The Asharucorp Media Retail Initiative Presentation Transcript
Opening- Looped Power-Point Slideshow detailing Avatar logos & graphics set to background music during mingling and seating period
Speaker Subject / Topic End Time
Master of Ceremonies Welcome, guidelines & introductions
(Michele Dirks) (Submitted script)
Ira State of the Industry; Tower Records & the
Post-Tower Retail Landscape
Ira State of the Industry; Updating of the model, Music business numbers
Julian Mission, Vision & Guiding Principals
Eleven Pillars, Subsidiaries, niche-genres
Projections and expansion of operations
Guest Speaker Endorsement of Model
(Thomas Evered; (Own script)
Senior V.P. EMI-Capitol-Angel)
Ira Geodynamic study & Demographics
Ira Closing Remarks
(Slideshow; Static Avatar image or rotating logo/icon)
Master of Ceremonies; Welcome, guidelines & introductions
Good Evening ladies and gentlemen, my name is Michele Dirks, and I would like to extend a warm welcome to all of you on behalf of the Managing Partners of Asharucorp, and I would like to thank you very much for coming to the Avatar Media Entertainment retail initiative presentation tonight.
This presentation is hosted by, Ira Rosenblum and Julian Cavanna, and is supported by Avatar’s upper management associates, and partners.
If you might indulge me briefly, I feel compelled to comment on my observations of Avatar, as a sympathetic, yet neutral observer, and to touch on the growth that I have witnessed as the Avatar idea evolved from its first spark, until its culmination…in the full shape that you will see it in this evening.
I have personally seen Ira and Julian tirelessly build their ideas and give shape to the Avatar model over the last year, building it, de-constructing it, analyzing and re-analyzing its working parts and finally discarding the bits that didn’t aid the better functioning of the business on whole.
Their ideas are not completely new, either to the marketplace, or to themselves. However, if we are to be anything but honest…it is common knowledge, at least to those of us who know them, that the two partners had discussed many of the ideas that later became included in the Avatar concept long before they actually launched their initiative.
Actually, I have to correct myself…I just said that that their ideas were not completely new…but that is incorrect. Maybe making the wheel is considered “innovative” or even genius, and re-thinking a retail model is generally not thought of as being on the same level. However, if updating and improving an industry standard model that has faltered due to it’s own inability to deal with the changing realities of the marketplace, then this effective re-prioritization…if not considered innovative should at the very least be viewed as…inventive.
For those of you who need me to spell it out…the industry standard model that I am referring to is, or was, the late, great Tower Records…which held the position of the last mega-store chain to boast a “serious” selection serviced by superior sales help.
The outcry over the chain’s perceived sudden demise permeated the media, as loyal patrons felt as if their very freedom of choice was being taken away from them, especially in genres such as Classical, Jazz and World Music. On a visit to the Lincoln Center Store, which I live close to and near to the end of liquidation, I personally witnessed many music lovers coming into the store literally in tears.
It was in that reality that Julian and Ira forged their concept…changing it from an offhand notion to an active pursuit. As employees of the company they had methodically, and prior to the onset of active dismantlement, discerned the root causes and potential solutions to Tower’s dwindling existence…some conclusions of which many others had reached independently. However, due to a conglomeration of long-standing endemic issues internal to Tower’s corporate structure, their ideas fell upon deaf ears…as did similarly echoed sentiments issued by Tower founder, mentor, and friend to the managing partners, Russ Solomon.
As middle management, they had the unique position of being capable of accessing corporate data, and analyzing it without being invested in the continuation of problematic business philosophies which had dominated the company due to years of entrenchment and indoctrination. Correspondingly, their industry connections, as well of those of their upper management candidates collectively, are substantial and run very deep.
As Avatar truly began to take shape, the partners found that not only were they formulating a profitable new business model, but that their initiative was based on strong philosophic principals relating to the cultural support of arts, as well as, guiding their managerial principals and an unswerving commitment to their vision and mission statements.
At this point, I’d like re-direct from my personal endorsement of the project and to give you an overview of the topics that will be touched on this evening. As you can see from the presentation agenda handout in front of you, Mr. Rosenblum and Mr. Cavanna will be addressing many topics such as projections, demographics, investiture and the operation of subsidiary businesses under the Avatar umbrella.
As you are all aware, the materials discussed in this setting are governed by mutual non-disclosure agreements, as are the packages that will be offered to you should you wish to study the essence of the Avatar structure in a more in-depth fashion upon departure. Please note: all logos and graphics are subject to future augmentation by Avatars graphic design company, but are nevertheless protected by the aforementioned agreement, and all internet domain names contained in the package have been registered as subsidiaries of the ASHARUCORP .NET web hosting package. Likewise, knowledge of your attendance here tonight is also therein protected.
Upon receipt of signature you will receive the Avatar package which includes; the main Avatar business plan, a media and internet revenue package, a state of the industry overview package, and three subsidiary entity sub-plans which include; the coffee shop, live performance venue and a dual-subsidiary gaming and children’s division plan...as well as a copy of their architect’s brochure.
This presentation is scheduled to run approximately three-quarters of an hour in total; in which the details and highlights of information contained within these plans will be expanded on by the managing partners and a guest speaker; Mr. Tom Evered, the Senior Vice-President of EMI Jazz and Classics.
The partners kindly request that you hold all of your questions until the end of the presentation…writing pads and pens have been provided for you to take notes or to jot down any thoughts that might cross your mind during the course of the evening
Any questions or concerns will be addressed after the formal end of the program by Mr. Rosenblum and Mr. Cavanna at the rear of the hall, along with the distribution of the Avatar package, and any exchange of contact information.
So, without further ado, I am very pleased introduce to you the President and Vice-President of Asharucorp and the founders of Avatar and it’s subsidiaries, Ira Rosenblum and Julian Cavanna.
(Slideshow; Continue From MC Section) State of the Industry; Tower Records & the Post-Tower Music Retail Landscape
Thank You all for being here. Once again I’d like to extend a welcome to all of you for being here tonight. My name is Ira Rosenblum and I’d like to get started by giving you a little state of the industry background, who we are, and basically, what we are trying achieve.
I am a 42-year old father of two, who has in the past worked for HMV, BMG, Empire, and Tower Records. I have consulted for music industry labels and distribution companies such as Musicrama, Ellipsis Arts, and Putumayo. I am also a writer, who aside from authoring fiction, has contributed music reviews, editorials and commentary that has appeared in print and on-line, for Sidewalk.com, Times Square.com, Billboard, The Ithacan, Global Rhythm Monthly, Irish Music Magazine, and a full length World Music genre specific review book. Lastly, I was, for a short period of time in the late eighties, a professional Disc-Jockey, both on-air and at private events. My tenure at the Tower Records flagship store at LincolnCenter ended in January 2007, when the institution closed, and my employment as the Main Floor Manager; responsible for approximately 20,000 square feet, one-third of the staff, and a corresponding third of the stores $31 million a year gross…came to conclusion.
After some twenty-five years in and around the music industry, I believe that I possess, humbly speaking, a fair degree of insight into the workings, malfunctions and, in general, the realities that have faced, and I believe, will face, the music and media entertainment retail community. These ideas were not far from the forefront of my mind on October 9, 2006, when, two days after Tower announced it’s forthcoming liquidation, my partner Julian called me up and proposed that we take some of those “back-burner” ideas and bring them front and center. Though a new born infant when compared with the withering Tower, Avatar was nevertheless born that day.
In essence, what we design to achieve, with the aid of financing, and of course, our partners, is to firstly introduce a new media entertainment company into the retail environment of New York City and on-line, which will take advantage of the available, and so far un-assumed segment of market-share left un-serviced since Tower’s unfortunate, but not totally unexpected, demise, and secondly, to expand operations into other specifically targeted areas…all the while spearheading and developing new, and dynamic revenue streams within the operation entity, as well as leading our company, the Avatar initiative, and it’s subsidiaries into a magnification of it’s holdings by the establishment, maintenance and often licensing of proprietary databases, web partnering and financed buyouts, media publishing, web imaging technology initiatives, small business directions and real estate acquisition.
There’s an old joke, which I’m sure most of you are familiar with, about a man who lived in the former Soviet Union and was convicted to serve a long sentence in the gulag of Siberia. Every day he would cross the road at the boundary of the camp with his wheelbarrow and pass a guard who would lift a plain cloth lying in the basin to find nothing under it. Puzzled; the guard would wave the man along, pondering all the while what he was up to. This same scene repeated day after day for the next 25 years…the guard picking up the cloth, checking under it…and finding nothing. Finally, a few days before the man had completed his sentence, the guard pulled him aside and said, “Look, I know you’ve been up to something all this time...you are being released in a few days and you’ve served your time…I won’t say anything if you just tell me…what have you been stealing?” The man paused for a moment…and then looked the guard right in the eyes and said, “Wheel-barrows”.
Clearly, the parable is that sometimes a situation that would seem to be obvious is most often not seen for what it is. We strongly feel, and have felt since the genesis of this initiative, that the main hurdle Avatar would have to climb to realization was to counter perceptions, in and out of the media entertainment industry, as to the successful viability of a business, or any business, start-up or not in this field. We believe, and have consistently believed since the beginning that our model is, in a way, a cure to the industry’s “blues” so to speak...and is a sound, profitable and fascinating direction not only as far as entertainment retailers go…but it also presents a unique opportunity for potential investors, to be involved with a new corporation bent on the conquest of it’s niche of market share, as well as being likewise involved in the company’s not insubstantial projected growth, methodical diversification plans and multi-faceted revenue streams.
As I said earlier, I would like to start this evening’s presentation by giving you a “State of the Industry” overview.
When planning the schedule for this conference we quickly came to the conclusion that only by laying out a general historical picture of the media entertainment industry, and the economics therein, could the Avatar initiative be placed in the contextual setting that we are trying to convey to all of you assembled here tonight.
Having “pre-ambled” my next statement with that disclaimer, I would like to lead you through a brief guided tour of some industry milestones that need to be placed in context before we expand on the details of Avatar and its subsidiaries.
So…here it goes.
(Slideshow; Early Industry)
Shortly after the turn of the twentieth century, music recorded on wax cylinders gave way to shellac 78 RPM records, which almost at once began to appear in a new type of retail business called “music shops”. Prior to this period a shop with that name would have only carried musical instruments and/or sheet notation, largely designed to be consumed by the upper middle and wealthy classes in their front parlor, or salon, social rooms.
Mainly, these early recordings were Opera focused, though many ethnic, international, or “race” records were produced as well. Well before World War One Jazz and popular operetta derived vocalists were introduced to the mix as major selling genres as well. I find it extremely ironic that these four genres comprised, until recently the appeal of Tower Records urban sales, and are the main thrust of Avatar’s audio division. Nevertheless, as mom and pop shops proliferated, music sales steadily increased drawing the attention of major labels such as RCA to buy out smaller labels to increase their catalogues and stables of artists.
By the end of the Second World War much of the focus had been taken away from these small stores and sales had shifted to what we like to call the secondary market, these being department stores and mail order houses. Back then it was Woolworth’s…now it’s Wal-mart...another recurring music industry motif. With a sizable post-war youth culture growing, and spending in the wings, this state of things was ripe for change.
(Slideshow; Tower & other retailers)
And so, once upon a time there was a man who had a vision of opening a different kind of record store than any other that were in existence at the time. His name was Russ Solomon and the year was 1960. He believed that his stores would be larger, and could carry a wide range of product representing multiple styles of music and convey an overall excitement stemming from changes in popular culture that was dawning on the American public at the end of the nine-teen fifties due to explosion of be-bop Jazz, Modern Classical and of course, the inception of Rock N’ Roll.
From modest beginnings in Sacramento, California, and many previous years in the industry as a local rack-jobber, Solomon grew the chain, planting numerous new locations, mainly on the West Coast. As the 1970’s marched on, stores began cropping up further, and further from home, eventually including East Coast cities like Boston, Washington, Philadelphia and New York, as well as international territories such as Japan, Israel, Canada, England, and Mexico.
The essence of his idea made a lot of sense to his backers at the time, even though the dollar amount accrued per unit sale was, by comparison to today’s standard…abysmally low…an average of $4.99 for a vinyl 12 inch, with a little less than half of that cost, but regardless…locations proliferated.
Around this same time, perhaps encouraged by the Sacramento model, and sensing an opportunity closer to his home court, a scraggly, barefooted hippy who lived in the Soho section of London, drew together a group of inexperienced business partners and convinced a friendly banker to finance the novices’ “Virgin Store”, for a correspondingly modest sum of some $50,000 British Pounds, which enabled them to open their first shop in 1971.
By the late seventies, many other chains such as HMV, Sam Goody’s etc., and a multitude of mom & pop shops had either expanded their operations or had opened to capitalize on the burgeoning market. At the time the major labels were dedicated to the promotion and marketing of new releases and to widening their product lines, which now included a multiplicity of new popular music sub-genres such as; Hard Rock, Heavy Metal, Disco, Punk, New Wave etc., etc., and the exciting debut of the Music Video catapulted the market into a completely new level. At the time the popular cassette format ran neck and neck with vinyl as the “mobile” technology.
In the 1980’s this growth went breakneck, with what in retrospect now seems to have been an over-expansion phase, largely stimulated by the arrival of the Compact Disc in 1986. CD retail prices were higher than both vinyl and cassettes, with a low production cost and sizable enough profit margin. Even though audiophiles actively disdained the technology, as many still do, the format flourished and eventually became the industry standard. By the late 1990’s CD’s reached their top market share percentile, and correspondingly, the industry reached its top dollar amount accrued; net after returns.
Many companies’s such as HMV were bought out, and facing some particularly bad lease situations, made decisions to pull back to “friendlier” territory…in their case Canada, where they are still dominant.
In Tower Records’ case, aside from the over-expansion mentioned earlier, which led to the chain supporting several locations that should not have been allowed to net the small amounts that they were, the entrenchment of an anti-micromanagement philosophy and a centralized buying plan promoted more by the major labels and their co-op marketing schemes, forced Tower into a buying cycle which relied heavily on the premise of pulling stock returns to “pay down” their vendor bills…usually at $.60 on the dollar. Mind you, Tower had made many savvy, and lengthy, lease arrangements, never expending more than 8-12% of a location gross on rent if that much, and controlling many other costs effectively. Noting this situation, it should come as no surprise that this cycle led to Tower grossing $430 million in it’s last year of operation not counting liquidation, yet in the same period it’s corporate offices amassed over $200 million in vendor debt.
Tower had been advised to close its outlying locations in 2002 and to focus more on its urban…and higher grossing stores. At the time Tower’s board of directors refused to accept this advice, with the rational that a chain carrying fewer locations would be a less attractive purchase for new investors or owners…as the founder was planning his well-earned retirement.
This decision along with the companies dedication to a misguided vendor/product philosophy; which was by the way, largely responsible for the creation of the debt in the first place; brought the organization to the notion of viewing the debt as “un-manageable”. Encouraged by the then board of directors, not without interest, and certain relationships of their own…prompted MTS to file Chapter 11 and place the company on the auction block…an eventuality that a particular liquidation company, the interim CEO and certain legal forces were more than eager to take advantage of.
Rather than belabor the causes of Tower’s downfall, and to focus more on the overall changes that have overtaken music retailing, and retailing in general, over the last ten years, one irrefutable fact stands out in regard to the difference in NYC from let’s say 1996 to 2006, which is that in ’96 there were thirteen music focused mega-stores located on Manhattan Island then and now only three.
(Slideshow; Secondary Market)
This however, brings to mind a question or two…namely, is that a good thing? Perhaps not on a cultural level and certainly not for those retailers who are gone, but if you study the data we will be presenting and concede that there is an un-serviced viable market share, with a minimum of local competition, then this is quite evidently a very good thing for Avatar. So, aside from the timing and location, what is it that sets us apart from either competitors or pre-existing institutions…If that is the question, then the question is the model.
(Slideshow; Avatar Logo)
State of the Industry; Updating the Model
While a variety of marketing forces from within certain sectors of the entertainment industry, and many voices in the general print and televised press have championed the ascendancy of a world where all goods capable of being digitized will be as the de facto end-game of all retailing, the statistics relating to the reality of how and why the public is consuming both digital media and hard goods is frankly a very, very different case than the perception.
Let’s look at a few telling facts of how the notion of an all digital world is at best presumptuous.
(Slideshow; Digital Chart)
First let’s look at music, which far and away receives more press attention to the growth of new media much more so than format such as DVD and Books, mostly thanks to Steve Jobs. As far as music goes, collective hard goods sales, that is in-store and on-line represent 90% of all industry purchases. The remaining 10% is ascribed to digital downloads, of which a sizable amount of that percentage has been chalked up to file-sharing “theft”. In addition the sale of devices such as the i-pod and the i-phone far outweigh the purchasing of digital merchandise from providers such as i-tunes, who account for over 70% of all digital sales.
According to i-tunes own statistics 85% of people who own an i-pod do not subscribe to i-tunes and, instead prefer to upload music from their personal CD collection vis-a-vis their home computer to their mobile device. As an aside, it should be needless to say, that the dollar amount accrued from digital sales on a per transaction basis, when compared with hard goods sales is at best…incremental; weighing in at about 10% of a corresponding hard goods purchase.
Due to both the abundance of titles available…and the lessening of quality record retailers, many have turned to the internet as a source to find “less obvious” fare than the top one-hundred. Thus, hard goods sales on-line have increased over the last 10 years, and now account for just short of 10% of all music purchases. This of course has played well with the ever increasing abundance of new release titles, whose collective sales are substantial, but generally not on a per item basis.
In short, the internet has “taken up the slack” left by frankly lazy retailers who find it easier; that is, a less labor intensive procedure with chain wide discounts to consider over actual sales, in preference to selling a smattering high volume “hit” items rather than a full range of product with much lengthier shelf-lives. In the end, however, a classic record will always eventually out-sell a momentary Pop hit. In years to come a name like Britney Spears will ring as many bells as Lesley Gore’s name did 50 years ago, and all the while a title like Pink Floyd’s “Dark Side of the Moon” will, as all indicators would point to, keep earning new devotee’s on an inter-generational basis.
(Slideshow; Internet Sales Chart)
Those establishments that have faired better; have assiduously incorporated both physical and an internet presence, as will we. One has only to shift format to note the ongoing Blockbuster / Netflix showdown that has been raging for the pocketbooks of video “renters” across the US. Since cutting some fat off of the physical locations, and beefing up their internet marketing campaign, Blockbuster has consistently shown a marked upswing while Netflix has been experiencing “difficulty”.
When comparing all this data one has only to put these numbers in a larger perspective to understand the reality of what has been happening to the music industry over the last few years.
(Slideshow; Music Industry Chart)
As we can see from the chart behind me, which begins dating in 1989, just a couple of years after the introduction of CD technology, music industry retail sales at that time netted after returns, just shy of half of what it nets now, both in units and in dollars. Yet, the perception is that the industry is in deep trouble.
The question I pose to you is; why?
In 1989, every existent chain was in a state of expansion, opening locations like their proverbial asses were on fire. At that time 75% of all purchases were specifically made from music retailers, while now only 35% of purchases are made in record retail establishments.
Certainly, that is an indication of a problem in the industry…or is it?
Why are only half of the people purchasing music doing it in music stores while double of that did so 20 years ago?
Clearly, the numbers should have gone down…instead they doubled between the years 1989-1999.
As a technology, the CD gave music sales the greatest boost in the history of recordings. Not surprisingly, the peak level of CD format entrenchment, in 2002, is not far after the maximum dollar amount accrued by the industry; which was in 1999.
Thus we can see the cumulative dollar value of the industry drop prior to a drop in CD sales by percentage…due to the low yield of digital sales, and the discounting of on-line hard goods sales.
So, if all the numbers indicate that there is more than enough market share for many companies to sell a wide variety of hard goods in a brick and mortar setting, why have so many stores and chains gone under in the last ten years?
Last year approximately 800 music stores closed their collective doors, among them 89 Tower Records locations across the US.
So when analysts bemoan a 13% drop in CD shipments in 2007, they fail to include the obvious fact…that the decreased number of venues in which to sell the discs from and the corresponding drop in percentage are in fact related.
Likewise, when they inform you that digital download sales are up 56% from last year, they fail to mention that they were up 100% the year before that…which means they are actually down 44%.
It is all a matter of perspective.
So what makes it unfeasible for a 25 foot store on the East End of Long Island that had been in operation for 20-30 years to stay open, (could it actually be the…dare I suggest…the rents?) while Virgin Records (VEGNA) announces that it will open 4 new stores in NYC & LA, and existent operations such as J&R Music World seem unfazed by industry poo-pooing…and on top of that are seeing substantial growth in-line with more general industry indicators.
Let’s examine a few case studies.
(Slideshow; Retailers Slide)
HMV UK recently sold the HMV Japan franchise to Japanese interests, and then turned around and purchased a UK based competitor who had been experiencing some difficulty, and incorporated it into the HMV structure, maintaining the imprint’s name and integrity…the rational being that the chain in question; named FOPP, provided a variant type of service, product line presentation, and reached another type of customer.
Another sell-out…even more recently Richard Branson sold Virgin America to the Vornado Realty group, whose CEO has stated that the merger is a “natural pairing”, and that Virgin will still be opening new stores in NY and LA in the coming year, after closing stores in suburban areas over the last couple of years.
So I ask you; why has Russ Solomon come out of retirement to open a new chain, starting with the former second Tower store location at 16th and Broadway in Sacramento. As he and I are on friendly terms, he has admitted his interest in opening locations of his new chain, R5, in New York, which hitherto housed two of his most profitable stores. Whether or not he will transition out of California at this point is a matter of debate, we however believe that for the time being he will be constricted to expanding in his home state…leaving New York to it’s natives… meaning us, and the chains that already have locations here.
The bottom line is that there are three distinct factors currently influencing music retailing in America, and by extension, worldwide:
1.Turf consolidation to specific profit making region and/or location.
2.A variety of re-designs to the basic model and premise of the original “mega-store” concept, leading to different “takes” on how to best expand sales.
3.And of course, the savvy utilization of new media and technologies to coalesce new clientele into a “broadband” of diversified product line revenue streams.
J&R Music World has been forced to author no change since the start of the century, due to the fact that the slow evolution of their extremely diverse model is completely self-supporting.
Barnes & Noble, and Border’s locations in New York have also enacted little change due to the limitations of their model and mission…meaning that though they have both seen increased audio and video sales; in one case 42% in their CD/DVD division, they are both primarily booksellers, and it is “unlikely” that anything will ever change that, barring the e-book literally destroying their respective businesses.
Small “mom & pop” stores have seen remarkable growth, especially if they were in a location where there had been a previous mega-store location, like Tower, that is currently no longer in operation.
VEGNA is currently doing very well, with its Times Square store now boasting the “highest grossing music retailer in the hemisphere” status. However, it should be noted that starting several years ago, Virgin began altering it’s shops and approach to the market and now refers to itself as “music lifestyle stores” due to the large amount of music related paraphernalia that they promote…not limited to but noticeably displayed purveyance of music themed T-shirts and other fashion accessories.
This tweak to their model, with their strategic re-positioning, has made them a lot of money, however, many genres of music, namely those of which we intend to fully service, and which other stores have done, or do, very well with, are largely ignored due to intensive labor and employee expertise that are required to operate the divisions properly.
We at Avatar believe that we have a unique approach to the model that will align a synchronicity of interests and related revenue streams to buoy up the business in general and support, if the concern is even necessary, our retail media sales…namely CD and DVD in-store. We have affectionately come to refer these revenue streams as our “Eleven Pillars” philosophy, of which among other related topics, including niche genre sales, Avatar’s subsidiary entities, and our mission in general, my partner and Asharucorp V.P., Julian Cavanna will now address you in regard to.
Transition- (Slideshow; Five Guiding Principals)
Mission, Vision & Principals
Good Evening, my name is Julian Cavanna; Vice-President of Asharucorp and one of the Managing Partners of the Avatar initiative. I, like my partner, previously worked in the music and entertainment media retail field; in the merchandising discipline, however, I must confess that my business experience comes more from a real estate investment background and property financing.
When discussing this project in general, there has been both a drive to push the numbers involved with projections, or comparable sales and demographics to the forefront of any analysis with relative ease…if not a certain cavalier regard to how cash flow sub-systems are planned to operate, based on our expertise and research into the specifics of each area.
As you can, or will see, we are offering an abundance of detailed and de-constructed micro-minutiae five-year sales forecast analysis, including a fifty-some-odd page media revenue statement, of how we will jump-start our cash flow cycle and how Avatar’s gross sales, costs and income will take shape. While we will attend to some of that information later, I would like to instead speak about our perceived mission and vision for Avatar, and of course, our guiding business philosophy.
As you can see on-screen, we believe that there are five basic principals which formulate and control the sound operation of this initiative, they are; Balance, Dedication, Diversification, Micro-Management, and Strategic Expansion.
These principals of our business philosophy reflect the overall approach to investiture that the limited partners of ASHARUCORP, in any and all of its ventures, can expect from our management team and organizational structure. Firstly and foremost, we do not believe in leaving variables unconsidered and future directions unexplored, so therefore with that orientation in mind, these five principals can be defined thusly;
By dissecting our projects as objectively as possible, we re-envision initiatives based on layered tiers of inter-related revenue streams and future marketable initiatives and proprietary holdings.
Any initiative that ASHARUCORP is currently promoting, or will chose to promote in the future, stems from a core dedication to the betterment of not only the company and its partners, but also society at large, varied sector economic growth and the general cultural enrichment of strategic targeted regions. The Avatar name itself reflects our core philosophy in regard to this principal. Rather than build a corporate image as “adventurous or wacky”, we propose a dead-serious image as consumate lovers of the arts, boasting a completist presentation, and wide knowledge base. An Avatar is a personified embodiment of a eternal concept or entity…and in this case…we have applied this thought to music and the arts as indestructable concepts.
As an entity, ASHARUCORP is open to many avenues of expansion, not only within individual initiatives, but also in respect to the wide range of projected directions we expect to expand into as we evolve into a larger corporate structure and maintain a wider array of holdings.
Many companies tout the “M” word as a matter of marketing advice, but do not really hold a true dedication to the principal. We believe in a comprehensive division of labor that will truly identify the individuals place within the initiative structure and leave specific functions under his or her control. We have faith that we are capable of locating and championing the best candidate/s possible for a position, rather than relying on centralized corporative spending, purchasing and hiring.
Our principal of Micro-Management embodies all aspects of the company’s operating premise; including budgeting, purchasing, merchandising, and personnel management.
Our first four guiding principals map out the methods that ASHARUCORP intends to apply to any and all of it’s varied initiatives. The end product of which is the dedication to the continuance and profitable evolution of the company and its partners by which strategic expansion will most assuredly ensue.
(Slideshow; Eleven Pillars) Eleven Pillars
I know that I have come to think of all non-CD and DVD retail sales, media or not, as a support system for those sales. At first, the terminology I preferred to apply to this dimension of the Avatar model, were words like ensconced or cradled, however, since these eleven divisions are designed to form a sales buffer that balance and support each other (and our dominant media sales from any unforeseen short-falls of our projections), we now prefer the descriptive “pillar” instead.
I’d like to inventory each of the “pillars” separately before expanding on each of our subsidiaries on an individual basis.
Accessories Sales include; all blank media, non-electronic hardware, musical instruments, lifestyle paraphernalia such as T-Shirts & Posters, and any miscellaneous products such as cleaning kits, gift envelopes and figurines.
Book & Magazine Sales; the strongest sector of this pillar is Hardcover books, which represent a lucrative market, especially in the children’s book area. All book related products such as paper-blanks and calendars are included in this division as well as quick turning, incremental per-transaction purchase monthly magazine sales.
Café Sales; let’s face it, New Yorkers love to drink Coffee, and our model is pound for pound, excuse the pun, more effective than a typical Starbucks, in the end netting proportionately more than one of their locations.
Children’s Couture Sales; as a highlight of the LEDD subsidiary, children and toddler clothing sales will work hand in hand with games and toys and related kids media sales such as books, CD’s and DVD.
Proceeds from Co-op Advertising come directly from our participating vendors who will purchase and/or split costs on print advertising campaigns, listening station representation, window, light-box, graphic displays and on-line, kiosk and internal print publication costs.
Digital Download Sales will flow both on-line and from our in-store kiosks. Though these purchases accrue a low net amount, we have developed a e-music based subscription programmed entitled AMP; D (Avatar Music Program; Digital), which would secure a more stable monthly gross.
Electronics Sales; frankly our estimates of our electronics may lean to the more conservative, particularly in regard to on-line market penetration. This market is in a rapid state of expansion due to the rebirth of audio installations, home entertainment systems and HD/LCD Widescreen Television sales.
Gift Card Sales; while we expect that some of the revenue garnered from gift card purchases will be spent on in-store media, Avatar and LEDDgift cards will also fund non-media purchases.
Live Performance Ticket & Service Sales are a double threat in one, integrating general attendance with food and beverage sales to paying audiences.
On-Line Media & Hardware Sales; like our projections for in-store electronics sales, our on-line sales forecast may be a tad on the conservative side, regardless, this division will not only initially augment and support media sales, eventually it will comprise one of the most, if not the most effective division of our revenue generating initiatives.
Our eleventh and final pillar; that of Video Gaming Network & Retail Sales, represents a currently strong market, and while the margin on retail console game sales are meager, the Avatar combination of game retail sales, coin-op machine revenue and game networking make this division a healthy one.
In all, we believe that these eleven pillars not only will support our in-store media sales, but if developed properly and in accordance with our overall projections will account for the lion’s share of Avatar’s gross.
Many of the pillars wholly represent specific product lines and in some cases entire semi-independent Avatar subsidiaries. I would now like to address the operating premises, finances and unique marketing appeal of each entity.
Each of the four physical subsidiaries not only will maintain separate budgets, they will require their own capital start-up allocation, as well as provide their own return on investment and a portion of the store’s total costs based on footage; such as utilities, overhead and occupancy, making each more independently viable and more profitable than industry standard stand alone entities. Having identified which elements each of the four subsidiaries share in common, I would like expand on the personalities, atmosphere and merits of each.
(Slideshow; Froth) Café
Froth will step away from the traditional “Seattle” model coffee house. While our café will retain some of the same basics, such as; classical sit-down and take-away service with a focus on espresso drinks, we will be however, offering a range of traditional culture coffee alternatives and a correspondingly exotic desert menu. On a design level, the tonal distinction from existing operations will be manifested in an investment in an environment rich with intensive multi-media experience. While this element clearly facilitates the general goals of our media marketing direction, we feel that a selection of a distinct clientele will manifest who prefer the “Froth” environment over the more “typical” café setting.
In addition, features such as a uniform pricing scheme, comfortable seating and free internet capability will encourage a lengthier conversion time, and a parallel possibility of additional spending in the café and within other aspects under the Avatar umbrella. An extension of Froth’s revenue creating potential will manifest when, shortly after launch, the subsidiary will also offer one-pound bags of specific blends for purchase on a walk-in basis, but also for sale on-line at Froth.us.com.
(Slideshow; Kerunnos Lounge) Live
The Kerunnos Lounge is Avatar’s live cabaret seating music performance venue. We envision a wide range of artists representing multiple genres gracing the stage in two shows per evening. Food and beverage service will be offered, augmenting the gross of the subsidiary, and the marketing relationship between performers and other Avatar retail divisions such as audio and lifestyle paraphernalia sales will benefit from the reciprocal relationship between the lounge and the business in total. For example, if Avatar does not carry the T-shirt for sale by one the artists who is performing, but the artist would like to operate the concession out of his own stock of the said product, Avatar would be entitled and thereafter gain a commission fee on each item sold.
While the general gross of concert totals has only gone up over the last few years, there is noticeable lack of venues currently in New York City for a variety of reasons, not limited to unfeasible occupancy fees. Many of the performance spaces that have pulled up stakes happened to promote a limited range of genre representation, which is in contrast to our overall gestalt of multi-genre marketing. What distinguishes the Kerunnos Lounge from these other venues in a design sense is our “immersion” concept; slightly altering certain interior design elements on a per-performance basis; lending to each show a specific per-performance “vibe”.
(Slideshow; DMZ) Gaming
One of the division that I am personally excited about is Avatar’s Digital Media Zone, or DMZ, which fulfills the consumer demand for both ultra-high-tech RPG and PC Video gaming retail sales and computer time-lease networking, but is at the same time modeled on a “old-school” video arcade model, thus utilizing coin-operated devices as well. No existing venue has attempted to pair these three distinct modes of deployment of gaming technologies concordantly.
To succinctly identify the pro and con of the Gaming market: Sales have been consistently up over the last three years and are currently in a 12% upswing at the moment buoyed by the many high selling “hit” performers such as the recent “Halo” phenomena. Likewise, competition for a “hit” has charged the design segment of the industry into an innovative programming phase within the competing multiple formats of; PC, Nintendo Wii, Xbox, and PlayStation. On the downside, new releases carry a remarkably low margin, and the corresponding retail price is often very high…seemingly having little effect on general sales. Therefore, we advocate the premise that the way to conquer the game market is to offer both high margin recycled games as well as low margin new releases in a atmosphere that encourages high volume purchasing.
In accord with our overall comprehensive cross-merchandising and micro-management philosophy, DMZ will be operated as a semi-independent subsidiary, responsible for its own budget, personnel management and other monthly overhead. The space itself will reflect the high level of savvy technological innovation that we wish Avatar to be known for, echoing the Avatar stores interior design, the Avatar “Megaliths”, our other kiosks and our various web presences. Economically, the three-fold thrust of the division’s sales will serve to support each other and the entity in general, giving Game Stop a run for their money. There is also the distinct possibility that DMZ will at some point consider the possibility of incepting a game rental initiative.
(Slideshow; LEDD) Children’s
The marketing appeal of our toddler division is bi-partied in nature. Firstly, LEDD, which stands for Les Enfants du Demain, will facilitate in-store media sales in regard to Children’s Books, DVDS and CDS. Secondly, the department will offer toddler and young children’s apparel as well as toys and games. Our architects, Nudell Associates, are well known for their expertise in designing children’s public play spaces, and will create a distinctively young child friendly environment. Valuation of the sub-entity’s goods and services is expected to be perceived through a lens of inferred quality based on our presentation, promotion and of course, the name itself.
(Slideshow; .com logo) Internet
We believe that Avatar will benefit from our “ethereal” sales on-line and as “mail order” within the operation structure. While market penetration of various media sellers have accrued a wild variety of percentage representation, we feel that Avatar’s main retail web presence will account for over 20 % of our total sales, and within specific formats much higher per-unit percentages of market share such as; over 35% of our audio sales. By a comparison; based on industry standards, we believe that our projections of our on-line sales are actually quite conservative. We feel that the “double marketing” of goods in-store and on-line is an essential of modern business.
In tandem with our own web sales, and any other web-based licensed initiatives that may come into being, we propose an endorsement of the eventuality that our financial institution based re-financing be applied to expand our holdings on the web through the purchase of positive cash flowing independent internet sites that can be seamlessly added to the Avatar internet sales family, and exponentially increase the earnings and valuation of partner held shares.
(Slideshow; .com logo) Digital
In contrast to our strong feelings in relation to internet sales, you will find that Avatar’s Digital Sales projections are much more conservative, and based on many factors that we have taken into account and which have tempered our enthusiasm for the format.
When looking at the surface of the digital music industry, it is not difficult to see the ugly face that lies just below the surface. Years ago, industry problems, such as soft sales, would have been dealt with, but today the problem has been compounded by the application of contrary philosophies and approaches to marketing.
Around 10 to 13 years ago, with the invention of affordable computer hardware multimedia copying technology, the mp3 audio format emerged as a byproduct of people copying and recopying CDs. Over the next few years, more and more computer users where accumulating more of these mp3 onto their hard drives. With the advent of simple media management software and with internet companies like the first incarnation of Napster offering vast of amounts of mp3 audio tracks for free, digital music libraries where being created and copied at an “epidemic” rate…welcome to the beginning of the so called digital music revolution.
At this point a fork in the road takes shape in front of the music industry. When record companies still took a few more years to realize that their profits where threatened, and finally took the basic initial step by enforcing their copyright law it was too late. They failed to realize how to really protect their property but also how to significantly capitalize with this new format as an addition to their primary source of revenue.
By the turn of the century, most industry analysts will agree that a hole in the music industry was created by the sudden and unexpected arrival of the mp3 and the almost virus-like spread that followed. This hole I am referring to is the decreased value, both monetarily, as well as the general cultural appreciation of music.
From the beginning, the mp3 format and companies like the first Napster set the timbre for a new generation of “music lovers” who in the long run, do not appreciate music. And after the failed attempts of the record companies to fix the situation, this hole has now become a chasm. Now these so called “music lovers” see music as a disposable commodity…and one that should be free.
Unfortunately, recent backward thinking initiatives concocted by the music industry, in effort to make decent profits from this digital download mess, have actually ended up causing even more instability by setting way low profit margins which have become pretty much standard practice. Initiatives like “.99 to .89 cents per song” actually have reduced the net profit of everybody involved, from production to retail, resulting in everybody to quarrel over pennies, nickels and dimes. Yet these record companies still continue to draw the most significant amount of their revenue from physical product bought from store shelves and from numerous internet websites.
In conclusion, it should be is clear to all that when an additional way of doing business comes into being, unless you take the necessary actions towards securing your profits and more importantly maintaining and enhancing the value of your product, you risk losing complete control over your place in the market. Take any mp3 mobile playing devices, one brand in particular saw how to take advantage of the situation and profit, but it’s not the direction where the industry is going or came from.
The majority of individuals who have these devices upload their physical music instead of downloading intangible music. These devices where snapped together from complete chaos and that’s the kind of quality they promote; poor sounding, instant gratifying and cheap single songs that appeal to a group of consumers who want that quality…that’s who these companies reach for.
But a consumer who wants better product quality, a plethora of choices, specific environment shopping experience, excellent customer service and who will invest their money in a product because they will appreciate it a lot more is the kind of customer all businesses should be creating a playground for.
Instead of centralizing around an unstable product, like digital downloads, where there are so many retailers that have oversaturated the market and are fighting over nickels and dimes, why not build a business on a time tested product line with other great and related products and services with no competition and where there are dollars to be made.
There is no sense in jumping over the dollars to get to the pennies.
(Slideshow; in-store sales) In-store Retail Sales
Electronics & Accessories
One hundred percent, we are low-balling our electronics sales, both in-store and on-line. There is a clear opportunity to attack this market with selective product line and vendor representation, and to gain market entrenchment by slightly undercutting our competition. While vendors may not like our approach…culling specific items out of their catalogues, and perhaps not even acknowledging vendors that we consider to carry inferior product lines…we will still promote a product range, however, we believe that our customer base will understand our message, “we only carry the best for you”. This decision is in many ways motivated as well by the high premium on display space for, what in many cases, can be bulky devices. The markup on many electronic devices is more than adequate to shoulder a slight discount, and to still generate a profitable net, thereby contributing not only to the business as a whole, but also as a means to facilitate an additional avenue of name recognition and market entrenchment.
Books & Magazines
As stated previously, Books and Magazines (which also include paper-blank, calendars etc.) are an essential component of a contemporary large media seller, and should have an allocated premise of what contribution these formats maintain in the product mix. Obviously, a massive retailer like Barnes & Noble promotes firstly Books, and secondarily, other media such as CD & DVD. Doubtlessly Avatar will be considered more of a music environment than a literary one, yet, we believe that this department will rise, by year five, to hold 4.15% of our total in-store sales, and a corresponding segment on-line. It is also the media retail sector in which we believe that market penetration growth will be most noticeable, with a five-year cumulative intra-department growth rate of 10.00%.
This rate is expected to slightly exceed our general market share growth, due to a variety of positive industry indicators, as well as the substantial cross marketing of these saleable goods…for example, in the children’s department, where kid’s hard-covers represent one of the largest segments of all hard-cover purchases at 57.1%, thanks to the “Harry Potters” of the world.
As a limited division, and similarly to our Electronics department, Book buying will be done in a very strategic manner, and under the personal micro-managed care of our small Book staff. As evidenced by the successful bookseller and secondary bookseller models, this is a sound theater for the application of invested funds, and will contribute a healthy factor within Avatar’s retail environment.
To be frank, while we have faith that Avatar’s Video department is a keenly profitable division and of major importance, our projections for the HD and Blu-Ray formats are admittedly very soft, as the fanfare related to these format rollouts has by far overshadowed actual market penetration of the product itself. But we agree with tech-analysts that the formats will gain adherents as pricing of the devices that support the formats lowers. Correspondingly, Avatar will sell the players as well as the discs. Initially we believe that the Video department will contribute 38.55% of all in-store retail media gross sales. Contrary to operative thinking, we speculate that there will be a slight drop off in the format, mainly due to customer instability in regard to the transition from “regular” DVD’s and the HD format, leading us to predict a negative 5.57% intra-division drop in Avatar media retail sales store market share.
On the up side, this market share drop does not interfere with the burgeoning sales format which we estimate will, in year one gross $7,452,328.94 and continue to rise to $8,949,639.70 in year five. To note further, DVD’s generally maintain a higher margin on an average per-product total than do CD’s and thus the department supplies a comfortable net to the company. An area of Video expansion under post-launch consideration is the notion of instituting a DVD rental program, to compete with mom & pop and Blockbuster locations on the Upper West Side. These programs are labor intensive and do not generally generate a large amount of revenue, however, on the customer service side, patrons appreciate such options, and this initiative, if embarked upon, would aid in name recognition and generally, good word of mouth relating to the organization. We will further extend the department via internet driven sales of DVD’s on-line.
Audio Niche Genre Sales
As noted in the demographic section of the presentation, more than two-thirds of the population of the Upper West Side is now over the age of 30, and within that market segment lays an extremely supportive base of clientele, which has exhibited a sustained predilection for the purchase of Classical Music.
While a portion of Tower Records at 66th Street’s $100,000 a week Classical sales have shifted over to the secondary markets of Barnes & Noble and J&R Music World, those entities subsequent increases, combined with their comparatively fractional stock representation, suggests that our projections for Avatar’s Classical gross sales, in conjunction with our foot traffic study are sound, and should hold up the genre as the largest percentile segment of in-store audio purchases.
In 2006, almost 76,000 new release titles were issued, and the number of new issues has been exponentially increasing since 2001. Of all the titles marketed, some 78-85% issues are released by independent distributors…the remainder is of course carried by the four major vendors. Of interest is the fact that more than 73% of all new releases sell 100 units or less. Thus, the appeal of the deep catalogue records shop and its ability to carry the full range of product…from the top selling, low margin minority of big movers to the 50-some thousand medium selling new release titles in carefully considered appropriate stock level proportions. Many of theses titles are categorized in the “Indi-Rock” genre, and are in need of marketing representation to garner all of the sales that they are capable of.
Even with the rise of digital sales, the sheer bulk quantity of releases makes it unfeasible for individuals to keep abreast of titles that they would otherwise find of interest for purchase. Thus the information gap has affected the ability of these performers to market their hard goods.
The alternatives left open to them are of course; niche sales in specific markets, internet-driven sales, (both of which Avatar is categorized under), as well as writing off their low-yield digital sales as a marketing aid for live ticket sales, and a low-cost-low-yield ratio that does generate some income, even if fractional in comparison to the traditional market. For Avatar these niche sales, in conjunction with our back-catalogue “Classic Rock” and “Alternative” Rock sales will be the mainstay of our Popular Music departments.
Jazz is another arena in which Avatar can easily become a dominant local player in the representation of the genre outside of the Greenwich Village area. A variety of mom & pop shops now primarily service hard-core Jazz devotees in New York leaving local representation of the genre with lower-volume sales, and contributing to the marketing notion that sales in the genre are softening. Much like the figure cited earlier relating to the overall drop in units shipped as a de facto point, not taking into consideration the availability of product via a lessening number of venues from which the product is sellable, Jazz is a victim to this same operative thinking.
Avatar fully expects that Jazz will contribute it’s fair share of footage allocation, and in conjunction with Vocals & Soundtracks and World Music & Americana will contribute a sizable front equaling in total Avatar’s Classical or Popular Music sales.
Vocals & Soundtracks
Vocals & Soundtracks fill an interesting segment of our demographic, maintaining an evenly distributed client base; older white males, younger females, members of the gay community, and in the case of non-score and non-cast soundtracks, the pre-thirty crowd…all moneyed and open to utilizing disposable income for entertainment. With a projected 11% of in-store disc sales, these related genres will contribute nicely to the operations annual gross.
World Music & Americana
Roughly described as “ethnic” music, World Music departments of records stores have a few noteworthy distinctions that should be mentioned here. Firstly, while usually described by such lackluster descriptives as “other” by the R.I.A.A., in select urban environment record sellers establishments, World Music has seen perhaps the largest per-unit section growth of any genre. In fact, while the music represented in such departments represents is in many cases drawn from various folk-traditions and could be described as the “oldest” music, the genre name itself is relatively new. As such the genre did not maintain independence from more dominant departments until around the time that CD’s were beginning to be issued. Departments that at first held a hand-full of titles in 1986, held 12,000 units in 1990, 25,000 in 1996, and 40,000 in 2006. This also means that for whatever prior representation, there is much more available in the category than has been viewed by clientele, thus it is an area in which Avatar can make a clear visual distinction from itself and earlier retailers.
In addition, World departments maintain a higher than average per-unit margin than all other departments, perhaps excluding Classical, due to the inordinate volume of import titles implicit to the proper functioning of the department. The philosophic pairing of World with the folkways of Americana will also contribute to the gross of this sub-department, bringing in its in-store representation of market share at 10.50%.
(Slideshow: 5 year projections) Summation
As you can see on the screen behind me, a series of pie charts which are included in our revenue projections package, and detail market share percentiles by division gross for years one through five will follow each other chronologically. These charts compare in-store media and non-media retail sales broken down into Audio, Video, Books, Electronics, etc. as well as specific subsidiary entity and Avatar ethereal sales such as on-line and digital.
While division grosses are all expected to gain market-share on an intra-department basis, these charts detail how each element fits into the general operations picture on the whole. On a clear visual note should be the expanding pink slice to the top left of the pie, which details market share as related to internet sales. In year one this is estimated to contribute approximately 7.72% the total gross of Avatar, while in-store CD sales account for 30.91% of the total. By year five this paradigm has shifted dramatically, with internet sales supporting 20.39% of the business total and in-store disc sales at 27.91%. This also means that in year one CD & DVD sales account for 55.10% of Avatar’s total business, while in year five they donate 45.87%.
We feel that product line shifts, or evolutions, such as this will increasingly balance the overall business structure, and enable us to take advantage of our multiple revenue streams to focus on the best ways to maximize return of investiture and insure the solvent and continual effective running of the operation.
(Slideshow: the Avatar Avatar) The Avatar “Avatar”
The Avatar “Avatar” is an innovative technology that is designed to be a fully interactive informational and data storage client operated kiosk system. We include a one-page profile of the initiative in the main Avatar business plan. The service will offer information relating to such simplicities as friendly greetings, offer directions within the operating structure and suggestions of which employee’s to consult with if they on shift. Advertisements of special sales and initiative will appear on-screen, as will eventually, co-op advertising as well. The service will be available in multiple languages, and linked to our database and external SKU scanning device will deliver track information and audio samples for customer utilization and increased sales.
The Avatar “mascot” or “employee” will not only appear on the in-store “megaliths” as we have affectionately come to know them, but also on-line. The service in that forum may be at some point become a licensable commodity linked to other web retailers, and thereby further increase Avatar’s growth and EBITDA. This technology is frankly in it’s infancy as far as application and delivery, and we feel that we our design team will be capable of effectively executing the production of these devices in a timely and affordable manner. As such, our architectural firm has made initial contact with an appropriate interactive design programmer that would be suited for this project, and who can be activated at the point when pre-launch infrastructure funding becomes available.
“Your Record Store Guys”
This web-based initiative is slated to debut on-line sometime after launch. In essence it is a critical media review database, which will be built by our employees and possibly, other consultants who fit in with similar criteria. Much like an audio/video consumer reports, the site will be implemented by at first linking it to our main retail web site AvatarReal.com, if a customer opts to utilize this service, a nominal fee will be added on to their tracked product purchase.
These revenues will then be split between Avatar and the issuing employee, who penned his or her review. The database will grow due to the vested interest that Avatar employees and consultants will doubtlessly cultivate due to the financial gain that they stand to benefit from in regard to the volume of submissions that they make. The service may at some point be linked to other web-retailer sites and therefore may bring forth additional revenue into the company.
In-house Magazine (NTBA)
Another “review” related initiative will be the inception of an in-store “free” magazine (NTBA), which will notify shoppers of the arrival new releases, special sales, and items and events that we are actively promoting. Our graphic design department will be responsible for its publication, with employees serving as editorialists. Frankly, upon launch, we do not expect it to be much more than a sales circular, however, as we evolve, it is expected that our co-op marketing department will be capable of enticing vendors to place advertising in the publication, thereby covering printing costs, and as the production becomes more substantial, salaries of employees who have been contacted to work specifically on and for the magazine. If structured as an S-Corp of Avatar, or as a separate corporation entirely, it may become a foreseeable eventuality that the magazine coalesces into a newsstand and subscription pay-per-issue retail magazine for sale at numerous outlets on a nationwide level.
(Slideshow: Palatine) PMG
On of the most obvious initiatives that we have created in tandem to the Avatar superstructure is that of PMG, or rather the Palatine Multimedia Group. As an outgrowth of Avatar’s retail audio vendor acquisition, and the Avatar Consignment Artists program (ACA) we have applied our interest in locating new, niche and under-served product, for the purpose of placing it at first for sale in the Avatar operations structure or structures for retail profit, and at an unspecified date, we envision that labels who commit to us will utilize our service and aid in the launch of PMG as an independent external distribution service. This initiative will also afford the company the option of, conceiving of projects, licensing, designing and commissioning the manufacturing of specific products and product lines for sale in Avatar operations venues as well as through our web-directions and PMG.
Asharucorp completed a lengthy retail Geodynamic study in June to justify our choice of our primary location, and to assist us in further deconstructive analysis of our projections. Our comparative data included studies of; the former Tower location at 66th & Broadway, the north-west corner of 72nd & Broadway, which was at a time a HMV location, the north-east corner of 80th & Broadway (a Circuit City location), the south-west corner of 82nd & Broadway, (a Barnes & Noble location) the south-west corner of 86th & Broadway, (a busy cross-street & the present home of a Gap location, and the target location of the north-west corner of 93rd & Broadway…which is currently vacant.
To run down some highlights for you, the foot traffic differential between 66th & 93rd street is 83.26%, and suggests that Avatar in operation will be able to attract 224.30 potential customers an hour, converting 167.15. Factoring in growth and market share penetration variables, we believe that we will average 114.38 purchases an hour, or 623,599.76 annually, in Year One. This is, in our opinion, a very conservative estimate, factoring in Towers previous 200.79 person a-hour conversion rate and also in respect to the B&N location at 82nd Street, which draws 376 persons per hour…an impressive 35.70% of all walk-by traffic. At that proposed rate, Avatar stands to gross $19.3 million in media retail and media retail related sales in year one…in comparison to Tower’s $31.2 million and Virgin Times Square’s $50 million gross last year. Avatars $19.3 million will be supported by a slightly higher per-transaction rate, and augmented by its subsidiaries sales…and of course web and digital sales…bringing our gross total for Year One up to $30.8 million.
All Avatar demographic information was culled from the year 2000 census, which, it should be noted, does not include the gradual shift in population northward out of the 10023 zip code over the last six years.
If we factor only local residents that live within walking distance of the location, discounting all tourist traffic, destination shoppers and work-related travel patterns, we are still left with approximately 225,000 residential potential customers.
While the 10023 & 10024 zones are virtually identical in their population numbers and ethno-cultural mix, there are some differentials relating to the customer base population of the 10025 zip code from those neighborhoods. Firstly, the population of 10025 (which extends from 92nd Street to 115th Street and includes numerous University students) is approximately 59% larger than either 10023 or 10024. Whites make up 61.15% of the demographic, with Latinos supplying 25.10% and Blacks, Asians and others complete the picture.
In contrast, Latinos make up 11.10% of the 10024 zip code area, and less than 10% of the 10023 area. Therefore we believe that our proximity to this larger nexus of Latino population, will afford us the opportunity to gain market share in that sub-community.
Latinos under 30 are 4% more likely to be interested in purchasing “lifestyle marketing” than any other group in the U.S. They are also statistically just as likely to support non-Latin interests and services as they are to support specifically “Latin” marketed products. This sector of our clientele is expected to inordinately support such Avatar divisions as; Accessories, Electronics, DMZ: our gaming center, and certain aspects of our media retail sales such as top-selling DVDs and CDs, and niche specific recording artists in the Latin category.
Women make up more than 53% of the residential population of the Upper West Side, and economically control a huge amount of disposable income, which is often applied to what is described as “aspiration marketed products and services”. In addition, as mothers of infants and toddlers, we believe it is crucial to support their shopping needs. They are anticipated to heavily support such Avatar divisions as; Books & Magazines, the Froth Café, LEDD: our children’s department, and certain aspects of our media departments.
While men make up a smaller percentage of the population than women, they are 5% more likely to purchase media, attend performances, or be interested in heavy electronics than are women. This fact in conjunction with our study of local age demographics; which suggests that more than two-thirds of all the residents of all three residential areas are recorded as being above 30 years of age.
Therefore, we forecast that males, or in specific, white males over the age of 30 are most likely to supply the dominant segment of our sales demographic. And while it is expected that they will support the breadth of our operation, we feel that our media sales, in particular audio, will be most heavily supported by them. This demographic is also more likely to adhere to more “sophisticated” music listening preferences, and will patronize such genres as; Classical & Opera, World Music & Americana, Jazz, Vocals, & Soundtracks, and back-catalogue Rock.
To aid us in our general marketing to this demographic, we have devised neighborhood specific advertising campaigns as well as some “white” sub-ethnic niche marketing within certain larger social groupings such as secular/cultural Jews, who contribute a large portion of the general residential population.
(Slideshow: Avatar Static Logo) Guest Speaker; Tom Evered
Endorsement of the Model
We have estimated that our fully start-up expenses, including; our pre-launch structuring phase, all physical renovation and design work, hiring, initial occupancy fees and product costs, for all Avatar and Avatar subsidiary entities, will run just over $7 million. Just to offer a note of comparison, Virgin Records recently completed a mild refit of one of their two shops in New York essentially sprucing up some paint and plaster…though the work is, for all intensify purposes, not as impact full as I’m sure that they hoped. The total cost…$6.3 million...ironically just short of what we require to launch an entire competing venture.
We have divided the application of these funds once accrued into four distinct phases, which are: the structuring phase, the pre-open phase, the fixture purchasing phase, and lastly, the launch and first quarter cash flow cycle stability phase, details of the specifics of the applications appear following the P&L spreadsheets included in the main Avatar plan.
We expect that Avatar Media, its subsidiaries and on-line sales will collectively gross $30,806,580.33 in Year 1, $34,464,888.71 in Year 2, $38,697,453.67 in Year 3, $43,773,548.76 in Year 4, and $49,819,344.11 in Year 5. We believe that our gross sales will cumulatively increase at a variable rate above 11.87% annually; primarily due not only to market share entrenchment, brand name recognition and internet sales penetration, but also due to our commitment to intensive web & print advertising, and to the diversification of our revenue flow.
Based on our projected gross, we will incur $23,553,582.50 in product costs, occupancy charges and overhead loss in Year 1, $26,192,568.26 in Year 2, $29,097,457.80 in Year 3, $32,526,018.09 in Year 4, and $36,588,608.18 in Year 5.Therefore we believe that we can estimate an annual net profit of $7,252,997.83 in Year 1, $8,272,320.45 in Year 2, $9,599,995.87 in Year 3, $11,247,530.67 in Year 4, and $13,230,735.93 in Year 5.
Avatar will require a minimum of at least $6 million in funding from its limited partners; which we are selling in shares each valued at $500,000 per share, totaling 12 shares. Each share constitutes 3.0% of equity ownership, though multiple units will be sold upon request, as will half-units, maintaining a proportionate percentage of equity, or lack thereof. We are prepared to cede up to, 49% of the initial outings ownership, which after limited partner payback with concurrent interest, said partners will draw dividend payments, as will the principal/managing partners.
If a single investor or investment group wishes to maintain a higher percentage of equity in the entity by means of supplying greater financing, this can be facilitated by the sale of a further share beyond their initial purchase which in differential to their primary stock would be limited in option of future sale only to ASHARUCORP.
For example; if an investor or investment group chooses to facilitate $1.5 million into Avatar, they will receive a 12% return on their investment amounting to 60 monthly payments of $33,366.67, totaling $2,002,000.29 by the end of the five year debt financing period. Upon completion of this payback, the investor/s will be entitled to annual dividend payments based on the entities net income, and correspondingly to their percentage of ownership, which in this case would be 9%. Based on Year Five net income projections, this percentage would accrue an annual profit of $1,190,766.23 before taxes for the investor/s.
It will be required that all transfers, sales, or trusteeships of the ownership of partner held shares be reported to the board of ASHARUCORP and the managing partners of Avatar and/or its legal council. Valuation of shares will be based on annual appraisals of the EBITDA of the Avatar store/stores at the time of sale. All shares being held by shareholders may be sold back to the managing partners, or to other shareholders. All shareholders will be afforded the same privileges and “perks” of ownership; however, active employees who have been contractually rewarded with stock options will be limited in regard to their options of the sale of their shares only to the reversion of the said units back to the managing partners only.
As stated, full return of investment is projected by the end of Year 5, after which investors will receive dividends in accordance with the percentage of ownership they are vested with. During that same period Avatar is expected to accrue a certain net profit amounting to approximately $49,603,580.75 before taxes, any loss to shrink and any other unforeseen loss. While we envision that some initial Avatar expansion and diversification will occur prior to Year 6, and be financed by Year 1-5 net, we believe, particularly in regard to expansion, that at that time the company may seek re-financing from our preferred banking institution, new investors and or it’s originating investors to further extend the companies holdings and market entrenchment, raising the intrinsic value of the corporation’s portfolio.
As Avatar’s sales grow, and additional locations are founded, we strongly feel that it is in the company’s best interest to apportion Avatar’s on-line sales, and on-line income, equally among the chains individual locations. While the effective implementation of this system may require the demographic “gerrymandering” of incoming sales based on zip code and/or country of origin in order to equalize total sales per store, the benefits of this system are manifold. Firstly, this will provide a recently opened location with a steady stream of new income and a built in product sell-through cycle. Secondly, it may become unnecessary to either operate, or continue to operate an external Avatar leased warehouse exclusively dedicated to internet purchases, and thereby limiting an additional cost. From the investor point of view, while this “split” to the proceeds from internet sales vis-à-vis location can be viewed as a negative, increased on-line totals will be not only reflected in annual partner dividend payments but also to the general valuation of partner share’s based on the overall improved EBITDA.
Should the company ever consider a transition into the status of a public holding, valuation of the shareholder’s stock will be reappraised, and a distinction between type A and B offerings will place an impediment on new stockholders from exerting any real control over the direction or directions that the original partnership board of the corporation has or continues to dictate.
I would like to close the presentation this evening by mentioning, our, that is; ASHARUCORPS’, current positioning and some details in reference to our support team and partner companies.
ASHARUCORP has completed all of the essentials of sound pre-launch structuring, including; publishing all of the articles of our incorporation, advised our legal council on our pre-partnership sentiments regarding the Avatar initiative, we have allied with a banking institution that is very favorable disposed to this project, and has preemptively offered us future re-financing terms and structured our corporate account. In addition, we have access to certain funds and credit that, in the event of our investiture falling short of projected expense requirements which we expect we will incur, may be activated to augment the overall funding of our capital expenditures.
We have registered all of our web-domain names and, and have initiated the trademark process regarding certain marketing terms, logos and graphic designs.
As we have specified earlier, we have expressed our interest in our prospective location (which is the vacant retail space beneath a non-co-op property) and have navigated some initial negotiations with the owner.
We have recruited Nudell Architects as our design firm, and to expand on that company, I must add that they are known as one of the most cost effective design companies in the US. We have included in our package a overview brochure of their work, which includes details of their many well-known projects for companies such as; Sears, K-Mart, JC Penny, Costco, M.A.C. Cosmetics, Krispy Kreme, Walgreens, Automotive dealerships, entire Shopping Malls, and mom & pop specialty stores. They are committed to the Avatar project and have prepared well in advance to move into action regarding the specifics of the implementation of our chosen design elements and have begun with some initial graphic design drafts which are based on some of our logo prototypes.
We have numerous contacts in the real estate and contractor business which will aid in facilitating a clearer path, if such a thing exists, to the most cost effective lease negotiation, legal structuring arrangements between the various partners involved, and of course, the construction phase.
We have allied with an office supply service, which will be responsible for our packaging needs, such as specialty product sticker-ing, merchandise delivery systems, all very cost effective and manufactured both out of state and in a gulf state nation.
Our vendor and industry relationships are built upon a long history of personal connections maintained by the ASHARUCORP partners and its Avatar management candidates, and we feel that many of the corporations that will be dealing with will acquiesce to most of Avatar’s requests and co-op business requirements.
Needless to say, any investor or investment group that chooses to partner with us on this project, and which also maintains an interest in a parallel industry entity such as a vendor, label or another operations canopy, will have the option of negotiating a special or special relationships relating to numerous product issues; such as transfers, outright sales, consignments, co-op marketing, warehousing and web-shipping.
As you can imagine, we have at our disposal, a veritable dream team of potential management candidates, technology advisors and designers who have committed to joining our team for the purpose of assisting Avatars launch and subsequent operation. This team presently includes; co-op marketing and vendor acquisition staff, database construction and web-design contractors, future department heads and select merchandise and sales staff.
The bulk Avatar’s salaried hiring will transpire just prior to opening and we feel that our staffing at that time will progress swiftly and smoothly, as we have pre-determined the criteria, and possible candidates for specific positions based on their abilities and prior experience.
While one of the base premises of support for Avatar is the ability of the entity to fill the market space that Tower Records & Video once occupied, the appeal of our model extends far past the parameters of operation that the aforementioned business provided. We are a non-imitative, innovative, roll with the punches, creatively micro-management focused company, and as such, we strongly believe that the Avatar model and its subsidiaries, subsequent outgrowths and ASHARUCORP driven innovations, will create a unique operations structure in which and from which, partners, staff, clientele, vendors and the media arts entertainment market environment in general, will benefit financially, creatively and culturally from its existence. This is, in our opinion, the perfect time for the implementation of our model, and an unparalleled investment opportunity.
If this is not your usual kind of investment, think again.
If you have criteria of industry investment reconsider.
As you all have respectfully signed our MNDA, and are digesting the information transmitted in this presentation, we would like to offer you the full Avatar printed package to take with you and study at your convenience.
Of course, my partner and I will be available at the conclusion of the conference to answer any questions at the rear, and to schedule any additional meetings with you or your group to further our relationship.
Once again, I’d like to extend my thanks to you for your time and interest in this initiative. Please enjoy the remainder of the evening and make full use of our open bar and remaining hors d'oeuvres.