, and is not to be rushed. Important decisions can take

up to a year. Women are treated with respect, however not necessarily with equality.

FIGURE 17: SOURCE: TROY UNIVERSITY

HTTP://SPECTRUM.TROY.EDU/~VORISM/HOFSTEDE.HTM

Individualism Italians would be much less competitive than

their U.S. counterparts

Power Distance Italians will defer to supervisors. Arriving at

decisions may take a long time.

Uncertainty Avoidance Most Individuals would put their savings in

low risk investments or bank rather than stocks

Deals that would seem risky to Salvador

Mascareñas, would certainly seem risky to

Italians.

Even when giving the opportunity to make

individual decisions, Italians will prefer to

make decisions in a group.

Assertiveness A manager that sees innovation and efficiency

may be achieved, but at the cost of laying off

employees, may remain silent

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Hofsted Score

USA Italy

Individualism – 91 18

Uncertainty - 46 85

Power - 40 60

While doing business in Italy may be easier than the BRIC nations, employing workers is not. Italy ranks far

behind most countries. Italy ranks number seventy-five out of one hundred –eightyone countries. (The U.S.A.

ranks number one) Recruiting candidates is costly. For permanent work, one must hire a worker than clasifying

them as independent contracters . (See Appendex B) Human resource recruiters must be familiar with Italy’s

culture and employement laws to ensure the employees it hires are themselves global in nature and a good fit

with the company.

FIGURE 18 SOURCE: 'DOING BUSINESS IN ITALY’

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FIGURE 19 DOING BUSINESS IN ITALY 2009

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To be successful in Italy, being adept at navigating its employment laws is essential. For example, while

layoffs are allowed in the country, a company may first have to seek approval from a third party and in addition

have to pay up to ninety-one weeks of salary per individual. Italy is not an “at will” state and its employment

laws can be burdensome. If times are tough; downsizing may not be a viable option. Additionally, unlike the

U.S., companies in Italy may have a contract employee for only up to twenty-four months. (Doing Business in

Italy)

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FIGURE 20 - SOURCE: DOING BUSINESS IN ITALY

Having staff that is skilled in dealing with the legal system is vital to protecting intellectual property and

investments. However, the Italian legal system is often a system where often only the wealthy may fully

participate. Prompt action is required as any delay in launching a lawsuit may cause it to be disregarded by the

legal system.

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FIGURE 21- SOURCE: DOING BUSINESS IN ITALY

Innovation and Leadership:

Being able to stay globally competitive as well as ensuring a successful entrance into the Italian market implies

that Salvador Mascareñas must continually plan for the future. Being aware of trends in the business,

demographic shifts; providing capital and building relationships in a changing landscape are critical aspects that

the company must continue to invest in. Investing in promoting innovation through leadership and professional

development maintains the company’s edge. That is why the company must invest in its workforce and related

programs.

IX. International Business Competencies Required for Implementation – India

After gaining independence from England, India closed itself off from rest of the world, raising high tariffs and

engaging in little trade. The result is that India’s growth; both culturally and economically had been stunted

compared to developed economies. In 1991 India had begun to liberalize its policies and allow trade, however

local communities have reacted by enacting more complicated and restrictive regulation. More recently, India

now allows foreign direct investment. This includes foreign ownership of up to fifty-one percent. However; the

total tax rate in Indian (including both local city and the central government) is extremely high, ranging from

sixty-two to seventy percent of profits. In business rankings, India still ranks very low in the ease of doing

business. In the WTO’s list of one-hundred-eighty-one business, India does not even make it on to the list. For Page 64 of 85

example, it would take a minimum of one-hundred and four days to open a business. Construction permits take

an average of two-hundred and eighty days. Enforcing contracts could cost between sixteen and thirty-five

percent of a contract’s value (Doing Business in India). Due to the very difficult nature of doing business in

India, Salvador Mascareñas will continue to outsource production in India, rather than obtain any type of

ownership. In addition, contracts will be limited in scope and in value.

Monitoring Any Future Proposed Italian Operations:

Being able to monitor the evolution of the new branch is one of the most challenging tasks for the company. In

order to ensure adequate oversight of this new endeavor, it is important that our company considers the

following:

Organizational Structure:

In the new company, headquarters will be responsible for overall global strategies, while local managers will be

responsible for marketing, sales, human resources and compliance with local laws. Furthermore, managing

directors with years of experience in the company will be the head people/person for this new geographical

location. That being said, the structure within the new branch will be divided according to product/service.

These employees will be comprised of current employees of the company, as well as new hires from the

acquisition and local market place. Having the right structure in place will facilitate monitoring activities. As

time dictates and experience and knowledge is transferred, more control will be turned over to Italian managers.

Flexibility and Adaptation:

The global economic climate has seen ups and downs in the last couple of years. In addition, due to

globalization, trends, needs and interests are constantly changing. It is important that Salvador Mascareñas is

equipped with the necessary skills to adapt to these changes, nationally, as well as internationally. These skills

are obtained by staying on top of global trends and political and cultural changes within Italy and India.

Communication:

Open, streamlined communication is essential to monitoring the new branch. Not only within the new branch,

among the different product managers, but also between the Italian office, headquarters and throughout the

entire company.

Common Goals, Values and Culture:

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Open, efficient and effective communication systems will allow for employees to all be on the “same page”

regarding goals and objectives. In addition, similar values and the overall culture within the Italian branch

should be aligned with that of the rest of the company and continually reinforced.

Measurements Tools:

A means for measuring the accomplishments of set goals and objectives is important in order to assess the

development of the new branch. Among some of the tools will be: numbers of new clients, new products,

overall revenue, new clients per product manager, etc

X. Human Resources Tactical Plan

A. Summary

Salvador Mascareñas, as a web-based only business, would not require any additional human capital or

labor at least for the first few years. If a store is opened, retail associates would be required. To operate a

store, initially three part time retail sales associates will be required at 33 hours each per week to cover

14 hours a day/7 days a week. During the holiday season, an additional temporary associate will be

required.

In the mean time, the founding members have the necessary skills to create and market the product,

without hiring an art director, market director or business development associate. Later as the business

expands however, additional help might be required and we need to be aware of the costs of hiring such

employees (Listed below).

In the mean time, we can take advantage of the City of San Francisco help through their Enterprise Zone

policies for assistance in finding lower-skilled administrative and sells help should it be required. In

addition, we may offer paid internships to MBA and art students to gain lower-cost skilled labor to assist

with special projects, designs etc.

B. Software

During the first years of our company, it is important that Salvador Mascareñas keeps software costs at

minimum, including human resource and payroll software. In addition, we need software that can grow

with us. A service such as Workday.com would be an excellent service for us. However, Workday.com

smallest clients have at least one-thousand employees. Instead, we will demo lesser known software-as-

a-service companies that are geared to small businesses of twenty-five and under. Since software can be

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an enormous expense, we want software that can grow with us as a variable cost associated with use,

rather than a large upfront cost taking up resources that may be better utilized.

C. Job Descriptions and Pay Check Estimations:

Art Director: Supervises creative design within business groups and directs and develops final visual

image that communicates the organization's marketing objectives to the consumer. Familiar with a

variety of the field's concepts, practices, and procedures. Relies on experience and judgment to plan and

accomplish goals. Performs a variety of tasks. May direct the work of others. A wide degree of

creativity and latitude is expected. Typically reports to top management.

TABLE 1: ESTIMATED PAYCHECK RESULTS FOR ART DIRECTOR AND MARKETING DIRECTOR

SOURCE: WWW.SALARY.COM – ASSUMPTIONS: EDUCATION- MASTER DEGREE, JOB LOCATION – SAN

FRANCISCO, CA

Bi-weekly Gross Pay $ 3,076.92

Federal Withholding $ 577.96

Social Security $ 190.77

Medicare $ 44.62

California $ 188.59

Calculation Based On

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Gross Pay (Annually) $ 80,000.00

Pay Frequency Bi-weekly

Federal Filing Status Single

# of Federal Exemptions 1

Additional Federal Withholding $ 0.00

State California

Exemptions 1

Filing Status Single

Additional State Withholding $ 0.00

Marketing Director: Directs and oversees an organization's marketing policies, objectives, and

initiatives. Conducts market research and develops marketing plans for specific products, services, or

business lines. Reviews changes to the marketplace and industry and adjusts marketing plan

accordingly. Requires a bachelor's degree with at least 10 years of experience in the field. Familiar with

a variety of the field's concepts, practices, and procedures. Relies on extensive experience and judgment

to plan and accomplish goals. Performs a variety of tasks. Leads and directs the work of others. A wide

degree of creativity and latitude is expected. Typically reports to top management

TABLE 2: ESTIMATED PAYCHECK RESULTS FOR MARKETING DIRECTOR –

SOURCE: SALARY.COM – ASSUMPTIONS: EDUCATION -MASTERS DEGREE, JOB Page 68 of 85

LOCATION -SAN FRANCISCO, CA

Bi-weekly Gross Pay $ 6,622.20

Federal Withholding $ 1,624.74

Social Security $ 410.58

Medicare $ 96.02

California $ 521.80

Calculation Based On

Gross Pay (Annually) $ 172,177.09

Pay Frequency Bi-weekly

Federal Filing Status Single

# of Federal Exemptions 0

Additional Federal Withholding $ 0.00

State California

Exemptions 0

Filing Status Single

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Additional State Withholding $ 0.00

Business Development Associate: Identifies and helps to develop strategic relationships with content

and technological partners. Works with marketing, sales, and product development teams to implement

business development initiatives. Requires a bachelor's degree in business, finance or marketing with 0-

3 years of experience. Familiar with standard concepts, practices, and procedures within a particular

field. Relies on experience and judgment to plan and accomplish goals. Performs a variety of tasks.

Works under general supervision.

TABLE 3 ESTIMATED PAYCHECK RESULTS - BUSINESS DEVELOPMENT

ASSOCIATE - SOURCE: SALARY.COM ASSUMPTIONS: EDUCATION - BACHELORS DEGREE,

JOB LOCATION -SAN FRANCISCO, CA

Bi-weekly Gross Pay $ 2,503.31

Federal Withholding $ 434.56

Social Security $ 155.21

Medicare $ 36.30

California $ 135.24

Calculation Based On

Gross Pay (Annually) $ 65,086.16

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Pay Frequency Bi-weekly

Federal Filing Status Single

# of Federal Exemptions 1

Additional Federal Withholding $ 0.00

State California

Exemptions 1

Filing Status Single

Additional State Withholding $ 0.00

Retail Sales Associate: The retail sales associate will be responsible for attending to customer needs, selling

products, cashiering, stocking and light cleaning. Professional dress and appearance is required. Fluent

English is necessary and bilingual is a plus. In addition the associate must be outgoing and friendly.

TABLE 4: ESTIMATED PAYCHECK RESULTS - RETAIL SALES ASSOCIATE - SOURCE: SALARY.COM

ASSUMPTIONS : EDUCATION – HIGH SCHOOL DIPLOMA - JOB LOCATION – SAN FRANCISCO, CA

Bi-weekly Gross Pay $ 1,346.15

Federal Withholding $ 177.96

Social Security $ 83.46

Medicare $ 19.52

California $ 39.22

Calculation Based On

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Gross Pay (Annually) $ 35,000.00

Pay Frequency Bi-weekly

Federal Filing Status Single

# of Federal Exemptions 0

Additional Federal Withholding $ 0.00

State California

Exemptions 0

Filing Status Single

Additional State Withholding $ 0.00

In addition to the above salary information, the employee should be motivated by commission, which will start

at 1.5%. In addition, Salvador Mascareñas is a strong believer in employee empowerment and will offer tuition

and book reimbursement up to $2000 per year. If we are not able to offer a 401k for the employee, we will

instead provide an IRA which we will deposit directly into. This IRA may not be cashed out while the employee

is active with the company.

XI. Break-Even Analysis

The average retail space in San Francisco rented for thirty-one dollars per square foot in 2006 (Biz Journal).

Due to the current poor economy, Salvador Mascareñas expects to be able to negotiate significantly less

expensive rates in the downtown location. For the sake of this analysis, will assume we are opening a 1000

square foot store at the rate of thirty-one dollars per square foot – or thirty-one thousand dollars per year.

Total Start up costs for a store and website will be three-hundred-thousand-nine-hundred-eighty-eight dollars;

with an average of sixty-thousand dollars per month operating expenses

Figure 23: 2010 Break Even Analysis - Store-Based operations Breakeven point = $121,690 per month or 189

units a month/2264 units per year. (2010-2011)

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After the first year, the new breakeven point will be one-thousand-six-hundred-seventy-five units. (2011-2012)

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FIGURE 24: 2011 BREAK EVEN ANALYSIS - STORE BASED OPERATION

Assumption: Web Based Only – Business to Consumer -Limited Product Offering (No Hats)

For a web based business the startup cost is twenty-three-thousand-one-hundred dollars, considerably less than

owning and operating a store. This assumption considers online advertising only at a cost of one-thousand

dollars a month and there is a starting inventory of one-hundred pieces. In addition, the assumption is that all

members of the founding team are not receiving compensation and keeping their regular employment.

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FIGURE 25: 2010 BREAK EVEN ANALYSIS - WEB-BASED ONLY OPERATION

Assumption with Two Founding Team Members on Salary after the First Year

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FIGURE 26: 2011 BREAK EVEN ANALYSIS – BUSINESS TO CONSUMER WEB-BASED ONLY

OPERATION

XII. Sales Forecast

Salvador Mascareñas is using a judgmental forecast vs. an evidence based forecast. This is for two reasons. The

first is that while data is available for the industry as a whole, data for one single product type is not. The

second reason is that the past five years have been filled with economic uncertainty and represent a very

unusual time in American history. For this reason, we do not believe that prior historical data is an accurate

indicator of the future in this industry. Instead, we are using a very conservative forecast of 0.5% of each target

market in each city. The information below is based on U.S. census data for men earning sixty-five-thousand

dollars per year or more in the selected cities. The following sales forecast is based on a store location opened

in San Francisco with a full product line offering.

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Assumptions: Operational Store with full product offering and web sales.

City Men Earning Units Sold

<$65,000 P/Y

San Francisco – 70,414 352 units

San Diego - 86,941 435 units

Los Angeles 158,407 792 units

New York City 409,665 2048 units

Total Market: 725,427 Total Sales – 3637 Units

Average Price per Unit $645 X 3637 units = Total Revenue - $2,345,865

- Total Cost - $1,214,120

- Gross Profit - $1,741,485

Gross Profit Margin = 74.23%

If we include our secondary markets at a conservative 0.025%

Additional Areas: Smaller Target Market – High Tourism

City Men Earning Units Sold

<$65,000 P/Y

Dallas, TX 53,707 134 units

Seattle, WA 45,274 113 units

Portland, OR 26,600 66 units

Miami, FL 9,800 24 units

Miami Beach, FL 5,637 14 units

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Fort Lauderdale 10,826 27 units

Boston, MA 32,683 82 units

Additional Market 185,527 Sales 460 Units - Additional Revenue - $296,700

Additional Cost - $96,600

Additional Gross Profit - $200,100

Gross Profit (Combined Markets) = 73.47%

Salvador Mascareñas considers these areas to be smaller markets and are not initially expected to have the same

percentage of sales as our larger target markets. This is due our initial focus on advertising and promotion in

larger urban areas.

Assumptions: Web Based Offering with Limited Product Offering (No Hats).

City Men Earning Units Sold

<$65,000 P/Y

San Francisco – 70,414 352 units

San Diego - 86,941 435 units

Los Angeles 158,407 792 units

New York City 409,665 2048 units

Total Market: 725,427 Total Sales – 3637 Units

Average Price per Unit $240 X 3637 units = Total Revenue - $872,880

- Total Cost - $138,206

- Gross Profit - $734,674

Gross Profit Margin = 84.17%

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If we include our secondary markets at a conservative 0.025%

Additional Areas: Smaller Target Market – High Tourism

City Men Earning Units Sold

<$65,000 P/Y

Dallas, TX 53,707 134 units

Seattle, WA 45,274 113 units

Portland, OR 26,600 66 units

Miami, FL 9,800 24 units

Miami Beach, FL 5,637 14 units

Fort Lauderdale 10,826 27 units

Boston, MA 32,683 82 units

Additional Market 185,527 Sales 460 Units - Additional Revenue - $110,400

Additional Cost - $17,480

Additional Gross Profit - $92,920

Gross Profit Margin (Combined Markets) = 84.17%

We expect sales in June of 2010 to initially be small and begin to rise in August due to advertising. Our

customer is an individual that socializes and will want to wear our products and parties, therefore increasing

sales through the late summer and into the holiday season. Sales are expected to peak in December for

Christmas and drop significantly in January. Afterwards, sales will pick up the spring as people dress for the

new season and also begin entertaining again.

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Additional Forecasts in Units

2010 - 2011 Sales

Forecast

June 20

July 50

August 380

September 350

October 410

November 600

December 610

January 194

February 203

March 391

April 461

May 503

Total 4,172

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FIGURE 27: SALES FORECAST CYCLE 2010

2011-2012 Sales Forecasts

As brand recognition and word of mouth grows, we expect to see a 25% sales growth in 2011-2012

2011- 2012 Sales Forecast

in units

June 238

July 343

August 475

September 438

October 513

November 750

December 763

January 243

February 254

March 489

April 576

May 629

Total 5,709

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FIGURE 28: 2011 SALES FORECAST CYCLE

2012- 2013 Sales Forecast

June 262

July 377

August 575

September 481

October 564

November 825

December 839

January 267

February 279

March 538

April 634

May 692

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Total 6332

XIII. Financial Tactical Plan

A. Summary

The major components of our web-based business have been completed. With the exception of printed

marketing materials, most of our start-up costs are now sunken funds and do not require financing. Since

our business is small, we do not wish to dilute ownership and profits by adding additional investors. When

the time is right, there are available funding available that does require the high risk of collateral.

B. Optional Financing:

The City of San Francisco offers some unique financial services to provide outside funding; should it be

necessary. The most interesting one is a program called the Opportunity Fund, which offers the Individual

Development Account (IDA), which is a matched savings plan of up to four-thousand dollars. The city’s

Opportunity Fund will match an individual’s savings, up to four-thousand dollars to achieve education

goals; own a business or even obtain citizenship.

The Opportunity Fund also offers unsecured, small business loans to first time businesses and existing

businesses. Though these loans have a high interest rate of at least thirteen percent (prime plus five percent),

they offer a good short-term solution to either start a business or to cover a situation where an owner may

need a bridge loan due to an unexpected occurrence.

      “ ♦ Loan Amounts from $1,000-$10,000 (larger loans up to $200,000 available by exception for 

          clients with existing businesses, good credit, and collateral)

       ♦ Fixed Interest Rates from 8% to Prime + 5% 

       ♦ Loan Fees of 3% or less, never up front

       ♦ Loan Terms of 1-7 years

       ♦ Little or no collateral requirements

       ♦ A simple repayment process” (SF.Gov)

Similar to the Opportunity Fund, Working Solutions has a similar program for entrepreneurs. They offer

unsecured loans of from five to twenty-five thousand dollars, at the less expensive interest rate of six

percent. More information about this program may be found at http://www.tmcworkingsolutions.org/.

Page 83 of 85

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