Krannert WhitePaper

EXPANDING THE COSTUME RENTAL OPERATION

CLIENT: KRANNERT CENTER FOR THE FINE ARTS

MAY 2, 2013 ILLINOIS BUSINESS CONSULTING

UNIVERSITY OF ILLINOIS

CONTENTS

Contents .............................................................................................................................. 1

Executive Summary ............................................................................................................ 3

Introduction ......................................................................................................................... 4

Cost-Volume-Profit Discussion .......................................................................................... 6

Methodology ................................................................................................................... 6

Inputs........................................................................................................................... 6

Assumptions ................................................................................................................ 7

Outputs ........................................................................................................................ 7

New Facility .................................................................................................................... 7

New Facility Search .................................................................................................... 8

Findings ...................................................................................................................... 8

Workforce ....................................................................................................................... 9

Findings ...................................................................................................................... 9

Market ............................................................................................................................... 11

Target Market and Segmentation .................................................................................. 11

Primary: Performing Arts ......................................................................................... 11

Secondary: Scholastic Theatres ................................................................................ 12

Tertiary: Theatrical Festivals .................................................................................... 12

Competitors ................................................................................................................... 11

Methodology ............................................................................................................. 12

Competitive Landscape ............................................................................................. 13

Comparable Competitor's Revenue .......................................................................... 15

High-End Competitors’ Competitive Advantages .................................................... 16

High-End Competitors’ Benchmark ......................................................................... 17

Comparable Competitor's Staffing ............................................................................ 18

Market Size ................................................................................................................... 19

Overall Industry Market Size .................................................................................... 19

Target Market Size .................................................................................................... 19

Expansion .......................................................................................................................... 21

Expansion Targets ......................................................................................................... 21

Methods of Expansion .................................................................................................. 22

Limiting Factor ......................................................................................................... 22

Building a Workforce ............................................................................................... 23

Sourcing Employees ................................................................................................. 23

Marketing and Sales .................................................................................................. 23

Logistics .................................................................................................................... 24

Student Organization and Educational Opportunity ................................................. 24

On-demand Costumes ............................................................................................... 24

Short-term Recommendations .......................................................................................... 25

Long-term Recommendations ........................................................................................... 25

Conclusion ........................................................................................................................ 26

References ......................................................................................................................... 28

EXECUTIVE SUMMARY

As Krannert Center for the Performing Arts (Krannert) approached Illinois Business

Consulting with the problem of costume inventory taking up practice room space, our

primary investigation surrounded potential opportunities in the rental business to

determine feasibility of investing in a new facility. With investment we conducted a

property search and performed a Cost-Volume-Profit Analysis. Based on those results,

we determined a target growth rate for Krannert to break-even with the cost of a new

facility.

To reach target growth, we investigated the market the Krannert would need to reach

with an analysis of market feasibility. This included an analysis of the market size,

competitors, growth, and Krannert’s current operations. The outputs of the analysis

include the market size, Krannert’s target market segments, Krannert’s capability to

penetrate the target market, and an actionable plan of how Krannert should capture the

existing market share in its target market. As growth inhibitors may prevent Krannert

from capturing market share we also did a Cost-Volume-Profit analysis for the costs

associated with expansion. With our results, analyses, and plans, we also investigated

opportunities for Krannert associated with a long-term horizon.

Overall, we determined that Krannert currently does not have the capability to invest in a

new facility based on its current revenues of approximately $13,000 as a investment in a

minimum cost facility exceeds that. We then determined that Krannert would have to

grow its business approximately three times in order to afford a new facility. The market

provides future growth potential, as we determined that there is a target market for

Krannert within the Theatrical Production market. The target market consists of

scholastic theatres, opera production companies, and summertime festivals. The market is

approximately $570,358.20 in size. If Krannert utilized its competitive advantages in the

target market it could obtain the fourteen theatrical production customers, or seven

percent of that market that we believe that it would take for Krannert to grow its business

three times. However, with the costs of expansion we believe that obtaining these

customers in the target market, and ultimately obtaining a new facility will primarily take

investment in sales and marketing. Thus, ultimately the last portion of the whitepaper will

provide short-term and long-term recommendations.

INTRODUCTION

As Krannert currently has approximately $3,000,000 in costume inventory an issue was

identified that their costume inventory was taking up too much space and was not being

utilized effectively. Similarly, Krannert indicated that it wished to create a permanent

market presence and have long-term contracts. As Krannert was looking to not only

create space in their facility, but also grow their costume rental business, our initial

investigation involved whether or not Krannert could afford a rental facility that would

suit their needs. As a rental facility would require significant investment we needed to

determine whether or not Krannert could afford a rental facility that suited their logistical

needs. Thus, we initiated a property search to determine a facility that Krannert could

house its costume inventory in. With a relative facility cost in mind, we decided to utilize

a cost-volume-profit model to determine whether or not Krannert could break-even

within a certain amount of time if they invested in a new facility in order to solve their

initial stated problem. Based on our conclusions from that analysis, we also then decided

to investigate growth prospects for Krannert. As Krannert has an asset utilization rate of

approximately .43%, we believed that there was significant potential for them to utilize

their inventory for profit. The current stock involves approximately 50,000 pieces of

costume that could be utilized.

While investigating Krannert’s potential to grow its business using inventory we first

determined that Krannert needed to continue only in the rental area of the industry as

costumes are reused, and there is certain litigation associated with the university that

inhibits their ability to sell. To grow a business by renting out inventory, we first needed

to determine if there was a market for Krannert to rent out their inventory to. Thus, we

investigated Market Feasibility. Overall, this analysis determines whether or not there is a

market for Krannert’s costume rental business. Krannert’s assets are high-end period

theatrical wardrobe costumes. With the use of student labor, Krannert is able to

manufacture these costumes at a very low cost. Thus, Krannert has a competitive

advantage over relative competitors who have to pay workers for the intricate labor

required in manufacturing these costumes. Similarly, Krannert’s staff includes professors

who are very knowledgeable in the areas of design, time periods, and theatrical

productions. Thus, the costumes are of a very high quality and are specifically catered

towards being utilized in productions that require detail. Nicole Faurant, the Clinical

Assistant Professor of Theatre and Costume Rentals Manager has specific knowledge on

the costume pieces and how they can be utilized in a number of different products. She

also has a deep knowledge of the inventory and its location, as well as its specific needs

regarding its upkeep and alterations. Krannert has also begun manufacturing plus-sized

costumes.

Krannert’s current business involves Nicole renting out costumes to customers who have

contacted her for specific pieces. As they are currently understaffed with Rebecca

McBride, the main point of contact, working 60-70 hours a week, and Nicole working

part-time in costume rental and part-time as a professor, Krannert generally does not

reach out to customers to generate business. Thus, before we recommended Krannert

attempt to enter the market and pursue customers, we desired to determine whether or not

there was a market in which Krannert could capture customers.

In order to determine whether or not there was a market for Krannert’s inventory, we

decided to analyze what their actual market is, determine the size of the market,

determine competitors’ position in the market, and determine whether or not Krannert

could capture untapped market share within the identified market. In order to grow a

customer base it is likely that Krannert would have to alter its strategy from waiting for

and accepting requests, to instead pursuing business opportunities. Consequently, after

our investigation of whether or not a market existed, we investigated whether or not

Krannert had the logistical capabilities to gain customers. Ultimately, this leads to a

recommendation of how Krannert should try to capture market share if a market does

indeed exist.

COST-VOLUME-PROFIT DISCUSSION

A cost-volume-profit analysis was used to estimate a breakeven revenue requirement

needed to sustain the costs of expansions. Given the limited resources of its current rental

operation, Krannert must select between expanding to a new rental facility or expanding

the current workforce as the more appropriate method of expansion by assessing the cost

and benefit of either choice. This analysis shows that the costs of a new facility are

unsustainable given the current revenue stream, whereas building a workforce is

sustainable given current rental operations and will be more effective in growing future

revenues.

METHODOLOGY

The financial model [1] outputs the required breakeven revenue from the variable inputs

based upon assumptions that were refined with expert information from Krannert.

INPUTS

There are three main inputs to the model: start-up up options, space requirements, and

workforce requirements. The variability of the inputs are used to customize the model to

the exact needs of the client and compare various expansion scenarios. The start-up

options are one time fixed costs associated with scaling the business. These in include

inventory management (RFID or Barcode), new storage units, website development and

maintenance, and new facility renovation.

Space requirements are defined in square footage needed and cost per square foot. As

specified by the client, the ideal square footage for the client is 10,000 square feet. Cost

per square foot is dependent on which facility is chosen.

The workforce requirements are defined by hours per week, hourly compensation for

year-round student workers and allocated, and allocation to either a marketing and sales

or logistics team.

ASSUMPTIONS

The assumptions used in the model were assigned and refined with the assistance of our

client and research on market prices of necessary equipment, supplies, and services.

Assumptions include variable costs, fixed costs, pricing, product segmentation, sales mix,

and costs associated with various start-up options.

Krannert’s rental products were segmented as lower-end, average, and higher-end. Per

unit rental prices were estimated for each category as $60.00, $110.00, $300.00,

respectively. The corresponding sales mix is 35%, 50%, and 15%, respectively. Per unit

variable costs were estimated for each category as $11.50, $21.00, and $26.00

respectively. These costs include shipping, photography, packaging, and dry cleaning.

OUTPUTS

The key output of the financial model is the breakeven revenue required to sustain the

expansion costs. This revenue requirement is calculated using cost-volume profit analysis

using the user-defined inputs and assumptions.

NEW FACILITY

Expanding to a new facility was the initial method of expansion considered by Krannert.

Analysis from the model revealed that Krannert’s current revenues need to grow three to

ten times their current revenue in order to breakeven on a facility investment.

NEW FACILITY SEARCH

Table 1

A shortlist of properties in Krannert’s vicinity were added to a analyzed to obtain high

and low cost estimates for suitable new facilities. Three main facility selection criteria

were proximity to Krannert, loading zone, and location safety. The higher-end facilities

roughly averaged to $10.00 per square foot. The lower-end facilities roughly averaged to

$3.00 per square foot. Below is a table summarizing our facility search findings as well

justifying projected costs. The facilities most suitable for Krannert’s proposed expansion

are highlighted in yellow.

FINDINGS

The model was used to create breakeven revenue projections for both rental scenarios of

higher-end lower-end facilities at various square footages. This data is plotted against

current revenues in Figure 1. To sustain a lower-end facility, Krannert needs to grow

threefold to $41,890 [1]. To sustain a higher-end facility, Krannert needs to grow tenfold

to $124,340 [1].

Figure 1

WORKFORCE

Conclusions drawn from research throughout the engagement allowed for the

identification of a lack of a critical workforce as the limiting factor for growth. Analysis

from the model showed that showed that the cost of a workforce is in line with current

revenues.

FINDINGS

The model was used to create breakeven revenues for adding a marketing and sales

workforce in addition to a logistics workforce. Cost of the workforce was estimated at

$10 per hour year-round. The marketing and sales team would be allocated 15 hours per

week. The logistics team would be allocated 10 hours per week. The marketing, logistics,

or combined workforce would require $9,100, $6,340, and $15,100, respectively [1].

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$3 /ft2/YR $10 /ft2/YR

Rev

enue

Current

2,500 ft2

5,000 ft2

10,000 ft2

Figure 2

Figure 3

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$10/hour

Rev

enue

Current

Marketing

Logistics

Both

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$10/hour

Rev

enue

Current

4x Current

MARKET

TARGET MARKET AND SEGMENTATION

The costume rental industry was segmented into various markets and an in-depth analysis

was performed. Throughout this analysis, it is shown how each of the market segments

would benefit from Krannert’s comparative advantages. The different market segments

that are heavily served by Krannert’s comparable competitors were also taken into

account. In addition to secondary research on the market and comparable competitors, we

engaged in primary research by calling comparable competitors as well as customers to

identify demand a competitive positioning in these markets. In addition to market

research, we also called 31 potential customers and received excellent insight on the

different factors that result in success in the costume rental industry.

PRIMARY: PERFORMING ARTS

The performing arts segment is comprised of theatres, musicals, and opera, and has

shown significant growth as of late. This segment is projected to grow at an annual

compounded rate of 6% through 2017 [2], and the number of small companies is

projected to increase as well. This segment is also experiencing a decrease in government

and corporate support due to the recession, which means that companies will ultimately

have to deal with reduced costume budgets. Krannert provides a remedy for this through

its low cost of goods and high quality inventory.

Within the performing arts segment, opera and small theatrical companies can provide

the most benefit to Krannert. The number of small theatrical companies has increased

since last year and is expected to continue to increase [2]. In addition, the competitors

who have comparable inventory to Krannert are focused on servicing very large theatrical

companies. These smaller theatrical companies tend to rent a majority of their costume

needs due to the fact that they do not have the workforce to build everything they need.

Krannert has the ability to provide these companies with their high quality costume needs

at an affordable and competitive price. The next sub-segment, Opera, offers a unique

niche market for plus size costumes that is not easily accessible and has unmet demand.

Krannert’s large and diverse inventory gives them the ability to service such a market.

SECONDARY: SCHOLASTIC THEATRES

A very large and easily accessible segment of the costume rental market is the scholastic

theatres in universities and community colleges. These theaters have many productions

per year, as well as many types of productions, including but not limited to student

productions, period muses, and large school wide musicals with over 30 cast members.

The budgets of these productions vary greatly [3]. This segment can also benefit from

Krannert by taking advantage of the high-quality but low-cost and plus-size costumes

available.

Primary research indicated that a large deciding factor on where to rent costumes from is

the existence of a personal connection between the vendor and company renting it [4].

The University of Illinois’s College of Fine and Applied Arts has an exceedingly large

alumni base, which can be utilized to further penetrate this market segment.

TERTIARY: THEATRICAL FESTIVALS

The operating season of theatrical companies is usually from September through May [2].

This causes a significant decrease in revenues in June through August. A potential

solution to this problem is to reach out to various theatrical festivals. Theatrical festivals

provide a unique opportunity for seasonal revenue during the summer months when

theatrical production companies come to a halt. These festivals usually last for several

days or even weeks, and have a large number of different productions. In addition, many

of these festivals have different time period themes, which Krannert is in abundance of.

COMPETITORS

METHODOLOGY

A significant portion of our competitor research relies on secondary sources, ranging

from academic database, company's website and annual report, to Form 990 submitted to

the Internal Revenue Service. To determine the competitive landscape of the industry that

Krannert operates in, we researched 11 of Krannert's comparable competitors and 4 of its

high-end competitors. To determine the overall industry market size, we utilized

syndicated external secondary data from IBISWorld.

COMPETITIVE LANDSCAPE

Krannert operates in a fairly saturated monopolistic competitive market. We segmented

these competitors into four quadrants based on their quality of costumes and volume of

collection. As depicted on the graphic below, Krannert falls into the upper-left quadrant

under costume rental by theatre companies, which is characterized by high quality and

low volume. Many smaller size theatre companies occupy this quadrant.

Figure 4

We also segmented the competitive landscape by the market served. We identified three

differentiated markets in the industry: film/television/Broadway, theatre companies and

universities, and high school/churches/not-for-profits. The first segment,

film/television/Broadway demands high quality, customizable costumes. Competitors

who serve this market are mostly big high-end stores, such as Warner Bros, Malabar,

Western, The Costume Collection by Theatre Development Fund (TDF) and Costume

World Theatrical. These competitors offer a wide selection, and are able to charge

premium price due to the premium service they offer. The next segment is theatre

companies and universities. This segment also demand high quality costumes; however,

customers in this segment tend to have smaller costume budget than the

film/television/Broadway segment, therefore competitors serving this segment can only

demand standard pricing for their services. The major players in this segment are other

theatre companies, some high-end stores, as well as TDF. The last segment that

Krannert's competitors serve are high school, churches, and not-for-profits theatre

productions. This segment puts less emphasis on quality, and is willing to trade quality

costumes for a lower price. The major players in this segment are other theatre

companies, TDF, and big box costume stores. The versatility of Krannert's costume

collection, combined with the almost non-existent cost of goods sold allows Krannert to

serve all these segments that its competitors are currently serving.

Figure 5

COMPARABLE COMPETITOR'S REVENUE

In analyzing the competitive landscape where Krannert operates in, we also researched

Krannert's comparable competitor's revenue. We tracked the costume rental revenue that

comparable competitors reported on Form 990 to the Internal Revenue Service. From

2009 to 2010, the average revenue of 6 comparable companies fell by -13.12%. As the

economy recovers from the downturn, rental revenue inched up by 3.99% in the next

year.

Looking at competitor's revenue numbers, these are several takeaways to keep in mind:

We observed significant fluctuation in costume rental revenue for a company from year

to year. This volatility also applies to the whole industry. Rather than the whole industry

moving in a general direction, there is a wide variation of gains and losses between

companies. In addition, it is also observed that costume rental revenue on average

contributes to less than 1% of comparable competitor's total revenue.

Table 2

Name 2009 2010 2011 % Change (2010)

% Change (2011)

Guthrie Theatre & Children`s Theatre Company [5] [6]

$144,485.00 $145,663.00 $158,503.00 1% 9%

American Conservatory Theatre [7] $180,153.00 $201,530.00 12%

Spokane Civic Theatre [8] $3,020.00 $2,228.00 -26%

American Players Theatre [9] $60,205.00 $22,280.00 $28,015.00 -63% 26%

Opera San Jose [10] $93,593.00 $96,713.00 $74,437.00 3% -23%

Milwaukee Repertory Theater [11] $35,623.00 $37,895.00 $48,048.00 6% 27%

Theatre Development Fund (Costumes Collection) [12] $203,815.00 $304,461.00 $153,421.00 49% -50%

Oregon Shakespeare Festival [13] (15,949.00) $(1,507.00) $10,776.00 -91% 815%

Average w/o TDF & OSF -13% 4%

Average with TDF -1% -4%

HIGH-END COMPETITORS’ COMPETITIVE ADVANTAGES

To gain deeper insight on the market leaders in the industry and their competitive

advantages, we also researched Krannert’s high-end competitors.

Malabar, one of Krannert's high-end competitors based in Toronto and Ottawa, Canada,

has carved an established presence in the costume rental market since 1900 [14]. The

company also owns a separate online retail division that offers a variety of theatrical

production needs, ranging from theatrical costumes to dance wear, props and decor, as

well as theatrical make-up. These additional services offered provide a one-stop shop

experience for customers and diversify Malabar's revenue stream.

Western Costume Company, another high-end competitor based in Hollywood,

California, has also served the national costume rental demands, especially for film,

theatre and television customers since 1912. [15] Western's competitive advantage

mainly stems from its established presence in the Hollywood area. Unlike Malabar,

Western Costume does not have an e-commerce platform for its costume rental business.

The company's website only serves for display purposes. Western Costume, however,

offers Halloween costume store and fabric store online. The company also offers its

customers additional services, such as custom-made costumes and research library, which

gives Western a unique value-added differentiation from the rest of its competitors.

Costume World Theatrical, a relatively newly established high-end competitor of

Krannert's, boasts a vast collection of 1.2 million costume pieces. The company also

develops a competitive advantage through its niche in Broadway and Tony-award

winning costumes offerings. Costume World Theatrical's acquisition of Dodger Costume

in 2005 drives its growth to be one of the largest costume providers in the United States.

[16] The company exploits its competitive advantage by offering Broadway Collection

Tour, which does not only increase public exposure to the company's brand, but also

provides an additional source of revenue. Costume World Theatrical also provides

additional services to its customers through the detailed plot, photos, and videos. [17] Not

only does this assist costume designers determine the costumes they want, this plot and

photos section in the website also provides a channel for the company to up-sell its

products.

Krannert aspires to grow to the size of these big, well-established, high-end competitors.

In order to do so, Krannert must also develop key differentiating factors to build its

competitive advantage. Through our customer calls and surveys, we determined that one

of Krannert’s major competitive advantages is Krannert’s strong relationship with its

customers. Many customers express that they “love Nicole” and they are “satisfied” with

the customer services that Krannert has provided them. Krannert can utilize these strong

relationships as a starting point to build its competitive advantage among its competitors.

HIGH-END COMPETITORS’ BENCHMARK

The table below provides key comparison between Krannert and its high-end

competitors. An important point to highlight is that Krannert is currently utilizing

significantly less portion of its asset to generate its revenue (.43% dollar sales to dollar

value of assets ratio). On the other hand, Krannert's competitors, Western and Malabar,

are much more efficient in utilizing their inventory to generate sales, at 23% and 27%

respectively. This comparison indicates that Krannert has a significant potential to better

utilize its inventory and grow its business.

Table 3

Krannert Western Malabar

Sales $13,000 $9.3M $13.5M

Percentage of Sales by Value of Assets

.43% (13,000/3,000,000) 23% 27%

Rentals Per Year - 53,000 to 170,000 35,000 to 180,000

Warehouse Size 2.5K ft2 (Up to 10,000 ft)

40k ft2 (used for inventory storage) 2 locations

COMPARABLE COMPETITOR'S STAFFING

We also discovered that as compared to its competitors, Krannert is significantly

understaffed. This poses an inhibiting factor for Krannert to expand its customer base and

increase revenue to the desired amount. The table below shows that comparable

competitors have at least a few hundred employees [18]. Even though only a small

percentage of these employees are involved in costume rental shop, Krannert's

competitors will still have slightly more manpower than what Krannert currently

possesses. This indicates that Krannert will need to hire a few more employees to assist in

the expansion of its customer base.

Table 4

Company Name Approximate # of Employees

Opera San Jose [19] 100

Oregon Shakespeare Festival [20] 350

American Players Theatre [21] 100-249

Santa Fe Opera [22] 80

Spokane Civic Theatre [23] 10 to 19

Guthrie Theatre Company [24] 250-499

MARKET SIZE

OVERALL INDUSTRY MARKET SIZE

Overall, the costume rental industry has witnessed a steady decline in revenue over the

past decade, from 2003-2012. The decline has amounted to an estimated 1.6% annual

decrease. This decline can be attributed to several factors, one of the main ones being the

shift of many companies and theatres deciding to buy or produce their costumes in-house.

Not only has the revenue been shrinking, but also the number of establishments has

shrunk by a massive 34% from 2003-2012. This consolidation has led to a slightly more

monopolistic and saturated market, making it tougher for average to smaller sized

establishments to maintain usual revenues. Thus, Krannert will have to become more

competitive in the market in hopes to expand and increase revenue. Given the fact that

costume rental only makes up 8% of the formal wear and costume rental market,

expansion could take a much more comprehensive effort on Krannert’s part. [25]

TARGET MARKET SIZE

To determine the target market size within this industry, we identified 107 theatre

companies as Krannert's potential customer in the Chicago area and obtained 31

responses. We conducted a surveyed of the minimum and maximum number of budget

per production, the number of productions per year, their rent frequency, as well as their

plus size interest. [26] From these surveys, we determined that on average, a theatre

company puts 4.34 productions per year, with an average costume expenditure of $2,846

per production. Extrapolating these numbers, this represents $1,271,878.91 total costume

expenditures for relevant theatre companies in Chicago area alone.

Next, we surveyed the rental frequency of these companies. As depicted in the graph

below, 46.88% of respondents indicated that they regularly rent costumes for their

theatrical productions. 43.75% indicated that they rarely rent costumes and tend to build

or purchase. Only 3.13% of companies rent all the time and 6.25% indicated that they

never rent costumes at all.

To determine rental market size in this region, we assigned arbitrary percentages for each

of these rental frequencies. These percentages represent the portion of a company's

costume expenditure that would be spent on costume rental. Category "Always" is

assigned 100%, as these companies will spend their entire costumes budget on rental

expenditure. Conversely, 0% is assigned for category "Never". We assumed that

companies who responded "Regularly" rent would spend 75% of their costume

expenditures on costume rental, while companies who responded that they "Rarely" rent

would only spend 15% of their costume expenditures on costume rental.

Multiplying these percentages with the rental frequency responses and the total costume

expenditures, we determined that the total costume rental budget for theatre companies in

47%

44%

3% 6%

Rental Frequency, n = 32

Regularly, 75%

Rarely, 15%

Always, 100%

Never, 0%

Figure 6

Chicago area amounts to $570,358.20. This number alone represents a sizable market for

Krannert to target. With 3200 theatre production companies nationwide, Krannert could

potentially target a $17,000,000 market of costume rental for theatrical production

companies alone.

EXPANSION

EXPANSION TARGETS

As we identified the size of the market to be $570,358.20, we also identified that

Krannert needed to grow its business by approximately $40,000 to achieve desired

growth to invest in a new facility. Thus, we identified that Krannert needs to capture

approximately seven percent of the identified market.

To compute an expansion target, we multiplied the average budget of 11,875 we gathered

from our market survey by the fulfill amount, by the % 1st called, by the % supplied, and

added the % that Krannert is not the first called multiplied by the %of second called. The

equation below further describes and justifies our calculation.

Fulfill amount

(whether

Krannert’s

costumes are

appropriate for

their needs or

not)

% 1st called

(the chance

that they would

get called first

by the

business)

% Supplied

(the percentage

of the costume

needs that

Krannert can

fulfill)

% 2nd called (the chance that they would

get called second by the business)

% Later supplied (the percentage of the

second and later called costume needs

that Krannert can fulfill)

Average

Budget per

customer

This brings us to a number of approximately $2,852.88 per customer. Thus, in order to

grow three times and reach a revenue target of $40,000, Krannert would need about

fourteen new customers ($40,000/2,852.88) in the market that we identified.

METHODS OF EXPANSION

LIMITING FACTOR

Upon the identification of a target market that Krannert could penetrate, we decided that

before attempting to grow and expand its business Krannert needed to develop a strategy

in order to do so. To determine what Krannert needed to do in order to expand its

business we engaged in primary research by investigating and calling close competitors

to understand how they did business. We also called customers to gain an understanding

of why they do business, or would potentially do business with Krannert in the first place.

To begin, customers informed us that a personal relationship drives their specific desire

to rent from a company. Companies who serve and cater to their needs quickly and whom

they can really on in times of need or during late hours will sustain a competitive

advantage over customers who cannot get them specific pieces in time for their

productions. While many customers raved about Nicole and the personal service she

provides, other customers mentioned a lack of follow through.

We believe that the source of a lack of follow through is due to understaffing. In the

investigation of comparable competitors, we found that their approximate amounts of

employees are significantly higher. While not all employees are due to sales and

marketing, even a small percentage of employees dedicated to marketing and sales would

be higher than the number of zero that Krannert currently has. Thus, a lack of marketing

and sales personnel is currently inhibiting Krannert’s ability to gain new customers, and

Krannert needs to invest in sales and marketing to expand.

BUILDING A WORKFORCE

Krannert is advised to build a workforce with two primary functions to serve its needs: 1)

marketing and sales, 2) logistics. Workforce investment can be scaled with demand as the

costume rental business grows. Maintaining a capable year-round workforce is vital to

success in order to service customers at any time of the year.

SOURCING EMPLOYEES

Employees should be sourced part-time from the University of Illinois student body.

Student organizations affialiated with Krannert such as the Krannert Center Student

Association would be ideal targets for sourcing interested and motivated candidates.

An important note to make is that a successful workforce will need to develop a

specialized knowledge in costumes and theatre. As a result, management of the costume

rental operation will be required to invest time to impart this knowledge as needed to

allow the workforce to undertake more responsibility. As a result, it is important to

recruit candidates who are interested in staying with Krannert for the duration of their

time as students in order to retain as much knowledge as possible year-after-year.

MARKETING AND SALES

Recommended entry point for a marketing and sales team is 15 hours per week. Starting

with one employee is recommended possibly at 10 hours per week. As business

operations start growing, another employee can be added at 5 hours per week.

The scope of a marketing and sales workforce include increased outreach to current and

prospective customers to build long-term relationships and increase visibility of

Krannert’s operation to the various target markets. Calling potential customers and

increased interaction on relevant theatre web forums are examples of possible activites.

The marketing can also aid in the development of a professional website. Such a team can

also be useful with inventory management and general operations.

LOGISTICS

Recommended entry point for a logistics team is 10 hours per week with one employee,

which should be adjusted with need. An initial focus could be to assist with expediting

website development. In the future, website managment and maintenance could be the

responsibility of this team.

Another key focus would be implement an inventory management system. As business

grows, the number of transactions processed may increase as well as the number of

costumes in inventory. Investing in such systems will be crucial for ensuring high

operational effectiveness and need for a smaller workforce. Such a technology can also

benefit the Krannert’s theatre department as a whole in keeping an organized account for

all costumes that is easily accessible.

Competitors such as Western Costume Rentals have seen value in having inventory

management capability for their high-end costumes.

STUDENT ORGANIZATION AND EDUCATIONAL OPPORTUNITY

Another potential low-cost method of expanding a dedicated workforce could potentially

to create a student-based organization where senior student employees in the organization

can manage and mentor junior student workers. In this scenario, the main value

proposition to the student would be the ability gain experience in marketing and sales

with option of gaining experience in costume technology and theatre productions, in

addition to the opportunity to build contacts with professionals in the theatre industry.

Developing Krannert’s costume rental operation in such a manner also furthers its

mission by providing more educational and professional opportunities to students. In

return, Krannert may be able to source a student workforce with non-monetary

compensation such as course credit in addition to the opportunity to gain meaningful

experience.

ON-DEMAND COSTUMES

Building and renting on-demand costumes can potentially be a future expansion

opportuntity. The premise for this offering is that if Krannert can build customized

costumes to customer specifications, Krannert’s sales would not necessarily be limited to

its existing costume inventory. Such an operation would be able to provide students the

opportunity to gain experience in costume technology.

Furthermore, building on-demand costumes allows Krannert to play on its unique

advantage of being able to generate a high-quality, low-cost costume inventory through

educational programs.

SHORT-TERM RECOMMENDATIONS

As Krannert must grow its business three times in order to obtain a new facility and we

have determined that Krannert must gain new customers to grow its business three times,

we recommend that Krannert invest in logistical items necessary to obtain new customers

first before investing in anything else. Thus, we recommend that current resources should

be applied to growing the company via Sales and Marketing to match comparable

competitors according the plan mentioned in the prior Cost-Volume-Profit section. We

recommend that Krannert utilize Sales and Marketing to target the segments of Opera,

Small Theatre Production Companies, Summertime Festivals, and Scholastic Theatres to

penetrate those niche markets and capture those customers and ultimately establish its

position in the market and capture market share. Therefore, Krannert’s current actionable

items include investing in a workforce and seizing Operational Improvement

Opportunities. Hiring a student employee is an easy action that could be done in a very

short time horizon.

LONG-TERM RECOMMENDATIONS

In the long term, we would recommend that Krannert look into more low cost and

sustainable workforce plans. As managing 14 customer accounts would be very difficult

for one employee, and competitive advantage stems from good customer relationships,

we recommend that Krannert utilize university opportunities to reduce workforce costs.

We believe that Krannert could and should work with Student Organizations to develop

workforce plans. Similarly, Krannert could utilize university opportunities for a lower

cost facility. The completion of both of these actions could decrease the growth necessary

to obtain a new facility for Krannert and shorten the time horizon necessary for Krannert

to obtain a new facility. Finally, after growth targets have been obtained, Krannert could

and should look into the best possible type of facility for investment. As we have

provided potential opportunities, we recommend that Krannert further investigate

logistical capabilities associated with facilities and how they could best serve Krannert’s

inventory. Similarly, Krannert could develop an efficient logistics operation as well as

pricing plans for customers in order to fully penetrate the market. However, all of these

items would take a more-in depth analysis and research to implement thoroughly and

effectively.

CONCLUSION

Overall, upon investigating the feasibility of Krannert investing in a new facility in order

to move its inventory, we determined that Krannert needed to grow its business three

times in order to afford a facility suitable for their logistical needs. Upon further analysis,

we realized that Krannert currently does not have the potential to grow its business three

times. However, upon investigating the market Krannert is associated with, we

determined that there is a market for theatrical production rentals. We determined that by

targeting Operas, Summertime Festivals, the plus size niche, and the scholastic theaters

market segments that Krannert can penetrate the market and grow significantly. With

Krannert’s potential market existing at a size of $570,482.98, we believe that Krannert

can obtain the seven percent market share necessary in order for it to grow its operations

three times. After determining the average budget of potential customers via our market

survey, we realized that Krannert would only need to obtain fourteen new customers to

grow to the target we determined. However, in order to obtain the fourteen new

customers, due to understaffing and the importance of customer relationships in the

business, Krannert must primarily invest in Sales and Marketing in order to ensure that

they do obtain market share. By investing in Sales and Marketing via the plan provided

we believe that Krannert can obtain market share in the segments identified and grow

three times. Upon growth, we recommend that Krannert investigate the long-term growth

aspects we identified and pursue further expansion.

REFERENCES

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[Accessed 18 February 2013].

[26] IBC, "Krannert Potential Customer Calls," Champaign, 2013.

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