You are a Financial Planning & Analysis (FP&A) Manager directly reporting to the CFO of a luxury clothing company called SimpleU. SimpleU had 320 retail stores all over the world and had annual sales of $400 million in 2020. In March 2022 it furloughed nearly 2,000 employees, including head office staff, due to losses stemming from the COVID-19 crisis and from changes in consumer behavior. There were other problems that resulted in the resignation of the original owner. Under a new acting CEO, many ideas to improve their financial performance were generated and a new proposal dubbed as "Ultra High Touch" (UHT) emerged as a top strategy. You are responsible to work with the CxOs in the company to analyze the costs and benefits of the UHT initiative and make recommendations.

The main idea behind UHT focuses on meeting the needs and desires of their luxury product customers and at the same time addressing issues related to changes in customer shopping patterns caused by COVID-19. Based on extensive marketing research (details in the full UHT proposal), it was determined that SimpleU customers prefer the convenience of on-line shopping but are longing for more intelligent services, comparable to those found in-store, where you can see, touch, and try on clothes. According to the CTO's investigation (details in the full UHT proposal), technologies such as live chat and auto-scanning of the body to address the "fit" issue were not effective. Therefore, UHT will utilize real sales representatives in their retail stores and develop new AI software to provide the "ultra" high touch experience. How will this work?

Their customers can browse SimpleU products online first or can request a direct consultation (via video conferencing software) with an appropriate sales representative (e.g. similar age, body type, etc. as the customer). A new AI software solution will do the matching of customers to virtual sales reps.

A CRM solution will take customer info (stored in their cookies and their existing accounts) and analyze their preferences and have suggestions ready for the virtual sales rep for the consultation with a client. The customers can ask the sales rep to try on various clothes for them to address the "fit" issues.

All the consultation videos can be recorded for the clients. All data will be collected and analyzed by SimpleU's new Big Data system to be used for further CRM strategy development.

The UHT proposal includes detailed analysis of the market trends, value proposition, competitive environment, technology innovations, and so on as well as a detailed year-to-year marketing plan. The cost and benefit assumptions in each of these analyses are captured and summarized below as the basis for your cost-benefit analysis.

In April 2020, Ted baker furloughed nearly 2,000 employees, including head office staff, due to the COVID-19 crisis.[ Note: all numbers and required calculations in this assignment are simplified to suit the purpose of this assignment. In your group project, you will need to provide detailed justification and calculations for any numbers you include in your cost-benefit analysis, based on your value proposition, marketing research/strategies and your competitive analysis. ]

Note: all numbers and required calculations in this assignment are simplified to suit the purpose of this assignment. In your group project, you will need to provide detailed justification and calculations for any numbers you include in your cost-benefit analysis, based on your value proposition, marketing research/strategies and your competitive analysis.

A. Cost Assumptions:

The UHT initiative will be rolled out in selected cities in the first year and then to all locations in subsequent years (assuming the first year succeeds). Investment is needed for: 1) prototyping the system, 2) AI and CRM software, the big data store, a secure website, video conferencing, and the UHT app, and 3) hiring and training virtual sales representatives (of different body types). The following are the cost assumptions (detailed justification and calculations for each number are provided in the full UHT proposal). All system development is planned to be outsourced.

Prototype: $1,400,000

Initial AI & CRM system development: $3,200,000 in the first year.

Initial website development with the video conferencing system: $550,000.

Initial UHT app development: $1,100,000 in the first year.

Initial eCommerce backend big data store, database system development including cloud hosting services: $850,000.

Operation cost including website/app/backend administration: $500,000 in the first year. Operation cost will increase to $1,000,000 for Year 2. After that the annual increase is predicted to be 10%.

SimpleU will finance the prototype and the first year system development and first year personnel cost through a bank loan. This is a 5 year loan, with an annual interest rate of 3.5% and monthly payments are scheduled to repay the loan principal and interest.

System development costs include:

Software maintenance upgrades for the AI, CRM, website, backend, and app. In the second year, this will be $2,000,000, and this is projected to increase by 30% per year over the previous year for Years 3, 4, and 5.

Additional personnel costs (for virtual sales reps): first year will be $1,000,000, the second year will be $2,000,000. After that the annual increases will be: 35% for year 3 over Year 2, 30% for year 4 over year 3, and 20% for Year 5 over Year 4.

Marketing costs for new branding of the UHT initiative: these are estimated to be $4,500,000 for the first year. After that the annual increases will be 10% for Year 2 over Year 1, 15% for Year 3 over Year 2, 20% for Year 4 over Year 3, and 20% for Year 5 over Year 4.