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FURNITURE SHOWROOM
8th Floor LDA Plaza, 5TH Floor, Bahria Complex II, Ground Floor Bungalow No. 15-A Chamn
Egerton Road, M.T. Khan Road, State Life Building The Mall, Housing Scheme Airport Road,
Lahore. Karachi. Peshawar. Quetta.
Tel: (042) 111 111 456, Tel: (021) 111-111-456 Tel: (091)111 111 456, 9213046-7 Tel: (081) 2831623, 2831702
Fax: (042) 36370474 Fax: (021) 35610572 Fax: (091) 286908 Fax: (081) 2831922
helpdesk.punjab@smeda.org.pk helpdesk.sindh@smeda.org.pk helpdesk.NWFP@smeda.org.pk helpdesk.balochistan@smeda.org.pk
January, 2011
Pre-feasibility Furniture Showroom
1 EXECUTIVE SUMMARY................................................................................................................. 5
2 INTRODUCTION TO SMEDA ........................................................................................................ 6
3 PURPOSE OF THE DOCUMENT ................................................................................................... 6
4 CRITICAL SUCCESS FACTORS IN DECISION MAKING FOR INVESTMENT .................. 7
4.1 SWOT ANALYSIS ..................................................................................................................... 7
4.1.1 Strengths ................................................................................................................................. 7
4.1.2 Weaknesses ............................................................................................................................. 7
4.1.3 Opportunities .......................................................................................................................... 7
4.1.4 Threats.................................................................................................................................... 8
4.2 KEY SUCCESS FACTORS ........................................................................................................ 8
4.2.1 Quality of raw material .......................................................................................................... 8
4.2.2 Attractive Design and Quality Finishing ................................................................................ 8
4.2.3 Sales promotion ...................................................................................................................... 9
4.2.4 Other Success Factors ............................................................................................................ 9
5 PROJECT PROFILE ......................................................................................................................... 9
5.1 OPPORTUNITY RATIONALE.................................................................................................. 9
5.2 PROJECT BRIEF ...................................................................................................................... 10
5.3 TARGET MARKET.................................................................................................................. 10
5.4 MARKET ENTRY TIME ......................................................................................................... 10
5.5 PROPOSED BUSINESS LEGAL STATUS ............................................................................. 10
5.6 PROJECT CAPACITY AND RATIONALE ............................................................................ 10
5.7 PROPOSED LOCATION ......................................................................................................... 10
5.8 PROJECT INVESTMENT........................................................................................................ 11
6 INDUSTRY STRUCTURE .............................................................................................................. 11
6.1 FURNITURE CLUSTERS IN PAKISTAN .............................................................................. 12
6.1.1 Gujrat ................................................................................................................................... 12
6.1.2 Lahore................................................................................................................................... 12
6.1.3 Chiniot .................................................................................................................................. 12
7 WORLD IMPORTS AND EXPORTS ............................................................................................ 13
8 MARKET INFORMATION ABOUT FURNITURE .................................................................... 14
8.1 REQUIREMENT OF WOODEN FURNITURE ....................................................................... 14
9 PROJECT MARKETING STRATEGY......................................................................................... 15
9.1 MARKETING STRATEGY ..................................................................................................... 15
9.2 TRENDS IN FURNITURE STYLE .......................................................................................... 15
9.3 TRENDS IN MATERIALS, COLOURS AND SHAPES.......................................................... 15
9.3.1 Materials commonly used ..................................................................................................... 16
10 PROPOSED PRODUCT MIX ......................................................................................................... 16
11 HUMAN RESOURCE REQUIREMENT ...................................................................................... 17
11.1 HUMAN RESOURCE REQUIREMENTS .......................................................................................... 17
12 OFFICE EQUIPMENT.................................................................................................................... 18
13 LAND & BUILDING REQUIREMENT ........................................................................................ 18
14 KEY ASSUMPTIONS ...................................................................................................................... 19
14.1 PROJECT ASSUMPTIONS ............................................................................................................. 19
14.2 OPERATING ASSUMPTIONS ......................................................................................................... 19
14.3 DEPRECIATION RATE ASSUMPTIONS .......................................................................................... 19
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
Revision 2
Prepared by SMEDA-Punjab
1 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.
2 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.
the future periods, actual results are likely to differ because of the events and
circumstances that don’t occur as frequently as expected.
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 Threats
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 KEY SUCCESS FACTORS
4.2.1 Quality of raw material
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 Attractive Design and Quality Finishing
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
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 promotion
Another critical success factor of this proposed pre-feasibility is the Marketing and
Promotion of the Furniture. Sales promotion activity is necessary for market penetration.
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 Other Success Factors
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 PROJECT PROFILE
5.1 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
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
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:
6 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-furniture-
industry/)
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 semi-
finished items (Kora) are sold to all major cities throughout Pakistan.
6
The Express Tribune - http://tribune.com.pk/story/19304/prospects-and-fears-for-pakistans-furniture-
industry/
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.
Following table shows the requirements of Human Resources and the proposed annual
salary.
MARKETING COST
Indoor Sales person 3 15,000 540,000
Outdoor Sales person 2 20,000 480,000
Total Marketing Salaries 1,020,000
12 OFFICE EQUIPMENT
Following tables present the office equipment and furniture/fixtures requirement for the
showroom.
112,500/- per month. The total area requirement for this proposed project is assumed to
be of approximately 1 kanal.
14 KEY ASSUMPTIONS
14.1 Project Assumptions
Projected Life of The Project in Years 10
Sponsors' Equity 50%
Debt Financing 50%
Long term Interest rate 16%
Short term Interest rate 14%
Debt Tenure in Years 5
Interest on cash in bank 10%
Tax rate7 25%
Insurance expense 5%
14.2 Operating Assumptions
Total No. of Months operational in one year 12
No of Working Days per year 300
Hours operational in a day 11
14.3 Depreciation Rate Assumptions
Land 0% of the Written Down Value
Buildings 5% of the Written Down Value
Tools and Equipment 10% of the Written Down Value
Office Equipment 33% of the Written Down Value
Furniture & Fixtures 10% of the Written Down Value
Vehicles 20% of the Written Down Value
14.4 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
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.
8 seater 50 15 20 15
Common room 75 23 30 23
Drawing room 50 15 20 15
Office furniture
Executive 50 15 20 15
General 100 30 40 30
14.9 Revenue Assumptions - Sales price
SALES PRICE - YEAR WISE YEAR - 1
Quality A Quality B Quality C
Bedroom set
For Bachelors 60,000 45,000 35,000
For married couples 90,000 70,000 50,000
Dining room
6 seater 60,000 50,000 40,000
8 seater 75,000 65,000 57,500
Common room 100,000 85,000 75,000
Drawing room 100,000 90,000 80,000
Office furniture
Executive 50,000 40,000 35,000
General 30,000 25,000 18,000
14.10 Cost of Sales
COST PRICE - YEAR WISE YEAR - 1
Quality A Quality B Quality C
Bedroom set
For Bachelors 45,000 33,750 26,250
For married couples 67,500 52,500 37,500
Dining room
6 seater 45,000 37,500 30,000
8 seater 56,250 48,750 43,125
Common room 75,000 63,750 56,250
Drawing room 75,000 67,500 60,000
Office furniture
Executive 37,500 30,000 26,250
General 22,500 18,750 13,500
15 FINANCIAL STATEMENTS
15.1 Project Cost
Initial Investment
Capital Investment Rs. in actuals
Land -
Building/Infrastructure -
Tools & equipment 100,000
Furniture & fixtures 693,500
Office vehicles -
Office equipment 67,500
Pre-operating costs 612,000
Legal, Licensing, and Training costs 50,000
Total Capital Costs 1,523,000
Working Capital Rs. in actuals
Stocks and spares inventory 45,923
Furniture Inventory 2,296,125
Frieght and carriage expense 26,788
Upfront building rental 675,000
Upfront insurance payment 5,000
Cash 1,000,000
Total Working Capital 4,048,836
Other income (interest on cash) 170,325 210,870 283,756 388,249 515,430 672,941 868,374 1,099,996 1,365,150 1,986,809
Gain / (loss) on sale of office equipment - - 40,500 - - 74,156 - - 108,826 127,329
Gain / (loss) on sale of office vehicles - - - - - - - - - -
Earnings Before Interest & Taxes 160,244 636,438 1,348,250 1,550,643 1,851,683 2,409,610 2,737,076 3,209,525 3,851,819 4,777,652
Interest expense on long term debt (Project Loan) 121,840 104,123 83,572 59,732 32,079 - - - - -
Interest expense on long term debt (Working Capital Loan) 156,782 - - - - - - - - -
Subtotal 278,622 104,123 83,572 59,732 32,079 - - - - -
Earnings Before Tax (118,378) 532,315 1,264,678 1,490,911 1,819,604 2,409,610 2,737,076 3,209,525 3,851,819 4,777,652
Tax - 66,539 265,582 372,728 454,901 602,402 684,269 802,381 962,955 1,194,413
NET PROFIT/(LOSS) AFTER TAX (118,378) 465,776 999,096 1,118,183 1,364,703 1,807,207 2,052,807 2,407,144 2,888,865 3,583,239
Shareholders' equity
Paid-up capital 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918
Retained earnings (118,378) 347,397 1,346,493 2,464,676 3,829,379 5,636,586 7,689,393 10,096,537 12,985,402 16,568,641
Total Equity 2,785,918 2,667,539 3,133,315 4,132,411 5,250,594 6,615,297 8,422,504 10,475,311 12,882,455 15,771,319 19,354,559
TOTAL CAPITAL AND LIABILITIES 5,571,836 5,872,646 6,447,350 7,535,078 8,794,315 10,308,899 12,499,892 14,976,078 17,850,253 21,254,277 24,785,190
Financing activities
Project Loan - principal repayment (110,729) (128,446) (148,997) (172,837) (200,491) - - - - -
Working Capital Loan - principal repayment (2,024,418) - - - - - - - - -
Short term debt principal repayment - - - - - - - - - -
Additions to Project Loan 761,500 - - - - - - - - - -
Additions to Working Capital Loan 2,024,418 - - - - - - - - - -
Issuance of shares 2,785,918 - - - - - - - - - -
Cash provided by / (used for) financing activities 5,571,836 (2,135,147) (128,446) (148,997) (172,837) (200,491) - - - - -
Investing activities
Capital expenditure (1,523,000) - - (89,843) - - (119,580) - - (159,161) -
Acquisitions
Cash (used for) / provided by investing activities (1,523,000) - - (89,843) - - (119,580) - - (159,161) -
NET CASH 1,562,500 281,505 529,386 928,335 1,161,533 1,382,078 1,768,140 2,140,533 2,491,897 2,811,184 9,621,991
16 ANNEXURE
16.1 Major Furniture Suppliers and Manufacturers
Name Location
M/s Trend Line Furnishers Gujrat
G.T. Road
Contact: 053-3517120
National Furnishers Gujrat
G.T. Road
Contact: 053-3514967
GEO Furnishers Gujrat
G.T. Road
Contact: 053-3515186
Highlite Furniture Chiniot
Contact: 0476-335090
Chiniot Art Furniture Chiniot
Katchery Road
Contact: 0300-77009201
Galaxy Furniture Chiniot
Contact: 0476-332213