Market Appraisal Final

I. Introduction PantSaloon is a collaboration of ideas, talents and hard work of Business Administration majors from the University of the Philippines-Diliman. Disliking the idea of working for others on a fixed schedule, they are advocates of entrepreneurship who conceptualized their own business in order to become their own bosses. Spotting an opportunity in the nature of the Philippine retailing industry and conducting a series of strategic market skimming led to the idea of providing customized jeans for the young Filipino adult. Clothing, in recent times, has already become an expression of a lifestyle, while selfexpression is a need that the young Filipino experiences upon entering college and young adulthood. It is through dressing up, among a lot of others ways, that the young Filipino is relentless in his pursuit to find avenues in expressing his individuality. PantSaloon aims to capitalize on this and in the growing desire of people to look good without sacrificing comfort. The young adult’s lifestyle is not sedentary – as he traverses through his youth, he enters a world filled with new experiences and happenings. He makes new friends and acquaintances, and with this, experiences new joys and miseries. As his experiences increase and his network expands, his tastes and preferences evolve as well. With this knowledge, PantSaloon has decided to bank on ways by which the target market can express itself in limitless ways, given the assumed evolution of his tastes. Through customized and tailored-to-fit jeans branded under PantSaloon, the young Filipino adult has a new avenue by which he can convey his individuality. PantSaloon is a clothing boutique that adds a service dimension to the retailing of jeans through customization and tailor-fitting. By giving the customers a chance to design their jeans according to their every whim while assuring them of its perfect fit, PantSaloon will represent every young Filipino adult’s quest for self-expression, individuality, adventure and freedom.

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A. Executive Summary To fully assess the feasibility of the business idea of a customized jeans service shop for students and young adults, EALA Inc. has made two key environmental analyses:

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the macro- and microenvironment analysis. The macro-environment analysis takes into the account the political situation under the Philippine government; the economic environment, which mentioned pertinent economic indicators that are relevant to the analysis of the market and described the current economic situation in the country; the cultural environment, which took note of important socio-cultural demographics to better understand the target market; and the technological environment, which listed capabilities that the local garments industry has as of the moment. On the other hand, the micro-environmental analysis focused on the garments industry in which the group wishes to enter. The analysis discussed the developments and issues in the local garments industry. In addition, as part of the micro-environmental analysis, EALA Inc. considered the retail trade in the Philippines as well as possible competitors within the industry. There are several key players in the garment industry that are the closest competitors of PantSaloon. These are indirect competition whose brands offer ready-to-wear jeans. Among the competitors considered were: Jag, Folded & Hung, Levi’s, Lee, Guess, Penshoppe, Oxygen, and even tiangges and ukay-ukay. EALA Inc. came up with its target market by taking into consideration the number of students enrolled in the Katipunan-based academic institutions, UP-Diliman, Ateneo University and Miriam College. We also included the percentage of the youth, aged 15-24, in the communities within Katipunan Area. The figures projected through stated annual growth rates within 10 years would then be used to calculate the demand forecast of PantSaloon. Market demand refers to the amount that potential buyers from the target market would likely consume or buy from our products. PantSaloon's demand has been computed by adjusting an acceptability rate from the targeted market. Moreover, to get the monthly and annual demand, the consumption rates for both the top and bottom clothing lines were multiplied to their projected consumption rates respectively.

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PantSaloon's supply has been derived from the annual average production capacity of the garment industry for 2005.

However, to carve the proportion that would

represent our target market, the volume has been adjusted by getting the percentage of the target market. To be more distinct, the fraction of students and young adults who encountered dissatisfaction in buying their clothes was also multiplied so as to get the projected supply for the business. Reconciling both the Demand and Supply, a considerably high gap has been observed thereby giving an impression that there really is a need for the services of this new venture. Market share for PantSaloon has been estimated to be at 9.55% in the introductory phase of the business. Nevertheless, promotional activities and strategic expansion objectives would enable PantSaloon to gradually carve bigger part of the market throughout its operations. Segmenting, targeting, and positioning are critical factors in shaping the success of any business plan. In the Philippines, the market could be segmented in many ways – geographic, demographic, psychographic, and behavioral. PantSaloon segmented the market geographically according to communities, specifically the ones in the Quezon City. For demographic segmentation PantSaloon’s market will be grouped according to age, income and race. Psychographic segmentation further divides the market base into factors such as social class, lifestyle, and personality. PantSaloon is a clothing service shop specially designed for the jean design and fitting needs of (1) college students and young adults who are between the (2) age of 15 and 24 years old, (3) both men and women, particularly those who are (4) residents and/or located in institutions within Katipunan Area. PantSaloon will be established and positioned as a customized jeans maker for college students and the young adults, that offers flexible, unique and creative jeans with perfect fitting and comfort to the level of the customer's choice of fabric, cut and over-all design.

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EALA Inc. understands the problem that students and young adults face, hence, the reason of coming up with the idea of PantSaloon. Its clothing service is geared towards addressing the usual problems that stylish students and young adults always encounter.

Thus, the cuts, sizes and dimensions that shall make up the

apparels will accordingly be custom-made in order to give the target market the right fit, form, and comfort that match their body frames. Since, the world of fashion is relatively fast paced, PantSaloon has to constantly search for the latest trends on the web, magazines, and catalogues, and should also be keen in observing how prominent fashion figures project themselves through the clothes they wear.

Cleaner, discreet, and vibrant colors and shades shall

characterize the apparels that the store will offer. High quality materials similar to those used by established other jeans makers shall be utilized. EALA Inc. also plotted the different strategies with regard to the expansion of its product line throughout the life of the service shop – from introduction to maturity. As a store catered for the youth, PantSaloon is setting a middle-ranged premium on all its prices. It will be more or less at par with our potential competitors like Folded & Hung, Levi's and Jag in terms of price. In addition, PantSaloon will be located in one of the buildings in Katipunan, where target market is easily tapped. Eventually, during the maturity stage the business is planning to expand its product lines from jeans to customized jeans and jackets. EALA Inc. came up with short term and long-term promotional activities and goals to aggressively advertise the brand and its products. To begin with, good relationships with various media publications and broadcast networks shall be established. This will allow PantSaloon to increase customer awareness of its products. Eventually, the company will launch a campaign featuring a famous personality as the brand’s image model.

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II. Environmental Analysis To fully assess the feasibility of the business idea of a custom-made jeans service shop, EALA Inc. has made two key environmental analyses: macro- and microenvironment analysis. The macro-environment analysis takes into the account the political situation under the Philippine government; the economic environment, which mentioned pertinent economic indicators that are relevant to the analysis of the market and described the current economic situation in the country; the cultural environment, which took note of important socio-cultural demographics to better understand the target market; and the technological environment, which listed capabilities that the local garments industry has as of the moment. On the other hand, the micro-environmental analysis focused on the garments industry in which the group wishes to enter. The analysis discussed the developments and issues in the local garments industry. In addition, as part of the micro-environmental analysis,

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the group considered the retail trade in the Philippines as well as possible competitors within the industry. A. Macroenvironment Analysis 1. Political Environment The country is currently facing political instability, as there is a desire to change our current political system to a parliament type, thus creating a pessimistic hype for some potential long-term investors because of possible negative political issues that loom ahead, which can cause economic tribulations. Not to mention the unending corruption issues of our politicians, the alleged election fraud and corruption charges against the president and her family, the dawn of value-added tax resulting to higher prices, and the time-to-time resignation of the president’s economic team. Such political crises negatively affect the profitability of the country’s businesses due to rating outlook downgrades and higher interest rates. If debt levels continue to decrease and higher foreign reserves were maintained, there would be no major negative effect on business profitability.1 In the meantime, the country’s political crisis has brought international credit rating companies to downgrade the country’s debt payment credit ratings and also affected Asian Development Bank to threaten the country with suspension of loans if fiscal and other reforms remain stagnant if the political crisis would not be resolved. The political crisis may not just negatively affect the country’s economic performance, but may also damage the confidence of the consumers and investors as well as hinder the developments in the financial markets. Ultimately, the political crisis only serves to aggravate the country’s external

1

“Philippine Political Crisis Could Hurt Business Profitability.” [Online] Available. http://en.ce.cn/World/biz/200507/14/t20050714_4189155.shtml, July 14, 2005.

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variability to global trends such as growth moderation, rising interest rates and oil prices.2 2. Economic Environment The country is currently suffering from a weaker economic base as a direct result of the political instability, which has resulted in higher interest rates, low credit ratings, and other performance risks as the value of peso continues to grow weaker. These further on result in a steady increase in the unemployment rate of Filipinos. The lack of local job opportunities has also increased the trend of “brain drain” as more and more Filipinos seek jobs abroad. However, a robust growth in the economy is being anticipated though it would be moving at a slower pace than that achieved in the previous year. A positive outlook is also being projected from the growth in the performance of major industry

players

last

2004.

The

service

sector,

particularly

that

of

telecommunications and trade continues to lead in providing potential industry growth and development. (Cayetano: 2005) Gross National Product. As of the third quarter of last year, the Gross National Product, at Current Prices, amounted to 4,150,771 million pesos. There has been a 0.7 percent decrease in GNP, making the 2004 13.5 percent rate down to the current 12.8 percent.3 Gross Domestic Product. By the end of last year’s third quarter, Gross Domestic Product at current prices amounted to 3,836,727 million Pesos. As compared to the 14.1 percent GDP growth rate from 2004, there has been a big 3.7 percent decrease leaving 2005’s GDP down to 10.4 percent. However, it is expected to grow approximately by 5.5 percent this year. The expected growth in GDP in 2006 can be attributed to the growth in personal consumption, the

2

“Rating Firms’ Outlook on RP Turns Negative.” [Online] Available. http://www.bworld.com.ph/BW071205/topstory.php, August 2005. 3

“National Accounts Third Quarter 2005” [Online] Available. http://census.gov.ph, January 11, 2006

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recovery in government spending, and also the strong demand for export products.4 Personal Consumption Expenditure.

Personal consumption expenditure is

currently 72.9 percent of GNP, a decrease from last year’s 73 percent, experiencing an annual change of 5.8 percent. Wage Rate. Currently, the minimum wage rate in Metro Manila is currently pegged at Php 288 to Php 325 a day (eight working hours per day), the highest among the regions. However, there is an ongoing legislation in Congress to increase the minimum wages to cushion the impact of the expanded valueadded tax on workers.5 Inflation. As of the year ended 2005, Inflation rate rocketed to 7.6 percent from the previous year’s 6.0 percent - a 1.6 percent difference. The Bangko Sentral ng Pilipinas is targeting the inflation rate to average between four to five percent in 2006. The inflation forecast for the year, however, is placed at 7.5 to 8.2 percent.6 According to the BSP, there is little sign of any inflationary pressures building in the Philippine economy. The BSP Deputy Governor Diwa Guinigundo also said that the planned rise in the sales tax to 12 percent from 10 in February could cause an upward blip in inflation levels, but that would be short-lived.

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However, high oil prices will remain as the main threat to inflation this year, which have already taken some of the buoyancy out of consumer spending last year. But amidst the threats, the strong peso and easing food prices help balance inflationary risks.

4

“Selected Economic and Financial Indicators.” [Online] Available http://www.bsp.gov.ph/statistics/sefi/sefip1_files/filelist.xml, August 2005 5

“Selected Economic and Financial Indicators.” [Online] Available http://www.bsp.gov.ph/statistics/sefi/sefip1_files/filelist.xml, August 2005. 6

Gil C. Cabaccungan, Jerome Aning, “Palace: It’s Time Congress Enacted Wage Increase”[Online] Available http://news.inq7.net/nation/index.php?index=1&story_id=55347, November 3, 2005 7

“Economic Statistics.” [Online] Available http://www.philippinebusiness.com.ph/economic_stats/economy.htm, August 2005.

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Foreign Exchange Rate. As the year opened, the Peso closed at its highest for the past eight months at roughly Php 52.00 a Dollar. If the political situation slowly stabilizes, the country can experience a continuous lift in the peso. Factors that can strengthen the peso include political stability, income remittances from OFWs, inflows from portfolio investments, and proceeds from government bond sale.8 The 2006 Fiscal program assumed that the average exchange rate would settle at Php56.00 to a US Dollar, and that the benchmark 91-day Treasury bill rate would hit eight percent.

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Value-added Tax. The month of February has been welcomed with the imposition of, the new 12 percent value added tax. Moves by the government to raise the level of value added tax (VAT) from 10 percent to 12 percent would hit hardest the country's poor and its small businesses, the American Chamber of Commerce of the Philippines said. They also asserted that any increase in VAT would pose a serious burden on the country's poor and small to medium size enterprises and would also lead to greater tax avoidance. With the current minimum wage rates, it is highly doubtful if the Filipino wage earner could absorb price hikes to be triggered by the increase in VAT as well as other taxes. Employers likewise may not be prepared to incur additional expenditures particularly at this time of economic crises, concluded by the business group.10 3. Socio-Cultural Environment Population. Population in the Philippines is increasing at a 1.84% growth rate and is now currently pegged at 87.9 million Filipinos. The highest concentration of people is found in the NCR, Southern Tagalog, Central Luzon, and Western Visayas.

8

“Inflation Seen to Remain Stable”, B5 Business Section, The Philippine Daily Inquirer, January 25, 2006

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“Government Expects Billions in Savings” The Philippine Daily Inquirer. January 23, 2006

10

“Increase in VAT will hurt poor, small businesses”. [Online] Available http://www.inq7.net, January 27, 2006

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The age structure of the population is divided into three brackets. The first one is from 0-14 years old, which include 35.4% of the population. The second bracket of ages 15 to 64 comprises of 60.6% of the population. The third age bracket, which is composed of Filipinos 65 years old and above, covers only 4%. The median age for males is 21.77 years whereas for females, it is only 22.8 years. Based on the 2000 Census of Population and Housing taken by NSO, it was found that there were more men composing the population with 50.4% than women with 49.6%. From 1995 to 2000, the sex ratio was pegged at 101.4 Labor Force. The total number of individuals within working age (15 years old and over) is equivalent to 54,194,000, of which 64.8% participates in the labor force. The employment rate in the country is currently 91.7%, an increase from last year, whereas the average unemployment rate is currently 8.3%, increasing at a 0.3% rate. Almost half (49%) of the total unemployed individuals in the Philippines are aged 15-24 years old. The underemployment rate is currently 26.1%. According to the NSO’s Labor Force Survey, men and women comprise 61 and 39% of the 2002 labor force, respectively. In addition, it was found that women had a 51.7% labor participation rate while men participated in the labor force at a rate of 80.8%. The Survey also showed that, in 2002, the 89.9% of the total labor force were employed. Employment rate for women was 89.9% whereas men’s employment rate was at 89.9%. In terms of major occupation groups, majority of professionals, clerks and officials and special-interest organizations, corporate executives, managers, managing proprietors and supervisors were women. On the other hand, majority of plant and machine operators and assemblers, farmers, foresters and fishers, and tradespersons were men. In terms of major industry groups, more women belonged in the education, health and social work, and wholesale and retail trade industries while more men were found to be dominant in the construction, transportation, storage and communication, and fishing industries.

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Consumption and Expenditure. According to NSO, average income and expenditure has shown an increasing trend as of 2003. The target market of the business, which is NCR, was one of the top three regions in terms of average income. The other two were CALABARZON and Central Luzon. These top three regions posted estimates of income that were higher than the average income of 148,757 pesos in 2003. The annual average saving as of 2003 showed a downward trend. However, on the average, Filipino families in all regions earned more than they spent, as stated in NSO’s 2003 Family Income and Expenditure Survey results. In 2003, families located in NCR showed the biggest annual saving of 46,923 pesos. In 2004, personal consumption grew at a rate of 5.8% due to double-digit growth of income remittances. In the first quarter of 2005, there appeared a decrease in personal consumption expenditure, which can be attributed to higher prices of goods and services. There was a slowdown in growth for food, beverages, clothing and footwear, household furnishings, household operations, and miscellaneous expenditures as well as fuel, light and water due to low electricity consumption.

On

the

other

hand,

expenditures

on

transportation

and

communication increased due to rise in road and railway ridership and mobile phone usage. 4. Technological Environment Industrialization. The manufacturing, along with the closely associated activities in the clothing and garment production, continues to be one of the driving forces of industrialization the world over. The clothing industries have fought to maintain their share of the total value that is created throughout the series of apparel design, manufacturing and distribution. Automation. At present, technology in the garment industry here in the Philippines consists mainly of automation of the processes. These include the automated designing of the patterns as well as that of fabric laying and cutting. Electronically controlled mechanisms are also used for stitch formation and

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fabric feeding for the basic sewing machines.

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The last of the processes include

automated machines and devices for pressing the clothes. In addition, current developments in machineries include designs which enable fast adjustments of equipment from one style to another thus eliminating the non-productive handling of fabrics and garments. In the process, quality is thus being improved. 12

Other developments. The Garments and Textile Board of the Philippines has recently installed an Electronic Data Interchange (EDI) system to reduce processing time to help improve production and delivery lead-time. It allows garment manufacturers-exporters (GMEs) to transact with GTEB electronically. The costs associated with implementation of EDI include the costs for acquiring the software and the hardware themselves, training and ongoing costs such as Value-Added Network (VAN) charges, maintenance and support costs. 13

In

addition, the leading companies in the industry have started to acquire CAD/CAM techniques, Quick Response and Just in Time philosophies to allow flexible manufacturing. B. Microenvironment Analysis 1. The Garments Industry The Philippine local garment industry started as a cottage industry in the late 1940’s. The pioneers are engaged in dressmaking, tailoring as well as subcontracting activities for the Americans. The golden years of the garment industry was in the 1970’s, during which the Philippines was considered to be a nice and attractive place to buy or manufacture apparels. This continued on for about ten more years, which then catapulted many garment manufacturers as leaders in the export business. 11

Byrne, Chris. “The Impact of New Technology in the Clothing Industry: Outlook to 2000” [Paper]

12

“Clothing Engineering.” [Online] Available http://www.fs.uni-mb.si/en/study/ects/IP%20-%20Clothing%20engineering.pdf 13

“Electronic Data Interchange – A Management Overview.” [Online] Available http://66.102.7.104/search?q=cache:JAUTozWtU_4J:www.unece.org/trade/untdid/download/r1222.pdf+GTEBNet+EDI +costs+OR+fee&hl=en&client=firefox-a. August 2005

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During the 1980’s, the government implemented the structural adjustments program (SAP) as trade policies shifted from trade protectionism to trade liberalization. The program opened doors for foreign companies to increase their investments as well as encouraged the local manufacturers to tap into the potential of the industry. What made the local garment industry a viable investment for foreign companies was the high quality of the Filipino labor force – highly trainable, industrious, and highly literate. The local garment industry is currently involved in the production of men’s, women’s, children’s, and infant’s wear, gloves, undergarments, stockings and socks, neckwear and other apparel. Subcontracting activities include performing embroidery and sewing services (i.e. printing, dyeing, knitting, laundry, finishing, pattern-making and design-making). In addition, it is the country’s leading employer of the manufacturing sector, with industrial relations no longer an issue, and with minimal labor problems. Through the help of Garments/Textile Industry Tripartite Council Board, industrial relations are continuously being improved upon. The government also has provided different means to adapt to the changing HR needs of workers in the garments industry. Such actions that would help make the industry more competitive, and thus, improve the HR scenario, include productivity enhancements like skills upgrading, productivitybased wages, trade facilitation, market/product development and financing assistance.

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As of the 18th of July this year (2005), accounting for 6% of total export receipts were the articles of apparel and clothing accessories. This was the country’s second top earner which garnered almost $192.9 million in revenues or a 7.4% increase from last year’s $179.6 million. The industry for articles of apparel and clothing accessories is the country’s second biggest dollar earner albeit it experienced a decline of 4.0% in terms of 14

I-Transporte, Aletha. “IR/HR Implications in the Garments Industry.” [Online] Available www.fu-berlin.de/iira2003/papers/track_3/Workshop_3_2_Trasporte.pdf. August 2005.

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value of production index. However, it experienced a gain of 27.5% in volume net sales from last year. The improvement in the performance of garments exports can be attributed to the shift towards higher value-added items due to the improvement also in the high-end premium categories. According to Garments and Textile Exports Board (GTEB) Executive Director Serafin Juliano, the growth of the local garments industry stems from the country’s advantages and its improving competencies in moving up the value chain. Improved performance is also a result of cost-effective manufacturing and logistics systems as well as increased store sales locally made premium products. The current implementation of the quota-free scheme resulted in the shift of brand market and product mix combinations of garments exports as well as enabling the garments manufacturers to align its sourcing strategies with local capabilities, product design specifications, and consumer preferences. Despite the stiffer competition resulting from the abolition of the quota system, the local garments industry will benefit from the freedom to source with the most efficient suppliers at the lowest costs and with the shortest cycle times. 2. Other Issues Threats to the local garments industry include high power and labor costs and smuggling of imported clothes that were undervalued and can be sold at very cheap prices.

Cheap imported second-hand clothes define ukay-ukay and its

proliferation serves to damage the local garments industry that cannot compete with such low prices, and also incurs losses for the government. As of 2002, demand for ukay-ukay clothes was 4%. For 2003, we could only conclude that the demand must have risen due to higher prices of clothing. In addition, 4% of the demand also attributed to preference for foreign brands over local ones. It was said that the root of this was the inability of local manufacturers to compete with foreign brands in terms of quality. One reason for such a trend includes the inclination of local producers to set aside quality products for export while bringing poorer ones to the local market. Garment manufacturers in the country would want to take hold of the relatively higher payments foreign markets offer, as a result, more focus is thus being employed in the quality of the apparels they

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produce for exports.

In the long run, this particular action increases the

tendency for local consumers to patronize foreign brands due to the lack of quality for local brands. Another reason for the local consumers’ preference for imported used clothes is the lower price. Legally imported second-hand clothes have lower prices than local brands because of the lower labor cost and the modernized facilities that other textile and clothing manufacturing countries have.

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3. Relevant Industry Indicators Customer Price Index. The consumer price index (which is a measurement of the changes in the price level of goods and services that most people buy for their day-to-day consumption) increased from last year to 129.4 overall, gaining 9.1 points. In the National Capital Region, the consumer price index also increased to 131.4, a gain of 10.2 points, whereas for areas outside NCR, the customer price index is128.6, a gain of 8.8 points. Monthly, the consumer price index for the clothing commodity group shows an upward trend.16 Clothing Inflation Rate. The clothing inflation rate for this year is 3.6 while it was 2.7 as of last year. The clothing inflation rate experiences a year-on-year change of 0.9%.

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Bacalla, Tess B. “Gov’t Fails to Stem Flow of Smuggled Goods.” [Online] Available http://www.manilatimes.net/others/special/2004/oct/25/20041025spe1.html, October 25, 2004. 16

“Summary Inflation Report: Consumer Price Index.” [Online] Available http://www.census.gov.ph/data/pressrelease/2005/cp0506tx.html July 5, 2005.

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Philippine's Top Exports (2001-2003) Food 3%

Machinery/ Transport 4%

Coconut Products 1%

Other Products 17%

Garment and Textile 7%

Electronics 68%

Figure 1 | Philippines Top Exports (2001-2003)

Major Product Classifications. The major products produced in the local garments industries include garments, non-garments and textile products. As of March 2004, garments accounted for 88% of the product share in total exports. Non-garments, which include luggage, home textile furnishings, tents, nets, industrial clothing, has 7% of the total share. The remaining 5% share of total export sales is composed of textile products such as fabrics, yarns and fibers.17 4. Political Developments in the Garments and Textile Industry The government is working with the private sectors of the garments and textile industry in launching investment missions that would establish strategic alliances with foreign partners and attract investments in apparel, textile and production of accessories. Through the introduction of ASEAN Free Trade Agreement

and

the

World

Trade

Organization

(WTO),

opportunities

for

investments are presented as a result of tariff reduction and the phasing out of quotas with low demand as well as the growth for remaining quotas of products that are import-sensitive. Such developments would reduce the industry’s production costs and also minimize smuggling, which is one threat to the industry. 17

“The Philippine Garments and Textile Industry Profile (as of March 2004).” [.pdf file sent by Garments and Textile Export Board c/o Jennelyn Gatuz] August 2005

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To enhance investments in the industry, the government offers incentives such as income tax holidays, additional deduction for incremental labor expenses during the first five years from registration of the company, tax and duty exemption from taxes and duties on selected imported spare parts, unrestricted use of consigned equipment, employment of foreign nationals, simplified customs procedures, access to bonded manufacturing warehouses, tax credit for taxes and duties paid on raw materials used for the exported products. To improve the industrial relations in the industry, the Garments and Textile Industry Tripartite Council Board was revived to serve as a venue for resolving issues and any conflicts. Unwarranted industrial action or harassment is put off through this forum. According to Philippine Exporters Confederation, Inc. problems regarding industrial relations are very minimal within the industry through the help of the Council Board.18 5. Clothing and Footwear Retailing in the Philippines Consumer expenditure on both clothing and footwear amounts to 73.3 billion pesos in 2002.

A 12.9% increase is estimated for 2003 which will result in

spending of P82.8 billion in this sector. Spending on these items increased by 40.3% over the review period. Filipinos in general has strict fashion sense and invests much of their money on clothing and footwear. The Filipino upper and middle-income classes are known to be more fashion-conscious as compared to other Asian countries. The average purchasing power is low but the income gaps across socio-economic classes are wide which then allows the middle and upper income classes to be fashionable. Men’s wear increased by 32.8% in expenditure while the women’s and children’s wear increased by 47.2%. Men’s and boy’s wear expenditure amounted to about 28.3 billion pesos in 2002 and nearly 33.0 billion soon after, estimating around 37.6 billion pesos in the succeeding years. On the other hand, expenditure on 18

“Dressing Up For Success.” [Online] Available http://www.philexport.ph/garments.html. August 2005.

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women’s, girl’s and children’s wear amounted to 32.6 billion pesos in 2002 and increased to 36.8 billion pesos the following year.

Table 1 | Consumer Expenditure on Clothing and Footwear | 1999 - 2003 (in billion pesos)

1999

2000

2001

2002

2003

Clothing

53.3

57.1

61.2

65.6

74.4

Men's and Boy's Wear

28.3

30.7

31.6

33

37.6

Women's, Girl's and Children's Wear

25

26.4

29.6

32.6

36.8

Footwear

5.8

5.9

6.8

7.7

8.4

TOTAL

59

63

68

73.3

82.8

A total of 77 billion pesos was the total turnover of clothing and footwear retailers in 2002, which estimated a total of 86 billion pesos in 2003, an 11.7% increase. Sales in 2003 increased by 36.5% from the 1999 sales of 63 billion pesos. Clothing and footwear specialists are able to hold their ground against mixed retailers. Majority of this is ready-to-wear which is the major merchandise carried by department stores and variety stores. Since there is this perception that these merchandises, especially house brands, are mass-produced, Filipinos would usually buy from specialty shops for more choices and exclusive styles. This is because there is a clothing shop that caters to every Filipino’s taste in fashion, style and age group. Clothing and footwear specialists also abound in shopping malls and tiangges. Many of these specialists have concessions in department stores as well for these are proven venues that still attract the most people. They maintain these concessions even with their existing own separate outlets. Local shops such as Bench, Penshoppe, and Bayo are able to complete well with foreign brands such as Giordano, Gap and Guess. Flea markets also abound clothing specialists who

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has their own retail outlets at the same time. The Greenhills bargain center, which started the “tiangge” fad, has stall owners who still operate their permanent outlets at the same area. Many of them also have their branches in other shopping malls and strip malls. “Tiangges” allow them to reach to more clientele who would still prefer to shop in areas near them rather than going to their outlets. Specialists considered multiples or private retail companies operating in 10 or more branches are benefiting from the expansion of shopping malls in Metro Manila and other key areas nationwide. Sales of multiples have increased by 46.4% over the period, from 7.6 billion pesos in 1999 to 11.2 billion pesos in 2003. Multiples still remain as a minority which constitutes only 13% of the total retail sales of specialists in this sector. Many multiples enjoy success at present which all started out as independents. Small independent shops are expanding their operations through franchising or forming an informal buying group. These are areas especially those outside the Metro Manila which contributes to the increase of sales by the affiliated retailers and franchised retailers. There are still non-affiliated independents that cater to the Class CDE market and are present in areas which named stores are not able to reach. Sales of independents have increased by 35% in about five years from 55.4 billion pesos in 1999 to 74.8 billion pesos in 2003.

Table 2 | Retail Sales by Type of Outlet | % Growth (1999-2003)

1999/2003

2002/2003

Clothing and Footwear Specialists Multiples Independents

47.4 35

12 11.6

TOTAL

82.4

23.6

6. Retail Distribution Department stores and variety stores (Mixed retailers) dominate the sales of men’s and boy’s wear and children’s wear. This is because there are much fewer

20

clothing and apparel specialists who cater to their market as compared to the female wear. In this sense, women have more choices especially when it comes to apparel specialty shops. About 56.6% of the total sales of women’s and girls’ wear were sold through specialists while around 40.4% were sold through mixed retailers.19 Still, there are few clothing and footwear specialists that can be considered as multiples. They contribute to only about 10% of the total sales for this sector. This means that there is still room for a major chain to enter this retail sector which could carry the men, women and children’s merchandises.

Table 3 | Retail Distribution of Clothing/Footwear Retailer's Core Product 2003 (percentage of value)

Men's / Boy's Clothing / Footwear Specialists Multiple Affiliated Independents Department Stores Variety Stores Others TOTAL

Women's / Girls

1.5 21.9 18.9 42.0 13.5 2.2

7.6 25.3 23.7 32.3 8.1 3.0

100.0

100.0

Children's

-

Footwear

32.0 1.3 52.0 9.0 2.7

8.0 18.2 26.5 32.0 12.1 3.2

100.0

100.0

Fashion Accessories

3.8 8.7 67.0 9.5 11.0 100.0

Source: Eurominotor estimates based on DTI, trade press and industry associations

In 2002, the six leading specialist retailers (Stores Specialists, Zenco Sales, Surplus Marketing, Suyen Corp., Golden ABC, & Cinderella Marketing) were estimated to have a combined market share of 7.5% in the clothing and footwear sector. Slight increase in 2003 by 7.8% was foreseen. This is because only three of these will exceed sales by 1 billion pesos. This sector is loosely organized by mixed retailers like SM and Robinsons Department Stores. Although the market 19

Euromonitor, Retail Industry in the Philippines. 2003 p.150 Philippine Retail Association (PRA) Library

21

shares of mixed retailers and specialists are almost the same, the large number of specialists from whom customers can choose seems to prevent any major specialist from becoming dominant in the market. Table 4 | Leading Clothing and Footwear Retailers Market Shares 2002 - 2003

2002

2003

Stores Specialist

2.1

2.2

Zenco Sales

1.6

2.0

Surplus Marketing

1.4

1.4

Suyen Corp.

0.8

0.8

Golden ABC

0.8

0.8

Cinderella Marketing

0.7

0.7

Others

92.5

92.2

TOTAL

100.0

100.0

C. Porter’s Five Forces 1. Buyers Clothing is one of the three fundamental human needs. Everybody needs to buy clothing. Clothing includes wearing apparel such as shirt, pants, among others. Pants, particularly denim jeans have been termed as the most popular wearing apparel on earth.20 This clothing product is worn by almost everybody thus, considering everyone as its consumer. However, buyers usually buy in smaller quantities and do not purchase regularly. Buyers can also easily switch from one competitor to another in case of product dissatisfaction or if they just want to try other brands. Personal consumption expenditures in the Philippines have been fairly resistant to adverse changes in the past and in the current Asian crisis as well. Although spending on clothes as a percentage of income has been declining, percent total

20

A Short History of Denim [Online] Available http://www.levistrauss.com/Downloads/History-Denim.pdf

22

per capita expenditures on clothing have been increasing, representing 47 billion pesos in 1997, a growth rate of nearly 12.6 percent from 1991 to 1997.21 Jeans customization is somewhat an old concept because of the proliferation of tailoring shops. These shops cater buyers who can be dissatisfied with the jeans available in the market or who just wants to alter a jeans bought from a certain store. However, the idea of custom-fit jeans is still a fresh concept in the garments industry, particularly in the Philippines. Only few buyers, particularly those in the upper class, avail/can avail these products because of the products’ perceived high-end status and high price.

2. Suppliers Denim has always been made of cotton. Philippine raw cotton production supplies less than 3 percent of total domestic cotton requirements, thus Philippines manufacturers continue to rely on imports to meet domestic demand. The United States is likely to remain the largest supplier of combed cotton, followed by Pakistan, Australia and South Africa. With the end of the quota system for garments starting in 2005, domestic cotton consumption is forecast to decline next year. The garments and textile sector is the single largest buyer of raw cotton and the garments sector is country's second highest export earner.22 3. New Entrants Barriers to entry include global and local policies implemented in the textiles and clothing industry, capital requirements, access to distribution channels, product differentiation, and cumulative experience, among others. For instance, the World Health Organization (WHO) Agreement on Textiles and Clothing (ATC) took effect on January 1, 1995. Under its provisions, the US 21

Cotton Textile and Apparel Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html

22

Philippine Cottons and Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html

23

negotiated market access with several developing countries, including the Philippines, which are major exporters to the US market. The Philippines agreed to improve access to its market. Under this agreement the Philippines is obligated to reduce and bind tariffs, and to reduce and eliminate non tariff barriers. In line with its commitments, the Philippines have bound its textile and apparel tariffs at the following rates: 20 percent for yarn, 10-12.5 percent for man-made fibers, 30 percent for sewing thread; 30-50 percent for floor covering, and 30 percent for textile made-ups. Under its WHO obligations, the Philippine Government initiated a general tariff reduction program to reduce tariffs on raw materials to 3 percent and on finished goods to 10 percent by 2003. In January, 2004, the Government plans to introduce a uniform 5 percent tariff rate. Another instance is Value-Added Tax applied to all imports, assessed at 10 percent of the value of goods, plus duty. The Philippines is a member of ASEAN and a participant in the ASEAN Free Trade Area (AFTA). AFTA contains a preferential tariff scheme (CEPT) which requires intra-regional tariffs to be reduced to 0-5 percent by the year 2003. Textiles are on a fast-track schedule for tariff reductions to 0-5 percent by the year 2000. CEPT

also

requires

intra-regional

reduction

in

non-tariff

barriers

and

harmonization of customs procedures and product standards. The Philippine Government provides incentives to promote investment in preferred activities and geographic areas and for export. Investment incentives include: income tax holidays; tax deductions for labor expenses, infrastructure, capital equipment and spare parts, and investment in less-developed areas. On the other hand, export incentives include: exemption from advance payment of customs duties; tax credits for imported raw materials and spare parts, domestic substitution of imports, export revenue; and various exemptions for duty on imports. A variety of financing programs and guarantee schemes is available through state-sponsored institutions.23

23

Cotton Textile and Apparel Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html

24

Capital requirements include high-speed and highly-efficient sewing machines, high-quality denim fabric, among others. Human resources in the form of tailors are also essential in this business. New entrants will not find it difficult to meet distribution network requirements since there are various alternative channels for them to sell their products. New entrants can easily distribute their products without having to invest in creating new distribution networks. Product and service differentiation requires vast outlays in several stages of the value chain, most especially in advertising and promotion. Learning curve effects make a difference as companies with more experience gain advantage through having more cost-efficient manufacturing processes. 4. Substitute Products Ready-made retail products are considered substitutes for custom-made clothing. Moreover, denim pants could be replaced by shorts and skirts as bottom apparel. The denim fabric could also be replaced by other fabrics such as those used in khaki pants and slacks. 5. Industry Competitors The Philippine garment industry dates to the 1950s and the emergence of cottage-level industries that replaced homework. As the industry began exporting during the 1970s, it experienced rapid growth, growing an average of 30 percent between 1972 and 1980. The industry is at a crossroads of uncertainty regarding the effects of global trade liberalization. It is expected that the removal of quotas will cause further erosion in the industry, with only larger, well-capitalized firms able to survive.24

24

Cotton Textile and Apparel Products in Philippines [Online] Available http://www.fas.usda.gov/mos/emmarkets/reports.html

25

The garment industry is comprised of many players, both operating on a large scale and small scale basis. The industry is a growing one; exports of garments are steadily increasing too as more foreign companies continues to trust the skills of local manufacturers in producing quality garments. The local garments and textile industry is the country's consistent second top performer in terms of export revenue. The Philippines is also one of the main product suppliers for high-end clothing brands such as GAP, Old Navy, Ann Taylor, Liz Clairborne, and Polo Ralph Lauren.25 Customers are free to change their suppliers thus creating high uncertainty for competitors. In terms of origin and operating styles, competitors may range from boutiques, specialty stores, bazaars, tiangges, direct selling agents, department stores to big malls. A relatively large amount of money is tied in equipments such as high-speed sewing machines and inventories, but liquidating such assets is relatively easy. 6. Competitor Analysis While there are definitely countless jeans and pants manufacturers in the market, EALA Inc. has narrowed down its direct competitors to those that offer customized-pants service offer. Among its closest competitors are stores that promise comfortable fit and one-of-a-kind trendy designs to their final product. Indirect competitors are the makers of ready-to-wear pants that offer almost the same characteristics as described earlier.

25

Behind the Seams http://www.philippinebusiness.com.ph/archives/magazine/vol11-2004/11-/forecast.htm\

26

Figure 2 | Competitor Map

VIKTOR Jeans The business idea started three years ago, when Victorino Caluza, an aficionado of designer jeans, prompted in putting up a store that offers customized jeans in his own unit in Mega Plaza in Ortigas. “Fashion, in a way, is individualism. You want to be different. You can be trendy wearing different brands, but you know ‘marami’ kayo may-ari nun. Viktor is about good fitting jeans that makes you look and feel good. Viktor is about exclusivity,” the jeans maker points out. Men and, most especially, women have difficulty finding a pair that fits all over. An expensive pair does not guarantee the jeans will fit perfectly. Every single body is unique so it’s almost impossible to buy jeans that have the perfect combination. This is where Viktor comes in. Product and Market Strategy

27

Ino Caluza initially started with 4 collections of designs when he recently opened his store in the 4th level of Podium in Ortigas. He works on his designs periodically and offers them at the customer’s request mix of fit, cut, fabric, and all the way to other jeans elements like zipper, stitches and thread. Viktor promises to give its customers the perfect pair of jeans, as in his tagline – A good pair of Viktor can get you laid back. Customers are primarily members of the high social class society as a greater proportion of Viktor’s customers are celebrities and young professionals who are into the trendy and sophisticated themes carried by most of Viktor pants. To keep its customer go back to his shop, he offers them free alteration for fitting updates. He also keeps a database of his customers and sends them letters/notices whenever new designs are available. By yearend, the company plans to launch brand ‘Vik,’ targeting a younger market with a budget. A new store at SM’s Mall of Asia will house the new brand. Customers will have fewer choices though compared to the original Viktor series, but pay between P2,000 to P3,000 only for a pair. Toppers Haute Couture The store was established in the 70’s first promoting service to the working class. The quality of the end products made serve to be the lasting source of the business as it kept its operations through the years. Toppers showcases haute couture servicing for both men and women, ranging for ages 30 and up. Product and Market Strategy The shop offers a wide range of tailor servicing from polo, pants to suits. As what any tailor shop does, it offers their services along with a splash of fabrics and different cuts as requested by the customer.

28

While the shop is primarily for anybody who wants his clothing custom-made, but because of its store appearance, customers tend to perceive that the shop is focusing on the older market, the adult and the professionals.

Figure 3 | Toppers Haute Couture

7. Current Price Profile of Key Competitors Viktor charges its customers a range of P3,950 to P5,700 for a single pair of pants. For rush jobs, customers are charged an additional P300. The amount increases as more details are added on the design and as the fabric becomes harder to be supplied. He also specializes in offering a one-of-a-kind jean design ranging from Php7000 and up. On the other hand, the tailor shop located along Katipunan offers their custom-made pants service at the cost of Php600 a pair.

Table 5 | Competitor Strengths and Weaknesses

COMPETITORS

VIKTOR

STRENGTHS

WEAKNESSES

has developed a strong brand equity among the aficionados of designer jeans, first to offer the kind of idea in the Philippine clothing industry, offers a wide range of trendy designs to choose from, a guarantee on fit alterations

the price is way up high from the affordability of the target market, it takes seven to 10 days for a pair to be made.

29

Toppers Haute Couture

has limited design offers as the owner is traditionally oriented in tailor making, cuts affordable range of price and fit are enclosed to a range to students who want limited number only, their pants tailor-made perception that the store is focused only in the adult and professional market.

III. Target Market PantSaloon targets college students of University of the Philippines - Diliman, Ateneo de Manila University and Miriam College and residents of pre-selected communities, belonging to the 15-24 age group. This group, based on the survey conducted (See Appendix 2), are very much willing to have their jeans custom-made and are willing to pay as much as Php 1000 just to get one. This will be discussed on further in Targeting section of the study. In order to forecast the demand of our product, the size of the target market should be defined first, using the formula: TM

=

CS + (KR x AG)

Where: TM

= target market

CP

= college student population from UP, AdMU and Miriam College

KR

= residential population of pre-selected areas near Katipunan

AG

= percentage of population between 15 to 24

30

The total population from the three academic institutions, UP-Diliman, Ateneo and Miriam College, were gathered and summed up to 25,378. The group also determined the average annual growth rate of population in forecasting their population in the next ten years.

Table 6 | Population and Growth Rate of Targeted Schools

School AdMU – College Dept. Miriam College UP - Diliman TOTAL

Population 8,437 3,982 12, 959 25,378

Growth Rate 1.83% 1.22% 2.03%

On the other hand, the group has pre-determined the residential population which EALA will target according to their area of residence. This stratification has to do also with their buying power as exemplified by their resident’s ability to stay in areas with high land value. The following information pertains to the communities and their respective population that the group has qualified for PantSaloon's target market: Table 7 | Population of Targeted Locality

Locality Pansol Teacher’s Village Loyola Heights Blue Ridge A& B Xavierville White Plains TOTAL

Population 18,968 25,643 15,344 3,450 10,989 2,010 76,404

According to the 2000 Census of Population and Housing - Reports by Highly Urbanized City, 21% of the total Quezon City population is comprised of male and females aged 15-24. Thus, giving EALA a 16,045 young adult population for its target market.

This figure was adjusted for the years 2006-2016 based on the

31

National Statistic’s Office’s historical data telling that the annual population growth rate in Quezon City is 1.92% Table 8 | Projected Population for the next ten years

Y ear 2 006 2 007 2 008 2 009 2 010 2 011 2 012 2 013 2 014 2 015 2 016

Residential Population

Age Of Between 1524

Collegiate Population

Target Market

76,404

16,045

25,378

41,423

77,871

16,353

25,844

42,197

79,366

16,667

26,319

42,986

80,890

16,987

26,803

43,790

82,443

17,313

27,295

44,608

84,026

17,645

27,797

45,442

85,639

17,984

28,309

46,293

87,283

18,330

28,830

47,160

88,959

18,681

29,361

48,042

90,667

19,040

29,902

48,942

92,408

19,406

30,453

49,859

A. Market Demand and Demand Forecast Market demand refers to the amount (in units/peso) that potential buyers from the target market would likely consume or render our service. It represents the projected market share of PantSaloon based on the estimated acceptability rate of the product to the target market. Hence the formula used to calculate the market demand is: MD

=

AMAR

x

TM

x

CR

Where:

32

MD AMAR

= =

market demand adjusted market acceptability rate

TM

=

target market

CR

=

consumption rate

AMAR is computed by: AMAR

=

MAR

x

Conservative rate

Where: MAR

=

number of willing buyers / sample size

The Market Acceptability Rate (MAR) is reflected in the survey results where 81.91% answered yes to the question of whether or not they are willing to have their pants custom-made (see Appendix). Conservative rate of 95% was used to accommodate a 5% sampling error. However, it is not safe to assume that the MAR result would actually buy the products. Table 3.2 presents the computation for market demand for pants using an annual consumption rate of 4. The consumption rate figure was based from the professional opinion of the owner/manager of Viktor Jeans. To further substantiate this claim, EALA conducted a convenient sampling of 50 individuals within the target market through a phone interview. Results showed that young adults and students usually buy 4 to 6 pants annually. Hence, for a more realistic estimate of PantSaloon’s demand, EALA considered using the conservative value of 4. Table 9 | Market Demand and Demand Forecast

Y ear 2 006 2 007 2 008 2 009 2 010

A MAR 77.81 % 77.81 % 77.81 % 77.81 % 77.81 %

Target Market

Potential Buyers

Consumpti on Rate

Annual Demand

Monthly Demand

41,423

32,231

4

128,925

10,744

42,197

32,833

4

131,334

10,944

42,986

33,447

4

133,790

11,149

43,790

34,073

4

136,292

11,358

44,608

34,709

4

138,838

11,570

33

2 011 2 012 2 013 2 014 2 015 2 016

77.81 % 77.81 % 77.81 % 77.81 % 77.81 % 77.81 %

45,442

35,358

4

141,434

11,786

46,293

36,021

4

144,082

12,007

47,160

36,695

4

146,781

12,232

48,042

37,381

4

149,526

12,460

48,942

38,082

4

152,327

12,694

49,859

38,795

4

155,181

12,932

B. Supply Analysis PantSaloon’s material supply consists of garments and other sewing elements offered by fabric distributors within Metro Manila. The total supply can be derived from the annual average production capacity of the garment industry for 2005 as taken from data gathered from the Department of Trade and Industry (See Appendix 6). However, this figure comprises all the sectors (children, male, female) of the garment industry and so must be adjusted to extrapolate the specific supply for PantSaloon. In order to achieve that, the formula used is

Market Supply =

PC x RP x PT x GR

Where: PC = annual average production capacity of garment industry RP = rate of young adults and students who dissatisfaction in fitting jeans PT = percentage of target market (Target market / NCR population) GR = growth rate of supply The rate of students and young adults who encountered problems in buying clothes were taken from the survey conducted, who answered yes in question whether or

34

not they are satisfied with the currently available jeans in the market. The production capacity is adjusted with this rate so as to capture the supply of garments usually bought by the target group who do not find the perfect fit of jeans/pants. The next table presents the adjustment of the production capacity for the base year. Table 10 | Adjustments of Production Capacity for the base year

Annual Supply for Trousers/Pants

19,439,180

Percentage of Dissatisfaction

19.55%

Total Supply for the Base Year

3,800,359.69

However, according to the Monthly Integrated Survey of Selected Industries, the Volume of Production Index for wearing apparels registered a negative growth rate of 4.6% in 2003 (See Appendix). Annual supply projection is then adjusted using this value, assuming that its rate would remain constant. A declining growth would then be observed as an industrial occurrence issue mentioned in the environment analysis The proportion of the target market to the population is also used as an adjustment rate to as to capture the supply that is only intended for our target market. Table 11 shows the computation of the market supply for the 10-year projection, adjusted both through the percentage of target market and the growth rate. Table 11 | Market supply for the 10-year projection

Year 2006 2007 2008 2009

Supply 3,800,359. 69 3,975,176. 24 4,158,034. 34 4,349,303. 92

Target Market

NCR Population

Annual Supply

41,423

9,932,560

15,849.12

42,197

10,037,845

16,710.81

42,986

10,144,246

17,619.57

43,790

10,251,775

18,577.86

35

2010 2011 2012 2013 2014 2015 2016

4,549,371. 90 4,758,643. 01 4,977,540. 59 5,206,507. 46 5,446,006. 80 5,696,523. 11 5,958,563. 17

44,608

10,360,444

19,587.81

45,442

10,470,265

20,652.99

46,293

10,581,250

21,776.75

47,160

10,693,411

22,961.70

48,042

10,806,761

24,210.50

48,942

10,921,313

25,528.00

49,859

11,037,079

26,917.27

C. Demand-Supply Analysis Upon computing separately the demand and supply, the analysis of one in comparison to the other produces the gap that PantSaloon aims to address. This difference would be the driving force of the existence and growth of the business as it presents the degree of the demand for the proposed product. Comparing the market demand and the market supply estimates, we could compute an average of 113,075 potential demands in units that PantSaloon hopes to supply.

Table 12 | Demand-Supply Analysis

Year

Total Demand

Total Supply

2006

128,925

15,849.12

Demand-Supply Difference 113,075.88

2007

131,334

16,710.81

114,623.19

2008

133,790

17,619.57

116,170.43

2009

136,292

18,577.86

117,714.14

2010

138,838

19,587.81

119,250.19

2011

141,434

20,652.99

120,781.01

36

2012

144,082

21,776.75

122,305.25

2013

146,781

22,961.70

123,819.30

2014

149,526

24,210.50

125,315.50

2015

152,327

25,528.00

126,799.00

2016

155,181

26,917.27

128,263.73

We cannot however, entirely accommodate all the demand-supply differences projected. Being a relatively new entrant in the industry, PantSaloon aims to gain a market share of at least 0.5% in its first year of establishment. As the business progress, EALA Inc. targets to gradually carve bigger market share in the industry as we expand our product lines, services and capacity throughout the course of the company’s operations. D. Market Share Market share represents the portion of the market that PantSaloon will hold. This would represent the viable capability of the business in the industry as well as it shows how strong PantSaloon will be in the market, given the present supply in the market and the demand that the business caters to. Market share is computed through this formula: Market Share

=

PantSaloon Ave. Monthly Production Capacity Monthly Market demand

PantSaloon’s average monthly production capacity shall be divided with the total market demand for pants/trousers taken from their 2006’s projected demands respectively. Hence, this would reflect the fraction that PantSaloon aims to provide in proportion with the total demand in the introductory phase of its venture. The production capacity came from industry standards that we took from the professionals who are in pant-customization business. According to Ms. Bea dela Cruz, store manager of Clement Garments in Recto, Manila, a business venture can

37

accommodate 30 job orders for jeans in a day. Throughout the month, PantSaloon is capable of producing 900 job orders. Substituting the formula, a 9.55% market share was computed as: Market Share = 900 / 9422.99 Over the years, PantSaloon would strive to aim for the bigger share in the “pie” as the business gradually creates its niche in the market. Strong promotional efforts will be continuously done as the company tries to expand its reach to its target market. Branches will also be opened at an annual rate starting from the 3rd year. New products will be offered for customization like shirts and jackets in the fifth year of the business. By doing so, and by assuming a fairly good economic flow in the industry, PantSaloon is thereby guaranteed to make its mark in the business.

IV. Market Segmentation, Targeting and Positioning A. Market Segmentation The distinction of one segment from another in terms of needs, characteristics, interests and values necessitates dividing the market into segments, as these differences will greatly influence the responses and attitudes of people towards the products and services offered by PantSaloon.

38

Market segmentation was conducted in order to select the group of people who will be most receptive to the products and services offered by PantSaloon. The market for consumers was segmented based on their geographical, demographic, psychographic, and behavioral indicators that influence their purchases for jeans. 1. Geographic Segmentation PantSaloon is focused on the distribution of population within the Diliman and Katipunan communities. These include academic institutions like University of the Philippines - Diliman, Ateneo de Manila University and Miriam College, and nearby residential villages and subdivisions like Teacher's Village, La Vista, Xavierville Subdivision, Loyola, Blue Ridge and White Plains. Recognition of the characteristic within the area of location is important to the company because the students and residents of these schools and communities generally tend to share similar values, attitudes, buying capacity and style preferences. However despite the similarities, significant differences still exist among these residents because of differences in their culture, social customs, upbringing, and other factors. Hence, other factors need to be considered.

2. Demographic Segmentation PantSaloon also looked into the demographics to segment the market. The most popular characteristics used in combination here are age, family life cycle stage and income. Age. PantSaloon segmented the market to cater to 17 – 29 year-olds. The reason for this is that this segment shows the highest demand for PantSaloon’s products. Primarily composed of college students and young, urban professionals (yuppies), this age segment is the most prominent user of jeans. With a myriad

39

of jean brands in the market, catering to college students and yuppies appear to be one of the most lucrative trends in the jeans industry. Life Cycle Stage. Demand for goods and services change over time to adapt to a likewise changing needs and want of people. Hence, there is a need to segment the market based on their current life-cycle stage. A bachelor, having no family to support and most probably still under the custody of his parents, is more inclined to make purchases for himself, and clothing is definitely included in his expenditures. This being the case, the Bachelor stage seems to be the most appropriate for the product PantSaloon offers. Young, single, individualistic and independent, the Bachelor is definitely made for PantSaloon. Income. The consumer’s level of income is an important factor in the profiling of PantSaloon’s market because it provides an effective indicator that would reflect the buying power and spending habits of the students for whom the products are made for. The growing purchasing power of this age bracket is the primary factor making this age bracket attractive. For yuppies, the trend is being fuelled by higher disposable incomes resulting from more generous allowances and salaries. On the other hand, college students opting to work part-time during schooling, and heightened media awareness augments their purchasing power. Occupation and Education. PantSaloon segmented the market to college students and young professionals. For the purpose of embodying what the individualistic youth is, this segmentation is important because PantSaloon’s products and advertising will be more concentrated on them. 3. Psychographic Segmentation The types of products and brands an individual purchases reflect that person’s characteristics

and

patterns

of

living.

PantSaloon,

in

evaluating

the

40

psychographic segments of the market, divided the group based on personality characteristics, lifestyle, and values. These attributes were examined and eventually related to how an individual in the market thinks, feels, and behaves. Personality Characteristics. The college student and yuppies market is a dynamic and extremely competitive environment. Though there are plenty of opportunities for new entrants and a great scope for innovation, the target audience is extremely hard to please. Media influence, including fashion, television, the Internet and music, make the market savvy about what they want. Quality will unlikely be compromised, and approach to brand loyalty is erratic. However, the nature of PantSaloon’s enterprise being customization, it won’t be difficult for the business to keep up with the market’s unpredictability. Changing fashions won’t be much of a problem, as jeans have become a staple piece of clothing, and only their styles change through time. This quick shift from one style to another is a strength that PantSaloon can play up. Having the products and services evolve with the moment, together with extensive and focused marketing efforts, PantSaloon hopes to retain the interest and loyalty of the market in consideration. College students and yuppies, at their young age, are attracted by fun, glamorous and distinctive brands. Finally, while they have a strong desire to be like everyone else, they still have a very strong need to express their individuality. Lifestyle. As mentioned previously, the target market combines a desire for belonging and a need to express their uniqueness. Joining the bandwagon is prevalent among them, with cliques and barkadas being a common thing in this age bracket. In fact, people are usually first identified with the group of people they hang out with before they get to be recognized as individuals.

41

The trends dictated by society, media, and the people around them influence their lifestyle and behavior, and being updated with the latest in fashion, music, movies, electronic gadgets and the like is as important as expressing their individual selves. 4. Behavioral Segmentation Benefits Sought. The survey showed the importance of several characteristics considered by college students and young adults in buying pants. The data was tabulated according to rank.

Factors that Buyers Look in Purchasing Pants stitch pocket design cut price fabric comfort fit 0

50

100

150

200

250

300

Figure 4 | Factors that buyers look in purchasing pants

In some other aspects, the group of people who answered survey responded the following designs that they look for in their pants.

42

Particular Designs Liken By Potental Buyers 54, 13%

distressed / deconstructed

81, 20%

stone / acid washed / faded

45, 11%

embellished

c

embroidered

45, 11%

others 176, 45%

Figure 5 | Particular designs liken by potential buyers

Usage Rate. Much like everyone else, college students are regular users of pants. Jeans, classified within the clothing category, are commodities/necessities that are a part of everyday life.

Frequency of Pants Usage

250 200

205

150 100 50

53

12

1

0 Almost everyday

Once or twice a week

Seldom

No Response

Figure 6 | Frequency of pants usage

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The level of usage that college students make of pants is HEAVY. According to the survey conducted, 75% use pants almost everyday, pushing them to purchase 4 pants annually. Buyer Readiness Stage. 81.91% of the respondents of PantSaloon’s market survey indicate that they are willing to render the custom-making of pants service. This segmentation model will be particularly useful in formulating and monitoring the marketing communication strategies PantSaloon will employ to move consumers towards purchase of a product or brand.

B. Market Targeting Market targeting is the process of evaluating and selecting segments of the market that PantSaloon will target and focus on. There are different things to consider in selecting the target market: Is this segment large enough to result to a profitable venture for PantSaloon? Are the products offered at PantSaloon suitable to their needs and interests? Who are the competitors for this market segment? After assessing all the segments and answering these questions, it is now time to select the market with the greatest potential. PantSaloon is a clothing service shop specially designed for the jean design and fitting needs of (1) college students and young adults who are between the (2) age of 15 and 24 years old, (3) both men and women, particularly those who are (4) residents and/or located in institutions within Katipunan Area. Essentially, college students, specifically from Ateneo de Manila University and UP-Diliman, do not have school uniforms. Thus, denim jeans have been a staple clothing item for them. But with different body structures as well as different

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tastes in denim jeans, PantSaloon aims to address their dilemma on those differences.

Furthermore,

individuality

is

important

to

these

particular

individuals, thus PantSaloon’s concept of customization would definitely cater to their need of distinctiveness. On the other hand, young adults have this need of uniqueness and standing out among others. They make sure that they are distinctively different from others, whatever it takes. Having their own source of income lets them address this need. Both college students and the young adults have tendencies to find their niche where they are very much comfortable with. In fashion, they often hop in styles and land to choose the kind of style that represents their personality the closest. They are also very much concerned with fashion trends and are willing to try something new. This kind of buying behavior understanding of the targeted group helps the entrance of PantSaloon in the market. The idea of launching customized jeans packaged in a cool and hip way and manufactured in a bright store, as oppose to the dark-roomed tailoring shops, will thrill them. Students and young adults are very particular with the type of clothing they purchase. They look into fit, comfort and design among other elements in choosing the perfect pants for them. And this is what PantSaloon is providing to them. Pants are generally worn by both men and women. EALA wants to focus on both needs since they don’t differ much, anyway. In fact, because of sexual independence that is apparently growing these days, men and women wear clothing designed for them interchangeably. A universal need for jeans has been apparent through the years which both sexes enjoy sharing with. Because of this, PantSaloon is coming up with designs that may work on both sexes. The flexibility of the designs of PantSaloon will prove that jeans are never labeled based on sexes or gender, rather on fitting and personality.

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PantSaloon subdivided the market into location-based segments (residential areas proximate to the location of the proposed business) because this geographic measure is quantifiable and accessible. The distribution of population in these areas is important to the company because the market within these areas generally tend to share similar values, attitudes, and style preferences, given that they are in the same level of social class.

C. Market Positioning PantSaloon will be established as a customized jeans maker For college students and the young adults, that offers flexible, unique and creative jeans with perfect fitting and comfort to the level of the customer's choice of fabric, cut and over-all design. It is PantSaloon’s advantage to become a specialized clothing servicing store that will emphasize wide-ranged creative designs, styles and fabrics along with the perfect fit and comfort to the customer. PantSaloon

will

be

known

for

its

uniqueness,

flexibility,

creativity,

and

innovativeness. These youthful characteristics will make the whole perception of the store away from the tailor shops that are usually associated with being stiff and traditional. PantSaloon is taking the Less for More strategy in defining its competency in pricing. Viktor Jeans has been making waves in the same market but what will make PantSaloon apart from Viktor is its competitive designs and quality at an affordable

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price. This will be highlighted because the target market, students and young adults, cannot afford prices such as Viktor’s.

V. Marketing Mix A. Product As can be observed, majority of the brands in the market offer jeans that are ready-to wear which do not actually correspond to the actual fit of each and every consumer. This has become a pressing concern for most of the college students and young adults as they would always spend difficult times finding the jeans that would fit right.

Although alterations could be done to repair the

clothes’ dimensions, more often than not, the process can possibly ruin the style or design of the product. EALA Inc. was able to understand the problem that today's youth face hence the reason of coming up with the idea of PantSaloon, a brand that will provide jeans that would perfectly fit them at their own wanted cut and design. PantSaloon's service is geared towards addressing the usual problems that college students and young adults always come across with. Thus, the cuts, fabrics and dimensions that shall make up our jeans will be custom-made in order to give our target market the right fit and the right comfort match their body frames.

Moreover, our house designers will create

trendy collections and will also regularly update the design and style of our jeans thereby conceiving a uniquely stylish boutique that perfectly matches the today's youth.

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1. Features Themes. The world of fashion moves in a relatively fast paced track that we need to continuously plan and innovate designs in order to keep up with the present and forthcoming trends. Consequently, PantSaloon fashion shall exert efforts in providing jeans and pants that are appropriate to the current fashion themes, but would still refer to the customer’s requests. In order to offer this, EALA, therefore has to constantly search for the latest trends on the web, magazines, and catalogues, and should also be keen in observing how prominent fashion figures project themselves through the clothes they wear. In addition, we will seek advices from fashion enthusiasts and hire in-house designers who will assist us in keeping up with the current fashion statements. For the introduction of the venture, EALA will issue the first collection of four designs showing off the brand’s capabilities of producing stylish pants. The designs are flexible enough to match any kind of cut that the customers are openly comfortable with. The designs will include the following: PS 1 – pant designed with detailed stitching PS 2 – jean designed thru deconstruction PS 3 – jean showcasing pocket embellishments and beadings PS 4 – jean showcasing pocket embroideries PantSaloon will introduce new designs and keep up with it by having quarterly themes, depending on the forecasted demand and clamor of fashion aficionados. Colors and Fabrics. Since the business is basically selling on the over-all individuality of the customer, PantSaloon, will offer a wide array of colors of jeans and other types of fabrics used for pants like denim, corduroy, twill and canvas. Colors will be pre-approved by the house designers as they know which colors are matching the kind of fabric.

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For denim, we will have stretch and non-stretch. We will also soft and hard jeans. In addition to that, PantSaloon will also offer good kinds of bronzed/metallic jeans, dark-colored and the light colored ones. For twills, an array of such colors, from black to khaki to white, will be from offered. Same thing goes with corduroys and the canvases. Special fabrics like army cloth and checkered fabrics will also be provided for those who want an older look. Product Line. The initial product line will consists of all-jeans collections. PantSaloon will be focusing on the manufacturing of its core product and will make sure that expertise in such activity will be achieved in the first three years. Variations of pants like shorts and skirts will be offered as well on seasonal basis or if the customer requests for it. The entire jean collections shall revolve in a tagline that will promote personal adaptation of the jeans to the customer's fitting such as: Makers of the jeans specially-made for you. On its fourth year of operations, PantSaloon will open its array of t-shirts that is in line of the objectives and target market of PantSaloon. It will invest in opening statement-shirt venture where customers can have their personal statements printed on their shirts. Two years after that, PantSaloon will be opened for jacket-customization. Other merchandise and accessories, like bags, wallets belts and leather bracelets will be offered as well. Maintenance of the merchandise and service offerings will be observed and assured through the years. Designs will be improved and updated to make sure that the taste of the moving target market is kept captured. Augmented Products. Aside from the stylish jeans collections, PantSaloon will also hire friendly and accommodating trained personnel to make the customer’s experience within the store something to be remembered and repeated. They will be called Jeans Engineers. Such label will give an impression that the

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personnel are all technically trained to do create the perfect jeans for the customers. Today, people are much more concerned with the environment and PantSaloon understands that. Thus, our store will only utilize stylish reusable paper bags and not the plastic ones in order to contribute to this cause. Customers do patronize companies that operate with a heart. In recognizing our responsibility to society, this is not to be done for promotions alone but also for the greater good of the community. Also, PantSaloon will have spacious fitting rooms for comfort, which needed so customers can appreciate the beauty of the product that our store has to offer. Oftentimes, students and young adults do not come alone. They have companions like friends, barked and colleagues with them that's why PantSaloon is putting a waiting area composed of mini sofa and beanbags. Fashion Magazines like GQ and InStyle will be available as well for fashion references. Almost all major shops accept credit cards and this will be the same for our store. PantSaloon understands the hesitance of some shoppers in bringing a lot of money for shopping. Added to that, to make the experience very relaxing and worthwhile, we will also play feel good music. Surround mirrors will also be put up on the walls so potential customers can know right away if the product looks good on them without having to fit the clothes. Promo giveaways such as posters, pocket calendars and key chains will be given to buyers so they can remember our store all the time. An after-sale service, like alteration, will be offered for free to make sure that the jeans stay fit to the customer. B. Price

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Prices are set according to the positioning and image of the brand. Items at PantSaloon will cater to the needs and interests of college students and young adults in the Class A, B and C brackets of the Katipunan area. Survey results have shown that 43% of the total respondents are willing to pay 500 to 1,000 pesos for custom-made jeans. EALA Inc. decided to extend the prices of the more elaborate clothing design to a maximum of P2,500. These price ranges are strategically set to mean affordability against Viktor, while the appreciation of higher price against ordinary shops speaks of higher quality. Since PantSaloon is a specialty store, we can set a medium-ranged premium in all prices. Mark-up percentages will start at 150% to 300% of the variable costs that will include direct fabric materials and manufacturing labor. The assumed costs are at minimum orders of 30 jeans order in different sizes already. Appliqués and other design materials for the clothes are excluded from the basic manufacturing cost. C. Place It is best to put up the clothing store in the area where the business can easily tap its target market. For this particular reason that is why PantSaloon will be initially put up in Katipunan. It will specifically be located in the second level of Drews Bldg, right behind Shakey’s. One apparent reason for putting up the store in the Katipunan area is that the place is relatively accessible to college students in the higher social strata. Just right outside the store is Ateneo, which happens to be the perfect representation of the target market. The location also has the ability to pre-determine the clients of the store. Katipunan, among any other areas in Quezon City, has high commercial and residential land value. The target market is centralized in the area, such as those who are residing in La Vista, Loyola Heights, and Xavierville Subdivision.

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As a new entrant in a relatively new market, jean-customization, PantSaloon needs to establish a very strong niche first before moving up or outside that niche. For PantSaloon, the locality is of Katipunan is the best place to put the business up as the target market is literally centralized in the area. EALA Inc. is looking also to the fact that the studentry market is forever active because of the annual entrance of freshmen to the academes. It only means that the market will never be saturated because every year, a group of new students will be replacing the touched market of the graduating students. PantSaloon will maximize all its effort is tapping the Katipunan market before it actually expands to other communities. EALA Inc. is looking for pursuing an extension in highly urban areas like malls, where the same profile of the current target market is located. Beyond the ten years of operations, the store will continue expanding to other relatively urbane malls such as Gateway and Glorietta. The group will also consider locating to other parts of the Metro such as Alabang Town Center in the South. D. Promotions 1. Short-Term Promotional Activities and Goals For the first three years of the business operation, the company will aggressively advertise the brand and products among students and young adults residing within Katipunan area. As much as possible, EALA Inc. chooses to find ways of doing the necessary promotions without having to pay much. The company cannot afford to engage in costly advertising efforts in our first years hence, product offers and gift certificates shall be done to promote the business instead. Goals for the three months:

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• Establish awareness of the stores existence among residents and students within Katipunan area • Attract initial customers to enter the store, window-shop, and render the PantSaloon service • Have the “first buyers” spread the good news (word-of-mouth advertisement) The store will be opening on January 1, 2007. The first three months will actually be the trial period and all activities will be noted for future assessment. For this period, operations should be personally handled by the owners. It is EALA Inc.'s concern to make sure that the shoppers will immediately notice the store. The interior design of the store itself will serve as an initial “come in” advertisement. Industrial and post-modern look will also be the theme of the store to highlight the 'engineering' of jeans. White and bright, warm lighting shall be used in place to enhance the color of the jeans and project a classy ambience. Experts also said that this kind of lighting makes one more stunning because the natural color of the skin is yellowish. Displays include the prototype designs of the collections and the sample fabric that they may choose from. Framed posters showing patterns as to how jeans are made will be placed around the store. Staff and personnel will also wear shirts that have "Pants Engineer" print to emphasize that jeans that PantSaloon makes are all made especially for the customer. The objective is for the customers to get an idea of the nature of PantSaloon service. What a better way to win over window shoppers and actually convert them to actual buyers! Goals for the second quarter of year 1: • Make noise, have the media press notice the PantSaloon brand • Encourage repeat buying by giving special services • Begin to establish brand equity • Attract prospective loyal customers

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After the assessment of market response during the first three months of operations, EALA Inc. will launch PantSaloon in a fashion show and concert party. A ribbon cutting to be led by the owners and top fashion celebrities will kick-off the party. Fashion show will showcase three sets of collections from the in-house designers of the store. For this fashion show, PantSaloon will not only use the skinny-type girls and boys as models. EALA Inc. will incorporate diversity in the 'reality' of the actual users of the jeans. This will include the petite type and the chubby types among others. The concert on the other hand will showcase hit bands. The bands' vocalists will wear a pair PantSaloon jeans during their performance. Press and media people from fashion magazine publications and lifestyle TV shows will be invited. MTV or MYX will also be invited to cover the program for a wider media mileage. Goals for the second half of year 1: • Start establishing relationships with the print ad media • Develop further the equity and image of the PantSaloon brand At this stage, PantSaloon will begin to implement aggressive marketing efforts by sponsoring photo shoots of leading magazines for college students and young professionals. The initial product line will be seen in the glossy pages of Summit media publications, which include Seventeen and Cosmopolitan magazines and Metro’s Chalk magazine. According to the Marketing Manager of a leading clothing brand, PantSaloon can have the products advertised in this way for free! All we have to do is have the fashion editors notice the PantSaloon brand and promote its products. In addition, the store will begin to offer limited editions of about 10 to 15 pieces of certain items, part of which will be given to famous celebrities and other personalities who are regularly doing modeling stints in the magazines stated.

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They will eventually serve as the shop’s sort of “free” endorsers. Hopefully by this time, PantSaloon will be seen regularly in the monthly issue of the said magazines. Many are already doing this. It was observed that exclusivity and scarcity of a fashion item particularly when seen on models, increases its desirability especially to the fashionistas among others. Goals for the second and third year of the operations: • Participate in the online and TV advertising campaign • Update the customers and non-customers alike about what’s happening in the PantSaloon boutique • Establish personal relationships with the customers The PantSaloon website will be developed to further inform the consumers about updates on the latest fashion tips and ways of taking good care of jeans aside from the items and promos the store will be offering. The website will also feature a web page for customer feedbacks, suggestions, and requests. Store profile, brand advertising, and pictures and prices of the latest items will be featured as well. There

are

TV

shows

that

offer

free

guest

appearances

of

promising

entrepreneurs or exposure of newly established stores. Examples are Breakfast Supersize, Wazzup Wazzup and Us Girls of Studio 23. PantSaloon will grab the following opportunities in exchange for free jeans service. 2. Long-term Promotional Activities and Goals Goals for the third year of operations onwards: • Induce repeat buying behavior among customers • Shift from taking on sponsorship deals to being regular advertiser in premier magazines • Gain stronger customer loyalty • Have regular customers anticipate for the store’s latest offers • To continuously capture a larger share of the market • Choose a famous personality model that will best represent the brand image

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• Have the customers’ trust, appreciation and have them look up to the PantSaloon brand • Achieve a total awareness of the brand among the upper class societies By this time, the group will now have the ability to pay for an entire advertising page on glossy magazines. PantSaloon will continuously conduct fashion shows showcasing the new styles available. Re-launching will be done in the PantSaloon's 4th and 6th year of operation as it widens its product line by offering customized statement shirts and jackets on the said years. PantSaloon will also continue to give commemorative items like notepads and calendars on special occasions.

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