How to Start / Open A Handbag Rental Business in Kenya

Handbag Rental Service Business Plan (Kenya)

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This quick feasibility study is based on the question “ Do you think its viable to start a business of hiring out handbags to women ?” as asked by a Crack A Business Kenya customer.

This short study seeks to explore the viability of such a business and possible operating model if it were to be implemented.

The idea is not 100% original since there are several of these kind of businesses in Europe, Asia and the USA enjoying different levels of success. Still like with any other business local conditions and attitudes determine the success or failure of a business.

In Kenya too there are a few shops renting out jewelry and some few other fashion items. But this is done on a low level and none of them offers specialized handbag rental services.

The Concept

At the very basic the business idea is largely based on the rise of many aspirational female consumers in Nairobi. These kinds of consumers want the best in everything despite their income limitations. When it comes to fashion items they also want more than they can afford or are willing to spend .

To them fashion items like clothes , shoes and handbags are a lifestyle habit driven more by social pressure, a craving to stand out and fit in. This is as opposed to practical necessity say to carry items in the case of handbags, or just be ‘part of the crowd.’

A woman in this group will wish to have a handbag for every occasion , clothes, day of the week , weather or even holiday . The biggest hindrance to achieving this is income which limits the amount she can spend on fashion goods.

Now what if there was a facility to bridge the income and aspirations of this group of female consumers by leasing out fashion items, particularly handbags so they can stand out during social events or simply satisfy their egos? Would it be a viable business?

What The Women Say - Raw Findings

We surveyed 163 representative women of between 25 and 45 years in various parts of Nairobi to understand their handbag shopping habits . These women fall in the classical KNBS definition of middle class earning between Kshs.23, 670 and Kshs. 199,999. Of course there is a discussion on the definition of middle class, but this group as defined above fits the potential consumer.

They are either on permanent salaried jobs or business. Many have taken one form of a loan or another in addition to having a 'side hustles' to boost their income.

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Here are some of the findings :

A handbag, to a majority of the women, is first and foremost a

fashion

 

accessory as opposed to a tool to carry items That explains the fact the

 

necessities that a woman carries in a large handbag could fit in another 3 times

 

smaller ( See below for common items women carry in their handbags ) . That

 

said there was a tendency to carry larger handbags on Fridays and during

 

weekends.

 

When asked what attracted them to a handbag before making a

purchase 42% of

the women surveyed said design, 31% price, while 21% size and necessity, while the rest could not pin point any particular trigger. When it came to the actual purchase it was a balance between design and price.

56 % of the women said they purchased their handbags on impulse . They see a nice handbag advertised or displayed and there and then make a purchase decision.

16 % said they decided to purchase handbags after acquiring another fashion

 

item say shoes or clothes. In a way the handbag would be a fit with their new

 

fashion.

25 % said they plan to buy a handbag say every month though this did not

 

always happen either because they are short of cash or couldn’t find a design they

 

are attracted to. Even with this kind of planning,

and with extra with money in

 

the pocket the women were unlikely to resist the temptation to purchase an

 

attractive unique handbag even if they have reached the monthly limit they have

 

set for themselves .

 

When with extra cash to acquire a fashion item

42 % of the women said they

 

would purchase shoes , 37 % handbags , 38 % clothes , 8 % underwear.

On average a middle class working woman owns 11 handbags . However out

 

of the 11, five are favorites which she values more than the rest.

The average amount spent on a handbag by this group is Kshs. 3000.Lower spending levels for decent bags is Kshs. 1000 , while higher levels quoted was Kshs.7,500.

78% of the women said there are handbags they would wish to have but couldn’t acquire them because they didn’t have money at the time, the bags were sold before they could purchase , the bags were expensive or were not available

locally. 56% of the women said when purchasing they didn’t care so much about the brand of the bag as long as it was pleasing, unique and served their purpose. 32 % said they cared about the brand. However still 21% of this group said they

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could not tell a cleverly imitated Louis Vuitton handbag from an original. The only way to know was if they trusted the supplier.

∙ 41% of the surveyed women said they had at one point in their lives purchased handbags on credit or paid in installments.

As income of a woman increases she focuses more on the look and less on price. Same with age. Women above 27 years are ready to make bigger sacrifices to get the perfect look. This does not mean they will not chase a bargain rather when purchasing they will give more weight to the aesthetic compared to the price.

To determine whether

the price of a handbag is fair or not , the women

 

considered

aesthetic of the bag, alternatives in the market, uniqueness, second

 

hand or original, size,

time of the month and year.

And would

this group of women be willing to hire a handbag?

67 % said No, 26 % said Yes, while 7 % said they were not sure.

The major reason given by those who said no is that bags are personal , and they would lack a sense of attachment to the bag if they don't totally own it. They would also be extra conscious when using the handbag. For instance they would worry too much if the bag gets dirty or is scratched. Others felt hiring a handbag would dent their egos.

That said its important to note for some women pride would make them hesitate to admit they can hire handbags.

For those who said Yes the major reason given is the need to stand out feel good, fit in, feel confident,live their dreams, break monotony, solve a bad fashion day.

The major consideration for the group willing go hire is exclusivity . They would want to hire handbags not commonly found with other women. Variety and fashion trends are also key considerations.

So is a Handbag Hiring Business Viable?

Yes, it is a viable business but operation. Potential customers

as a niche small service complimenting a handbag selling can be classified into:

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a)Aspirational Consumers

b)‘Quick Fix’ Customers

Aspirational Customers

There is a threshold of female aspirational consumers who are seeking to experience luxury and a variety of life's goodies even without ownership. These women value their appearance, follow international fashion trends and want to be the best in all events. Some are socially anxious and care too much of what friends, colleagues and family think about them.

They could have disposable income to shop but not enough to

spend on luxury goods

for instance original designer handbags. Also in this category

are a group of upcoming

socialite and style conscious working women responding to social pressure.

‘Quick Fix’ Customers

These are looking for a temporary fashion fix. For instance, a handbag to match their clothes when attending a wedding, to carry the necessities when going out or travelling. They wouldn’t have much emotion invested when hiring a handbag as compared to the aspirational consumers.

Aspirational women would make better customers for this kind of business. They have stronger motive to hire a handbag than the Quick Fix customers.

Nairobi with a high density of the target market than other areas in the county is the the best place to start this kind of business. Social pressure and aspirations are also more concentrated in Nairobi, not mention the more liberal fashion attitudes.

The business requires a long term outlook say 1 year plus. The reason, among others, is to beat cultural attitudes towards renting what some say are really personal items.First mover advantages would increase the chances of the service becoming successful .

The service can either focus on exclusive high end designer handbags or average priced mass market handbags. The advantage of the former is their longetivity. Designer

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handbags unlike trendy handbags stick in the market for long without losing their appeal. The best strategy would be to have some of both as long as there is a sense of exclusivity in the products.

Handbag Market In Nairobi

Presently in Nairobi and in Kenya generally the handbag market is growing rapidly. There are now many independent handbag sellers. Some import from Uganda, China, Dubai, Turkey and Thailand, while others buy second hand from Gikomba. For those who can't import directly they purchase from the many wholesalers in places like Eastleigh and Kamukunji. With minimum wholesale quantities of as few as 5 bags, the barriers to entry in the business are low. Thus there are more entrepreneurs getting into the business even with capital as low as Kshs. 5,000.

The intense competition in the business means that in order to sell the entrepreneurs are opening more lines of credit and installment payment. Although the main competitive edge is uniqueness, some of the handbag sellers are slicing their margins in order to sell at lower prices. This has resulted in more affordable prices for average but quality non branded handbags. These are handbags priced at between Kshs.1,500 and Kshs.3,500.

The prices have afforded many middle class women at least 6 'classy' handbags both new and second hand. Word on the street is that second hand bags from Europe are more unique in design as compared to handbags imported from locations like China.

Imported handbags from the East are never totally exclusive. Largely because they are produced and imported in mass. So within a short time there are many people carrying the same kind of bag.

The relatively affordable prices and the lack of exclusivity is what would make the hiring out of average common handbags a bit of a challenge. Still a rental service for suck kind of bags could come in handy for those seeking quick fashion fixes, and more practical uses of the handbags especially if the hiring out prices are fixed at low rates. these kind of bags

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Critical Success Factors

The critical success factors in the business are exclusivity, variety, confidentiality and marketing. The service could be offered to compliment a handbags sales business.

Exclusivity in terms of top brands which would make the customer stand out or feel pretty good with herself

Variety will give the customer a wide range to chose from depending on her needs and taste.

Confidentiality - Few women want others to know that they hire handbags or other fashion items for that matter. Hence maintaining high levels of confidentiality is crucial for the success of the business.

Risk

All said and done there will always exist the potential risk of the business failing if luxury handbags and really good imitations become available in the market at lower prices. Also if the density of the target market reduces for instance due to political and economic shifts then the business would no longer be viable.

The Business Model

At a very basic level the business would work as follows:

Contact - A potential contacts a handbag sales and rental store. The store could be physical or virtual.

Selection - She selects the handbag of her choice from the variety available .

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Payment - Then she pays a deposit and rental fee equivalent to the number of days she wants to be with the handbag.

Consumption - She takes the bag and returns at the end of the rental period.

Deposit Refund - On return the bag the deposit is refunded

Cleaning - Depending on the condition of the handbag it can be cleaned before being put on the market once more.

The customer can also purchase the handbag either by forfeiting the deposit, or topping up the deposit.

Income for the business would come from the fees charged to rent the handbag rent and and sales of the bags.

Major Expenses

Packaging when necessary

Courier services where applicable . The cost can be passed to the customer.

Website hosting and maintenance

Advertising and other marketing activities

Cleaning Fees where applicable

Wear and Tear

Rent - if operating formally from a permanent space as say opposed to running urge service from home, office or virtually.

Issues To Think About

Price - How much to rent out a bag.

Deposit - How much to ask as deposit

Maintenance - How to maintain the handbag and what to do incase the customer damages the handbag. For instance, with stains or tear.

Fakes - Will the customers trust you are selling original branded handbags as opposed to fakes? On the other hand what if a crafty customer exchanges an original designer handbag with a fake?

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∙ Inventory - An inventory big enough to have a wide variety even when other customers have ordered. There is a big challenge of deciding what or not what to stock . This will need having an ear to the ground, understanding customers and be able to predict their needs.

30 high end bags could be enough to start an exclusive service. With time you can increase the inventory as need be. We assume the average rental period will be 3 days, with an initial utilization of 15 % of the handbags in the first 6 months.

Price

A number of pricing models can be used. Basically the price can be determined by the value of the bag, age, demand or even how unique it is. One way is to to determine the rental price is set as a percentage of the handbag’s value . Higher value handbags could be rented at a lower percentage in order to encourage customers to pick them.

From our research potential customers are willing to pay between Kshs.100 and Kshs.1000 to rent a handbag. This would be determined by the quality of the bag, the occasion or what they perceive is the value of a bag.

When pricing its important to think of how long it will take to get a return on the cost of the bag. Some bags could get out of fashion faster while others may age quicker. The demand for particular bags could also be higher than the rest.

Pricing could be on a daily, weekly or monthly basis. The more flexibility there is in the pricing the better. No need to tie a customer with a handbag for a week when she only needs it for a weekend. Customers can be encouraged to hire for long periods by giving discounts.

To give an example

Keeping everything constant a bag which cost Kshs. 5000 and you charge Kshs. 400 to rent ( 8% of value) means you will need to hire it out 13 times for you to get a return on investment. This is an ideal case assuming the bag remains in good shape, does not lose appeal to consumers, or there is a customer demanding it everyday. In an ideal situation it means 13 days would be enough to get your return. But that is a very ideal situation. Until the point you get a critical mass of consumers you might need to work with lower figures.

Handbags whose appeal may not last long could attract higher rental prices so as to recoup costs before they are out of fashion. High end designer brands whose appeal tends to be long term could be priced lower since there will be more time to recoup the investment.

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Low rental prices for high value handbags might give an impression of fake. Thus its important to set a price equal to the value of the bag.

Deposit.

Ideally the deposit should be the value of the purchase price of the handbag plus a mark up. That would protect against any losses in case the customer disappears. However with trusted and credit worthy customers you can use a fixed monthly and rental fee. Giving credit for high value handbags without due diligence could lead to losses.

Website

The niche nature of the business and the fact that a large percentage of the target market are using the Internet makes a website a very crucial tool to market the business . Such a website, if ideal, should have the capability for the customer to easily view a variety of handbags, search by color , occasion, size or designer, book and pay deposit and rental fee, then specify delivery or a collection point. Quotes for such a website range from as little as Kshs. 20,000 to as much as Kshs. 200,000.

Still one can start such a service without a fully fledged website, if they have a physical location or are able to use the internet to win the trust of potential customers. There are small business people selling handbags through the internet , without a physical presence but meeting clients as need be.

Competition & The Market

Presently there is no business offering a fully fledged specialty handbag rental service. The closest there to this is the practice by handbag sellers to let consumers, mostly friends and colleagues, take handbags on depositing a small amount and paying the rest in installments. At times the installments add up to a higher price than if the customer had paid in cash.

The barriers to entry in the business are be low, especially for the averaged priced handbags. As noted there are many already selling such handbags and with a few

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logistics details they could include a rental service as part of their business. The competitive edge would come from a wide, tasty or exclusive variety.

Accessibility of the service could abe a point of competition. For example through a website, delivery and pick up points.

A major point of differentiation would be if one focuses on high end designer handbags. The capital barriers to this would be higher, and so the levels of trust customers need in order to purchase from you.

Marketing would also play a big part in the success of the business. Service additions, such as helping a customer chose a bag depending on the occasion could help attract customers.

An alternative to starting such a business investing in own handbags to rent out would be to act as a link,e,g through a website where people who are willing to rent out their handbags can display their products , and you get a commission from each rental. However this would require more logistical investment.

Hours of Operation

The nature of this business means that it will be an advantage if it operates all days of the weeks till late hours. This will be of help both to those who wish to rent or return hand bags.

Delivery

Whether operating virtually or from a cental place the ability to get the handbags to the customer within the agreed period is crucial. To the customers the handbags are timed to particular days and occasions, and when these pass there is no need to have it. Thus delays , late deliveries will be frowned upon

Though it will be good if you encourage the customers to order a day or two before , it will be a competitive advantage if you can deliver on short notice. Depending on location you can use courier services, a messenger or have a pick up point. The delivery costs should be kept as low as possible, if not they may eat into the profits.

Long Term Growth

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The target market is growing and with it increased demand for luxury goods. However with the success and wide awareness of such a venture there will be increased competition, shrinking revenue in the long term .

Marketing

Targeted marketing through the Internet would be effective. Facebook ads, search engine optimization and Google ads in the right websites. For a small initial budget Facebook ads would be effective. Guerilla marketing through Facebook groups, pages and Twitter can work too.

The novelty of the service in Kenya would generate some initial buzz which if taken advantage of can help capture a big section of the market.

Capital

The initial capital investment will go towards inventory, a website, marketing and logistics. The scale of the operation could vary. You could start with at least 20 handbags and increase quantities with time. You can start without a website and have one as business picks. Marketing could be minimal. However starting with a wider variety of handbags, a website and a marketing presence will increase the chances of success.

Inventory

Branded designer handbags could range in price from Kshs.10,000 all the way to Kshs.50,000. Bags selling for between Kshs.10,000 and Kshs.20,000 would work just fine.You can start with a variety of combinations based on your capital and exact target market. For example

a) 50 Designer handbags @ Kshs.10,000 - Kshs.50,0000 + 20 ‘normal’ bags @ Kshs.2,000

b) 50 bags @ Kshs.2500 - Kshs.75,000 + 30 Designer handbags @ Kshs.10,000 - Kshs.300,000

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c)Any other combination depending on the cash at hand. It’s a big advantage to start with a wide variety or to target the market more keenly.,

You can buy the handbags locally from shops selling designer items , individual handbag sellers, wholesalers, second hand dealers or import directly from Uganda, Dubai and other countries. If you can’t make to travel we can give suggestions of people who help source from Uganda and Dubai. If you wish to purchase designer bags at retail prices there are a number of shops at The Junction, Village Market, Westlands and the CBD. Average priced bags can also be bought from Eastleigh and Kamukunji.

Website

The cost of setting up a website depends on the designer with some charging rather low fees while others are on the high ended. The business will require a professional looking and easy to use interface. It should also have features to make the shopping fun. It’s best to shop around, look at the portfolio and ask for recommendations. Price should not be the only consideration. We can give some recommendations if need be.

The total capital for a basic service could range between Kshs.100,000 and Kshs.500,000. Of course there is no exact upper limit as this will be determined by the size of operation you wish to have.

Conclusion

There is some potential in a handbag rental business in Kenya. Presently there is no such fully fledged service in Kenya. The potential is more in exclusive unique handbags which are not commonly found in the market. This is a niche service and is best to run it to compliment a handbag selling business. Thus if the rental service doesn’t pick up one can concentrate on selling the handbags. The outlook is longterm. We estimate the breakeven point to be 13 months. Of course it could be lower depending on marketing and the reception of consumers.

Download Handbag Rental Service in Nairobi business Plan - Kenya PDF➥

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