Sterling Kane

1. HBS Business Plan Contest Pitch
April 3, 2012
Feel free to direct any questions / inquiries to jmendal@mba2012.hbs.edu

2. Introduction
Before you dive in, three things to know…
1. Sterling Kane is the Warby Parker for
men’s leather goods. Think Gucci
quality at Calvin Klein prices
2. Team has extensive experience and
unique ‘unfair’ advantages in leather
3. What is our brand persona? Let’s just
say Sterling Kane runs in the same
circles as our friend over here
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3. Team
Brothers with deep family roots in leather. 3rd generation in family
business, Pan American Leathers
Jayme Abe
• HBS – Class of 2012 • Pan American Leathers – VP of
Finished Product Sourcing for
• Li & Fung – World’s largest supply customers including Polo, John
chain manager for apparel / fashion Varvatos, J. Crew, and many more
household brands
• AirLinke – Founded regional air • PAL has also supplied Coach,
charter company LVMH, Hermes, etc.
• Monitor Group – Growth Strategy •AJSkins.com – Co-founded online
wholesaler, retailer of private label
• AJSkins.com – Co-founded online men’s leather goods in college
wholesaler, retailer of private label
men’s leather goods in college • Blackrock – Analyst
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4. Problem – Retail Supply Chain 101
Product is complete Product sold to
here. Cost to Traditional Retail: customer here. Sale
produce is $50. price is $500.
Brand /
Craftsman Retailer Customer
Wholesaler
2x 2x 2.5x
The Pain is Simple:
• People pay up to 10X what it cost to produce high end leather goods
• Given relatively high cost of goods in leather, dollar markups can be ridiculous
• Examples of products we’ve sourced for brands through Pan Am Leathers:
• Nice leather bag at Nieman Marcus… Cost $500. Price $3,500
• Private label alligator belt at Dept. Store X… Cost $50. Price $400
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5. How big is this problem?
High end men’s leather goods market is $2.7B (in U.S) and growing rapidly
Market Size Market Growth
• $2.7B market for high end U.S. men’s • ‘Mens’ category is growth engine for
leather goods business in fashion at the moment
• Calculated using data on Coach’s
sales and market share • Luxury menswear market is growing at
• Represents 14% of $19.6B U.S. ~14% / year, double the pace of luxury
luggage and leather goods market women's wear, according to Bain
Select Examples:
•“Coach is banking on more business from men…expects sales of men's products this
year to reach $400 million, and climb to $1 billion within a few years.”
• “Hugo Boss targets sales gains of 50% to €3 billion by 2015, helped by cultural shift
that has led more men to be interested in fashion and invest in appearance.”
5 Source: http://www.reuters.com/article/2012/03/29/us-usa-retail-luxury-idUSBRE82S15R20120329; http://www.wikinvest.com/stock/Coach_%28COH%29
; http://www.marketresearch.com/MarketLine-v3883/Luggage-Leather-Goods-United-States-6854915/

6. Solution – Sterling Kane
• E-commerce brand of luxury quality men’s leather goods,
priced 40-60% lower than other brands of comparable
quality (e.g., Tod’s, Gucci, Varvatos).
• Achieve price advantage by eliminating cost + risk from
value chain after the product has been created. Quality of
product never compromised.
… How do we deliver on this?
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7. Solution – Sterling Kane
Quality – Value –
• Suppliers: Same leather, Cut Middlemen: Receive goods from
components used by leading luxury the factory and ship direct to customer.
brands Eliminates cost, markups
• Manufacturers: Same Minimize Overhead Costs:
manufacturers used by leading Predominantly online retail - no big
luxury brands stores, salespeople, etc.
• Design: Designers who have Minimize Inventory Cost, Risk:
designed for leading luxury brands Products made to order in batches
Sell only through channels which
provide us with price control:
Eliminates channel pricing conflict with
traditional retail partners
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8. Solution – Sterling Kane
Snapshot from website:
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9. Our Edge
Keys to success Our Edge
uality Raw Materials: Quality
can’t be faked in leather. Need • 60 years in leather goods
good suppliers supply chain > network of
suppliers, manufacturers
Competitors roduction: Need to navigate
• ‘Friendly’ supplier (Pan
/ New fragmented, global, old school
American) charges us cost for
Entrants supplier network
materials!!!
• Made-to-order biz model ->
negative working capital
. Cashflow Management:
eed to control materials cost • Fashion press contacts
+ good inventory management • Story resonates – HBS, two
brothers in leather family
9 . Branding / Traffic: Press/buzz

10. Unit Economics
Current Highlights Future Improvements
• 45-50% unit gross margin
• Minimal overhead • Existing numbers based on
• Negative working capital
domestic production
Unit Economics (‘average’ product) • Currently preparing
production capabilities in
Price $200
Colombia
Cost of Goods $100
• Result will be 40-50% lower
Free Shipping $10 COGS -> GM increases to 70%
Gross Margin $90
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11. Go to Market Strategy
3 priorities: 1) Create brand awareness 2) Establish credibility for product quality 3) Drive
sales. Have begun firing on all cylinders below with great results so far
Channel Examples
Editorial / Press • GQ, Urban Daddy, Esquire, Thrillist
Retail Editorial • Gilt, Fab, UD Perks
Retail Partnerships • Bespoke Custom Suit Co’s, Boutique Store-in-Store
Trunk Shows • HBS, university partnerships, pop-up stores
Referral Marketing • Incentives for customers to refer via FB, Twitter, e-mail
Corporate Gifts • Sell into leadership/HR of select companies
SEO • On selective, non-competitive keywords
Selective PPC • On low cost, non-competitive products
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12. Competitive Landscape
We expect to steal share primarily from three categories of customers
a,b) Accessible Luxury and Niche High End Brand
customer: Guy who pays $1,000 for a nice leather
Quality / Brand weekender bag now gets one of comparable or higher
Perception quality for $495
High
Hermes
c) Mass market brand
Mass Luxury Fashion
Houses – Gucci, Tod’s,
customer: Guy who
Sterling Kane pays $300 for a
Louis Vuitton
decent quality
‘Accessible Luxury ‘Brands
– Coach, Cole Hann; AND briefcase from
Popular Niche Brands: Jack Johnston and Murphy
Spade, Billy Reid, now pays $275 for a
Trafalgar, John Varvatos much nicer one
Mass Market Brands –
Johnston Murphy,
Calvin Klein
Low
Low High Affordability
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13. Financial Projections
Expect cash need of ~$350K to reach $10M in revenue and $4.2M EBIT by 2017. This
represents just 0.01% of a huge, growing, men’s luxury leather goods market
Rest of 2012 2013 2014 2015 2016 2017
Total SKUs 20 50 100 150 250 350
Total Units Sold 500 2,000 5,000 10,000 25,000 50,000
Average Price per Unit 200 200 200 200 200 200
Average GM/Unit 90 135 130 130 130 130
*Note gross margin bump as we shift production to Colombia in 2013
Total Revenue 100,000 400,000 1,000,000 2,000,000 5,000,000 10,000,000
Total Contribution 45,000 270,000 650,000 1,300,000 3,250,000 6,500,000
Personnel 38,000 250,000 620,000 680,000 960,000 1,030,000
Customer Acquisition 12,500 46,000 112,000 224,000 535,000 1,070,000
Product Development 5,000 30,000 50,000 50,000 100,000 100,000
PR 3,000 32,000 35,000 40,000 40,000 40,000
Media / Copy 3,500 5,000 7,000 9,000 9,000 9,000
Facilities - - 60,000 60,000 60,000 60,000
EBIT (17,000) (93,000) (234,000) 237,000 1,546,000 4,191,000
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*See appendix for more detailed breakout of costs

14. Current Status
Current Status
• Product Line: Initial line developed (12 SKUs). Doubling SKU count over next 2 months
• Website: Beta is live. Re-design and significant improvements planned in next 2 months
• Press: Coverage from Urban Daddy. Sale planned with Gilt. Interest from GQ, others…
• Financial: $5,000 in sales in first month (with mediocre site, very limited selection)
Vision for Future
1. Quickly establish leadership position among e-commerce leather goods brands
3. Expand into other related product categories to become first stop for men’s
leathers goods and accessories
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15. The Ask
1. Vote in the Business Plan Contest
• We’re serious about this. Demonstrated progress. Well positioned to
become leading e-commerce men’s accessories brand.
2. Contacts: We would appreciate introductions to…
• Angel investors: Plan to raise $200K in next few months. Cash will be
used for new product development, full time tech lead,
merchant/designer, PR agency. Candidates currently being vetted.
• People who have scaled e-commerce companies!
3. Feedback?
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16. Appendix
SG&A and Product Development Cost Details
Rest of 2012 2013 2014 2015 2016 2017
Headcount (full time) 2 5 10 12 15 15
Founder(s) 30,000 60,000 120,000 120,000 160,000 160,000
Technical Lead 8,000 70,000 140,000 140,000 210,000 280,000
Add full time sales / marketing / social media - 60,000 60,000 120,000 120,000 120,000
Add full time designer / merchant - 60,000 120,000 120,000 180,000 180,000
Utility players - - 70,000 70,000 70,000 70,000
Customer Service - - 60,000 60,000 120,000 120,000
Logistics / Packaging / Shipping - - 50,000 50,000 100,000 100,000
Office / Warehouse
Rent - - 50,000 50,000 50,000 50,000
Utilities + Supplies 10,000 10,000 10,000 10,000
*Shared space with Pan Am Leathers until 2014
PR Management
Hire PR agency 0 20,000 20,000 20,000 20,000 20,000
Press Kit / Gifts / Samples 2,000 10,000 10,000 10,000 10,000 10,000
Events 1,000 2,000 5,000 10,000 10,000 10,000
Media / Copy
Video 2,000 3,000 4,000 5,000 5,000 5,000
Photography 1,500 2,000 3,000 4,000 4,000 4,000
Customer Acquisition
Sponsored search + Facebook Ads 2,000 5,000 10,000 20,000 30,000 60,000
Commission to Sales Partners 10,000 40,000 100,000 200,000 500,000 1,000,000
Print marketing materials 500 1000 2000 4000 5000 10000
New Product Development
Product Development Costs 5000 30,000 50,000 50,000 100,000 100,000
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