Martin Buttle's Presentation

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Evaluating the case for new business
models in the clothing sector
Dr Martin Buttle
Senior Supply Chain Consultant, MADE-BY
08/05/13
www.made-by.org
Introduction
A study of alternative business models in the fashion industry, with an aim to:
• Assess their commercial viability for take up by a large scale retailer
• Assess their potential to reduce resource impacts, particularly waste, water
and carbon
UK Waste Footprint
Resource Price Index
The Business Models
Model 1 – Retailers providing repair and upgrading services and repair workshops for their own
garments
Model 2 - Retailers providing large-scale leasing services (e.g. for baby clothes)
Model 3 - Retailers providing large-scale services for one-off hire
Model 4 – Retailers offering a reuse section for own-brand garments within their store
Model 5 – Peer to peer exchange
Model 1: Retailers offering in-store repair services
Model 2: Baby Clothes Leasing
Model 3: large-scale online hire services
Model 4: Buy-back & resale
Model 5: peer to peer exchange
Methodology: Scope
What was included in the study:
• IPSOS-Mori data used to gauge consumer demand
• Desk based research and interviews
• Scenario analysis
• Erred on the side of caution in building the conservative scenarios
• Where possible, validation of assumptions applied
What was excluded from the study:
• Impact on existing small scale business providers
• Net impact on sales of products under retailers existing models
• Industry wide implications
Methodology: Financial Analysis
• A financial model created for each business model
• Commercial viability measured against the following key performance
indicators:
- 2 year payback on capital invested
- a return on capital of 15%
- a positive Net Present Value of cash flow
• Scenarios created for each model (except Model 3)
- a conservative (or realistic) scenario
- a tipping point scenario
Methodology: Resource Impacts
Calculations:
• Cotton t-shirt used as basis to calculate resource savings
• Resource saving of a garment saved or displaced based on weight. 0.33
kg/adult garment & 0.07kg / baby garment
Carbon and water saving based on displacement effect applied to each model:
• Carbon - 21 tonnes of CO2e saved per garment displaced
• Water - 4695 litres of water saved per garment displaced
Waste savings is a combination of garments displaced and saved from going to
landfill
Displacement effect varied across models
Summary: Financial Performance
Scenario 1: Conservative Assumptions
Scenario 1
Model 1
Model 2
Repair Workshop
Years
Financially viable
Payback time (Target 2Y)
ROC (target:>15%)
NPV, £K (target:>0)
Gross Profit Margin
Operating Profit Margin
EBITDA
Model 3
Baby Clothes Leasing
Model 4
Formal Clothing hire
Model 5
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
No
n/a
n/a
n/a
10.13%
-38.74%
-6.95%
No
n/a
n/a
No
4.9 years
n/a
n/a
55.11%
0.63%
20.08%
Maybe
4.9 years
140.82%
£314k
54.66%
11.63%
28.55%
Yes
2.9 years
36%
£149
67.04%
10.69%
45.34%
Yes
2.9 years
224.02%
£624k
68.19%
16.00%
49.19%
Yes
2.3 years
259%
£556
58%
28%
28%
Yes
2.3 years
1158%
£1763k
60%
39%
39%
No
n/a
n/a
n/a
n/a
n/a
n/a
No
n/a
n/a
(£1,411k)
-19%
n/a
n/a
(-1071)
15.66%
-9.88%
5.46%
Scenario 2: Tipping Point
Scenario 2
Model 1
Model 2
Repair Workshop
Years
Model 3
Baby Clothes Leasing
Model 4
Formal Clothing hire
Model 5 (Scenario 3)
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
ROC (target:>15%)
No
n/a
2.20%
No
5.8 years
194.29%
NPV, £K (target:>0)
n/a
(£1,062K)
Gross Profit Margin
43.79%
2.25%
20.65%
46.99%
24.49%
33.37%
Maybe
2.7 years
131%
£501
64%
20%
32%
Yes
2.7 years
515%
£1,634k
64%
29%
40%
Yes
2.9 years
36%
£149
67%
11%
45%
Yes
2.9 years
224.02%
£624k
68%
16%
49%
Yes
2.2 years
281%
£630
23%
12%
12%
Yes
2.2 years
1278%
£1,922k
25%
17%
17%
No
n/a
n/a
£661
26%
-69%
-69%
Maybe
7
232%
£803k
34%
19%
19%
Financially viable
Payback time (Target 2Y)
Operating Profit Margin
EBITDA
Summary: Financial Performance
Scenario 1: Conservative Assumptions
Scenario 1
Years
Financially viable
Payback time (Target 2Y)
ROC (target:>15%)
NPV, £K (target:>0)
Gross Profit Margin
Operating Profit Margin
EBITDA
Model 1
Model 2
Model 3
Model 4
Model 5
Repair Workshop
Baby Clothes Leasing
Formal Clothing hire
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
No
n/a
n/a
n/a
10.13%
-38.74%
-6.95%
No
n/a
n/a
No
4.9 years
n/a
n/a
55.11%
0.63%
20.08%
Maybe
4.9 years
140.82%
£314k
54.66%
11.63%
28.55%
Yes
2.9 years
36%
£149
67.04%
10.69%
45.34%
Yes
2.9 years
224.02%
£624k
68.19%
16.00%
49.19%
Yes
2.3 years
259%
£556
58%
28%
28%
Yes
2.3 years
1158%
£1763k
60%
39%
39%
No
n/a
n/a
n/a
n/a
n/a
n/a
No
n/a
n/a
(£1,411k)
-19%
n/a
n/a
(-1071)
15.66%
-9.88%
5.46%
Scenario 2: Tipping Point
Scenario 2
Years
Financially viable
Payback time (Target 2Y)
Model 1
Model 2
Model 3
Model 4
Model 5 (Scenario 3)
Repair Workshop
Baby Clothes Leasing
Formal Clothing hire
Buy-back & resale
Peer to peer
5Y
10Y
No
n/a
2.20%
No
5.8 years
194.29%
NPV, £K (target:>0)
n/a
(£1,062K)
Gross Profit Margin
43.79%
2.25%
20.65%
46.99%
24.49%
33.37%
ROC (target:>15%)
Operating Profit Margin
EBITDA
5Y
Maybe
2.7 years
131%
£501
64%
20%
32%
10Y
5Y
10Y
5Y
10Y
5Y
10Y
Yes
2.7 years
515%
£1,634k
64%
29%
40%
Yes
2.9 years
36%
£149
67%
11%
45%
Yes
2.9 years
224.02%
£624k
68%
16%
49%
Yes
2.2 years
281%
£630
23%
12%
12%
Yes
2.2 years
1278%
£1,922k
25%
17%
17%
No
n/a
n/a
£661
26%
-69%
-69%
Maybe
7
232%
£803k
34%
19%
19%
Summary: Financial Performance
Scenario 1: Conservative Assumptions
Scenario 1
Years
Financially viable
Payback time (Target 2Y)
ROC (target:>15%)
NPV, £K (target:>0)
Gross Profit Margin
Operating Profit Margin
EBITDA
Model 1
Model 2
Model 3
Model 4
Model 5
Repair Workshop
Baby Clothes Leasing
Formal Clothing hire
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
No
n/a
n/a
n/a
10.13%
-38.74%
-6.95%
No
n/a
n/a
No
4.9 years
n/a
n/a
55.11%
0.63%
20.08%
Maybe
4.9 years
140.82%
£314k
54.66%
11.63%
28.55%
Yes
2.9 years
36%
£149
67.04%
10.69%
45.34%
Yes
2.9 years
224.02%
£624k
68.19%
16.00%
49.19%
Yes
2.3 years
259%
£556
58%
28%
28%
Yes
2.3 years
1158%
£1763k
60%
39%
39%
No
n/a
n/a
n/a
n/a
n/a
n/a
No
n/a
n/a
(£1,411k)
-19%
n/a
n/a
(-1071)
15.66%
-9.88%
5.46%
Scenario 2: Tipping Point
Scenario 2
Years
Financially viable
Payback time (Target 2Y)
Model 1
Model 2
Model 3
Model 4
Model 5 (Scenario 3)
Repair Workshop
Baby Clothes Leasing
Formal Clothing hire
Buy-back & resale
Peer to peer
5Y
10Y
No
n/a
2.20%
No
5.8 years
194.29%
NPV, £K (target:>0)
n/a
(£1,062K)
Gross Profit Margin
43.79%
2.25%
20.65%
46.99%
24.49%
33.37%
ROC (target:>15%)
Operating Profit Margin
EBITDA
5Y
Maybe
2.7 years
131%
£501
64%
20%
32%
10Y
5Y
10Y
5Y
10Y
5Y
10Y
Yes
2.7 years
515%
£1,634k
64%
29%
40%
Yes
2.9 years
36%
£149
67%
11%
45%
Yes
2.9 years
224.02%
£624k
68%
16%
49%
Yes
2.2 years
281%
£630
23%
12%
12%
Yes
2.2 years
1278%
£1,922k
25%
17%
17%
No
n/a
n/a
£661
26%
-69%
-69%
Maybe
7
232%
£803k
34%
19%
19%
Summary: Financial Performance
Scenario 1: Conservative Assumptions
Scenario 1
Model 1
Model 2
Repair Workshop
Years
Financially viable
Payback time (Target 2Y)
ROC (target:>15%)
NPV, £K (target:>0)
Gross Profit Margin
Operating Profit Margin
EBITDA
Model 3
Baby Clothes Leasing
Model 4
Formal Clothing hire
Model 5
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
No
n/a
n/a
n/a
10.13%
-38.74%
-6.95%
No
n/a
n/a
No
4.9 years
n/a
n/a
55.11%
0.63%
20.08%
Maybe
4.9 years
140.82%
£314k
54.66%
11.63%
28.55%
Yes
2.9 years
36%
£149
67.04%
10.69%
45.34%
Yes
2.9 years
224.02%
£624k
68.19%
16.00%
49.19%
Yes
2.3 years
259%
£556
58%
28%
28%
Yes
2.3 years
1158%
£1763k
60%
39%
39%
No
n/a
n/a
n/a
n/a
n/a
n/a
No
n/a
n/a
(£1,411k)
-19%
n/a
n/a
(-1071)
15.66%
-9.88%
5.46%
Scenario 2: Tipping Point
Scenario 2
Model 1
Model 2
Repair Workshop
Years
Model 3
Baby Clothes Leasing
Model 4
Formal Clothing hire
Model 5 (Scenario 3)
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
ROC (target:>15%)
No
n/a
2.20%
No
5.8 years
194.29%
NPV, £K (target:>0)
n/a
(£1,062K)
Gross Profit Margin
43.79%
2.25%
20.65%
46.99%
24.49%
33.37%
Maybe
2.7 years
131%
£501
64%
20%
32%
Yes
2.7 years
515%
£1,634k
64%
29%
40%
Yes
2.9 years
36%
£149
67%
11%
45%
Yes
2.9 years
224.02%
£624k
68%
16%
49%
Yes
2.2 years
281%
£630
23%
12%
12%
Yes
2.2 years
1278%
£1,922k
25%
17%
17%
No
n/a
n/a
£661
26%
-69%
-69%
Maybe
7
232%
£803k
34%
19%
19%
Financially viable
Payback time (Target 2Y)
Operating Profit Margin
EBITDA
Summary: Financial Performance
Scenario 1: Conservative Assumptions
Scenario 1
Years
Financially viable
Payback time (Target 2Y)
ROC (target:>15%)
NPV, £K (target:>0)
Gross Profit Margin
Operating Profit Margin
EBITDA
Model 1
Model 2
Model 3
Model 4
Model 5
Repair Workshop
Baby Clothes Leasing
Formal Clothing hire
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
No
n/a
n/a
n/a
10.13%
-38.74%
-6.95%
No
n/a
n/a
No
4.9 years
n/a
n/a
55.11%
0.63%
20.08%
Maybe
4.9 years
140.82%
£314k
54.66%
11.63%
28.55%
Yes
2.9 years
36%
£149
67.04%
10.69%
45.34%
Yes
2.9 years
224.02%
£624k
68.19%
16.00%
49.19%
Yes
2.3 years
259%
£556
58%
28%
28%
Yes
2.3 years
1158%
£1763k
60%
39%
39%
No
n/a
n/a
n/a
n/a
n/a
n/a
No
n/a
n/a
(£1,411k)
-19%
n/a
n/a
(-1071)
15.66%
-9.88%
5.46%
Scenario 2: Tipping Point
Scenario 2
Years
Model 1
Model 2
Model 3
Model 4
Model 5 (Scenario 3)
Repair Workshop
Baby Clothes Leasing
Formal Clothing hire
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
ROC (target:>15%)
No
n/a
2.20%
No
5.8 years
194.29%
NPV, £K (target:>0)
n/a
(£1,062K)
Gross Profit Margin
43.79%
2.25%
20.65%
46.99%
24.49%
33.37%
Maybe
2.7 years
131%
£501
64%
20%
32%
Yes
2.7 years
515%
£1,634k
64%
29%
40%
Yes
2.9 years
36%
£149
67%
11%
45%
Yes
2.9 years
224.02%
£624k
68%
16%
49%
Yes
2.2 years
281%
£630
23%
12%
12%
Yes
2.2 years
1278%
£1,922k
25%
17%
17%
No
n/a
n/a
£661
26%
-69%
-69%
Maybe
7
232%
£803k
34%
19%
19%
Financially viable
Payback time (Target 2Y)
Operating Profit Margin
EBITDA
Summary: Resource Impacts
Scenario 1: Conservative Assumptions
Scenario 1
Model 1
Repair Workshop
5Y
10Y
Model 2
Baby Clothes Leasing
5Y
10Y
Model 3
Formal Clothing hire
5Y
10Y
Model 4
Buy-back & resale
5Y
10Y
Model 5
Peer to peer
5Y
10Y
Not
Not
Not
Resource Impact overall
Acceptable Good
Good
Good Acceptable Acceptable Acceptable Good
Acceptable Acceptable
No of Garments
419,787 1,534,630 3,455,318 8,829,023 153,635
327,245
570,910 1,643,471
22,601
106,973
Garments saved in weight*
137
502
242
618
38
82
188
542
7
35
Carbon saved*
778
2,844
3,211
8,243
316
681
476
1,386
78
371
Water Saved**
174
636
718
1,843
71
152
106
310
18
83
Scenario 2: Tipping Point
Scenario 2
Model 1
Model 2
Model 3
Model 4
Model 5 (Scenario 3)
Repair Workshop
Baby Clothes Leasing
Formal Clothing hire
Buy-back & resale
Peer to peer
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
5Y
10Y
Not
Not
Resource Impact overall Acceptable Good Acceptable Good acceptable acceptable Acceptable Good Acceptable
Good
No of Garments
684,283 2,501,558 3,673,771 9,252,277 153,635
327,245
1,427,276 4,108,677 303,180
3,212,150
Garments saved in weight
224
817
257
648
38
82
470
1,354
100
1,060
Carbon saved
1,290
4,716
3,371
8,554
316
681
1,189
3,466
1,051
11,130
Water Saved
288
1,054
754
1,912
71
152
266
775
235
2,488
Summary: Resource Impacts
Scenario 1: Conservative Assumptions
Scenario 1
Model 1
Repair Workshop
5Y
10Y
Model 2
Baby Clothes Leasing
5Y
10Y
Model 3
Formal Clothing hire
5Y
10Y
Model 4
Buy-back & resale
5Y
10Y
Model 5
Peer to peer
5Y
10Y
Not
Not
Not
Resource Impact overall
Acceptable Good
Good
Good Acceptable Acceptable Acceptable Good
Acceptable Acceptable
No of Garments
419,787 1,534,630 3,455,318 8,829,023 153,635
327,245
570,910 1,643,471
22,601
106,973
Garments saved in weight*
137
502
242
618
38
82
188
542
7
35
Carbon saved*
778
2,844
3,211
8,243
316
681
476
1,386
78
371
Water Saved**
174
636
718
1,843
71
152
106
310
18
83
Scenario 2: Tipping Point
Scenario 2
Model 1
Model 2
Repair Workshop
5Y
10Y
Model 3
Baby Clothes Leasing
5Y
10Y
Model 4
Formal Clothing hire
5Y
10Y
Model 5 (Scenario 3)
Buy-back & resale
5Y
10Y
Peer to peer
5Y
10Y
Not
Not
Resource Impact overall Acceptable Good Acceptable Good acceptable acceptable Acceptable Good Acceptable
Good
No of Garments
684,283 2,501,558 3,673,771 9,252,277 153,635
327,245
1,427,276 4,108,677 303,180
3,212,150
Garments saved in weight
224
817
257
648
38
82
470
1,354
100
1,060
Carbon saved
1,290
4,716
3,371
8,554
316
681
1,189
3,466
1,051
11,130
Water Saved
288
1,054
754
1,912
71
152
266
775
235
2,488
Summary: Resource Impacts
Scenario 1: Conservative Assumptions
Scenario 1
Model 1
Repair Workshop
5Y
10Y
Model 2
Baby Clothes Leasing
5Y
10Y
Model 3
Formal Clothing hire
5Y
10Y
Model 4
Buy-back & resale
5Y
10Y
Model 5
Peer to peer
5Y
10Y
Not
Not
Not
Resource Impact overall
Acceptable Good
Good
Good Acceptable Acceptable Acceptable Good
Acceptable Acceptable
No of Garments
419,787 1,534,630 3,455,318 8,829,023 153,635
327,245
570,910 1,643,471
22,601
106,973
Garments saved in weight*
137
502
242
618
38
82
188
542
7
35
Carbon saved*
778
2,844
3,211
8,243
316
681
476
1,386
78
371
Water Saved**
174
636
718
1,843
71
152
106
310
18
83
Scenario 2: Tipping Point
Scenario 2
Model 1
Model 2
Repair Workshop
5Y
10Y
Model 3
Baby Clothes Leasing
5Y
10Y
Model 4
Formal Clothing hire
5Y
10Y
Model 5 (Scenario 3)
Buy-back & resale
5Y
10Y
Peer to peer
5Y
10Y
Not
Not
Resource Impact overall Acceptable Good Acceptable Good acceptable acceptable Acceptable Good Acceptable
Good
No of Garments
684,283 2,501,558 3,673,771 9,252,277 153,635
327,245
1,427,276 4,108,677 303,180
3,212,150
Garments saved in weight
224
817
257
648
38
82
470
1,354
100
1,060
Carbon saved
1,290
4,716
3,371
8,554
316
681
1,189
3,466
1,051
11,130
Water Saved
288
1,054
754
1,912
71
152
266
775
235
2,488
Summary: Resource Impacts
Scenario 1: Conservative Assumptions
Scenario 1
Model 1
Repair Workshop
5Y
10Y
Model 2
Baby Clothes Leasing
5Y
10Y
Model 3
Formal Clothing hire
5Y
10Y
Model 4
Buy-back & resale
5Y
10Y
Model 5
Peer to peer
5Y
10Y
Not
Not
Not
Resource Impact overall
Acceptable Good
Good
Good Acceptable Acceptable Acceptable Good
Acceptable Acceptable
No of Garments
419,787 1,534,630 3,455,318 8,829,023 153,635
327,245
570,910 1,643,471
22,601
106,973
Garments saved in weight*
137
502
242
618
38
82
188
542
7
35
Carbon saved*
778
2,844
3,211
8,243
316
681
476
1,386
78
371
Water Saved**
174
636
718
1,843
71
152
106
310
18
83
Scenario 2: Tipping Point
Scenario 2
Model 1
Model 2
Repair Workshop
5Y
10Y
Model 3
Baby Clothes Leasing
5Y
10Y
Model 4
Formal Clothing hire
5Y
10Y
Model 5 (Scenario 3)
Buy-back & resale
5Y
10Y
Peer to peer
5Y
10Y
Not
Not
Resource Impact overall Acceptable Good Acceptable Good acceptable acceptable Acceptable Good Acceptable
Good
No of Garments
684,283 2,501,558 3,673,771 9,252,277 153,635
327,245
1,427,276 4,108,677 303,180
3,212,150
Garments saved in weight
224
817
257
648
38
82
470
1,354
100
1,060
Carbon saved
1,290
4,716
3,371
8,554
316
681
1,189
3,466
1,051
11,130
Water Saved
288
1,054
754
1,912
71
152
266
775
235
2,488
Model 4 – reuse & restyling
The business model:
• A retailer provides an incentive for consumers to return used garments
• A roll out of stores acting as collection points
• A select number flagship stores carry a ‘pre-used’ collection, consisting of
reused and restyled garments.
Income generation: dependent on number & quality of garments collected,
falling into three categories
• Recycle (85%) – not sufficient quality for reuse. Income of £0.6 per kilogram
• Resale (15%)– highest quality. Retail sales price of £30
• Restyle (2.5%) – repair required before reuse. Retail sales price of £30
Key Cost base:
•
•
•
•
Discount voucher
Logistics
Staff costs – picking & packing, restyling
Warehousing/retail space cost
Model 4 – reuse & restyling
Two scenarios created
Scenario 1
Scenario 2
1,000/year
2,500/year
By end of year 5
5
11
By end of year 10
6
14
re-sold & restyled garments
only
all garments
£500 per collection point
None
Number of garments collected per collection point
Number of retail outlets:
15% discount voucher issued
Staff training cost
Model 4: Financial Outcome
Model 4: Project Financial Appraisal
(£1,000's)
Scenario 1
Scenario 2
Timeframe
5 years
10 years
5 years
10 years
Funds
needed
£312
£312
£302
£302
NPV
£556
£1763k
£630
£1,922k
Payback
2.3 years
2.3 years
2.2 years
2.2 years
Return on
Capital
259%
1158%
281%
1278%
Model 4: Profitability Performance Summary
Per £ of revenue
Scenario 1
Scenario 2
Timeframe
Gross profit
margin
5 years
10 years
5 years
10 years
58%
60%
23%
25%
Per sq footage
Operating
EBITDA
Profit Margin
28%
39%
12%
17%
28%
39%
12%
17%
Factors that contribute to the viability of this model:
• low set up and running costs
• low initial funding required
Gross
profit
Operating
profit*
£250
£312
£108
£136
£119
£202
£56
£91
Model 4: Resource Impacts
Garments saved: for every garment collected, 0.7 of a garment is saved from
going to waste
Garments displaced: for every garment re-sold, including re-styled garments,
0.6 of a garment is displaced
Model 4 Appraisal - Resource Impact
Scenario 1
# of
Timeframe garments
saved***
5 years
10 years
570,910
1,643,471
Garments
saved in
weight*
188
542
Scenario 2
# of
Garments
Carbon Water
Carbon Water
garments saved in
Saved* saved**
Saved* saved**
saved*** weight*
476
1,386
106
310
1,427,276
4,108,677
470
1,354
1,189
3,466
266
775
*weight in tonnes
** in cubic metres
***includes garments displaced
• Scenario 1 - generates acceptable level of resource savings
• Scenario 2 - higher volume of clothing collection/sale leads to a good level
of resource savings
Thank You
MADE BY UK
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United Kingdom
tel: +44 (0)20 7636 3910
fax: +44 (0)20 7323 0337
[email protected]
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1012 TM Amsterdam
The Netherlands
tel: +31 (0)20 5230666
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