Final Feasibility Study

Final Feasibility Study

Pitch

Team T-Shirt offers vintage-inspired t-shirts with original designs. The t-shirts have a “retro”
look, complete with faded graphics and a super-soft wash. All t-shirts feature a fitted look and
feel for the funky vintage style.

The primary target customers are university students—undergraduate as well as

professional. The appeal to these consumers will be the style of the t-shirts, and most
importantly, the variety of unique designs offered. Consumers will be able to express themselves
without sacrificing quality and originality.

Consumers will be able to purchase the t-shirts from an Internet storefront. Sales are
expected to exceed 1,000 t-shirts within the first year of production through a combination of
viral, guerilla and traditional advertisement-based marketing. Revenues and net income for the
first of year of production will be $121,200 and $45,414, respectively. Revenues are projected to
increase 25% year-over-year.

Executive Summary

The products will be 100% cotton t-shirts with unique and original designs. The supply of
blank t-shirts will be procured from American Apparel. The t-shirts will feature a variety of
designs ranging from college humor, adult humor, political, cultural and social satire. The
underlying theme of the t-shirts will be vintage-inspired contemporary designs.

The business model will target college students as end consumers. Prototype designs will
be created by an in-house research and development team (“R&D”). The designs will then be
subjected to a conjoint analysis to assess their market feasibility. The conjoint analysis will
capture the target segment’s preferences along various product attributes (i.e., choice of slogans
displayed with multiple color schemes and multiple price points to gauge willingness-to-pay).
The combination of attributes with the highest rankings will serve as a basis for production.
 Customer orders will be delivered via the United State Postal Service or other
competitive shipping method. Long-term strategy for growth includes contracting with boutique
and specialty chain retailers to increase distribution volume.

The t-shirt industry is experiencing explosive growth with creative entrepreneurs offering
products at low price points to meet customers’ needs. In 2006, the t-shirt market size was
estimated at $20 billion.[1] Our first-phase target market, which include students from five
universities in the Washington D.C., Virginia and Maryland area are estimated at
121,028.[2] This test market will serve as a sampling pool for our conjoint analysis in order to
determine the appropriate product mix. Our customers are interested in unique fashion as a
vehicle to express their individuality.

The competitors range between specialty retailers such as Urban Outfitters, mass retailers such as
Target and Internet competitors such as Palmer Cash and Busted Tees. Although competitors
offer a variety of t-shirts, we believe our unique and original designs will be able to exploit gaps
within the current competitive space. To convey and convince prospective customers, a word-of-
mouth campaign will be encouraged to publicize our consistent quality and “first-to-market”
designs.

The financial projections forecast a positive net income beginning in the first year of production.
We expect the business to generate positive earnings in the first year at $45,414. In years 2 and
3, the expected net incomes are $65,762 and $91,727, respectively. The burn rate for the business
is low—aside from the initial setup fees of purchasing the design software at $401.70—recurring
monthly fees are in domain registration, web hosting and advertising. The total expected cost of
recurring monthly fees are $83.30 ($14.95+$5.95+$62.40) and will grow at an annual rate of 3%
in line with the inflation rate. Our breakeven point is between 128 and 156 t-shirts. Our net
present value (“NPV”) analysis points to a positive amount of $1,105,494.

Demand forecast accuracy beyond the initial launch will improve through surveys and continual
refinement of our conjoint analyses based on previous sales. Our marketing campaigns will be
utilized to stimulate demand and information will be gathered at the point-of-sale to fine-tune
promotional efforts.

Product
 The t-shirts will be printed on American Apparel’s Fine Jersey Cotton line, featuring
100% cotton construction with sizes ranging between XS and 2XL. Procurement among 37
colors will be determined by the required swatches. Both men and women’s styles will feature a
slimmer cut that will flatter any body type.

The designs range between college/adult humor, political, cultural and social satire and
witty taglines/slogans. In order to capitalize on upcoming trends, the R&D team will
continuously perform market research to create new designs, keeping abreast of popular culture.
During test market surveys, additional information will be gathered from the sampling pool to
create databases which will be utilized in creating designs. The information will be a loose
collection of responses to questions such as “Please describe something funny that happened to
your friend(s) recently?” or “Please write five things that you associate with MySpace.” We
believe that our products will be successful due to the current gaps identified in the vintage t-
shirt consumer market.

To address counterfeits, we will seek legal protection to some of our designs. Admittedly,
the barrier to entry in this industry is low and we anticipate “copycat” designs within a short
period. We will rely on proactive R&D as a primary source of competitive advantage, instead of
reactionary legal actions.

Once we establish a solid base of loyal customers who can sustain the word-of-mouth
buzz, two areas will explored for related ventures. First, sweatshirts (both hooded and non-
hooded) will serve as vehicle for art-based patterns and designs. Second, “trackjackets,” will
offer similar patterns and designs as sweatshirts but will feature different construction (i.e.,
polyester/rayon versus cotton).The two product extensions will greatly differ from the t-shirt
product line. The former will feature a more high-fashion appeal, making extensive use of
patterns and contemporary art.

Business Model

The target customers of our venture are college students, both undergraduate and
graduate. The underlying needs that these potential buyers have are: 1) the desire to express their
unique individuality through fashion 2) increasing self-absorption and the resulting proliferation
of consumer-generated media enabled by video-sharing and social networking websites 3) a
culture of irony breeding self-deprecation as a form of self-promotion and 4) the desire to simply
poke fun at things. Our purpose is to offer products that will reach the consumers’ desire for any
of the previously mentioned items. Consumers who purchase and wear our t-shirts will receive
gratification and realize the benefits from satisfying one of their desires.

Buyers

The t-shirt market has been exploding due to customers’ diverse needs, interests and low
price points. The North American t-shirt market consumed more than 1.4 billion cotton t-shirts in
2006, with an aggregate retail value of $20 billion. It is forecasted that more than 5,000 websites
would provide t-shirt products from general t-shirts to faux-vintage t-shirts. The number of
websites offering t-shirts has also dramatically increased since 2005. In early 2004, there was an
estimated 500 Internet stores specializing in t-shirts, however, that number has increased to 1,500
by late 2006. In total, an estimated 4,122 websites were selling t-shirts.[3]

T-shirts in general will often contain social, cultural, political and academic themes.
Some groups have interesting expressions that are communicated and understood by members of
the clique only, such as jargon, slang, expressions or inside jokes. Individuals are comfortable
expressing themselves with printed statements because in essence, two distinct needs can be
fulfilled with a single article of clothing: Desire to express oneself and a piece of clothing
for Safety a la Maslow’s Hierarchy of Needs. Statements on our products fulfill the customers’
needs of establishing a social connection to their associated groups. Enjoying public gaze and
newfound association, customers will continually purchase t-shirts.

The potential market size is estimated at 121,028. The size was derived from actual
student populations from universities listed in Footnote 2.

Promotional activities will be executed on several fronts. First, our Internet storefront will
serve as the primary vehicle to publicize our message. Indexing through popular search engines
such as Google will be heavily utilized. Web advertisements on search engines and other
keyword-based technology will also be utilized. Second, video-sharing and social networking
websites such as YouTube and MySpace will feature our friends and colleagues who will
promote our products, engaging in stunts or other consumer-generated media. Third, traditional
advertisements on college newspapers such as the DiamondBack and the Daily Bruin will be
leveraged to create exposure across campuses. In addition, a “street team” will be established to
attend events such as Maryland Day, promoting our products with raffles, giveaways and
contests.

Below is a survey data from Harris Poll Online/Datascension/Mintel in September, 2005.

The survey was based on 1,211 women aged 18 and older, inquiring on their approaches toward
clothing styles with the question, “Which of the following statements best describes your
approach to clothing styles?”

- “I seek out and wear clothing that I feel makes me stand out from others”

- “I step out from the crowd occasionally, but usually I try not to make a statement”

- “My clothing is never a way that I make a statement”

Age All 18-24 25-34 35-44 45-54 55-64 65+

My clothing is never a way
43 27 29 45 49 43 55
that I make a statement (%)
Step out from the crowd
but try not to make a 41 44 53 39 35 42 35
statement (%)
Wear clothing that makes me
17 29 18 16 15 15 11
stand out from others (%)

The survey illustrates that to a certain degree, consumers want to express their unique
styles through fashion. Our products will target the latter two categories of consumers who wish
to express themselves through unique t-shirts.

Competition

We expect significant competition within the t-shirt industry. Some of the more prominent
incumbents in this space include specialty retailers such as Urban Outfitters, mass retailers such
as Target and Internet retailers such as Palmer Cash and Busted Tees. Although there is
significant competition, we are confident that our products occupy a gap created by the
aforementioned competitors. Specifically, while all competitors are adept at creating designs
with mass appeal, either based on classic popular culture or a new fad, they do not cater any of
designs to a specific social group. Our aims to identify as many numerically-significant social
groups as possible using surveys will exploit the underserved gap. Although the competitors may
not be serving the underserved segment as of now, they certainly possess the resources to do so.
We believe our two main competitive advantages are sufficient in addressing this threat: 1)
Extensive groundwork provided by databases and research on social cliques and 2) Competing
through speed. With the “freshest” idea on the “street” first, we will be able to stay ahead of the
competitors’ product development lifecycle.

In addition to the designs, our shirts manufactured by American Apparel will be a source
of differentiation. American Apparel is a Los Angeles-based garment manufacturer that is
nationally known for its sweatshop-free labor. We believe that this positive quality along with
American Apparel’s t-shirts which are slimmer fitting than most other manufacturers will
provide us with a competitive advantage. Only a small number of competitors are offering t-
shirts made be American Apparel, if any. We believe these higher quality shirts will attract
customers along with its softer feel and flattering fit.

For designs that are based on subculture, the consumer is likely to get confused and
become reluctant to purchase a t-shirt with an unfamiliar theme. We will minimize confusion
through identifying and marketing themes found in the lowest common denominator so that there
is a higher possibility of a match occurring between the consumer’s preference and the product
offerings.

As previously mentioned, it is going to be difficult preventing copycats from mimicking

the t-shirt designs and selling them at a reduced rate to exploit the “flavor of the month.”
However, our short product development lifecycle will ensure that by the time copycats are
mimicking the designs and going to their silkscreeners, we would have completed multiple print
runs on the same design and will also be going to the silkscreeners—but with a brand new
design. This “one step ahead” approach will ensure that we fully exploit our original ideas with a
complementary ability to compete on speed.

Financials

We expect the business to generate positive earnings in the first year at $45,414. In year 2
and 3, the expected net incomes are $65,762 and $91,727, respectively. The projections are
highly sensitive to sales projections and estimated growth rates. We will require extensive
market research and target consumer surveys to gather more information to substantiate our
estimates and assumptions.
 As we are an Internet outfit, the burn rate for the business is expected to be nominal.
Aside from the initial set up fees of purchasing the design software at $401.70, recurring
monthly fees are in domain registration, web hosting, and advertising. The total expected costs of
recurring monthly fees are $83.30 ($14.95+$5.95+$62.40). Additional expenditures such as
capital improvement projects will be primarily for technology upgrades (hardware and software).

Based on out cost structure, our expected breakeven units are between 128 and 156 units
depending on the types of t-shirts. The breakeven number is sensitive to the sale price of the t-
shirts. Although we have a uniform price of $20 per t-shirt, we may modify the price to reflect
changing variable costs of printing t-shirts with differing characteristics and attributes. We
expect to breakeven in the first year, but will only be confirmed of the time horizon when the
first production runs are offered to the public. Sales trend analysis of the first production run will
provide us with a better insight into the market demand, allowing us to make adjustments to any
of our strategies. Moreover, given our minimal fixed costs, the sales volume has a great impact
on the estimated time required to reach profitability.

Our ideal exit strategy is to be able to grow the company and add to the product scope by
two extensions as previously described. Eventually we plan to sell the company for at least $1
million.

We forecast the venture to have positive NPV. As a caveat, continual refinement of key
variables and assumptions such as estimated sales units and growth rates (revenue and expense)
will be required to substantiate the forecast.

Pro Forma Income Statement 2007

Projected Revenue Growth 25%

Projected Cost of Goods Sold Growth 10%
Projected Expense Growth 3%
Tax Rate 15%

2007 2008 2009

Net Sales Revenues:
Sales Revenues 121,200.00 151,500.00 189,375.00

Cost of Goods Sold: (66,477.20) (73,124.92) (80,437.41)

Gross profit on sales 54,722.80 78,375.08 108,937.59

Operating expenses:
Selling expenses (493.40) (508.20) (523.45)
Depretiation and amortization (801.70) (500.00) (500.00)
Income from continuing operations before income taxes 53,427.70 77,366.88 107,914.14
Income tax expense (8,014.16) (11,605.03) (16,187.12)
Net income 45,413.55 65,761.85 91,727.02
 Men’s Clothing – US – November 2005. November 2005. Mintel. 7 May
[1]
2007

The University of Maryland, Georgetown University, GeorgeWashington

[2]
University, University of Virginia and Virginia Tech.

[3] T-Shirts Forums. 7 May 2007.

 POSTED BY TEAM T-SHIRT AT 12:56 PM

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