there is only moderate concern that competitors will be able to substantially cut into future profit margins without extensive price competition. Further, American’s location seems optimal given D.C.’s large population which fits their target customer demographics extremely well – above-average education and income with D.C. scoring the highest in both categories of all 29 metropolitan areas (exhibit 8). Further, research indicates, based on the proxy cities of LA and Houston, that the D.C. area offers a large enough import market for success, even with multiple storefronts per area.
Despite its fundamentally strong business strategy, there are extremely important concerns regarding the execution of the AI’s strategy that need to be addressed. American should sever all ties with Mr. Sabat and Mr. Robinson via a buy-out or comparable alternatives to dissolve their partnership. In short, these gentlemen are dishonest and continued association with him would provide far more issue than benefit. Clearly this strategy is complicated by the financing issues present with American Imports’ $75,000 letter of credit and short-term $25,000 financing being achieved via the personal guarantees of these men. Although losing Sabat introduces financial concerns, especially with negative cash flow expected in Jan 1968 (exhibit 13), American should be able to offer current inventory and positive cash flow from operations as collateral in financing the company that they were unable to offer earlier in the firm’s development. Additionally, AI can seek replacement funding via existing equity holders, specifically Mr. Carter, whom they could offer increased equity in order to replace Mr. Sabat’s name on the bank credit. Further, AI can look to negotiate better terms with Alan Cross and/or re-open conversations with individuals that had previously been abandoned during preliminary funding discussions. One additional possibility for AI financing would be to negotiate a joint venture...