205 furniture feasibility

Pre-Feasibility Study

FFUURRNNIITTUURREE SSHHOOWWRRRROOMM

Small and Medium Enterprise Development AuthorityGovernment of Pakistan

www.smeda.org.pk

HEAD OFFICE

6th & 8th Floor LDA Plaza, Egerton Road, Lahore.Tel: (92 042) 111-111-456 Fax: (92 042) 6304926-7

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE NWFP

REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza, Egerton Road, Lahore.Tel: (042) 111-111-456Fax: (042) [email protected]

5TH Floor, BahriaComplex II, M.T. Khan Road,

Karachi.Tel: (021) 111-111-456

Fax: (021) [email protected]

Ground FloorState Life Building

The Mall, Peshawar.Tel: (091) 9213046-47


Bungalow No. 15-AChaman Housing Scheme

Airport Road, Quetta.Tel: (081) 831623, 831702


June, 2006

Pre-feasibility Furniture Showroom

PREF-99/June, 2006/ Rev 1 2

DISCLAIMER........................................................................................................................................ 3

1 INTRODUCTION TO SMEDA.................................................................................................... 4

2 PURPOSE OF THE DOCUMENT............................................................................................... 4

3 CRITICAL SUCCESS FACTORS IN DECISION MAKING FOR INVESTMENT.................. 5

3.1 SWOT ANALYSIS ................................................................................................................ 53.1.1 Strengths ........................................................................................................................... 53.1.2 Weaknesses........................................................................................................................ 53.1.3 Opportunities..................................................................................................................... 53.1.4 Threats .............................................................................................................................. 6

3.2 CRITICAL SUCCESS FACTORS.......................................................................................... 63.2.1 Quality of raw material...................................................................................................... 63.2.2 Attractive Design and Quality Finishing............................................................................. 63.2.3 Sales promotion................................................................................................................. 63.2.4 Other Success Factors ....................................................................................................... 6

4 PROJECT PROFILE.................................................................................................................... 7

4.1 PROJECT BRIEF................................................................................................................... 74.2 OPPORTUNITY RATIONALE.............................................................................................. 84.3 TARGET CUSTOMERS........................................................................................................ 84.4 MARKET ENTRY TIME....................................................................................................... 84.5 PROPOSED BUSINESS LEGAL STATUS ............................................................................ 84.6 PROJECT CAPACITY AND RATIONALE ........................................................................... 94.7 PROPOSED LOCATION....................................................................................................... 94.8 PROPOSED PRODUCT MIX OFFERED............................................................................... 94.9 PROPOSED PRODUCT MIX ................................................................................................ 94.10 PROJECT INVESTMENT ................................................................................................... 104.11 RECOMMENDED PROJECT PARAMETERS.................................................................... 10

5 MARKET INFORMATION ABOUT FURNITURE ................................................................. 10

5.1 REQUIREMENT OF WOODEN FURNITURE .................................................................... 11

6 IMPORTED FURNITURE......................................................................................................... 12

7 PROJECT MARKETING STRATEGY..................................................................................... 14

7.1 MARKETING STRATEGY................................................................................................. 147.1.1 Brand Name .................................................................................................................... 147.1.2 Advertising ...................................................................................................................... 14

7.2 TRENDS IN FURNITURE STYLE ...................................................................................... 147.3 TRENDS IN MATERIALS, COLOURS AND SHAPES ....................................................... 15

7.3.1 Materials......................................................................................................................... 15

8 PROJECT PRE-REQUISITES................................................................................................... 16

9 FINANCIAL STATEMENTS..................................................................................................... 23

9.1 PROJECT COST ...................................................................................................................... 239.2 PROFIT & LOSS ..................................................................................................................... 249.3 BALANCE SHEET ................................................................................................................... 259.4 CASH-FLOW STATEMENT ...................................................................................................... 26



DDIISSCCLLAAIIMMEERR

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-99

Prepared by SMEDA Punjab

Issue Date June 2006

Issued by SMEDA Punjab



11 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA

The Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME Support Program.

Since its inception in October 1998, SMEDA had adopted a sectoral SME Development Approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including Finance, Marketing, Technology and Human Resource Development.

SMEDA has so far successfully formulated strategies for sectors including, Fruits and Vegetables, Marble and Granite, Gems and Jewelry, Marine Fisheries, Leather and Footwear, Textiles, Surgical Instruments, Transport and Dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.

Along with the sectoral focus a broad spectrum of Business Development Services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME Investors. In order to facilitate these Investors, SMEDA provides business guidance through its help desk services as well as development of Project Specific Documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility Studies and Business Plan Development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.

This document is in the continuation of this effort to enable potential investors to make well-informed Investment Decisions.

22 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT

The objective of this proposed Pre-feasibility is primarily to facilitate potential entrepreneurs with the Investment information and provide an overview about the "Furniture Show Room Business". The proposed Pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of Furniture Showroom Business Concept Development, Start-up, Operations, Marketing, Finance and Business Management. This document also provides Sectoral Information, brief on Government Policies and International Scenario, which have some bearing on the Project itself.

This particular Pre-feasibility is regarding setting up "Furniture Show Room". In meeting the above tasks we have obtained information from industry sources and officials of major wooden furniture manufacturers and owners of Furniture Show Rooms in Pakistan.

Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen. For financial model, since the forecast/projections



relate to the future periods, actual results are likely to differ because of the events and circumstances that don’t occur frequently as expected.

Whilst due care and attention has been taken in performing the exercise, no liability can be inferred for any in-accuracy or omissions reported from the results thereof. It is essential that our report be read in its entirety with financial model in order to fully comprehend the impact of key assumptions on the range of values determined.

33 CCRRIITTIICCAALL SSUUCCCCEESSSS FFAACCTTOORRSS IINN DDEECCIISSIIOONN MMAAKKIINNGG FFOORRIINNVVEESSTTMMEENNTT

33..11 SSWWOOTT AANNAALLYYSSIISS

Wood is the main raw material and the entire finished product depends on quality of wood. The information and technical know how about the quality of wood and use of seasoned (dry) plays a vital role in the manufacturing of good quality furniture and the ultimate establishment of Furniture Show Room. Strong competition exists in the international and domestic market. Manufacturing and sale of high quality trendy designs and aggressive marketing is essential to get a permanent place in the market.

Before making the decision, whether to invest in setting up the Furniture Show Room or not, one should carefully analyze the associated risk factors. A SWOT analysis can help in analyzing these factors, which can play important role in making the decision.

33..11..11 SSttrreennggtthhss

i- Availability of Cheaper Labor & Raw Material.

ii- Growing Local Market both in organized and un-organized sectors of the Furniture Industry.

iii- High quality Furniture using high quality Raw Material.

iv- The life style of the people is improving and they are getting more quality conscious and are willing to spend more on their house renovation/decoration.

v- Market penetration through high quality and heavy promotional activities.

vi- Own designer who could help to create better furniture designs.

33..11..22 WWeeaakknneesssseess

i- High employment turnover rate.

ii- Seasonal sector (especially household furniture in the wedding season –November to March).

iii- Heavy investment in the working capital.

iv- Very strict quality control required.

33..11..33 OOppppoorrttuunniittiieess

i- Increasing preference for the high quality products.ii- Construction/Renovation of houses and Offices create new opportunities.



iii- Market share can be acquired from un-organized sector through high quality and promotional activity.

33..11..44 TThhrreeaattss

i- Narrow market, as target market is high class. ii- Quality & design of the Furniture needs to be considered very closely as the

lifestyle of people is improving.iii- Established competitors.

33..22 CCRRIITTIICCAALL SSUUCCCCEESSSS FFAACCTTOORRSS

33..22..11 QQuuaalliittyy ooff rraaww mmaatteerriiaall

The furniture industry in Pakistan is dependent on the quality of the raw material available. Although high quality wood is abundant in Pakistan but many times customer complaints arise due to the use of cheaper and low quality wood by the manufacturers. It has to be ensured that furniture displayed in Showroom is made of high quality wood.

33..22..22 AAttttrraaccttiivvee DDeessiiggnn aanndd QQuuaalliittyy FFiinniisshhiinngg

The life style of the people is improving and they are getting more quality conscious. New tastes and designs are being adopted by the people. Special attention should be given to present latest designs according to local market demands & requirements.

New designs and styles can build brand equity for the business. As there is high competition in market, creation of new designs and styles, and setting new trends is vital.

As this proposed showroom business is expected to target high class, it is likely to attract people living in posh areas of Gulberg, Defence and Model Town etc. and the furniture should be able to fulfill their special needs. It is therefore more important that furniture should be of latest design, according to new fashion and beauty standards than mere durability and hardness. We don’t undermine the importance of durable furniture but it is of utmost importance that furniture should reflect latest style and fashion so as to attract the relevant class of the society.

33..22..33 SSaalleess pprroommoottiioonn

Another critical success factor of this proposed pre-feasibility is the Marketing and Promotion of the Furniture in the market. Sales promotion activity is necessary for market penetration.

This involves the dedication and hard work from the marketing personal and detailed advertising through electronic Media along with the use of other automated marketing techniques.

33..22..44 OOtthheerr SSuucccceessss FFaaccttoorrss

i- Advance Orders for sale can ensure the success of the Business.

ii- Assurance to customers that furniture is made of seasoned (Dry) wood. Properly seasoned (Dry) wood ensures high quality furniture as it minimizes deforming due to dampness in wood.



iii- New designs and styles can build brand equity for business. As there is high competition in market, to make the project commercially viable, creation of new designs ands styles and setting new trends is vital

iv- The location of Showroom is very important for success. The Showroom should be located in heavily populated or developing cities and its location within the city should in accordance with the target market of the business.

v- Responsiveness to Customers' demands and requirements is very important tostay in market and retain market share.

vi- Better customer service and after sale service to promote business goodwill.

vii- Competitive prices should be offered.

44 PPRROOJJEECCTT PPRROOFFIILLEE

44..11 PPRROOJJEECCTT BBRRIIEEFF

The proposed project is for setting up FURNITURE SHOWROOM. This project is only concerned with “Furniture Showroom” and does not include manufacturing facility. The furniture manufacturing is assumed to be outsourced to various manufacturers however the project shall have its own designer for the purpose of collecting information about furniture market trends, latest styles, designs, fashions and creating new ones. The Project will cater to the needs of domestic market out of the imports and locally manufactured furniture through out-sourcing.

The products covered in this pre-feasibility are domestic or household furniture in finished form. It specifically excludes the contract sector, which includes furniture for civil aviation, hospitals, schools, and other similar purposes. Antique, second-hand furniture and garden furniture has been excluded as well.

In this proposed pre-feasibility furniture is divided into the following major categories:

Table 1: Product Categories

Product Categories Most Common ItemsCommon Room furniture

Sideboards, shelf systems, room dividers etc.

Bedroom furniture Beds, bedside tables, dressing tables, chests of drawers, wardrobes (fitted or free-standing);

Dining and living Dining sets (tables and chairs), dressers, coffee tables,Office furniture Desks, tables, chairs, drawer unit, filing cabinets, integrated

workstations etc.Upholstered seating Armchairs, reclining chairs, couches, sofas, divans, footstools,

seating elements upholstered with leather, wool, synthetic material, cotton etc;

Non-upholstered seating

Seats, armchairs, rocking chairs, seats convertible into beds, stools;



44..22 OOPPPPOORRTTUUNNIITTYY RRAATTIIOONNAALLEE

The demand for wooden furniture is increasing in the domestic market as well as in the international market due to its traditional appeal and durability despite the introduction of new materials in furniture manufacturing. Furniture Showroom is a viable profitable business if done properly on Commercial basis. Demand for household and office furniture is growing considerably as socio-economic development is taking place. With the rapid increase in the development of new housing schemes, the increased demand of wooden furniture is also anticipated. According to the National Housing Policy 2001, the house construction was to be raised by 500,000 houses per annum. Furthermore, introduction of new schemes by different banks for house and consumer financing have also raised the purchasing power of general public.

Furniture, which is given as dowry, forms the major portion of sales of furniture in Pakistan. As a result, the demand for household furniture increases substantially in winter and spring season due to weddings. Domestic/office requirements and trend of dowry in the form of furniture considerably increase the need for quality furniture.

Major trading partner of wooden furniture manufactured in Pakistan are USA, UK, Japan, UAE and earning substantial foreign exchange for the country and contributing towards the strengthening of economy.

44..33 TTAARRGGEETT CCUUSSTTOOMMEERRSS

Although, currently the Pakistan’s export of the wooden furniture is not significant as compared to total International market but its exports are increasing rapidly. Pakistan’s exports of wooden furniture have increased by 34.33 percent in year 2002-2003. Internationally, Pakistan’s major trading partners are Gulf region, Australia, and USA, which are still negligible as compared to the volume of international market. There is large scope of wooden furniture in other countries like Spain, Germany, Italy, South Africa, etc.

This proposed project is concerned with the domestic market of Pakistan. The target market for this proposed project would be high class living in posh areas of developed cities. The demand in these areas is influenced by the number of new houses/offices built and old houses/offices renovated/reconstructed. The renovation and redecoration of households is a routine process in these areas.

44..44 MMAARRKKEETT EENNTTRRYY TTIIMMEE

Though the demand for wooden furniture in domestic market exists throughout the year (especially for office furniture & renovation requirements), but it significantly increases during the period of October to March because of the wedding season and hence the demand for the furniture almost gets doubled during this period. Hence, the prime time to enter into market is June so that the Showroom gets into commercial operations before the start of the wedding season.

44..55 PPRROOPPOOSSEEDD BBUUSSIINNEESSSS LLEEGGAALL SSTTAATTUUSS

The said project can be a sole proprietorship or a partnership and even it can be registered under the Companies Ordinance, 1984 with the Securities & Exchange Commission of Pakistan. The selection totally depends upon the choice of the entrepreneur. This pre-



feasibility assumes the legal status of a sole proprietorship/partnership as this does not involve heavy investment. Moreover less legal requirements and costs are involved in forming, administration and running the sole proprietorship or partnership business. Lower tax rates for this type of business legal status would be an added advantage.

44..66 PPRROOJJEECCTT CCAAPPAACCIITTYY AANNDD RRAATTIIOONNAALLEE

The proposed project is capable of selling the complete range of wooden furniture and other allied products to meet the demands of the domestic market out of imports and locally manufactured furniture through out-sourcing. The Show room will work 11 hours a day for 300 days.

44..77 PPRROOPPOOSSEEDD LLOOCCAATTIIOONN

The socio-economic conditions of the country and population have a direct influence on the local furniture demand. The Income level of community and improved life style of people also effect the good quality furniture requirements. Considering this fact the said project can be started in any posh area of developed cities like Lahore, Karachi, Islamabad, Sialkot or Faisalabad etc. It is however recommended to establish the Project at Lahore - Gulberg. The general living trend of the people in the region considerably increases the scope for establishment of the proposed project.

44..88 PPRROOPPOOSSEEDD PPRROODDUUCCTT MMIIXX OOFFFFEERREEDD

This unit is capable of selling different sort of wooden furniture and allied accessories. As this project is catering to the needs of the domestic market, it is however assumed that the project will be selling the following furniture items, mix of which is as follows:

44..99 PPRROOPPOOSSEEDD PPRROODDUUCCTT MMIIXX

The proposed project will be selling the Furniture in such mix as have been mentioned below:

Table 2: Product Mix

1. Bed Room Set Projected Sales

For Bachelors Single Bed, two side tables, One dressing table, two chairs & one stool.

75

For Married couples

Double Bed, two side tables, One dressing table, double seater sofa, one TV Trolley & one stool.

125

2. Dinning Room6 seater Dinning Table and chairs with trolley 758 seater Dinning Table and chairs with trolley 50

3. Common Room One TV Trolley, One three seater sofa and two single seater sofas, One wooden partition and a central table.

100

4. Drawing Room One three seater, two single seater and one double seater sofa, one central table, one decorative sofa.

75

5. Office furnitureExecutive One Executive table, one revolving chair, two 75


PREF-99/June, 2006/ Rev 1 10

chairs, one computer table and one 2 seater sofa.General One table including computer cabinet, one

revolving chair and two other chairs250

Bedroom furniture is the largest segment as far as the domestic market requirements are concerned and it comprises most of the domestic market of the wooden furniture.

44..1100 PPRROOJJEECCTT IINNVVEESSTTMMEENNTT

Total Project cost is Rs. 11.97 million worked out in the following table:-.

Table 3: Project Investment

RUPEES

Capital Investment 9,681,000

Working Capital Requirement 2,296,202

Total Investment 11,977,202

44..1111 RREECCOOMMMMEENNDDEEDD PPRROOJJEECCTT PPAARRAAMMEETTEERRSS

Table 4: Project parameters

Capacity Human Resource Location1 hour a day for 300

days11 Gulberg, Lahore

Financial SummaryProject Cost IRR NPV (Rs.) Payback period11,977,202 34.67% 16,919,197 4.09 Years

The pre-feasibility is based on the assumption of 50% debt and 50% equity. However this composition can be changed as per the requirements of the Investor.

55 MMAARRKKEETT IINNFFOORRMMAATTIIOONN AABBOOUUTT FFUURRNNIITTUURREE

According to Pakistan Economic Census 2005, out of the total 583 thousand manufacturing industries covered in the census, 10.8% were in Wood & Wood Products including furniture. According to the census, in the urban areas the share of house hold establishments in wood products including furniture manufacturing was about 8% of the total household manufacturing industries. Area wise analysis also depicts the similar trends. Details may be seen in the following table. Province wise details are given below;

Table 5: No. of Manufacturing Establishments by Status & Area

Status of EstablishmentsAll Areas Rural Areas Urban Areas

Manufacturing Industry Division Total House

hold Estab.

Other than house

Total House hold Estab.

Other than house

Total Household Estab.

Other than house


PREF-99/June, 2006/ Rev 1 11

hold Estab.

hold Estab.

hold Estab.

Manufacturing of Wood and Wood Products including furniture 63,087 9,549 53,538 30,799 8,963 21,836 32,288 586 31,702

Table 6: No. of Manufacturing Establishments by Employment Size & Size

Status of Establishments

All Areas Rural Areas Urban AreasEmployees Employees Employees

Manufacturing Industry Division

TotalLess

than 10More

than 10

TotalLess

than 10Morethan 10

TotalLess

than 10Morethan 10

Manufacturing of Wood and Wood Products including furniture

63,087 62,791 29630,79

9 30,711 88 32,288 32,080 208

55..11 RREEQQUUIIRREEMMEENNTT OOFF WWOOOODDEENN FFUURRNNIITTUURREE

In local market, the requirement for wooden furniture can be categorized into four types namely:

a. For newly built house;

b. For dowry;

c. For renovation;

d. For Institutional buyer.

The majority of customers in the domestic market belong to first and second category. These customers require furniture for their newly built houses and usually buy range of products like bed sets, dining sets and sofa sets with other required furniture for their entire house. In Pakistani society, Furniture is given as dowry. Therefore, its demand increases in the spring and winter season due to weddings. Basic requirement of these customers is bed set of new designs and styles. These types of customers also buy sofa set or dining set along with bed set. Initially entrepreneur should target these customers to establish the business and to increase the customer base. These potential customers can play a dominating role in the successful break through of the business. With the flourishing of tourism and hotel industry, considerable scope emerges for wooden furniture in this sector. Large orders can be secured to supply wooden furniture to these hotels and resort.


PREF-99/June, 2006/ Rev 1 12

66 IIMMPPOORRTTEEDD FFUURRNNIITTUURREE

Furniture imported in Pakistan is normally of Italy, China & Spain. As this proposed showroom business is targeted towards high class, it is necessary to offer imported furniture. Due to its high attraction among targeted market, it can generate significant revenue for the business.

Made in China’ - which had already hurt the local plastic industry and has made inroads in toys, electronic items and other products is all set to dominate the local furniture market. It is now feared that most of the people who had small businesses of producing furniture have now become importers of Chinese furniture.

Those in the furniture business revealed that some 200 out of 500 factories in different localities of Karachi including Liaqatabad, Landhi, Shershah and Gharibabad that were busy in manufacturing small items of furniture like office chairs, TV trolleys and other items have been completely shut down and that the owners of these factories have become the importers of Chinese products.

The raw material used in making office chairs, TV trolleys and other small items are available at a higher price in the local market and Chinese readymade products are comparatively less expensive so most of the manufacturers have decided to shut down their business and started to import the same item from China.

The foreign sources of furniture in Pakistan are China, Germany and Italy, however, they have not yet succeeded in grabbing local market’s share of the heavy furniture. The quality of local heavy furniture is higher and lesser in price, which includes complete bed set which is much better than the Chinese one because in the customs, freight charges are being charged according to the weight and volume of the item, and a Chinese bedroom set costs around Rs 800,000/- when it reaches Karachi. However for the items which fall in the light furniture category China has dominated the market and has hurt the local industry to around 80 per cent.

An attempt on deco furniture and by using MDF chip board and fiber glass approach, the domestic suppliers have been able to attract the consumers again to the local markets as by using this approach the manufacturers have created decent designs and carvings on the bedroom sets and an excellent indigenous bedroom set is now available in Rs175,000.

The Alliance of Market Associations Karachi has assured the government if it caps the increasing prices of raw material and announces incentives to the manufacturers, the local small furniture industry would be reactivated and hundreds of sidelined persons could be re-employed.

Table 7: Furniture Import1

Product Code (HS) and description

Import from Value (000 US$)

Quantity(Nos.)

2003 2004 2003 2004940310 Office furniture, metal, nes

World 394 387 22,966 23,341

1 Trade Analysis System 2004


PREF-99/June, 2006/ Rev 1 13

China 143 199 7,131 8,372UAE 87 16 1,823 690

940320 Furniture, metal, nes World 534 741 33,800 41,155China 279 328 14,971 19,622UAE 103 111 3,504 3,185Thailand 23 67 2,338 6,353South Africa 0 79 0 1,230

940330 Office furniture, wooden, nes

World 506 552 16,651 20,052

China 130 198 5,981 8,471Malaysia 77 139 2,499 5,321USA, PR,USVI 100 73 2,545 2,117Thailand 47 59 1,105 1,332Germany 101 0 1,934 0

940340 Kitchen furniture, wooden, nes

World 127 317 4,211 11,864

China 70 203 3,019 8,725Italy 44 81 721 2,227

940350 Bedroom furniture, wooden, nes

World 400 791 16 19

Philippines 0 309 0 4China 125 151 10 9Malaysia 54 100 1 2UAE 91 53 2 1Italy 51 14 1 0

940360 Furniture, wooden, nes World 698 1,259 21,960 43,698China 331 616 12,091 27,305UAE 117 117 3,451 4,153Germany 8 193 252 3,691Saudi Arabia 99 98 553 570

940370 Furniture, plastic, nes World 115 175 23,018 33,931China 47 130 6,904 26,837

940380 Furniture of other materials, incl. cane, osier, bamboo/similar material

World 372 530 17,337 43,345

USA, PR,USVI 194 285 6,062 21,965China 61 100 4,046 7,728


PREF-99/June, 2006/ Rev 1 14

77 PPRROOJJEECCTT MMAARRKKEETTIINNGG SSTTRRAATTEEGGYY

77..11 MMAARRKKEETTIINNGG SSTTRRAATTEEGGYY

When marketing furniture for the first time, make use of electronic media (cable networks, television, etc.), websites, publicity and advertising in trade, Fashion and Interior Decoration magazines etc.

In addition, sales promotion can be done at a reasonable cost in order to develop new customers and keep in touch with your current customers. For example by a newsletter (by e-mail) one can assure the customers that we are actively following latest interior decoration trends in the Pakistan and are well-aware of the latest developments in quality standards and newer styles & fashion etc. In the correspondence, a constant, prompt and reliable communication is vital to build and maintain a long-term business relationship with your customers.

77..11..11 BBrraanndd NNaammee

In our case the name of Furniture Showroom can be promoted. Thus after a while people believe in quality of furniture with reference to the Showroom name. For this purpose high quality standards must be maintained along with better customer service.

77..11..22 AAddvveerrttiissiinngg

Advertising is another tool aimed at increasing the sale of furniture. Advertising in Print Media along with Electronic Media is vital for success.

In order to get the best out of investment, following should be clarified:

A clearly defined target group - Potential Buyers A well-formulated message - What do I want to tell the customer.

77..22 TTRREENNDDSS IINN FFUURRNNIITTUURREE SSTTYYLLEE

In all furniture styles some significant trends are:

• Individual items of furniture can be used for different functions: flexible seating for sitting, reclining or sleeping; modular wall systems and living room systems. Although newer homes are being built for smaller-sized households, there is a demand for larger sized furniture, particularly loungers or large sofas. People like to stretch out on sofas now rather than sitting in the more traditional way.

• Furniture for older people with a focus on comfort (e.g. higher seats).

• Part of the trend of making more use of the home space is to extend the home into the garden or onto a patio or veranda.

• Many households are full of furniture, so rather than overloading their homes, consumers are looking for something with a simple elegance to achieve “less is more”.

• Combined with this simple functionality, consumers want some emotional attachment with the item. For example, LED illumination to enhance simple cabinet, invisible


PREF-99/June, 2006/ Rev 1 15

loudspeakers in internal doors, new coverings on handles that feel good to touch, flat screen TVs which almost disappear into surroundings when not being used.

• Small visible legs, made of metal or wood, are an important feature at the moment for living room chairs, couches, armchairs and cupboards and small tables.

77..33 TTRREENNDDSS IINN MMAATTEERRIIAALLSS,, CCOOLLOOUURRSS AANNDD SSHHAAPPEESS

Home furniture and furnishings are becoming more colorful. The colors used in upholstery furniture fabrics, and cupboard and cabinet fronts are loud and bold. The design and form concept in upholstered furniture remains voluminous. As far as materials are concerned, there is a decrease in the use of cherry in new lines. However, cherry, along with oak and walnut, are key materials for products at the high end of the market.

The shift towards furniture that is a fusion of wood with materials such as steel, glass and other fabrics is now even more pronounced. The vogue is still very much for the dark, exotic look with oak and other wood species presented in a number of guises, striped effect to emulate zebrano, heavily lacquered and most popular of all, stained dark, almost black. Modern technology is enhancing pieces with improved finishes and high-tech options.

77..33..11 MMaatteerriiaallss

• Woods: Interior parts and primary and secondary frames of most items are made from lower quality wood like birch, ply and laminates, while for exposed surfaces fine timbers are used. Lighter hard woods such as oak, beech, maple, alder, birch, cherry and hickory have proved more popular than pine.

• Rattan: fine wickerwork, bamboo, hemp, abaca and sea grass continue to be important materials, which are increasingly used in natural interiors.

• Metals: the metallic, hi-tech or industrial look is popular in furniture, being an eye catching element. Metals in simple forms are often combined with wood or glass. Stainless steel, chrome, wrought iron, aluminum and copper have become popular in the past few years.

• Glass: smoked glass and other opaque finishes, rather than clear (cold) glass is popular. Natural and acrylic glass is increasingly used in combination with other materials in tables, cabinets etc.

• New materials: Experiments are done with new materials: polycarbonates in matt finish, high gloss, transparent and in many colors. Also, recycled polyester is increasingly being used in modern items.

• Fabrics: these are softer in texture and appearance, with single light natural colorsused as a basis. Small motifs, textured look, geometric or large colorful designs are possible. Floral designs, micro-fibers are still common and (soft) hi-tech fibers are gaining importance.

• Finishes: There is a trend towards high gloss finish in many colors for tables and chests. There is also much use of polished, laminates, satin-finish, acid-etched, painted glass with neutral or bright colors; opaque lacquers; painted and enameled steel; anodized, polished and mat aluminum.


PREF-99/June, 2006/ Rev 1 16


PREF-99/June, 2006/ Rev 1 17

88 FFIIXXEEDD AASSSSEETTSS

Following additional fixed assets are required.

88..11 OOffffiiccee EEqquuiippmmeenntt

Cost per Unit Total CostItems No. of Items Rupees Rupees

Computers 2 30,000 60,000 Printers 2 25,000 50,000 Fax Machine 1 10,000 10,000 Telephone Sets 5 500 2,500 Fire Fighting Equipments 5 4,500 22,500 TOTAL 145,000

88..22 FFuurrnniittuurree,, FFiixxttuurree && FFiittttiinnggss

Cost Total CostItems Rupees Rupees

Office Furniture - including tables, chairs, cabinets, etc.

280,000 280,000

Cost per Unit Total CostItems QtyRupees Rupees

Air Conditioners / Split Units 8 25,000 200,000 Generator 1 185,000 185,000 Electric Installations & Fittings -cables & wires

150,000 150,000

Fancy Lights 50 500 25,000 Other decoration espenses - sign Board, antiques, wall paintings etc.

500,000 500,000

TOTAL 1,060,000

88..33 MMoottoorr VVeehhiicclleess

The proposed project will also be following vehicles.

Items Qty Cost Total CostCars 1 600,000 600,000 Loader Mazda 1 675,000 675,000 Motor Cycles 1 55,000 55,000 Cycles 1 3,500 3,500

1,333,500


PREF-99/June, 2006/ Rev 1 18

99 LLAANNDD && BBUUIILLDDIINNGG RREEQQUUIIRREEMMEENNTT

99..11..11 LLaanndd

Land for the proposed business can be acquired on rent or it can be purchased based on the judgment of the entrepreneur. It is however recommended to acquire the Land on rent. Acquisition of land by way of purchase is not viable for the project since the project is recommended to set up the project in posh area like Gulberg or Defense where the land price ranges between 20,000,000/- to 30,000,000/-. The Land Rent is taken to be about Rs. 250,000/- per Kannal. The total land requirement for this proposed project is assumed to be of approximately 1.5 Kannals.

99..11..22 BBuuiillddiinngg

Rate Per Sq. Ft.

Total CostBuilding & Civil works Space Reqd. Sq. ft

Rupees RupeesDisplay Hall - Ground Floor 5,000 800 4,000,000 Display Hall -First Floor 3,000 700 2,100,000 Management Offices 300 800 240,000 Wash Rooms 100 700 70,000 Kitchen 100 600 60,000 Store Room 600 500 300,000 Garrage - open Plot Area 550 150 82,500 Lawn / Garden 100 100 10,000 Total Infrastructure Cost 9,750 6,862,500

1100 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTT

1100..11 HHuummaann RReessoouurrccee RReeqquuiirreemmeennttss

Following table shows the requirements of Human Resources.

Description Employees Salary / Month Annual Salary ADMINISTRATIVE COSTAdmin & Finance Manager 1 20,000 240,000 Engineer / Designer 1 35,000 420,000 Showroom Supervisor 1 12,000 144,000 Accountant 1 7,000 84,000 Store Supervisor 1 8,000 96,000 Office Boy 1 4,000 48,000 Driver 1 5,000 60,000 Security Guard, Gate Keepers 1 4,500 54,000 Sweeper 1 2,500 30,000 Total Administrative Salaries 1,176,000


PREF-99/June, 2006/ Rev 1 19

MARKETING COSTSenior Sales Officer 1 25,000 300,000 Assistant Sales Officer 1 8,000 96,000 Total Marketing Salaries 396,000 ADMINISTRATIVE COST Rs.Administrative Cost 1,176,000 Other Benefits 294,000

1,470,000 MARKETING COST Rs.Marketing Cost 396,000 Other Benefits 99,000

495,000 * Other benefits include EOBI, Social Security, Gratuity, Medical and Other welfare expenses.


PREF-99/June, 2006/ Rev 1 20

1111 KKEEYY AASSSSUUMMPPTTIIOONNSS

1111..11 PPrroojjeecctt AAssssuummppttiioonnss

Projected Life of The Project in Years 10Sponsors' Equity 50%Debt Financing 50%Annual Mark Up Rate (Short Term & Long Term) 15%Debt Tenure in Years 5General Inflation Rate 5%

1111..22 OOppeerraattiinngg AAssssuummppttiioonnss

Total No. of Days in One Year 365Total No. of Months in One Year 12No of Working Days in One Year 300Capacity ( Sales ) growth rate 5%

1111..33 DDeepprreecciiaattiioonn RRaattee AAssssuummppttiioonnss

Land 0% of the Written Down ValueBuildings 5% of the Written Down ValueFittings & Installations 10% of the Written Down ValueOffice Equipments 20% of the Written Down ValueFurniture & Fixtures 10% of the Written Down ValueVehicles 20% of the Written Down Value

1111..44 WWoorrkkiinngg CCaappiittaall TTuurrnnoovveerr AAssssuummppttiioonnss

The investment in the stock in trade is taken to be Rs.

5,000,000

Stores and Spares 30 Days Stores & Spares ConsumptionAccounts PayablePurchases 30 Days of Cost of Furniture purchase.Expenses 30 Days of Total Annual Expenditure

1111..55 AAddvvaanncceess && PPrreeppaayymmeennttss

Advances to Staff 20% of the one month's salaryLoans to Staff 10% of the Total annual salaryAdvances against expenses 5% of the traveling, entertainment, repair,

vehicle running, sale promotion and other general expenses

Advances to Contractors 5% of the Raw Material purchasesElectricity 2,000 per monthTelephone (2 sets) 300 per monthPrepaid Insurance 90 Days Insurance Cost


PREF-99/June, 2006/ Rev 1 21

1111..66 LLoonngg TTeerrmm LLooaann

Term 5 Years Total Installments 10 bi-annually Installments 2 per yearMarkup 15% or 7.5% (arrear) Sales Tax Payable Rate 15% 1 month's Annual Sales Tax

1111..77 RReevveennuuee AAssssuummppttiioonnss ooff llooccaallllyy mmaannuuffaaccttuurreedd ffuurrnniittuurree -- SSaallee pprriiccee &&PPrroodduuccttiioonn MMiixx

Final Price to Consumers net of discountUnits Value ex-Sales

TaxDiscount allowed

10%

Net Sales Value

Rupees Rupees Rupees1. Bed Room Set

i For Bachelors 75 60,000 6,000 54,000 ii For Married couples 125 105,000 10,500 94,500

2. Dinning Roomi 6 seater 75 15,000 1,500 13,500 ii 8 seater 50 20,000 2,000 18,000

3. Common Room 100 95,000 9,500 85,500 4. Drawing Room 75 120,000 12,000 108,000 5. Office furniture

i Executive 75 65,000 6,500 58,500 ii General 250 25,000 2,500 22,500

1111..88 RReevveennuuee AAssssuummppttiioonnss ooff IImmppoorrtteedd ffuurrnniittuurree -- SSaallee pprriiccee && PPrroodduuccttiioonnMMiixx

Final Price to Consumers net of discountUnits Value ex-

Sales TaxDiscount allowed

Net Sales

Rupees Rupees Rupees1. Bed Room Sets for married

Couples 24 165,000 16,500 148,500

2. Drawing Room 18 245,000 24,500 220,500 3. Common Room 18 160,000 16,000 144,000


PREF-99/June, 2006/ Rev 1 22

1111..99 CCoosstt ooff SSaalleess

Locally manufactured Furniture Cost Cost per setRupees

1. Bed Room Seti - For Bachelors 40,500 ii - For Married couples 70,875

2. Dinning Roomi - 6 seater 10,125 ii - 8 seater 13,500

3. Common Room 64,125 4. Drawing Room 81,000 5. Office furniture

i - Executive 43,875 ii - General 16,875

Imported Furniture Cost

1. Bed Room Sets for married Couples 111,375 2. Drawing Room 165,375 3. Common Room 108,000

1111..1100 OOtthheerrss

Carriage & Freight Inward 2% of Cost of FurnitureStores & Spares 1% of Cost of FurnitureResearch & Development Cost 1% of Cost of FurnitureBuilding and fittings & installations 7% of the Cost

Building Insurance 2% of the Cost of BuildingSalaries, Wages & other benefits 25% of the Salaries & WagesTraveling & Conveyance 1% of Total Cost of Goods SoldPrinting & Stationary .5% of Total Cost of Goods Sold

1111..1111 VVeehhiiccllee RRuunnnniinngg EExxppeennsseess

Consumption per liter. Rate per liter Traveling / day Annual Tours

1 Loader Mazda 5 Km / Liter Diesel 35 40 km / day 600

2 Cars 10 Km / Liter Diesel 35 50 km / day 300

1 Motor Cycles 50 Km / Liter Petrol 57 30 km / day 300


PREF-99/June, 2006/ Rev 1 23

1122 FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

1122..11 PPrroojjeecctt CCoosstt

ESTIMATED PROJECT COST & PROPOSED FINANCING RUPEES

Fixed Capital ExpenditureBuilding 6,862,500 Fittings & Installations 1,060,000 Office Equipments 145,000 Furniture & Fixtures 280,000 Vehicles 1,333,500

9,681,000 Working CapitalCurrent Assets:Stock in Trade 5,000,000 Stores & Spares 31,373 Cash introduced 500,000 Advances, Deposits & Other Receivables 1,535,655

7,067,027 Current Liabilities:Accounts Payable 2,486,301 Accrued Charges 557,978 Sales Tax Payable 715,688 Provision for Taxation 1,010,859

4,770,826 Total Working Capital 2,296,202

11,977,202 Financed By:Sponsors' Equity 5,988,601 Debt Financing 5,988,601 Total 11,977,202

Project Viability:IRR 34.67%Payback 4.09 YrsNPV @ 20% 16,919,197


PREF-99/June, 2006/ Rev 1 24

1122..22 PPrrooffiitt && LLoossss

Year - 1 Year - 2 Year - 3 Year - 4 Year - 5 Year - 6 Year - 7 Year - 8 Year - 9 Year - 10

Sales out of locally manufactured goods

40,837,500 45,023,344 49,638,236 54,726,156 60,335,587 66,519,984 73,338,283 80,855,457 89,143,141 98,280,313

Sales out of imported furniture 10,692,000 11,787,930 12,996,193 14,328,303 15,796,954 17,416,141 19,201,296 21,169,429 23,339,295 25,731,573 Sales - Net of Sales Tax 51,529,500 56,811,274 62,634,429 69,054,458 76,132,540 83,936,126 92,539,579 102,024,885 112,482,436 124,011,886 Cost of Sales 43,009,425 47,239,820 51,894,927 57,017,834 62,656,023 68,861,819 75,692,887 83,212,777 91,491,523 100,606,312

Gross Profit 8,520,075 9,571,454 10,739,502 12,036,624 13,476,517 15,074,306 16,846,691 18,812,109 20,990,913 23,405,574 Operating Expenses:Administrative Expenses 4,266,144 4,254,713 4,428,196 4,635,418 4,875,924 5,149,885 5,458,028 5,801,581 6,182,244 6,602,162 Marketing Expenses 1,674,940 1,376,687 943,871 1,019,651 1,102,079 1,191,772 1,289,409 1,395,732 1,511,557 1,637,778

5,941,084 5,631,400 5,372,067 5,655,069 5,978,002 6,341,657 6,747,437 7,197,314 7,693,802 8,239,940 Operating Profit 2,578,991 3,940,053 5,367,435 6,381,555 7,498,515 8,732,649 10,099,254 11,614,795 13,297,112 15,165,634 Other Income 386,471 426,085 469,758 517,908 570,994 629,521 694,047 765,187 843,618 930,089

2,965,462 4,366,138 5,837,193 6,899,464 8,069,509 9,362,170 10,793,301 12,379,982 14,140,730 16,095,723 Financial & Other ChargesMark up on Long Term Loans - 853,376 673,718 494,060 314,402 134,744 - - - - Bank Charges 77,294 85,217 93,952 103,582 114,199 125,904 138,809 153,037 168,724 186,018

77,294 938,593 767,669 597,641 428,600 260,648 138,809 153,037 168,724 186,018 Profit before Taxation 2,888,168 3,427,545 5,069,524 6,301,822 7,640,908 9,101,522 10,654,492 12,226,944 13,972,006 15,909,705 Taxation 1,010,859 1,199,641 1,774,333 2,205,638 2,674,318 3,185,533 3,729,072 4,279,431 4,890,202 5,568,397

Profit after Taxation 1,877,309 2,227,904 3,295,190 4,096,185 4,966,590 5,915,989 6,925,420 7,947,514 9,081,804 10,341,308 Accumulated Profits - brought forward

- 1,877,309 4,105,214 7,400,404 11,496,589 16,463,179 22,379,169 29,304,588 37,252,102 46,333,906

Accumulated Profits - carried to the Balance Sheet

1,877,309 4,105,214 7,400,404 11,496,589 16,463,179 22,379,169 29,304,588 37,252,102 46,333,906 56,675,214


PREF-99/June, 2006/ Rev 1 25

1122..33 BBaallaannccee SShheeeett

Year - 1 Year - 2 Year - 3 Year - 4 Year - 5 Year - 6 Year - 7 Year - 8 Year - 9 Year - 10Tangible Fixed Assets 8,908,175 8,225,046 7,617,588 7,074,317 6,585,803 6,144,279 5,743,321 5,377,600 5,042,671 4,734,814 Long Term DepositsElectricity 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Sui Gas 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000

60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 Current Assets:Stock in Trade 5,000,000 5,250,000 5,512,500 5,788,125 6,077,531 6,381,408 6,700,478 7,035,502 7,387,277 7,756,641 Stores & Spares 31,373 34,588 38,134 42,042 46,352 51,103 56,341 62,116 68,482 75,502 Advances, Deposits & Other Receivables

1,535,655 1,640,298 1,760,374 1,920,229 2,096,099 2,289,506 2,502,140 2,735,874 2,992,785 3,275,165

Cash in Hand / Bank 3,090,134 5,359,983 8,522,696 12,307,416 16,959,605 22,573,445 30,450,337 39,387,857 49,514,455 60,969,561 9,657,162 12,284,869 15,833,704 20,057,812 25,179,587 31,295,462 39,709,295 49,221,349 59,963,000 72,076,869

18,625,337 20,569,915 23,511,291 27,192,129 31,825,390 37,499,741 45,512,617 54,658,949 65,065,671 76,871,684 Owners Equity:Capital Introduced 5,988,601 5,988,601 5,988,601 5,988,601 5,988,601 5,988,601 5,988,601 5,988,601 5,988,601 5,988,601 Accumulated Profits 1,877,309 4,105,214 7,400,404 11,496,589 16,463,179 22,379,169 29,304,588 37,252,102 46,333,906 56,675,214

7,865,910 10,093,815 13,389,005 17,485,190 22,451,780 28,367,769 35,293,189 43,240,703 52,322,507 62,663,815 Long Term Loan 4,790,881 3,593,160 2,395,440 1,197,720 - - - - - -

Current Liabilities:Current Portion of Long Term Loan 1,197,720 1,197,720 1,197,720 1,197,720 1,197,720 - - - - - Accounts Payable 2,486,301 2,741,147 3,022,115 3,331,882 3,673,399 4,049,923 4,465,040 4,922,707 5,427,284 5,983,581 Accrued Charges 557,978 551,156 548,354 590,317 636,033 685,822 740,044 799,097 863,421 933,504 Mark - up payable - 404,231 314,402 224,573 134,744 44,915 Sales Tax Payable 715,688 789,045 869,923 959,090 1,057,396 1,165,780 1,285,272 1,417,012 1,562,256 1,722,387 Provision for Taxation 1,010,859 1,199,641 1,774,333 2,205,638 2,674,318 3,185,533 3,729,072 4,279,431 4,890,202 5,568,397

5,968,546 6,882,940 7,726,846 8,509,219 9,373,610 9,131,972 10,219,428 11,418,246 12,743,164 14,207,868 18,625,337 20,569,915 23,511,291 27,192,129 31,825,390 37,499,741 45,512,617 54,658,949 65,065,671 76,871,684


PREF-99/June, 2006/ Rev 1 26

1122..44 CCaasshh--FFllooww SSttaatteemmeenntt

Year - 1 Year - 2 Year - 3 Year - 4 Year - 5 Year - 6 Year - 7 Year - 8 Year - 9 Year - 10

Profit before Taxation 2,888,168 3,427,545 5,069,524 6,301,822 7,640,908 9,101,522 10,654,492 12,226,944 13,972,006 15,909,705Depreciation 772,825 683,129 607,458 543,271 488,514 441,524 400,957 365,722 334,929 307,857

3,660,993 4,110,674 5,676,982 6,845,094 8,129,422 9,543,046 11,055,449 12,592,666 14,306,935 16,217,562 Stock in Trade (5,000,000) (250,000) (262,500) (275,625) (289,406) (303,877) (319,070) (335,024) (351,775) (369,364)Stores & Spares (31,373) (3,216) (3,545) (3,909) (4,309) (4,751) (5,238) (5,775) (6,367) (7,019)Advances, Deposits & Other Receivables

(1,535,655) (104,643) (120,076) (159,855) (175,871) (193,407) (212,634) (233,735) (256,911) (282,380)

Accounts Receivable 0 0 0 0 0 0 0 0 0 0 Accounts Payable 2,486,301 254,846 280,968 309,767 341,518 376,523 415,117 457,667 504,577 556,297 Accrued Charges 557,978 (6,822) (2,802) 41,964 45,715 49,789 54,222 59,053 64,324 70,082 Mark - up payable - 404,231 (89,829) (89,829) (89,829) (89,829) (44,915) 0 0 0 Sales Tax Payable 715,688 73,358 80,877 89,167 98,307 108,383 119,492 131,740 145,244 160,131

(2,807,060) 367,753 (116,908) (88,320) (73,875) (57,168) 6,975 73,926 99,093 127,747

Cash form other SourcesSponsors' Equity 5,988,601 - - - - - - - - - Debt Financing 5,988,601 - - - - - - - - -

11,977,202 - - - - - - - - -

Total Sources 12,831,134 4,478,427 5,560,074 6,756,774 8,055,546 9,485,879 11,062,424 12,666,592 14,406,028 16,345,309Applications:Fixed Assets 9,681,000 - - - - - - - - - Long Term Deposits 60,000 - - - - - - - - Re -Payment of Loan - 1,197,720 1,197,720 1,197,720 1,197,720 1,197,720 - - - - Taxation - 1,010,859 1,199,641 1,774,333 2,205,638 2,674,318 3,185,533 3,729,072 4,279,431 4,890,202

9,741,000 2,208,579 2,397,361 2,972,053 3,403,358 3,872,038 3,185,533 3,729,072 4,279,431 4,890,202

Cash Increase/(Decrease) 3,090,134 2,269,848 3,162,713 3,784,720 4,652,188 5,613,841 7,876,892 8,937,520 10,126,598 11,455,107Opening Balance - 3,090,134 5,359,983 8,522,696 12,307,416 16,959,605 22,573,445 30,450,337 39,387,857 49,514,455Closing Balance 3,090,134 5,359,983 8,522,696 12,307,416 16,959,605 22,573,445 30,450,337 39,387,857 49,514,455 60,969,561


PREF-99/June, 2006/ Rev 1 27