I.

Introduction

PantSaloon is a collaboration of ideas, talents and hard work of Business

Administration majors from the University of the Philippines-Diliman. Disliking the
idea of working for others on a fixed schedule, they are advocates of
entrepreneurship who conceptualized their own business in order to become their
own bosses. Spotting an opportunity in the nature of the Philippine retailing industry
and conducting a series of strategic market skimming led to the idea of providing
customized jeans for the young Filipino adult.

Clothing, in recent times, has already become an expression of a lifestyle, while self-
expression is a need that the young Filipino experiences upon entering college and
young adulthood. It is through dressing up, among a lot of others ways, that the
young Filipino is relentless in his pursuit to find avenues in expressing his
individuality. PantSaloon aims to capitalize on this and in the growing desire of
people to look good without sacrificing comfort.

The young adult’s lifestyle is not sedentary – as he traverses through his youth, he
enters a world filled with new experiences and happenings. He makes new friends
and acquaintances, and with this, experiences new joys and miseries. As his
experiences increase and his network expands, his tastes and preferences evolve as
well.

With this knowledge, PantSaloon has decided to bank on ways by which the target
market can express itself in limitless ways, given the assumed evolution of his
tastes. Through customized and tailored-to-fit jeans branded under PantSaloon, the
young Filipino adult has a new avenue by which he can convey his individuality.

PantSaloon is a clothing boutique that adds a service dimension to the retailing of

jeans through customization and tailor-fitting. By giving the customers a chance to
design their jeans according to their every whim while assuring them of its perfect
fit, PantSaloon will represent every young Filipino adult’s quest for self-expression,
individuality, adventure and freedom.

1
A. Executive Summary

To fully assess the feasibility of the business idea of a customized jeans service shop
for students and young adults, EALA Inc. has made two key environmental analyses:

2
the macro- and microenvironment analysis. The macro-environment analysis takes
into the account the political situation under the Philippine government; the
economic environment, which mentioned pertinent economic indicators that are
relevant to the analysis of the market and described the current economic situation
in the country; the cultural environment, which took note of important socio-cultural
demographics to better understand the target market; and the technological
environment, which listed capabilities that the local garments industry has as of the
moment. On the other hand, the micro-environmental analysis focused on the
garments industry in which the group wishes to enter. The analysis discussed the
developments and issues in the local garments industry.

In addition, as part of the micro-environmental analysis, EALA Inc. considered the

retail trade in the Philippines as well as possible competitors within the industry.
There are several key players in the garment industry that are the closest
competitors of PantSaloon. These are indirect competition whose brands offer
ready-to-wear jeans. Among the competitors considered were: Jag, Folded & Hung,
Levi’s, Lee, Guess, Penshoppe, Oxygen, and even tiangges and ukay-ukay.

EALA Inc. came up with its target market by taking into consideration the number of
students enrolled in the Katipunan-based academic institutions, UP-Diliman, Ateneo
University and Miriam College. We also included the percentage of the youth, aged
15-24, in the communities within Katipunan Area.

The figures projected through stated annual growth rates within 10 years would
then be used to calculate the demand forecast of PantSaloon.

Market demand refers to the amount that potential buyers from the target market
would likely consume or buy from our products. PantSaloon's demand has been
computed by adjusting an acceptability rate from the targeted market. Moreover,
to get the monthly and annual demand, the consumption rates for both the top and
bottom clothing lines were multiplied to their projected consumption rates
respectively.

3
PantSaloon's supply has been derived from the annual average production capacity
of the garment industry for 2005. However, to carve the proportion that would
represent our target market, the volume has been adjusted by getting the
percentage of the target market. To be more distinct, the fraction of students and
young adults who encountered dissatisfaction in buying their clothes was also
multiplied so as to get the projected supply for the business.

Reconciling both the Demand and Supply, a considerably high gap has been
observed thereby giving an impression that there really is a need for the services of
this new venture.

Market share for PantSaloon has been estimated to be at 9.55% in the introductory
phase of the business. Nevertheless, promotional activities and strategic expansion
objectives would enable PantSaloon to gradually carve bigger part of the market
throughout its operations.

Segmenting, targeting, and positioning are critical factors in shaping the success of
any business plan. In the Philippines, the market could be segmented in many ways
– geographic, demographic, psychographic, and behavioral. PantSaloon segmented
the market geographically according to communities, specifically the ones in the
Quezon City. For demographic segmentation PantSaloon’s market will be grouped
according to age, income and race. Psychographic segmentation further divides the
market base into factors such as social class, lifestyle, and personality.

PantSaloon is a clothing service shop specially designed for the jean design and
fitting needs of (1) college students and young adults who are between the (2) age
of 15 and 24 years old, (3) both men and women, particularly those who are (4)
residents and/or located in institutions within Katipunan Area.

PantSaloon will be established and positioned as a customized jeans maker for

college students and the young adults, that offers flexible, unique and creative
jeans with perfect fitting and comfort to the level of the customer's choice of fabric,
cut and over-all design.

4
EALA Inc. understands the problem that students and young adults face, hence, the
reason of coming up with the idea of PantSaloon. Its clothing service is geared
towards addressing the usual problems that stylish students and young adults
always encounter. Thus, the cuts, sizes and dimensions that shall make up the
apparels will accordingly be custom-made in order to give the target market the
right fit, form, and comfort that match their body frames.

Since, the world of fashion is relatively fast paced, PantSaloon has to constantly
search for the latest trends on the web, magazines, and catalogues, and should also
be keen in observing how prominent fashion figures project themselves through the
clothes they wear. Cleaner, discreet, and vibrant colors and shades shall
characterize the apparels that the store will offer. High quality materials similar to
those used by established other jeans makers shall be utilized. EALA Inc. also
plotted the different strategies with regard to the expansion of its product line
throughout the life of the service shop – from introduction to maturity.

As a store catered for the youth, PantSaloon is setting a middle-ranged premium on

all its prices. It will be more or less at par with our potential competitors like Folded
& Hung, Levi's and Jag in terms of price. In addition, PantSaloon will be located in
one of the buildings in Katipunan, where target market is easily tapped. Eventually,
during the maturity stage the business is planning to expand its product lines from
jeans to customized jeans and jackets.

EALA Inc. came up with short term and long-term promotional activities and goals to
aggressively advertise the brand and its products. To begin with, good relationships
with various media publications and broadcast networks shall be established. This
will allow PantSaloon to increase customer awareness of its products. Eventually,
the company will launch a campaign featuring a famous personality as the brand’s
image model.

5
II. Environmental Analysis

To fully assess the feasibility of the business idea of a custom-made jeans service
shop, EALA Inc. has made two key environmental analyses: macro- and
microenvironment analysis. The macro-environment analysis takes into the account
the political situation under the Philippine government; the economic environment,
which mentioned pertinent economic indicators that are relevant to the analysis of
the market and described the current economic situation in the country; the cultural
environment, which took note of important socio-cultural demographics to better
understand the target market; and the technological environment, which listed
capabilities that the local garments industry has as of the moment. On the other
hand, the micro-environmental analysis focused on the garments industry in which
the group wishes to enter. The analysis discussed the developments and issues in
the local garments industry. In addition, as part of the micro-environmental analysis,

6
the group considered the retail trade in the Philippines as well as possible
competitors within the industry.

A. Macroenvironment Analysis

1. Political Environment
The country is currently facing political instability, as there is a desire to change
our current political system to a parliament type, thus creating a pessimistic
hype for some potential long-term investors because of possible negative
political issues that loom ahead, which can cause economic tribulations. Not to
mention the unending corruption issues of our politicians, the alleged election
fraud and corruption charges against the president and her family, the dawn of
value-added tax resulting to higher prices, and the time-to-time resignation of
the president’s economic team. Such political crises negatively affect the
profitability of the country’s businesses due to rating outlook downgrades and
higher interest rates. If debt levels continue to decrease and higher foreign
reserves were maintained, there would be no major negative effect on business
profitability.1

In the meantime, the country’s political crisis has brought international credit
rating companies to downgrade the country’s debt payment credit ratings and
also affected Asian Development Bank to threaten the country with suspension
of loans if fiscal and other reforms remain stagnant if the political crisis would
not be resolved.

The political crisis may not just negatively affect the country’s economic
performance, but may also damage the confidence of the consumers and
investors as well as hinder the developments in the financial markets.
Ultimately, the political crisis only serves to aggravate the country’s external

1
“Philippine Political Crisis Could Hurt Business Profitability.” [Online] Available.
http://en.ce.cn/World/biz/200507/14/t20050714_4189155.shtml, July 14, 2005.

7
 variability to global trends such as growth moderation, rising interest rates and
oil prices.2

2. Economic Environment
The country is currently suffering from a weaker economic base as a direct result
of the political instability, which has resulted in higher interest rates, low credit
ratings, and other performance risks as the value of peso continues to grow
weaker. These further on result in a steady increase in the unemployment rate
of Filipinos. The lack of local job opportunities has also increased the trend of
“brain drain” as more and more Filipinos seek jobs abroad.

However, a robust growth in the economy is being anticipated though it would

be moving at a slower pace than that achieved in the previous year. A positive
outlook is also being projected from the growth in the performance of major
industry players last 2004. The service sector, particularly that of
telecommunications and trade continues to lead in providing potential industry
growth and development. (Cayetano: 2005)

Gross National Product. As of the third quarter of last year, the Gross National
Product, at Current Prices, amounted to 4,150,771 million pesos. There has been
a 0.7 percent decrease in GNP, making the 2004 13.5 percent rate down to the
current 12.8 percent.3

Gross Domestic Product. By the end of last year’s third quarter, Gross
Domestic Product at current prices amounted to 3,836,727 million Pesos. As
compared to the 14.1 percent GDP growth rate from 2004, there has been a big
3.7 percent decrease leaving 2005’s GDP down to 10.4 percent. However, it is
expected to grow approximately by 5.5 percent this year. The expected growth
in GDP in 2006 can be attributed to the growth in personal consumption, the

2
“Rating Firms’ Outlook on RP Turns Negative.” [Online] Available.
http://www.bworld.com.ph/BW071205/topstory.php, August 2005.

3
“National Accounts Third Quarter 2005” [Online] Available. http://census.gov.ph, January 11, 2006

8
 recovery in government spending, and also the strong demand for export
products.4

Personal Consumption Expenditure. Personal consumption expenditure is

currently 72.9 percent of GNP, a decrease from last year’s 73 percent,
experiencing an annual change of 5.8 percent.

Wage Rate. Currently, the minimum wage rate in Metro Manila is currently
pegged at Php 288 to Php 325 a day (eight working hours per day), the highest
among the regions. However, there is an ongoing legislation in Congress to
increase the minimum wages to cushion the impact of the expanded value-
added tax on workers.5

Inflation. As of the year ended 2005, Inflation rate rocketed to 7.6 percent from
the previous year’s 6.0 percent - a 1.6 percent difference. The Bangko Sentral
ng Pilipinas is targeting the inflation rate to average between four to five percent
in 2006. The inflation forecast for the year, however, is placed at 7.5 to 8.2
percent.6 According to the BSP, there is little sign of any inflationary pressures
building in the Philippine economy. The BSP Deputy Governor Diwa Guinigundo
also said that the planned rise in the sales tax to 12 percent from 10 in February
7
could cause an upward blip in inflation levels, but that would be short-lived.
However, high oil prices will remain as the main threat to inflation this year,
which have already taken some of the buoyancy out of consumer spending last
year. But amidst the threats, the strong peso and easing food prices help
balance inflationary risks.

4
“Selected Economic and Financial Indicators.” [Online] Available
http://www.bsp.gov.ph/statistics/sefi/sefip1_files/filelist.xml, August 2005

5
“Selected Economic and Financial Indicators.” [Online] Available
http://www.bsp.gov.ph/statistics/sefi/sefip1_files/filelist.xml, August 2005.

6
Gil C. Cabaccungan, Jerome Aning, “Palace: It’s Time Congress Enacted Wage Increase”[Online] Available
http://news.inq7.net/nation/index.php?index=1&story_id=55347, November 3, 2005

7
“Economic Statistics.” [Online] Available
http://www.philippinebusiness.com.ph/economic_stats/economy.htm, August 2005.

9
 Foreign Exchange Rate. As the year opened, the Peso closed at its highest for
the past eight months at roughly Php 52.00 a Dollar. If the political situation
slowly stabilizes, the country can experience a continuous lift in the peso.
Factors that can strengthen the peso include political stability, income
remittances from OFWs, inflows from portfolio investments, and proceeds from
government bond sale.8

The 2006 Fiscal program assumed that the average exchange rate would settle
at Php56.00 to a US Dollar, and that the benchmark 91-day Treasury bill rate
9
would hit eight percent.

Value-added Tax. The month of February has been welcomed with the
imposition of, the new 12 percent value added tax. Moves by the government to
raise the level of value added tax (VAT) from 10 percent to 12 percent would hit
hardest the country's poor and its small businesses, the American Chamber of
Commerce of the Philippines said. They also asserted that any increase in VAT
would pose a serious burden on the country's poor and small to medium size
enterprises and would also lead to greater tax avoidance. With the current
minimum wage rates, it is highly doubtful if the Filipino wage earner could
absorb price hikes to be triggered by the increase in VAT as well as other taxes.
Employers likewise may not be prepared to incur additional expenditures
particularly at this time of economic crises, concluded by the business group.10

3. Socio-Cultural Environment
Population. Population in the Philippines is increasing at a 1.84% growth rate
and is now currently pegged at 87.9 million Filipinos. The highest concentration
of people is found in the NCR, Southern Tagalog, Central Luzon, and Western
Visayas.

8
“Inflation Seen to Remain Stable”, B5 Business Section, The Philippine Daily Inquirer, January 25, 2006

9
“Government Expects Billions in Savings” The Philippine Daily Inquirer. January 23, 2006

10
“Increase in VAT will hurt poor, small businesses”. [Online] Available http://www.inq7.net, January 27, 2006

10
The age structure of the population is divided into three brackets. The first one is
from 0-14 years old, which include 35.4% of the population. The second bracket
of ages 15 to 64 comprises of 60.6% of the population. The third age bracket,
which is composed of Filipinos 65 years old and above, covers only 4%. The
median age for males is 21.77 years whereas for females, it is only 22.8 years.

Based on the 2000 Census of Population and Housing taken by NSO, it was found
that there were more men composing the population with 50.4% than women
with 49.6%. From 1995 to 2000, the sex ratio was pegged at 101.4

Labor Force. The total number of individuals within working age (15 years old
and over) is equivalent to 54,194,000, of which 64.8% participates in the labor
force. The employment rate in the country is currently 91.7%, an increase from
last year, whereas the average unemployment rate is currently 8.3%, increasing
at a 0.3% rate. Almost half (49%) of the total unemployed individuals in the
Philippines are aged 15-24 years old. The underemployment rate is currently
26.1%.

According to the NSO’s Labor Force Survey, men and women comprise 61 and
39% of the 2002 labor force, respectively. In addition, it was found that women
had a 51.7% labor participation rate while men participated in the labor force at
a rate of 80.8%. The Survey also showed that, in 2002, the 89.9% of the total
labor force were employed. Employment rate for women was 89.9% whereas
men’s employment rate was at 89.9%. In terms of major occupation groups,
majority of professionals, clerks and officials and special-interest organizations,
corporate executives, managers, managing proprietors and supervisors were
women. On the other hand, majority of plant and machine operators and
assemblers, farmers, foresters and fishers, and tradespersons were men. In
terms of major industry groups, more women belonged in the education, health
and social work, and wholesale and retail trade industries while more men were
found to be dominant in the construction, transportation, storage and
communication, and fishing industries.

11
Consumption and Expenditure. According to NSO, average income and
expenditure has shown an increasing trend as of 2003. The target market of the
business, which is NCR, was one of the top three regions in terms of average
income. The other two were CALABARZON and Central Luzon. These top three
regions posted estimates of income that were higher than the average income of
148,757 pesos in 2003.

The annual average saving as of 2003 showed a downward trend. However, on

the average, Filipino families in all regions earned more than they spent, as
stated in NSO’s 2003 Family Income and Expenditure Survey results. In 2003,
families located in NCR showed the biggest annual saving of 46,923 pesos.

In 2004, personal consumption grew at a rate of 5.8% due to double-digit growth

of income remittances. In the first quarter of 2005, there appeared a decrease in
personal consumption expenditure, which can be attributed to higher prices of
goods and services. There was a slowdown in growth for food, beverages,
clothing and footwear, household furnishings, household operations, and
miscellaneous expenditures as well as fuel, light and water due to low electricity
consumption. On the other hand, expenditures on transportation and
communication increased due to rise in road and railway ridership and mobile
phone usage.

4. Technological Environment
Industrialization. The manufacturing, along with the closely associated
activities in the clothing and garment production, continues to be one of the
driving forces of industrialization the world over. The clothing industries have
fought to maintain their share of the total value that is created throughout the
series of apparel design, manufacturing and distribution.

Automation. At present, technology in the garment industry here in the

Philippines consists mainly of automation of the processes. These include the
automated designing of the patterns as well as that of fabric laying and cutting.
Electronically controlled mechanisms are also used for stitch formation and

12
 11
fabric feeding for the basic sewing machines. The last of the processes include
automated machines and devices for pressing the clothes. In addition, current
developments in machineries include designs which enable fast adjustments of
equipment from one style to another thus eliminating the non-productive
handling of fabrics and garments. In the process, quality is thus being improved.
12

Other developments. The Garments and Textile Board of the Philippines has
recently installed an Electronic Data Interchange (EDI) system to reduce
processing time to help improve production and delivery lead-time. It allows
garment manufacturers-exporters (GMEs) to transact with GTEB electronically.
The costs associated with implementation of EDI include the costs for acquiring
the software and the hardware themselves, training and ongoing costs such as
Value-Added Network (VAN) charges, maintenance and support costs. 13 In
addition, the leading companies in the industry have started to acquire CAD/CAM
techniques, Quick Response and Just in Time philosophies to allow flexible
manufacturing.

B. Microenvironment Analysis

1. The Garments Industry

The Philippine local garment industry started as a cottage industry in the late
1940’s. The pioneers are engaged in dressmaking, tailoring as well as
subcontracting activities for the Americans. The golden years of the garment
industry was in the 1970’s, during which the Philippines was considered to be a
nice and attractive place to buy or manufacture apparels. This continued on for
about ten more years, which then catapulted many garment manufacturers as
leaders in the export business.

11
Byrne, Chris. “The Impact of New Technology in the Clothing Industry: Outlook to 2000” [Paper]

12
“Clothing Engineering.” [Online] Available
http://www.fs.uni-mb.si/en/study/ects/IP%20-%20Clothing%20engineering.pdf

13
“Electronic Data Interchange – A Management Overview.” [Online] Available
http://66.102.7.104/search?q=cache:JAUTozWtU_4J:www.unece.org/trade/untdid/download/r1222.pdf+GTEBNet+EDI
+costs+OR+fee&hl=en&client=firefox-a. August 2005

13
 During the 1980’s, the government implemented the structural adjustments
program (SAP) as trade policies shifted from trade protectionism to trade
liberalization. The program opened doors for foreign companies to increase their
investments as well as encouraged the local manufacturers to tap into the
potential of the industry. What made the local garment industry a viable
investment for foreign companies was the high quality of the Filipino labor force
– highly trainable, industrious, and highly literate.

The local garment industry is currently involved in the production of men’s,

women’s, children’s, and infant’s wear, gloves, undergarments, stockings and
socks, neckwear and other apparel. Subcontracting activities include performing
embroidery and sewing services (i.e. printing, dyeing, knitting, laundry, finishing,
pattern-making and design-making). In addition, it is the country’s leading
employer of the manufacturing sector, with industrial relations no longer an
issue, and with minimal labor problems. Through the help of Garments/Textile
Industry Tripartite Council Board, industrial relations are continuously being
improved upon. The government also has provided different means to adapt to
the changing HR needs of workers in the garments industry. Such actions that
would help make the industry more competitive, and thus, improve the HR
scenario, include productivity enhancements like skills upgrading, productivity-
based wages, trade facilitation, market/product development and financing
14
assistance.

As of the 18th of July this year (2005), accounting for 6% of total export receipts
were the articles of apparel and clothing accessories. This was the country’s
second top earner which garnered almost $192.9 million in revenues or a 7.4%
increase from last year’s $179.6 million.

The industry for articles of apparel and clothing accessories is the country’s
second biggest dollar earner albeit it experienced a decline of 4.0% in terms of
14
I-Transporte, Aletha. “IR/HR Implications in the Garments Industry.” [Online] Available
www.fu-berlin.de/iira2003/papers/track_3/Workshop_3_2_Trasporte.pdf. August 2005.

14
value of production index. However, it experienced a gain of 27.5% in volume
net sales from last year. The improvement in the performance of garments
exports can be attributed to the shift towards higher value-added items due to
the improvement also in the high-end premium categories.

According to Garments and Textile Exports Board (GTEB) Executive Director

Serafin Juliano, the growth of the local garments industry stems from the
country’s advantages and its improving competencies in moving up the value
chain. Improved performance is also a result of cost-effective manufacturing and
logistics systems as well as increased store sales locally made premium
products. The current implementation of the quota-free scheme resulted in the
shift of brand market and product mix combinations of garments exports as well
as enabling the garments manufacturers to align its sourcing strategies with
local capabilities, product design specifications, and consumer preferences.
Despite the stiffer competition resulting from the abolition of the quota system,
the local garments industry will benefit from the freedom to source with the
most efficient suppliers at the lowest costs and with the shortest cycle times.

2. Other Issues
Threats to the local garments industry include high power and labor costs and
smuggling of imported clothes that were undervalued and can be sold at very
cheap prices. Cheap imported second-hand clothes define ukay-ukay and its
proliferation serves to damage the local garments industry that cannot compete
with such low prices, and also incurs losses for the government. As of 2002,
demand for ukay-ukay clothes was 4%. For 2003, we could only conclude that
the demand must have risen due to higher prices of clothing. In addition, 4% of
the demand also attributed to preference for foreign brands over local ones. It
was said that the root of this was the inability of local manufacturers to compete
with foreign brands in terms of quality. One reason for such a trend includes the
inclination of local producers to set aside quality products for export while
bringing poorer ones to the local market. Garment manufacturers in the country
would want to take hold of the relatively higher payments foreign markets offer,
as a result, more focus is thus being employed in the quality of the apparels they

15
 produce for exports. In the long run, this particular action increases the
tendency for local consumers to patronize foreign brands due to the lack of
quality for local brands.

Another reason for the local consumers’ preference for imported used clothes is
the lower price. Legally imported second-hand clothes have lower prices than
local brands because of the lower labor cost and the modernized facilities that
15
other textile and clothing manufacturing countries have.

3. Relevant Industry Indicators

Customer Price Index. The consumer price index (which is a measurement of
the changes in the price level of goods and services that most people buy for
their day-to-day consumption) increased from last year to 129.4 overall, gaining
9.1 points. In the National Capital Region, the consumer price index also
increased to 131.4, a gain of 10.2 points, whereas for areas outside NCR, the
customer price index is128.6, a gain of 8.8 points. Monthly, the consumer price
index for the clothing commodity group shows an upward trend.16

Clothing Inflation Rate. The clothing inflation rate for this year is 3.6 while it
was 2.7 as of last year. The clothing inflation rate experiences a year-on-year
change of 0.9%.

15
Bacalla, Tess B. “Gov’t Fails to Stem Flow of Smuggled Goods.” [Online] Available
http://www.manilatimes.net/others/special/2004/oct/25/20041025spe1.html, October 25, 2004.

16
“Summary Inflation Report: Consumer Price Index.” [Online] Available
http://www.census.gov.ph/data/pressrelease/2005/cp0506tx.html July 5, 2005.

16
 Philippine's Top Exports (2001-2003)
Machinery/ Food
Transport 3%
4%
Coconut Products
1%
Other Products
17% Garment and
Textile
7%

Electronics
68%

Figure 1 | Philippines Top Exports (2001-2003)

Major Product Classifications. The major products produced in the local

garments industries include garments, non-garments and textile products. As of
March 2004, garments accounted for 88% of the product share in total exports.
Non-garments, which include luggage, home textile furnishings, tents, nets,
industrial clothing, has 7% of the total share. The remaining 5% share of total
export sales is composed of textile products such as fabrics, yarns and fibers.17

4. Political Developments in the Garments and Textile Industry

The government is working with the private sectors of the garments and textile
industry in launching investment missions that would establish strategic
alliances with foreign partners and attract investments in apparel, textile and
production of accessories. Through the introduction of ASEAN Free Trade
Agreement and the World Trade Organization (WTO), opportunities for
investments are presented as a result of tariff reduction and the phasing out of
quotas with low demand as well as the growth for remaining quotas of products
that are import-sensitive. Such developments would reduce the industry’s
production costs and also minimize smuggling, which is one threat to the
industry.

17
“The Philippine Garments and Textile Industry Profile (as of March 2004).” [.pdf file sent by Garments and Textile
Export Board c/o Jennelyn Gatuz] August 2005

17
 To enhance investments in the industry, the government offers incentives such
as income tax holidays, additional deduction for incremental labor expenses
during the first five years from registration of the company, tax and duty
exemption from taxes and duties on selected imported spare parts, unrestricted
use of consigned equipment, employment of foreign nationals, simplified
customs procedures, access to bonded manufacturing warehouses, tax credit for
taxes and duties paid on raw materials used for the exported products.

To improve the industrial relations in the industry, the Garments and Textile
Industry Tripartite Council Board was revived to serve as a venue for resolving
issues and any conflicts. Unwarranted industrial action or harassment is put off
through this forum. According to Philippine Exporters Confederation, Inc.
problems regarding industrial relations are very minimal within the industry
through the help of the Council Board.18

5. Clothing and Footwear Retailing in the Philippines

Consumer expenditure on both clothing and footwear amounts to 73.3 billion
pesos in 2002. A 12.9% increase is estimated for 2003 which will result in
spending of P82.8 billion in this sector. Spending on these items increased by
40.3% over the review period.

Filipinos in general has strict fashion sense and invests much of their money on
clothing and footwear. The Filipino upper and middle-income classes are known
to be more fashion-conscious as compared to other Asian countries. The average
purchasing power is low but the income gaps across socio-economic classes are
wide which then allows the middle and upper income classes to be fashionable.

Men’s wear increased by 32.8% in expenditure while the women’s and children’s
wear increased by 47.2%. Men’s and boy’s wear expenditure amounted to about
28.3 billion pesos in 2002 and nearly 33.0 billion soon after, estimating around
37.6 billion pesos in the succeeding years. On the other hand, expenditure on
18
“Dressing Up For Success.” [Online] Available http://www.philexport.ph/garments.html. August 2005.

18
women’s, girl’s and children’s wear amounted to 32.6 billion pesos in 2002 and
increased to 36.8 billion pesos the following year.

Table 1 | Consumer Expenditure on Clothing and Footwear | 1999 - 2003 (in

billion pesos)

1999 2000 2001 2002 2003

Clothing 53.3 57.1 61.2 65.6 74.4

Men's and Boy's Wear 28.3 30.7 31.6 33 37.6

Women's, Girl's and
25 26.4 29.6 32.6 36.8
Children's Wear

Footwear 5.8 5.9 6.8 7.7 8.4

TOTAL 59 63 68 73.3 82.8

A total of 77 billion pesos was the total turnover of clothing and footwear
retailers in 2002, which estimated a total of 86 billion pesos in 2003, an 11.7%
increase. Sales in 2003 increased by 36.5% from the 1999 sales of 63 billion
pesos.

Clothing and footwear specialists are able to hold their ground against mixed
retailers. Majority of this is ready-to-wear which is the major merchandise carried
by department stores and variety stores. Since there is this perception that these
merchandises, especially house brands, are mass-produced, Filipinos would
usually buy from specialty shops for more choices and exclusive styles. This is
because there is a clothing shop that caters to every Filipino’s taste in fashion,
style and age group.

Clothing and footwear specialists also abound in shopping malls and tiangges.
Many of these specialists have concessions in department stores as well for
these are proven venues that still attract the most people. They maintain these
concessions even with their existing own separate outlets. Local shops such as
Bench, Penshoppe, and Bayo are able to complete well with foreign brands such
as Giordano, Gap and Guess. Flea markets also abound clothing specialists who

19
has their own retail outlets at the same time. The Greenhills bargain center,
which started the “tiangge” fad, has stall owners who still operate their
permanent outlets at the same area. Many of them also have their branches in
other shopping malls and strip malls. “Tiangges” allow them to reach to more
clientele who would still prefer to shop in areas near them rather than going to
their outlets.

Specialists considered multiples or private retail companies operating in 10 or

more branches are benefiting from the expansion of shopping malls in Metro
Manila and other key areas nationwide. Sales of multiples have increased by
46.4% over the period, from 7.6 billion pesos in 1999 to 11.2 billion pesos in
2003. Multiples still remain as a minority which constitutes only 13% of the total
retail sales of specialists in this sector. Many multiples enjoy success at present
which all started out as independents.

Small independent shops are expanding their operations through franchising or

forming an informal buying group. These are areas especially those outside the
Metro Manila which contributes to the increase of sales by the affiliated retailers
and franchised retailers. There are still non-affiliated independents that cater to
the Class CDE market and are present in areas which named stores are not able
to reach. Sales of independents have increased by 35% in about five years from
55.4 billion pesos in 1999 to 74.8 billion pesos in 2003.

Table 2 | Retail Sales by Type of Outlet | % Growth (1999-2003)

1999/2003 2002/2003
Clothing and Footwear Specialists
Multiples 47.4 12
Independents 35 11.6

TOTAL 82.4 23.6

6. Retail Distribution
Department stores and variety stores (Mixed retailers) dominate the sales of
men’s and boy’s wear and children’s wear. This is because there are much fewer

20
 clothing and apparel specialists who cater to their market as compared to the
female wear. In this sense, women have more choices especially when it comes
to apparel specialty shops. About 56.6% of the total sales of women’s and girls’
wear were sold through specialists while around 40.4% were sold through mixed
retailers.19

Still, there are few clothing and footwear specialists that can be considered as
multiples. They contribute to only about 10% of the total sales for this sector.
This means that there is still room for a major chain to enter this retail sector
which could carry the men, women and children’s merchandises.

Table 3 | Retail Distribution of Clothing/Footwear Retailer's Core Product 2003

(percentage of value)

Men's / Women's / Fashion

Children's Footwear
Boy's Girls Accessories
Clothing / Footwear
Specialists
Multiple 1.5 7.6 - 8.0 -
Affiliated 21.9 25.3 32.0 18.2 3.8
Independents 18.9 23.7 1.3 26.5 8.7
Department Stores 42.0 32.3 52.0 32.0 67.0
Variety Stores 13.5 8.1 9.0 12.1 9.5
Others 2.2 3.0 2.7 3.2 11.0

TOTAL 100.0 100.0 100.0 100.0 100.0

Source: Eurominotor estimates based on DTI, trade press and industry associations

In 2002, the six leading specialist retailers (Stores Specialists, Zenco Sales,
Surplus Marketing, Suyen Corp., Golden ABC, & Cinderella Marketing) were
estimated to have a combined market share of 7.5% in the clothing and footwear
sector. Slight increase in 2003 by 7.8% was foreseen. This is because only three
of these will exceed sales by 1 billion pesos. This sector is loosely organized by
mixed retailers like SM and Robinsons Department Stores. Although the market

19
Euromonitor, Retail Industry in the Philippines. 2003 p.150 Philippine Retail Association (PRA) Library

21
 shares of mixed retailers and specialists are almost the same, the large number
of specialists from whom customers can choose seems to prevent any major
specialist from becoming dominant in the market.
Table 4 | Leading Clothing and Footwear Retailers Market Shares
2002 - 2003

2002 2003
Stores Specialist 2.1 2.2
Zenco Sales 1.6 2.0
Surplus Marketing 1.4 1.4
Suyen Corp. 0.8 0.8
Golden ABC 0.8 0.8
Cinderella Marketing 0.7 0.7
Others 92.5 92.2
TOTAL 100.0 100.0

C. Porter’s Five Forces

1. Buyers
Clothing is one of the three fundamental human needs. Everybody needs to buy
clothing. Clothing includes wearing apparel such as shirt, pants, among others.

Pants, particularly denim jeans have been termed as the most popular wearing
apparel on earth.20 This clothing product is worn by almost everybody thus,
considering everyone as its consumer. However, buyers usually buy in smaller
quantities and do not purchase regularly. Buyers can also easily switch from one
competitor to another in case of product dissatisfaction or if they just want to try
other brands.

Personal consumption expenditures in the Philippines have been fairly resistant

to adverse changes in the past and in the current Asian crisis as well. Although
spending on clothes as a percentage of income has been declining, percent total

20
A Short History of Denim [Online] Available http://www.levistrauss.com/Downloads/History-Denim.pdf

22
 per capita expenditures on clothing have been increasing, representing 47 billion
pesos in 1997, a growth rate of nearly 12.6 percent from 1991 to 1997.21

Jeans customization is somewhat an old concept because of the proliferation of

tailoring shops. These shops cater buyers who can be dissatisfied with the jeans
available in the market or who just wants to alter a jeans bought from a certain
store. However, the idea of custom-fit jeans is still a fresh concept in the
garments industry, particularly in the Philippines. Only few buyers, particularly
those in the upper class, avail/can avail these products because of the products’
perceived high-end status and high price.

2. Suppliers
Denim has always been made of cotton. Philippine raw cotton production
supplies less than 3 percent of total domestic cotton requirements, thus
Philippines manufacturers continue to rely on imports to meet domestic demand.
The United States is likely to remain the largest supplier of combed cotton,
followed by Pakistan, Australia and South Africa. With the end of the quota
system for garments starting in 2005, domestic cotton consumption is forecast
to decline next year. The garments and textile sector is the single largest buyer
of raw cotton and the garments sector is country's second highest export
earner.22

3. New Entrants
Barriers to entry include global and local policies implemented in the textiles and
clothing industry, capital requirements, access to distribution channels, product
differentiation, and cumulative experience, among others.

For instance, the World Health Organization (WHO) Agreement on Textiles and
Clothing (ATC) took effect on January 1, 1995. Under its provisions, the US
21
Cotton Textile and Apparel Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html

22
Philippine Cottons and Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html

23
 negotiated market access with several developing countries, including the
Philippines, which are major exporters to the US market. The Philippines agreed
to improve access to its market. Under this agreement the Philippines is
obligated to reduce and bind tariffs, and to reduce and eliminate non tariff
barriers. In line with its commitments, the Philippines have bound its textile and
apparel tariffs at the following rates: 20 percent for yarn, 10-12.5 percent for
man-made fibers, 30 percent for sewing thread; 30-50 percent for floor covering,
and 30 percent for textile made-ups. Under its WHO obligations, the Philippine
Government initiated a general tariff reduction program to reduce tariffs on raw
materials to 3 percent and on finished goods to 10 percent by 2003. In January,
2004, the Government plans to introduce a uniform 5 percent tariff rate.

Another instance is Value-Added Tax applied to all imports, assessed at 10

percent of the value of goods, plus duty.

The Philippines is a member of ASEAN and a participant in the ASEAN Free Trade
Area (AFTA). AFTA contains a preferential tariff scheme (CEPT) which requires
intra-regional tariffs to be reduced to 0-5 percent by the year 2003. Textiles are
on a fast-track schedule for tariff reductions to 0-5 percent by the year 2000.
CEPT also requires intra-regional reduction in non-tariff barriers and
harmonization of customs procedures and product standards.

The Philippine Government provides incentives to promote investment in

preferred activities and geographic areas and for export. Investment incentives
include: income tax holidays; tax deductions for labor expenses, infrastructure,
capital equipment and spare parts, and investment in less-developed areas. On
the other hand, export incentives include: exemption from advance payment of
customs duties; tax credits for imported raw materials and spare parts, domestic
substitution of imports, export revenue; and various exemptions for duty on
imports. A variety of financing programs and guarantee schemes is available
through state-sponsored institutions.23

23
Cotton Textile and Apparel Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html

24
 Capital requirements include high-speed and highly-efficient sewing machines,
high-quality denim fabric, among others. Human resources in the form of tailors
are also essential in this business.

New entrants will not find it difficult to meet distribution network requirements
since there are various alternative channels for them to sell their products. New
entrants can easily distribute their products without having to invest in creating
new distribution networks.

Product and service differentiation requires vast outlays in several stages of the
value chain, most especially in advertising and promotion.

Learning curve effects make a difference as companies with more experience

gain advantage through having more cost-efficient manufacturing processes.

4. Substitute Products
Ready-made retail products are considered substitutes for custom-made
clothing. Moreover, denim pants could be replaced by shorts and skirts as
bottom apparel. The denim fabric could also be replaced by other fabrics such as
those used in khaki pants and slacks.

5. Industry Competitors
The Philippine garment industry dates to the 1950s and the emergence of
cottage-level industries that replaced homework. As the industry began
exporting during the 1970s, it experienced rapid growth, growing an average of
30 percent between 1972 and 1980. The industry is at a crossroads of
uncertainty regarding the effects of global trade liberalization. It is expected that
the removal of quotas will cause further erosion in the industry, with only larger,
well-capitalized firms able to survive.24

24
Cotton Textile and Apparel Products in Philippines [Online] Available http://www.fas.usda.gov/mos/em-
markets/reports.html

25
 The garment industry is comprised of many players, both operating on a large
scale and small scale basis. The industry is a growing one; exports of garments
are steadily increasing too as more foreign companies continues to trust the
skills of local manufacturers in producing quality garments. The local garments
and textile industry is the country's consistent second top performer in terms of
export revenue. The Philippines is also one of the main product suppliers for
high-end clothing brands such as GAP, Old Navy, Ann Taylor, Liz Clairborne, and
Polo Ralph Lauren.25

Customers are free to change their suppliers thus creating high uncertainty for
competitors. In terms of origin and operating styles, competitors may range from
boutiques, specialty stores, bazaars, tiangges, direct selling agents, department
stores to big malls.

A relatively large amount of money is tied in equipments such as high-speed

sewing machines and inventories, but liquidating such assets is relatively easy.

6. Competitor Analysis
While there are definitely countless jeans and pants manufacturers in the
market, EALA Inc. has narrowed down its direct competitors to those that offer
customized-pants service offer. Among its closest competitors are stores that
promise comfortable fit and one-of-a-kind trendy designs to their final product.
Indirect competitors are the makers of ready-to-wear pants that offer almost the
same characteristics as described earlier.

25
Behind the Seams http://www.philippinebusiness.com.ph/archives/magazine/vol11-2004/11-/forecast.htm\

26
 Figure 2 | Competitor Map

VIKTOR Jeans
The business idea started three years ago, when Victorino Caluza, an aficionado
of designer jeans, prompted in putting up a store that offers customized jeans in
his own unit in Mega Plaza in Ortigas.

“Fashion, in a way, is individualism. You want to be different. You can be trendy

wearing different brands, but you know ‘marami’ kayo may-ari nun. Viktor is
about good fitting jeans that makes you look and feel good. Viktor is about
exclusivity,” the jeans maker points out.

Men and, most especially, women have difficulty finding a pair that fits all over.
An expensive pair does not guarantee the jeans will fit perfectly. Every single
body is unique so it’s almost impossible to buy jeans that have the perfect
combination. This is where Viktor comes in.

Product and Market Strategy

27
Ino Caluza initially started with 4 collections of designs when he recently opened
his store in the 4th level of Podium in Ortigas. He works on his designs
periodically and offers them at the customer’s request mix of fit, cut, fabric, and
all the way to other jeans elements like zipper, stitches and thread. Viktor
promises to give its customers the perfect pair of jeans, as in his tagline – A good
pair of Viktor can get you laid back.

Customers are primarily members of the high social class society as a greater
proportion of Viktor’s customers are celebrities and young professionals who are
into the trendy and sophisticated themes carried by most of Viktor pants.

To keep its customer go back to his shop, he offers them free alteration for fitting
updates. He also keeps a database of his customers and sends them
letters/notices whenever new designs are available.

By yearend, the company plans to launch brand ‘Vik,’ targeting a younger

market with a budget. A new store at SM’s Mall of Asia will house the new brand.
Customers will have fewer choices though compared to the original Viktor series,
but pay between P2,000 to P3,000 only for a pair.

Toppers Haute Couture

The store was established in the 70’s first promoting service to the working
class. The quality of the end products made serve to be the lasting source of the
business as it kept its operations through the years. Toppers showcases haute
couture servicing for both men and women, ranging for ages 30 and up.

Product and Market Strategy

The shop offers a wide range of tailor servicing from polo, pants to suits. As what
any tailor shop does, it offers their services along with a splash of fabrics and
different cuts as requested by the customer.

28
While the shop is primarily for anybody who wants his clothing custom-made,
but because of its store appearance, customers tend to perceive that the shop is
focusing on the older market, the adult and the professionals.

Figure 3 | Toppers Haute Couture

7. Current Price Profile of Key Competitors

Viktor charges its customers a range of P3,950 to P5,700 for a single pair of
pants. For rush jobs, customers are charged an additional P300. The amount
increases as more details are added on the design and as the fabric becomes
harder to be supplied. He also specializes in offering a one-of-a-kind jean design
ranging from Php7000 and up. On the other hand, the tailor shop located along
Katipunan offers their custom-made pants service at the cost of Php600 a pair.

Table 5 | Competitor Strengths and Weaknesses

COMPETITORS STRENGTHS WEAKNESSES

has developed a strong brand

equity among the aficionados
of designer jeans, first to offer the price is way up high from
the kind of idea in the the affordability of the target
VIKTOR
Philippine clothing industry, market, it takes seven to 10
offers a wide range of trendy days for a pair to be made.
designs to choose from, a
guarantee on fit alterations

29
 has limited design offers as
the owner is traditionally
oriented in tailor making, cuts
affordable range of price
Toppers Haute and fit are enclosed to a
range to students who want
Couture limited number only,
their pants tailor-made
perception that the store is
focused only in the adult and
professional market.

III. Target Market

PantSaloon targets college students of University of the Philippines - Diliman,

Ateneo de Manila University and Miriam College and residents of pre-selected
communities, belonging to the 15-24 age group. This group, based on the survey
conducted (See Appendix 2), are very much willing to have their jeans custom-made
and are willing to pay as much as Php 1000 just to get one. This will be discussed
on further in Targeting section of the study.

In order to forecast the demand of our product, the size of the target market should
be defined first, using the formula:

TM = CS + (KR x AG)
Where:
TM = target market
CP = college student population from UP, AdMU and Miriam College
KR = residential population of pre-selected areas near Katipunan
AG = percentage of population between 15 to 24

30
The total population from the three academic institutions, UP-Diliman, Ateneo and
Miriam College, were gathered and summed up to 25,378. The group also
determined the average annual growth rate of population in forecasting their
population in the next ten years.

Table 6 | Population and Growth Rate of Targeted Schools

School Population Growth Rate
AdMU – College Dept. 8,437 1.83%
Miriam College 3,982 1.22%
UP - Diliman 12, 959 2.03%
TOTAL 25,378

On the other hand, the group has pre-determined the residential population which
EALA will target according to their area of residence. This stratification has to do
also with their buying power as exemplified by their resident’s ability to stay in
areas with high land value.

The following information pertains to the communities and their respective

population that the group has qualified for PantSaloon's target market:

Table 7 | Population of Targeted Locality

Locality Population
Pansol 18,968
Teacher’s Village 25,643
Loyola Heights 15,344
Blue Ridge A& B 3,450
Xavierville 10,989
White Plains 2,010
TOTAL 76,404

According to the 2000 Census of Population and Housing - Reports by Highly

Urbanized City, 21% of the total Quezon City population is comprised of male and
females aged 15-24. Thus, giving EALA a 16,045 young adult population for its
target market. This figure was adjusted for the years 2006-2016 based on the

31
National Statistic’s Office’s historical data telling that the annual population growth
rate in Quezon City is 1.92%

Table 8 | Projected Population for the next ten years

Age Of
Y Residential Collegiate
Between 15- Target Market
ear Population Population
24
2
76,404 16,045 25,378 41,423
006
2
77,871 16,353 25,844 42,197
007
2
79,366 16,667 26,319 42,986
008
2
80,890 16,987 26,803 43,790
009
2
82,443 17,313 27,295 44,608
010
2
84,026 17,645 27,797 45,442
011
2
85,639 17,984 28,309 46,293
012
2
87,283 18,330 28,830 47,160
013
2
88,959 18,681 29,361 48,042
014
2
90,667 19,040 29,902 48,942
015
2
92,408 19,406 30,453 49,859
016

A. Market Demand and Demand Forecast

Market demand refers to the amount (in units/peso) that potential buyers from the
target market would likely consume or render our service. It represents the
projected market share of PantSaloon based on the estimated acceptability rate of
the product to the target market. Hence the formula used to calculate the market
demand is:

MD = AMAR x TM x CR

Where:

32
 MD = market demand
AMAR = adjusted market acceptability rate
TM = target market
CR = consumption rate

AMAR is computed by:

AMAR = MAR x Conservative rate

Where:
MAR = number of willing buyers / sample size

The Market Acceptability Rate (MAR) is reflected in the survey results where 81.91%
answered yes to the question of whether or not they are willing to have their pants
custom-made (see Appendix). Conservative rate of 95% was used to accommodate
a 5% sampling error. However, it is not safe to assume that the MAR result would
actually buy the products. Table 3.2 presents the computation for market demand
for pants using an annual consumption rate of 4. The consumption rate figure was
based from the professional opinion of the owner/manager of Viktor Jeans. To further
substantiate this claim, EALA conducted a convenient sampling of 50 individuals
within the target market through a phone interview. Results showed that young
adults and students usually buy 4 to 6 pants annually. Hence, for a more realistic
estimate of PantSaloon’s demand, EALA considered using the conservative value of
4.

Table 9 | Market Demand and Demand Forecast

Y A Target Potential Consumpti Annual Monthly
ear MAR Market Buyers on Rate Demand Demand
2 77.81
41,423 32,231 4 128,925 10,744
006 %
2 77.81
42,197 32,833 4 131,334 10,944
007 %
2 77.81
42,986 33,447 4 133,790 11,149
008 %
2 77.81
43,790 34,073 4 136,292 11,358
009 %
2 77.81
44,608 34,709 4 138,838 11,570
010 %

33
 2 77.81
45,442 35,358 4 141,434 11,786
011 %
2 77.81
46,293 36,021 4 144,082 12,007
012 %
2 77.81
47,160 36,695 4 146,781 12,232
013 %
2 77.81
48,042 37,381 4 149,526 12,460
014 %
2 77.81
48,942 38,082 4 152,327 12,694
015 %
2 77.81
49,859 38,795 4 155,181 12,932
016 %

B. Supply Analysis

PantSaloon’s material supply consists of garments and other sewing elements

offered by fabric distributors within Metro Manila. The total supply can be derived
from the annual average production capacity of the garment industry for 2005 as
taken from data gathered from the Department of Trade and Industry (See Appendix
6). However, this figure comprises all the sectors (children, male, female) of the
garment industry and so must be adjusted to extrapolate the specific supply for
PantSaloon. In order to achieve that, the formula used is

Market Supply = PC x RP x PT x GR

Where:
PC = annual average production capacity of garment industry
RP = rate of young adults and students who dissatisfaction in fitting jeans
PT = percentage of target market (Target market / NCR population)
GR = growth rate of supply

The rate of students and young adults who encountered problems in buying clothes
were taken from the survey conducted, who answered yes in question whether or

34
not they are satisfied with the currently available jeans in the market. The
production capacity is adjusted with this rate so as to capture the supply of
garments usually bought by the target group who do not find the perfect fit of
jeans/pants. The next table presents the adjustment of the production capacity for
the base year.

Table 10 | Adjustments of Production Capacity for the

base year

Annual Supply for

Trousers/Pants 19,439,180
Percentage of
Dissatisfaction 19.55%
Total Supply for the Base
Year 3,800,359.69

However, according to the Monthly Integrated Survey of Selected Industries, the

Volume of Production Index for wearing apparels registered a negative growth rate
of 4.6% in 2003 (See Appendix). Annual supply projection is then adjusted using
this value, assuming that its rate would remain constant. A declining growth would
then be observed as an industrial occurrence issue mentioned in the environment
analysis

The proportion of the target market to the population is also used as an adjustment
rate to as to capture the supply that is only intended for our target market. Table 11
shows the computation of the market supply for the 10-year projection, adjusted
both through the percentage of target market and the growth rate.
Table 11 | Market supply for the 10-year projection
Year Supply Target Market NCR Annual Supply
Population
3,800,359.
2006 41,423 9,932,560 15,849.12
69
3,975,176.
2007 42,197 10,037,845 16,710.81
24
4,158,034.
2008 42,986 10,144,246 17,619.57
34
4,349,303.
2009 43,790 10,251,775 18,577.86
92

35
 4,549,371.
2010 44,608 10,360,444 19,587.81
90
4,758,643.
2011 45,442 10,470,265 20,652.99
01
4,977,540.
2012 46,293 10,581,250 21,776.75
59
5,206,507.
2013 47,160 10,693,411 22,961.70
46
5,446,006.
2014 48,042 10,806,761 24,210.50
80
5,696,523.
2015 48,942 10,921,313 25,528.00
11
5,958,563.
2016 49,859 11,037,079 26,917.27
17

C. Demand-Supply Analysis

Upon computing separately the demand and supply, the analysis of one in
comparison to the other produces the gap that PantSaloon aims to address. This
difference would be the driving force of the existence and growth of the business as
it presents the degree of the demand for the proposed product. Comparing the
market demand and the market supply estimates, we could compute an average of
113,075 potential demands in units that PantSaloon hopes to supply.

Table 12 | Demand-Supply Analysis

Year Total Demand Total Supply Demand-Supply
Difference
2006 128,925 15,849.12 113,075.88
2007 131,334 16,710.81 114,623.19
2008 133,790 17,619.57 116,170.43
2009 136,292 18,577.86 117,714.14
2010 138,838 19,587.81 119,250.19
2011 141,434 20,652.99 120,781.01

36
 2012 144,082 21,776.75 122,305.25
2013 146,781 22,961.70 123,819.30
2014 149,526 24,210.50 125,315.50
2015 152,327 25,528.00 126,799.00
2016 155,181 26,917.27 128,263.73

We cannot however, entirely accommodate all the demand-supply differences

projected. Being a relatively new entrant in the industry, PantSaloon aims to gain a
market share of at least 0.5% in its first year of establishment. As the business
progress, EALA Inc. targets to gradually carve bigger market share in the industry as
we expand our product lines, services and capacity throughout the course of the
company’s operations.

D. Market Share

Market share represents the portion of the market that PantSaloon will hold. This
would represent the viable capability of the business in the industry as well as it
shows how strong PantSaloon will be in the market, given the present supply in the
market and the demand that the business caters to. Market share is computed
through this formula:
Market Share = PantSaloon Ave. Monthly Production Capacity
Monthly Market demand

PantSaloon’s average monthly production capacity shall be divided with the total
market demand for pants/trousers taken from their 2006’s projected demands
respectively. Hence, this would reflect the fraction that PantSaloon aims to provide
in proportion with the total demand in the introductory phase of its venture.

The production capacity came from industry standards that we took from the
professionals who are in pant-customization business. According to Ms. Bea dela
Cruz, store manager of Clement Garments in Recto, Manila, a business venture can

37
accommodate 30 job orders for jeans in a day. Throughout the month, PantSaloon is
capable of producing 900 job orders.

Substituting the formula, a 9.55% market share was computed as:

Market Share = 900 / 9422.99

Over the years, PantSaloon would strive to aim for the bigger share in the “pie” as
the business gradually creates its niche in the market. Strong promotional efforts
will be continuously done as the company tries to expand its reach to its target
market. Branches will also be opened at an annual rate starting from the 3rd year.
New products will be offered for customization like shirts and jackets in the fifth year
of the business. By doing so, and by assuming a fairly good economic flow in the
industry, PantSaloon is thereby guaranteed to make its mark in the business.

IV. Market Segmentation, Targeting and Positioning

A. Market Segmentation

The distinction of one segment from another in terms of needs, characteristics,

interests and values necessitates dividing the market into segments, as these
differences will greatly influence the responses and attitudes of people towards
the products and services offered by PantSaloon.

38
Market segmentation was conducted in order to select the group of people who
will be most receptive to the products and services offered by PantSaloon.

The market for consumers was segmented based on their geographical,

demographic, psychographic, and behavioral indicators that influence their
purchases for jeans.

1. Geographic Segmentation
PantSaloon is focused on the distribution of population within the Diliman and
Katipunan communities. These include academic institutions like University of
the Philippines - Diliman, Ateneo de Manila University and Miriam College, and
nearby residential villages and subdivisions like Teacher's Village, La Vista,
Xavierville Subdivision, Loyola, Blue Ridge and White Plains. Recognition of the
characteristic within the area of location is important to the company because
the students and residents of these schools and communities generally tend to
share similar values, attitudes, buying capacity and style preferences.

However despite the similarities, significant differences still exist among these
residents because of differences in their culture, social customs, upbringing, and
other factors. Hence, other factors need to be considered.

2. Demographic Segmentation
PantSaloon also looked into the demographics to segment the market. The most
popular characteristics used in combination here are age, family life cycle stage
and income.

Age. PantSaloon segmented the market to cater to 17 – 29 year-olds. The reason

for this is that this segment shows the highest demand for PantSaloon’s
products.

Primarily composed of college students and young, urban professionals

(yuppies), this age segment is the most prominent user of jeans. With a myriad

39
of jean brands in the market, catering to college students and yuppies appear to
be one of the most lucrative trends in the jeans industry.

Life Cycle Stage. Demand for goods and services change over time to adapt to
a likewise changing needs and want of people. Hence, there is a need to
segment the market based on their current life-cycle stage.

A bachelor, having no family to support and most probably still under the
custody of his parents, is more inclined to make purchases for himself, and
clothing is definitely included in his expenditures. This being the case, the
Bachelor stage seems to be the most appropriate for the product PantSaloon
offers. Young, single, individualistic and independent, the Bachelor is definitely
made for PantSaloon.

Income. The consumer’s level of income is an important factor in the profiling of

PantSaloon’s market because it provides an effective indicator that would reflect
the buying power and spending habits of the students for whom the products are
made for.

The growing purchasing power of this age bracket is the primary factor making
this age bracket attractive. For yuppies, the trend is being fuelled by higher
disposable incomes resulting from more generous allowances and salaries. On
the other hand, college students opting to work part-time during schooling, and
heightened media awareness augments their purchasing power.

Occupation and Education. PantSaloon segmented the market to college

students and young professionals. For the purpose of embodying what the
individualistic youth is, this segmentation is important because PantSaloon’s
products and advertising will be more concentrated on them.

3. Psychographic Segmentation
The types of products and brands an individual purchases reflect that person’s
characteristics and patterns of living. PantSaloon, in evaluating the

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psychographic segments of the market, divided the group based on personality
characteristics, lifestyle, and values. These attributes were examined and
eventually related to how an individual in the market thinks, feels, and behaves.

Personality Characteristics. The college student and yuppies market is a

dynamic and extremely competitive environment. Though there are plenty of
opportunities for new entrants and a great scope for innovation, the target
audience is extremely hard to please.

Media influence, including fashion, television, the Internet and music, make the
market savvy about what they want. Quality will unlikely be compromised, and
approach to brand loyalty is erratic.

However, the nature of PantSaloon’s enterprise being customization, it won’t be

difficult for the business to keep up with the market’s unpredictability. Changing
fashions won’t be much of a problem, as jeans have become a staple piece of
clothing, and only their styles change through time. This quick shift from one
style to another is a strength that PantSaloon can play up.

Having the products and services evolve with the moment, together with
extensive and focused marketing efforts, PantSaloon hopes to retain the interest
and loyalty of the market in consideration.

College students and yuppies, at their young age, are attracted by fun,
glamorous and distinctive brands. Finally, while they have a strong desire to be
like everyone else, they still have a very strong need to express their
individuality.

Lifestyle. As mentioned previously, the target market combines a desire for

belonging and a need to express their uniqueness. Joining the bandwagon is
prevalent among them, with cliques and barkadas being a common thing in this
age bracket. In fact, people are usually first identified with the group of people
they hang out with before they get to be recognized as individuals.

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The trends dictated by society, media, and the people around them influence
their lifestyle and behavior, and being updated with the latest in fashion, music,
movies, electronic gadgets and the like is as important as expressing their
individual selves.

4. Behavioral Segmentation
Benefits Sought. The survey showed the importance of several characteristics
considered by college students and young adults in buying pants. The data was
tabulated according to rank.

Factors that Buyers Look in Purchasing Pants

stitch
pocket design
cut
price
fabric
comfort
fit

0 50 100 150 200 250 300

Figure 4 | Factors that buyers look in purchasing pants

In some other aspects, the group of people who answered survey responded the
following designs that they look for in their pants.

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 Particular Designs Liken By Potental Buyers

54, 13%
81, 20% distressed /
deconstructed

45, 11% stone / acid washed /

faded

c embellished

embroidered
45, 11%

others
176, 45%

Figure 5 | Particular designs liken by potential buyers

Usage Rate. Much like everyone else, college students are regular users of
pants. Jeans, classified within the clothing category, are commodities/necessities
that are a part of everyday life.

Frequency of Pants Usage

250

200 205

150

100
12
50 53 1

Almost everyday Once or twice a week Seldom No Response

Figure 6 | Frequency of pants usage

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The level of usage that college students make of pants is HEAVY. According to
the survey conducted, 75% use pants almost everyday, pushing them to
purchase 4 pants annually.

Buyer Readiness Stage. 81.91% of the respondents of PantSaloon’s market

survey indicate that they are willing to render the custom-making of pants
service. This segmentation model will be particularly useful in formulating and
monitoring the marketing communication strategies PantSaloon will employ to
move consumers towards purchase of a product or brand.

B. Market Targeting

Market targeting is the process of evaluating and selecting segments of the

market that PantSaloon will target and focus on. There are different things to
consider in selecting the target market: Is this segment large enough to result to
a profitable venture for PantSaloon? Are the products offered at PantSaloon
suitable to their needs and interests? Who are the competitors for this market
segment? After assessing all the segments and answering these questions, it is
now time to select the market with the greatest potential.

PantSaloon is a clothing service shop specially designed for the jean design and
fitting needs of (1) college students and young adults who are between the (2)
age of 15 and 24 years old, (3) both men and women, particularly those who are
(4) residents and/or located in institutions within Katipunan Area.

Essentially, college students, specifically from Ateneo de Manila University and

UP-Diliman, do not have school uniforms. Thus, denim jeans have been a staple
clothing item for them. But with different body structures as well as different

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tastes in denim jeans, PantSaloon aims to address their dilemma on those
differences. Furthermore, individuality is important to these particular
individuals, thus PantSaloon’s concept of customization would definitely cater to
their need of distinctiveness.

On the other hand, young adults have this need of uniqueness and standing out
among others. They make sure that they are distinctively different from others,
whatever it takes. Having their own source of income lets them address this
need.

Both college students and the young adults have tendencies to find their niche
where they are very much comfortable with. In fashion, they often hop in styles
and land to choose the kind of style that represents their personality the closest.
They are also very much concerned with fashion trends and are willing to try
something new. This kind of buying behavior understanding of the targeted
group helps the entrance of PantSaloon in the market. The idea of launching
customized jeans packaged in a cool and hip way and manufactured in a bright
store, as oppose to the dark-roomed tailoring shops, will thrill them.

Students and young adults are very particular with the type of clothing they
purchase. They look into fit, comfort and design among other elements in
choosing the perfect pants for them. And this is what PantSaloon is providing to
them.

Pants are generally worn by both men and women. EALA wants to focus on both
needs since they don’t differ much, anyway. In fact, because of sexual
independence that is apparently growing these days, men and women wear
clothing designed for them interchangeably. A universal need for jeans has been
apparent through the years which both sexes enjoy sharing with. Because of
this, PantSaloon is coming up with designs that may work on both sexes. The
flexibility of the designs of PantSaloon will prove that jeans are never labeled
based on sexes or gender, rather on fitting and personality.

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 PantSaloon subdivided the market into location-based segments (residential
areas proximate to the location of the proposed business) because this
geographic measure is quantifiable and accessible. The distribution of population
in these areas is important to the company because the market within these
areas generally tend to share similar values, attitudes, and style preferences,
given that they are in the same level of social class.

C. Market Positioning

PantSaloon will be established as a customized jeans maker

For college students and the young adults,
that offers flexible, unique and creative jeans
with perfect fitting and comfort
to the level of the customer's choice of fabric, cut and over-all design.

It is PantSaloon’s advantage to become a specialized clothing servicing store that

will emphasize wide-ranged creative designs, styles and fabrics along with the
perfect fit and comfort to the customer.

PantSaloon will be known for its uniqueness, flexibility, creativity, and

innovativeness. These youthful characteristics will make the whole perception of the
store away from the tailor shops that are usually associated with being stiff and
traditional.

PantSaloon is taking the Less for More strategy in defining its competency in pricing.
Viktor Jeans has been making waves in the same market but what will make
PantSaloon apart from Viktor is its competitive designs and quality at an affordable

46
price. This will be highlighted because the target market, students and young
adults, cannot afford prices such as Viktor’s.

V. Marketing Mix

A. Product

As can be observed, majority of the brands in the market offer jeans that are
ready-to wear which do not actually correspond to the actual fit of each and
every consumer. This has become a pressing concern for most of the college
students and young adults as they would always spend difficult times finding the
jeans that would fit right. Although alterations could be done to repair the
clothes’ dimensions, more often than not, the process can possibly ruin the style
or design of the product. EALA Inc. was able to understand the problem that
today's youth face hence the reason of coming up with the idea of PantSaloon, a
brand that will provide jeans that would perfectly fit them at their own wanted
cut and design. PantSaloon's service is geared towards addressing the usual
problems that college students and young adults always come across with.
Thus, the cuts, fabrics and dimensions that shall make up our jeans will be
custom-made in order to give our target market the right fit and the right
comfort match their body frames. Moreover, our house designers will create
trendy collections and will also regularly update the design and style of our jeans
thereby conceiving a uniquely stylish boutique that perfectly matches the
today's youth.

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1. Features
Themes. The world of fashion moves in a relatively fast paced track that we
need to continuously plan and innovate designs in order to keep up with the
present and forthcoming trends. Consequently, PantSaloon fashion shall exert
efforts in providing jeans and pants that are appropriate to the current fashion
themes, but would still refer to the customer’s requests. In order to offer this,
EALA, therefore has to constantly search for the latest trends on the web,
magazines, and catalogues, and should also be keen in observing how prominent
fashion figures project themselves through the clothes they wear. In addition,
we will seek advices from fashion enthusiasts and hire in-house designers who
will assist us in keeping up with the current fashion statements.

For the introduction of the venture, EALA will issue the first collection of four
designs showing off the brand’s capabilities of producing stylish pants. The
designs are flexible enough to match any kind of cut that the customers are
openly comfortable with. The designs will include the following:

PS 1 – pant designed with detailed stitching

PS 2 – jean designed thru deconstruction
PS 3 – jean showcasing pocket embellishments and beadings
PS 4 – jean showcasing pocket embroideries

PantSaloon will introduce new designs and keep up with it by having quarterly
themes, depending on the forecasted demand and clamor of fashion aficionados.

Colors and Fabrics. Since the business is basically selling on the over-all
individuality of the customer, PantSaloon, will offer a wide array of colors of
jeans and other types of fabrics used for pants like denim, corduroy, twill and
canvas. Colors will be pre-approved by the house designers as they know which
colors are matching the kind of fabric.

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For denim, we will have stretch and non-stretch. We will also soft and hard jeans.
In addition to that, PantSaloon will also offer good kinds of bronzed/metallic
jeans, dark-colored and the light colored ones. For twills, an array of such colors,
from black to khaki to white, will be from offered. Same thing goes with
corduroys and the canvases.

Special fabrics like army cloth and checkered fabrics will also be provided for
those who want an older look.
Product Line. The initial product line will consists of all-jeans collections.
PantSaloon will be focusing on the manufacturing of its core product and will
make sure that expertise in such activity will be achieved in the first three years.
Variations of pants like shorts and skirts will be offered as well on seasonal basis
or if the customer requests for it. The entire jean collections shall revolve in a
tagline that will promote personal adaptation of the jeans to the customer's
fitting such as: Makers of the jeans specially-made for you.

On its fourth year of operations, PantSaloon will open its array of t-shirts that is
in line of the objectives and target market of PantSaloon. It will invest in opening
statement-shirt venture where customers can have their personal statements
printed on their shirts.

Two years after that, PantSaloon will be opened for jacket-customization. Other
merchandise and accessories, like bags, wallets belts and leather bracelets will
be offered as well.

Maintenance of the merchandise and service offerings will be observed and

assured through the years. Designs will be improved and updated to make sure
that the taste of the moving target market is kept captured.

Augmented Products. Aside from the stylish jeans collections, PantSaloon will
also hire friendly and accommodating trained personnel to make the customer’s
experience within the store something to be remembered and repeated. They
will be called Jeans Engineers. Such label will give an impression that the

49
personnel are all technically trained to do create the perfect jeans for the
customers.

Today, people are much more concerned with the environment and PantSaloon
understands that. Thus, our store will only utilize stylish reusable paper bags and
not the plastic ones in order to contribute to this cause. Customers do patronize
companies that operate with a heart. In recognizing our responsibility to society,
this is not to be done for promotions alone but also for the greater good of the
community.

Also, PantSaloon will have spacious fitting rooms for comfort, which needed so
customers can appreciate the beauty of the product that our store has to offer.
Oftentimes, students and young adults do not come alone. They have
companions like friends, barked and colleagues with them that's why PantSaloon
is putting a waiting area composed of mini sofa and beanbags. Fashion
Magazines like GQ and InStyle will be available as well for fashion references.

Almost all major shops accept credit cards and this will be the same for our
store. PantSaloon understands the hesitance of some shoppers in bringing a lot
of money for shopping.

Added to that, to make the experience very relaxing and worthwhile, we will also
play feel good music. Surround mirrors will also be put up on the walls so
potential customers can know right away if the product looks good on them
without having to fit the clothes. Promo giveaways such as posters, pocket
calendars and key chains will be given to buyers so they can remember our store
all the time.

An after-sale service, like alteration, will be offered for free to make sure that the
jeans stay fit to the customer.

B. Price

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Prices are set according to the positioning and image of the brand. Items at
PantSaloon will cater to the needs and interests of college students and young
adults in the Class A, B and C brackets of the Katipunan area. Survey results
have shown that 43% of the total respondents are willing to pay 500 to 1,000
pesos for custom-made jeans. EALA Inc. decided to extend the prices of the
more elaborate clothing design to a maximum of P2,500. These price ranges are
strategically set to mean affordability against Viktor, while the appreciation of
higher price against ordinary shops speaks of higher quality.

Since PantSaloon is a specialty store, we can set a medium-ranged premium in

all prices. Mark-up percentages will start at 150% to 300% of the variable costs
that will include direct fabric materials and manufacturing labor. The assumed
costs are at minimum orders of 30 jeans order in different sizes already.
Appliqués and other design materials for the clothes are excluded from the basic
manufacturing cost.

C. Place

It is best to put up the clothing store in the area where the business can easily
tap its target market. For this particular reason that is why PantSaloon will be
initially put up in Katipunan. It will specifically be located in the second level of
Drews Bldg, right behind Shakey’s.

One apparent reason for putting up the store in the Katipunan area is that the
place is relatively accessible to college students in the higher social strata. Just
right outside the store is Ateneo, which happens to be the perfect representation
of the target market.

The location also has the ability to pre-determine the clients of the store.
Katipunan, among any other areas in Quezon City, has high commercial and
residential land value. The target market is centralized in the area, such as those
who are residing in La Vista, Loyola Heights, and Xavierville Subdivision.

51
As a new entrant in a relatively new market, jean-customization, PantSaloon
needs to establish a very strong niche first before moving up or outside that
niche. For PantSaloon, the locality is of Katipunan is the best place to put the
business up as the target market is literally centralized in the area.

EALA Inc. is looking also to the fact that the studentry market is forever active
because of the annual entrance of freshmen to the academes. It only means that
the market will never be saturated because every year, a group of new students
will be replacing the touched market of the graduating students.

PantSaloon will maximize all its effort is tapping the Katipunan market before it
actually expands to other communities. EALA Inc. is looking for pursuing an
extension in highly urban areas like malls, where the same profile of the current
target market is located.

Beyond the ten years of operations, the store will continue expanding to other
relatively urbane malls such as Gateway and Glorietta. The group will also
consider locating to other parts of the Metro such as Alabang Town Center in the
South.

D. Promotions

1. Short-Term Promotional Activities and Goals

For the first three years of the business operation, the company will aggressively
advertise the brand and products among students and young adults residing
within Katipunan area. As much as possible, EALA Inc. chooses to find ways of
doing the necessary promotions without having to pay much. The company
cannot afford to engage in costly advertising efforts in our first years hence,
product offers and gift certificates shall be done to promote the business
instead.

Goals for the three months:

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• Establish awareness of the stores existence among residents and students
within Katipunan area
• Attract initial customers to enter the store, window-shop, and render the
PantSaloon service
• Have the “first buyers” spread the good news (word-of-mouth advertisement)

The store will be opening on January 1, 2007. The first three months will actually
be the trial period and all activities will be noted for future assessment. For this
period, operations should be personally handled by the owners.

It is EALA Inc.'s concern to make sure that the shoppers will immediately notice
the store. The interior design of the store itself will serve as an initial “come in”
advertisement. Industrial and post-modern look will also be the theme of the
store to highlight the 'engineering' of jeans. White and bright, warm lighting shall
be used in place to enhance the color of the jeans and project a classy
ambience. Experts also said that this kind of lighting makes one more stunning
because the natural color of the skin is yellowish.

Displays include the prototype designs of the collections and the sample fabric
that they may choose from. Framed posters showing patterns as to how jeans
are made will be placed around the store. Staff and personnel will also wear
shirts that have "Pants Engineer" print to emphasize that jeans that PantSaloon
makes are all made especially for the customer.

The objective is for the customers to get an idea of the nature of PantSaloon
service. What a better way to win over window shoppers and actually convert
them to actual buyers!

Goals for the second quarter of year 1:

• Make noise, have the media press notice the PantSaloon brand
• Encourage repeat buying by giving special services
• Begin to establish brand equity
• Attract prospective loyal customers

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After the assessment of market response during the first three months of
operations, EALA Inc. will launch PantSaloon in a fashion show and concert party.
A ribbon cutting to be led by the owners and top fashion celebrities will kick-off
the party. Fashion show will showcase three sets of collections from the in-house
designers of the store. For this fashion show, PantSaloon will not only use the
skinny-type girls and boys as models. EALA Inc. will incorporate diversity in the
'reality' of the actual users of the jeans. This will include the petite type and the
chubby types among others. The concert on the other hand will showcase hit
bands. The bands' vocalists will wear a pair PantSaloon jeans during their
performance.

Press and media people from fashion magazine publications and lifestyle TV
shows will be invited. MTV or MYX will also be invited to cover the program for a
wider media mileage.

Goals for the second half of year 1:

• Start establishing relationships with the print ad media
• Develop further the equity and image of the PantSaloon brand

At this stage, PantSaloon will begin to implement aggressive marketing efforts by

sponsoring photo shoots of leading magazines for college students and young
professionals. The initial product line will be seen in the glossy pages of Summit
media publications, which include Seventeen and Cosmopolitan magazines and
Metro’s Chalk magazine.

According to the Marketing Manager of a leading clothing brand, PantSaloon can

have the products advertised in this way for free! All we have to do is have the
fashion editors notice the PantSaloon brand and promote its products.

In addition, the store will begin to offer limited editions of about 10 to 15 pieces
of certain items, part of which will be given to famous celebrities and other
personalities who are regularly doing modeling stints in the magazines stated.

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They will eventually serve as the shop’s sort of “free” endorsers. Hopefully by
this time, PantSaloon will be seen regularly in the monthly issue of the said
magazines. Many are already doing this. It was observed that exclusivity and
scarcity of a fashion item particularly when seen on models, increases its
desirability especially to the fashionistas among others.

Goals for the second and third year of the operations:

• Participate in the online and TV advertising campaign
• Update the customers and non-customers alike about what’s happening in the
PantSaloon boutique
• Establish personal relationships with the customers

The PantSaloon website will be developed to further inform the consumers about
updates on the latest fashion tips and ways of taking good care of jeans aside
from the items and promos the store will be offering. The website will also
feature a web page for customer feedbacks, suggestions, and requests. Store
profile, brand advertising, and pictures and prices of the latest items will be
featured as well.

There are TV shows that offer free guest appearances of promising

entrepreneurs or exposure of newly established stores. Examples are Breakfast
Supersize, Wazzup Wazzup and Us Girls of Studio 23. PantSaloon will grab the
following opportunities in exchange for free jeans service.

2. Long-term Promotional Activities and Goals

Goals for the third year of operations onwards:
• Induce repeat buying behavior among customers
• Shift from taking on sponsorship deals to being regular advertiser in premier
magazines
• Gain stronger customer loyalty
• Have regular customers anticipate for the store’s latest offers
• To continuously capture a larger share of the market
• Choose a famous personality model that will best represent the brand image

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• Have the customers’ trust, appreciation and have them look up to the
PantSaloon brand
• Achieve a total awareness of the brand among the upper class societies

By this time, the group will now have the ability to pay for an entire advertising
page on glossy magazines. PantSaloon will continuously conduct fashion shows
showcasing the new styles available. Re-launching will be done in the
PantSaloon's 4th and 6th year of operation as it widens its product line by
offering customized statement shirts and jackets on the said years.

PantSaloon will also continue to give commemorative items like notepads and
calendars on special occasions.

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