Executive Summary

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 America’s 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 or unfounded, 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 market’s gross revenue, and will deliver the Net Income highlighted in this Revenue
Summary.

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. Image Fashions 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

within their neighborhoods. The store will be trendy, clean and well lit. The staff will be professional and courteous,
and the store policy will reinforce the value of the customer and the experience. While security and shrink are issues,
Image Fashions will focus on containing the few problem elements, rather then assuming all customers 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.

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 ..............................................................................................................................11

B. 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 ...............................................................................................................................18

3. 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 A…Financial Analysis .....................................................................................................................29

A-1…Most Likely Scenario ..........................................................................................................................29

A-2.. Best Case Scenario..........................................................................................................................32

A-3…Worst Case Scenario........................................................................................................................35

APPENDIX B…Management Resumes .............................................................................................................38

4

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 e nd apparel is a major unmet market in Chicago’s inner city and
how a strategic and disciplined approach to high end apparel retail in Chicago’s low income communities can
generate revenue and employment.

II. The General Market

A. General Market Definition

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 people live 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.
1 The 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 Srategic Perspective, Pricewaterhouse Coopers and the Initiative for a Competitive Inner
City, 1997.

3 2nd Annual Inner-City Shopper Survey: InneCity Shoppers Make Cens (and Dollas), 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 Group in a partnership
with The Initiative for a

Competitive Inner City, June 1998.

5: t r- t r

Illustration 1: Annual Apparel and Service Expenditures byRace

$1,200 American

$1,000 Hispanic

$800

$600 Note: The U.S. Census defines this clothing expenditures in the
category,Apparel and Services, and it is defined as retail expenditures
$400 includes dollars spent on all apparel, footwear, jewelry and other apparel
$200 and services.5

$0 Currently, several key mainstream designers, such as Tommy Hilfiger and

Ralph Lauren, view the inner city as fashion trendsetters. These
Total Inner City neighborhoods are early adaptors of new designs and set the trends for their
suburban peers. In market surveys, over 50% of African Americans and
US Shoppers
Latinos ranked trend setting fashions as somewhat or very important in the
White 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
African

MTV’s urban, hip-hop music show, called Direct Effect, and MTV’s 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 an escalating demand for the product and few specialty
stores to cater to this market.

5 http://www.oconomowocusa.com/retail%20profile.pdf

6 2nd Annual Inner-City Shopper Survey: InneCity Shoppers Make Cens (and Dollas), The Initiative for a Competitive
Inner City and

Pricewaterhouse Coopers, November, 1998.

r- t r

B The Chicago Market

Chicago is a unique market on several levels. First, Chicago is one of the top 3, most populated markets in the U.S. and
is recognized for its diverse and affluent population. Due to its affluence, most major designers and retailers have
stores on Chicago’s “Magnificent Mile” (downtown Michigan Avenue) or in the neighboring affluent communities.
While Los Angeles and New York typically set American fashion trends, Chicago earns its title of “Second City,” by
eventually providing all of the same amenities and products as other “trend leading” cities.

The second unique aspect of Chicago is the segregation of its population. Typically, races or ethnic groups dominate
one neighborhood or community and have little interaction with other groups. Typically, affluent Caucasian city
dwellers are drawn to the north side of the city, while lower income foreigners and minorities live on the west and
south side of the city. The result is high price real estate on the north side with an abundance of retailers competing
for revenue, while the west and south side offer low cost housing but few recognized retailers. To spend their
discretionary income, west and south- siders travel to the north side of the city or Michigan Avenue.

Illustration 2a demonstrates the average per capita income by ZIP Code. Historically, retailers would use this as their
primary metric when expanding operations into a new market or neighborhood. The darker green ZIP Codes on the
map indicate higher income areas as compared to the lighter green ZIP Codes. Using this metric, the north side of
Chicago seems to be the most attractive market, with little opportunity for retail businesses on the south side.
However, this metric does not account for population density or spending patterns, two factors that are critical in
measuring the potential success of retail operations.

Illustration 2b accounts for the population density and for spending patterns, rather then strictly using per capita
incomes. In this second illustration, the north-side’s advantage is not as clear, and it demonstrates retail
opportunities, based upon total apparel expenditures, on the south and west-side of Chicago. The south side offers
five high apparel spending ZIP Codes which are in the >$50MM range, impressive when compared to their annual per
capita income.
7.

Illustration 2a: Average Per Capita Income by ZIP Code 7 Illustration 2b: Total Apparel Expenditures by ZIP Code 8

7 Source: Analysis of U.S. Census Data

8 Source: Analysis of U.S. Census Data

Illustration 3 overlays Chicago’s apparel retailers with the information from Illustration 2b (Total Apparel Expenditures
by ZIP Code). It supports the historical pattern that retailers have used only average income to define new market
opportunities. The retailers, consistent with average income patterns, are concentrated on the north side of the city.
Markedly fewer retailers are present on the south and west sides despite the great market potential.

Illusration 3 Per Capita Income by ZIP Code and Apparel Reailers byAddress 9

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 and business 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 urban 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 Listings

10 CNN.com’s Money section. http://money.cnn.com/2002/11/08/pf/yourhome/bplive_chicago/index.htmt : t

III. Image Fashion’s 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:

Illustraion 4: Image Fashions’ Marketing Model

Positioning Strategy

Price

Marketing Objective

Promotion

Target Segment
Product 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 on primary 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 Sraegy

Because Image Fashions does not intend to manufacture or design its own products, it will differentiate itself on
service and product mix (by responding rapidl y 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 don’t 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.

11

ttt

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 Fashion’s status as a high end retailer. Again, the primary assumption is that
there is considerable 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 of the 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.

12

The sales associates will know some of the ‘problem customers’ through their community relationships.
In order to reduce staff turnover and improve selling ability, the staff will be hired through a joint project with the
local schools where grades are dependent on the commitment and quality of work at Image Fashions. This labor
model has been tried before with considerable success in urban neighbourhoods.

d. Courteous service and respect for the customer

Given that Image Fashions will sell other brands rather than producing in- house lables, the promotional activities will
focus on service and product mix, which will be reinforced through the store’s employee incentive system and
training program. Customer courtesy is essential in building and maintinaing a high end retail image.

3. Product Mix

From interviews with local buyers, product mix varies dramatically from location to location and is driven by the
heterogeneity that can be seen in the urban city market. Since the right product mix is critical for success, Image
Fashions recognizes that it currently does not have the buyer expertise required and is in the process of identifying an
experienced specialty apparel buyer. The product mix will be heavily influenced by fashions in Los Angeles (for
women) and New York

(for men) and the clothing worn on the local television networks, particularly rap/hip-hop stations such as MTV and
BET.

a. Labels

Labels or brands are a critical component that allows the consumer to project a certain style and image. Through
customer surveys and market validation, a combination of mainstream and ethnic brands has been identified.
Illustration 4 is a sample of the brands to be carried by the store. Mainstream brands like Tommy Hilfiger appeal to a
wide customer base, while ethnic brands like Phat Farm and Sean John are focused purely on minority groups. These
brands are identified as ‘high-end’ apparel labels and the exclusivity of the brands provides an even greater perceived
value to the consumer. This core group of brands share the vision of selling an exclusive image and reflect a lifestyle
that is unique and differentiated. Currently, customers need to go to outside of their community to several places to
find all these brands. Image Fashions will

differentiate itself by offering the convenience of bringing all these brands under one roof and to their neighborhood.

The merchandize manager has begun negotiations with the various manufacturers to determine the terms and
conditions for distribution of these labels. The majority of the negotiations should be concluded within the next 8
weeks.

13

Illustriation 5: Image Fashions’ Brand Licenses

MARITHE FRANCOIS GIRBAUD

ICEBERG

COOGI
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 service

provided. 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 our minority target customers. By virtue of the store
location and a unique product mix, Image Fashions will be able to move products 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

14:

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. Competitive Environment

A. General Competiive 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 Carson’s, 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 with respect 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, who’s 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:
14 Interview with Kelly Vergamini, Wednesday 13th November, Summer Associate, The Limited Corporate
Headquarters.

15t

Illustraion 7: Local Competitive Analysis

Distance from IF location (7400 South) Women’s retailers

Children’s retailers

Athletic retailers

Men’s retailers

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

16

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 location appeal from a retail
perspective is the location’s 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 will provide a good amount of exposure to the store.
Image Fashions’ plan is to take advantage of this by placing 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 South 16

15 Source: Illinois Department of Transportation, Average Daily Traffic

16 Source: Chicago Transit Authority, south west system map

17

V. Operations

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 manger’s 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 where the 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/district manager 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. The wage 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.

18

4 TrainingPhilosophy

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 customer’s 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 to the 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.

19.

Illustration 10: Store Layout

80 feet

Fitting Room Area Space Window Display

Waiting 80 feet

Area Column 20

Managerial Column C. Security

Office Security Office Column

Inventory Ramped and Glass-walled Entrance / Exit

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 Occurrences 17

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 check ing the number of items that a customer takes 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 InfrastrucueStore 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 throug hout 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 alarm when a customer
walks past the detectors placed at the exit. The anti- theft devices will be removed at the cash register when the
customer pays for the item. The glass-walled and ramped entrance/exit will discourage ‘take- and-run’ theft
incidences.

17 Chicago Police Department

21

:.tr/

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 to the 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

18 E-mail interview with Chun Yee Yip, Buyer, Ann-Taylor.

22.

Work Shifts: One store manager will be in store at any one time. The table below lists the number of sales 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 Sore Operating Hours

No. of sales assistants Morning Shift Afternoon Shift Evening Shift

Mon 2 2 6

Tue - Thu 2 2 6
Friday 2 8 12

Sat 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. ReturnPolicy:

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 remains clear 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: Competiive Environment and 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 for 1, 3 and
5 mile radii.

23: t t

Illustration 13 highlights the captured marketing share for three different scenarios, Best Case, Most

Likely and Worst Case.

Illustration 13: Market Share Scenarios

Best Case Most Likely Worst Case

High End Apparel as % of Total Apparel Revenue 26.0% 25.0% 22.0%

IF Market Share for…

1 Mile Radius 25% 20% 15%

3 Mile Radius 12% 10% 8%

5 Mile Radius 6% 4% 2%

Gross Revenue (Fully Operational)$4,769,487 $3,443,228 $2,024,362

To fully develop the financial model beyond the market share, several additional assumptions were made to estimate
revenues and costs. These assumptions included:

• Returned Goods: In an effort to provide outstanding customer service, Images Fashions will allow customers to
return unused clothing to the store for a full refund. Returns were estimated as 2% of gross sales.

• Discounted Sales: While Image Fashions will not provide ongoing discounts, some items will need to be discounted
to clear inventory. The financial model estimates that 15% of Image Fashions gross sales will be sold at a 20%
discount. As mentioned in this plan, The Lark sells

90% of its items at full price, so this assumption is conservative.

• Cost of Goods Sold: Image Fashions’ wholesale prices will not be determined until orders are placed. However, it is
unlikely to qualify for volume discounts. The financial model assumes that the Image Fashion’s wholesale cost will be
45% of the retail price. The summation of wholesale price and sales discounts combine for the total cost of goods
sold.

• Credit Card Purchases: Image Fashions’ clientele will use credit cards, but not as frequently as shoppers in the
suburbs or on Michigan Avenue. It is assumed that 40% of net sales will come from credit cards with a standard
service fee of 2% of sales that is typically charged to the vendor by the credit card provider. The revenue from credit
card purchases will be Image Fashions’ primary accounts receivable.

• Inventory: Image Fashion’s greatest expense, both in start-up and operation, is its inventory. It will target 4
inventory turns per year, which will dictate the level of stocked inventory as well as ordering levels. Currently, the
industry average for stocked inventory is 26%, which is consistent with the assumption of 4 turns per year. Image
Fashion’s will finance its first 8 months of inventory through the initial loan. Another inventory concern is shrink, or
theft, from customers or employees. This was estimated at 3% of sales.

• Loan Terms: Image Fashions’ loan will cover the cost of start up and inventory, and it anticipates loan terms
approximating 8% over 7 years. Servicing this debt is included in the financial projections. A scenario does exist to
draw down the loan in 2 two phases, for start-up and in Year 2, which would save the owners approximately $6,000,
however, these financials reflect a single draw down.

Based upon these assumptions, the following charts demonstrate the financial performance over the next

5 years. The full financial statements for all three scenarios are in Appendix A.

24
Illustration 14: Financial Projections for Image Year 1 Year 2 Year 3 Year 4 Year 5 $400,0
Fashions. 00
Best Case $1,00
0,000 $200,0
Most Likely 00
Gross Revenue $800,
Worst Case 000
from Income Statement
$1,000,000 $600, ($400,0
Net Income 000 00)
$800,000
from Income Statement
$600,000 $400, Year 1
000 Year 2
$400,000 Year 3
$5,000,000 $200, Year 4
$200,000 000 Year 5
$4,500,000
$0 $0 $0
$4,000,000
($200,000) ($200 Year 0
$3,500,000 ,000)
($400,000) Year 1
$3,000,000 $1,20 Year 2
Year 1 Year 2 Year 3 Year 4 Year 5 Year 3
0,000
$2,500,000 Year 4
$1,00 Year 5
$2,000,000
Net Cash Flow from Operating 0,000
$1,500,000 Activity
$800,
$1,000,000 from Cash Flow Statement 000

$500,000 Outstanding Current Debt $600,

000
$0 from Balance Sheet

B Comparative Financial Performance

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 Merics 19 . t r I t : t t

Abercrombie & Fitch Aeropostal

American Eagle build-out (the
Outfitters conversion of an
existing space into
GAP Guess a store), the
Nieman inventory expense
and the working
Marcus capital. The cost is
detailed as
Image
follows:
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.Stat Up Costs

The primary costs in

starting a retailing
operation is the store
llusration 16 Sart Up Coss

Item Cost

Advertising Expense

Infrastructure

Build Out

Inventory System & Register

Miscellaneous Electrical Equipment

Inventory

Legal Fees

Security

Working 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 during
the 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.

19 Source: Company Annual Reports for Fiscal Year 2000 verse Image Fashions’ Full Operational Year 3

B.Financing

The start up costs for Image Fashions will be funded through the following 3 sources: t r t r t

Illustraion 17: Sources of Funding

Owner Equity $

Percentage 20%Grants/Funds $ Pecenage 10% Commercial Loans $ Pecenage 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 owner’s 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. Based
upon the management team’s 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 youth and 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

• George Michaels will be responsible for merchandizing and selectin g the right product mix needed to
attract and maximize the purchase rate per customer. Together with a buyer, to be identified, 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
current Board of Advisors is comprised of:

• Professor Gerald Dryer, Director of the Centerfor Retail Management,Williams

• Professor Wilma Darman, Professor of Marketing Strategy, Williams

• Gary Park, Senior Buyer, Saks

• Mike Lowe, Director of Ehnic Marketing, Old & Circle

Image Fashions will use the Advisory Board’s wealth of experience to improve its operations as well as
to streamline efficiency in the use of limited resources and personnel.

VIII. Timelines and Next 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.

Illustraion 18: Timeline of Actvities

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

28t t i