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IQRA UNIVERSITY

ENTREPRENUERSHIP TERM
REPORT

REEMA MASOOD ABBASI(3773)


SUBMITTED TO: DR. MUZAFFAR

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TABLE OF CONTENT
1 PURPOSE OF THE DOCUMENT.................................................................4

2 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR


INVESTMENT.......................................................................................................4
SWOT ANALYSIS
Strengths and opportunities
Weaknesses and threats

3 PROJECT PROFILE ......................................................................................4


OPPORTUNITY RATIONALE
PROJECT BRIEF
PROPOSED BUSINESS LEGAL STATUS
PROJECT CAPACITY AND RATIONALE
PROJECT INVESTMENT
PRODUCT MIX

4 STRATEGIC RECOMMENDATIONS .......................................................6


MARKETING
PRICING
STORE LAYOUT AND PRESENTATION
USE OF COMPUTER

5 SECTOR AND INDUSTRY ANALYSIS......................................................7


NATIONAL ANALYSIS
LEGAL ISSUES REGARDING INDUSTRY

6 MARKET INFORMATION .........................................................................8


MARKET POTENTIAL
TARGET CUSTOMERS
RESOURCE MERCHANDISE

7 LAND AND BUILDING REQUIREMENT.................................................8


LAND REQUIREMENT
CONSTRUCTION COST
RENT COST
UTILITIES REQUIREMENT

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8 HUMAN RESOURCE REQUIREMENT.................................................9

9 FINANCIAL ANALYSIS...........................................................................10
PROJECTED INCOME STATEMENT
PROJECTED BALANCE SHEET
PROJECTED CASH FLOW STATEMENT
REVENUE CALCULATION
PURCHASES &STOCK CALCULATION
ADMINISTRATIVE EXPENSES

10 KEY ASSUMPTIONS
OPERATING ASSUMPTIONS
ECONOMY RELATED ASSUMPTIONS
CASH FLOW ASSUMPTIONS
EXPENSE ASSUMPTIONS
FINANCIALS ASSUMPTIONS

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1 PURPOSE OF THE DOCUMENT
This particular pre-feasibility is regarding Departmental Store, which comes under
trading sector. The objective of the pre-feasibility is primarily to facilitate potential
entrepreneurs in project identification for investment and in order to serve this
objective, the document covers various aspects of the project concept development,
startup, marketing, and finance and business management.

2 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR


INVESTMENT
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.
Strengths and opportunities
Easy availability of resources(manpower/salesman)
Growing population
Expanding cities
Status symbol to shop from big stores
Popularity of variety shopping under single roof
Weaknesses and threats
Government polices
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

3 PROJECT PROFILE
Departmental store is a large retail store organized into departments offering a
variety of merchandize, commonly part of retail chain under one roof.
Opportunity rationale
In Pakistan concept of departmental store has gained popularity in late eighties after
the emergence of UTILITY STORES by the government. Though due to lack of
proper management and planning but 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
No specialized/technical knowledge required for entrepreneur
Variety of goods under one roof
Margin for innovation

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Easy diversification towards new product mix
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 3000 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
Ice-cream and beverages
Stationery, greeting cards and gifts
Cosmetics and artificial jewellery
Watches and clocks
Electronics/electrical products
General items

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.

Project Capacity and Rationale


The proposed departmental store will have an area of 3000 sqft having
covered/indoor shopping facilities. The store will operate for 12 to 15 hours from
morning to midnight. Operating time depend on localities requirements.

Project investment
Sr.# Description Rupees
1. Capital cost 9,679,000
2. Working capital/Cash in Hand 2,361,395
Total 12,040,395

Product mix
The store will offer the following broad categories of goods to its customer:
Category of item Proportion Avg Gross Margin
Groceries and food items 55% 10%
Baby garments and baby products 10% 35%
Crockery and plastic items 8% 30%
Soaps detergents and chemicals 3% 10%
Ice-cream and beverages 10% 25%
Stationery, greeting cards and gifts 3% 10%
Cosmetics and artificial jewellery 2% 20%
Watches and clocks 2% 30%
Electronics/electrical products 3% 30%
General items 4% 15%

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Financial Summary
Project cost IRR NPV Payback period
Rs. 12.04 Million 38% Rs. 8.4 Million 3.7 Years

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 Karachi,
Lahore,Islamabad/Rawalpindi, Faisalabad Sargodha etc.
The proposed departmental store is feasible in any area where there are 4,500
houses/family units..

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 change.
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.

4 STRATEGIC RECOMMENDATIONS
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.
Frequent clearance sales

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,

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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.

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.

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. This cost
around Rs. 20,000/-

5 SECTOR AND INDUSTRY ANALYSIS


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

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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 9.9%.2 This sector’s contribution towards GDP in the year 2005-2006 is 19.2%3.
The following table shows the contribution of retail and wholesale sector towards
GDP for the last 6 years at constant factor cost.
6 MARKET INFORMATION

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.

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 150,863,000 8(151 million).

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.

7 LAND AND BUILDING REQUIREMENT

Land Requirement
The proposed departmental store requires an area of approx 3000 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 required land will be ranging from Rs. 4,000,000 to
Rs. 6,000,000. In this pre feasibility the cost of 3000 sqft land taken Rs. 6.00 million.
Following table shows the covered area requirement for a departmental store:

Area Utilization
Description Sq ft. Units Area
Owner’s Office 120 1 120
Accounts & Admin. Office 120 1 120

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Warehouse 225 1 225
Display/shopping area/Till 2,535 1 2,535
Total 3,000
Construction cost
Current construction cost of departmental stores is approximately Rs. 800 per sq. ft.
Total construction cost of 3000 sq. ft area will be Rs. 2,400,000/-

Rent cost
If the required land acquired on rent, it will cost around Rs. 100,000 to Rs. 150,000
per month in different proposed areas of Lahore.

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 8.8 per kilowatt-hour. At least two telephone connections are
required; one solely used for home delivery service calls.

8 HUMAN RESOURCE REQUIREMENT


Skilled salesmen are easily available at competitive wage rates. Number of workers
required for each department is given below:

Human resource required


Positions Number Salary/month
(Rs.)
Annual salary
Store Manager 1 15,000 180,000
Salesmen 10 4,500 540,000
Cashiers 2 8,000 192,000
Helpers/Cleaners 2 4,000 96,000
Accounts officer 1 8,000 96,000
Security Guard 1 4,500 54,000
Total 17 1,158,000

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9 FINANCIAL ANALYSIS

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10 KEY ASSUMPTIONS
12.1 Operating Assumptions
Hours operational per day 14 hours
Days operational per year 360 days
Stock inventory remain in store
Category of item No of days
Groceries and food items 07
Baby garments and baby products 30
Crockery and plastic items 30
Soaps detergents and chemicals 15
Ice-cream and beverages 03
Stationery, greeting cards and gifts 30
Cosmetics and artificial jewellery 30
Watches and clocks 60
Electronics/electrical products 60
General items 30
12.2 Economy Related Assumptions
Electricity cost growth rate 10%
Wage growth rate 10%
Markup rate on long-term loan 14%
Tax rates 35%
12.3 Cash Flow Assumptions
Accounts receivable (average) 0 days
Accounts payable average 15 days
12.4 Expense Assumptions
Telephone Expenses (% of Revenue) 0.3%
Repair and maintenance (% of revenue) 0.1%
Insurance of stocks (% of stock) 4%
Annual sales growth 10%
Amortization of deferred cost 20%
Advertisement % of sales 0.5% to 1%
Electricity growth rate 10%
Traveling and conveyance % of sales 0.3%
Printing and stationery % of sales 0.08%
Proportion of sales tax taxable sales and purchases 70%
Revenue price growth rate 6%
Pre-Feasibility Study Departmental Store
PREF-76/ July, 2004/Rev1
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Purchase price growth rate 4%
12.5 Financials Assumptions

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Project life (Years) 10
Debt 50%
Equity 50%
Interest rate on long-term debt 14%
Debt tenure (Years) 5

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