ABOF:

Online Performance:

From the case, the performance of the online store is given and it is also mentioned that the
online sales would be four-fold by 2020. And the deputy CEO of ABOF, Kedar Apshankar
told in an interview that company is looking for 50-75 percentage year. So, the revenues are
predicted to increase more than 50 percentage year on year. As, the ABOF is entering the
physical stores the brand awareness increases and gross margin would be increasing 2
percentage year on year. Considering the gross margin, the profit from online store for the
year 2017-2018 would be 2.9 crores and 2018-2019 would be 5.98 crores.

PHYSICAL STORES:
ABOF should start stores between 70- 90 stores across the various cities (Tier1, Tier2, Tier3) in India.
The Tier 1 stores should be highest because the stores are technologically advanced stores and foot
fall will be highest in Tier 1 cities. Tier 1 cities require area of around 33750 sq. fts. , average cost per
square feet is 135 and number of stores across Tier 1 cities would be 45. The overall cost per month
would be 20.5 crores.
Rent for leasing stores in various cities:

Similarly, for Tier2 and Tier 3 would be 30 and 5 stores (Tier 3 cities are for testing the stores, if
they are not profitable then they can be withdrawn). By calculating with respect to above table would
give 5.98 crores for Tier2 cities and 28 lakhs for tier 3 cities. The overall cost for leasing per year of
all stores would be 321.23 crores.
As ABOF is looking for selling the products through conventional physical stores, there can be two
strategies. They are:

1) Building the new stores across the various cities in the country.
2) Acquiring the existing brand / company which has physical stores in cities across the country.

NEW STORES

Building the newer stores would take more time to start the business. There would be cost incurred
in the building infrastructure required to build instore facilities and cost incurred in hiring the staff.
There would be additional cost incurred for advertising and promotions as the stores are newly
established in the location. As opening new stores will take more time, the time value of money will
be less compared to acquiring.

The average selling price of the products should be kept same in physical and online stores because
the customers are present omnichannel. As the number of stores are 80 and large amount of money
is spent on promotion and marketing for the first year, the volume of products sold will be 113.33
crores and are divided across 60% to the partner brands and 40% to the own brands (both ABOF and
Skult). In the next year, there would be 3% in increase in the volume which is projected on industry
average. The gross margin for the brands is calculated by removing the costs. The stock in trade for
ABOF is 33% of revenue ABOF, for partner brands it is 45% of revenue from it and for Skult it is 20%
of revenue from skult because of high gross margin. Overall, the gross profit without the setup costs
for the year 2017-18 is 155.94 crores and 2018-19 is 229.04 crores.

The leasing cost for stores is calculated to 321.23 crores per year and infrastructure would be high
because all the products should be installed which will be 60% of the above cost. The depreciation for
these would be 30 years which is added to cost per year basis. The staff for the stores should be hired
and salary should be payed which will be 10% of the revenue, the utilities will be 3% of the revenue
and the operating costs such as electricity, maintance etc. would be 11 % of revenue. The overall
period costs would be 251 crores for the first year and 348.8 crores in the next year. The Marketing
costs would be 13% of revenue and promotion cost would be 8 % of the revenue for the first year as
the company is newly started in physical stores. Similarly, for next year it would be 12 % and 7 %
respectively. By removing total costs from revenue, the net loss be 168.8 crore for the year 2017-18
and 92.62 for the year 2018-19.

Acquiring another company:

If the company acquires another company, then remodelling of the existing stores as per ABOF
would take less time compared to the new stores. But, negotiations would be taking considerable
time. Considering the synergy of the acquisition, both the brands will have more value compared
to the existing brands individually. The synergy will be in terms of increased customer base of the
ABOF, employees the brand awareness and brand equity will be increased. But, care should be taken
while acquiring because usually companies will over valuate the company during acquisition and this
will increase the cost to ABOF. The acquisition should be from the company which has good
relationship with ABOF or the brand from Aditya Birla which would benefit because of this
acquisition.
Acquiring a company with 70-80 stores which has physical presence would be easy for the company
to start the operations. The rate of acquisition will be depending on various factors such as good will
of the company, assets, profitability etc. The acquisition cost will be considered as an investment
and internal rate of return is calculated per year. The overall customer base would be increasing to
35% because of the customer base of the established company and high marketing costs for the
ABOF. It is expected that the sales would 35% more than that of newly established stores. Given the
reduction in all the costs compared to newly established stores, the gross margin without setup
costs would be 23% for the ABOF, 11% for the partner brands and 35 % for the SKULT. The stock in
trade of ABOF would be 35% of revenue of ABOF, the stock in trade for partner brands would be
47% of the total revenue of partner brands and for Skult it is 23 % of the revenue of Skult. The gross
margin will be high because of economies of scale and mass production of these brands.

The infrastructure is already present in the stores. So, only modification of the stores to the newer
technology would be taken care. It would cost around 135 crores for all the stores (both R&D and
installation). Considering the 30 years for depreciation, the per year cost is added to set-up costs.
The hiring cost is reduced, so the staff cost would be 9% of revenue, the utilities cost would be same,
the operating costs would 10% of revenue. The total period cost for the year 2017-18 would be
311.28 crores and for the year 2018-19 would be 431.63 crores. For both the years, the marketing
cost would be 12% of revenue and promotion cost would be 8% of revenue. By removing the costs
from revenue and adding the profit from online performance the net loss for the year 2017-18 is
98.87 crores. But, for the year 2018-19, the gross margin for the ABOF will increase because
increase brand awareness and brand equity. The overall sales will also increase because of maintain
high marketing and promotion costs, the net profit for the year2018-2019 would be 7.92 crores by
adding the profit from the online performance.
Thereby company will be profitable in next two years.

Consumer research for identifying the insights of consumer during shopping and knowing the
shopping patterns.

To get the insights of shopping patterns and consumers service preferences, a primary research is
done among the millennials who are the target market. This is further divided among the men and
women and following inferences are made.

Rate your preference for shoping on special occasions/ festivals?

Analysis Result:

Significance (mean) = 0.783 > 0.05 and Significance

(variance) = 0.807 > 0.05, So the variances of men and special occasions/ festivals?
women are equal for this parameter. 20

INFERENCE: We can conclude that special occasions/ 15

festivals have the same effect on both men and
10 Male
women. Looking at the mean values (3.54, 3.61), we
female
can assume that special occasions/ festivals influence 5
both men and women to shop.
0
Figure 2
IMPLICATION: 0 1 2 3 4 5 6

During the festival seasons, the footfall in the malls and stores would be very high. To retain the
customers discounts should be provided which is discussed in the next question. The old stock of
ABOF should be cleared by providing discounts during festivals or special occasions.

To what extent does 'sales/ offers/ discounts' motivate you to go to the store and buy?
Analysis Result:

Significance (mean) = 0.762 > 0.05 and Significance (variance) = 0.658 > 0.05, So the variances of
men and women are equal for this parameter.
'sales/ offers/ discounts'
INFERENCE: We can infer that sales/ offers/ discounts
30
have the same effect on both men and women. Looking at
25
the mean values (3.89, 3.83), we can assume that sales/
offers/ discounts influence both men and women to shop. 20
15 Male
IMPLICATION:
10 female
As ABOF is fast fashion brand and the models which are not 5
being sold should be sold through sale. And discounts
0
should be offered during the festival seasons because the 0 1 2 3 4 5 6
customers prefer shopping during festival season and
discounting increases the footfall in the shop.

Figure 1

To what extent do you rate yourself in terms of being 'Brand Conscious' and how brands effect
your purchase decision?

Analysis Result:
Significance (mean) = 0.028 < 0.05 and Significance
Brand Consciousness
(variance) = 0.804 > 0.05, So the variances of men and
women are equal for this parameter. 20

CONCLUSION: We can conclude that Brand 15

Consciousness have a different effect on men and Male
10
women. Looking at the mean values (3.2, 2.6), we can
female
assume that Brand Consciousness has more effect on 5
men when compared to women. 0
0 1 2 Figure
3 4 45 6
IMPLICATION:

As women are less brand conscious compared to men, the womens fashion should have more of
ABOFs compared to partner brands to get high margins. This should be done by providing large
number of models.

What is the influence on you from the customers feedback and peer review on a particular
product?

Analysis Result:

Significance (variance) = 0.839 > 0.05, So the variances

of men and women are equal for this parameter.
Relative Shopping
20
t value = -3.228
15
Significance (mean) = 0.002 < 0.05
10 Male
CONCLUSION: We can conclude that relative shopping female
5
have a different effect on men and women. Looking at
the mean values (3.6, 5.6), we can assume that women 0
0 1 2 3 4 5 6
shop more on comparing with others.

IMPLICATION: Figure 5

Both men and women tend to compare what their peers are buying. So, by providing the statistics of
feedback from others will help the purchase decision. This is done through providing the positive
feedback and number of people who bought on screens provided in store by scanning the barcode.

Through which channel you are comfortable in shopping with online or physical or both?
Around 61% of the people in the survey are comfortable in shopping through omni channel, as it
would be hassle free, whereas 18 % of people are comfortable with Online and remaining
percentage prefer offline.

Omnichannel vs Online vs Physical stores

18% 21%
Offline
Both
Online

61%