SMEDA Furniture Showroom

Pre-Feasibility Study

FURNITURE SHOWROOM

Small and Medium Enterprise Development Authority Government of Pakistan www.smeda.org.pk HEAD OFFICE th

6 Floor LDA Plaza Egerton Road, Lahore Tel (042)111 111 456, Fax: (042) 36304926-7 [email protected]

REGIONAL OFFICE

REGIONAL OFFICE

REGIONAL OFFICE

REGIONAL OFFICE

PUNJAB

SINDH

KHYBER PAKTUNKHWA

BALOCHISTAN

8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474 [email protected]

5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572 [email protected]

Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908 [email protected]

Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 [email protected]

January, 2011

Pre-feasibility

Furniture Showroom

1

EXECUTIVE EXECUTIVE SUMMARY................. SUMMARY............................... ............................ ............................ ............................ ............................ ............................ .......................... ............ 5

2

INTRODUCTION INTRODUCTION TO SMEDA ........................... ......................................... ............................ ............................ ........................... ........................... ...................... ........ 6

3

PURPOSE OF THE DOCUMENT ........................... ......................................... ........................... ........................... ............................ ........................... ................. .... 6

4

CRITICAL SUCCESS SUCCESS FACTORS IN DECISION DECISION MAKING FOR INVESTMENT INVESTMENT .................. .................. 7

4.1 4.1.1 4.1.2 4.1.3 4.1.4

4.2 4.2.1 4.2.2 4.2.3 4.2.4

5

Strengths Strengths ........................... ......................................... ............................ ........................... ........................... ............................ ............................ ........................... ................... ...... 7 Weaknesses....................... Weaknesses..................................... ........................... ........................... ............................ ............................ ........................... ........................... .................... ...... 7 Opportunities.................. Opportunities................................ ............................ ............................ ........................... ........................... ............................ ........................... ..................... ........ 7 Threats........................ Threats...................................... ............................ ............................ ............................ ............................ ............................ ............................ ........................ .......... 8

KEY SUCCESS FACTORS............................... FACTORS............................................. ............................ ............................ ........................... ........................... .................. .... 8 Quality of raw material material ........................... ........................................ ........................... ............................ ............................ ........................... ........................ ........... 8 Attractive Attractive Design and Quality Finishing ............................ .......................................... ............................ ............................ ........................ .......... 8 Sales promotion promotion .......................... ........................................ ............................ ........................... ........................... ............................ ............................ ....................... ......... 9 Other Success Success Factors Factors .......................... ........................................ ............................ ........................... ........................... ............................ .......................... .............. 9

PROJECT PROFILE .......................... ........................................ ............................ ........................... ........................... ............................ ............................ .......................... ............ 9

5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 6

SWOT ANALYSIS ANALYSIS ........................... ......................................... ............................ ............................ ............................ ............................ ............................ .................... ...... 7

OPPORTUNITY RATIONALE.................. RATIONALE................................ ........................... ........................... ........................... ........................... .......................... ............ 9 PROJECT BRIEF.................................. BRIEF................................................ ........................... ........................... ............................ ............................ ........................... ............... .. 10 TARGET MARKET................ MARKET.............................. ............................ ............................ ............................ ............................ ............................ ............................ .............. 10 MARKET ENTRY TIME ........................... ......................................... ............................ ............................ ........................... ........................... ....................... ......... 10 PROPOSED BUSINESS LEGAL STATUS ........................... ......................................... ............................. ............................. ..................... ....... 10 PROJECT CAPACITY AND RATIONALE RATIONALE ........................... ......................................... ............................ ............................ ..................... ....... 10 PROPOSED LOCATION LOCATION ........................... ......................................... ............................ ............................ ............................ ............................ ...................... ........ 10 PROJECT INVESTMENT................. INVESTMENT............................... ............................ ............................ ........................... ........................... ............................ .................. .... 11

INDUSTRY STRUCTURE....................... STRUCTURE..................................... ............................ ............................ ............................ ............................ ............................ ................. ... 1 1

6.1 6.1.1 6.1.2 6.1.3

FURNITURE CLUSTERS IN PAKISTAN PAKISTAN ............................ .......................................... ............................ ............................ ...................... ........ 12 Gujrat ........................... ......................................... ............................ ............................ ............................ ............................ ............................ ............................ .................... ...... 12 Lahore......... Lahore....................... ............................ ............................ ............................ ............................ ............................ ............................ ............................ ........................ .......... 12 Chiniot....................................... Chiniot......................... ........................... ........................... ............................ ........................... ........................... ............................. ....................... ........ 12

7

WORLD IMPORTS AND EXPORTS...................... EXPORTS.................................... ............................ ............................ ............................ ............................ .............. 13

8

MARKET INFORMATION ABOUT FURNITURE FURNITURE .......................... ........................................ ........................... ........................... ................ 14

8.1 9

REQUIREMENT OF WOODEN FURNITURE FURNITURE ............................ .......................................... ............................ ............................ ................ 14

PROJECT MARKETING STRATEGY.................. STRATEGY................................ ........................... ........................... ........................... ........................... ................. ... 15

9.1 9.2 9.3 9.3.1

MARKETING STRATEGY .......................... ........................................ ............................ ............................ ............................ ............................ ................... ..... 15 TRENDS IN FURNITURE STYLE .......................... ........................................ ............................ ............................ ............................ ...................... ........ 15 TRENDS IN MATERIALS, COLOURS AND SHAPES............... SHAPES............................. ............................ ............................ ................ 15 M aterials aterials commonly commonly used.................................... used................................................. ........................... ............................ ........................... ........................ ........... 16

10

PROPOSED PRODUCT MIX....................................... MIX..................................................... ............................ ........................... ........................... ......................... ........... 16

11

HUMAN RESOURCE REQUIREMENT ........................... ......................................... ............................ ............................ ........................... ................. .... 17

11.1

HUMAN RESOURCE REQUIREMENTS ............................ .......................................... ............................ ............................ ............................ .................... ...... 17

12

OFFICE EQUIPMENT......................... EQUIPMENT....................................... ........................... ........................... ............................ ............................ ............................ ...................... ........ 18

13

LAND & BUILDING REQUIREMENT ............................ ......................................... ........................... ............................ ............................ ................... ..... 18

14

KEY ASSUMPTIONS...................... ASSUMPTIONS.................................... ............................ ............................ ........................... ........................... ............................ ........................... ............. 19

14.1 14.2 14.3

PROJECT ASSUMPTIONS .......................... ........................................ ............................ ............................ ............................ ............................ ........................... ............. 19 OPERATING ASSUMPTIONS ........................... ......................................... ............................ ............................ ............................ ............................ ...................... ........ 19 DEPRECIATION RATE ASSUMPTIONS ............................ .......................................... ............................ ............................ ............................ .................... ...... 19

PREF-99/January, 2011/ Rev 2

2

Pre-feasibility 14.4 14.5 14.6 14.7 14.8 14.9 14.10 15

CASH FLOW ASSUMPTIONS ........................................................................................................ 19 MISCELLANEOUS ASSUMPTIONS ................................................................................................ 20 EXPENSE ASSUMPTIONS ............................................................................................................. 20 REVENUE ASSUMPTIONS ............................................................................................................ 20 REVENUE ASSUMPTIONS - PRODUCT MIX .................................................................................. 20 REVENUE ASSUMPTIONS - SALES PRICE ..................................................................................... 21 COST OF SALES .......................................................................................................................... 21

FINANCIAL STATEMENTS.......................................................................................................... 22

15.1 15.2 15.3 15.4 16

Furniture Showroom

PROJECT COST ........................................................................................................................... 22 INCOME STATEMENT .................................................................................................................. 23 BALANCE SHEET ........................................................................................................................ 24 CASH FLOW STATEMENT ........................................................................................................... 25

ANNEXURE...................................................................................................................................... 26

16.1 16.2

MAJOR FURNITURE SUPPLIERS AND MANUFACTURERS ............................................................. 26 TAX DEDUCTION INCOME SLABS ................................................................................................ 26


3

Pre-feasibility

Furniture Showroom

DISCLAIMER 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

Revision

2

Prepared by

SMEDA-Punjab

Issue Date

June 2006

Revision Date

January, 2011

Issued by

Library Officer


4

Pre-feasibility

1

Furniture Showroom

EXECUTIVE SUMMARY

The project involves establishing a Furniture Showroom at a central location of any big city of Pakistan. The showroom will cater to the needs of the domestic market, selling quality wooden furniture for household and office use. The furniture will be outsourced from local manufacturers in Gujrat and Chiniot. The showroom will provide its own designs as well as take orders for customized furniture. The outlet will offer a product mix of household furniture including bedroom sets, dining room, common room and drawing room furniture. Additionally office furniture will also be available in the showroom. Pakistan is one of the oldest furniture manufacturing industries. The furniture industry is divided into two main types: cottage and small scale industries. The industry is aiming at developing a system designed to incorporate its tradition with modern functional demands, coupled with a quality of the material and aesthetic values. The medium sized and the small sized units have their showrooms and some micro sized manufacturers don’t have their own showrooms, so they are dependent on outlets set up in cities like Lahore, Sialkot, Gujranwala, Rawalpindi, Islamabad, Peshawar, Karachi, Quetta etc. In Lahore there are many clusters of furniture showrooms in central locations like Fortress Stadium, Gulberg, DHA, Allama Iqbal Town, Ferozepur Road and Multan Road. The total project cost for setting up the showroom is estimated at Rs. 5.571 million. The project is financed through 50% debt and 50% equity. The project NPV is around Rs. 2.121 million, with an IRR of 29% and payback period of 3.78 years. The legal business status of this project is proposed as ‘Sole Proprietorship’. The showroom will be open for 11 hours everyday. Given the business type a fixed sales capacity can not be determined. It is assumed that 525 sets of furniture are sold in the first year from among the product mix defined. The projected sales are increasing at a rate of 5% each year. The projected sale figures given in the project are only an approximation and actual sales may vary significantly depending on how well the showroom caters to the market requirement and how strong its marketing strategy is.


5

Pre-feasibility

2

Furniture Showroom

INTRODUCTION TO SMEDA

The Small and Medium Enterprises 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 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 industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. 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.

3

PURPOSE OF THE DOCUMENT

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 project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and marketing, finance and business management. The document also provides sectoral information and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors of the Furniture Showroom business by providing them a macro and micro view of the business with the hope that the information provided herein will aid the potential investors in crucial investment decisions. This particular Pre-feasibility is regarding setting up "Furniture Show Room". 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


6

Pre-feasibility

Furniture Showroom

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

4

CRITICAL SUCCESS FACTORS IN DECISION MAKING FOR INVESTMENT

4.1

SWOT ANALYSIS

Wood is the main raw material used in furniture making 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) wood plays a vital role in the manufacturing of good quality furniture, which will ultimately reflect on the reputation of the furniture show room. Strong competition exists in the international and domestic market. Manufacturing and sale of high quality trendy designs and good marketing is essential to get a permanent place in the market. Real wood furniture is the most popular furniture in existence; it's been around for hundreds of years. 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 an important role in making the decision. 4.1.1

St r re ngt hs

1. Availability of high quality furniture to customers 2. Variety of traditional and modern designs of locally manufactured furniture will be available in the showroom. 3. A number of suppliers available in the local market, for instance the Chiniot and Gujrat furniture market. 4. Profit margins can be as high as 100% 5. Central location of the showroom in a big city, easily accessible to the target market. 6. The showroom is proposed to be open 11 hours a day. 7. A product mix that includes furniture for both household and official use. 4.1.2

W eak nesses

1. A number of competitors in the market. 2. Easy market entry 3. Seasonal sector (especially household furniture in the wedding season – November to March). 4. Heavy investment in the working capital. 5. Very strict quality check required. 6. Dependency on the supplier for timely delivery of orders. 4.1.3

O p po por t tu nit ies

1. High quality furniture being produced locally at competitive rates and in large quantities.


7

Pre-feasibility

Furniture Showroom

2. The life style of the people is improving and they are getting more quality conscious, thus preference for the high quality products is increasing. 3. With an overall increase in income levels people are willing to spend more on house renovation and decoration. 4. Continuous increase in construction and renovation of houses and offices create new opportunities. 5. Market share can be acquired from un-organized sector through high quality product and promotional activity. 4.1.4

T hr eat s

1. Lack of tree plantation resulted in lack of raw material (wood.) 2. The prices of all raw materials such as chipboard, timber, foam, polish chemical materials, colour paints and hard ware have increased 3. Heavy imports of furniture particularly from China 4. Local furniture manufacturers face high costs and poor output due to obsolete machinery, inadequate tools and manual labour. 5. Furniture trends and designs change rapidly. 6. Several established competitors enjoy a good market share. 4.2 4.2.1

KEY SUCCESS FACTORS Qualit y o f r aw mat er ial

The furniture industry in Pakistan is dependent on the quality of the raw material available. The high quality wood is scarce in Pakistan and customer complaints arise due to the use of cheap and low quality wood by the manufacturers. It has to be ensured that furniture displayed in the showroom and manufactured on orders must be of high quality raw material. 4.2.2 At y F inishing At t tr ra ct ive De Design and Q d Qualit

The life style of the people is improving and they are getting more quality conscious. Contemporary and chic designs are better liked by people these days. Special attention should be given to present latest designs according to the current market demands and requirements. Tastefully designed and knockdown furniture items, made of superior quality wood and light weighted are more suitable for sale purposes. New designs and styles with durability can build brand equity for the business. As there is high competition in market, creation of up-to-date designs and styles, and introducing new trends is vital. As this proposed showroom business is expected to target middle to upper middle class, the furniture should be able to fulfil their special requirements. It is therefore more important that furniture should be aiming to cater the traditions with modern functional demands, coupled with quality of the material and aesthetic sense. It is of utmost


8

Pre-feasibility

Furniture Showroom

importance that furniture should be durable and of the latest style and fashion at an economical cost so as to attract the relevant class of the society. 4.2.3

Sales pr pr omot ion

Another critical success factor of this proposed pre-feasibility is the Marketing and Promotion of the Furniture. Sales promotion activity is necessary for market pe netration. This involves dedication and hard work from the marketing personnel and advertisement through print media along with the use of other marketing techniques. 4.2.4

Ot her S r Success F act or s

1. Advance orders for sale can ensure the success of the business. 2. Assurance to customers that furniture is made of seasoned (dry) wood. Properly seasoned (dry) wood guarantees high quality as it minimizes deformation of wood due to dampness. 3. 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 4. The location of the showroom is an important factor for success. The showroom should be located in heavily populated or developed cities and its location within the city should be decided keeping the target market in mind. 5. Responsiveness to customers' demands and requirements is very important to stay in market and retain market share. 6. Better customer service and after sale service to promote business goodwill. 7. Competitive prices should be offered.

5 5.1

PROJECT PROFILE OPPORTUNITY RATIONALE

Furniture Showroom is a viable business if done properly on commercial basis. With the increase in the development of new housing schemes, increased demand of wooden furniture can be anticipated. Furniture is also given as part of the dowry which forms the major portion of sales of furniture in Pakistan. The demand for household furniture increases substantially in winter and spring season which is the wedding season in Pakistan. Domestic/office requirements and trend of dowry in the form of furniture considerably increases the need for quality furniture. The demand for household furniture and accessories directly correlate with new residential construction, and office furniture follows trends in non-residential construction. A growing segment is the renovation, maintenance and improvement sector. Some furniture manufacturers do not have their own showrooms and are dependant upon other sources for furniture sales. The medium sized and the small sized units have their showrooms. The micro sized manufacturers don’t have their own showrooms, so they are dependent on the other categories for their furniture sales. Around 10% of the total furniture manufactured in Gujrat is sold within the city. The rest 90% of the furniture is


9

Pre-feasibility

Furniture Showroom

sold in the other cities like Lahore, Sialkot, Gujranwala, Rawalpindi, Islamabad, Peshawar, Karachi, Quetta etc. 5.2

PROJECT BRIEF

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 is proposed to be outsourced from various local manufacturers. The showroom will provide its own designs as well as customized designs to its customers. The products covered in this pre-feasibility are domestic or household furniture and office 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. 5.3

TARGET MARKET

The target market proposed for this project is middle to upper middle class. Nowadays the demand is for quality furniture at a reasonable cost. Given the current situation of the market, the high income group also searches for good bargains. Therefore, the focus of this showroom will be to present good quality furniture at an economical price range. 5.4

MARKET ENTRY TIME

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. The demand for the furniture almost gets doubled during this period. The prime time to enter into market would be June so that the Showroom gets into commercial operations before the start of the wedding season. 5.5

PROPOSED BUSINESS LEGAL STATUS

The said project can be established as a sole proprietorship or a partnership and it can also 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 to be sole proprietorship as this does not involve heavy investment. Moreover less legal requirements and costs are involved in forming and running a sole proprietorship or partnership business. Lower tax rates for this type of business legal status is an added advantage. 5.6

PROJECT CAPACITY AND RATIONALE

The proposed project is capable of selling a complete range of wooden furniture to meet the demands of the domestic market. The furniture is purchased from local manufacturers. The show room will work 11 hours a day for 300 days in a year. 5.7

PROPOSED LOCATION

The said project can be started in any central area of developed cities like Lahore, Karachi, Islamabad, Sialkot or Faisalabad etc. It is however assumed that this showroom is established at Lahore – Main Boulevard DHA. Most successfully running furniture shops are located in areas like Gulberg, Cavalry, Cantt Fortress, Main Boulevard DHA, Allama Iqbal town, Township, Ferozpur road, Multan road and Bedian road. The demand


10

Pre-feasibility

Furniture Showroom

in these areas is influenced by the number of new houses/offices built and old houses/offices renovated/reconstructed. 5.8

PROJECT INVESTMENT

Total Initial Cost of the Project is worked out as follows: Table 5-1 Project cost Rupees

Capital Investment Requirement Working Capital Requirements Total Project Investment Requirement

1,523,000 4,048,836 5,571,836

The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. However, this composition of debt and equity can be changed as per the requirement of the investor. Table 5-2 Project financing Rupees

Debt Equity Total Project Investment

50% 50%

2,785,918 2,785,918 5,571,836

Table 5-3 Project returns

IRR

29 %

NPV @ 20 % Pay Back Period

6

Rs. 2,121,943 3.78 years

INDUSTRY STRUCTURE

Total world trade in furniture is estimated to be around $23.2 billion, of which the share of wooden furniture is 77 percent, followed by metal furniture at 17 percent and plastic furniture at 6 percent. Italy is the world’s biggest exporter of furniture followed by Germany and Canada. Pakistan’s share in the international wooden furniture market is insignificant, despite the fact that the country has a history of craftsmanship and innovation in the field of wooden furniture. The wooden furniture industry represents 95 percent of the total market in the country. The leading furniture making areas of Pakistan are Chiniot, Gujrat, Peshawar, Lahore and Karachi. In terms of exports, Karachi comes first, followed by Lahore and Peshawar.1

1

The Express Tribune (http://tribune.com.pk/story/19304/prospects-and-fears-for-pakistans-furnitureindustry/)


11

Pre-feasibility 6.1 6 .1.1

Furniture Showroom

FURNITURE CLUSTERS IN PAKISTAN 2

Gu jr at 2

Furniture industry developed gradually at its own and a number of showrooms were set up on G.T Road, and Gujrat. The estimated overall furniture sale from Gujrat is about Rs. 500 million per annum. Furniture cluster of Gujrat is famous for the production of quality wooden furniture. Gujrat was known for its furniture manufacturing even before the independence because of the availability of cheap skilled labour. Presently most of the manufacturers are depending on traditional method (labour intensive technology) that results in the low productivity. There are about 300 units (including shops) in Gujarat associated with this sector. The sector breakdown shows that majority of the sector is based on 225 to 250 micro units, 40 to 50 small units and 5 medium sized units. There are approximately 7,000 to 8,000 people directly employed in this industry. Gujarat is well known for its top quality furniture all over Pakistan. A few units are exporting furniture to different countries including, UK, USA, Saudi Arabia, Middle East etc. The total export of Furniture from Gujarat was about US$ 4.5 million. 3 However, due to limited production capacity these firms are not able to fulfil the large export orders and hence can not compete vigorously in international markets. China and India are the major competitors. Their prices are less and quality is better. 4

6 .1.2 Lahor e4

The Lahore cluster is essentially based on the traders of wooden furniture. There are more than 1,500 retail shops trading in Medium Density Fibreboard (MDF) furniture, office, bedroom and living room furniture. However, in the last decade this market has diversified its product range to all kinds of furniture articles. These traders usually purchase furniture in semi-finished form from Chiniot and polish and upholster it in their workshops. However, there are around 100-200 small cottage sized workshops in Lahore are engaged in wooden furniture manufacturing. Their profit margins are quite high as all the value addition is done in Lahore according to the requirement of the customers. Majority of these manufacturing units use low-tech machinery which are either locally made or are second hand imported machines. However, some furniture manufacturers have established a production line based on new modern machinery and seasoning kiln facilities. On average each manufacturing facilities employs 5 to 20 workers depending on its scope of work. At present there are around five large clusters of furniture markets within Lahore i.e. Fortress Stadium, Gulberg, Allama Iqbal Town, Ferozepur Road and Multan Road. These markets mostly cater to the needs of the domestic market. 6 .1.3

5

C hiniot 5

Although Chiniot wooden furniture industry is approximately 150 to 200 years old, but still remained at cottage sized scale. There are almost 3,000 to 4,000 manufacturing units in Chiniot, which use primitive technology and techniques for manufacturing. Around 2

http://www.smeda.org/downloads/Cluster_Profile_Furniture_Gujrat.pdf Directorate of Industries 4 Furniture blog (http://furniturekingdom.blogspot.com/) 5 Furniture blog (http://furniturekingdom.blogspot.com/) 3


12

Pre-feasibility

Furniture Showroom

40,000 people are directly employed by this industry. The demand for this kind of furniture is increasing in the international market. Chiniot is a major cluster engaged in the manufacturing of handmade wooden carved furniture. The basic raw material used for hand carved furniture is Sheesham wood, which is under an attack of an unknown kind of disease. This has resulted in a shortage of raw material and increase in its price. The stakeholders can be categorized into manufacturers, craftsmen, traders, timber merchants, exporters, transporters and financial institutions. The number of skilled craftsmen is declining, which is creating severe shortage in the industry. The semifinished items (Kora) are sold to all major cities throughout Pakistan.

7

WORLD IMPORTS AND EXPORTS6

Total world trade in furniture is estimated to be around $23.2 billion, of which the share of wooden furniture is 77 percent, followed by metal furniture at 17 percent and plastic furniture at 6 percent. Italy is the world’s biggest exporter of furniture followed by Germany and Canada. United States is the biggest importer of wooden furniture followed by Germany and France. Pakistan’s share in the international wooden furniture market is insignificant, despite the fact that the country has a history of craftsmanship and innovation in the field of wooden furniture. In terms of exports, Karachi comes first, followed by Lahore and Peshawar. Exporters are suffering manifold problems while local manufacturers are facing challenges due to heavy imports of furniture. Chinese furniture has also hit the local industry by 70 percent and the sales of locally manufactured household furniture have gone down by 30 percent. Pressure on the domestic industry has immensely increased as other countries like Thailand and Korea have started exporting extensively to Pakistan. At the same time, the high cost of the furniture business has threatened the sector as a whole. The prices of all raw materials used in making furniture which include chipboard, timber, foam, polish chemical materials, colour paints and hard ware have increased. Timber production on the other hand has gone down drastically because of unchecked deforestation. As a result, imported chipboard is used in manufacturing bedroom sets, which sell the most. About sixty percent raw material used in furniture making is imported from China. Imported item mostly used in furniture making are chipboard, hardware items and glass. Pakistan’s major buyers of wooden furniture are the UK, the USA, Sri Lanka and Gulf countries like the UAE, Saudi Arabia, Oman and Kuwait. The United States buys mostly bedroom furniture. UK and the Gulf countries import kitchen furniture and office furniture. For example, the British retail chain Harrods sells some Pakistani furniture at its outlets. The foreign sources of furniture in Pakistan are China, Germany and Italy; however, they have not yet succeeded in taking over the local market’s share of heavy furniture. The 6

The Express Tribune - http://tribune.com.pk/story/19304/prospects-and-fears-for-pakistans-furnitureindustry/


13

Pre-feasibility

Furniture Showroom

quality of local heavy furniture is higher and the price is comparatively lesser. Customs, freight charges are being charged according to the weight and volume of an item, therefore, imported furniture items cost much higher particularly in case of heavy furniture. However, the imported items which fall in the light furniture category have dominated the market which has impaired the local industry by almost 80 per cent. An attempt on deco furniture and by using MDF chip board and fibre glass approach, the domestic suppliers have been able to attract the consumers again to the local markets. 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 Rs.175,000. Table 7-1 Pakistan’s Import and Export figures Period

2009 2008 2007 2006 2005

8

Import Value

$12,951,770 $11,210,886 $16,721,587 $14,851,839 $10,282,913

Export Value

$6,886,417 $8,162,790 $10,526,255 $10,144,781 $12,441,062

MARKET INFORMATION ABOUT FURNITURE

At present there are around five large clusters of furniture markets in Lahore and these markets mostly cater to the needs of the domestic market. 8.1

REQUIREMENT OF WOODEN FURNITURE

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. Customers from the first category 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 when most weddings take place. Basic requirement of these customers is a bedroom set of new designs and styles. These types of customers also buy sofa set or dining set. The renovation and improvement requirements also provide a considerable market. Initially, the entrepreneur should target these customers to establish the business and to increase the customer base later on. These potential customers can play a major role in the success this business. The hotel industry provides considerable scope for wooden furniture. Large orders can be secured to supply furniture to hotels and resorts. However, given the current political and economical situation of Pakistan the corporate sector does not provide much opportunity for furniture business.


14

Pre-feasibility

9 9.1

Furniture Showroom

PROJECT MARKETING STRATEGY MARKETING STRATEGY

When marketing for furniture we could use print media such as newspaper and fashion or interior decoration magazines. Internet marketing can also be used. In addition, sales promotion must be done in order to develop new customers and keep in touch with current customers. For example through a newsletter (by e-mail) one can make the customers aware that the showroom is following the latest interior decoration trends and latest developments are taking place in quality standards and newer styles and fashion. Additionally, a constant, prompt and reliable communication is vital to build and maintain a long-term business relationship with your customers. To establish a brand name high quality standards must be maintained along with good customer service. 9.2

TRENDS IN FURNITURE STYLE

In all furniture styles some significant trends are: •

•

•

•

•

•

9.3

Individual items of furniture can be used for different functions: flexible seating for sitting, reclining or sleeping; modular wall systems and living room systems. 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 aesthetically pleasing designs. For example, LED illumination to enhance simple cabinet, invisible 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. TRENDS IN MATERIALS, COLOURS AND SHAPES

Home furniture and furnishings are becoming more colourful. The colours used in upholstery furniture fabrics, and cupboard and cabinet fronts are loud and bold. The design and form 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 market. 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.


15

Pre-feasibility

Furniture Showroom

9.3.1 M at er ials commonl y y used •

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, aluminium 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 colours. Also, recycled polyester is increasingly being used in modern items. •

Fabrics: These are softer in texture and appearance, with single light natural colours

used as a basis. Small motifs, textured look; geometric or large colourful designs are also in fashion. Floral designs, micro-fibres are still common and (soft) hi-tech fibres are gaining importance. •

Finishes: There is a trend towards high gloss finish in many colours for tables and

chests. There is also much use of polished, laminates, satin-finish, acid-etched, painted glass with neutral or bright colours; opaque lacquers; painted and enamelled steel; anodized, polished and mat aluminium.

10 PROPOSED PRODUCT MIX This unit is proposed to sell different types of wooden furniture. As this project is catering to the needs of the domestic market, it is assumed that the project will be selling the product mix given in the table below. Each product mix can be manufactured in three different qualities of wood depending on the customer’s budget and requirement. The project assumes that 30% of the total sales is of Quality A products, Quality A being the most superior quality, 40% sales will be of Quality B products, this being the fine quality and 30% sales will be of Quality C products, Quality C being of normal quality. The projected sales given below are only an approximation. The sales in actuality vary greatly and can not be predicted in advance. Bedroom and common room furniture is the largest segment as far as the domestic market is concerned .


16

Pre-feasibility

Furniture Showroom

Table 10-1 Product Mix 1.

Bed Room Set

For Bachelors For Married couples

2.

Total Projected Sales

Single bed, side table, one dressing table, two chairs & one stool. Double bed, two side tables, one dressing table, double seater sofa, one TV Cabinet & one stool.

50 100

Dinning Room

6 Seater

Dinning table and chairs with trolley

50

8 Seater

Dinning table and chairs with trolley

50

One TV Trolley, one three seater sofa and two single seater sofas, one wooden partition and a central table. One three seater, two single seater and one double seater sofa, one central table, one decorative sofa.

75

One executive table, one revolving chair, two chairs, one computer table and one 2 seater sofa. One table including computer cabinet, one revolving chair and two other chairs

50

3.

Common Room

4.

Drawing Room

5.

Office furniture

Executive

General

50

100

11 HUMAN RESOURCE REQUIREMENT 11.1

Human Resource Requirements

Following table shows the requirements of Human Resources and the proposed annual salary.

Table 11-1 Human Resource detail Description

Employees

Salary / Month (Rs.)

Annual Salary (Rs.)

35,000 28,000 10,000 7,000 8,500

420,000 336,000 240,000 84,000 204,000 1,284,000

ADMINISTRATIVE COST

Store Manager Store Supervisor Workshop Labour Office boy Guard Total Administrative Salaries


1 1 2 1 2

17

Pre-feasibility

Furniture Showroom

MARKETING COST

Indoor Sales person Outdoor Sales person Total Marketing Salaries

3 2

15,000 20,000

540,000 480,000 1,020,000

12 OFFICE EQUIPMENT Following tables present the office equipment and furniture/fixtures requirement for the showroom. Table 12-1 Office Equipment Items

No. of Items

Computers Printers Fax Machine Telephone Sets Fire Fighting Equipments TOTAL

1 1 1 2 4

Cost per Unit Rupees

25,000 12,500 10,000 1,000 4,500

Total Cost Rupees

25,000 12,500 10,000 2,000 18,000 67,500

Table 12-2 Furniture, Fixture & Fittings Cost Rupees

Items

Office Furniture (tables, chairs, cabinets, etc.)

166,000

Total Cost Rupees 166,000

Table 12-3 Other Equipment Cost per Unit Rupees

Total Cost Rupees

Items

Qty

Air Conditioners / Split Units Generator Electric Installations & Fittings cables & wires Fancy Lights Ceiling fans Other decoration expenses - sign Board, antiques, wall paintings etc. TOTAL

1 1

40,000 150,000 150,000

40,000 150,000 150,000

50 5

500 2,500 150,000

25,000 12,500 150,000 527,500

13 LAND & BUILDING REQUIREMENT An already built showroom can be rented for the proposed business in any commercial area or it can be purchased based on the judgment of the entrepreneur. It is however recommended to rent the space. The rent in this feasibility is taken to be about Rs.


18

Pre-feasibility

Furniture Showroom

112,500/- per month. The total area requirement for this proposed project is assumed to be of approximately 1 kanal. Table 13-1 Space Requirement Space Required. (Sq. ft)

Display Hall Workshop/Store room Management Office Kitchen Washrooms Total Infrastructure Cost

4,000 220 200 50 30 4,500

14 KEY ASSUMPTIONS 14.1

Pro ject Assumptions

Projected Life of The Project in Years

10

Sponsors' Equity Debt Financing Long term Interest rate Short term Interest rate Debt Tenure in Years Interest on cash in bank Tax rate7 Insurance expense 14.2

50% 50% 16% 14% 5 10% 25% 5%

Operating Assumptions

Total No. of Months operational in one year

12

No of Working Days per year Hours operational in a day 14.3

300 11

Depreciation Rate Assumptions

Land

0% of the Written Down Value

Buildings Tools and Equipment Office Equipment Furniture & Fixtures Vehicles 14.4

5% 10% 33% 10% 20%

of the Written Down Value of the Written Down Value of the Written Down Value of the Written Down Value of the Written Down Value

Cash Flow Assumptions

Furniture Inventory

30 days

Stores and Spares

30 days

7

Tax rate is fixed through out the project since the income falls in 25% tax deduction slab


19

Pre-feasibility

Furniture Showroom

Accounts Payable 14.5

30 days

Miscellaneous Assumptions

Inflation rate

10%

Electricity growth rate Water price growth rate Gas price growth rate Wage growth rate Office equipment price growth rate Office vehicles price growth rate

10% 10% 10% 10% 10% 10%

14.6

Expense Assumptions

Cost price growth rate

5%

Freight and carriage charges Freight charges growth rate Staff benefits expense Staff benefits expense growth rate Travelling expense Communication expense growth Office expenses Promotional expense Promotional expense growth rate Machinery & equipment insurance rate Professional fees (legal, audit, consultants, etc.) 14.7

5% 5% 10% 5% 10% 5% 12% 2% 5% 5% 0.5%

% of furniture cost % of administration % of administration % of administration % of revenue 1st year onwards % of revenue

Revenue Assumptions

Profit Margin8

25%

Sales growth rate Sales price growth rate 14.8

5% 5%

Revenue Assumptions - Product Mix

PROJECTED SALES

YEAR - 1 Total sales

Quality A 30%

Quality B 40%

Quality C 30%

50 100

15 30

20 40

15 30

50

15

20

15

Bedroom set

For Bachelors For married couples Dining room 6 seater 8

The profit margin in the Furniture business can be as high as 100% or even more. The profit margin is taken to be 25% of cost price in this particular pre-feasibility; however it depends upon the owner’s discretion.


20

Pre-feasibility

8 seater Common room Drawing room Office furniture

Executive General 14.9

Furniture Showroom 50

15

20

15

75 50

23 15

30 20

23 15

50 100

15 30

20 40

15 30

Revenue Assumptions - Sales price SALES PRICE - YEAR WISE

YEAR - 1 Quality A

Quality B

Quality C

Bedroom set

For Bachelors For married couples Dining room 6 seater 8 seater Common room Drawing room Office furniture Executive General 14.10

60,000 90,000

45,000 70,000

35,000 50,000

60,000 75,000 100,000 100,000

50,000 65,000 85,000 90,000

40,000 57,500 75,000 80,000

50,000 30,000

40,000 25,000

35,000 18,000

Cost of S f Sales

COST PRICE - YEAR WISE

YEAR - 1 Quality A

Quality B

Quality C

Bedroom set

For Bachelors For married couples Dining room 6 seater 8 seater Common room Drawing room Office furniture Executive General


21

45,000 67,500

33,750 52,500

26,250 37,500

45,000 56,250 75,000 75,000

37,500 48,750 63,750 67,500

30,000 43,125 56,250 60,000

37,500 22,500

30,000 18,750

26,250 13,500

Pre-feasibility

Furniture Showroom

15 FINANCIAL STATEMENTS 15.1

Pro ject Cost Initial Investment

Capital Investment Land Building/Infrastructure Tools & equipment Furniture & fixtures Office vehicles Office equipment Pre-operating costs Legal, Licensing, and Training costs Total Capital Costs Working Capital Stocks and spares inventory Furniture Inventory Frieght and carriage expense Upfront building rental Upfront insurance payment Cash Total Working Capital

Rs. in actuals 100,000 693,500 67,500 612,000 50,000 1,523,000 Rs. in actuals 45,923 2,296,125 26,788 675,000 5,000 1,000,000 4,048,836

Total Investment Initial Financing Debt Equity

5,571,836 Rs. in actuals 2,785,918 2,785,918

50% 50%

Project Returns EQUITY

Net Present Value Internal Rate of Return Payback Period (Yrs)


PROJECT

1,362,071 34% 3.90

22

2,121,943 29% 3.78

Pre-feasibility

Furniture Showroom

16 ANNEXURE 16.1

Ma jor Furniture Suppliers and Manuf acturers

Name

M/s Trend Line Furnishers G.T. Road Contact: 053-3517120 National Furnishers G.T. Road Contact: 053-3514967 GEO Furnishers G.T. Road Contact: 053-3515186 Highlite Furniture Contact: 0476-335090 Chiniot Art Furniture

Location

Gujrat

Gujrat

Gujrat

Chiniot Chiniot

Pre-feasibility

Furniture Showroom

16 ANNEXURE 16.1

Ma jor Furniture Suppliers and Manuf acturers

Name

Location

M/s Trend Line Furnishers G.T. Road Contact: 053-3517120 National Furnishers G.T. Road Contact: 053-3514967 GEO Furnishers G.T. Road Contact: 053-3515186 Highlite Furniture Contact: 0476-335090 Chiniot Art Furniture Katchery Road Contact: 0300-77009201 Galaxy Furniture Contact: 0476-332213 16.2

Gujrat

Gujrat

Gujrat

Chiniot Chiniot

Chiniot

Tax Deduction income slabs

Income Slabs

Tax Rate

0.00% 0.50% 1.00% 2.00% 3.00% 4.00% 5.00% 7.50% 10.00% 12.50% 15.00% 17.50% 21.00% 25.00%

100,000 – 110,000 110,000 – 125,000 125,000 – 150,000 150,000 – 175,000 175,000 – 200,000 200,000 – 300,000 300,000 – 400,000 400,000 – 500,000 500,000 – 600,000 600,000 – 800,000 800,000 – 1,000,000 1,000,000 – 1,300,000 1,300,000 and above


26

SMEDA Furniture Showroom

Recommend Documents