Investment Idea of Financing the Growth in New Units of Other Cities

The Company intends to undertake a major expansion effort to establish its direct presence (warehouses + delivery services) in Russian cities, Ukraine and Kazakhstan.

RusGal, a mail-order, internet retailer and wholesaler is involved in the sales of stylish consumer goods, mainly men’s and women’s undergarments and lingerie, women’s club shoes. The Company started operations in the 4th quarter of 1999. Primarily through sales of lingerie, RusGal now occupies a leading position in the wholesale, e-commerce and mail ordering trade in the CIS & Baltic regions in the market niche for male and female lingerie, women’s clothing, women’s shoes and hosiery merchandise. After many years of successful profitable operations the sales grew 15-40% per annum.

The management of RusGal has years of work experience in the largest Russian department houses, TSUM and GUM. Through this experience they came to understand the low profit potential of the traditional boutique store model, which is characterized by very high costs for renting space (especially in Moscow and in St. Petersburg), high seasonality of the business, and the lack of mass demand for high priced items.

Based on this understanding, RusGal conducts its operations through two low-cost channels of distribution: mail ordering and e-commerce. Core personal, represented by the sales managers, combine several functions, while delivery services are conducted by part-time, largely seasonal labor, including college students. Design and printing of catalogues, booklets, prospectuses, 3-levels discount cards, leaflets, packaging is outsourced.

Interested investors can contact us on Merar.

Competitive advantages
1. wide geography of operations in 15 countries of the CIS and Baltiic
2. diversified purchases of exclusive assortment from 56 manufacturers from Asia, Europe and North America
3. attractive prices for retail and wholesale customers
4. unique services:
a. delivery for 3 hours (in present time in Moscow only)
b. two stages for choice of goods: at an order and at delivery
c. possibility to give up an order
d. several options for payment of order

5. unique system of increase of loyalty of customers for stimulation of rational at acceptance decision about a purchase
a. price discrimination (actions, sales, discount programs, coupons)
b. telemarketing

6. use of own technologies of neuromarketing for stimulation of emotional at acceptance decision about a purchase, for more exact customization and effective management resources
a. stimulation by music (neurophysiology)
b. stimulation by aromas (aromacology)
c. stimulation by a color (color analyses psychology)
d. stimulation by a letup (merchandizing)
e. stimulation of emotional attachment (branding)

Large loyalty basement for expansion includes 125,000 retail accounts and 145 wholesale accounts.

RusGal has developed a low-cost, flexible, and ready-for-expansion business platform for selling middle level-quality; western-styled merchandise in the rapidly growing consumer markets of the 15 Russian speakers CIS and the Baltic countries.

Speed ​​of delivery in Moscow and the new units - 3 hours from date of order, and the breadth of product range offered to customers, have no analogues in the world.
Geography of the CIS and Baltic States can cover people, historically, not having a wide choice and fast order delivery to home or office.

Regional expansion is planned for the following cities: St.Petersburg, Ekaterinburg, Nizhni Novgorod, Kazan, Novosibirsk, Astana, Kiev, Dnepropetrovsk and Vladivostok.

Fast growing consumer markets in these cities are practically untapped because of red tape and the high risks of opening and running a conventional boutique store, so there's a great investment opportunity here.

The schedule for opening each of the new divisions is estimated to take from 3 to 4 months per location, depending on the availability of warehouse space. The entire expansion plan, including finding premises for operations and hiring and training personnel in 10 cities is planned to be carried out within 2 years. Cost of inventory and warehouse in each unit is about $100,000.