Some time ago, the Sun-Telegraph published a story about the thought of creating a women's clothing store in Sidney. Smelling a rat and concerned about the potential for local tax dollars being used to support this potential enterprise, I elected to research the concept that was executed by Torrington, Wyoming. The article, entitled, "Our Clothing Store dressed for success" demonstrated how members of the town, in cooperation with local economic development efforts and state assistance in planning and researching found a store could have a positive impact for the locality.
As this process unfolded for Sidney, officials from the state, acting on direction from several local business people sought to do the same thing for Sidney. Economic development efforts were not directly to be a part of the development process, nor were city or state tax dollars (except for perhaps $2,000 for some start up items. The representatives for the steering committee and the state were highly reluctant to provide specifics about how the funding mechanism was to play out, as well as remaining coy about any actual market research that would support such a venture.
Now comes word to be by someone who has obtained a copy of the prospectus of the stock offer and it appears that the steering committee had good reason to keep every thing in it close to the vest.
Attached to this post you will find a copy of the prospectus so that you may read for yourselves what is going to happen, but I will give you the high lights as to potential problems. In the end, you can do as you wish as it is your money, but I am of the opinion that it will be better to donate your cash to charity and know that it absolutely did have a positive benefit rather that bet on a concept that has no track record of success in the town of Sidney.
First things, of the steering committee members, only two have college degrees and one of those being an associates degree. Two members are current business owners, including one in direct competition with at least a portion of the new business. Two people on the steering committee have as their level of education GEDs, with one of those only 48 hours of work into an associates degree. That is a significant negative that should have been reported by Susan Mizell, publisher of the Sun-Telegraph, who is obviously in direct conflict with her responsibilities to her employer in this matter.
The steering committe for OCC, Inc. hopes to sell between 1000 and 3000 shares at $250 each. Hoping to raise between $250,000 and $750,000, OCC, Inc. these proceeds will protect individual shareholders by limiting ownership to a maximum of 5% of the company's outstanding shares. This means that no single investor can own more than 50-150 shares at a valuation between 12,500 and 37,500 dollars.
Sounds like a reasonable limit, except there are no protections to prevent wealthy investors from buying shares for their kids, dogs or parakeets. Furthermore, investors are required to sign a subscription agreement that specifically states that the securities being offered have not been registered under the SEC or state securities act, thereby relieving the corporation of certain duties required for the protection of investors participating.
The prospectus does detail some of the risks to success and lists 10 specific items
The business may not generate adequate profits and may be forced to close You are last in line to get any money back as secured creditors come first)
There is a risk in being a small business in a small community. This results in having a limited number of potential customers and limited marketing opportunities. This is important, especially when one considers that NO Marketing or Feasibility study has been done to project what could be expected. See the last item below for OCC, Inc's approach on marketing
Survive the inevitability of the business cycle...Certainly, one hopes that a manager with sufficient retain experience could be hired with a proven track record of success, but OCC, Inc, clearly is placing a significant burden on this individual.
The store will be dependent upon regular and continued community traffic and support. Nuff Said.
There is risk in attempting to serve the diversified clothing wants and needs of all ages of men, women and children. Selling anything is about creating an acceptable profit. This item is perhaps the most important to consider when you think about how style and variety apply to different consumer tastes. For example, how many girls want to go to the prom in the same dress. Furthermore, how many women want to wear the same shoes, in the same color. Again, the lack of demand forecasting has subjected this offer to a critical opportunity for failure. Despite many questions posed by myself during the initial interview with state representatives, no intention to perform a market survey was considered, instead, the steering committee relied on a narrow survey that was conducted unscientifically as part of the Panhandle community survey. 900 people speaking for all 6600.
The investment may be illiquid. If things go south, it won't be worth the paper it is printed on. Even if it has value, you could not sell it to another shareholder with the maximum 5% holding limit. Anyone asking you to buy a share they already own should be scrutinized and should also be required to perform a full disclosure of the facts and circumstances of the business as I am sure you will not get a straight answer from the, "press."
No operating history.
Share price is based on capital requirements to open the store. It is not based on any book or market value. Investors may not receive the full amount of their investment if they were to sell their shares. You will be throwing your money away. Period. End of story (if the store flounders).
The store has not rental or purchased location. The primary location has become unavailable and therefore alternative locations will probably increase startup costs. Already, they are facing an up hill climb as Guy's Home Haven location will not be used. It will most likely eat into the capitalization fund, effectively reducing inventory/variety/styles or sizes offered.
The quality of marketing/advertising campaigns and managerial skills will have an impact on success. These factors are unknowns as no personnel have been hired and no campaigns exist. SERIOUSLY? OCC, Inc., wants Nebraskans to invest in a risky business without ANY of the crucial items necessary to obtain a small business loan? Seriously? How many of you out there could walk in to your bank and say... "I need half a mil Bob, I have no plan, but I got a thought." Do you think Banker Bob would at least wonder if you had a clue? You bet, because unless it is real estate speculation, Banks are not out to lose money.
The prospectus also notes that there may be additional risks, "not foreseen or appreciated by management." You should discuss this with management as part of your own research. Clearly a catch all because they were trying to save money on ink cost.
There are many potential upsides to a clothing store if the local market will support the choices offered. When Torrington executed on their plan, the had a well-defined approach that involved a detailed market survey, detailed business plan and a forward projection on anticipated profitability. The store is today a success, largely on the homework done by the economic development effort and the strong desire to educate the local population and investors. None of this has been done by the steering committee or local newspaper whose publisher is clearly in conflict with.
Aside from the biggest concerns as to hiring a manager who understands both selling trends and can assume the kind of control necessary to stock an adequate supply of items in appropriate sizes/styles so as to maintain a high turn ratio (inventory turns are how often your inventory dollars are cycled through and are exceedingly important in clothing as your transition between seasons such as summer to winter, etc). Failing to stock the right items will effectively deplete inventory available spend dollars for new seasons and potentially will increase costs for current inventory covered under any operational loans (often called an interest float or floor plan).
I am a betting man and I enjoy a good game of chance. I don't play roulette or craps because I do not believe the odds are in my favor. In my honest opinion, there are too many significant risks with the current prospectus of Our Community Clothing, Inc. to make risking precious money available to a nearly certain failure. If you choose to invest, just remember this: Even if you are a 5% stakeholder, several people will still be able to band together and do with the company what they want. I do not believe this store is being proffered without some ulterior motive and I have a strong concern that money invested will likely lose it's value. Given the nature of the product mix, one has to also wonder about the assistance of certain clothing stores in the area and the competition offered in the area of Tux rentals, etc. Is it possible that current competition would be eliminated through merger with said competitor?
In some sense, capitalism is a crap shoot. Wouldn't you at least like to be holding the dice when it comes up?
OCCincOFFER
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