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A Business Plan for Inner City Apparel Retail P roviding the Latest in Hip Hop and Urban Fashions
December 5, 2002
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Executive Summ ary
Image Fashions is a retailing concept that addresses an unmet demand and it will target a profitable emerging
market that is affluent, accessible and trend setting. This market is Americas inner city, and, in Chicago alone,
there is an estimated gap of $631M between demand and supply. To fill a portion of this gap, Image Fashions
will provide the latest in high-end urban and hip-hop apparel to ethnic groups and minorities on the Southside of
Chicago.
Historically, retailers have avoided the inner city because of perceived characteristics, whether founded orunfounded, and poor statistical information. Statistically, retailers have relied exclusively on per capita income to
determine the purchasing power of neighborhoods; hence most retailers have focused on the wealthy Northside
of Chicago and the suburbs. However, this metric ignores the competitive advantages of the inner city,
specifically population density, spending patterns and ethnic diversity. When these factors are accounted for, the
retail purchasing power of the Southside inner city is comparable to any location in Chicago.
Image Fashions primary market is the African Americans and Hispanics between 12-34 years of age who
populate these neighborhoods. This population is very fashion conscious and, on average, spends 30% more on
apparel then their white counterparts. They view their clothes as an expression of their personality and a
statement of their connection to the latest icons and popular trends. However, it is very difficult for this group to
purchase fashionable clothes. Typically, they must spend an hour or more on public transportation to go to
Michigan Avenue. Once there, they may have difficulty finding ethnic brands, or they are shadowed by security,who automatically assume they will steal something. Image Fashions will offer these fashionable products, but it
will offer these products in a professional and respectful manner in the customers neighborhoods.
Image Fashions, with its professional management team, has identified a 5 mile radius that spends approximately
$220M annually on apparel and has very little competition. By capturing a small percentage of this value, Image
Fashions will be one of the most profitable apparel retailers in the United States. Image Fashions will capture
1.4%, or $3.0M, of this markets gross revenue, and will deliver the Net Income highlighted in this Revenue
Summary.
Image Fashions, LLC
Revenue Summary(in $000's)
Year 1 Year 2 Year 3 Year 4 Year 5
Net Revenue
Cost of Goods Solds
Gross Income
$ 793.9 $
$ 381.8 $
$ 412.1 $
2,415.3 $
1,161.6 $
1,253.7 $
2,855.5 $
1,373.3 $
1,482.2 $
3,001.6 $
1,443.5 $
1,558.0 $
3,155.1
1,517.4
1,637.7
Operating Expenses $
Net Income from Operations $
508.3 $
(101.0) $
637.4 $
611.5 $
681.0 $
796.4 $
703.5 $
849.8 $
727.5
905.5
Other (Income) or Expenses
Net Income
$ 95.7 $
$ (196.7) $
321.4 $
290.1 $
384.8 $
411.6 $
394.7 $
455.1 $
404.5
500.9
Image Fashions will capture this market share and be fully operational within 18 months of opening by
accomplishing 3 goals. First, Image Fashions will be tailored to meet the needs of the local customer. ImageFashions will offer products and labels that are not traditionally carried by department stores. It will carry brands
from designers, such as Sean John, Phat Farm, FUBU and Coogi. These labels, often developed by hip-hop
entertainers, are appealing to the market, and they allow the wearer to be associated with their favorite icons.
To ensure the proper mix of products and labels, Image Fashions will hire a buyer with experience in this market
and hire sales associates from the target market. By hiring students from the target market as sales associates,
they can aid the buyer in determining the latest trends and most fashionable clothing.
Second, Image Fashions will focus on operational excellence. Image Fashions will provide a service orientated
shopping experience that will allow customers to be treated with respect while purchasing their favorite labels
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within their neighborhoods. The store will be trendy, clean and well lit. The staff will be professional andcourteous, and the store policy will reinforce the value of the customer and the experience. While security andshrink are issues, Image Fashions will focus on containing the few problem elements, rather then assuming allcustomers and employees are potential problems.
The third factor for Image Fashions is commitment and leadership within the community. Image Fashions will
create jobs and be an active participant in the community. It will host graduation and community events, and
this involvement will allow Image Fashions to demonstrate its sincere commitment to the community while
building its own brand and identifying new fashion trends.
Image Fashions has also studied other markets and expansion opportunities. It plans on opening other stores in
second tier cities, such as Pittsburgh, Detroit, Atlanta and Miami, where the target customers of Image Fashion
are underserved.
The management team is formed with a variety of complimentary skills. They have functional experience in
finance, marketing, operations, sales and strategy, and they also have domain experience in apparel, ethnic
marketing, retail, and urban development. Through this experience, Image Fashions will gain credibility in being
committed to the community and recognition as the retailer and employer of choice within the target
communities.
The management team is seeking a commercial loan of $1.05M to begin operation of Image Fashions in the Fall
of 2003. The loan will be secured against Image Fashions inventory, accounts receivable and managements
personal guarantees.
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Table of Contents
I. Concept......................................................................................................................................................5
II. Industry Analysis........................................................................................................................................5
A. General Market Definition........................................................................................................................5
B. The Chicago Market................................................................................................................................7
III. Target Market / Marketing Sales Plan .....................................................................................................11
A. Marketing Objective..............................................................................................................................11B. Target Segment....................................................................................................................................11
C. Positioning Strategy..............................................................................................................................11
1. Price.................................................................................................................................................12
2. Promotion.........................................................................................................................................12
3. Product Mix.......................................................................................................................................13
4. Location...........................................................................................................................................15
IV. Market Analysis.................................................................................................15
A. General Competitive Landscape.............................................................................................................15
B. Site Specific Competitive Landscape.......................................................................................................15
V. Company Overview / Products & Services....................................................................................................18
A. Labor...................................................................................................................................................18
1. Managers..........................................................................................................................................18
2. Sales Associates................................................................................................................................183. Buyer...............................................................................................................................................18
4. Training Philosophy...........................................................................................................................19
B. Store Design.........................................................................................................................................19
C. Security................................................................................................................................................21
1. Personnel.........................................................................................................................................21
2. Infrastructure/Store Layout................................................................................................................21
D. Inventory.............................................................................................................................................22
E. Purchasing............................................................................................................................................22
F. Hours of Operation................................................................................................................................22
G. Layaway and Return Policy:...................................................................................................................23
VI. Financial Projections.................................................................................................................................23
A. Revenue Model.....................................................................................................................................23
B. Comparative Financial Performance........................................................................................................26
VI. Financial Statements.............................................................................................................. 26
A. Start Up Costs.......................................................................................................................................26
B. Financing..............................................................................................................................................27
VII. Management..........................................................................................................................................27
A. Management Team...............................................................................................................................27
B. Advisory Board......................................................................................................................................28
VIII.Exit Strategy........................................................................................................................................... 28
APPENDIX AFinancial Analysis.....................................................................................................................29
A-1Most Likely Scenario..........................................................................................................................29
A-2.. Best Case Scenario............................................................................................................................32
A-3Worst Case Scenario..........................................................................................................................35
APPENDIX BManagement Resumes.............................................................................................................38
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I. Concept
Globalization has improved access to new customers and increased the competition for those customers.
However, in the rush to cross over into new borders, American retailers have overlooked an opportunity. This
overlooked customer is easily accessible, affluent, an early adaptor and trendsetter. This market is the American
inner city, and the customer is the growing minority population that lives there.
According to recent studies, the American inner city has $85B in retail purchasing power, but nearly 25% of that
demand is unmet. The result is $21B in retail spending that is not captured, and in Chicago alone this gap is
$640M.1 This business plan will outline why high end apparel is a major unmet market in Chicagos inner city and
how a strategic and disciplined approach to high end apparel retail in Chicagos low income communities can
generate revenue and employment.
II. The General Market
A. General Market Definiti on
The definition of a low income, or economically distressed neighborhood is a that which has a median
household income 25% less then the city average, a poverty rate at least 50% higher than the city
average and/or unemployment at least 30% higher then the city average.2
In Chicago, 1.77M peoplelive within a neighborhood that fits this definition.
The purchasing power of this population is counterintuitive. To the casual observer, below average per
capita income would mean less purchasing power for luxury or high end goods. However, a series of
characteristics make this market extremely attractive. The first and most important characteristic is
population density.
In the inner city, most families and individuals rent apartments. While there are several macro issues
that drive this pattern, the result is a large number of renters living within a small area. By comparison,
1 lot in the suburbs or an affluent neighborhood will typically have a single or dual unit town home. In
the same acreage of an inner city neighborhood, there is a 5-10 story apartment complex housing 35
families. The discretionary income of the 2 families in the affluent neighborhood is less than the
combined discretionary income of the 35 families in the inner city!
Another pattern that frees discretionary income for inner city residents is that affluent homeowners spend
a large percentage of their income on housing repairs and maintenance costs. Since a renter does not
have these costs, it frees their discretionary income to be spent on personal items and expenses, such as
retail goods and entertainment services. Statistically, 67% of total U.S. shoppers own their home as
compared to only 36% in the inner city.3
The third driver of the inner city purchasing power is the racial and ethnic composition of the
neighborhood. Low income neighborhoods are typically populated by African American and Latino
families and individuals. According to market research,4 both groups are more image conscious than
their white or suburban counterparts. Since they are not spending their income on housing expenses,
they focus their expenditures to meet their image and fashion concerns, specifically in apparel. The
following graph displays the difference in apparel purchasing patterns.
1The Business Case for Pursing Retail Opportunities in the Inner City,The Boston Consulting Group in a partnership with The Initiative for a
Competitive Inner City, June 1998.2
The Inner-City Shopper A S rategic Perspective, Pricewaterhouse Coopers and the Initiative for a Competitive Inner City, 1997.: t
r- t r 3
2nd AnnualInner-City Shopper Survey: Inne City Shoppers Make Cen s (and Dolla s), The Initiative for a Competitive Inner City and
Pricewaterhouse Coopers, November, 1998.4
The Business Case for Pursing Retail Opportunities in the Inner City, The Boston Consulting Groupin a partnership with The Initiative for a
Competitive Inner City, June 1998.
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Illustration 1: Annual Apparel and Service Expenditures by Race
r- t r
$1,200
$1,000
$800
$600
$400
$200
$0
Total Inner CityUS Shoppers
White
AfricanAmerican
Hispanic
Note: The U.S. Census defines this clothing expenditures in the category, Apparel and Services,and it is defined as retail
expenditures includes dollars spent on all apparel, footwear, jewelry and other apparel and services.5
Currently, several key mainstream designers, such as Tommy Hilfiger and Ralph Lauren, view the inner
city as fashion trendsetters. These neighborhoods are early adaptors of new designs and set the trends
for their suburban peers. In market surveys, over 50% of African Americans and Latinos ranked trend
setting fashions as somewhat or very important in the purchase criteria. This is compared to 30% of the
average U.S. shopper. This trend also seems to be increasing amongst the target populations.6
MTVs urban, hip-hop music show, called Direct Effect, and MTVs fashion show, called Fashionably Loud,recently hosted a one hour special fashion show highlighting the premier urban and hip hop fashion
brands. The show was a runway display of the new lines from leading urban designers with several
performances by leading rap and hip-hop groups. It was a high-energy display of current and future
trends that visually demonstrated a clear difference in the trends and expectations of racial and ethnic
groups as opposed to their white counterparts. The influence and success of this show and others like it
on MTV and BET (Black Entertainment Television) demonstrates that this market and product offering is
nearing a stage of rapid growth and development.
The outcome of these combined characteristics is an image conscious and fashion sensitive population
that has discretionary income to spend on apparel. While there has been a drastic increase in the
number of designers, such as Sean John, Baby Phat, Phat Farm and FUBU targeting the urban consumer,
there has not been a corresponding increase in the retail stores that carry these lines. The result is anescalating demand for the product and few specialty stores to cater to this market.
5http://www.oconomowocusa.com/retail%20profile.pdf
62nd AnnualInner-City Shopper Survey: Inne City Shoppers Make Cen s (and Dolla s), The Initiative for a Competitive Inner City and
Pricewaterhouse Coopers, November, 1998.
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Illustration 2a: Average Per Capita Income by ZIP Code7 Illustration 2b: Total Apparel Expenditur
7Source: Analysis of U.S. Census Data
8 Source: Analysis of U.S. Census Data
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Illustration 3 overlays Chicagos apparel retailers with the information from Illustration 2b (Total Apparel Expenditures by ZIP Code). It supports the historical pattern that retailers have usedonly average income to define new market opportunities. The retailers, consistent with averageincome patterns, are concentrated on the north side of the city. Markedly fewer retailers arepresent on the south and west sides despite the great market potential.
Illus ration 3 Per Capita Income by ZIP Code and Apparel Re ailers by Addr ess9t : t
In comparing Illustrations 2 and 3, it is apparent that there is an affluent market sector that is
not having its demands met. Additionally, to further validate the opportunity of real estate andbusiness in the south side of Chicago, the area was recently selected by CNN.com as one of the
top U.S. neighborhoods to live in.10
Based upon the growth of the high-end apparel industry and the customers spending power,
there is a unique opportunity to enter the fashion retail business in low income ur ban
neighborhoods. Chicago is a strong point of entry because of its national affinity to new trends,
diverse demographic distribution, lack of competition and high population density.
9 Source: Analysis of U.S. Census Data and Business Yellow Page Listings10 CNN.coms Money section. http://money.cnn.com/2002/11/08/pf/yourhome/bplive_chicago/index.htm
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III . Image Fashions Marketing Model
The marketing model will focus not only on attracting customers away from competitors but also on trying to
satisfy the innate demand within the local catchment area. The marketing model can be considered as below:
Illustra ion 4:Image Fashions Marketing Modelt
t t
Positioning Strategy Price
Marketing Objective
Promotion
Target SegmentProduct Mix
Location
A. Marketing Objective
The Marketing Objective is to generate sales of $3.0M in the third year.
B. Target Segment
The urban clothing mix will be aimed specifically at young adults aged between 12 34. Based onprimary market research, this segment of the market is highly influenced by fashion and values the
distinctiveness that Image Fashions will provide. The buyer for a compariable urban clothing retailer, The
Lark, noted that our target market is aged 12 upwards, with clothes being often their only major outlay
and who place a premium on wearing the right clothes.11
C. Positioning S ra egy
Because Image Fashions does not intend to manufacture or design its own products, it will differentiate
itself on service and product mix (by responding rapidly to changes in fashions). In fact, very few
designer brands are exclusive to a particular retail outlet. Research has uncovered that the key factors
when deciding where to shop are:
Being treated with respect
Courteous sales staff Being in an environment where they dont feel like they are being taken advantage of12
Clear return policies
Branded offerings Clean and stress-free shopping environment13
11 Interview, November 9th 2002.12 Interview with targeted customer segment, Saturday November 9th 2002.13 The Case of inner-city retailing, Boston Consulting Group.
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Having analysed the market and target segment, the marketing strategy will be as follows:
1. Price
Prices will be competitive with local competitors (with stores such as the Lark, Manalive and
Freshwear) rather than the local department store (Carson Pirie Scott and Marshall Fields).
However, price competition and undercutting will be avoided in order to maintain Image
Fashions status as a high end retailer. Again, the primary assumption is that there isconsiderable latent demand, so growth will come from tapping into this market, rather than
stealing it by discounting or through price competition.
According to Bob, the District Manager and Buyer for The Lark, they use neither sales promotions
nor loss leader products to promote sales because the business cannot afford to. Rather the key
differentiation is understanding the customer, both in terms of service and product. The Lark
sells 90% of its clothes at the initial price, and therefore, the attraction of being the first with the
cool clothes outweighs the price.
As a start-up, Image Fashions faces constraints in terms of limited initial cash flow and lack of
leverage with suppliers to return unsold products. Hence, in keeping a high status image, Image
Fashions will not compete by using sales discounts or loss leader products.
2. Promotion
The promotion strategy will be driven by the requirements ofthe local market. Specifically, the
strategy will encompass four areas:
a. Advertising
Because of the high urban density, most of the paid for advertising will be in the form of
billboards and local rap/hip-hop radio station advertising. These have the added
advantage of being relatively inexpensive compared to department store competitors
methods.
Once operational, Image Fashions plans to spend 5% of its revenue on marketing and
promotional expenses.
b. Promotion of local events in the community
Image Fashions target market can be easily reached through local high schools, colleges
and sports centers. There are plans to hold co-branded events (with the apparel brand
manufacturers) to promote awareness of the store. This idea has precedence one local
retailer currently sponsors an annual high school graduation party and regularly has in
excess of 3,000 potential customers turning up at the door, despite the fact that the
capacity is only for 1,200. In addition to providing advertising, these events will help
establish Image Fashions as a supporter of the local community.
c. Staff
By recruiting sales associates from the target market, Image Fashions will gain two
advantages beyond hiring other employees. First, sales associates will be familiar with
trends and be able to anticipate changes in tastes. MTV is famous for using this model
with their production assistants, who are students within the target demographic.
Secondly, it will reduce shrink/theft by having local, known faces to operate the store.
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Illustriation 5: Image Fashions Brand Licenses
MARITHEFRANCOIS
GIRBAUD
ICEBERGCOOGI
PELLE PELLE
Sean John
b. Product offering
In line with high-end fashion apparel, a wide combination of shirts, pants, dresses,
shoes and accessories have been identified for the initial store launch. These products
are the key elements that define the image that the target customers seek to portray.
The products cover a wide price range, largely influenced by customer demand and
preferences determined during market validation. Image Fashions also views customer
service as part of the overall product offering. The staff will be trained to recommend
and assemble items to capture the look and image that individual customers desire.
This is another way that Image Fashions will differentiate itself and will create loyal
customers, who will keep returning because of the intimate and personal serviceprovided. It is critical to have the right product mix, which is why an experienced buyer
will be hired, who is knowledgeable of the fashion trends and the specific needs of ourminority target customers. By virtue of the store location and a unique product mix,
Image Fashions will be able to moveproducts fast. The average ticket per sale is
forecasted to be about $180.
Illustriation 6 Image Fashions Price and Per Purchase Revenue:
Price Range
Low High Probability Average
Leather/Fur Jacket $250 $900 4% $575
Shirt $45 $380 25 $213
Sweaters $30 $120 13% $75
Jeans / Pants $60 $200 33% $130
Shoes $75 $220 10% $148
Jumpsuits $140 $350 15% $245
TOTAL 100%
Average Ticket : $180
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4. Location
A key advantage is that rather than being located in an out-of-reach mall, Image Fashions will be
located within the target market and conveniently accessible by public transportation, which is
the mode most often used by our target demographic.
IV. Competit ive Environment
A. General Competi ive Landscape
As mentioned previously, the competition falls into two categories:
Local urban speciality retailers such as The Lark, Freshwear, Manalive
Local Department Stores such as Carsons, Marshall Fields
Given the generally underserved and extremely localized nature of the markets, there is limited need to
steal market share from the competition. Nevertheless, Image Fashions will adopt the best practices of
other urban retailers, as well as noting mistakes that have been previously made (particularly withrespect to local department stores).
The best of the competition is a small chain known as The Lark, operating 9 stores in and around
Indiana and Illinois. Many of the best practices that have been identified are in place with benchmarks for
achievable results. For example, using the practices identified above, The Lark estimates that they
turnover 90% of their product mix at the original price, considerably better than the larger department
stores. They have also reduced problems with shrinkage to low single figure percentages, despite
taking the decision not to introduce security tags. This compares very favourably with corporate giants
such as The Limited, whos shrinkage is 5% and increasing.14
The key differentiatior between Image Fashions and The Lark is that The Lark continues to sell in large
suburban malls whereas Image Fashions will be located in the heart of the inner city and also nearer to
local high schools and colleges.
B. Site Specific Competitive Landscape
An ideal inner city location would incorporate convenience for the target consumer while maximizing the
probability of success for the retail business. The site location was chosen based on combining elements
of the above two qualities. Initially, ZIP Codes were parsed based on average income per person in the
surrounding Chicago area. The 60629 ZIP Code was selected, an area that is in the heart of southern
Chicago and the specific address is 7400 South Street.
The area within ZIP Code 60629 is a comparatively low income area with average income per person
approximating $30,000. In contrast, the area has one of the highest apparel expenditures per ZIP Code,
with expenditures in the range of >$50MM per year. With the purchasing power of residents in ZIP Code
60629 and the surrounding 5 mile radius, the apparel purchasing power within the immediate vicinity of
the store is estimated at $223MM per year. This exemplifies the inner city consumer with the large
spending power that Image Fashions is targeting. In addition, there are currently only eight retail apparel
stores within a 7 square mile area surrounding this specific location. None of these stores cater to high-
end fashion. The table below summarizes the competitive specifics:
14Interview with Kelly Vergamini, Wednesday 13th November, Summer Associate, The Limited Corporate Headquarters.
t
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Illustra ion 7: Local Competitive Analysist
Distance from IF location (7400 South) Womensretailers
Childrensretailers
Athleticretailers
Mensretailers
1 mile 3 3 0 0
3 miles(includes 1 mile retailers)
9 5 1 2
The following map highlights the annual apparel expenditures around the store and the location of
apparel retailers.
Illustration 8: Competitive Analysis and Apparel Expenditures at Site Location
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Another critical part of the location analysis is the different linkages between the consumer and the store.These linkages include factors such as accessibility, convenience and exposure. One measure of locationappeal from a retail perspective is the locations traffic count. The 7400 South address has a reported
52,900 car drive-bys per day a very large average daily traffic count15. This large traffic flow willprovide a good amount of exposure to the store. Image Fashions plan is to take advantage of this byplacing large signage (billboards, wall frescos, etc.) in the proximity of the location. Since 7400
South is at the signalized intersection of Gold Road and South Avenue consumers can easily turn into the
location if they are traveling in a car. The site also affords plenty of on premises parking, further
augmenting its convenience. In the likely event that consumers will be commuting via public
transportation, the location is easily accessible via numerous transportation routes.
Six different CTA bus lines have stops, all within less than a block from the location. The 54B, 379, 382,
383, 384, 385 bus routes give consumers access to the location from all directions, during all times of day
(see Illustration 9). Additionally, the CTA Orange El line is less than three miles north of 7400 South
where all of the above mentioned bus lines originate from. This ensures adequate public
transportation from the Orange El to the location, making it a convenient commute from almost
anywhere on the CTA train system.
Illustration 9: CTA Bus Routes near 7400 South16
15Source: Illinois Department of Transportation, Average Daily Traffic
16Source: Chicago Transit Authority, south west system map
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V. Operati ons
A. Labor
1. Managers
Staffing will include two managers, who will work on a shift system so that the store is fully
manned, seven days a week. One manager will be an employee on a $40,000 base salary and
bonus package, while the other manager will be an owner earning $50,000 per year plus his/her
equity stake in the store.
The store manager will have a crucial role in running the store and ensuring its success. Along
with greater responsibility, a great deal of latitude will also be given to the store manager. The
store mangers skills are crucial in two areas:
Experience in urban retail store management: Image Fashions will hire experienced
managers from the competitors.
The ability to intimately relate to customers: This means that the store managers will
proactively create relationships by being visible both in the store and in the local
community. The store manager will be present at the major parties and events wherethe current and potential customers frequent and will provide major input into the
product mix.
Based on the crucial role in the store, it is important that the store manager be compensated
generously. Incentives will be given based on store performance, and 2% of net income will be
given to the store manager in addition to salary. Full dental and medical insurance will be given.
2. Sales Associates
Sales Associates will primarily be recruited from local high schools and colleges. The pay will be
$5.50 per hour (an industry-wide figure). In order to reduce employee turnover, Image Fashions
will be actively working with the faculty and administration at these institutions to identify the
most reliable students and to institute some work experience programs. As the buyer/districtmanager at The Lark (who successfully follows this approach) commented, the most reliable
sales associates are those that initially had some form of academic incentive. They even
continued to work for us during vacation time.
The hourly wage sales associates will not be given significant benefits. Thewage is consistent
with other retailers, so it does not distinguish Image Fashions as an employer of choice. What
will give Image Fashions a hiring advantage amongst its target group is a $100 coupon for
clothes. For every week that an associate works, they will receive a coupon for apparel in the
store. The perceived value of the coupon will be $100, but the actual cost will only be $45,
based upon the COGS. This incentive will make it very fashionable and desirable to work for
Image Fashions rather than another retailer also paying $5.50/hour.
3. Buyer
One of the key success factors for this business venture is to offer a product portfolio that is
based on the latest fashion trends and preferences of the target customer segment. The role of
the buyer is critical in order to achieve this objective. Therefore, the management team is
spending considerable time and effort to identify the most suitable buyer to meet the vision of
Image Fashions. Four candidates have been shortlisted based on criteria supplied by Image
Fashions Board Advisor and the position is expected to be filled within the next six weeks.
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4 Training Philosophy.
It is expected that the sales associateswill start with minimal retail experience. Thus a five day in-
store training period will be administered for all new employees. This is a significantly longer
training period than compared to other retail stores. Skills to be acquired at the end of the
training period are: basic store operating skills, an understanding of the clothing lines carried by
Image Fashions and the importance of customer service.
The primary message that store employees will be trained on is that exceptional customer service
is critical. The Image Fashions definition of exceptional customer service includes making the
customers feel welcomed and treating them with respect. Employees will not push for a sale, but
rather they will give an honest, non-offensive, opinion relating to the customers choice of
apparel. Employees will also generate suggestions of alternative products and apparel
combinations. The customers should feel that the employees dedicate sufficient time with them
in a very respectful and attentive way. The store managers will have a central role in educating
the employees on the importance of making the customers feel comfortable in the store.
B. Store Design
The store site will be located at 7400 South Avenue. The property is 8,000 square feet and located
in a freestanding building. As a freestanding building, the exterior of the location can be modified to exude
a high-end apparel store. Visible from the exterior will be ample storefront to display the latest cutting
edge minority driven trends. The rent for the location is $25,120 annually ($3.14 per square foot).
This amount does not include utility costs or property insurance. The interior of the location is 50 feet
wide by 80 feet long with no interior dividing walls. Bradley Builders of Chicago has been contacted to
transform the inside of the store into a trend setting retail space. Bradley Builders has remodeled
Bang & Olufsen retail spaces, a trend-setting retailer. The cost to accomplish this would be $630,000,
which includes the build-out with all lighting and fixtures.
Given that the store site is located in a higher crime rate neighborhood, Image Fashions will need to
address shrinkage in the store design. As part of the store layout, Bradley will include design elements
that help prevent shrinkage, mainly consisting of creating an indirect access from the store entrance tothe inside of the store. There will be a walled off area of the store that will be used for inventory
storage, back office space, security monitoring and fitting room areas. This will leave 7,500 square feet
of retail space for displaying apparel. Most of the inventory will be displayed on the store fixtures in the
retail space with inventory storage being used primarily for new product shipments and storing
extraneous quantities.
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Illustration 10: Store Layout80 feet
FittingRoom
Area
WaitingArea
ManagerialOffice
Security
Office
InventorySpace
Column
Column
Column
Ramped and Glass-walled Entrance / Exit
Window Display
80 feet
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C. Security
One of the main risk factors of running a business in an inner city location is the high incidence of crime
such as shrink, burglary and arson. The following table shows the area crime statistics for the district
within which the proposed store location is based.
Illustration 11 Number of Crime Occurrences17:
. t r /
Year(January September)
Robbery Burglary Theft Arson Violent Property
2002 935 1,767 4,762 61 2,093 8,430
2001 774 1,600 4,863 65 1,850 8,271
Crime is a significant deterrent that discourages many entrepreneurs from setting up businesses in the
inner city. Therefore, it is being considered a serious issue, and Image Fashions is proactively devoting
resources to mitigate the risk.
1. Personnel
The employee training program will include crime prevention and handling procedures. Market
research has indicated that inner city customers often believe that they are treated with
disrespect since they are considered a possible crime suspect from the very moment they step
into a store. Therefore, in line with the vision of providing a safe shopping environment and
desire to treat customers with the highest satisfaction, employees will be trained to keep a
watchful yet discreet eye on possible offenders. However, a full-time security guard, or
bouncer, will not be employed. A security advantage of hiring employees from the community
is that they will know which customers are potential crime suspects.
One of the store employees will be responsible for checking the number of items that a customertakes into a fitting room. In addition to store employees, Image Fashions intends to hire a
security company to provide security personnel to monitor the premises during after-hour periods
to discourage arson and burglaries.
2 Infrastruc u e Store Layout
Image Fashions will invest in a surveillance camera system that will be placed at strategic points
in the store such as the store entrance/exit, fitting rooms, inventory space, cash register areas,
and throughout the floor space. There will be only one entrance/exit to the store, which will be
glass walled and ramped, as shown in Illustration 8. In addition, Image Fashions plans to place
anti-theft devices on all higher priced items that will sound an alarmwhen a customer walks past
the detectors placed at the exit. The anti-theft devices will be removed at the cash register whenthe customer pays for the item. The glass-walled and ramped entrance/exit will discourage take-
and-run theft incidences.
17Chicago Police Department
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D Inventory.
Successful inventory management is a key element for success and profitability for Image Fashions.
Fashion trends are especially fickle. As a start up, Image Fashions does not have the reputation or
financial strength to finance inventory or return unsold items. It must have inventory on hand to meet
flash demand or impulse purchases. However, excess inventory could tie up cash flow or be written off
as a loss.
Image Fashions will manage its products through two categories:
Advance Orders:regular fashion trends viewed through trade shows Urban Hits: heavily influenced by street trends and new breaking promotions through television
and other music stars. These can be ordered a month in advance.
Image Fashions intends to have its inventory delivered on a weekly basis so as to minimize warehousing
costs, reduce working capital and keep the product mix current. This may cost more, in terms of delivery
charges and COGS, but will pay for itself through higher margins.
Image Fashions, in its first year, will have to order and pay for the first 8 months worth of inventory in
advance as it will not have a credit history or relationship with the suppliers. Due to the small order size,
Image Fashions cannot expect to be able to return unsold goods tothe manufacturer.
To overcome this limitation, three actions are considered:
Minimize ordering of non-selling SKUs this will be done by ordering deliveries on a weekly basis
to minimize order sizes.
Promoting lower selling SKUs by getting sales associates to wear them in the store. This has
been tried successfully in Inditex, a global retailing chain.
Sales discounts will only be used to move old invesntory (these discounts will not occur as a store
wide sale, rather as individual markdowns).
The bulk of the inventory will be on display in the commercial area, with a small portion stored in an
inventory holding area in the back of the store.
E. Purchasing
There are three main trade shows that occur in the fashion business, each selling for the Spring,
Fall/Winter and Summer collections respectively.18 Image Fashions will need to pay for goods in advance.
Therefore, 8 months of inventory will need to be financed. These costs have been included in the start-up
and Year 1 costs. Beyond that period, Image Fashions will be able to finance the inventory purchases
from the profits and by negotiating credit periods based on the trading history with manufacturers.
Due to the highly volatile nature of the urban fashion market, trends can be started overnight by the rise
of a new music star or a hot new TV show. Deliveries will be scheduled to occur on a weekly basis
allowing for maximum flexibility. Maintaining the right product mix is more important that minimizing
delivery expense, particularly given the high gross margins available on the merchandise.
F. Hours of Operation
The store will have the following opening hours:
Monday- Friday: 10.00 am 9.00 pm
Saturday: 10.00 am 9.00 pm
Sunday: 11.00 am 7.00 pm
18E-mail interview with Chun Yee Yip, Buyer, Ann-Taylor.
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Work Shifts: One store manager will be in store at any one time. The table below lists the number ofsales assistants per shift. Although there will be 18 sales assistants, the Full Time Equivalent is 10.9
(assuming a 40 hour working week).
Illustration 12 S ore Operating Hours: t
t
No. of sales assistants Morning Shift Afternoon Shift Evening ShiftMon 2 2 6
Tu e- Thu 2 2 6Friday 2 8 12
Sa t 12 12 12 Sun 10 10 10
Total number of store managers: 2 full time.
Total number of retail employees: 18 sales assistants (part-time)
G. Return Policy:
While Image Fashions does not anticipate a significant amount of the business being impacted by
returns (in line with competitors), there will be a clear policy regarding them:
Return Policy
The most important part of the return policy is that it remainsclear and visible before the point of
purchase without being distasteful. The policy will be posted clearly beside the till. In accordance with its
reputation for excellent customer service, Image Fashions will allow customers to return undamaged
goods accompanied by a receipt within 30 days. Unless the goods are defective from the manufacturer,
Image Fashions cannot return the merchandise for credit. Rather, Image Fashions will liquidate the
merchandise off-line (not through store sales) via discounted sales to either current employees or major
discount retail brokers.
VI. Financial Analysis
A. Revenue Model
Image Fashions ability to generate revenue is susceptible to several variables within its localized market.
The overall market and site-specific market was discussed in Section IV: Competi ive Environmentand
highlighted the total apparel sales within the region. However, several assumptions were made to
determine the revenue that Image Fashions can capture. The first critical variable is the percentage of
the total apparel value that is spent on high-end apparel within this market. The second key variable is
the market share that Image Fashions can gain within its local market. Since the Image Fashions
business model is based upon providing high-end products with outstanding customer service within low
income neighborhoods, Image Fashions must capture a portion of the market share within a 5-mile
radius. To improve the sensitivity of the analysis, individual market shares were estimated for1, 3 and 5
mile radii.
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Illustration 14: Financial Projections for Image Fashions.
Gross Revenuefrom Income Statement
Net Incomefrom Income Stateme
$5,000,000
$4,500,000$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
Year 1 Year 2 Year 3 Year 4 Year 5
Best Case
Most Likely
Worst Case
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
($200,000)
($400,000)
Year 1 Year 2 Year 3
Net Cash Flow from Operating Activityfrom Cash Flow Statement
Outstanding Currentfrom Balance Sheet
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
($200,000)
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
($400,000)
Year 1 Year 2 Year 3 Year 4 Year 5
$0
Year 0 Year 1 Year 2 Year
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B Comparative Financial Performance.
t
r
I t : t t
To formulate some of the assumptions and validate the results in the financial model, retail industry
benchmarks were used. The following table shows the major benchmarks that were obtained from
various retail stores. The results forecasted by Image Fashions may be superior to some of the industry
benchmarks such as the sales per square foot since the store will be more focused on a smaller
customer segment and by virtue of its unique product mix. However, the overall performance metrics
demonstrate that Image Fashions financial projections are conservative.
Illustration 15: Comparative Performance Me rics19
Abercrombie
& Fitch Aeropostal
American
Eagle
Outfitters
GAP GuessNieman
Marcus
Image
Fashions
Gross Sales/Square Foot $401 $514 $394 $288 $511 $430
Sales/Store $3,095,000 $3,320,000 $1,477,700 $3,443,228
Square Feet/store 7,840 8,700 5,100 8,000
COGS* 59.1% 69.9% 39.9% 64.0% 65.0% 32.3% 48.1%
SG&A* 21.0% 15.2% 24.0% 41.6% 26.2% 23.8%
Net Earnings* 8.9% 8.6% -0.1% 1.1% 14.4%
*Note: Percentages based upon Net Revenue
VI. Financing
A. Sta t Up Costs
The primary costs in starting a retailing operation is the store build-out (the conversion of an existing
space into a store), the inventory expense and the working capital. The cost is detailed as follows:
l lus ration 16 S art Up Cos s
Item Cost
Advertising ExpenseInfrastructure
Build Out
Inventory System & Register
Miscellaneous Electrical Equipment
InventoryLegal Fees
SecurityWorking Capital
$ 10,000
$ 600,000
$ 25,000$ 5,000
$ 553,973$ 6,000
$ 15,000$ 295,496
Total $ 1,510,469
As a start up, Image Fashions will need to finance 8 months of inventory since it does not have an
existing credit line. The initial inventory cost is approximately $554,000. Furthermore, since Image
Fashions is a startup business, approximately $295,000 will be needed to cover operating costs duringthe first 18 months of operations. Along with several other miscellaneous expenses the total to open a
high-end apparel retail store on the southside of Chicago is $1.5M.
19Source: Company Annual Reports for Fiscal Year 2000 verse Image Fashions Full Operational Year 3
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B. Financing
t
r t
r t
The start up costs for Image Fashions will be funded through the following 3 sources:
Illustra ion 17: Sources of Funding
Owner Equity $
Percentage 20%
Grants/Funds $Pe cen age 10%Commercial Loans $
Pe cen age 70%
Total $
302,094
151,047
1,057,328
1,510,469
The first source is the owners investment, which is 20% of the total cost. The six owners will each
contribute approximately $50,000 totalling the $302,000 requirement. The second source of funding will
be through the City of Chicago and other community development funds. As highlighted in Appendix C
several groups provide funding to support economic devlepment in low income neighborhoods. Basedupon the management teams familiarity with the organizations, they anticipate receiving 10%, or
approximately $151,000 in grants. The final source will be a commercial loan for $1.06M.
VII. Management
A. Management Team
The management team of Image Fashions is formed by a variety of different backgrounds, which are
complementary and will allow Image Fashions excel in retail sales.
Barry Miller, the CEO, has considerable experience in developing projects for the community. He
has worked with youthand community development groups in the inner city for over 8 years, and
currently runs a management consulting organization that provides consulting services to
businesses in low income neighborhoods. The organization, the Neighborhood Business Initiative,
currently involves over 140 people. This exposure to the inner city and experience running an
organization will provide the managerial foundation for Image Fashions.
Jon Smith has broad experience in finance and marketing services through his work as a
consultant for more than 5 years. He will be responsible for the financial department while paying
close attention to meeting financial milestones.
Allen Green has been working as a consultant for more than 4 years and has relevant
experience in business planning and operational efficiency. He will provide valuable insight into
the site selection, store layout, and ongoing operations of the store. Oscar Williams has worked in sales for more than 3 years, dealing with diverse customers and
industry sectors. He also worked for a European retailer, Makro, for 6 months in the sport
apparel department. He will manage the store operations by optimizing the allocation of inventory
as well as the store layout to maximize the ticket purchases among the customers who enter the
store.
Will Sharpe will be in charge of the marketing strategy. He has extensive experience with
media companies as well as designing and implementing business plans. He has customer
relationship experience that will help Image Fashions to formulate the right strategy for acquiring
loyal customers. He will also be in charge of the advertising strategy while leveraging his
relationships with the media and advertising companies.
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George Michaels will be responsible for merchandizing and selecting the right product mixneeded to attract and maximize the purchase rate per customer. Together with a buyer, to beidentified, he will control the product mix to reflect the current fashion trends.
B. Advisory Board
Image Fashions recognizes the value of a trusted and experienced Board of Advisors. Although the
management is in conversations with additional renowned experts who may join in the future, the currentBoard of Advisors is comprised of:
Professor Gerald Dryer,Director of the Center for Retail Management, Williams
t
t i
Professor Wilma Darman, Professor of Marketing Strategy, Williams
Gary Park,Senior Buyer, Saks
Mike Lowe, Director of E hnic Marketing, Old & Circle
Image Fashions will use the Advisory Boards wealth of experience to improve its operations as well as to
streamline efficiency in the use of limited resources and personnel.
VIII. Timelines and Nex t Steps
The background analysis is complete, but the fundraising process is just beginning. We have yet to
receive final confirmation from the grant providers, but this funding appears secured. With the approval
of a commercial loan, the Image Fashions management team is ready to begin operations immediately.
The next step is to hire a buyer and purchase the first season of clothing for Image Fashions. It will
require 8 months from order to delivery, so orders will need to be placed soon for the winter of 2003
season. The second step is to finalize the lease on 7400 South and begin the store build-out, which
will take 4 months to complete.
Barry Miller, the President/CEO, will be the first full time employee and assume full responsibility for the
operations of the business. The remaining members of the management team will continue to work their
current jobs until the overall organization can support their fields of expertise. Gulshan Verma will be the
second member of the management team to begin full time employment with Image Fashions.
The overall goal of the management team is to grow Image Fashions into a national chain that is
recognized for urban fashions and its unique model of operating in low income neighborhoods. If the
model and operation proves effective, then a second store will be opened in the 60619 ZIP code in two
years. Further expansion will take Image Fashions into other markets, specifically Detroit, Pittsburgh, St.
Louis and Miami. Eventually, the size and growth of the organization will be able to support all 6 owners.
Illustra ion 18: Timeline of Act vities
Activities
Secure financing
Store location selection
Store construction
Brand / distribution right negotiation
Buyer selection
Hire staff and train employees
Advertising
Market validation
Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
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APP ENDIX A Financial Analysis
A-1Most Likely Scenario
Image Fashions, LLC
Income StatementFor Year Ending December 31, 20xx
(in $000's)
Year 1 Year 2 Year 3 Year 4 Year 5
Gross Revenue
Returned Goods
Discounts
Net Revenue
$ 831.0 $
$ 12.5 $
$ 24.6 $
$ 793.9 $
2,527.9 $
37.9 $
74.7 $
2,415.3 $
2,988.6 $
44.8 $
88.3 $
2,855.5 $
3,141.5 $
47.1 $
92.8 $
3,001.6 $
3,302.2
49.5
97.6
3,155.1
Cost of Goods Solds $ 381.8 $ 1,161.6 $ 1,373.3 $ 1,443.5 $ 1,517.4
Gross Income $ 412.1 $ 1,253.7 $ 1,482.2 $ 1,558.0 $ 1,637.7
Operating Expenses
Selling Expenses
Sales Salaries & Expenses
Advertising Expenses
Bad Debt Expense
Credit Card Charges
Theft/Shrink
Total Selling Expenses
$ 170.2 $
$ 24.9 $
$ - $
$ 6.4 $
$ 23.8 $
$ 225.2 $
175.9 $
75.8 $
- $
19.3 $
72.5 $
343.6 $
178.4 $
89.7 $
- $
22.8 $
85.7 $
376.5 $
179.2 $
94.2 $
- $
24.0 $
90.0 $
387.5 $
180.2
99.1
-
25.2
94.7
399.1
Administrative Expenses
Administrative Salaries & Expenses
Bank Charges
Loan Payments
Miscellaneous Expenses
Accounting Expenses
Insurance
Legal Costs
Telephone
Rent Expenses
Security Expenses
Total Administrative Expenses
$ 108.0 $
$ - $
$ 117.8 $
$ 4.0 $
$ 12.0 $
$ 9.0 $
$ 1.2 $
$ 25.1 $
$ 6.0 $
$ 283.1 $
108.0 $
- $
127.6 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
293.9 $
108.0 $
- $
138.1 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
304.5 $
108.0 $
- $
149.6 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
315.9 $
108.0
-
162.0
4.0
12.0
10.0
1.2
25.1
6.0
328.4
Total Operating Expenses $ 508.3 $ 637.4 $ 681.0 $ 703.5 $ 727.5
Net Income from Operations $ (101.0) $ 611.5 $ 796.4 $ 849.8 $ 905.5
Other (Income) or Expenses
Tax Expense
Interest income
Interest expense
Depreciation/Amortization
(Gain) or loss on assets
Other (Gain) or loss
Total Other (Income) or Expenses
$ 9.1 $
$ - $
$ 80.6 $
$ 6.0 $
$ - $
$ - $
$ 95.7 $
244.6 $
- $
70.8 $
6.0 $
- $
- $
321.4 $
318.6 $
- $
60.2 $
6.0 $
- $
- $
384.8 $
339.9 $
- $
48.8 $
6.0 $
- $
- $
394.7 $
362.2
-
36.3
6.0
-
-
404.5
Net Profit after Taxes $ (196.7) $ 290.1 $ 411.6 $ 455.1 $ 500.9
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Image Fashions, LLC
Balance SheetFor Year Ended December 31, 20xx (in 000's)
r
(in $000's)
Assets Year 1 Year 2 Year 3 Year 4 Year 5
Current Assets
Cash and cash equivalents
Accounts Recievable
Inventories
Prepaid expenses
Total Current Assets
Long Term Assets
Property, plant and equipment
Goodwill and other intangibles
Other assets
Total Long Term Assets
Total Assets
$ 109.6 $
$ 45.8 $
$ 198.5 $
$ 5.1 $
$ 358.9 $
$ - $
$ 24.0 $
$ - $
$ - $
$ 24.0 $
$ 382.9 $
0.3 $
92.6 $
603.8 $
6.4 $
703.1 $
- $
18.0 $
- $
- $
18.0 $
721.1 $
307.9 $
97.4 $
713.9 $
6.8 $
1,125.9 $
- $
12.0 $
- $
- $
12.0 $
1,137.9 $
732.4 $
102.4 $
750.4 $
7.0 $
1,592.2 $
- $
6.0 $
- $
- $
6.0 $
1,598.2 $
1,201.0
107.6
788.8
7.3
2,104.6
-
-
-
-
-
2,104.6
Liabil it ies and Owner's Equity
Cu rent liabilities
Current debt
Accounts payable
Accrued expenses
Total current liabilities
$ 942.9 $
$ 5.1 $
$ - $
$ 948.0 $
815.3 $
6.4 $
- $
821.7 $
677.2 $
6.8 $
- $
684.0 $
527.6 $
7.0 $
- $
534.6 $
365.5
7.3
-
372.8
Long term debt -$ $ - $ - $ $- -
Total l iabil it ies $ 948.0 $ 821.7 $ 684.0 $ 534.6 $ 372.8
Total Owners' Equity $ (565.1) $ (100.6) $ 453.9 $ 1,063.6 $ 1,731.8
Image Fashions, LLC
Statement of Cash FlowsFor Year Ended December 31, 20xx (in 000's)
(in $000's)
Cash f lows from Operating Activities
Net Income per Income Statement
Add
Depreciation
Deduct
$ (196.7) $
$ 6.0 $
290.1 $
6.0 $
411.6 $
6.0 $
455.1 $
6.0 $
500.9
6.0
Increase in Inventory N/A $
Increase in PrePaid Expenses N/A $
405.3 $
1.3 $
110.0 $
0.4 $
36.5 $
0.2 $
38.4
0.2
Decrease in Accounts Payable N/A $ (1.3) $ (0.4) $ (0.2) $ (0.2)
Net Cash Flow from Operating Activities $ (190.7) $ (109.3) $ 307.6 $ 424.6 $ 468.5
Cash flows from Investing Activities
Cash Received from Investments Sold
Less Cash Paid for Store Equipment
Net Cash Flow from Investing Activities
-$ $ - $ - $
-$ $ - $ - $
-$ $ - $ - $
-$ $ - $ - $
$- -
$- -
$- -
$- -
Cash f lows from Financing Activities
Cash Paid for Dividends -$ $ - $ - $ $- -
Increase in Cash $ (190.7) $ (109.3) $ 307.6 $ 424.6 $ 468.5
Cash at the Beginning of the Year
Cash at the End of the Year
$ 300.3 $
$ 109.6 $
109.6 $
0.3 $
0.3 $
307.9 $
307.9 $
732.4 $
732.4
1,201.0
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Image Fashions, LLC
Financial Metrics and Coverage Ratios
Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Sales growth (%) N/A 204% 18% 5% 5%
Net Revenue/Sq. Foot $103.87 $315.99 $373.58 $392.69 $412.78
Cost of goods sold / Sales (%) 48% 48% 48% 48% 48%
Gross margin (%) 52% 52% 52% 52% 52%
Operating expenses / Sales (%) 64% 26% 24% 23% 23%
Operating Margin (%) 36% 74% 76% 77% 77%
Operating Growth Rate (%) N/A -708% 30% 7% 7%
Net income margin (%) -25% 12% 14% 15% 16%
Net income growth (%) N/A 248% 42% 11% 10%
Coverage Ratios
Debt / EBITDA -9.3 x 1.3 x 0.8 x 0.6 x 0.4 x
EBITDA / Interest expense -1.3 x 8.7 x 13.3 x 17.5 x 25.0 x
EBIT / Interest expense -2.3 x 7.6 x 12.2 x 16.4 x 23.8 x
Note: All Sales Percentages are based upon Net Sales
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A 2.. Best Case Scenario-
Image Fashions, LLC
Income StatementFor Year Ending December 31, 20xx
(in $000's)
Year 1 Year 2 Year 3 Year 4 Year 5
Gross Revenue
Returned Goods
Discounts
Net Revenue
$ 1,151.0 $
$ 17.3 $
$ 34.0 $
$ 1,099.7 $
3,501.7 $
52.5 $
103.5 $
3,345.7 $
4,139.8 $
62.1 $
122.3 $
3,955.3 $
4,351.6 $
65.3 $
128.6 $
4,157.7 $
4,574.2
68.6
135.2
4,370.4
Cost of Goods Solds $ 528.9 $ 1,609.0 $ 1,902.2 $ 1,999.6 $ 2,101.9
Gross Income $ 570.8 $ 1,736.6 $ 2,053.1 $ 2,158.2 $ 2,268.6
Operating Expenses
Selling Expenses
Sales Salaries & Expenses
Advertising Expenses
Bad Debt Expense
Credit Card Charges
Theft/Shrink
Total Selling Expenses
$ 170.6 $
$ 34.5 $
$ - $
$ 8.8 $
$ 33.0 $
$ 246.9 $
180.8 $
105.0 $
- $
26.8 $
100.4 $
413.0 $
184.2 $
124.2 $
- $
31.6 $
118.7 $
458.7 $
185.3 $
130.5 $
- $
33.3 $
124.7 $
473.9 $
186.6
137.2
-
35.0
131.1
489.9
Administrative Expenses
Administrative Salaries & Expenses
Bank Charges
Loan Payments
Miscellaneous Expenses
Accounting Expenses
Insurance
Legal Costs
Telephone
Rent Expenses
Security Expenses
Total Administrative Expenses
$ 108.0 $
$ - $
$ 120.1 $
$ 4.0 $
$ 12.0 $
$ 9.0 $
$ 1.2 $
$ 25.1 $
$ 6.0 $
$ 285.4 $
108.0 $
- $
130.1 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
296.4 $
108.0 $
- $
140.9 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
307.2 $
108.0 $
- $
152.6 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
318.9 $
108.0
-
165.2
4.0
12.0
10.0
1.2
25.1
6.0
331.5
Total Operating Expenses $ 532.3 $ 709.4 $ 765.9 $ 792.8 $ 821.4
Net Income from Operations $ 33.7 $ 1,022.4 $ 1,282.4 $ 1,360.6 $ 1,442.3
Other (Income) or Expenses
Tax Expense
Interest income
Interest expense
Depreciation/Amortization
(Gain) or loss on assets
Other (Gain) or loss
Total Other (Income) or Expenses
$ 38.4 $
$ - $
$ 82.2 $
$ 6.0 $
$ - $
$ - $
$ 126.5 $
409.0 $
- $
72.2 $
6.0 $
- $
- $
487.2 $
513.0 $
- $
61.4 $
6.0 $
- $
- $
580.4 $
544.2 $
- $
49.7 $
6.0 $
- $
- $
600.0 $
576.9
-
37.1
6.0
-
-
620.0
Net Profit after Taxes $ (92.8) $ 535.2 $ 702.0 $ 760.6 $ 822.3
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Image Fashions, LLC
Balance SheetFor Year Ended December 31, 20xx (in 000's)
r
(in $000's)
Assets Year 1 Year 2 Year 3 Year 4 Year 5
Current Assets
Cash and cash equivalents
Accounts Recievable
Inventories
Prepaid expenses
Total Current Assets
Long Term Assets
Property, plant and equipment
Goodwill and other intangibles
Other assets
Total Long Term Assets
Total Assets
$ 30.0 $
$ 63.4 $
$ 274.9 $
$ 5.3 $
$ 373.6 $
$ - $
$ 24.0 $
$ - $
$ - $
$ 24.0 $
$ 397.6 $
9.7 $
128.3 $
836.4 $
7.1 $
981.5 $
- $
18.0 $
- $
- $
18.0 $
999.5 $
565.3 $
134.9 $
988.8 $
7.7 $
1,696.7 $
- $
12.0 $
- $
- $
12.0 $
1,708.7 $
1,281.4 $
141.8 $
1,039.4 $
7.9 $
2,470.5 $
- $
6.0 $
- $
- $
6.0 $
2,476.5 $
2,056.5
149.0
1,092.6
8.2
3,306.4
-
-
-
-
-
3,306.4
Liabil it ies and Owner's Equity
Cu rent liabilities
Current debt
Accounts payable
Accrued expenses
Total current liabilities
$ 961.5 $
$ 5.3 $
$ - $
$ 966.8 $
831.4 $
7.1 $
- $
838.5 $
690.5 $
7.7 $
- $
698.2 $
538.0 $
7.9 $
- $
545.9 $
372.7
8.2
-
380.9
Long term debt -$ $ - $ - $ $- -
Total l iabil it ies $ 966.8 $ 838.5 $ 698.2 $ 545.9 $ 380.9
Total Owners' Equity $ (569.2) $ 161.1 $ 1,010.5 $ 1,930.6 $ 2,925.4
Image Fashions, LLC
Statement of Cash FlowsFor Year Ended December 31, 20xx (in 000's)
(in $000's)
Cash f lows from Operating Activities
Net Income per Income Statement
Add
Depreciation
Deduct
$ (92.8) $
$ 6.0 $
535.2 $
6.0 $
702.0 $
6.0 $
760.6 $
6.0 $
822.3
6.0
Increase in Inventory N/A $
Increase in PrePaid Expenses N/A $
561.5 $
1.8 $
152.4 $
0.6 $
50.6 $
0.3 $
53.2
0.3
Decrease in Accounts Payable N/A $ (1.8) $ (0.6) $ (0.3) $ (0.3)
Net Cash Flow from Operating Activities $ (86.8) $ (20.2) $ 555.6 $ 716.0 $ 775.2
Cash flows from Investing Activities
Cash Received from Investments Sold
Less Cash Paid for Store Equipment
Net Cash Flow from Investing Activities
-$ $ - $ - $
-$ $ - $ - $
-$ $ - $ - $
-$ $ - $ - $
$- -
$- -
$- -
$- -
Cash f lows from Financing Activities Cash Paid for Dividends -$ $ - $ - $ $- -
Increase in Cash $ (86.8) $ (20.2) $ 555.6 $ 716.0 $ 775.2
Cash at the Beginning of the Year
Cash at the End of the Year
$ 116.8 $
$ 30.0 $
30.0 $
9.7 $
9.7 $
565.3 $
565.3 $
1,281.4 $
1,281.4
2,056.5
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Image Fashions, LLC
Financial Metrics and Coverage Ratios
Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Sales growth (%) N/A 204% 18% 5% 5%
Net Revenue/Sq. Foot $143.88 $437.71 $517.47 $543.95 $571.78
Cost of goods sold / Sales (%) 48% 48% 48% 48% 48%
Gross margin (%) 52% 52% 52% 52% 52%Operating expenses / Sales (%) 48% 21% 19% 19% 19%
Operating Margin (%) 52% 79% 81% 81% 81%
Operating Growth Rate (%) N/A 2929% 25% 6% 6%
Net income margin (%) -8% 16% 18% 18% 19%
Net income growth (%) N/A 677% 31% 8% 8%
Coverage Ratios
Debt / EBITDA 28.5 x 0.8 x 0.5 x 0.4 x 0.3 x
EBITDA / Interest expense 0.4 x 14.2 x 20.9 x 27.4 x 38.9 x
EBIT / Interest expense -0.7 x 13.1 x 19.8 x 26.2 x 37.8 x
Note: All Sales Percentages are based upon Net Sales
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A 3Worst Case Scenario-
Image Fashions, LLC
Income StatementFor Year Ending December 31, 20xx
(in $000's)
Year 1 Year 2 Year 3 Year 4 Year 5
Gross Revenue
Returned GoodsDiscounts
Net Revenue
$ 488.5 $
$ 7.3 $$ 14.4 $
$ 466.8 $
1,486.2 $
22.3 $43.9 $
1,420.0 $
1,757.1 $
26.4 $51.9 $
1,678.8 $
1,847.0 $
27.7 $54.6 $
1,764.7 $
1,941.5
29.157.4
1,855.0
Cost of Goods Solds $ 224.5 $ 682.9 $ 807.4 $ 848.7 $ 892.1
Gross Income $ 242.3 $ 737.1 $ 871.4 $ 916.0 $ 962.9
Operating Expenses
Selling Expenses
Sales Salaries & Expenses
Advertising Expenses
Bad Debt Expense
Credit Card Charges
Theft/Shrink
Total Selling Expenses
$ 170.1 $
$ 14.6 $
$ - $
$ 3.7 $
$ 14.0 $
$ 202.5 $
171.1 $
44.6 $
- $
11.4 $
42.6 $
269.6 $
172.1 $
52.7 $
- $
13.4 $
50.4 $
288.6 $
172.6 $
55.4 $
- $
14.1 $
52.9 $
295.1 $
173.2
58.2
-
14.8
55.6
301.9
Administrative Expenses
Administrative Salaries & Expenses
Bank Charges
Loan Payments
Miscellaneous Expenses
Accounting Expenses
Insurance
Legal Costs
Telephone
Rent Expenses
Security Expenses
Total Administrative Expenses
$ 108.0 $
$ - $
$ 118.9 $
$ 4.0 $
$ 12.0 $
$ 9.0 $
$ 1.2 $
$ 25.1 $
$ 6.0 $
$ 284.2 $
108.0 $
- $
128.8 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
295.1 $
108.0 $
- $
139.5 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
305.8 $
108.0 $
- $
151.1 $
4.0 $
12.0 $
10.0 $
1.2 $
25.1 $
6.0 $
317.4 $
108.0
-
163.6
4.0
12.0
10.0
1.2
25.1
6.0
329.9
Total Operating Expenses $ 486.7 $ 564.7 $ 594.4 $ 612.5 $ 631.8
Net Income from Operations $ (249.2) $ 167.6 $ 272.3 $ 298.7 $ 326.2
Other (Income) or Expenses
Tax Expense
Interest income
Interest expense
Depreciation/Amortization
(Gain) or loss on assets
Other (Gain) or loss
Total Other (Income) or Expenses
$ - $
$ - $
$ 81.4 $
$ 6.0 $
$ - $
$ - $
$ 87.4 $
69.4 $
- $
71.5 $
6.0 $
- $
- $
146.9 $
108.9 $
- $
60.8 $
6.0 $
- $
- $
175.7 $
119.5 $
- $
49.2 $
6.0 $
- $
- $
174.7 $
130.5
-
36.7
6.0
-
-
173.2
Net Profit after Taxes $ (336.6) $ 20.7 $ 96.5 $ 124.0 $ 153.0
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Image Fashions, LLC
Balance SheetFor Year Ended December 31, 20xx (in 000's)
r
(in $000's)
Assets Year 1 Year 2 Year 3 Year 4 Year 5
Current Assets
Cash and cash equivalents
Accounts Recievable
Inventories
Prepaid expenses
Total Current Assets
Long Term Assets
Property, plant and equipment
Goodwill and other intangibles
Other assets
Total Long Term Assets
Total Assets
$ 212.5 $
$ 26.9 $
$ 116.7 $
$ 4.9 $
$ 361.0 $
$ - $
$ 24.0 $
$ - $
$ - $
$ 24.0 $
$ 385.0 $
0.9 $
54.5 $
355.0 $
5.6 $
416.0 $
- $
18.0 $
- $
- $
18.0 $
434.0 $
38.7 $
57.2 $
419.7 $
5.9 $
521.6 $
- $
12.0 $
- $
- $
12.0 $
533.6 $
147.3 $
60.2 $
441.2 $
6.1 $
654.8 $
- $
6.0 $
- $
- $
6.0 $
660.8 $
283.8
63.3
463.7
6.3
817.1
-
-
-
-
-
817.1
Liabil it ies and Owner's Equity
Cu rent liabilities
Current debt
Accounts payable
Accrued expenses
Total current liabilities
$ 951.9 $
$ 4.9 $
$ - $
$ 956.8 $
823.2 $
5.6 $
- $
828.8 $
683.7 $
5.9 $
- $
689.6 $
532.6 $
6.1 $
- $
538.8 $
369.0
6.3
-
375.4
Long term debt -$ $ - $ - $ $- -
Total l iabil it ies $ 956.8 $ 828.8 $ 689.6 $ 538.8 $ 375.4
Total Owners' Equity $ (571.9) $ (394.8) $ (156.0) $ 122.0 $ 441.7
Image Fashions, LLC
Statement of Cash FlowsFor Year Ended December 31, 20xx (in 000's)
(in $000's)
Cash f lows from Operating A ctivities
Net Income per Income Statement
Add
Depreciation
Deduct
$ (336.6) $
$ 6.0 $
20.7 $
6.0 $
96.5 $
6.0 $
124.0 $
6.0 $
153.0
6.0
Increase in Inventory N/A $
Increase in PrePaid Expenses N/A $
238.3 $
0.8 $
64.7 $
0.3 $
21.5 $
0.2 $
22.6
0.2
Decrease in Accounts Payable N/A $ (0.8) $ (0.3) $ (0.2) $ (0.2)
Net Cash Flow from Operating Activities $ (330.6) $ (211.6) $ 37.8 $ 108.5 $ 136.5
Cash flows from Investing Activities
Cash Received from Investments Sold
Less Cash Paid for Store Equipment
Net Cash Flow from Investing Activities
-$ $ - $ - $
-$ $ - $ - $
-$ $ - $ - $
-$ $ - $ - $
$- -
$- -
$- -
$- -
Cash f lows from Financing A ctivities
Cash Paid for Dividends -$ $ - $ - $ $- -
Increase in Cash $ (330.6) $ (211.6) $ 37.8 $ 108.5 $ 136.5
Cash at the Beginning of the Year
Cash at the End of the Year
$ 543.1 $
$ 212.5 $
212.5 $
0.9 $
0.9 $
38.7 $
38.7 $
147.3 $
147.3
283.8
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APPENDIX B Management Resumes
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ALLEN GREEN
EDUCATION
5540 North Drive # 16H Williams, IL 60657
2001 Present WILLIAMS SCHOOL OF MANAGEMENT Williams, ILCandidate for Master of Business Administration degree, June 2003
Candidate for Master in Engineering Management degree, June 2003
Majors in finance, marketing, management & strategy, entrepreneurshipMember, Finance Club, Marketing Club, Scuba Diving Club
1992 1996 WILLIAMS UNIVERSITY Williams, ILBachelor of Science in Mechanical Engineering, December 1996
Bachelor of Science in Manufacturing Engineering, December 1996
EXPERIENCE
1997 2001 DELRAY CONSULTING Williams, IL
Consultant
Telecommunications Provider Customer Care andBilling System ImplementationLed a multi-national system testing execution team (9 client, contract, and firm employees). Developed businessscenarios used to identify and resolve over 1,000 defects during system development. Managed responsibilities
between Israeli, French, and Canadian teams. Broadband Provider Inventory Visibility Analysis
Assessed the current inventory tracking method and recommended new processes. Facilitated selection of
software to address cable system inventory visibility issues.
Electronic Components & Computer Distributor Financial ERP Planning ProjectLed accounts receivable team. Assessed and developed new order to cash cycle processes.
Delray Consulting InformationPrint Approach Development Internal ProjectDeveloped a matrix of financial performance metrics for various corporate functional areas.
International Game & Entertainment Developer Financial ERP ImplementationManaged accounts receivable team consisting of 2 System Analysts and 6 client personnel.
Midwest Truck & Automotive Supplier Manufacturing ERP ImplementationDeveloped the financial business requirements for a manufacturing plant opening in Mexico.
Midwest Utility Company ERP Software Selection Project
Developed detailed project cost model for ERP package implementation.
Nations Largest HMO, Member Service Center Call Center Optimization ProjectIdentified Call Center management weaknesses and made recommendations regarding processes,
FTE scheduling, and FTE productivity measures.
Summer 1996 SUNRAY MOTORS Soot, MIDesign Engineer Intern
V6 Engineering Center Product Design InternshipResponsible for the design modifications, testing, and analysis of a prototype intake manifold.
Summers 1995, ENGINEERING LOGISTICS COMPANY Freeburg, CO
1994 Process Engineer Intern
Engineering Logistics Company Manufacturing Optimization Internship
Designed a new manufacturing layout for two flow meter lines, including a new parts handling and storage
system.
Engineering Logistics Company Quality Assurance InternshipFacilitated the implementation of ISO 9003 international quality control standards.
OTHER DATA
Conversant in German travel Europe extensively, family resides in Germany and Austria.
Interests include photography and scuba diving.
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JON SMITH
1955 Warren Avenue #523Wiliams, Illinois 60201, USA
EDUCATION2001-Present WILLIAMS SCHOOL OF MANAGEMENT, Williams, IL
WILLIAMS UNIVERSITYCandidate for Master of Business Administration degree, June 2003.
Intended majors in management & strategy, finance, and international business.
Leader, Global Initiatives in Management class and trip to Vi etnam. Recipient of Jansons scholarship, awarded to accomplished Norwegians with potential to significantly impact
Norwegian industry.
Member of general management, consulting, finance and public speaking clubs.
1990-1995 SCANDINAVIAN INSTITUTEOF TECHNOLOGY Stockholm, SwedenMaster of Science, Engineering Cybernetics, December 1995.
Co-Chair of Erasmus European Student Exchange Network.
Head Instructor of NTHI Tae Kwon Do club. Trained Norwegian and European Champions.
EXPERIENCESummer 2002 DUTCH BANK
Summer Associate, Global Investment Banking- Mergers and Acquisitions Bristol, UK
Member of a sell side team for a live M&A deal in the UK. Responsible for setting up due diligence
meetings for potential buyers and participated in discussing the terms of the final bid. Participated in a125MM High Yield offering. Drafted the Offering Memorandum and performed
company/financial due diligence. Prepared client senior management for debt rating agency meeting.
Performed a broad range of corporate finance duties including comparable company, comparable
transaction, strategic analyses and preparation of pitch book and various management presentations.
1996-2001 ALLRIGHT TECHNOLOGY
Swedish consulting firm providing high-end IT, e-commerce and marketing services.Director North Pole, Norway
Promoted to Director, Oil & Gas Division in 2001. Youngest director in companys history.
Senior Consultant Information System Group 1996-2001 Houston, TX & Caracas, Venezuela
Earned early promotion as youngest leader of $90 MM project implementing the worlds most
advanced control system for oil and gas production for the Venezuelan National Oil Company (PDVSA). Led global cross-functional teams of 3 to 8 consultants and client personnel in all aspects of
development of information systems to support clients water injection, oil treatment and water treatment
operations.
Shortened waiting time of lab results from 2 days to 4 seconds, potential annual saving of $1.5 MM inreduced chemical consumption.
Implemented system for corrosion monitoring in pipelines, expected savings of over $ 1M annually.
Designed treatment systems, significantly increasing probability for accurate and timely crudedelivery to external clients, saving daily fines as high as $150 K and rerouting costs.
Managed relations with clients middle management, including contract negotiations.
1995-1996 INDEPENDENT ASNorways largest software house.
Software Programmer Stavanger, Norway Implemented system currently used by over 75 % of all Norwegian municipals for healthcare
reporting
Reprogrammed 3000+ users healthcare system from UNIX to Windows.
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WILL SHARPE
1941 New York Avenue, # 301, Williams, Illinois 60201
EDUCATION
2001-Present WILLIAMS SCHOOL OF MANAGEMENT, WILLIAMS UNIVERSITY Williams, IL
Candidate for Master of Business Administration degree, June 2003.
Intended majors in Management & Strategy, Finance and Marketing.
Elected as Global Affairs Representative of student government and developed Williams Globe website.
Team Captain for AT Kearney Global Prize Consulting Competition.
Member of Finance Club, Consulting Club, Private Equity and Entrepreneurship Club.
1994-1996 GUMBO UNIVERSITY Leslo, INMaster of Science degree in Electrical Engineering, May 1996.
1991-1994 GEORGIA TECH Blacksburg, GABachelor of Science degree in Electrical Engineering, May 1994.
GraduatedMagna Cum Laude , Deans List, Completed 4-year program in 3-years.
Elected Social Chairman of Tau Beta Pi National Engineering Honor Society.
EXPERIENCE
Summer 2002 BLUEFRONT NETWORKS San Jose, CASummer Associate, Corporate Strategy and Business Development
Developed business case and financial model to preserve #1 market share and stimulate new revenueopportunities with top global clients.
Conducted gap analysis of corporate marketing strategy against major competitors and recommended actionto bolster industry leadership position.
1996-2001 COMPUCHESS LIMITED SingaporeRegional Business Manager, 2000-2001
Spearheaded business development activities and formulated marketing strategies by focusing on specific market
requirements and value creation methodologies.
Managed complex cross-border proposals valued at over $130 Mil