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A Business Plan for Inner City Apparel Retail Providing the Latest in Hip Hop and Urban Fashions December 5, 2002
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, LLC Revenue Summary (in $000's) Year 1 Year 2 Year 3 Year 4 Year 5 Net Revenue $ 793.9 $ 2,415.3 $ 2,855.5 $ 3,001.6 $ 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 $ 508.3 $ 637.4 $ 681.0 $ 703.5 $ 727.5 Net Income from Operations $ (101.0) $ 611.5 $ 796.4 $ 849.8 $ 905.5 Other (Income) or Expenses $ 95.7 $ 321.4 $ 384.8 $ 394.7 $ 404.5 Net Income $ (196.7) $ 290.1 $ 411.6 $ 455.1 $ 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. Image Fashions will offer products and labels that are not traditionally carried by department stores. It will carry brands from designers, suc h 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 2
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. 3
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 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 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 Strategic Perspective, Pricewaterhouse Coopers and the Initiative for a Competitive Inner City, 1997. 3 2nd Annual Inner-City Shopper Survey: Inner-City Shoppers Make Cents (and Dollars), 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
Illustration 1: Annual Apparel and Service Expenditures by Race $1,200 Total Inner City US Shoppers $1,000 $800 White $600 $400 African American $200 $0 Hispanic Note: The U.S. Census defines this clothing expenditures in the category, Apparel and Services, and it is defined as retail 5 expenditures includes dollars spent on all apparel, footwear, jewelry and other apparel and services. 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 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 sp ecialty stores to cater to this market. 5 http://www.oconomowocusa.com/retail%20profile.pdf 6 2nd Annual Inner-City Shopper Survey: Inner-City Shoppers Make Cents (and Dollars), The Initiative for a Competitive Inner C ity and Pricewaterhouse Coopers, November, 1998. 6
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. Illustration 3: Per Capita Income by ZIP Code and Apparel Retailers by Addr ess 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 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 Listings 10 CNN.com’s Money section. http://money.cnn.com/2002/11/08/pf/yourhome/bplive_chicago/index.htm
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: Illustration 4: Image Fashions’ Marketing Model Price Positioning Strategy Promotion Marketing Objective Product Mix Target Segment 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 Strategy 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 of 12 • Clear return policies • Branded offerings • Clean and stress-free shopping environment 13 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
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. Accordin g 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 PELLE PELLE ICEBERG COOGI 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, largel y 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 loca ted 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 Competitive 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. 15
Illustration 7: Local Competitive Analysis Women’s Children’s Athletic Men’s Distance from IF location (7400 South) retailers retailers retailers retailers 1 mile 3 3 0 0 3 miles 9 5 1 2 (includes 1 mile retailers) 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 mana gers 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, Im age 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. 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 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 Managerial Fitting Office Room Security Inventory Area Office Space Waiting Area Column Column Column Ramped and Glass-walled Entrance / Exit Window Display 80 feet 20
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 Occurrences 17 Year Robbery Burglary Theft Arson Violent Property (January – September) 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. Howeve r, 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. Infrastructure/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 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