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Table of Contents
Introduction: U.S. Wool..............................................................................................................................3
Company Overview ............................................................................................................................5
Availability of Resources ..................................................................................................................6
Current Financial Analysis.........................................................................................................................6
SWOT Analysis.............................................................................................................................................8
Market Information...........................................................................................................................9
Geographic.............................................................................................................................................9
Industry Research.............................................................................................................................10
Market size/ Market Share/ Analysis of Competitors...........................................................10
Distribution Channel/ Logistics.....................................................................................................11
Geographic Concentration..............................................................................................................12
Price........................................................................................................................................................12
Product ..................................................................................................................................................13
Promotion.............................................................................................................................................13
Conclusion............................................................................................................................................14
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Introduction: U.S. Wool
U.S. wool production has been in decline since the end of World War
II. The wool industry peaked in 1945 with 56 million sheep. By 2003 the
number of sheep had declined to less than 7 million sheep. In addition the
U.S. wool production was 55.1 million clean pounds in 1975 and reduced to
less than 22 million clean pounds by 2002.
Because of this decline raw wool imports have consistently surpassed
domestic U.S. wool production since 1975. Wool imports have continued to
decline alongside the domestic decline. Most mills have moved overseas
where it is cheaper to produce, but those that have stayed rely on both
domestic and imported wool to operate year round.1
However, there is some resurgence in recent years being attempted by
small mills and ranches that continue to pop up. Also the ASA and other
American sheep associations continue to fight to keep U.S. sheep and wool
production alive. The U.S. military buys 20%-25% of all U.S. wool. Exporting
U.S. wool accounts for 60%-70% of domestic wool production.2
1
Source: USDA Tends in the U.S. Sheep Industry, January 2004
2
Source: USDA American Sheep Industry Association, 2014
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What products is wool used in anyhow?
U.S. wool traditionally isn’t used in highend apparel as it tends to be of
courser wool. However, as of 2014 the U.S. ranks 11th in the manufacturing
of wool. Australia, New Zealand, and China are the top still the top 3 with
most wool apparel manufactured with fine merino wool.
Reviewing my product decision the data shown here is of what countries
U.S. Wool is exported to:
The U.S. exported 9 million pounds of clean wool in 2011. China
bought more than 70%, then India with 25%, the remaining
countries consist of: Italy, Canada, and Germany. 3
3
Source: http://www.agmrc.org/commodities__products/livestock/lamb/wool-profile/
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The top export trading countries for U.S. exports are (with the importers of
U.S. wool highlighted):
EXPORT DESTINATION VALUE OF EXPORTS PERCENTAGE SHARE
Canada $292.5 billion 18.9
Mexico $215.9 billion 13.9
China $110.4 billion 0.07
Japan $69.9 billion 0.04
United Kingdom $54.8 billion 0.03
Germany $48.7 billion 0.03
Brazil $43.8 billion 0.02
South Korea $42.2 billion 0.02
Netherlands $40.6 billion 0.02
Hong Kong $37.4 billion 4 0.02
Company Overview
Choose Wool is a small mill that processes raw U.S. Wool for sale to
wholesalers and retailers. We strive to keep our wool as eco-friendly as
possible, never using harsh chemicals in our wool processing. In addition we
seek to grow the US wool market both internationally as well as
domestically.
Our goal for exporting is to increase our sales and market presence by
a modest 10%. We have contracted an additional four employees dedicated
to this goal. Their skills include international business, exporting, and
knowledge of the German language. As our company is focusing on the
German market, we have already looked a partnership with Südwolle Group
who makes yarn. Our main focus for the 2014-2015 year is Merino wool
since it is more popular than the medium or course blends at this time.
Our two products are:
a.) rovings – typically 2 to 3 inches thick
b.) batts – typically 1-2 inches thick and up to 120 inches wide
Both need Certificate of Origin, which identifies the wool as U.S. wool.5
4
Source: International Trade Administration, based on 2012 U.S. Census Bureau data.
5
Source: http://www.paradisefibers.com/blog/category/wool-and-roving-info/
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They can have the European “Eco-label” as wool is a natural sustainable
material and is biodegradable.
Most Merino wool is from New Zealand, Australia, or Argentina. Our
company strives to refocuses the wool production as being 100% born,
grown and made in the U.S.A. and to market it around the world.
Our company believes that our U.S. wool in its raw form is very
marketable both domestically and internationally. This is our only product;
it can be exported as wadding or wool depending on the marketing. Our
partners using our wool as the base for their product, produce a variety of
other products.
Availability of Resources
Currently we are producing at half capacity, which is 66 Tons per week or
132,000 Lbs. Our maximum production is 132 Tons per week or 264,000
Lbs. We only operate 5 months out of the year: March-July
Current Financial Analysis
The following is monthly expenses and income for operating a small
mill processing 132,000 pounds of fiber a week or 528,000 per month.
These prices may vary depending on supply and demand.
Typical Monthly Expenses Amount
Insurance: Workman's comp $450
Insurance: Machines, buildings, and customers' fiber while in
your possession
$400
Soap and processing oil $35,200
Electricity $22,000
Propane: Heating wash water and building heat $44,000
Trash pickup $5,720
Phone $120
Fax & Internet service $135
Website (updated and maintained by marketing employees) $10
Office supplies $100
Advertising $1,000
Shipping $2,262,051.12
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Each bale weighs between 243 lb and 450 lb. We produce
between 543 - 293 bales per week.
Using FedEx 3Day Freight as an example it could cost
anywhere from $1,041.46 for 243 lb to $1,807.30 for 450 lb to
ship our wool from our mill (production facility) in San Angelo,
TX to Südwolle Group’s distribution center in Mount Airy, N.C.
$565,512.78 to $529,538.90 per week to ship all 132,000 Lbs
of wool produced.
to
$2,118,155.60
Misc $200
Temp Payroll: Bookkeeper $20, Accountant $38, 5 in
Production & Operations $10, 3 in Maintenance $15, 2 in
Security $10.
Working 5 months of the year 800 hours, plus $2 per hour
taxes paid by employer.
$25,600
Contract International Team: Marketing, Management
Working 12 months for 1 year, 40 hours per week at $50 per
hour plus $2 per hour taxes paid by employer.
$16,320
Payroll: 2 permanent employees (mill manager and sales
coordinator) working 40 hours per week at $50 per hour plus
$2 per hour taxes paid by employer.
$16,320
Payroll: 1 part-time secretary $18 per hour working 20 hours
per week.
$720
Loan payment if needed: Start up loan of $500,000 at 5%
interest for 15 years
$1,667
Total monthly average operating cost
$169,862 (not including Shipping)
$2,431,913.12
to
$2,288,017.60
Typical Monthly Income Options Amount
$10 per Lb = $1,320,000 per week on the Domestic Market $5,280,000
$5 per Lb = $660,000 per week on the International Market. $2,640,000
$7.5 per Lb = $990,000 per week Averaged together $3,960,000
528,000 pounds raw fiber processed as roving or batts
1000 pounds of fiber processed into yarn will yield about 600
pounds of yarn on an average, at $25 average per pound
finished weight
Partner
Company
Profit
Average income minus average expenses = $2,991,982.40 for Domestic,
$351,982.40 for International, $1,671,982.40 for Average monthly profit
Keep in mind this does not take state or federal taxes into account, or property
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tax or building maintenance.
We have contracted a international team to help us understand and
grow our export market. In addition the freight forwarding company we
have our exports contract with is familiar with German importing/exporting
laws, forms, and taxes/duties/tariffs as well as U.S. rules, fees, and
regulations. We typically do FAS or FOB to save money and knowledge
expense. We plan on building from their knowledge and learning more about
exporting so we have to depend less on the freight forwarder’s knowledge
and can build more partnerships with international companies using U.S.
wool.
SWOT Analysis
Strengths
Eco-friendly & Non-chemical
Fine-wool versus medium or
courser grades
We sell U.S. clean wool versus
U.S. greasy
Our company is located close to
the source
Weakness
U.S. is ranked low in sheep wool
production – limited supply
Our company is small
We only operate 5 months out
of the year
Opportunities
We can expand to other fibers
such as: Cashmere and other
grades of wool
We can expand our partnerships
with other companies
Other fibers may increase
production operations past 5
months of the year
Threats
Australia dominates the Merino
Wool market
Limited export knowledge
Demand change
We believe that our company will succeed in the export market.
Europe is very environmentally conscious. Our product is all natural and
free of chemicals. We also shift our production output each season (year)
to match the market demand.
We’ve based our productions in Texas, the largest wool producing
state; we also are looking into buying wool from other states. To lengthen
the production months of operation we may look into other fibers such as
cashmere goats.
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Market Information
U.S. Clean Wool Prices 2013 were $3.54 per pound or $1.61 per Kg.
U.S. Greasy Wool Prices 2013 were $1.45 per pound or $0.66 per Kg. The
local wool prices in Germany were not available.
However, if wool batting is being sold on Amazon.co.uk for 14.99 British
pounds ($23.56) per meter (yard) that means we should be able to charge
between $5-$7.5.
We aim to sell our wool at a minimum of $5 per Lb. Based on the
previous paragraph’s calculations we’re on target and could possibly gain
more profits.
It seems most of the German market is covered by Australian
Merino wool. Which makes it tight for any other competitors.
I would have an easier time in the Chinese or Indian markets as the
American Sheep Industry Association (ASA) has done a lot of work
promoting U.S. wool in those countries and they’re the to importers of
U.S. wool.
There are a few international companies operating in Germany that use U.S.
wool.
German-based Südwolle Group, a pure wool and wool-blend worsted
spun yarn manufacturer opened up a U.S. distribution center in July
2014.
The Rockwool Group has sales offices and factories in Germany. With 2
factories and 1 sales office in the U.S.
Smartwool knits 90% of its socks in the U.S. using Merino wool. It has
locations in Germany.
Geographic
For NAFTA (U.S., Mexico, and Canada) the yarn forward rule applies, it
must be created in a NAFTA country, however the wool doesn’t have to
come from sheep in a NAFTA country, only the yarn.
The EU wants an Economic Operator Registration and Identification
(EORI) number for customs clearances, Certificates of Origin or Binding
Origin Information (BOI). Labels must clearly identify the fiber content, care
labeling, size labeling. Most of this is for appeal.
Our product falls under the European Eco-labeling rules and can be
labeled as such. We can sell our U.S. raw clean wool as wadding to the EU
and just need Certificates of Origin or BOI.
The demographics don’t play too much of a role in my product.
Germany is an industrialized nation and the wealthiest of the EU nations.
Germany has an 82.6 million population making it the 15th most populous
country. It has a low birth rate like most EU countries and that poses a
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future problem. Then 10 largest cities are Berlin with 3,439,100 as of 2012,
Hamburg, Munich, Cologne, Frankfurt, Stuttgart, Dusseldorf, Dortmund,
Essen, and Bremen with 547,685.
Industry Research
The top 3 supplies of Wool to the European Union are:
China
Australia
New Zealand
The top 3 suppliers of Wadding to the European Union are:
China
USA
Turkey6
There are no quota(s) on U.S. wool or textiles made in the United
States being exported to the EU, but China gets the same treatment. This is
why China is the number one competitor.
Duty rates on textile and apparel products made in the United States
are subject to the EU’s Most Favored Nation rate (MFN). The overall average
MFN tariff rate for textile and apparel products is 9%.
Market size/ Market Share/ Analysis of Competitors
Since wool is an international commodity I’m competing against other
country’s influences in the global wool market.
Country Name Domestic Producer/
Exporter
Products Produced
European Union Domestic Producer All blends of wool
China Exporter Medium-Course Blends
Australia & New Zealand Exporter Fine Blends
Our major competitive advantages are that our wool is:
clean, not greasy
our wool is Eco-Friendly, no harsh chemicals
and our wool is priced to beat our competitors
6
Source: circabc.europa.eu, Trade Yearly Report 2014 Product 1st
Level Groups
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Distribution Channel/ Logistics
Our company would want to use the direct channels strategy, through
the use of German wholesale and retail companies that are sourcing from
the U.S.
The freight forwarding company we have our exports contract with is
familiar with German importing and exporting laws, forms, taxes, duties
and tariffs, as well as U.S. rules, fees, and regulations. We typically use
Free Alongside Ship (FAS) or Free on Board (FOB) to save money and
knowledge expense.
While cash in advance would be the least risk to our company, we
understand that not all buyers have enough cash flow reserves to be able to
do business in this manner. Therefore, the documentary collection method,
which involves our bank and the buyer’s bank would be the best method to
insure payment.
Our company will require the buyer to pay 25% when the order is
placed, 35% prior to shipping and the remaining balance (40%) upon
delivery.
Our company will pay shipping anywhere domestically. When exporting
our company will pay to get the wool to the ship if using FAS. If using FOB
then our company will incur the extra cost of the domestic port terminal and
the loading of the wool onto the ship. The buyer must arrange and pay for
the ship and all costs once the wool reaches their country.
We will store our wool at our production facility until we find buyers.
We have a machine that does all the processes that transform wool from
greasy to clean. We also have several carding machines to get the wool into
weaving or yarn ready form.
Our wool press transforms the rovings or batts into wool bales for
shipping and wholesaling to international markets. We must use regulation
standard white nylon packs for each of our wool bales. Each bale contains 50
wool packs. Each bale weighs between 110kg (243 lb) and 204 kg (450 lb).
Using FedEx 3Day Freight as an example it could cost anywhere from
$1,041.46 for 243 lb to $1,807.30 for 450 lb to ship our wool from our mill
(production facility) in San Angelo, TX to Südwolle Group’s distribution
center in Mount Airy, N.C.
The importer takes full responsibility once the wool is along side the
ship for FAS, or when using FOB they take responsibility once the wool is on
the ship.
The transport company takes responsibility if the wool is damaged
before it gets to the ship. After that it is whatever agreement the importer
(buyer) has with their transport carrier(s).
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Our company must be a registered exporter and licensed. We will only
do business with registered importers that are also licensed when it comes
to international sales.
Geographic Concentration
Wool manufacturers are found all over Germany and there is no single
important center. Major manufacturing cities are: Blumenthal, Hamburg,
Leipzig, Dohren, Mylau, Plauen, Muhlhausen, Gera, Aachen, Breslau, and
Forst. Germany is the third greatest producer of woolen goods in the world.7
Price
We use the costs of production (Direct) method. This includes:
Cost of buying the wool from the rancher + cleaning process (operating cost) +
shipping + profit = price
We pay market price ($1.45 Lb x 110 Lbs = $159.50) + FedEx Ground 3 days (From
San Angelo, TX to Mount Aire, N.C. = $97.30) + $843.20 to be split between
operating costs and profit for domestic ($1,686.40 for international) = $1,100 (or
$10 per Lb) for domestic or $2,200 (or $20 per lb) for international.
Our discount policy is as follows:
The more a customer buys the more they save on shipping.
Pre-paying in full saves international buyers 20% ($440)
Picking up at the mill saves 25% ($275)
The low price strategy forces us to use a variety of marketing
techniques to meet required sales volumes. These techniques are:
Promotional marketing, word of mouth recommendations by our current
customers due to our good reputation, offering a quality product that is eco-
friendly and expanding company partnerships.
7
Source: http://www.oldandsold.com/articles04/textiles14.shtml
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Product
Packaging may need to be stricter to ensure non-spoilage over longer
travel times. More processing options may need to be provided such as wool
dying and more size options for our carding process beyond rovings and
batts.
We’ve assessed the packaging to some extent. We’re still researching
the best method(s) and requirements to ensure all labeling is in place and
the product is allowed to breathe so it doesn’t mold or spoil.
Promotion
Our company intends to enter the market using German wholesale and
retail companies that are sourcing from the U.S.
Our temporary international team: Marking & Sales representative and
our Manager that we hired for international sales (exports) are in the
process of forming a marketing strategy.
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Conclusion
Based on this export business plan Choose Wool feels that going from
the domestic market to the international market through exporting is
feasible. However, we need to look at markets like Canada that may be
easier to get into and cheaper than the German market.
Also, while we can absorb the cost of shipping to the customer’s
domestic site or port of exit for exporting overseas it’ll be more profitable if
we can split the cost with our customers.
While this export business plan answers most of our questions, we still
have work to do with our temporary international team and our freight
forwarder to really be ready to export. More company partnerships will really
be the key to spreading U.S. Merino wool all over the world.
