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THE PENNSYLVANIA STATE UNIVERSITY SCHREYER HONORS COLLEGE DEPARTMENT OF FINANCE FEASIBILITY ASSESSMENT FOR A MALE COSMETICS COMPANY XYDEMOR POPA SPRING 2017 A thesis submitted in partial fulfillment of the requirements for a baccalaureate degree in Finance with honors in Finance Reviewed and approved* by the following: Brian Davis Clinical Associate Professor of Finance Thesis Supervisor and Honors Adviser Orie Barron Professor of Accounting, Director of Smeal College Schreyer Honors Program Faculty Reader * Signatures are on file in the Schreyer Honors College. i ABSTRACT FEASIBILITY ASSESSMENT FOR A MALE COSMETICS COMPANY The cosmetic industry, dominated almost exclusively by women, may be positioning itself for a massive transformation in customer demographics, expanding the profitability function to include a new variable: selling cosmetic products to men. This thesis examines the feasibility of creating a male cosmetic company. The objective of this report is to investigate solutions to the questions, “Could there truly be a market for male cosmetics, and if so, how do you promote cosmetic adoption across genders?” Beginning with a literature review examining the history of cosmetics through time, the changing social dynamics and drivers supporting the cosmetic industry’s expansion, and the existence of male cosmetic trends internationally, the groundwork is laid in support of validating the author’s predictions on shifting market trends. What follows is a feasibility assessment, presented in the format of a business plan, dissecting various cosmetic industries, potential markets, customer analyses, sales strategies, and financial planning. Included within the financial planning segment are a startup cost projection, a three- year profit and loss pro forma, a Net Present Value (NPV) calculation, and a break-even analysis. In conclusion, a discussion of the concept’s feasibility and scale of impact is considered. Keywords: Entrepreneurship, Startup, Finance, Cosmetic, Business Plan, Feasibility Assessment. ii TABLE OF CONTENTS LIST OF FIGURES ..................................................................................................... iii LIST OF TABLES ....................................................................................................... iv ACKNOWLEDGEMENTS ......................................................................................... v Chapter 1 Background ................................................................................................. 1 Chapter 2 Literature Review ........................................................................................ 4 Chapter 3 Executive Summary .................................................................................... 9 Chapter 4 Business Description ................................................................................... 15 Business Concept .................................................................................................. 15 Product Description .............................................................................................. 15 Chapter 5 Industry Analysis......................................................................................... 18 Global Cosmetics Manufacturing ......................................................................... 18 Cosmetic and Beauty Products Manufacturing in the US .................................... 20 Online Perfume and Cosmetic Sales in the US .................................................... 25 Chapter 6 Market and Customer Analysis ................................................................... 31 Market Analysis .................................................................................................... 31 Customer Analysis ................................................................................................ 41 Chapter 7 Go-To-Market Strategy .............................................................................. 43 Phase 1 – Beta ....................................................................................................... 44 Phase 2 – Growth .................................................................................................. 47 Phase 3 - Maturity ................................................................................................. 50 Chapter 8 Conclusion .................................................................................................. 51 Financial Plan ....................................................................................................... 51 Startup Costs .................................................................................................. 51 Profit & Loss Pro Forma ............................................................................... 53 Net Present Value (NPV) .............................................................................. 55 Break-Even Analysis ..................................................................................... 56 Concluding Remarks ............................................................................................ 59 Bibliography ................................................................................................................ 60 Appendix ...................................................................................................................... 63 iii LIST OF FIGURES Figure 1: Market Sizing Diagram ................................................................................ 32 Figure 2: Break-Even Analysis .................................................................................... 56 iv LIST OF TABLES Table 1: Startup Funding and Costs ............................................................................. 51 Table 2: Three Year Profit and Loss Pro Forma .......................................................... 53 Table 3: Net Present Value (NPV) Analysis................................................................ 55 v ACKNOWLEDGEMENTS I would not be a member of the Schreyer Honors College, if it were not for the encouragement of Michael Krajsa during my sophomore year at Penn State Lehigh Valley – an instructor of marketing and management, a faculty liaison, an influential advisor, and friend. I am grateful for Brian Davis’s uplifting support during hectic times and for his patience in working with me to develop this thesis as my Honors Adviser and Thesis Supervisor – the product of countless iterations and unpredictable winding turns. I am thankful for experiencing Orie Barron’s philosophy of life as a journey, as it resonated with me and reinforced my desire to pursue ideas much bigger than myself, while reminding me to focus on the process as much as the outcome. And thank you for your time spent reading my thesis. For instilling the best virtues in me, for helping shape the man I am today, and for your unwavering, unconditional support, thank you mother. For opening up my eyes to the joy of companionship, for showing me what it means to love, and for staying by my side through all life throws our way, thank you Brianna Ruggiero. 1 Chapter 1 Background Since the dawn of humanity, cultures have applied various forms of cosmetics for, among other things, religious ritual, aesthetic enhancement, and to signify status or class. In our nation, the application of cosmetics –makeup specifically – has been associated with the female gender as a strive toward idealized perfection, or the beautification of the female aesthetic. This pursuit is largely motivated by society’s obsession with body image, as well as the media’s persistent cultural hyper-sexualization. There is much to be said concerning our nation’s silent expectation that women apply cosmetics, as the very act of doing so has become synonymous with femininity itself; however, instead of addressing this observation, peering further, there appears to be an unrealized opportunity lingering silently amidst the conflict of gender expectations. Men have been left out of the conversation, as if they themselves could not benefit from products that enhance their appearances; cosmetic solutions for men which complement their own features appear to be nonexistent within the United States. In countries beyond our own, such as South Korea, Australia, and parts of Europe, cosmetics for men – including makeup – are not some secretive niche, but an emerging and booming market opportunity. This trend sometimes disguises itself in more subtle and masculine undertones, such as corrective cosmetics, a description of a technique using makeup to create the illusion of superior facial balance and proportion, or cosmetic camouflage, applying makeup to conceal skin or pigment irregularities on the face or body. Whatever the term, in international markets we find men wearing makeup, and more surprisingly, a growing trend of social acceptance to the fact. I believe the United States is next in line for the adoption of this trend. 2 On November 22, 2016, during Thanksgiving vacation, my significant other noticed an advertisement on television featuring what appeared to be a male model representing a popular, female oriented cosmetic company; however, this was no ordinary male and this was no ordinary cosmetic brand. The company was CoverGirl, and this man was CoverGirl’s first CoverBoy, a 17-year-old high school teenager from New York. During the remainder of Thanksgiving vacation, I experienced what felt like a barrage of cosmetic brainwashing, with commercial after commercial depicting