Conrad’s Photographer’s Supplies
Snapshot Consultants
Jasmine Chee
Wendy Chung
Linda Dai
Hussein Kanani
James Smith
Annie Wang
Table of Contents
Executive Summary ............................................................................................................................................................ 3
Introduction ........................................................................................................................................................................ 5
Market Analysis .................................................................................................................................................................. 5
Target Market ..................................................................................................................................................................... 7
Competitor Analysis ........................................................................................................................................................... 8
Marketing Mix .................................................................................................................................................................... 9
Products and Services......................................................................................................................................................... 9
Pricing ................................................................................................................................................................................ 10
Promotion .......................................................................................................................................................................... 10
Positioning ......................................................................................................................................................................... 13
Operations Plan ................................................................................................................................................................ 13
Working Capital Planning ............................................................................................................................................... 19
Human Resources Plan .................................................................................................................................................... 21
Financing ........................................................................................................................................................................... 23
Conclusion ......................................................................................................................................................................... 27
Appendix A: Market Segmentation ................................................................................................................................ 28
Appendix B: SWOT Analysis ......................................................................................................................................... 28
Appendix C: Market Share for Hobbyists ...................................................................................................................... 32
Appendix D: Sample Product Listing ............................................................................................................................. 33
Appendix E: Sample Workshop Pamphlet – Front ....................................................................................................... 35
Appendix F: Proposed Website ...................................................................................................................................... 36
Appendix G: Proposed Newsletter .................................................................................................................................. 38
Appendix H: Marketing Timeline ................................................................................................................................... 39
Appendix I: Positioning Map ........................................................................................................................................... 39
Appendix J – Site Plan ..................................................................................................................................................... 40
Appendix K– Floor Plan .................................................................................................................................................. 40
Appendix L– Financial Plan ............................................................................................................................................ 40
2
Executive Summary
Conrad’s Photographer’s Supplies, renamed RK Photography (RK) to better reflect the change in
management, is projected to reach profitability by 2006.
This will stem from a market
differentiation strategy based on superior customer service and the proposed marketing and
operational plans. Financial analysis reveals that the current asking price of $80,000 appears
overly aggressive. A more reasonable price is between $35,000 and $40,000. This will require
an initial investment by Richard and Karen of $20,000 as well as a bank loan of $20,000.
Market Analysis
Based on 70% of the total population of Winnipeg, the total market size for camera purchases is
approximately 490,000 potential consumers. This market can be segmented into three major
groups: average consumers, hobbyists and amateur photographers, and professional
photographers. An in-depth market analysis reveals that the best strategic fit for RK is the
hobbyist and amateur photographer market. Both the professional photographer and average
consumer markets are difficult for RK to successfully compete due to the small market size and
lack of technical knowledge for the former and lack of economies of scale and existence of
established competitors for the latter.
The proposed strategy is market differentiation by providing strong customer service and quality
products. Generating customer loyalty is a key success factor in this market. Sales growth will
stem from forecasted economic growth, increase in market size due to trend of increased
hobbyists with the digital camera boom, and proposed marketing plans leading to larger
customer base as well as a higher average sale per customer.
3
Marketing Plan
RK Photography will employ a wide range of advertising and promotional activities in order to
achieve its marketing goals of increasing sales by generating more interest in photography and
offering more services to the target market. RK Photography will sell digital cameras, film
cameras and accessories, with a gross margin of 32%. Promotional plans include newspaper and
magazine advertisements, in-store photography workshops for customers, on-line websites, and
monthly newsletters.
Operations Plan
Operating the business will require Richard to work full-time with the assistance of two part-time
staff. Karen will aid operations through providing accounting assistance and in-store assistance
on weekends. Customer service is a key success factor for the business. Therefore, emphasis in
recruiting and training will be on superior customer service.
Conclusion
Investment in RK is recommended based on the market, operations, human resources and
financial analysis performed. Purchase price will need to be negotiated to reduce it to a more
reasonable amount. A loan of approximately $20,000 will be needed.
4
Introduction
Conrad’s Photographer’s Supplies is located at 1305 Jefferson Avenue in Winnipeg, Manitoba.
Shelley Conrad has operated the company as a sole proprietorship since early 2003. In the first
year, Conrad’s reached sales of $252,000, with net income of $11,000 prior to adjustments.
Despite the profitable business, Shelley would like more time to focus on her professional
photography and is interested in selling the company.
Richard and Karen have been approached to purchase the store and are contemplating the
purchase, given their passion for photography. They plan to rename the business to RK
Photography to more appropriately represent their new ownership. Richard and Karen believe
that RK will benefit the Winnipeg community by filling a void as a specialty photography store.
They will provide their customers with hands-on knowledge about the selection, use, and care of
digital and 35 mm cameras; as well as providing various accessories to enhance the enjoyment
and ease of use of their customers’ purchases. Value is further added with monthly workshops
hosted by a professional photographer, who will educate participants on new techniques in the
photography realm. RK Photography offers hobbyists and professional photographers of
Winnipeg the convenience of a one-stop shop to satisfy all their photography needs.
Market Analysis
The current population of Winnipeg is approximately 700,000. It is estimated that 70% of the
population is between the ages of 15 and 641, which makes up the total potential market for
camera consumers. Winnipeg’s 2005 first quarter economic reports projects positive growth of
2.7% for GDP and 4.5% for retail sales2. Anticipated population growth is 0.8% in 2005. These
strong economic trends make Winnipeg a desirable retail location.
Based on 70% of the total population of Winnipeg, the total market size for camera purchases is
approximately 490,000 potential consumers. This market can be segmented into three major
groups: average consumers, hobbyists and amateur photographers, and professional
photographers. See Appendix A for a breakdown of this market. The photography supplies
market is segmented based on consumer needs, rather than by demographics such as age or
gender because their needs are fairly consistent regardless of age or gender within each market.
1
Statistics Canada at July 2004:
http://www.tourism.winnipeg.mb.ca/fftg/c/Population%20by%20Age%20&%20Sex%20Wpg_04.pdf
2
Destination Winnipeg: Quarterly Economic Highlights, June 2005
5
Average Consumer Market
The average consumer market, which is the largest market at 96%, is made up of individuals who
purchase cameras for everyday use. The average consumer includes a large range of customers
with different income levels, social classes, occupations, and age groups located throughout
Winnipeg. Key success factors to compete within this market will be high volume and low cost
of the camera lines carried.
Most customers within this market any very price sensitive and typically will not upgrade their
cameras since the current technology meet their needs and they will not pay for the additional
special features and other technological innovations. Rather, these customers are looking for
ease of use and compact size in their camera purchases. Further, these customers generally lack
brand loyalty at both the retail level and the manufacturer level. Instead, they base their purchase
decisions on price and general quality.
Professional Photographers
Professional photographers, at one percent of the market, consist of a very select group of
individuals whose lifework revolves around photography. This market is generally above 34
years of age, with high levels of technical training in photography. They are heavy users of
photography supplies and require many different cameras and accessories to meet their needs.
Professional photographers are typically self-employed and are characterized by high degrees of
creativity and adaptability. The median income for photographers in 2003 was approximately
$44,0003. However, regardless of income levels, professional photographers require top-of-theline cameras and photography supplies due to their special needs, and are, thus, less pricesensitive. To be competitive in this market, high degrees of specialized knowledge are required
for this industry along with a wide range of higher end cameras and accessories.
Hobbyists and Amateur Photographers
The hobbyists and amateur photographers market composes approximately three percent of the
camera market, or 15,000 consumers. These customers are looking for quality, flexibility (e.g.
3
Alberta Occupational Profiles:
http://www.alis.gov.ab.ca/occinfo/Content/RequestAction.asp?aspAction=GetHTMLProfile&format=html&OCCPR
O_ID=71002696
6
interchangeable lenses), and superior service. The average age range of this group is from 25 to
55 with mid-to-high levels of income (minimum household income of $30,000) in various
occupations. Consumers within this market are generally less price-sensitive than the average
consumer, but more than professional photographers. Hobbyists and amateur photographers
generally have little to no formal training in photography, and will generally require sales staff
with knowledge of the industry to provide them with advice.
A variety of products, ranging from mid-to-high levels of quality, will need to be carried in order
to meet the needs of this market. This stems from the fact that customers within this market will
range from the beginners to more experienced hobbyists and amateur photographers. These
customers are medium users and will likely upgrade their supplies with new technological
advancements and as their interest in photography increases in order to produce photos with
different effects. Key success factors within this market, therefore, include quality in both
product and service.
Target Market
An in-depth analysis of the three target markets is presented in Appendix B. This analysis
reveals that the best strategic fit for RK is the hobbyist and amateur photographer market.
Although smaller than the average consumer market, this market allows RK to expand and grow
profitably. RK Photography will have difficulty competing in the average consumer market due
to the existence of large, established competitors and lack of economies of scale to provide low
cost products to meet consumer needs. RK Photography may also experience difficulty targeting
the professional photographer market due to the need for high expertise as well as the small
market size of the group.
Even at anticipated growth of 1.9 to 2.9%, the professional
photographers market is small with current size of 4,900 and anticipated growth to
approximately 5,500 in 5 years.
Richard and Karen can successfully cater to the hobbyist and amateur photographer market due
to their knowledge and experience gained as hobbyists themselves. This knowledge, along with
the assistance of Shelley Conrad, and her established client-list, provides RK with a competitive
advantage within this market. The proposed strategy is market differentiation by providing
strong customer service and quality products. Generating customer loyalty is a key success
factor in this market.
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Conrad’s had approximately 500 buying customers4 in 2003, which constitutes 3% of market
share. It is expected that, upon the acquisition of Conrad’s and with the strong marketing efforts,
RK will experience growth in its customer base of 10% in the first year, 20% in the second and
third years, 7% in the fourth year, and 7% in the fifth year. Sales growth will stem from
forecasted economic growth, increase in market size due to trend of increased hobbyists with the
digital camera boom, and proposed marketing plans leading to larger customer base as well as a
higher average sale per customer. Assuming the total market size increases by one percent per
annum, total market population will reach approximately 15,500 by the end of year 5. This will
result in a market share for RK of approximately 6% by the end of year five5.
Competitor Analysis
There are two main competitors within the hobbyist and amateur photographers market in
Winnipeg: Don’s Photo and Photo Central. The remaining competitors are composed of a
variety of smaller stores with 17% market share. See Appendix C for a breakdown of market
share.
Don’s Photo
The largest competitor is Don’s Photo, with 50% of current market share. Don’s operates in
Western Canada with three stores in Winnipeg and other stores located in Saskatchewan and
Alberta. They have been established for over 20 years with the aim of targeting traditional,
professional, and amateur photographers alike6. Due to this large target market, Don’s carries a
large range of products including a variety of digital and film cameras, accessories, and other
supplies.
Strengths of Don’s Photo include economies of scale, established reputation and customer base,
and ease of access with three stores within the city.
Don’s main advertising includes an
extensive e-commerce website featuring all its products and prices. One disadvantage of Don’s
strategy is its straddling of target markets by offering a broad range of products, without catering
to the special needs of any specific market. This lack of specialization leads to Don’s low cost
strategy, with lack of superior quality in products and services.
4
500 buying customers based on assumption of an average purchase of $500/customer/year with sales of $252,000
in first year.
5
Anticipated customer base of 914 divided by anticipated market size of 15,500
6
http://www.donsphoto.com/aboutus.asp
8
Photo Central
Photo Central is a local store with 30% of the target market. The company has capitalized on the
digital camera boom by offering a wide selection of high-end digital cameras and accessories.
Photo Central caters to professional photographers by differentiating on quality rather than cost.
Its main strength lies in its local focus and established customer base. Its weakness lies in its
lack of focus on amateurs and hobbyist and the sole digital camera focus. There are many
photographers that still believe that 35mm cameras produce superior quality photos.
RK Photography
RK Photography will target local hobbyists and amateur photographers by carrying mid-to-high
end products, competitively priced, with superior service. RK Photography can capitalize on its
competitors’ weaknesses by offering superior customer service and meeting the needs of its
niche market including hobbyists and amateur photographers. RK Photography’s strategy of
offering both digital and film cameras and accessories will allow it to gain market share in its
target market.
Its objective is to foster loyal customers and attract new customers by offering superior service.
Hobbyists and amateur photographers are looking for a forum for discussion, advice, and sharing
of ideas.
RK Photography will become the ideal place for this target market through its
marketing strategies and operational developments.
Marketing Mix
RK Photography will employ a wide range of advertising and promotion in order to achieve its
marketing goals of increasing sales by generating more interest in photography and offering
more services to the target market. Research suggests that the most effective way to reach the
hobbyist target market is to use a mixture of advertising in the local paper, specialty publications
and through the Internet.
Additionally, by providing exceptional customer service, and
personalized information sessions, RK will be able to capitalize on word of mouth advertising
from its customers, thereby growing its customer base.
Products and Services
RK Photography will be set up in a manner that can fill a void in the current camera market by
providing personalized services to the hobbyist and amateur photographer. RK Photography will
sell digital cameras, film cameras and accessories. Some of the accessories RK will carry
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include memory cards, lenses, film, tripods, photo paper, high quality photo printers and
batteries. Please see Appendix D for a sample of RK’s product offerings.
One method RK will use to differentiate itself from its competitors is by offering monthly
workshops hosted by Shelley Conrad as a means to help hobbyists improve their photography
techniques. The workshops will run for 3 hours and the expected costs to RK will be $100 per
hour of Shelley’s time, which is included in consulting expenses. The price charged for the
workshop will be minimal ($25 per class). Each workshop will have a different theme (i.e.
nature photography, portraiture, etc.) to provide a forum in which customers can showcase their
works and receive professional feedback. See Appendix E for a sample workshop pamphlet kept
in the store for customers to pick up. The value-added effect of the workshops will increase
customer loyalty leading to additional sales from existing customers. The workshops will also
serve as a means to grow the hobbyist photographer market. RK Photography will be able to
attract new customers into its store with this additional service.
Pricing
As the hobbyist market is not as price sensitive as the average consumer, RK will be able to
maintain its current gross margin of 32%.
Promotion
Website
In order to be competitive in the photography market, RK will set up an informational website to
provide customers with a means to access information on the product line carried in the store.
Prior to purchasing a camera, research shows that the hobbyist will perform extensive research
on the Internet. See Appendix F for a proposed web design. The costs associated with the
website will be as follows:

$1,500 for the website design in 2004

$200/year for the hosting fee each year thereafter
Grand Opening
As a method to retain customers, RK will request that Shelley e-mail a grand opening promotion
to her current 500 customers. The promotion letter will detail the change in ownership from
Shelley to the Bingleys, emphasizing Shelley’s support for the new ownership and assuring the
level of quality service will not be compromised.
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The promotion will give customers 20% off on their first purchase at RK with certain exclusions
such as the higher priced cameras. By mailing the exclusive discount to the customers, RK will
be working to establish a good relationship without eroding the high quality image.
Also, during the grand opening week, with every purchase there will be a contest to win a $200
gift certificate for merchandise in RK. The information collected (name, address, telephone
number and email address) will be used to enhance the current customer listing and better service
the customers in the future (i.e. through the use of e-mail newsletters and having updated mailing
addresses).
It is estimated that 40% of the customers loyal to Conrad’s Photographer’s Supplies will respond
to the promotion and visit RK in the grand opening week. Of the 40%, half of them are expected
to make an average initial purchase of $200. The costs associated with the grand opening are
expected to be:

$4,000 in discounts7

$200 draw prize
The promotion will be used to create awareness of the change in management and provide an
opportunity to tell customers about the exciting changes and service offerings at RK. This
promotion will help to attract customers to the store and aid the Bingleys in developing
relationships with their customers, which is critical for survival in this niche market.
RK Photography Newsletter
Another added service that RK will provide its customers is a monthly newsletter (refer to
Appendix G). The newsletter will feature a new ‘camera of the month’, listing its functionality
and displaying photos taken by the owners (hobbyists themselves) as well as a picture taken by a
professional (e.g. Shelley) and the techniques they used.
Furthermore, the newsletter will
provide details on the monthly workshops offered and any other upcoming events (e.g. sales).
The distribution costs are expected to be minimal for the newsletter since it will be e-mailed, but
will be a strong medium to attract customers into RK. Shelley will be paid $100 per photo
article she submits, which is included in the consulting expense. Customers wishing to receive
the e-mail can sign up for it on the website or in-store.
7
500 customers*40%*1/2*$200*20% discount = $4,000
11
Local Advertising
In the first year of operations, RK will run an advertisement in the recreation/travel section of the
paper. The estimated cost of the ad will be $1,200 per run. In the first year, RK intends to run
12 advertisements in the paper. Based on the research conducted, sales will be expected to rise
on average 30% in the week an advertisement is placed. RK Photography will continue to use
this medium of advertising throughout its operations.
Partnering with the University of Manitoba
In the first year of operations under Richard and Karen, an alliance will be created between RK
and the University. Currently, there are four different photography courses offered to Arts
majors at the University. The lowest level course has three different lectures and the more
advanced courses have a single lecture. An estimated 20 people are enrolled in a class. In
exchange for donated cameras totaling $2,000, the University will recommend RK as a place for
students to purchase their photography supplies (i.e. place RK’s store information on the course
syllabus as a preferred supplier). It is expected that the cameras will last three years and in the
fourth year, RK will make another donation.
RK Photography will be able to target
approximately 120 students interested in photography in the first year, thereby increasing the
customer base.
Promotional Sales
In a normal operating year, RK will offer approximately two sales: one around Christmas when
the traffic through the store is expected to be the highest and the other around Canada Day to
help increase the customer traffic.
Magazine Advertising
In the second year of operations, RK will move into advertising in photography magazines
servicing the Canadian market. Photo Life is a Canadian publication that features articles and
portfolios of Canadian photographers. The expected cost of a half page advertisement is $1,200
and the magazine is issued quarterly. This will help to increase the brand recognition of RK.
In-store Advertising
RK Photography will have a supply of business cards for Richard to provide to customers in case
they have any questions. Business cards are expected to cost $300 in the first year of operations.
12
Lastly, by showcasing Richard and Karen’s own work in the store and customers’ works, they
will be demonstrating their passion for photography, which will entice additional customers to
come into the store.
In the first year of operations, RK expects to spend $16,990 on promotional activities to increase
sales and customers (refer to Schedule 4 of Appendix L). Please see Appendix H for a timeline
for the promotional activities.
Positioning
RK Photography will position itself between its two main competitors, Don’s Photo and Photo
Central. As previously discussed, there is a market available to target amateur photographers
and hobbyists that is not currently being met by the competition. Photo Central caters more
toward the professional market and Don’s Photo has a broader market but not as much service.
By providing services such as in-house workshops and newsletters for customers, RK will be
able to cater to the target market whose needs are not currently being met. Refer to Appendix I
for the positioning map.
Based on the above marketing mix, paying particular attention to the variety of promotional
activities, RK will be able to support the projected 10% growth in the customer base in the first
year, followed by 20% growth in the second and third years. The customer growth will then
taper off to 7% in year 4 and 5.
Operations Plan
RK Photography is a retail operation that sells mid-to-high quality 35 mm cameras, digital
cameras, lenses, and photography accessories. Customers are encouraged to utilize the expertise
of Richard by directing questions to him personally in the store and through RK’s website.
Additional help is offered in the monthly workshops hosted by a professional photographer.
Shelley Conrad, the previous owner, will be contracted to host several of these workshops in the
first year. This will create a natural flow in the change of management, as loyal customers will
be able to remain in contact with Shelley while adjusting to new management. To help create a
personal rapport with customers, Richard will encourage them to submit their own photos to be
displayed alongside Richard and Karen’s photos in the store.
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Inventory will be received from various distributors of cameras and camera accessories in the
area. The supplier relationships formed by Shelley will be retained to take advantage of contracts
already in place. Shipments will usually arrive at the beginning of the week (Tuesday) as Richard
expects customer traffic to be slowest at that time. Inventory will be re-ordered as necessary and
will be tracked by the existing computerized sales system. Once the inventory arrives, it will be
entered into the sales system, and placed in secured display case or on the floor depending on the
type of stock received (cameras secured, tripods on the floor, etc.). All demo cameras will be
secured to counters through the use of security devices. Higher priced cameras and lenses will be
placed in locked display cabinets and excess stock will be locked in the storage space below the
display counters and cabinets. Refer to Appendix K for the detailed store layout.
A 14 day return or exchange policy will be implemented. Defective products will be returned to
the manufacturer for repair or refund. Customers will have the option of purchasing an extended
warranty on all products, for periods of two to three years.
Richard will be the only full time employee of RK, working with two part time employees. As
the business grows, additional staff will be needed. It is anticipated that in 2006, an additional 20
hours of work per week will be needed (another 15 hours is anticipated in 2007) to appropriately
deal with increased customer traffic. RK Photography will need to consider whether another part
time employee should be hired or if a part time employee can move to full time hours at this
point. Currently, RK will rotate the two part-time employees on six-hour shifts from Tuesday to
Saturday.
Daily Operations
RK Photography store hours are:
Monday
Closed
Tuesday
9 am – 6 pm
Wednesday
9 am – 6 pm
Thursday
9 am – 8 pm
Friday
9 am – 6 pm
Saturday
10 am – 6 pm
Sunday
12 pm – 5 pm
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Richard will arrive at half an hour before the store opening. This extra half an hour is to allow
him sufficient time to prepare the store for the day. This includes getting the cash from the safe,
dusting the display cases and counters, restocking low inventory, and rearranging the magazines.
A part time employee is scheduled to start his/her shift at 12 pm and will work until 6 pm. The
timing of the start of the shift is to coincide with what is anticipated to be the busiest time in the
store (e.g. lunchtime). After the rush period, Richard can leave the store for lunch or to run
errands, but will return in time for the afternoon rush period and to close the store. When
Richard returns to the store, the part time employee will be given a half hour unpaid break.
Customer service is a key success factor for the business. All staff members will receive sales
training as well as product training to ensure that all staff members have the right competency
level when interacting with customers. The staff will give each customer one-on-one attention.
If there are more customers than staff in the store at any time, the staff will acknowledge the
customer and suggest that they browse the available photography magazines or look through the
displayed pictures until a staff member can assist them. This is very important to the business as
customer satisfaction is vital to its success. It also guards against lost sales in the event that a
customer leaves the store without being helped.
During down times, staff is encouraged to arrange the displays and magazine racks, restock
inventory, and maintain the store’s cleanliness. Richard can also use the time to order inventory
and respond to customer inquiries (i.e., written comments, telephone messages, or e-mails).
At closing, one staff member will print out the daily batch reports from the cash register and
credit card machines, count the cash in the till, complete the daily cash reconciliation and fill out
the bank deposit. Richard will review the reconciliation and make the nightly deposit on his way
home.
Weekly Operations
Every Tuesday morning, inventory shipments will arrive.
These boxes will have to be
catalogued and entered into the inventory system as soon as possible so that the stock can be
placed on the floor. The store’s computerized inventory system keeps a perpetual inventory
record. Richard is able to printout weekly inventory reports and will be alerted if orders need to
be placed for certain items. Inventory orders are usually placed on Thursday for the shipment to
15
arrive on the following Tuesday. Due to the high cost of RK’s inventory, Richard and Karen
will need to perform weekly inventory counts at the end of each week.
Monthly Operations
Karen, with her Chartered Accountant background, will be responsible for generating monthly
sales reports, bank reconciliations, and expense reports, including the payroll. Her monthly
bookkeeping will generate monthly financial statements so that they are aware of the financial
health of the business.
Annual Operations
Karen is a designated Chartered Accountant who runs her own practice at home. She will have
the capacity to be RK’s accountant. As such, she is responsible for preparing annual financial
statements (potentially required by the bank as part of the loan agreement), filing an Annual
Return with the provincial government, and filing the annual personal tax return for Richard
since the business is operating as a sole proprietorship.
Organizational Structure
RK Photography will continue to operate as a sole proprietorship as the costs of incorporating
the business outweighs the benefits at present. However as the business increases in profits and
complexity (i.e., more employees), incorporation will help defer taxes and help maximize the
company’s return on capital. Richard will be employed full time at the store and will act as Store
Manager. Karen will maintain her employment as a Chartered Accountant in her own practice
while assisting Richard in the financial aspects of the business. She will also help out in the store
on the weekends when necessary. Richard has the required experience to manage a photography
store since he was previously a Manager of a large local electronic store. Photography has been
Richard and Karen’s hobby for numerous years and they both possess a passion for the art that
will assist them in operating the business.
Site Plan
The store is located in a strip mall in Northwest Winnipeg. This is a prime location because
access is convenient to potential and existing customers. Jefferson Avenue is a major
thoroughfare in Winnipeg, and there is sufficient parking in the area for customers. Please refer
to Appendix J for the site map.
16
Floor Plan
The floor plan of the store will be setup to be aesthetically pleasing to customers. Refer to
Appendix K for the detailed store layout. As a customer enters the store, the employee nearest
the entrance will greet them. Locating the cash register near the entrance facilitates this. There
will be a display counter that runs down the length of the store in which demos of all the camera
models on hand will be displayed. A staff member will generally be near the display counter in
order to quickly assist customers, or to provide access to the lenses that are displayed in locked
wall cabinets behind the display counter. Moving to the left, there are four long racks on which
camera and photography accessories will be placed (tripods, film, camera cases, etc).
On the far front left of the store will be a sitting area for customers to peruse magazines for sale
and to view the display case in which Richard and Karen will place their own photos as well as
some of their customers’ photos. In the far back left of the store is the staff room, which is
restricted. The staff room will have an employee washroom and a small kitchenette with a
microwave and mini-fridge for the convenience of the employees. A fireproof safe will be placed
in the kitchenette to house the float and daily sales printouts. An office is not required, as Karen
will be doing the monthly bookkeeping in their home office. The staff room is also the receiving
area for inventory shipments.
Suppliers
RK Photography will be carrying five well-known brands of camera products. The suppliers will
be the distributors in Canada for Canon, Konica Minolta, Nikkon, Olympus, and Pentax. These
distributors are able to ship products to Winnipeg within four business days. The products will
include 35mm cameras, digital cameras, lenses, flashes, batteries, adaptors, memory cards, films,
memory readers, bags, and lens cleaners. RK Photography will also have themed local and
national photography magazines available.
Service Providers
RK Photography will implement an extended warranty service to their customers. All warranty
work will be outsourced to an independent provider within the city unless covered under the
manufacturer’s warranty.
Regular maintenance and repairs of the store building and surrounding area, such as janitorial
and electrical services, is the responsibility of Mall Management.
17
Store security will be provided by ADT Security Services Inc. Shelley installed the system in
2003 and ADT is responsible for monitoring the system and performing monthly system checks.
The security system package will include intrusion detection and video surveillance.
Accounting and tax services will be performed by Karen on a monthly and annual basis. In total,
it is expected that Karen will be working 20 hours per week. The 20 hours will cover the in-store
hours spent servicing customers along with the accounting and tax work at month end and yearend.
Capital Budget
No capital expenditures are expected in the first year as the sales equipment, furniture, and
fixtures are purchased from Shelley. Given the fact that the capital assets acquired from Shelley
have only been used for one year, RK does not expect to replace capital assets in the first five
years. Additionally, RK will not require funding to purchase land and building of the store since
it will be leased from Mall Management. Furthermore, the current computer hardware and
software is sufficient for business operations for another five years.
Working capital is expected to be consistent with prior year as Richard and Karen will be
keeping operations the same.
Cost of Sales and Inventory
In the first year of operations, cost of sales is expected to be consistent with prior year, as the
business will aim to have an average gross margin of 32% on all its products.
RK Photography expects to hold enough inventories to have one saleable item for every high
priced product (i.e., retail price greater than $1,000). The store will have enough storage
capacity to have two to three stocked items for the medium priced goods (retail price $300 $999). The lower priced items will be stocked according to the allotted shelf space in the store
aisles. As previously mentioned, the inventory levels will be monitored on the computerized
system to track the quantity of sales and see which products require additional stock levels.
Annual Operating Expenses
Promotional expenses as previously discussed will total $16,990 in the first year.
18
Rent expense of $15,000 is expected to remain constant since there is still two years remaining
on the lease with Mall Management.
Manitoba Hydro is a crown corporation and the Manitoba provincial government regulates the
utility rates of electricity, water, and gas. Thus, utilities expenses, currently at $6,240, are not
expected to greatly fluctuate from year to year.
Expenditure for consulting services represents the fees paid to Shelley Conrad for her services in
writing articles for RK’s monthly newsletter and speaking at RK’s monthly workshops in the
first year. The consulting fees are budgeted at $4,800 in the first year.
As described in the Marketing Plan, a website will be set-up in the first year to provide detailed
information of the business, their services, and their product line to potential and existing
customers. The website development cost is expected to be $1,500 in the first year and annual
maintenance costs of $200 after that.
Office expenses are estimated to be $2,120 in the first year. This includes miscellaneous office
supplies, telephone expenses, long distance charges, machine rental for debit and credit cards
from the bank (excluding commissions, which are based on a percentage of sales), security
expense, window cleaning, and snow removal.
Shipping expense is the responsibility of the business, not the distributors. The cost is difficult to
estimate as it is based on the weight of the shipment. It is assumed that cost of sales will include
the shipping cost of getting the inventory to the store from the distributor.
Working Capital Planning
See Appendix L: Financial Plan: Monthly Statement of Income and Retained Earnings for the
year ending December 31, 2004 for details on the following:
Cash Management
RK Photography will need to monitor cash resources very carefully in the first two years of their
operations. An initial influx of $30,000 in bank financing will be secured to overcome cash
shortages in the first year. The $30,000 required is preferable in the form of an operating line of
credit, which will give RK the flexibility in choosing payments. The current financing plan is
19
conservative and budgets the operating line of credit to be fully repaid by 2010. This will help to
fund marketing thrust and other increases in expenses with ownership of RK. In the second year,
a $10,000 debt financing will be needed but can be repaid after the revenues from 2005 have
come in. This will be short-term financing. This debt is likely to remain at the 10% that Shelley
Conrad previously had for the business as the business is risky and the bank requires a risk
premium.
Inventory
Currently, inventory turnover is high. Per Schedule 11 of Appendix L, the average days in
inventory is approximately 85 days. RK should ensure that the weekly shipping meets the
projected needs of customers for only the following few weeks. This weekly shipping and
monitoring of inventory levels will help, according to our analysis, reduce inventory turnover to
41 days in 2007. This level is maintained as the company grows.
Accounts Receivable
Accounts receivable had a balance of $8,000 with Conrad’s Photographer’s Supplies. RK
Photography will strive to collect this entire amount in the first months of 2004 and then
encourage customers to use credit cards for future purchases. With a retail operation, it is
possible to organize the sales so that RK does not have receivables from customers. As this
practice is prevalent in the industry, there should not be any serious loss in sales resulting from
eliminating receivables.
Accounts Payable
Shelley has previously arranged with suppliers a period of 30 days before the business was
required to pay. Per analysis of the financial statements for 2003, the days in accounts payable is
at 57 days, much higher than the 30 days. However, this does not reflect the average A/P balance
during the year. In RK, we would expect about twice as many purchases in early December to
meet the sales in mid-to-late December. Thus, RK’s A/P balance will reflect that and be nearly
twice as high at December 31. Forecasts show future days in accounts payable to be 50 days in
A/P. This is indicative of approximately an average days in payable of 30 days.
Cash Conversion Cycle
Based on the new operational strategy, RK will be able to reduce its cash conversion cycle.
These changes will allow RK to benefit from reduced inventory levels combined with supplier
20
agreements for payment in 30 days. Cash conversion cycle will be reduced to less than 8 days in
2008 from 55 days in 2003. This reduction will greatly benefit cash flow and minimize future
need for financing.
Human Resources Plan
Staff Requirements
Superior customer service is crucial for RK. The employees are the first line of contact for
customers, and RK must be able to establish lasting relationships with their customers to
compete successfully in the hobbyist/amateur photographer niche market. RK Phtotography,
therefore, needs highly competent staff to implement its strategy. Currently, RK requires one
full time manager and two part time employees to meet customer demands for service in the first
year of operations.
The part time salespeople not only need to have knowledge of cameras and accessories, but
selling skills to close the sale. These individuals must be able to leverage their knowledge of
photography, and the knowledge of RK’s product offerings to provide exceptional customer
service to RK’s customers. It is important that RK’s employees are able to help consumers make
informed decisions about cameras and accessories and provide them with product solutions that
meet their photography needs.
As a manager, Richard will be able to assist customers with important buying decisions by
offering customers the complete solution to all their technology needs through an understanding
of individual customer requirements and providing first-hand product knowledge. He will also
be responsible for training the part-time employees. Richard will be able to use his previous
work experience as an electronics manager to assist him in managing the two part-time staff and
dealing with customers.
Expansion Plans
As the business grows, the number of hours worked by part-time employees will be increased.
Promotions to full time staff status will depend on performance and experience with the business
of at least one year.
As previously discussed, Shelley Conrad will be contracted as a consultant to host workshops for
the customers. With an increased growth in the customer base, the demand for workshops may
21
increase to the point that RK will need to retain other professional photographers and increase
the number of workshops from once a month to twice a month.
Training Programs
Customer service is a key success factor for the business and this must be stressed to all
employees. RK Photography will provide training to all employees on the operation and product
specification of all new camera models that the store carries. Knowledgeable and helpful staff
will allow RK to differentiate itself from its competitors. Customers should feel confident in
receiving advice from RK employees.
Staff will also receive training on the cash register, debit and credit card machines, computer
hardware and software, security system, and opening and closing procedures. To assist new
staff, a list of frequently asked questions will be made available at the sales counter in
anticipation of customer enquiries. In order to maintain the projected growth in sales, employees
should take care not to lose any potential sales. This can be done through sales training on how
to approach customers and engage their interest.
Labour Costs
The largest operating cost for RK will be labour costs. Staffing is critical for the retail business,
and since RK will require knowledgeable employees, a premium must be paid beyond minimum
wage. Part-time sales staff will be paid $12 per hour, which is well above the current minimum
wage of $7.008. In the first year of operations, RK will require 40 hours of work from part-time
employees.
As an added incentive, RK will implement a bonus policy for its part-time employees. A yearend bonus system will be used to reward outstanding customer service in the years when RK is
generating positive operating income. The bonus system is preferred to a commission-based
rewards system that focuses solely on product sales to ensure that customer service is the number
one focus. It is estimated that the bonus scheme will start in 2006 when RK generates positive
net income.
8
April 1, 2004 minimum wage from the Manitoba Chamber of Commerce,
<http://www.mbchamber.mb.ca/resolutions2003-2004/finalreport2004-05resolutionreport/minimumwage.htm >.
22
Karen will also receive remuneration for her accounting services and some in-store help. RK
Photography expects that Karen will work 20 hours per week in the first year of operations.
Richard will also receive a salary of approximately $30,000 in the first year.
In total, the expected labour costs for RK are $77,603 in 2004.
Financing
Purchase Price
Conrad’s Photographer’s Supplies net income for 2003 was adjusted so that it accurately
reflected the depreciation using CCA rates. Taxes were also included with a 20% tax rate to
reflect the approximate personal marginal tax rate for Richard (his only income will come from
RK and amount to just under $30,000 gross income in 2004). This rate is also approximately the
tax rate for Canadian Controlled Private Corporations if RK were to incorporate.
Thus,
including such an expense seems appropriate to calculate a sustainable cash flow. The salary
expense was also adjusted to reflect that Shelley limited remuneration (she received $27,000 in
salary) and did more than full-time work in managing the store. This results in an additional
$6,000 being allocated to 2003 salary expense.
In 2003, Shelley amassed a large customer base largely through her previous contacts, but has
done little to otherwise promote the business. Given the excellent customer list, growth in sales
is expected to be slightly above inflation for the foreseeable future. Thus, a 3% growth rate was
taken to estimate future yearly growth.
Currently Shelley has set her selling price at $80,000, which is slightly above the unadjusted
value of assets on the 2003 balance sheet. This is not equivalent to the net assets in the business
as Shelley’s business has over $27,000 in payables and $20,000 in debt. These would be
liabilities that a potential purchaser would need to cover and should be included in finding a
business value. Thus, per the adjusted balance sheet for 2003, the net assets would equal
$18,400. This would be the least that one should pay for the business.
Based on the expected sustainable cash flows, the $80,000 investment cost would generate a rate
of return of 14%. The Bingleys expect a return on investment of approximately 25% given the
higher level risk of the photography supply retail market. Given this rate of return, the price that
the Bingleys should pay is about $40,000. Refer to Appendix L: Purchase Price for further
23
details.
Shelley may argue that the growth in the company should be higher; therefore a
sensitivity analysis has been conducted by adjusting the nominal growth.

5% growth, the purchase price will increase to $44,000.

10% growth, $61,000.
However, given the lack of plans for business growth and limited spending on promotional
endeavors, 3% growth appears reasonable.
The bank has previously given a loan to Shelley for the business of $20,000 at 10%. Since prime
is currently less than 5%, there is evidence that a considerable investment premium is being
placed on the photography business. This would imply a more risky investment and lowering the
required rate of return below 25% on such an investment is not recommended. Rather, a price
between $35,000 and $45,000 for the business appears more reasonable. The following analysis
is based on the price of $45,000. Adjustments to the purchase price can have a significant
impact on the return on investment as previously demonstrated.
Shelley has stated that she will finance the purchase over four years at a rate of 8%. The
Bingleys intend to finance $20,000 of the purchase with their personal finances. The remaining
amount will be paid to Shelley the next three years. Shelley’s finance rate may be contingent on
purchasing the business at $80,000 and, if such, a loan from the bank at 10% interest may be
required. These future payments could be made from the after tax salaries paid by RK to the
Bingleys in the subsequent years.
Economic Forecast
The economic forecast uses 2% as the rate of inflation and 10% for the long-term debt rate for
this business.
Based on the proposed marketing strategy, growth in the company will be
substantial in the first 5 years after which it is forecasted that revenue growth will be one
percentage point above inflation because of Shelley’s contact list and the good customer
relationship and word of mouth. Recurring expenses will increase by inflation from year to year.
The exception would be where certain costs are required or removed in a particular year based on
the operational and marketing plans. For example, the promotional activities are phased in at
different points and some costs are not recurring from year to year.
24
Loss carry-forwards generated from the first two years of operations can be carried forward and
used in the business to reduce future taxes on the company’s income. Without incorporating the
business, Richard or Karen may be able to use the losses to offset income from other sources in
earlier years. This would effectively increase cash flow in earlier periods for the Bingleys and
thus lead to greater returns on the investment.
The $20,000 principal on the debt taken out for use in the company is budgeted to be repaid
entirely in 2010 when excess cash is available for debt repayment. The additional line of credit
needed for the company totaling $40,000 ($30,000 in 2004 and $10,000 in 2005) will accrue
interest at 10% and will also be completely repaid in 2010. Repayment can be made at any time
with the line of credit so that excess cash can pay down the debt at an earlier time and reduce
interest expense. This reduction in expenses will increase return realized on the investment.
However, the repayment should not come at the expense of current operations.
Return on Investment
Based on the marketing and operational plan in place RK will begin to show positive net income
in 2006 and increasing returns thereafter (see Appendix L: Income Statement). An internal rate
of return based on the cash flows in the company to the Bingleys, over the first 8 years with
returns increasing at rate of inflation thereafter, shows a 36.5% return on investment (net present
value of 25,337). This is higher than the Bingleys’ required rate of return. The NPV analysis
also shows positive returns based on their required rate of 25%.
Ratio analysis
Based on the forecasted amounts, several financial ratios have been calculated and included in
Appendix L: Schedule 11. Cash and quick ratios show increasing liquidity over the eight years.
This would indicate that operations will generate sufficient cash to support future demands and
even return greater funds to the Bingleys or expand operations. Inventory turnover demonstrates
the operational plan to hold inventory for shorter periods of time. Days in inventory decreases
from 85 days in 2003 with Shelley to 38 days in 2008 and beyond. It would be difficult to
decrease this amount further as RK requires a minimum number of items in inventory so that
cameras can be displayed for customers. Lowering the days in inventory will also reduce the
conversion cycle so that, by 2008, the average time between paying for inventory and the
customer paying RK is less than 8 days. This is down from 55 days in 2003, which will help to
minimize future financing demands and reduce interest expense and the costs of storing excess
25
inventory.
The profitability ratios of net profit margin and return on equity show the company becoming
increasingly profitable over time. The initial two years of RK operations result in projected
losses.
However, net profit margins increase from 2.2% in 2006 to 4.9% in 2011.
Similarly, return on equity remains over 20% in each projected year following 2006 (this return
rate is decreasing as a result of rapidly increasing equity over the years. This equity will be
available to the Bingleys to remove from the company at any time in the future). The positive
trend of these ratios, together with the rate of return on the investment being over 36%,
demonstrates the strong potential for RK.
Sensitivity Analysis
In order to provide a full analysis of the expected profitability of purchasing Conrad’s
Photographer’s Supplies, the following sensitivity analysis is presented:
Worst Case

Purchase price is adjusted to $50,000

A/P turnover is reduced to reflect changes in supplier relationship

Gross margins are reduced to 30%

Reduced future returns to equal inflation of 2%

Revenue growth was decreased significantly as shown in Appendix M with subsequent
decreases in employee hours.
The resulting NPV of ($70,350) and IRR of 0.3% show that there would be, in effect, no return
on the Bingleys’ investment. This case is unlikely if the marketing and operational plans are
followed, but may result from a serious economic downturn or changes in the competitive
landscape.
Best Case

Purchase price of $35,000

Gross margins increase to 34%

Growth in revenues is increased from the base scenario as shown in Appendix N with
subsequent increase in employee expenses.
26
The resulting return on investment is 112.5% (NPV = $174,027). Again, this situation is
unlikely, but shows the potential that RK has if positive economic forces are in place and if RK
implements the marketing and operational plans previously detailed.
Conclusion
Winnipeg’s expected economic growth presents an opportunity for increased retail sales. The
hobbyists and amateur photographers market presents the best strategic fit with RK Photography.
This is due to Richard and Karen’s knowledge of these customers and the potential for growth
through increased number of customers, increased market size, and increased sales per customer.
Strong customer service will be needed to compete effectively in this market. Current proposed
purchase price of $80,000 appears overly aggressive. Suggested purchase price of $40,000,
combined with the implementation of the proposed marketing and operational plans, leads to a
positive NPV and meets the required rate of return, leading to stabilized positive net income by
2006.
27
Appendix A: Market Segmentation
3%
1%
96%
Average Consumer
Professional Photographers
Hobbyists and Amateur Photographers
28
Appendix B: SWOT Analysis
1) Average Consumer Market
Internal
Strengths
Weaknesses


Large target market: 96% of market
(approximately 470,000 customers)


Lack of economies of scale to sell low cost
products
Existence of many large competitors
(Future Shop, London Drugs, Wal-Mart)
leading to high buyer power
High financing needs to substantially
increase breadth of product-lines
External
Opportunities
Threats


Offer additional services, such as printing
services and extended warranties


Existence of substitute products (e.g.
camera phones, disposables) which can be
used for general purposes
Economic: periods of recession may
decrease growth to target market
Technological: Increased e-commerce may
decrease margins and customer base
29
2) Professional Photographers Market
Internal
Strengths
Weaknesses



Customers are not price-sensitive: highermargins
Less competitive pressure which decreases
buyer power



Small target market: 1% of market
(approximately 4,900 customers)
Lack of managerial knowledge regarding
industry
Narrow product line: only top-end
equipment for professional photographers
Large financing needed for initial purchase
of inventory
External
Opportunities
Threats



Economic: Winnipeg GDP growth
projected to increase by 2.7% in 2005 –
increase in disposable income
Expected growth is approximately 1.9 to
2.9 per cent each year from 2004 to 20099

Economic: Slower market growth due to
time needed to become professional
photographer
Technological: Increased e-commerce may
decrease margins and customer base
9
Alberta Occupational Profiles:
http://www.alis.gov.ab.ca/occinfo/Content/RequestAction.asp?aspAction=GetHTMLProfile&format=html&OCCPR
O_ID=71002696
30
3) Hobbyists and Amateur Photographers Market
Internal
Strengths




Weaknesses
Strong managerial knowledge regarding

customer group (hobbyists) – superior
service will increase market share
Extension of current strategy: medium
financing for expansion of product-line
Established customer-base from Shelley:
majority are hobbyists
Small number of competitors: Don’s Photo
and Photo Central are the main
competitors
Small target market: 3% of market
(approximately 15,000 customers)
External
Opportunities
Threats




Technological: Digital camera boom allow
ease of use for hobbyists: growth in target
market
Economic: Winnipeg GDP growth
projected to increase by 2.7% in 2005 –
increase in disposable income
Offer add-on services, including
photography courses and seminars
Economic: periods of recession may
decrease growth to target market
31
Appendix C: Market Share for Hobbyists
Market Share
60%
50%
40%
30%
20%
10%
0%
50%
30%
Market Share
17%
O
th
er
Ph
ot
og
ra
ph
y
RK
Ce
nt
ra
l
Ph
ot
o
Do
n's
Ph
ot
o
3%
Sales
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-
4,000,000
2,400,000
Sales
1,348,000
252,000
Don's Photo
Photo
Central
RK
Photography
Other
32
Appendix D: Sample Product Listing
A) Digital Cameras
Retail Price $429.99
Retail Price $769.99
Retail Price $1,899.99
Retail Price $1,599.99
B) 35mm Cameras






Retail Price: $349.99

Fully automatic 35mm AF SLR
Retractable built-in flash.
Selectable 7-point autofocus
system
35-zone metering system for
available light and flash.
Advanced flash metering system
features including E-TTL, FE
Lock and High-Speed Sync
modes with EX-series
Speedlites.
Exposure Bracketing, multiple
exposure and more.





Nikon’s famous 3D
Matrix Metering
Front body, top and
bottom covers are
magnesium alloy
Multi-CAM1300 AF
sensor module
Programmed Auto
Exposure Mode
manual exposure
override is also available
22 custom settings
Retail Price $1,399.99
33
Appendix D: Sample Product Listing (Con’t)
C) Lenses
D) Flashes
E) Other Products
34
Appendix E: Sample Workshop Pamphlet – Front
35
Appendix E: Sample Workshop Pamphlet – Back
36
Appendix F: Proposed Website
RK Photography
37
Appendix G: Proposed Newsletter
Volume One Issue 1
July 7, 2005
RK Photography Newsletter
Dear Sandra,
Photo Of The
Month
in this issue




Photo Of The Month
Shelley Conrad: Colour Gels
Camera of the Month
Upcoming Events
Shelley Conrad
For my original
abstract slides, I use
colour gels and
coloured foil reflecting
it in silver or gold foil.
Varying distances and
crushed surfaces lend
to a twisted and 3D
pattern.
PixiPort's POTM winner
is Shirley Cross with
her stunning B&W
image Enchanted
Evening.
Upcoming Events
Camera of the Month
Richard & Karen Bingley
Canon Powershot A95
This month, we are
experimenting with digital
cameras and their incredible
features. The sophisticated 5.0
Megapixel CCD, gives you the
awe-inspiring resolution to create
larger prints and brilliant on-screen images with
extraordinary detail.
August 17, 2005:
Workshop on Lighting
Techniques
September 14, 2005: An
Evening with Shelley
Conrad
Join our mailing list!
enter email
Join
email: Richard&[email protected]
voice: 204-298-1000
web: http://www.rkphotography.com
RK Photography · 1305 Jefferson Avenue · Winnipeg · MB · R2P 1S7 - Tel. (204) 632-1526
38
Appendix H: Marketing Timeline
2004
2005
2006
2007
2008
Website
University
Donations
Newspaper
Advertising
Magazine
Advertising
Workshops
Appendix I: Positioning Map
Price
Photo Central
RK
Photography
Don’s Photo
Future Shop
Quality/Service
39
Appendix J – Site Plan
Jefferson Avenue
Grocery Store
Adsum Dr.
Maevista PI
Parking Lot
RK
Photographer’s
Supplies
Appendix K– Floor Plan
Photo Display & Projector Screen
Window Display
Front
Door
Window
Printers
Printers
Camera Bags
Magazine Rack
Films
Memory Cards
Cameras Display
Batteries
Lenses & Flashes Display
Tripods
Photo Paper
Receiving Door
40
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Market Analysis - Edwards School of Business