Tom Ford Richemont Business Case Final

Tom Ford_Richemont Watch Business Plan

1.0 Executive Summary

TFR Ltd (Tom Ford Richemont Ltd) is a start-up watch producer and distribution company, which will be fully owned by Richemont. Its strategy is to serve the upscale niche markets of the watch industry. It will capitalize on the Swiss engineering and manufacturing used to build the watches and the universal appeal of Tom Ford’s designs to carve a niche in the accessible luxury watch industry. There are many untapped potential markets within this industry that desire high-quality, stylish goods, and a combination of Richemont and Tom Ford will help both the companies to effectively cater to these markets.

It will be the firm's intention to build and export its products to the major markets in the world. To do this the company's long-term goals are to achieve a major market share in the U.S in its price segment, make significant progress in key European markets like Italy, France and Germany and build a substantial presence in Asia, specifically in Hong Kong, South Korea and China. The firm aims to build brand image and brand equity through marketing, achieve a sustainable 70% gross profit margin, and eventually produce luxury watches in addition to the initial, mid-level price segment.

The Company

TFR Ltd will be a privately held company belonging to Richemont.

Production will take place in Geneva, Switzerland. Richemont will earmark space in one of the existing manufacturing units and invest in segregating an exclusive facility for the manufacture of TF watches. The factory will be of 1,000 square meters and should be large enough for the first three years of the company's growth

Sales and marketing are focused on the United States; Germany, France and Italy in Europe; Hong Kong, South Korea and China in Asia and Dubai in the Middle East. Expansion into further markets will be planned out after 5 years of operation.

TFR's sales force consists of President based out of Geneva with key functions of Manufacturing, Marketing, Commercial and Supply Chain, Vice Presidents for America, Europe and Asia, who will have a team of 2-3 sales managers to look after the distribution channels.

The Products

The initial product line will be elegant analog, mechanical and quartz watches with characteristics in line with the core values of Tom Ford. The watches will be water resistant to 100 meters of depth.


The pricing strategy will be to directly compete with the other major competitors in the accessible luxury watch segment example Gucci, Hermes and Dunhill. The price per watch will range between $1000 and $3000. A select and limited range will also be launched in the vicinity of $4000 which will be advertised and be the face of the brand.

The Market

Entry into the mid-level luxury watch industry comes at a right time, with some key consumer buying behavior changes after the 2008 recession. Over the past two years, the purchase of mid-level and high-level European watches has increased by 50 percent in the U.S. and this trend is expected to continue.

One of the most important recent trends is that potential watch buyers are willing to spend higher amounts on watches because of the enhanced image appeal. Therefore, a company that can build a substantial brand image in this industry gains a significant competitive advantage. It is the aim of TFR Ltd to capitalize on the image of Tom Ford and the high quality of Richemont while pursuing the innovative styles necessary for brand building.

Financial Considerations

The company's start up costs will be $25 million. Richemont will initially fund the venture completely. The majority of the start-up costs will consist of investing in a manufacturing facility, research and development, initial inventory, marketing and a strong cash account. The Break-even Analysis shows TFR Watches will be able to make a steady profit from the first year itself.

Chart: Highlights


1.1 Objectives

1. To make TF Watches one of the top 10 selling European watch brands in the accessible luxury segment.

2. To eventually produce luxury watches in addition to the moderately priced line. 3. To achieve a 70% gross profit margin. 4. To achieve appreciable market share in the U.S, French, German, Italian, Middle East

(Dubai), Hong Kong and Chinese markets.

1.2 Mission

TFR Ltd is a watch company that produces wrist-watches for sale across the key markets in the world. The company will build its image based on the style quotient of Tom Ford and the quality quotient of Richemont, and then will begin selling higher profit, luxury watches.

1.3 Keys to Success

To succeed TFR Watches must:

Build and sell high quality products which are high on style and dream factor coupled with a unique timeless appeal.

Achieve 100% customer satisfaction. Build brand image and brand equity through marketing.

2.0 Company Summary

TFR Ltd will sell quality watches and provides excellent customer service for customers seeking a reliable watch within the accessible luxury watch market.

2.1 Company Ownership

TFR is a privately held international corporation. Production takes place in Geneva, Switzerland and sales and marketing will be focused on the United States, Germany, France and Italy in Europe, Hong Kong, South Korea and China in Asia and Dubai in the Middle East.

Ownership:

Richemont – 100%


2.2 Start-up Summary

Sixty percent (60%) of start-up costs will go to assets. Start-up costs will be financed through the owners' investments, and loans. The assumptions are shown in the following tables.

Table: Start-up Expenses


Table: Start-up Funding

2.3 Company Locations and Facilities

The Switzerland factory is situated at Geneva. The factory is 1000 square meters and should be large enough for the first three

years of the company's growth. The watches will be shipped and distributed from Switzerland.

3.0 Products

The watches will be mid-level all-around high-quality watches with a style quotient in sync with Tom Ford’s designing expertise. The watches will be water resistant.

The price will be very competitive: $1000-$3000. A few offerings will be done in the range of $4000.

3.1 Product Description

Tom Ford watches are to be a combination of unconventional design and the creative source. The collection will encompass a common passion for design, functionality, craftsmanship, quality, and lifestyle. We partner with Richemont to develop two basic


lines. A new idea that redefines a highly crafted but yet accessible lifestyle watch, and another line is to be elegant, sleek and yet classical men’s watch. Our watches will have, besides functionality, an uncompromising style. A perfect combination of analogue dial, quartz and automated mechanical movement will deliver style and function, without having to compromise on one or the other. Our elegant line will be analogue watch line with a quartz movement. All TF watches will be water resistant to 100 meters of depth.

Lifestyle watch line

Skeletonised titanium case and dial; the most expensive piece of the sports collection using rose gold and alligator strap (different colors); automatic mechanical movement hand finished in Richemont factories ateliers.

This model shows through a skeleton dial and a clear sapphire crystal case back an automatic mechanical movement.

The surface will be treated with a black Diamond-Like-Carbon coating which is 3 times harder than steel, and second only to diamond. Strap – spido textile material.

Skeleton dial automatic mechanical movement;

Titanium case, titanium dial

Strap – spido textile material;

Basic silver titanium color.


Elegant, quartz watch line

3.2 Competitive Comparison

TF Watches will have the following sustainable competitive advantages:

1. Swiss technology, experience, proficiency, and reputation. 2. High quality and style at an accessible price. 3. Elegant and ergonomic styling. 4. Devoted Swiss work force. 5. American marketing skills.

3.3 Sales Literature

TF Watches will use advertising, public relations, and sales programs to make the public aware of the watches.

This model is produced with analog dial display which may come in different colors, quartz movement;

Sleek, elegant with a

titanium band bracelet; comes with interchangeable bracelet – leather in different colors

This model comes with a kautschuk band bracelet – because of the specific kautschuk smell the bracelet is made with light cedar wood perfume note; kautschuk and dial may come in different colors


1. Advertisements and public relations pieces in local newspapers.2. Full-color brochures will be distributed at the various outlets where the watches are

sold.

3.4 Sourcing

TFR Watches will only sell watches produced at its Swiss factory, therefore additional sourcing of watches will not be necessary. However, the sourcing of parts for the manufacturing of the watches will play a constant role in the firm's profitability.

3.5 Technology

PC-based software will be used for accounts receivable/payable, inventory, purchasing, sales, shipping, and returns.

3.6 Future Products

A luxury watch is the current main focus for a future product. Other future products could include alarm clocks, wall clocks, and clocks for luxury automobiles built in Germany.

4.0 Market Analysis Summary

The purchase of accessible luxury watches has increased considerably over the past one year. We expect the sales to continue growing, and to capitalize on this ever-present market for watches - people will always need and buy watches.

4.1 Market Segmentation

In the table Price segmentation in the watch market, four different segments are distinguished within the watch market according to pricing. They are exclusive luxury, accessible luxury, mid price and low price. Luxury watches are defined as being those with a factory-gate price of over CHF 500 (553$), which corresponds more or less to a retail price in excess of CHF 1500 (1660$). Accessible luxury watches are defined as those being sold for factory prices between CHF 500 (553$) and CHF 3000 (3320$), which corresponds to a retail price between CHF 1500 (1660$) and CHF 9000 (9955$). The technologies used are mainly based on mechanical movements and to a lesser extent quartz movements. The exclusive luxury segment represents watches with a factory-gate price in excess of CHF 3000 with no upper limit given. The production involves sophisticated craftsmanship and technologies are usually exclusively based on top-grade mechanical movements.


Source Pictet, FH

Q – Quartz movement, M – Mechanical movement

Our strategic positioning will be in the accessible luxury segment with our average price being between 1000$ – 3000$. Only certain limited collection pieces will be priced at 4000$ and will be featuring precious metal and hand made mechanical movement.

Also, on the Matrix chart for the watch industry the most important brands in the watch industry are displayed. They can be grouped into five different profiles resulting from their consumer image. The categories are the following:

• Connoisseurs/Specialists

• Sport

• Fashion

• Lifestyle

• Jewellery

The chart is additionally showing the division into four regions using three criteria: the price (low price – accessible luxury – exclusive luxury), the type of movement (mechanical and complication versus quartz) and the technology grade (technical content versus design content).

Our brand will be positioned in the accessible luxury segment as a lifestyle/fashion watch. Majority of the pieces sold will be from our fashionable elegant quartz line with some of the sales coming also from our more upscale lifestyle line. As it is seen from the chart our major competitors will be Dunhill, Gucci and Rado.


Chart: Matrix for the Watch Industry

4.2 Target Market Segment Strategy

The watch industry, particularly the accessible luxury segment, has witnessed a good growth in 2010. Potential watch buyers are willing to spend moderate to high amounts on watches because they can make the customer look good - and hence feel good about themselves. In addition, TF Watches will be built to last a lifetime - battery replacement every 5 years will be the only necessary maintenance, therefore customers will see the inherent value in the watches. The materials employed like titanium are easy and light to wear and have extreme durability.

The upscale niche market that TF Watches has targeted is competitive because of the competitors and the discerning consumers it serves. However, the competition is based more on quality than price unlike the discount market.

4.2.1 Market Needs

The upscale watch industry is currently in a growth period, so now is an ideal time for entry.

4.2.2 Market Trends

TFR Ltd will distribute the watches across the key markets across the world.


The cost of marketing the new product is expected to be the biggest challenge for TFR Ltd. The initial use of Richemont’s facilities as a distribution channel will allow for cost savings.

Strong Brand names – Tom Ford and Richemont have very strong resonance with consumers in the luxury industry.

4.2.3 Market Growth

Consumers often only buy a new watch every 5 to 10 years, yet they purchase them often as gifts. Therefore, advertising will be increased during the Christmas holiday season.

The intended retail outlets are full price and full service, and moreover the company will take advantage of the extensive Richemont distribution channel across the world.

4.2.4 Main Competitors

The main competitors are Gucci, Hermes, Dunhill, and Rado. These brands have strong equity, but there is room in this market for a new company as brand loyalty is not high on potential consumers' reasons for purchasing and moreover, Tom Ford’s popularity will help in establishing the brand quickly across the key markets.

5.0 Marketing Strategy and Implementation Summary

TFR Watches' strategy is to serve the accessible luxury markets of the watch industry. It will capitalize on the Swiss engineering and manufacturing used to build the watches. There are many untapped potential markets that desire high-quality goods which are high on the style quotient. TFR Watches' marketing strategy will alleviate this problem.

TFR’s business mission will be composed of 3 main pillars:

Purpose Business domain Major Objectives

The purpose of TFR is to offer products of the highest quality combined with a reputation as an authoritative purveyor of style. This purpose has the legitimacy to succeed because of the inherent strengths of the two partners.

The business domain of TFR is watches, whilst the major objective of TFR is to become the one of the key players in the accessible fashion segment.

The market positioning snapshot provides TFR with a relevant indication for high potential success in the watch market. TFR shall differentiate itself attractively from its major competitors securing profit in the Lifestyle Fashion market segment.


TFR shall leverage on the very specific capabilities of Richemont Group in order to successfully serve the market, and second, compare its current state in relation to the corresponding characteristics of its major competitors.

The international success of TRF will depend entirely on how closely the skills of the company’s personnel match the expectations and aspirations of customers and other important stakeholders in the market. The blend of knowledge and the ability to apply this knowledge appropriately embodies the skill set of the HR structure of TRF. Also by combining the resources of Richemont Group and TF, TRF consolidates a unique portfolio of financial, technological, stylistic, production, information and organizational elements.

Global Core Strategy

Core Value Proposition

TRF offers unequalled quality timepieces by striking a delicate balance between craftsmanship, technology, the exclusive use of the highest quality materials and the endorsement of an authoritative purveyor of style.

5.1 Marketing Strategy

The marketing strategy will focus on two segments:


1. The company will benchmark the objectives for promotion, outlet selling, and personal selling.

2. The marketing budget will be $10 M per year.

The marketing of the Tom Ford watches will be aligned on a macro level with the marketing of the Tom Ford brand worldwide. The TOM FORD collection encompasses an extensive range of high level luxury men’s clothes, tailoring, dress shirts, suits, accessories, footwear and leather goods as well as women’s wear. The watch line is an organic extension of the product range which serves as an extension to the modern wardrobe. The underlying objective of the campaign is to increase awareness of the line of watches. It is of paramount importance that the desired brand awareness level is reached without compromising the mission statement of TFR. The main lever which shall enable the company to achieve such goals is the legitimacy that Richemont Group through its manufacturing capabilities can bring to the brand.

The marketing communication structure needs to be conceived as an organic extension of the distribution policy. More specifically the communication campaign is an institutional one where the initial € 10 Million marketing budget is allocated in such a way that a unified consistent brand message is delivered throughout the collection lifecycle. The elements of the institutional campaign are numerous and can vary depending on the distribution type of the business. As a general outline – the philosophy is to have a targeted global expansion plan leveraging an extensive network of POS and DOS that are slated to open or are already existing, including flagships, free standing stores, shops in shops and multi-brand distributors. Another characteristic of the Tom Ford distribution strategy is to undersign agreements with high profile franchise partners in key cities in Europe, South America, Asia and the Middle East. Franchise partners are to invest and operate the store under the strict guidelines of Tom Ford International. Of course this entails a certain degree of parity between business partners which can be exploited in the benefit of TFR as well, more specifically sharing the costs of Institutional Direct Marketing Tools is a normal business practice in such business models.

As a definition we classify as TFR marketing tools the following:

1. Advertising Advertorials Editorials Outdoor Print Outdoor Media (LED, LCD etc.)

2. PR: Materials, Richemont manufacture events, Prepared campaign video

3. Events: Animations Cocktail events

4. Direct Marketing Tools ( Seasonal Institutional Tools ): Catalogues Flyers Posters Samples Show cards


Thank you notes Client information card

5. Window materials: Window images Sales stickers Printed guideline Special window props Special window stickers Themed windows

The marketing approach of the TFR product line launch lies within the clear focus on two communication pillars. In order to initiate and educate the customer about the essence of the Tom Ford brand of watches, contacts with consumers must be given priority at the initial phase and so the communication shall stress the investment into in-store events like DM tools and window materials. The second pillar on which the awareness shall be built on will be “word of mouth”. It is expected that the incredible awareness and appeal that Tom Ford has as a designer and as a successful Hollywood movie director will be a big opportunity to generate buzz and augment the initial editorial coverage of the product line launch. The communication campaign shall be initiated by using a viral video clip shot in a Hollywood movie trailer style featuring Tom Ford in a story about style, time, seduction and competition. The movie trailer itself shall not feature any kind of hint or clue as to what it may be pertaining to – it could be a movie of Tom Ford or one of his latest fashion endeavors – the focal aspect being able to create a buzz and hype with a sense of secrecy surrounding the actual product line. The product related visuals / ads will be released after a month of the teaser campaigns in the relevant media platforms and also on internet such as youtube and facebook posting wherein the tagline be revealed to maximize the number of engaged social media users.

Having covered the institutional tools it is important to mention that through Richemont’s expertise the intention is to carefully establish a set of guidelines for tactical communication in selected regions of the world where more locally adapted scenarios can be implemented while adhering to the two main marketing pillars.

5.1.1 Pricing Strategy

The pricing strategy will be to be directly competitive with the other major competitors.

The price will be very competitive: $1000-$3000. A few offerings will be done in the range of $4000.

5.1.2 Promotion Strategy

Promotion will be initially spearheaded by public relations because of its low cost, and then through advertising once the company begins to increase cash flow to an acceptable figure.


5.2 Sales Strategy

TFR's sales force will consist of a President based out of Geneva with key functions of Strategy, Manufacturing, Marketing, Commercial and Supply Chain and Vice Presidents for America, Europe and Asia, who will have a team of 2-3 sales managers each to look after the distribution channels.

5.2.1 Sales Forecast

The following table and chart show our present sales forecast.

Chart: Sales by Year

Table: Sales Forecast

Sales Forecast is segregated to Tom Ford stores, POS and Departmental stores. Detailed below are the forecasts calculated for each of the segments.

Sales Projections: Tom Ford stores


Sales Projection: POS

Sales Projection: Departmental stores


5.2.2 Sales Programs

Sales will be made by Richemont. Outlets that achieve the highest figures in sales will receive 1% discounts as sales incentives in order to encourage increasing sales. The costs will be a part of the marketing expenses.

5.3 Milestones

This table lists important program milestones, with dates and managers in charge and budgets for each. The milestone schedule indicates our emphasis on planning for implementation.

Table: Milestones

Milestones

Milestone Start Date End Date Budget Manager DepartmentBusiness Plan 4/16/1998 4/16/1998 $4,000 FG DevptFactory Selection 5/5/1998 5/5/1998 $6,000 FG FinanceRetainer Contracts 6/1/1998 6/1/1998 $2,500 HW SalesBrochures 6/11/1998 6/11/1998 $5,500 HW MarketingCopywrite 6/28/1998 6/28/1998 $6,500 WY LegalTotals $24,500


6.0 Management Summary

TFR Watches will have 5 members in the board of directors including one representative from Tom Ford organization. The company will initially work on a flat organizational structure

6.1 Organizational Structure

TFR Watches is split by both location and functionality. The production division is located in Switzerland where the factory is, and owned by Richemont. The central sales and marketing, and finance and administration divisions are located in Geneva and are run by President of the company with the help of 6 personnel overseeing different functions. The sales divisions are present in Europe, America and Asia which will oversee the local market strategy implementation.

Organization Chart

6.3 Management Team Gaps

The following important gaps exist:

Territory-wise dedicated financial and commercial personnel to take care of import duties and taxes.

Dedicated training personnel to train sales consultants on nuances of product knowledge and selling skills.


Influx of manpower can be planned from Year 3 to take care of the increase of business turnover and complexity in the various regions.

6.4 Personnel Plan

The personnel plan calls for adding two employees by the end of the first year for a total of eighteen. After the third year, employment is expected to increase by another ten. These new employees will go into sales, commercial and training functions.

7.0 Financial Plan

Growth will be supported by cash flow and owner investment. Further investments will be funneled through debt financing. Given the financial and distribution muscle of Richemont, the growth will be fast paced. Moreover, it will allow the management to have complete control over the firm.

7.1 Important Assumptions

TFR's financial plan relies on several important assumptions - most of which are shown in the following table.

The key assumptions are:

Sufficient access to capital. Steady economy without a major recession. No unforeseen drastic technology changes.

7.2 Key Financial Indicators

Keeping average collection days at 60 days or below is very important as this could become a major cause of cash flow problems for the first year.

Gross margins must remain above 65%.

7.3 Break-even Analysis

The Break-even Analysis chart and table show that if the costs stay at the current, or relatively stable, level TFR Watches will be able to make a steady profit from the first year.


Table: Break-even Analysis

Chart: Break-even Analysis

7.4 Projected Profit and Loss

The following table and chart shows TFR's expectations for profit and loss. The company will begin to make a profit in its first year of operation. Detailed in the annexure are monthly sales forecast and P&L for the period 2013-2017.


Chart: Profit Yearly

Table: Profit and Loss


7.5 Projected Cash Flow

Table: Cash Flow


7.6 Projected Balance Sheet

As seen in the balance sheet, a strong growth in net worth is expected over the next three years.

Table: Balance Sheet

7.7 Business Ratios

Standard business ratios are provided in the following table. The ratios show a strong, yet safe growth.



Table: Profit and Loss




Appendix: Scenario 2 with less sales projections to factor uncertainties in market dynamics.

Table: Cash Flows @ 33% less sales projections


Table: Balance Sheet @ 33% less sales projections


Table: Ratios @ 33% Less sales projections



Date post:	20-Jan-2015
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