Edge Sports of Cochrane

Business Plan Prepared for Outwest Properties Inc.

Prepared by Mark Lootens 5/20/2014

Who is Edge Sports of Cochrane?

Edge Sports of Cochrane is a sporting goods business Established in July of 2005 by two brothers, Mark

and Darren Kondrat, who were lifelong sports “junkies” with a dream of owning a sporting goods store.

The business grew quickly growing from $250 000 in sales to over $750 000 in sales in five short years.

Unfortunately the young store was not prepared for the rapid growth. This combined with the recession

left the business cash strapped and struggling to stay current with many of its suppliers. In July of 2011 it

was decided that it was in the best interest of all parties involved for Mark Kondrat to leave the

business.

For the next two years a team of managers led the business with Darren filling the role of President in a

part time capacity. While the business was able to survive and improved at controlling its costs and

buying practices, it never truly thrived and sales took a step backwards.

In May of 2013 a management and ownership change took place in an effort to rejuvenate the business

and allow it to be a profitable. Mark Lootens was brought in as manager and a minority owner. Mark

brought a unique blend of experience and education to the table which seemed to be an ideal fit for the

needs of Edge Sports. Mark studied and completed a kinesiology degree at the University of Lethbridge,

after which he followed up with a Master’s in Sport & Athletic Administration at Gonzaga University. His

work experience included retail and sales experience including spending three years working in the

Western Hockey League (WHL) for both the Spokane Chiefs and the Lethbridge Hurricanes.

Under the new management a more dedicated focus has been applied to two key areas, inventory

turnover and cash flow management. Focusing on these two critical categories has allowed Edge Sports

to make significant improvements in profitability and helped it to significantly improve its relationships

with suppliers as bills were now paid in substantially more timely manners.

While the previously outlined events tell you the story of Edge Sports it does not tell you who Edge

Sports is. Edge Sports is a family owned business committed to promoting and encouraging active living

by specializing and providing expertise on teams sports equipment and training merchandise. It is

committed to giving back to the Rockyview community by supporting the sports associations and teams

in the area by providing a premium level product and service typically only found in the most elite

independent sporting goods stores in major centers.

What makes Edge Sports Unique?

Edge Sports is a vital member of the Rockyview community. Edge Sports is the local business that knows

it’s customers by name as they come in for their weekly skate sharpening and members of Cochrane

Minor Hockey know that there Association color socks are stocked. Edge Sports is the store where team

managers feel comfortable coming in for donation and sponsorship requests for fundraising because

they know the owner and management by name and have a personal relationship with them. Edge

Sports is a business that understands the needs of the local association and goes out of its way to ensure

that it is able to supply equipment and apparel which are congruent with their colors, rules and needs.

Edge Sports is the place local’s go when a helmet screw needs to be replaced, their skates need to be

sharpened, they need to outfit their child for her first soccer practice, or they need some advice on what

new equipment actually needs to be purchased for their son’s lacrosse tryout. Most importantly Edge

Sports prides itself on being a business which always strives to give advice in the best interest of the

customer.

Where is Edge Sports?

Edge Sports does business in Cochrane Alberta, a thriving town of 18 000 people in the foothills of

Alberta located 15 west of Calgary. With some experts predicting the town to reach as many as 30 000

people in the next 5 years it has seen a recent boom in commercial development with developments

such as The Quarry attracted several big box stores including Wal Mart, Staples and Sport Chek.

Cochrane is attractive to retail business thanks to its growth trends and higher than average household

income. It has a strong reputation for supporting small business and until recently did not allow “big

box” stores into the community. Stores such as Mackays Ice Cream shop, Addies, and Bike Bro’s have

provided an example of model of what small family owned businesses with a focus on quality and

customer service can do in this town, despite being in industries with competitors who are much larger.

When Does Edge Sports Operate?

Edge Sports is open seven days a week. Weekdays it operates from 10 am to 8 pm and weekends it

operates from 10 am to 6 pm Saturdays, and 11 am to 5 pm Sundays. With Cochrane being primarily a

bedroom community for people who commute to Calgary for work it is critical that it is open hours

which allow people to get home from work, have dinner and have their skates sharpened or whatever

errands need to be run.

Years of experience has taught us when our busy times and key times of business are. We understand

that Monday morning and Friday afternoon is a critical time to be for a heavy skate sharpening load. We

understand when local tryouts are and know that it is critical to have the essentials in appropriate sizes

for first time participants.

The foundation of our business has been built heavily on Canada’s favorite sport, hockey. As a result our

peak season and best financial months are September, October, and November. Our spring sports peak

in March and April as soccer, baseball and lacrosse all run start in the month of April.

Why is there a need for Edge Sports in Cochrane?

Edge Sports current lease expires at the end of the August. As with most small businesses there have

been good years and bad years. With Canada’s largest sporting goods retailer, Sport Chek, planning to

open in the near future it would appear that now may be a logical time to make a graceful exit.

First and foremost the management and ownership of Edge Sports of Cochrane believes that we have

the potential to have healthy profits moving forward despite a major competitor moving into the

market. We believe this for the following reasons:

Currently there are three Sport Chek locations within 25 km of Cochrane, and another right in

the heart of downtown Calgary. With most of Cochrane commuting to Calgary for work are we

not already competing with Sport Chek on a daily basis?

Does Sport Chek have the knowledge or care enough to provide equipment specifically for the

local association’s needs? Items such as hockey socks in the Cochrane Rockies colors, helmet’s

and lacrosse masks in the Rage Lacrosse colors, the soccer associations required socks and

shorts for games, and the proper pant color for girls’ softball are things that Edge Sports prides

itself on being able to deliver.

Our goal is to be a high end equipment provider. Sport Check has chosen to dominate the

apparel and footwear aspects of the business, and provides mid-level equipment (where the

margins are best). We see ourselves as a specialty store, where hard goods are our area of

expertise. Soft goods are simply a bonus sale with only carefully selected items and brands being

carried. OUR STRENGTHS ARE SPORTS CHEK’S WEAKNESSES

We provide and will continue to provide first rate customer service

We believe in what we do. We believe that equipment which is high quality, and fitted properly

significantly enhances the enjoyment of sport. We believe that having an expert on hand to help choose

the proper equipment is critical to wise investments. We believe that by helping our customers to enjoy

sport we are promoting a lifetime of active and healthy living. We believe that we are enhancing the

level of play, the safety, and the overall experience of athletes in Cochrane. We believe that over the

past nine years that we have developed a client base which appreciates our efforts, likes that we can call

them by name as they walk in, and will remain loyal to us even if there is a Sport Chek a few blocks

down the road. We also believe that the new residents of Cochrane who are moving in on a daily

business will choose to support a local family owned business that caters to their needs, learns their

names, and provides a superior level of expertise and service.

How will Edge Sports grow the business?

Below we have outlined the four “P”’s of marketing and how we plan to grow our business.

Product:

First and foremost we want to have a “wow” factor to our product mix. Your product mix is perhaps the

most important factor in a sporting goods store. We want to carry a certain amount of products that are

just “cool”. We want people coming in regularity just to see what we have, what new thing is out there

that they haven’t seen yet, and what new things they might be able to try.

Our second priority in our product mix is ensuring that we have an excellent selection and stock of items

that are consumable, break, wear out and need to be replaced often. Hockey sticks are an excellent

example of this as they break often and wear out over time. It is not unusual for a competitive player to

purchase six to eight sticks a year (at $300 a stick). For this reason we intend to build the best selection

of sticks in our market. Items such as lacrosse shafts and heads, soccer socks, baseball bats, cleats and

helmets all share the same quality of “consumability”. Items such as these will receive a priority on

providing a broader selection and deeper inventory. These items also have the ability to be cleared out

in the off season if need be thus minimizing the risk that can come from a “bad buy”.

In contrast items such as shoulder pads, skates, shin pads and baseball gloves tend to last a long time

and not need to be replaced very often. Consumers don’t purchase an extra shoulder pad just because it

is on sale, which means that inventory which isn’t sold in season often has to sit for the entire off season

and makes “bad buys” much more costly to the business and can really hurt cash flow and lead to

problems with payables if sell through percentage is poor. Items such as these are critical to sport and

critical to being a premium sporting goods store, but due to the risk factor that comes with them a

smaller inventory will be carried with increased attention to sell through and turnover.

As previously alluded specializing in higher performance products than our larger competitors is the

plan. Big box stores tend to focus much more on price point and high margin items. Our focus will be on

having the highest performing items in the store with the best product knowledge in the area.

We are a business that supports people who want to live an active lifestyle. We do this primarily through

providing team sports equipment and apparel. However categories such as training, sports nutrition,

and individual sports are all within the scope of our business and could be catered to if their proved to

be adequate demand.

Hard Goods (typically equipment) is the core of our business. Soft goods (clothing & shoes) that are

carried will be done so with the intention of complementing our hard goods selection. Footwear will be

focused on shoes which are designed to be played in (with a big emphasis on cleated and court shoes) or

trained in. We know that we cannot carry the size, color and number of styles that Sport Chek carries so

we will focus on the technical aspects as opposed to the fashion side of the business.

Niche sports such as curling, competitive and fitness swimming, ringette, rugby and lacrosse are all areas

which are often overlooked by big box retailers, but have proven to have a healthy market in the

Cochrane area. Niche sports have a customer base which appreciates someone who cares about their

needs. A very good selection can often be provided for these sports with very little in terms of

investment and space requirements for the business. These niche sports tend to be very tight knit

communities and word of mouth spreads quickly when you provide a decent selection for their

participants. We will ensure to provide a good selection of a handful of carefully selected niche sports

which are popular in the community.

Currently we carry a full selection of hockey, baseball, soccer and lacrosse equipment and provide a

skate sharpening and hockey pro shop service. Typically approximately 75% of the revenue has been

generated by hockey equipment sales and skate sharpening. We will focus our buying efforts and

marketing strategy on creating more balance. Our goal is to grow our “non-hockey” categories while

maintaining our hockey business until we reach the point where hockey accounts for 50% of our annual

revenue. By focusing on sell through, and turnover of our hockey business and growing are spring sports

in particular it will help to improve profitability and cash flow throughout the year.

Price

We are fortunate to be members of the Sports Excellence buying group. Established in 1950 and with

over 110 members across Canada this gives us the buying power of a big box store, which allows us to

reach discount levels that normally would require significantly more volume that we do. Being a

member of the Sports Excellence group allows us to be competitive on price while still maintaining a

healthy margin.

We are committed to being priced at our below the MSRP on all of our regular priced items.

Furthermore we plan to price our “big ticket” items (skates, top end sticks) a few dollars below what our

largest competitors (Pro Hockey Life & Sport Chek) are priced. We believe that these items attract a lot

of attention and the consumer tends to be very aware of price on these big ticket items.

Pricing big ticket items slightly cheaper will help create perception and word of mouth advertising. As

customers come it to look at, test, and purchase these items we expect sales of accessories and smaller

items (stick tape, wax, socks, helmet repair kits, t-shirts, shorts, jock straps etc.) to improve. These items

have the best margins are and are critical to improving profitability. They also tend to be not as price

sensitive and are less often price shopped by the average consumer.

Many small retailers are hesitant to put items on sale fearing that they are not making any money if they

discount, however Edge Sports does not want to have their capital sitting on the shelf in items that it do

not have a chance to sell in the upcoming season. We would rather move the product and re-invest in

inventory that is current and has a chance to sell for a healthy margin. To do this sales and clearance

promotions may be occasionally utilized to help ensure turnover.

We want to avoid having large quantities of inventory on sale if possible as we don’t want to create

buying patterns with our customers where they are waiting for the sale. Careful analysis of previous

sales and attention to industry trends to help allow for accurate buying practices is essential to avoid

this. Also early intervention through improved merchandising and incentives to help move products

which are not on pace to sell through by the end of the season is critical.

Place

Currently Edge Sports of Cochrane is located in a strip mall near Cochrane’s downtown. It is a relatively

busy center with a Shoppers Drug Mart and Starbucks as key tenants. Our direct neighbors are a liquor

store and a dentist office. Most of the tenants are restaurants and medical offices.

Some of our current frustrations are a cramped parking lot which is difficult to get in and out of, and

none of the current tenants providing any complementary services or products. Particularly during

hockey season with so many of our customers dropping off skates on a regular basis for sharpening ease

of access is critical. Also our signage and storefront is currently hidden behind other businesses which

are directly off the main access road. We are currently land locked with no ability or potential to expand

(which we feel is critical if we are to compete and beat Sport Chek). The new management also would

like to significantly improve the image, look, and merchandising of the store and substantial investment

and possibly a disruption in business would be required to make this happen.

Finding a location with improved signage and ease of access is the best investment Edge Sports can

make to improve top of mind awareness in the community. Additionally having a space which is large

enough to accommodate interactive features such as artificial ice and turf which would allow for the

customer to try demos of sticks, bats, shafts, and cleats would go a long ways in helping to differentiate

from Sport Chek and improve consumer confidence in the product. Allowing the customer to feel and

use the product in game like simulations will go a long way to establish customer loyalty and decrease

buyer’s remorse and returns. High end sticks, cleats, shafts and bats can be purchased with confidence

as the customer knows first-hand how the equipment feels and performs. These items have the best

combination of volume and profit for Edge Sports and by providing a storefront which is designed to

help highlight and sell these products is one of the best marketing investments that can be made.

Promotion

How and where to invest in advertising is one of the hardest and most critical decisions a small business

can make. In the past Edge Sports has invested heavily in traditional advertising mediums like the local

newspapers and magazines. This investment failed to produce the necessary ROI to justify the size of

investment being made.

With so much clutter and competition in the advertising world providing first class customer service

which produces customer referrals is the key to every business with long term health and profit in mind.

However for Edge Sports to grow there needs to be frequent reminders to come see us for your sporting

goods needs. There are three primary ways that we intend to focus on for the next two years which will

help us to maintain a high level of top of mind awareness in Cochrane.

The vast majority of retail purchases involve some type of online search. Developing a user friendly and

easy to use website which provides the key information about our business is critical to our marketing

plan. Our current website has a lot of area for improvement and dedicated maintenance and updates

with an emphasis on SEO can go a long ways to improving website traffic. Sales are often a numbers

game and the more people that visit your site and the more often they visit tend to have a strong

correlation with in store traffic. We believe that sporting goods are best purchased after handling the

product and speaking with an expert about the equipment. Because of this and because of the price

sensitive nature of online shopping we have no intentions of expanding into e-commerce or online sales

in the short term. However the customer should be able to find critical information about our products

and services on our website. Also we need to make sure the SEO is adequate that we are one of the first

listing any time a search for sporting goods in the Rockyview area is made.

Social Media can also be an extremely effective tool in driving website and store traffic. By providing

consistent and relevant information about the store that actually benefits the customer will allow us to

develop these mediums to communicate directly with our customers. Facebook and Twitter will be our

main area of focus with messaging that is simple and useful. Periodically promotions and sales may be

used to help drive followers for these platforms.

The third and perhaps most critical promotional strategy will be focusing on relationships and

sponsorship with local associations. Key partnerships include Cochrane Minor Hockey, Cochrane Minor

Soccer, Cochrane Minor Baseball, the men’s and mixed slow-pitch leagues, The Cochrane Generals

Junior Hockey Club, The Cochrane Lions Football Club, The Cochrane Rangers Senior Soccer Club,

Cochrane and Bow Valley High Schools, and the Rockyview Lacrosse Association.

Developing a first name basis relationship with the Presidents and Equipment Managers of these

associations is critical to securing team orders, jersey orders, and sponsorships which help us to market

directly to their members. This is an effective tool to help brand us as the option for community

members who feel it is important to “support local”. And it is a critical tool for helping to differentiate us

from big box competitors. Providing custom apparel, equipment orders, jerseys and donations for

fundraisers all go along way making connections and building customer loyalty. The associations also

allow us to communicate directly with our target market.

Summary

To sum it up quickly, the plan is simple. Customer service and products tailored specifically for the

Rockyview community. We want to embody all the qualities that people love about shopping locally and

apply them to sporting goods. If our customer service is the best, our product knowledge superior, and

our inventory appropriate we feel that there is no way we can step backwards no matter what other big

box store is in town.

We believe if we invest our time and money into the community that the community will invest in is

with their time and ultimately financially. We want them to at least believe that they should always

check our store first, knowing that even if we don’t have exactly what they are looking for that they will

get some good advice on what to get and where to find it.

Appendix I: Financial Goals, Forecasts & Plan

Mnth Op

Costs Ann Op Costs Growth

Projected Revenue

Gross Profit Net Profit Profit Re-

Investment

2015 $ 20,000.00 $ 240,000.00 15% $ 632,500.00 $ 265,650.00 $ 25,650.00 $ 7,695.00

2016 $ 21,215.10 $ 254,581.25 15% $ 727,375.00 $ 305,497.50 $ 50,916.25 $ 15,274.88

2017 $ 23,336.61 $ 280,039.38 10% $ 800,112.50 $ 336,047.25 $ 56,007.88 $ 16,802.36

2018 $ 25,670.28 $ 308,043.31 10% $ 880,123.75 $ 369,651.98 $ 61,608.66 $ 18,482.60

2019 $ 28,237.30 $ 338,847.64 10% $ 968,136.13 $ 406,617.17 $ 67,769.53 $ 20,330.86

$ 4,008,247.38 $ 1,683,463.90 $ 261,952.32 $ 78,585.69

(*Projected revenue for the 2015 fiscal year was generated by taking 2013 projected revenue and

showing a 15% increase. Operating costs were generated by using the 2014 operating costs and

factoring in the additional rent that would be paid for a new location. Gross Profit was calculated using a

42% margin (based on previous year’s averages).)

Edge Sports of Cochrane plans to take a sustainable and measured approach to growing revenue with an

emphasis on long term and sustainable profitability. We believe that we can reach revenue levels

reached at the businesses peak in three years. The difference being that by taking care to ensure proper

turnover, sell through and appropriate inventory levels it will allow Edge Sports to be profitable at this

revenue level.

The five year goal is to grow the business to a million dollars of annual revenue. They key to this growth

is remaining profitable in every fiscal year as we grow to this. Given the anticipated growth of Cochrane

combined with Edge Sports entering into its second decade of business in 2016 we believe that these

goals are very conservative and attainable, and very possibly beatable. We are committed to re-

investing in the business with 30% of net profit being reinvested into the business for marketing and

development of potential new revenue streams.

Inventory Management Strategy

Revenue

Sales per sq. ft.

COGS/sq. ft. Annual COGS

Average Inventory

2015 $ 632,500.00 $ 152.93 $ 88.70 $ 366,850.00 $ 183,425.00

2016 $ 727,375.00 $ 175.86 $ 102.00 $ 421,877.50 $ 210,938.75

2017 $ 800,112.50 $ 193.45 $ 112.20 $ 464,065.25 $ 232,032.63

2018 $ 880,123.75 $ 212.80 $ 123.42 $ 510,471.78 $ 255,235.89

2019 $ 968,136.13 $ 234.08 $ 135.76 $ 561,518.95 $ 280,759.48

(*The above chart shows key metrics and dollar values per square foot which will act as guides and

budgets for purchasing of inventory and merchandising strategy. Turning the inventory over twice per

years is assumed for all figures.)

Appendix II: Sample Floor Plan

The diagram below shows a sketch of how Edge Sports would like to use the space and helps illustrate

some of the key concepts in the business plan such as demo areas. We want to create a space which is

planned and designed so that we can execute all of our key areas proficiently while still remaining

flexible enough to allow for growth and change in the future.

Appendix III: Custom Programs for Local Associations

The package below is an example of a custom clothing program that we are currently partnering with

Bardown Hockey Apparel to offer for the local hockey association. We believe that by combining a name

brand custom apparel program we can offer a product which none of our competitors can compete

with.