Image Fashions

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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

21


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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.

22


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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.

23


23/45


24/45

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


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)


$0

Year 0 Year 1 Year 2 Year


25/45

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.

27


27/45

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

28


28/45

APP ENDIX A Financial Analysis

A-1Most Likely Scenario

Image Fashions, LLC

Income StatementFor Year Ending December 31, 20xx

(in $000's)


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


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

29


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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

30


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Image Fashions, LLC

Financial Metrics and Coverage Ratios

Income Statement


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

31


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A 2.. Best Case Scenario-

Image Fashions, LLC


(in $000's)


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



Bad Debt Expense

Credit Card Charges

Theft/Shrink


$ 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



Bank Charges

Loan Payments


Accounting Expenses

Insurance

Legal Costs

Telephone

Rent Expenses

Security 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


Net Income from Operations $ 33.7 $ 1,022.4 $ 1,282.4 $ 1,360.6 $ 1,442.3


Tax Expense

Interest income

Interest expense





$ 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


32


32/45

Image Fashions, LLC


r

(in $000's)


Current Assets


Accounts Recievable

Inventories

Prepaid expenses


Long Term Assets



Other 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


Cu rent liabilities

Current debt

Accounts payable

Accrued expenses


$ 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 Owners' Equity $ (569.2) $ 161.1 $ 1,010.5 $ 1,930.6 $ 2,925.4

Image Fashions, LLC


(in $000's)

Cash f lows from Operating Activities


Add

Depreciation

Deduct

$ (92.8) $

$ 6.0 $

535.2 $

6.0 $

702.0 $

6.0 $

760.6 $

6.0 $

822.3

6.0



561.5 $

1.8 $

152.4 $

0.6 $

50.6 $

0.3 $

53.2

0.3







-$ $ - $ - $

-$ $ - $ - $

-$ $ - $ - $

-$ $ - $ - $

$- -

$- -

$- -

$- -

Cash f lows from Financing Activities Cash Paid for Dividends -$ $ - $ - $ $- -

Increase in Cash $ (86.8) $ (20.2) $ 555.6 $ 716.0 $ 775.2



$ 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


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


(in $000's)


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



Bad Debt Expense

Credit Card Charges

Theft/Shrink


$ 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



Bank Charges

Loan Payments


Accounting Expenses

Insurance

Legal Costs

Telephone

Rent Expenses

Security 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


Net Income from Operations $ (249.2) $ 167.6 $ 272.3 $ 298.7 $ 326.2


Tax Expense

Interest income

Interest expense





$ - $

$ - $

$ 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


35


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Image Fashions, LLC


r

(in $000's)


Current Assets


Accounts Recievable

Inventories

Prepaid expenses


Long Term Assets



Other 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


Cu rent liabilities

Current debt

Accounts payable

Accrued expenses


$ 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 Owners' Equity $ (571.9) $ (394.8) $ (156.0) $ 122.0 $ 441.7

Image Fashions, LLC


(in $000's)

Cash f lows from Operating A ctivities


Add

Depreciation

Deduct

$ (336.6) $

$ 6.0 $

20.7 $

6.0 $

96.5 $

6.0 $

124.0 $

6.0 $

153.0

6.0



238.3 $

0.8 $

64.7 $

0.3 $

21.5 $

0.2 $

22.6

0.2







-$ $ - $ - $

-$ $ - $ - $

-$ $ - $ - $

-$ $ - $ - $

$- -

$- -

$- -

$- -

Cash f lows from Financing A ctivities

Cash Paid for Dividends -$ $ - $ - $ $- -

Increase in Cash $ (330.6) $ (211.6) $ 37.8 $ 108.5 $ 136.5



$ 543.1 $

$ 212.5 $

212.5 $

0.9 $

0.9 $

38.7 $

38.7 $

147.3 $

147.3

283.8

36


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37/45

37


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APPENDIX B Management Resumes

38


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40/45

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

Documents

Image Fashions