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PASSION FOR FASHION INTERN:

A BUSINESS CASE STUDY

AAA Company:

I.

Arriola, Kelly C.
Bernales, Mark Daniel A.
Guittap, Ron Mcrenz H.
Legaspi, Daniel John C.
Rafol, Rietzhel B.
Suba, Lleana Marie P

ABSTRACT

Le Marais Apparel, a company started by Miranda Shawn through her passion for
fashion in 2015, is now planning to expand its business by reaching a wide range of
customers through building its own website, www.lemaraisapparel.com. Also, the
company is also facing problems related to working capital requirements, supply chain
operations and social media marketing. Because of these, the proprietor, Miranda Clark,
is seeking the help of AAA Consulting Group so as to assist her in making a smart
decision to address these issues.
II. STATEMENT OF THE PROBLEM
Main Problem
Should Miranda pursue her planned expansion?
Sub Problems
What possible sources of financing can Miranda resort to in order to meet
the working capital requirement?
Should the company manufacture its own products or outsource them?
Which is a better collection policy? Accommodation of credit card

transactions? Bank Deposits? or on Account and installment sales?


III. ASSUMPTIONS
After further analysis the following assumptions were made:
Bankers Rule (360-day year rule) was adopted.
Number of working hours in one day is 8 hours.
Shipping expenses for the supply chain alternatives is indifferent.
Social media marketing, upon creation of the website, will redirect its
promotions and ordering mechanics to the website.
IV.

ANALYSIS
In response to Le Marais Apparels first issue which is about establishing and
financing its own website, we have to first determine the type of website that they
should establish: Start-up, Small store, and unlimited. The one time and total annual
carrying cost for each type are as follows:

One Time Cost


Annual Recurring Cost
Monthly Recurring Cost
Multiplied by no. of months in 1 year
Annual Cost for the monthly dues

Start up
100,000
15,000
31,000
12
372,000

Small store
207,000
25,000
57,000
12
684,000

Unlimited
280,000
35,000
95,000
12
1,140,000

Total Cost for First Year of Site


Total Succeeding Annual Costs*

487,000
387,000

916,000
709,000

1,455,000
1,175,000

*excluding one-time cost

For the start-up type, the company can market at most 100 products. The small
store type can accommodate 500 products. The unlimited type can sell an unlimited
number of products.
The second decision to make is to choose a financing option to finance the
website Le Marais Apparel is planning to build. The financing alternatives that are
available to the company are: short term loan, long term loan, and admission of new
partner/s. The advantages and disadvantages of each alternative are as follows:

Short Term Loan

Advantages
Less costly in the short run
Easier to get approval from
lending institutions
Several lending institutions
willing to approve

Long-Term Loan

More proceeds will be received

Disadvantages
If used in the long run, may be
subject to interest rate
fluctuations, imposing high
risk
Less proceeds will be received

Longer period of principal and

than short term loan

interest payment

Less costly in the long run

Fixed payment dates

Lesser interest rate risk


Transition to

No liability will be incurred

Partnership

Terms of the partnership may be


negotiable
Enjoy the benefits of a

Share in the profit of current


owner may be diminished
Split in decision making and
company control

partnership

The second issue Le Marais Apparel is currently facing is regarding supply chain.
The company is heavily reliant on its supplier, so Le Marais Apparel is now facing a

huge problem now that the supplier has closed their operations. Two alternatives are
available for the company: manufacture the product in house vs outsource the products
from China. The relevant costs and the supporting computations regarding the
alternatives are:
1. Manufacture in-house
Depreciation Expense per Product
= [(Purchase Price/Estimated Useful Life)/360]/No. of units per day
= [(150000/5)/360]/(4*3)
= P6.94
Labor Cost per Product
= (Daily Salary*No. of employees)/No. of units per day
= (500*3)/(4*3)
= P125
Direct Material = P85 per product
Variable Overhead Cost per Product
= [(Total Manufacturing Cost Fixed Operating Cost)*No. of
working hours]/No. of units per day
= [(20-8)*8]/12
= P8
Opportunity Cost of Renting Excess Capacity if outsource per product
= (Rental per month/No. of days in a month)/No. of units per day
= (27000/30)/12
= P75
Total Relevant Cost to Manufacture In-House
= 6.94+125+85+8+75
= P299.94
2. Outsource Products from China
Cost per Product = P240
Warehousing Cost
= Cost per Unit*No. of days in warehouse
= 3*11
= P33
Total Relevant Cost to Outsource Products from China
= 240+33
= P273.00
Going into the qualitative aspects of this decision making process, the suppliers
lead time for Le Marais Apparel to receive the supplies for production is 3-5 days, which
is longer than the suppliers lead time to deliver the products from China which is 3-4
days. Although, at the initial stage, it would take 60 days for the design, discussion,

sample development until delivery, this is only a one-time activity, which means that
there is little chance for it to be happening soon.
The last issue that Le Marais Apparel is currently facing is regarding its collection
policy. Currently, the company is utilizing a cash on delivery system, where the
customer payments are collected by a courier and employees of the company are
keeping track of such payments. The problem that Le Marais Apparel has on this
system is that the courier usually takes 10 days to deliver the payment to the entity,
thereby delaying payment to suppliers by one week. In addition, the company also
identified theft on its collections with a rate of 2%. Having said this, the company
identified three alternative courses of action to solve the current situation. The said
alternatives, as well as its advantages and disadvantages are as follows:
Advantages
Credit Card

An increase of 25% in sales is


expected
Prompt delivery of collections to

Le Marais Apparel
Sales on Account Attractive to existing and
and Installment

Bank Deposit

Disadvantages
Additional cost of P6,700* for
credit card service charge

Bad Debts Expense are

potential customers
A 100% increase in sales is

expected to rise by 50%


Longer average collection period

forecasted
Collections are received in real-

Might not be preferred by

time
new/prospective customers
No additional cost to be incurred No forecasted increase in sales;
lost sales as a result of the
aforementioned disadvantage
*Credit Card Cost = (150000*3%)+(220*10)

V. RECOMMENDATION
Based on the aforementioned, AAA is recommending Le Marais Apparel to
pursue its objective to expand and improve its business operations using the existing
alternatives. For the first issue, we are suggesting to subscribe with the small store
type of website. The company is a risk-seeking company, and with its booming

customer base, Le Marais Apparel needs a website that can compete with the market
leaders like Zalora, Lazada and The Row. The websites product capacity of 500
would prove to be sufficient for a start-up company.
For the issue on financing the website and its other needs, the company
might consider a transition from a sole proprietorship type of business to partnership
as this is the most beneficial way to expand the business while incurring a minimal
cost. Having this type of organization also adds flexibility to the business, thereby
allowing it to expand its product line and market.
With regard to its issue on supply chain, AAA recommends to outsource its
products from China since this alternative is cheaper than to manufacture the
products in-house, with the lead time of the alternatives also not significantly different
from each other as shown in the analysis part.
Regarding the issue on collection terms, we are also suggesting to forego
with the current cash on delivery system, and shift to a credit card payment system,
as this is more convenient and beneficial for cash cycle and sales purposes.