Pre-Feasibility Study: Small and Medium Enterprises Development Authority

Pre-Feasibility Study
DEPARTMENTAL STORE
Small and Medium Enterprises Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
6th Floor ,LDA Plaza , Egerton Road , Lahore 54000, Pkaistan

Tel: (042) 111-111-456, Fax: (042) 6304926-7
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REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH NWFP BALOCHISTAN
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Road , Complex II, M.T. Khan Road, State Life Building Chaman Housing Scheme
Lahore 54000, Karachi. The Mall, Peshawar. Airport Road, Quetta.
Tel: (042) 111-111-456, Tel: (021) 111-111-456 Tel: (091) 9213046-47 Tel: (081) 831623, 831702
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January 2010
Pre-Feasibility Study Departmental Store
DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject
matter and provide a general idea and information on the said area. All the material
included in this document is based on data/information gathered from various
sources and is based on certain assumptions. Although, due care and diligence has
been taken to compile this document, the contained information may vary due to any
change in any of the concerned factors, and the actual results may differ substantially
from the presented information. SMEDA does not assume any liability for any
financial or other loss resulting from this memorandum in consequence of
undertaking this activity. The prospective user of this memorandum is encouraged to
carry out additional diligence and gather any information he/she feels necessary for
making an informed decision.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk
DOCUMENT CONTROL
Document No. PREF-76
Prepared by SMEDA-Punjab
Revision 2
Revision Date January 2010
Issued by SMEDA-Punjab
PREF-76/ Jan, 2010/Rev2 2

1 EXECTIVE SUMMARY ................................................................................... 5
2 INTRODUCTION .............................................................................................. 6
2.1 PROJECT BRIEF................................................................................................ 6

2.2 OPPORTUNITY RATIONALE .............................................................................. 6
2.3 PROJECT CAPACITY AND COST ........................................................................ 6
2.4 PROJECT INVESTMENT ..................................................................................... 7
3 SECTOR AND INDUSTRY ANALYSIS ......................................................... 7
3.1 NATIONAL ANALYSIS ...................................................................................... 7

3.2 LEGAL ISSUES REGARDING INDUSTRY ............................................................. 9
4 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR
INVESTMENT ........................................................................................................ 10
4.1 SWOT ANALYSIS ......................................................................................... 10

4.1.1 Strengths and opportunities................................................................... 10
4.1.2 Weaknesses and threats......................................................................... 10
5 PROJECT PROFILE ....................................................................................... 10
5.1 PROPOSED BUSINESS LEGAL STATUS ............................................................ 10

5.2 PRODUCT MIX ............................................................................................... 11
5.3 PROPOSED LOCATION.................................................................................... 11
5.4 KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS................................. 12
6 STRATEGIC RECOMMENDATIONS ......................................................... 13
6.1 MARKETING .................................................................................................. 13

6.2 PRICING......................................................................................................... 13
6.3 STORE LAYOUT AND PRESENTATION ............................................................. 13
6.4 USE OF COMPUTER ........................................................................................ 14
7 MARKET INFORMATION............................................................................ 14
7.1 MARKET POTENTIAL ..................................................................................... 14

7.2 TARGET CUSTOMERS .................................................................................... 14
7.3 RESOURCE MERCHANDISE ............................................................................ 14
8 ELECTRIC AND OTHER EQUIPMENT REQUIREMENT ..................... 15
PREF-76/ January, 2010/Rev2 3

9 LAND AND BUILDING REQUIREMENT .................................................. 16
9.1 LAND REQUIREMENT .................................................................................... 16

9.2 RENT COST .................................................................................................... 16
9.3 UTILITIES REQUIREMENT ............................................................................... 16
10 HUMAN RESOURCE REQUIREMENT................................................... 17
11 PROJECT DETAIL ...................................................................................... 18
12 FINANCIAL ANALYSIS ............................................................................. 19
12.1 PROJECTED INCOME STATEMENT ............................................................... 19

12.2 PROJECTED BALANCE SHEET ..................................................................... 20
12.3 PROJECTED CASH FLOW STATEMENT ......................................................... 21
12.4 REVENUE CALCULATION ........................................................................... 22
12.5 PURCHASES & STOCK CALCULATION ........................................................ 23
12.6 ADMINISTRATIVE EXPENSES ...................................................................... 24
13 KEY ASSUMPTIONS................................................................................... 25
13.1 OPERATING ASSUMPTIONS ........................................................................ 25

13.2 ECONOMY RELATED ASSUMPTIONS ........................................................... 25
13.3 CASH FLOW ASSUMPTIONS ........................................................................ 25
13.4 EXPENSE ASSUMPTIONS ............................................................................. 25
13.5 FINANCIALS ASSUMPTIONS ........................................................................ 26
14 ANNEXURES ................................................................................................ 27

1 EXECTIVE SUMMARY
Departmental stores business is emerging as one of the good business ventures in
Pakistan as it provides all the basic merchandise under one roof. The structure of
Pakistan’s economy has changed from a mainly agricultural base to a service base.
Agriculture and industry sector now account for about 22% and 24% of GDP
respectively, while the services sector accounts for 54% of the GDP. A department
store is a retail establishment which specializes in satisfying a wide range of the
consumer's personal and residential durable products needs; and at the same time
offering the consumer a choice multiple merchandise lines, at variable price points,
in all product categories.
Departmental store is a large retail store organized into departments offering a
variety of merchandize, commonly part of retail chain under one roof. In Pakistan
concept of departmental store has gained popularity in late eighties after the
emergence of Utility Stores by the government. The same concept has been used by
Canteen Department Store (CSD). Keeping in view on consumer’s needs and
requirements, large investment has been made in super store by few multinational
companies. i.e. Metro, Macro, Cosmo Cash & Carry etc and thousands of
departmental stores in almost all cities of Pakistan.
The proposed departmental store requires an area of approx 3,000 sq. ft. it is
recommended that departmental store should be started at owned place rather on
rented premises. Location of stores is important factor with any retail organization.
Spending time and money wisely in the process of site selection is of primary
importance. In this pre feasibility study it has been assumed that the proposed
departmental store is opened in that area where there are 3,000 house hold are
present and their monthly spending on an average is Rs. 4,000. The total cost of
establishing a departmental store in developing areas is estimated at Rs. 15.38
million including Rs. 12.14 Million capital cost and Rs. 3.24 million is required for
working capital. Projected IRR, Net Present Value and pay back period for proposed
departmental store are 49%, Rs. 23,148,555 and 3.65 years respectively.

2 INTRODUCTION
2.1 Project Brief
The proposed departmental store will provide variety of goods ranges from grocery
to garments and alike to customers under one roof. The proposed project is a single
floor departmental store on an area of approximately 3,000 sq. ft. The project will
offer following broad categories of goods to its customers:
• Groceries and food items
• Baby garments and baby products
• Crockery and plastic items
• Soaps detergents and chemicals
• Cosmetics and artificial Jewellery
• Ice-cream and beverages
• Stationery, greeting cards and gifts
• Watches and clocks
• Electronics/electrical products
• General items
• Bakery Items
2.2 Opportunity Rationale
In Pakistan concept of departmental store has gained popularity in late eighties after
the emergence of Utility Stores by the government. The same concept has been used
by Canteen Department Store (CSD). Currently there is new trend and large
investment has been made in super store by few multinational companies i.e. Metro,
Macro, Cosmo Cash & Carry, etc. However in small size departmental stores,
private sector made it one of the successful businesses in Pakistan. Public has liked
this concept due to the availability of all basic utilities under one roof which saves
their time about which people are more conscious these days. The factors that make
this project viable in Pakistan are:
• Easy access to wholesale markets
• Plentiful availability of resources/salesman
• No process/transformation involve
• Variety of goods under one roof
• Margin for innovation
• Easy diversification towards new product mix
2.3 Project Capacity and Cost
The proposed departmental store will have an area of 3,000 sq. ft. having
covered/indoor shopping facilities. The store will operate for 12 to 16 hours from
morning to midnight. Operating time depend on localities requirements.

2.4 Project investment

Sr.# Description Rs.
1. Capital Cost 12,143,600
2. Working capital/Cash in Hand 3,244,858
Total 15,388,458
3 SECTOR AND INDUSTRY ANALYSIS
3.1 National Analysis
Departmental stores business is emerging as one of the good business ventures in

Pakistan as it provides all the basic merchandise under one roof.
In late eighties a paradigm shift in grocery store science occurred. The concept of the
"Self-Serving Store" was started. Customers entered the revolutionary store and
walked through a narrow maze of shelves containing groceries. They selected their
goods as they continued through the maze to a cashier.
This phenomenon grew rapidly; and today thousands of stores exist in the big cities.
These stores also began to offer products beyond the normal scope of the dry-good
grocery store. They added meat, dairy, fruit and vegetables, and breads to their
offerings (which had formerly been offered by individual stores such as butchers,
bakeries, and the "milk man").
Over the decades, the departmental stores have evolved even further. Now, one sees
that offer greeting cards, flowers, video rental, fast food, childcare, and much more.
Departmental stores business falls under retail sector. This sector has shown a
significant growth over the last few years. In 2005-2006 this sector showed a growth
of 3.1%.1 This sector’s contribution towards GDP in the year 2008-2009 is 17.5%2.
The following table shows the contribution of retail and wholesale sector towards
GDP for the last 5 years at constant factor cost.
Table 3–1: Contribution of retail and whole sale sector towards GDP3
Year Share Growth
%age %age
2004-2005 18.7 12.0
2005-2006 17.2 -2.4
2006-2007 17.1 5.8
2007-2008 17.3 5.3
2008-2009 17.5 3.1
1
Source: Economic Survey of Pakistan 2008-09
2
3

Gross fixed capital formation (Investment in fixed assets) in this industry by private
sector has also shown a progressive trend. In year 2005-2006 growth in gross fixed
capital formation by private sector has shown an increase of 17.2%. The following
table shows gross fixed capital formation by the private sector for the last five years:
Table 3–2: Gross fixed capital formation by private sector in wholesale and
retail sector at constant prices (Rupees in Million)
Year Retail and wholesale sector Rs. M
2004-2005 15,165
2005-2006 18,123
2006-2007 22,578
2007-2008 23,816
2008-2009 23,059
There are thousands of departmental stores in Lahore, Rawalpindi, Faisalabad,
Multan, Gujranwala and this number is increasing day by day. Some of these stores
are:
Table 3–3: Major Industry Players

Name Locations
Lahore
PACE Gulberg, Model Town, M.M.Alam Road
Value Mart Gulberg, Allama Iqbal Town etc
Decent Wahdat Rd., Johar Town
Akbari store Allama Iqbal Town, Jain Mandar
H Karim Bukhsh Gulberg, The Mall, DHA
Pot Pouri Fortress, DHA etc
Metro Thokar Niaz Baig
Macro Ravi Road, Model Town Link Road
Best Mart Shadman
Al Fatah Liberty Gulberg
Naimat Khana The Mall
CSD Stores Cavalry Ground
Raheem Store Allama Iqbal Town
Rawalpindi/Islamabad
Macro Islamabad
CSD Chaklala Cantt, Lalkurti
Herald’s Behria Town Rwp
City Mart Satellite Town Rwp, Islamabad
D. Watson Sadder, Gulraiz Colony, Commercial
Market

W Wilson Sadder, Gulraiz Colony, Commercial

Market
Sargodha
Al-Rehman Trade Center University Road
Taj Mehal Departmental Store Shaheen Park
Taj Mehal Departmental Store Umer Pakistan
Faisalabad
Bambino Super Store D Ground
City Mega Mart D Ground
S&B Super Market People Colony
Family Mart D Ground
E Mart Susan Road
Although in Pakistan the retail business is not providing employment at a large scale
directly, but indirectly it is contributing in the employment growth. As more and
more retail outlets are opening and consumer buying has shifted towards
packaged/branded products. Companies are coming with top quality products and
with the increase in production level the employment also increases.
3.2 Legal issues regarding industry4
In order to fulfill its liabilities under Income Tax Ordinance, 2001 and Sales Tax
Act, 1990, a sole proprietor, firm or company doing only retail business as
departmental store shall obtain NTN and Sales tax registration number from
concerned departments.
Under Sales Tax Act, 1990, a retailer whose annual turnover from supplies,
whatsoever taxable or otherwise, made in any tax period during the last twelve
months ending any tax period if exceeds rupees five million are required to register
with sales tax department.
A registered retailer shall issue invoice and charge and collect sales tax at the rate of
three percent (two percent sales tax and one percent income tax) of the value of
taxable supplies at the time of supplies thereof, which shall be paid on monthly basis
with return by the 15th day of the month following the tax period in which supplies
are made.
Retailers shall not be entitled to adjustment of any input tax or claim refund of sales
tax or income tax. However, one third of tax paid by the company shall be adjustable
against the final income tax liability.
For the year 2008-09 rate of tax for a small company is 20% of taxable income,
while 35% income tax rate shall be applicable on all other companies. For the year
2008-2009, income up to Rs100, 000/- of a retailer (sole proprietor and firm whose
4
All information only relates to retail business under departmental store

supplies are exempt from sales tax) in a year is exempt from income tax. Income
exceeding Rs.100,000/- shall be charged to tax in various slabs ranging from 0.50%
to 25%.
4 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR

INVESTMENT
4.1 SWOT Analysis
A SWOT Analysis is a strategic planning tool used to evaluate the Strengths,

Weaknesses, Opportunities, and Threats involved in a project or business venture.
Strengths and weaknesses are internal to the company. Opportunities and threats
originate from outside the company. A SWOT analysis is usually performed early in
the project development process, and helps organizations evaluate the environmental
factors and internal situation facing a project.
4.1.1 Strengths and opportunities

• Easy availability of resources(manpower/salesmen)
• Growing population
• Expanding cities
• Status symbol to shop from big stores
• Popularity of variety shopping under single roof
• No specialized/technical knowledge required for entrepreneur
4.1.2 Weaknesses and threats

• Heavy taxes in the form of sales tax and income tax on retail business
• High competition
• Credibility factor in the initial phase, as suppliers do not give credit to newly
entrants
• Opening of large scale chain stores like Metro, Macro, Cosmo Cash & Carry etc.
5 PROJECT PROFILE
5.1 Proposed Business Legal Status
Legal status is recommended to be a sole proprietorship/partnership because it

requires less legal requirement to start with than a company. Similarly a lower
income tax rate of tax is applicable to sole proprietorship than that of companies.

5.2 Product Mix
The store will offer the following broad categories of goods to its customer:
Table 5–1
Category of item Proportion Avg. Gross Margin
Groceries and food items 55% 15%
Baby garments and baby products 5% 35%
Crockery and plastic items 4% 30%
Soaps detergents and chemicals 15% 10%
Cosmetics and artificial Jewellery 5% 30%
Ice cream and Beverages 5% 10%
Stationery and greeting cards/gifts 1% 20%
Watches and Clocks 1% 30%
Electronic and electrical appliances 2% 30%
General items 2% 15%
Bakery Items 5% 20%
Total 100%
5.3 Proposed Location
Location of stores is of primary concern with any retail organization. Spending time
and money wisely in the process of site selection is of primary importance. Some
retailers open shop in a location simply because it is the only vacant space within a
stones throw of their home or office. Knowledgeable retailers make a thorough
examination of possible locations before investing their money and dreams.
The departmental store should be centrally and conveniently located within a
developing or a newly developed residential town in any of the big cities like Lahore
Islamabad/Rawalpindi, Faisalabad, and Sargodha etc.
Table 5–2: Location

City Areas
Lahore Mustafa Town
Johar Town
Wapda Town
Nespak
PIA Colony
Islamabad/Rawalpindi
Chacklala Scheme III
Saddar
Commercial Market
DHA
Bahria Town

F-10
G-9
G-8
Abpara Market
Faisalabad
D Ground
Peoples Colony
Batala Colony
Muslim Town
Sargodha
University Road
Shaheen Park
Umer Park
The proposed departmental store is feasible in any area where there are 3,000
houses/family units.
5.4 Key success factors/Practical Tips for success

• Retail/departmental store is full of opportunities for success, but that success is
reserved for those who are prepared to commit themselves to everlasting
changes.
• Customer card system can be one of the best strategies for the retention of
existing customer and developing new customers. Card System maintains data
base of customer which can be later on used for permanent promotional and
marketing activities. Customer Card System is one of the best CRM practices
used globally.
• To obtain a good average of profits it is necessary to provide state of art facilities
to customers.
• There should be regular and sustained marketing through fliers distribution and
Cable TV.
• The store should have an ample space for customer car parking. It is advisable to
maintain a parking space whereby around 15-20 cars can be parked
• The staff hired should be well mannered and well trained in dealing with the
customers.
• Customers free gift schemes and surprise gift, valuable customer dinner can be
additional success factors.

6 STRATEGIC RECOMMENDATIONS
6.1 Marketing
Regular and sustained marketing is required for a successful business of

departmental store. The important marketing channels would be flyer distribution,
billboards, banners, Cable TV, etc. Regular advertisement expense should be at least
0.5% to 1% of sales in the departmental store business.
Some marketing and promotional tips are as under:
• Existing customers are best referrals.
• Know customers’ needs.
• Introduce home delivery services free of cost for shopping of more then Rs.
2,000/-.
• Frequent clearance sales
6.2 Pricing
Every retailer has a basic philosophy towards pricing their product. What is
important is that they create and stick to a strategy for pricing so as to convey a clear
message to the consumer. The market has certainly created the need for all retailers,
even those at the higher end, to become more value oriented. That is not to suggest
that you necessarily need to compete on price, only that you be aware of providing
consumer perceived value.
Some value pricing strategies are as follows:
• Provides the consumer with an incentive to become a repeat customer by
offering a future discount.
• Frequent clearance sales
• Include a gift with purchase, buy one get one free.
• Feature your discounted prices predominantly.
6.3 Store layout and presentation
Today’s successful retailer is the one making the most profitable use of every square
foot of space in the store and in the warehouse. Because space is costly, retailers
need to take a strategic approach to its use. Floor patterns, location of merchandise,
amounts of merchandise and the appropriate displays are critical in determining
space. Misuse of space can be as detrimental to success as poor buying. It is very
important for every store to create a suitable atmosphere and appealing presentations
in order to trigger the consumer’s buying decision. In a world where one can find
identical merchandise in more than one store, layout and presentation becomes a
key-differentiating factor.
The proposed store should be air-conditioned. Goods should be properly arranged in
shelves categorically having ample passage between the shelves for service trolleys
and customers. There should be proper arrangement of lightening.

6.4 Use of computer
The computer is an invaluable aid in processing the large number of transactions and
vast amounts of information involved in managing a retail operation. The amount of
data needed for merchandise planning would require hundreds of man-hours to
produce, whereas a well-designed computer system can perform the task in seconds.
Software for inventory and sales recording and management should be used to have
updated data at all the times. This software not only records each and every sales
transaction but also updates stock and cash position after every transaction. The
software for a departmental store management is easily available from different
companies and cost around Rs. 20,000/-
7 MARKET INFORMATION
7.1 Market Potential
The market for departmental stores industry in Pakistan has been developing steadily
over the last decade and a mushroom growth of large stores observed in all big cities.
Still a good potential is available for new stores as population of big cities increasing
day by day and new societies are being developed. New residential towns are being
developed. Location and amenities are some of the most vital factors in the success
of a store.
7.2 Target Customers
The target customer for departmental stores is the population/family units of big
cities. Population of urban areas of Pakistan is 33% of total population. Total
estimated current population of Pakistan is 169,665,000 5(169 million).
7.3 Resource Merchandise
Pakistan is one of those countries where abundance of grocery merchandise is

available in wholesale markets of every city. Suppliers normally hesitate to supply
goods on credit to new stores but after confidence building process a reasonable
credit period of 15 days to one month is available to purchasers. The major
wholesale markets Lahore and Rawalpindi are:
• Shahalam Market/Rang Mahal , Lahore
• Akbari Mandi, Lahore
• Hall Road , Lahore
• Urdu Bazar, Lahore
• Abid Market Temple Road, Lahore
• Moochi Gate, Lahore
• Anwari Gate Rawalpindi
5
Source: FBS

• Raja Bazaar, Rawalpindi

• Nankari Bazar, Rawalpindi
More over most of the multi-national and national companies supply their products
along with other equipments like refrigerators directly to the departmental stores.
8 ELECTRIC AND OTHER EQUIPMENT REQUIREMENT

Following is the detail of equipment required for this project.
Table 8–1: Detail of Equipment

No.
Sr. Cost per unit Total Cost
Description of
No. Rs. Rs.
Units
1 Split Air Conditioners 6 35,000 210,000
2 Cash Drawer and Bar Code 2 15,800 31,600
Readers
3 Computers + Barcode Readers 2 30,000 60,000
4 Software (sales and stock 1 20,000 20,000
management)
5 Printer 1 15,000 15,000
6 Fax machine, Telephone 1 16,000 16,000
connections
7 Signboard 1 60,000 60,000
8 Motor cycle with delivery cabin 1 60,000 60,000
9 Electric Fittings and installation 150,000
10 Generator 15 KW 1 325,000 325,000
11 Service Trolleys 15 5,000 75,000
12 UPS 2 5,000 10,000
Total 1,032,600

9 LAND AND BUILDING REQUIREMENT
9.1 Land Requirement
The proposed departmental store requires an area of approx 3,000 sq. ft. It is
recommended that departmental store should be started at owned place rather on
rented premises. The main investment in this business is of land and building, which
is very high due to very expensive land in the proposed locations and high
construction cost. The cost of commercial land situated in a well populated housing
society will be ranging from Rs. 4 Million to Rs. 6 Million. In this pre feasibility the
cost of 3,000 sq. ft. land is taken Rs. 6 million. Following table shows the covered
area requirement for a departmental store:
Table 9–1: Area Utilization

Description Area
Owner’s Office 120
Accounts & Admin. Office 120
Warehouse 225
Display/shopping area/Till 2,535
Total 3,000
Table 9–2: Construction cost

Area (sq. ft.) Cost (Rs/Sq. ft.) Total Cost Rs.
3,000 1,300 3,900,000
9.2 Rent cost
If the required land acquired on rent, it will cost around Rs. 100,000 to Rs. 250,000
per month depending upon the location of store in different proposed areas of Lahore
and Rawalpindi.
9.3 Utilities requirement
The necessary utilities are Electricity, telephone and water. A three-phase

commercial electricity connection is required. Current rate of electricity for these
connections is Rs 14 per kilowatt-hour. At least two telephone connections are
required; one solely used for home delivery service calls.

10 HUMAN RESOURCE REQUIREMENT

Skilled salesmen are easily available at competitive wage rates. Number of workers
required for each department is given below:
Table 10–1: Human resource required

Salary/month Annual salary
Positions Number
(Rs.) (Rs.)
Store manager 1 25,000 300,000
Salesmen∗ 12 10,000 1,440,000
Purchase Officer 1 20,000 240,000
Asst. Purchase Officer 1 12,000 144,000
Cashiers* 4 10,000 480,000
Helpers/cleaners* 4 7,000 336,000
Accounts Officer 1 20,000 240,000
Asst. Account Officer 1 12,000 144,000
Security Guards* 2 8,000 192,000
Total 27 293,000 3,516,000
∗
These people will work in two shifts: 5 Salesmen work in the morning, 7 will work in the evening; 2
Cashier & Helpers/Cleaners in morning, 2 in evening; 1 security guard in morning and 1 in evening
shift will work.

11 PROJECT DETAIL
Table 11–1: Project Economics

Capital Investment Rs.
Land 6,000,000
Building/Infrastructure 3,900,000
Equipments 1,032,600
Pre-Operating Cost 461,000
Shelves & Counters 750,000
Total Capital Investment 12,143,600
Working Capital
Initial Stock 1,596,400
Cash in hand needed for three month expenses (Admin, etc.) 1,648,458
Total Working Capital 3,244,858
Total Investment 15,388,458
Initial Financing Rs.

Debt 50% 7,694,229
Equity 50% 7,694,229
Project Returns
Internal Rate of Return (IRR) 49%
Payback Period (yrs) 3.65
Net Present Value (Rs.) 23,148,555

12 FINANCIAL ANALYSIS
12.1 Projected Income Statement
Rupees
(000)
Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - X
Sales/Revenue 57,600 67,162 78,310 91,310 106,467 124,141 144,748 168,777 196,794 218,956
Cost of Sales:
Add opening stock 1,596 1,596 1,861 2,170 2,531 2,951 3,441 4,012 4,678 5,454
Purchases 47,750 55,677 64,919 75,696 88,261 102,913 119,996 139,916 163,142 181,515
Less closing stock 1,596 1,861 2,170 2,531 2,951 3,441 4,012 4,678 5,454 6,068
Sales tax (4,138) (4,825) (5,626) (6,560) (7,649) (8,919) (10,400) (12,126) (14,139) (15,732)
43,612 50,587 58,984 68,775 80,192 93,504 109,025 127,124 148,226 165,169
Gross Profit 13,988 16,575 19,327 22,535 26,275 30,637 35,723 41,653 48,567 53,787
Operating Expenses: 7,059 7,947 8,795 9,747 10,817 11,926 13,277 14,795 16,504 18,178
Operating Profit 6,929 8,628 10,532 12,788 15,459 18,711 22,446 26,858 32,064 35,609
Financial Charges 1,153 965 745 486 183 - - - - -
Profit before Taxation 5,775 7,663 9,787 12,302 15,276 18,711 22,446 26,858 32,064 35,609
Taxation 1,444 1,916 2,447 3,075 3,819 4,678 5,612 6,714 8,016 8,902
Profit after Taxation 4,332 5,747 7,340 9,226 11,457 14,033 16,835 20,143 24,048 26,707
Acc. Profit b/f - 4,332 10,079 17,419 26,646 38,103 52,136 68,971 89,114 113,162
Un-appropriated Profit c/f 4,332 10,079 17,419 26,646 38,103 52,136 68,971 89,114 113,162 139,869
19
PREF-76/ January, 2010/Rev2

12.2 Projected Balance Sheet

Rupees
(ooo)
Year - 0 Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - X
Tangible Fixed Assets 11,683 11,309 10,964 10,643 10,346 10,070 9,814 9,576 9,355 9,149 8,957
Preoperational expenses 461 369 277 184 92 - - - - - -

Current Assets:
Stocks 1,596 1,596 1,861 2,170 2,531 2,951 3,441 4,012 4,678 5,454 6,068
Cash in Hand / Bank 1,648 7,343 12,314 18,642 26,587 36,453 50,864 68,077 88,606 113,051 140,101
3,245 8,940 14,175 20,812 29,118 39,404 54,304 72,089 93,284 118,505 146,169
Total Assets 15,388 20,618 25,415 31,640 39,556 49,474 64,118 81,665 102,638 127,654 155,126
Owners Equity:
Capital 7,694 7,694 7,694 7,694 7,694 7,694 7,694 7,694 7,694 7,694 7,694
Accumulated Profit - 4,332 10,079 17,419 26,646 38,103 52,136 68,971 89,114 113,162 139,869
Long Term Loan 7,694 6,602 5,322 3,821 2,062 0 - - - - -

Current Liabilities:
Current Portion
of Long Term Loan - - - - - - -
Accounts Payable 1,990 2,320 2,705 3,154 3,678 4,288 5,000 5,830 6,798 7,563
- 1,990 2,320 2,705 3,154 3,678 4,288 5,000 5,830 6,798 7,563
Total Liabilites & O.Equity 15,388 20,618 25,415 31,640 39,556 49,474 64,118 81,665 102,638 127,654 155,126
20

12.3 Projected Cash flow Statement
Rupees
(ooo)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Profit before Financial

Charges & Taxation - 4,332 5,747 7,340 9,226 11,457 14,033 16,835 20,143 24,048 26,707
Amortization 92 92 92 92 92 - - - - -
Depreciation - 373 346 320 297 276 256 238 221 206 192
- 4,797 6,185 7,753 9,616 11,825 14,290 17,073 20,365 24,254 26,899
Working Capital Change - 1,990 65 76 89 103 121 141 164 191 151
Cash form other Sources

Owners 7,694 - - - - - - - - - -
Bank Finance 7,694 - - - - - - - - - -
15,388 - - - - - - - - - -
Total Sources 15,388 6,787 6,251 7,829 9,704 11,928 14,410 17,214 20,529 24,445 27,050
Applications:
Fixed Assets 11,683 - - - - - - - - - -
Preoperational Expenses 461 -
Working Capital 3,245 -
Re -Payment of Loan - 1,092 1,280 1,501 1,759 2,062 - - - - -
Tax - - - - - - - - - - -
15,388 1,092 1,280 1,501 1,759 2,062 - - - - -
Cash Increase/(Decrease) - 5,695 4,970 6,328 7,945 9,866 14,410 17,214 20,529 24,445 27,050
Opening Balance 1,648 1,648 7,343 12,314 18,642 26,587 36,453 50,864 68,077 88,606 113,051
Closing Balance 1,648 7,343 12,314 18,642 26,587 36,453 50,864 68,077 88,606 113,051 140,101
21

12.4 Revenue Calculation
Rs(000)
Optimum Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - X
Projection 100% 40% 44% 48% 53% 59% 64% 71% 78% 86% 90%
Projected Revenue (Rupees) 144,000,000 57,600,000 67,161,600 78,310,426 91,309,956 106,467,409 124,140,999 144,748,405 168,776,640 196,793,562 218,956,473
(Rs. 400,000 per day)
Sale Price growth rate Accumulated 6% 12% 19% 26% 34% 42% 50% 59% 69%
Purchase price growth rate Accumulated 6% 12% 19% 26% 34% 42% 50% 59% 69%
Revenue (Rupees): Proportion

1 Groceries and food items 55% 31,680,000 36,938,880 43,070,734 50,220,476 58,557,075 68,277,549 79,611,623 92,827,152 108,236,459 120,426,060
2 Baby garments and baby products 5% 2,880,000 3,358,080 3,915,521 4,565,498 5,323,370 6,207,050 7,237,420 8,438,832 9,839,678 10,947,824
3 Crockery and plastic items 4% 2,304,000 2,686,464 3,132,417 3,652,398 4,258,696 4,965,640 5,789,936 6,751,066 7,871,742 8,758,259
4 Soaps detergents and chemicals 15% 8,640,000 10,074,240 11,746,564 13,696,493 15,970,111 18,621,150 21,712,261 25,316,496 29,519,034 32,843,471
5 Cosmetics and artificial jewellery 5% 2,880,000 3,358,080 3,915,521 4,565,498 5,323,370 6,207,050 7,237,420 8,438,832 9,839,678 10,947,824
6 Ice cream and Beverages 5% 2,880,000 3,358,080 3,915,521 4,565,498 5,323,370 6,207,050 7,237,420 8,438,832 9,839,678 10,947,824
7 Stationery and greeting cards/gifts 1% 576,000 671,616 783,104 913,100 1,064,674 1,241,410 1,447,484 1,687,766 1,967,936 2,189,565
8 Watches and Clocks 1% 576,000 671,616 783,104 913,100 1,064,674 1,241,410 1,447,484 1,687,766 1,967,936 2,189,565
9 Electronic and electrical appliances 2% 1,152,000 1,343,232 1,566,209 1,826,199 2,129,348 2,482,820 2,894,968 3,375,533 3,935,871 4,379,129
10 General items 2% 1,152,000 1,343,232 1,566,209 1,826,199 2,129,348 2,482,820 2,894,968 3,375,533 3,935,871 4,379,129
11 Bakery Items 5% 2,880,000 3,358,080 3,915,521 4,565,498 5,323,370 6,207,050 7,237,420 8,438,832 9,839,678 10,947,824
Total 100% 57,600,000 67,161,600 78,310,426 91,309,956 106,467,409 124,140,999 144,748,405 168,776,640 196,793,562 218,956,473
22

12.5 Purchases & Stock Calculation

Gross margin % of Sales :
1 Groceries and food items 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
2 Baby garments and baby products 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%
3 Crockery and plastic items 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
4 Soaps detergents and chemicals 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
5 Cosmetics and artificial jewellery 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
6 Ice cream and Beverages 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
7 Stationery and greeting cards/gifts 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
8 Watches and Clocks 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
9 Electronic and electrical appliances 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%
10 General items 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
11 Bakery Items 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
Purchases (Rupees):
1 Groceries and food items 26,928,000 31,398,048 36,610,124 42,687,405 49,773,514 58,035,917 67,669,879 78,903,079 92,000,990 102,362,151
2 Baby garments and baby products 1,872,000 2,182,752 2,545,089 2,967,574 3,460,191 4,034,582 4,704,323 5,485,241 6,395,791 7,116,085
3 Crockery and plastic items 1,612,800 1,880,525 2,192,692 2,556,679 2,981,087 3,475,948 4,052,955 4,725,746 5,510,220 6,130,781
4 Soaps detergents and chemicals 7,776,000 9,066,816 10,571,907 12,326,844 14,373,100 16,759,035 19,541,035 22,784,846 26,567,131 29,559,124
5 Cosmetics and artificial jewellery 2,016,000 2,350,656 2,740,865 3,195,848 3,726,359 4,344,935 5,066,194 5,907,182 6,887,775 7,663,477
6 Ice cream and Beverages 2,592,000 3,022,272 3,523,969 4,108,948 4,791,033 5,586,345 6,513,678 7,594,949 8,855,710 9,853,041
7 Stationery and greeting cards/gifts 460,800 537,293 626,483 730,480 851,739 993,128 1,157,987 1,350,213 1,574,348 1,751,652
8 Watches and Clocks 403,200 470,131 548,173 639,170 745,272 868,987 1,013,239 1,181,436 1,377,555 1,532,695
9 Electronic and electrical appliances 806,400 940,262 1,096,346 1,278,339 1,490,544 1,737,974 2,026,478 2,362,873 2,755,110 3,065,391
10 General items 979,200 1,141,747 1,331,277 1,552,269 1,809,946 2,110,397 2,460,723 2,869,203 3,345,491 3,722,260
11 Bakery Items 2,304,000 2,686,464 3,132,417 3,652,398 4,258,696 4,965,640 5,789,936 6,751,066 7,871,742 8,758,259
47,750,400 55,676,966 64,919,343 75,695,954 88,261,482 102,912,888 119,996,427 139,915,834 163,141,863 181,514,916
Stocks (Rupees)
1 Groceries and food items 523,600 610,518 711,864 830,033 967,818 1,128,476 1,315,803 1,534,227 1,788,908 1,990,375
2 Baby garments and baby products 156,000 181,896 212,091 247,298 288,349 336,215 392,027 457,103 532,983 593,007
3 Crockery and plastic items 134,400 156,710 182,724 213,057 248,424 289,662 337,746 393,812 459,185 510,898
4 Soaps detergents and chemicals 324,000 377,784 440,496 513,619 598,879 698,293 814,210 949,369 1,106,964 1,231,630
5 Cosmetics and artificial jewellery 168,000 195,888 228,405 266,321 310,530 362,078 422,183 492,265 573,981 638,623
6 Ice cream and Beverages 50,400 58,766 68,522 79,896 93,159 108,623 126,655 147,680 172,194 191,587
7 Stationery and greating cards/gifts 38,400 44,774 52,207 60,873 70,978 82,761 96,499 112,518 131,196 145,971
8 Watches and Clocks 33,600 39,178 45,681 53,264 62,106 72,416 84,437 98,453 114,796 127,725
9 Electronic and electrical appliances 67,200 78,355 91,362 106,528 124,212 144,831 168,873 196,906 229,592 255,449
10 General items 81,600 95,146 110,940 129,356 150,829 175,866 205,060 239,100 278,791 310,188
11 Bakery Items 19,200 22,387 26,103 30,437 35,489 41,380 48,249 56,259 65,598 72,985
1,596,400 1,861,402 2,170,395 2,530,681 2,950,774 3,440,602 4,011,742 4,677,691 5,454,188 6,068,439
23

12.6 Administrative Expenses
Rupees
Administrative Salaries 3,516,000 4,026,000 4,428,600 4,871,460 5,358,606 5,894,467 6,483,913 7,132,305 7,845,535 8,630,089
legal & Audit Fee 30,000 33,000 36,300 39,930 43,923 48,315 53,147 58,462 64,308 70,738
Entertainment 288,000 335,808 391,552 456,550 532,337 620,705 723,742 843,883 983,968 1,094,782
Telephone, Fax and Postage 172,800 201,485 234,931 273,930 319,402 372,423 434,245 506,330 590,381 656,869
Electricity 1,621,368 1,783,505 1,961,855 2,158,041 2,373,845 2,611,229 2,872,352 3,159,588 3,475,546 3,823,101
Advertisement 576,000 671,616 783,104 913,100 1,064,674 1,241,410 1,447,484 1,687,766 1,967,936 2,189,565
Repair of building and equip 49,326 73,989 98,652 123,315 147,978 172,641 197,304 221,967 246,630 271,293
Delivery motorcycle 103,680 120,891 140,959 164,358 191,641 223,454 260,547 303,798 354,228 394,122
Insurance stocks 63,856 74,456 86,816 101,227 118,031 137,624 160,470 187,108 218,168 242,738
Travelling conveyance 115,200 134,323 156,621 182,620 212,935 248,282 289,497 337,553 393,587 437,913
Printing and stationery 57,600 53,729 62,648 73,048 85,174 99,313 115,799 135,021 157,435 175,165
Depreciation 373,260 345,684 320,378 297,140 275,785 256,148 238,078 221,437 206,102 191,960
Amortization 92,200 92,200 92,200 92,200 92,200 - - - - -
7,059,290 7,946,686 8,794,617 9,746,918 10,816,531 11,926,011 13,276,578 14,795,217 16,503,823 18,178,335
24

13 KEY ASSUMPTIONS
13.1 Operating Assumptions

Hours operational per day 16 hours
Days operational per year 360 days
Stock inventory remain in store
No. of days
Category of item
Groceries and food items 7
Baby garments and baby products 30
Crockery and plastic items 30
Soaps detergents and chemicals 15
Cosmetics and artificial jewellery 30
Ice cream and Beverages 7
Stationery and greeting cards/gifts 30
Watches and Clocks 30
Electronic and electrical appliances 30
General items 30
Bakery Items 3
13.2 Economy Related Assumptions

Electricity/Fuel cost growth rate 10%
Salaries growth rate 10%
Tax rates 35%
13.3 Cash Flow Assumptions

Accounts receivable (average) 0 days
Accounts payable (average) 15 days
13.4 Expense Assumptions

Telephone Expenses (% of Revenue) 0.3%
Repair and maintenance (% of Equipment & Building) 1%
Entertainment Expenses (% of Revenue) 0.5%
Insurance of stocks (% of stock) 4%
Capacity Utilization Growth Rate 10%
Amortization of Pre-operating cost 20%
Advertisement (% of Revenue) 1%
Electricity growth rate 10%
Traveling and conveyance (% of Revenue) 0.2%
25

Motorcycle Delivery Expenses (% of Revenue) 0.18%

Printing and stationery (% of Revenue) 0.1%
Proportion of sales tax taxable sales and purchases 70%
Revenue price growth rate 6%
Purchase price growth rate 6%
13.5 Financials Assumptions

Project life (Years) 10
Debt 50%
Equity 50%
Interest rate on long-term debt 16%
Debt tenure (Years) 5
Debt payments per year 12
26

14 ANNEXURES
1. For Machinery & Equipment (Cash Counter, Drawers, Bar Code
readers etc)
Rahman Business Systems Pakistan
E-425 Main Boulevard
D.H.A Cantt Lahore Pakistan
Phone: 0092-42-6612139, 0092-42-6621458, 0092-3004487931,
0092-3334234931, 0092-321-4499185
www.rahmansgroup.com, www.rcobsy.com
info@rahmansgroup.com
2. For Wracks and Shelves

Mr. Javaid Sheikh
Rax Manufecturing
Sheikhpur Noon Road, Behind Koh Noor Mill
Rawalpindi
0300-5145266
3. For Computer Software (POS)

SMEDA SMAP Software available free of Cost downloadable at link
http://smap.smeda.org/
4. Rashid Jamil
Al-Khalid Consultants
Contacts: 051-5857225, 0321-5517275
27

Pre-Feasibility Study: Small and Medium Enterprises Development Authority

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Small and Medium Enterprises Development Authority

6th Floor ,LDA Plaza , Egerton Road , Lahore 54000, Pkaistan

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

Revision Date January 2010

PREF-76/ Jan, 2010/Rev2 2

1 EXECTIVE SUMMARY ................................................................................... 5

2.1 PROJECT BRIEF................................................................................................ 6

3.1 NATIONAL ANALYSIS ...................................................................................... 7

4.1 SWOT ANALYSIS ......................................................................................... 10

5.1 PROPOSED BUSINESS LEGAL STATUS ............................................................ 10

6.1 MARKETING .................................................................................................. 13

7.1 MARKET POTENTIAL ..................................................................................... 14

PREF-76/ January, 2010/Rev2 3

9 LAND AND BUILDING REQUIREMENT .................................................. 16

9.1 LAND REQUIREMENT .................................................................................... 16

11 PROJECT DETAIL ...................................................................................... 18

12 FINANCIAL ANALYSIS ............................................................................. 19

12.1 PROJECTED INCOME STATEMENT ............................................................... 19

13.1 OPERATING ASSUMPTIONS ........................................................................ 25

PREF-76/ January, 2010/Rev2 4

PREF-76/ January, 2010/Rev2 5

2.1 Project Brief

2.2 Opportunity Rationale

2.3 Project Capacity and Cost

PREF-76/ January, 2010/Rev2 6

2.4 Project investment

3 SECTOR AND INDUSTRY ANALYSIS

3.1 National Analysis

Departmental stores business is emerging as one of the good business ventures in

PREF-76/ January, 2010/Rev2 7

Table 3–3: Major Industry Players

PREF-76/ January, 2010/Rev2 8

W Wilson Sadder, Gulraiz Colony, Commercial

3.2 Legal issues regarding industry4

PREF-76/ January, 2010/Rev2 9

4 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR

4.1 SWOT Analysis

A SWOT Analysis is a strategic planning tool used to evaluate the Strengths,

4.1.1 Strengths and opportunities

4.1.2 Weaknesses and threats

5.1 Proposed Business Legal Status

Legal status is recommended to be a sole proprietorship/partnership because it

PREF-76/ January, 2010/Rev2 10

5.2 Product Mix

5.3 Proposed Location

Table 5–2: Location

PREF-76/ January, 2010/Rev2 11

5.4 Key success factors/Practical Tips for success

PREF-76/ January, 2010/Rev2 12

Regular and sustained marketing is required for a successful business of

6.3 Store layout and presentation

PREF-76/ January, 2010/Rev2 13

6.4 Use of computer

7.1 Market Potential

7.2 Target Customers

7.3 Resource Merchandise

Pakistan is one of those countries where abundance of grocery merchandise is

PREF-76/ January, 2010/Rev2 14

• Raja Bazaar, Rawalpindi

8 ELECTRIC AND OTHER EQUIPMENT REQUIREMENT

Table 8–1: Detail of Equipment

PREF-76/ January, 2010/Rev2 15