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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                    FOR THE FISCAL YEAR ENDED AUGUST 3, 1996
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                  For The Transition Period From _____ To _____

                         COMMISSION FILE NUMBER: 1-10767

                       VALUE CITY DEPARTMENT STORES, INC.
             (Exact name of registrant as specified in its charter)

         OHIO                                      NO. 31-1322832
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
incorporation or organization)

  3241 WESTERVILLE ROAD, COLUMBUS, OHIO                     43224
 (Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:  (614) 471-4722

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:                  Name of each exchange on which registered:
Common Shares, without par value      New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. YES X  NO
                              ---   ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Aggregate market value of voting stock held by non-affiliates of the registrant,
9,128,913 Common Shares, based on the $12.625 closing sale price on October 29,
1996, was $115,252,527.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 31,715,745 Common Shares were
outstanding at October 29, 1996.


<PAGE>   2



TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                          FORM
                                                                                                          10-K
                                                                                                         REPORT
                                                     ITEM NO.                                             PAGE
                                                     --------                                             ----

                                                      PART I

<S>      <C>                                                                                                <C>
1.       Business............................................................................................3
2.       Properties.........................................................................................14
3.       Legal Proceedings..................................................................................14
4..      Submission of Matters to a Vote of Security Holders................................................14


                                                      PART II

5.       Market for the Registrant's Common Equity and Related Stockholders Matters.........................15
6.       Selected Financial Data............................................................................16
7.       Management's Discussion and Analysis of Financial Condition and Results of Operations..............17
8.       Financial Statements and Supplementary Data........................................................22
9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............22


                                                     PART III

10.      Directors and Executive Officers of the Registrant.................................................23
11.      Executive Compensation.............................................................................27
12.      Security Ownership of Certain Beneficial Owners and Management.....................................31
13.      Certain Relationships and Related Transactions.....................................................32


                                                      PART IV

14.      Exhibits, Financial Statements and Reports on Form 8-K.............................................37

Signatures..................................................................................................38

                                                     SCHEDULES

                              TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES

Report of Independent Accountants..........................................................................F-1
Consolidated Balance Sheets................................................................................F-2
Consolidated Statements of Income..........................................................................F-3
Consolidated Statements of Shareholders' Equity............................................................F-4
Consolidated Statements of Cash Flows......................................................................F-5
Notes to the Consolidated Financial Statements.............................................................F-6

SCHEDULE
II - Valuation and Qualifying Accounts.....................................................................S-1
Index to Exhibits..........................................................................................E-1
</TABLE>

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                                     PART I

ITEM 1            BUSINESS.

ORGANIZATION

         Value City Department Stores, Inc. ("VCDS") was incorporated on March
15, 1985 and was inactive until June 18, 1991 when it sold 8,025,000 Common
Shares in a public offering and issued 22,500,000 Common Shares to Schottenstein
Stores Corporation ("SSC") in exchange for substantially all of the net assets
of the Value City Department Store Division of SSC (the "Division"). In
connection with the acquisition of the Division, VCDS entered into a number of
agreements with SSC. These agreements are described in Item 13 of this annual
report on Form 10-K.

         On September 18, 1992, VCDS acquired all of the outstanding stock of GB
Stores, Inc., a Pennsylvania corporation, from GB Stores, a Pennsylvania limited
partnership ("GB Partnership") in exchange for the issuance by VCDS to GB
Partnership of 1,312,500 Common Shares of VCDS (the "GB Acquisition"). GB
Partnership is an affiliate of SSC. The GB Acquisition was accounted for as a
combination of entities under common control in a manner similar to a pooling of
interests, and accordingly, the financial data for VCDS included herein for all
periods have been restated to include the financial position and results of 
operations of the combined entities.

         The Company also operates the apparel, housewares and domestics
departments in two department stores in New Jersey pursuant to a license
agreement with The Valley Fair Corporation ("Valley Fair"), a subsidiary of SSC.

         Two of the Company's department stores operated as partnerships owned
by the Company and the manager of the respective stores through July and
October 1995. During fiscal 1996 the Company bought the 25% minority interest 
in the partnership stores for approximately $1,328,000 which was the net book 
value of the minority interests in those partnerships.

         VCDS and its wholly owned subsidiaries are herein referred to
collectively as the "Company".

GENERAL

         The Company operates a chain of 91 department stores, and one store
opened in October 1996, located in Ohio and 14 other midwestern and eastern
states, principally under the name "Value City." For over 79 years, the
Company's strategy has been to provide exceptional value by offering a broad
selection of name brand merchandise at prices substantially below conventional
retail prices. The stores carry men's, women's and children's apparel,
housewares, giftware, home furnishings, toys, sporting goods, jewelry, shoes and
health and beauty aids, with apparel comprising over 60% of total sales. The
Company operates large stores, averaging 85,000 square feet, which allow it to
offer over 90,000 different items of

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merchandise similar to the items found in department, specialty and discount
stores.

         For four of the past six fiscal years, the Company experienced
comparable store net sales growth. The Company's management believes that the
historical increases resulted from the Company's ability to offer better value
to its customers than its competitors.

         The Company's pricing strategy is supported by its ability to purchase
large quantities of goods in a variety of special buying opportunities. For many
years, the Company has also had a reputation in the marketplace as a leading
purchaser of buy-outs and manufacturers' closeouts.

BUSINESS STRATEGY

         The Company's strategy, to provide name brand merchandise at prices
substantially below conventional retail prices, is reflected in its name "Value
City" and the Company's motto "Better Living for Less." Management believes that
Value City's large stores, which facilitate its full-line merchandise offering
and range of brands, provide a competitive advantage and differentiate the
Company from other off-price retailers. The principal elements of the business
strategy are discussed below.

MERCHANDISING

Selection

         Value City is a full-line, off-price retailer carrying men's, women's
and children's apparel, housewares, giftware, home furnishings, toys, sporting
goods, jewelry, shoes and health and beauty aids. Off-price retailing, as
distinguished from traditional full-price retailing and discount or off-brand
merchandise, is characterized by the purchase of primarily high quality
brand-name merchandise, at prices below normal cost to retailers. A portion of
the cost savings is then passed on to customers through lower prices. The
Company strives to offer customers one-stop-shopping in terms of categories of
merchandise carried. The large physical size of the Company's stores facilitates
the offering of a wide range of merchandise categories with broad, deep
selections of

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goods within each category. The stores carry over 90,000 different items of
merchandise similar to the items found in department, specialty and discount
stores.

         To improve store profitability and meet the changing needs of its
customers, the Company continuously refines its merchandise mix eliminating less
productive departments such as tools and uniforms and introducing new
merchandise categories. For example, the Company introduced casual lifestyle
apparel departments and a gourmet food department in fiscal 1995, and expanded
these departments in fiscal 1996. Also, to help provide the Company with a
reliable source of predominantly fashion merchandise, the Company has begun a
private label program in certain apparel categories.

         The following table sets forth relative contributions of each major
merchandise category to total sales.

<TABLE>
<CAPTION>
                                                                        Percentage of Aggregate Sales Volume
                                                                                 Fiscal Years Ended
                                                                                 ------------------

                                                                          1996          1995       1994
                                                                          ----          ----       ----
<S>                                                                        <C>          <C>        <C>  
Apparel and Ready-to-Wear - Includes Men's, Women's
   and Children's outerwear, suits, dresses, sportswear,
   sleepwear, underwear and accessories........................            62.2%        61.5%      62.5%

Hard goods and Home Furnishings - Includes domestics,
   jewelry, housewares, giftware, small appliances, toys
   and sporting goods..........................................            23.3         24.0       24.0

Licensed Departments - includes shoes, health and beauty
   and other incidental departments............................            14.5         14.5       13.5
                                                                          -----        -----      -----
                                                                          100.0%       100.0%     100.0%
                                                                          =====        =====      =====
</TABLE>


         Customers are attracted to the Company's stores because of continuous
new offerings of value-priced merchandise acquired in special purchases. At the
same time, the Company maintains a broad and consistent range of goods in the
stores, purchases continuing lines of merchandise and offers some private label
goods to ensure constant availability of certain basic categories of merchandise
as well as current fashion trends.

         Generally, it is the Company's policy not to carry over merchandise
from season to season once it is offered for sale in the stores. Rather, the
Company monitors sales of merchandise and reduces prices until the merchandise
is sold. As a result of this policy, the Company generally does not have a
significant amount of carry-over goods.


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Value Pricing

         The Company offers quality brand name merchandise at prices typically
50% to 70% below prices charged by department stores for similar items and at
prices comparable to or lower than prices charged by other off-price retailers.
The Company can offer exceptional values because its buyers purchase merchandise
directly from manufacturers and other vendors at prices substantially below
those generally paid by conventional retailers. See "Supplier Relationships and
Purchasing." This allows the Company to pass on the savings directly to its
customers, while still maintaining favorable profit margins.

         Well known designer labels, brand names and original retailer names are
prominently displayed throughout the stores. Many items carry labels and/or
original price tags showing brand names identifiable with major designers,
manufacturers and retail stores, as well as tags showing original retail or
"nationally advertised" prices. In some cases suppliers may require removal of
labels or original retail price tags as a condition to a special purchase
arrangement. See "Supplier Relationships and Purchasing".

Licensed Departments

         All store departments are operated by the Company except for the health
and beauty aids, shoe and certain other incidental departments. These
departments are licensed to others, including affiliated parties, for a
percentage of net sales, generally ranging from 5% to 11%, for initial periods
of up to 15 years with, in some instances, an option to renew. In addition, the
Company receives a fee from some licensees for general and administrative
expenses. The aggregate annual license fees received by the Company from all
licensees for the fiscal year ended August 3, 1996 was approximately
$15,263,000.

         Licensees supply their own merchandise and generally supply their own
store fixtures but in most instances utilize the Company's associates to operate
their departments. The licensees reimburse the Company for all costs associated
with such associates. Licensees operate their departments under the general
supervision of the Company and are required to abide by the policies of the
Company with regard to pricing, quality of merchandise, refunds and store hours.
Licensed departments complement the operations of the stores and are considered
an integral part of the Company's store operations.

         SSC owns 50% of the outstanding stock of the licensee that operates the
shoe departments in all of the stores, and owns a controlling interest in the
licensee that operates health and beauty aids departments in the Company's
stores. This common ownership interest facilitates the uniformity of
merchandising strategy in the stores, including the overall emphasis on values
resulting from special purchase opportunities.


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SUPPLIER RELATIONSHIPS AND PURCHASING

         An important factor in the Company's growth has been its many years of
experience in purchasing merchandise directly from manufacturers and other
vendors at prices substantially below those generally paid by conventional
retailers. The Company believes that over the years its buyers have established
excellent relationships with suppliers and that the Company has established a
reputation for its willingness and ability to purchase entire lots of
merchandise and to make prompt payment. The Company continuously seeks to find
and negotiate special purchase opportunities. As a result of the Company's
relationships, experience and reputation for prompt payment, many suppliers
offer special purchase opportunities to the Company prior to attempting to
dispose of merchandise through other channels. Many manufacturers of brand name
merchandise are reluctant to sell merchandise for resale at discounted prices
through their normal channels of distribution or to retailers which may be
considered to be competitors in their regular distribution channels. By selling
such merchandise through its own retail stores, the Company is able to assure
its suppliers that the merchandise will be sold without disturbing the
suppliers' regular channels of distribution. Although the Company cannot
quantify the amount by which the prices it pays for its special purchases are
lower, if any, than the prices paid by its competitors for similar purchases,
the Company believes that such special purchases are made at prices sufficiently
favorable to enable it to offer merchandise to its customers at prices that are
significantly lower than those prices offered by many of its competitors.


         The Company purchases merchandise from more than 3,600 suppliers, none
of which accounted for a material percentage of the Company's purchases during
the past fiscal year. The Company does not maintain any long-term or exclusive
commitments to purchase merchandise from any one supplier. The Company regularly
purchases overstocked or overproduced items from manufacturers and other
retailers, including end-of-season, out-of-season and end-of-run merchandise and
manufacturers' slight irregulars. From time to time, the Company also purchases
all or substantially all of the inventories of financially distressed retailers
and makes other special purchases. The Company has recently begun to contract
with overseas sources for the manufacture of apparel items under the Company's
own brand names. Also the Company has begun to more aggressively seek
advantageous buying opportunities overseas, particularly in non-apparel
categories.


         The Company's distribution facilities are designed to enable it to
prioritize the processing of merchandise on short notice and to deliver
merchandise to the stores within days of its receipt. This allows the Company's
buyers to purchase merchandise very late in the season, when prices are more
favorable, and still deliver the merchandise to the stores before the end of the
season. At the same time, the Company has devoted a separate warehouse to out-of
season goods. This merchandise is held until the most opportune time to offer it
in the Company's stores, which in most cases is the next season. This ability to
purchase and quickly distribute or hold merchandise in substantial

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quantities has enabled the Company to offer high-quality merchandise to
customers at prices significantly below usual retail prices while maintaining
favorable profit margins. The Company believes that this ability distinguishes
it from the typical discount or off-price retailer and provides it with a
competitive advantage in making purchases as favorable opportunities arise.

         The relatively large size of the Company's stores provides Value City
with the flexibility to purchase full lots of merchandise that may not be
available to other off-price retailers with smaller stores requiring more
targeted purchases. Value City is also able to buy and economically distribute
short lots of merchandise. Although there is growing competition for the kinds
of special purchases that the Company seeks, the Company believes that, because
of the factors discussed above, it will be able to obtain sufficient supplies of
desirable merchandise at favorable prices in the future.

DISTRIBUTION

         The Company pursues a centralized distribution strategy with eight
distribution centers, all located in Columbus, Ohio. The aggregate area of the
centers is approximately 1,700,000 square feet, however, use of multi-tier
processing levels in some of the distribution centers substantially increases
their operating capacity. The distribution centers are organized by merchandise
type, with warehouses for hanging apparel, flat apparel, housewares, domestics,
toys and sporting goods, and overflow and buyout merchandise. The Company also
maintains a "packaway" warehouse facility where out-of-season merchandise
acquired at favorable prices is held for future sale. The Company's network of
warehouses enable it to make opportunistic purchases including late season,
priority delivery and end-of-season purchases.

         The Company uses up-to-date material handling equipment in its
warehouses, including new mechanized conveyor systems to separate and collate
shipments to the stores. The Company's distribution facilities are designed to
allow priority delivery of late season purchases and fast-moving merchandise
to have it in the stores quickly to take full advantage of the remaining 
selling season. The Company continues to focus on improving inventory turns by 
implementing changes such as expediting the delivery of merchandise from the 
store receiving area to the selling floor by distributing goods on hangers. 
The Company believes that the existing distribution centers, with certain 
modifications and additional equipment, will support store expansion for the 
foreseeable future.

         Goods are centrally received from suppliers and transmitted to their
respective warehouses and then, upon shipment to the stores, merchandise is
consolidated to ensure full-truck loads to minimize shipping costs. The
Company leases its fleet of road tractors and owns the majority of its semi-rig
trailers. The Company's fleet makes the majority of all deliveries from its
warehouses to the stores.

ADVERTISING AND PROMOTION

         The Company commits substantial resources to advertising and believes 
that its aggressive

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marketing strategy is one of the keys to its success. The Company advertises
frequently in print, including newspaper circulars and flyers, and on local
television and radio. The promotional strategy is carefully planned and budgeted
to include not only seasonal promotions, but also weekly storewide sales events
highlighting recent buy-outs and other specially purchased brand name
merchandise designed to maximize customer interest. In some cases a supplier may
prohibit the advertising or non-store promotion of its brand name. See "Supplier
Relationships and Purchasing" The Company's advertising strategy has recently
become more institutional to stimulate Company awareness and emphasize special
purchases to attract customers to the stores while reinforcing the Value City
motto, "Better Living for Less".

STORES

Store Location and Design

         The Company's department stores average approximately 85,000 square
feet, with approximately 70% of the total area of each store representing
selling space. New stores are targeted to be over 90,000 square feet. The
Company's stores are generally laid out on a single level, with central traffic
aisles providing access to major departments. Each department strives to display
and stock large quantities and assortments of merchandise, giving the store a
very full appearance. Many of the Company's stores have an attractive pavilion
entrance that gives the customer a panoramic view of the entire store. The
stores are generally open from 9:30 am until 9:30 pm Monday through Saturday and
11:00 am until 6:00 pm on Sunday. All of the stores, with the exception of a
recently purchased site opening in spring 1997, are located in leased or
subleased facilities.

         Management has recently begun to implement several initiatives to
enhance the appearance of its stores and offer a more convenient and pleasurable
shopping experience for its customers. These initiatives include: increasing the
number of secondary aisles in the stores to improve the flow of traffic
throughout the stores; changing the fixtures and improving the use of existing
space such as columns and empty walls to display more merchandise; and,
color-coding the departments and improving the in-store signage to make it
easier for customers to identify department locations and find merchandise.

         Management believes that customers are attracted to the Company's
stores principally by the wide assortment of quality items at substantial
savings and that its stores are destination stores. They do not rely on
traffic created by the presence of other stores in their vicinity but instead
successfully generate their own traffic. Of the 91 stores open as of October
1996, 18 are free-standing and 73 are in shopping centers, 20 of which are
enclosed malls in which they serve as an anchor. All of the Company's stores are
located in suburban areas, near large residential neighborhoods and away from
downtown commercial centers.

Store Operations

         The Company is committed to offering customers a convenient, 
pleasurable shopping

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experience and a high level of customer satisfaction. A training program is 
utilized to assure that every associate maintains the highest level of
professionalism and places customer service at the forefront. The Company's
stores are designed for self-service shopping, although sales personnel are
available to help customers locate merchandise and to assist in the selection
and fitting of apparel. In all stores, a customer service desk is conveniently
located generally adjacent to the central check-out area. The Company prides
itself on ease of checkout and has invested in point of sale scanning systems
which expedite the checkout process by providing automated check and credit
approval and price lookup. Sales associates are trained to create a
"customer-friendly" environment. The Company accepts all major credit cards, and
also provides a private label credit card program in all markets. Private label
and other credit card sales are nonrecourse to the Company, with the servicing
agent assuming all of the credit risk. The Company offers a convenient layaway
program and maintains a liberal return policy.

         The Company's stores are organized into separate geographic regions,
each with a regional manager. Regional managers are headquartered in their
region and spend the majority of their time in their stores to ensure
adherence to the Company's merchandising, operational and personnel standards.
The typical staff for a Value City store consists of a store manager, a number
of assistant store and department managers, and full and part-time hourly
associates. Each store manager reports directly to one of the regional managers,
and each of the regional managers reports to the Vice President of Operations.

         The Company's store managers function both as administrators and
merchants. All managers are responsible on a day-to-day basis for maintenance of
displays and inventories in all departments, for the overall condition of their
stores, for customer relations, personnel hiring and scheduling, and for all
other operational matters arising in the stores. Each store manager is
compensated, in part, based on the performance of his or her store. The
Company's store managers are an important source of information concerning local
market conditions, trends and customer preferences.

         The Company prefers to fill management positions through promotion of
existing associates. A store management training program is maintained to
develop the management skills of associates and to provide a source of
management personnel for future store expansion.

Expansion

         The Company has increased its store base from 53 stores at the start of
fiscal 1992 to 86 stores at the end of fiscal 1996. The Company has expanded
both by leasing newly constructed locations and by acquiring existing locations
from other retailers. The Company recently entered several major new markets,
including Chicago, Detroit and St. Louis in fiscal 1995 and Atlanta and
Charlotte in fiscal 1996, and will open two stores each in the New Jersey and
Chicago areas and one store each in the Washington, D.C. and Memphis areas
during the first quarter of fiscal 1997. In addition, the Company has entered
into four arrangements for new stores which are scheduled to be opened later in
fiscal 1997. Management believes that the Company's strong financial position
will enable it to take advantage of real estate opportunities that may develop.

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         Expansion continues to be a central element of the Company's business
strategy. Management plans to open new stores in both existing and adjacent
markets. The Company pursues an opportunistic site selection strategy,
considering store sites that, among other factors, meet the Company's criteria
with respect to size, configuration, demographics and lease terms. The Company
seeks to cluster stores in targeted metropolitan areas to enhance name
recognition, share advertising costs and achieve economies of scale in
management and distribution.

         The table below sets forth certain information relating to the
Company's stores during the last five fiscal years:
<TABLE>
<CAPTION>
                                                           Fiscal Year
                                                           -----------
                                     1992        1993       1994       1995      1996(4)
                                     ----        ----       ----       ----      ----

<S>                                   <C>         <C>        <C>        <C>        <C>
Beginning of Year(1)...........       53          56         74         75         79
  Opened(2)....................        3          18          3          6          7
  Closed(3)....................        0           0          2          2          0
                                      --          --         --         --         --
End of Year(1).................       56          74         75         79         86
                                      ==          ==         ==         ==         ==


<FN>
  (1)    Excludes apparel, domestics and housewares departments operated by the
         Company in two Valley Fair department stores.
  (2)    For fiscal 1993, includes the 15 department stores obtained in the GB
         Acquisition, the results of operations and financial position of which
         are included in the Company's financial statements herein for all
         periods.
  (3)    During 1995, two stores were closed pursuant to their lease
         expirations. Two stores acquired in the GB Acquisition were closed
         during fiscal 1994 because they were in the same market area as
         existing Value City stores. Fiscal 1993 does not include two junior
         apparel stores acquired in the GB Acquisition, which were closed in the
         same year.
  (4)    In October 1996, the Company opened its 91st store and has scheduled 5
         additional stores to be opened during fiscal 1997.
</TABLE>

         In selecting a site for a new store, the Company considers such factors
as population, per capita income, traffic patterns, the visibility of the
prospective store location, parking, the security of the area and the presence
of other compatible stores, especially supermarkets or large drug stores. The
Company attempts to select a location on which there is a suitable existing
structure, generally a one-story building with a relatively open interior, and
alters the structure in accordance with the Company's merchandising concept.

         Based upon its past experience, the Company estimates the average cost
of opening a new store to range from approximately $5,000,000 to $6,500,000,
including leasehold improvements, fixtures, inventory and other costs.
Preparation of a store for opening generally takes between eight and 12 weeks.
The Company charges pre-opening expenses to operations ratably over the first
twelve months of store operations. It has been the Company's experience that new
stores generally achieve profitability and contribute to net income following
the first year of operations.


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         The Company continually refurbishes its stores by updating the
merchandise displays and in-store signage. The costs of refurbishing on a per
store basis are generally not substantial. On an annual basis, the Company
selects stores to be remodeled, which generally involves more significant
changes to the interior or exterior of the store. The Company maintains its own
architectural design staff, construction crews and carpentry shop to refurbish
and remodel both new and existing store interiors and to build in-store display
tables and racks.

MANAGEMENT INFORMATION AND CONTROL SYSTEMS.

         The Company believes that a high level of automation is essential to
maintaining and improving its competitive position. The Company relies upon
computerized data systems to provide information at all levels, including
warehouse ordering, store billing, inventory control and automated accounting.
The Company utilizes two IBM AS/400 computer systems to help meet its growing
needs.

         The Company utilizes point of sale ("POS") registers with full scanning
capabilities insuring speed and accuracy at customer check-outs and facilitating
inventory restocking. Since layaways represent an important part of the
business, an automated system to capture and control layaways is integrated into
the POS system.

ASSOCIATES

         At September 6, 1996, the Company had approximately 12,700 associates.
Some of these associates are covered by collective bargaining agreements with
the following unions:

- The United Food and Commercial Workers Union Local #1540 covering
approximately 70 associates in the Ottawa, Illinois store. This contract expires
in February 1997.

- The United Food and Commercial Workers Union Local #880 covering approximately
400 associates in three Cleveland, Ohio stores. This contract expires in
March 1998.

- The United Food and Commercial Workers Union Locals #23 and #27 covering
approximately 500 associates in seven stores in Pennsylvania and Maryland. These
contracts expire in May 1997, July 1997 and February 1998.

- The United Food and Commercial Workers Union Local #23 covering approximately
160 associates in two stores in Erie, Pennsylvania. This contract expires in
March 1999. 

         Group hospitalization, surgical, medical, vision, dental, disability
and life insurance benefits and a 401(k) plan are provided to full-time
non-union associates. The Company is a co-sponsor with SSC in these plans. The
Company also sponsors an associate stock purchase plan.


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         The Company believes that in general it has satisfactory relations with
all of its associates.

COMPETITION

         The retail industry is highly competitive. The Company generally
competes with a variety of conventional and discount retail stores, including
national, regional and local independent department and specialty stores, as
well as with catalog operations, factory outlet stores and other off-price
stores. In recent years, the Company has encountered increased competition from
department stores which have become more focused on promotional markdowns to
increase sales.

         In the discount or off-price retailing segment, the Company
differentiates itself through its store format and the breadth of its product
offering. The Company's large departmentalized stores differ from most other
off-price retailers that tend to operate substantially smaller stores focusing
predominantly on either hard or soft goods. The Company's large stores
facilitate its full-line merchandise offering and broad range of brands and
products. Management believes that the Company's retail concept is unique.

         In addition, because the Company purchases much of its inventory
opportunistically, the Company competes for merchandise with other national and
regional off-price apparel and discount outlets. Many of the Company's
competitors handle identical or similar lines of merchandise and have comparable
locations, and some have greater financial resources than the Company.

         Competitive factors important to the Company's customers include
fashion, value, merchandise selection, name brand recognition and, to a lesser
degree, store location. The Company competes primarily on the basis of value,
merchandise quality and selection. Management believes the Company's competitive
advantages include its reputation in the marketplace for being able to purchase
and promptly pay for entire lots of merchandise, together with its ability to
either quickly distribute or hold the merchandise for sale at the most opportune
time, as well as its full-line merchandise offering and range of name brands.

SERVICE MARKS, TRADEMARKS AND TRADENAMES

         The service mark "Value City" has been registered by SSC in the U.S.
Patent and Trademark Office. The Company's four department stores in Columbus
operate under the tradename "Schottenstein's," which has been registered by the
Company in the state of Ohio. The Company is entitled to use such names for the
sole purpose of operating department stores on an exclusive basis pursuant to a
perpetual, royalty-free license from SSC. SSC also operates a chain of furniture
stores under the name "Value City Furniture." The Company has also registered in
the U.S. Patent and Trademark Office various trademarks used in its private
label program. The Company is not aware of any conflicting use or infringement
by any third party with respect to any of the above names and marks.


                                       13

<PAGE>   14



ITEM 2.           PROPERTIES.

         Of the Company's 86 department stores operating as of August 3, 1996,
24 are located in Ohio, 18 in Pennsylvania, seven in Indiana, six each in
Maryland and Michigan, four each in Kentucky, Illinois and West Virginia, three
each in Delaware, Georgia, and Virginia, two in New Jersey and one each in
Missouri and North Carolina.

         In August 1996, the Company opened four new stores, two in New Jersey
and two in Illinois. In October 1996 the Company opened a store in Memphis,
Tennessee. In addition, the Company has entered into arrangements for five
additional new store locations to be opened during fiscal 1997. Of these five
locations, two are in Pennsylvania, and one each in Illinois, Maryland and New
Jersey.

         The Company maintains buying offices in Columbus, Ohio, Boston,
Massachusetts and Los Angeles, California. The Company operates eight
warehouse/distribution complexes located in Columbus and occasionally utilizes
temporary warehouse space. The Company's executive offices occupy approximately
45,000 square feet in the building which also serves as one of the Company's
apparel distribution centers.

         The Company owns one store location. The remaining stores and all of
the warehouse facilities are leased or subleased. The Company leases or
subleases 32 department stores and all of its permanent warehouse and office
facilities from SSC or entities affiliated with SSC. See "Item 13." The
remaining 63 department stores are leased from unrelated entities. Most of the
store leases provide for an annual rent based upon a percentage of gross sales,
with a specified minimum rent.

         The Company's office, warehouse and distribution facilities are
adequate for its current needs and the Company believes that such facilities,
with certain modifications and additional equipment will be adequate for its
foreseeable future demands.


ITEM 3.           LEGAL PROCEEDINGS.

         The Company is involved in various legal proceedings that are
incidental to the conduct of its business. In the opinion of management, the
amount of any liability with respect to these proceedings will not be material.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.


                                       14

<PAGE>   15



                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The following table sets forth the high and low sales prices of the Common
Shares as reported on the NYSE Composite Tape during the periods indicated. As
of October 15, 1996, there were 676 shareholders of record.

<TABLE>
<CAPTION>
                                                   HIGH            LOW
<S>                                              <C>             <C>
Fiscal 1995:
First Quarter     ...........................    $  15 5/8       $ 11 1/8
Second Quarter ..............................       12 1/4          8
Third Quarter ...............................        9              7
Fourth Quarter ..............................        8 5/8          7 1/2

Fiscal 1996:
First Quarter     ...........................    $   9           $  6
Second Quarter ..............................        7 5/8          5 3/4
Third Quarter ...............................       10 1/8          6
Fourth Quarter ..............................       13              9 1/2
</TABLE>


The Company has paid no dividends and presently anticipates that all of its
future earnings will be retained for the development of its business and does
not anticipate paying cash dividends on its Common Shares during fiscal 1997.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, general financial condition of the Company and
general business conditions.




                                       15

<PAGE>   16



<TABLE>
<CAPTION>
ITEM 6.           SELECTED FINANCIAL DATA.(1)
                  (in thousands, except per share and per square foot amounts and ratios)

Fiscal Year                            1996(8)            1995             1994             1993(8)           1992
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>               <C>              <C>               <C>     
Net Sales(2)                           $954,308         $871,949          $864,855         $842,199          $798,187
Operating Profit                        $36,213          $24,209           $62,237          $57,067           $44,929
Net Income (3)                          $21,718          $13,819           $38,936          $40,252           $26,679
Earnings per Share (4)                    $0.68            $0.43             $1.21            $1.25             $0.83
Total Assets                           $437,010         $361,887          $358,606         $356,718          $292,065
Working Capital                        $160,837         $154,112          $164,140         $139,928           $88,868
Current Ratio                              2.20             2.48              2.59             2.08              1.67
Long-term Obligations                   $46,942          $20,853           $31,650          $42,396           $12,952
Number of Stores (5)                         86               79                75               74                71
Sales per Selling sq. ft(6)                $221             $220              $229             $222              $217
Comp Store Sales Change(7)                 (0.1)%           (3.8)%             2.9%             0.2%              5.7%

<FN>
(1)      On September 18, 1992, the Company acquired all of the outstanding
         stock of GB Stores, Inc. from a partnership affiliated with
         Schottenstein Stores Corporation ("GB Partnership") in exchange for
         1,312,500 of the Company's common shares (the "GB Acquisition"). As a
         result of the acquisition, the Company acquired all of the net
         operating assets of the Gee Bee Department Store Division (the " GB
         Division") of GB Partnership. The transaction was accounted for in a
         manner similar to a pooling of interest, and accordingly, the financial
         statements for all periods presented include the financial position and
         result of operations of the combined entities.
(2)      Excludes sales of licensed departments.
(3)      Fiscal 1992 is adjusted for income taxes as if the GB Division had been
         subject to taxes on a separate company basis.
(4)      Fiscal 1994 includes a tax benefit of $0.07 per share due primarily to
         the elimination of deferred tax allowances. Fiscal 1993 net income and
         earnings per share includes the benefit from a change in tax status of
         the GB Division of $7.2 million or $0.22, respectively. Prior to 1993,
         earnings per share were calculated on a pro forma basis to give effect
         to the GB Acquisition.
(5)      Includes all stores operating at the end of the fiscal year, excluding
         apparel, domestic and housewares departments operated by the Company in
         two affiliated department stores.
(6)      Excludes stores not operated during the entire year and licensed
         departments.
(7)      Comparable store sales change excludes licensed departments. A store is
         considered to be comparable in its second full fiscal year of
         operation. For fiscal 1996 and 1993, comparable store sales are
         computed using like 52-week periods.
(8)      Fiscal years 1996 and 1993 include 53 weeks; all other years contain 52
         weeks.
</TABLE>


                                       16

<PAGE>   17



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

         Net sales increased from $871.9 million to $954.3 million, an increase
of $82.4 million, or 9.4%. During fiscal 1996, the Company changed its fiscal
year end to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. This resulted in fiscal 1996 having
fifty-three, rather than fifty-two weeks. Sales for the additional week
aggregated $16.8 million. New stores contributed an increase in sales of $54.2
million and stores opened during the prior fiscal year contributed $22.5
million. These increases were partially offset by $10.2 million for two stores
closed in fiscal 1995. Comparable store sales for the fifty-two week period
decreased $0.9 million, or 0.1%. In determining comparable store sales growth,
only stores open for like 52-week periods are included.

         Gross profit increased from $324.6 million to $354.8 million, an
increase of $30.2 million or 9.3%. Expressed as a percentage of sales, gross
profit remained constant at 37.2%.

          Selling, general and administrative expenses ("SG&A") increased $20.1
million, or 6.3%, from $317.0 to $337.1 million, but decreased as a percentage
of sales from 36.4% to 35.3%. New stores contributed an increase in expenses
of $17.0 million, and stores opened during the prior fiscal year contributed
$6.6 million. These increases were partially offset by $3.0 million for two
stores closed in fiscal 1995. All other expenses as a group decreased by $0.5
million. New store SG&A, as a percentage of sales, is slightly higher than that
of comparable stores, due primarily to pre-opening expenses and the result of
aggressive advertising to develop name recognition in new markets. This increase
in SG&A percentage was more than offset by the savings achieved in comparable
store SG&A, as a percentage of sales, and by the leveraging effect of increased
sales volume on administrative, warehousing and distribution costs.

         Based upon its experience, the Company estimates the average cost of
opening a new store to range from approximately $5.0 million to $6.5 million,
including leasehold improvements, fixtures, inventory and other costs.
Preparations of a store for opening generally take between eight and 12 weeks.
The Company charges pre-opening expenses to operations ratably over the first
twelve months of store operations. It has been the Company's experience that new
stores generally achieve profitability and contribute to net income after the
first year of operations. Seven stores opened less than twelve months had a
pre-tax operating loss of $0.2 million for this year, including $2.2 million of
pre-opening amortization. Six stores opened less than twelve months during
fiscal 1995 had pre-tax net operating losses of $3.0 million in 1995, including
$2.1 million of pre-opening amortization. The 1995 stores have not yet
completed a full second year of operation, however based on their results from
operations for fiscal year 1996, it is expected that they will contribute to
net income in fiscal year 1997.


                                       17

<PAGE>   18



         License fees from affiliates increased from $14.0 million to $15.2
million and remained constant as a percentage of sales at 1.6%.

         Operating profit increased from $24.2 million to $36.2 million, an
increase of $12.0 million or 49.6%, and increased as a percentage of sales from
2.8% to 3.8% as a result of the above factors.

         Amortization of excess net assets over cost decreased from $1.5 million
to $1.4 million as a result of a write-off in the prior year associated with a
store closing.

         Interest expense, net of interest income, decreased from $1.9 million
to $1.3 million due to lower outstanding borrowings and increased interest
income in the current year.

         Minority interest in partnerships decreased from $232,000 to $41,000 as
a result of the Company purchasing the 25% minority interest in two partnerships
for approximately $1,328,000 representing the net book value of the minority
interests in those partnerships.

         Income before income taxes increased from $23.5 million to $36.3
million, an increase of $12.8 million or 54.4%, and increased as a percentage of
sales from 2.7% to 3.8%.


FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994

         Net sales increased from $864.9 million to $871.9 million, an increase
of $7.0 million, or 0.8%. New store sales aggregated $47.8 million, partially
offset by $9.7 million of non-comparable store sales, including two stores which
closed during the year, and a comparable store sales decrease of 3.8% or $31.1
million. In determining comparable store sales growth, only stores open during
both full fiscal periods are included.

         Gross profit decreased from $329.2 million to $324.6 million, a
decrease of $4.6 million or 1.4%. Expressed as a percentage of sales, gross
profit decreased from 38.1% to 37.2% due primarily to increased markdowns.

         Selling, general and administrative expenses increased $34.5 million,
or 12.2%, from $282.5 million to $317.0 million and increased as a percentage of
sales from 32.7% to 36.4%. New stores contributed an increase of $16.6
million. Comparable store expenses, primarily advertising and salaries and
related benefit costs, increased by $3.8 million. Distribution costs increased
$9.2 million due primarily to the start-up of a new distribution facility. The
balance, or $4.9 million, was due to an increase in general administrative
expenses. These increases were disproportionate to the relatively weak increase
in sales volume and therefore had a deleveraging effect on these expenses
expressed as a percentage of sales.

         License fees from affiliates increased from $12.5 million to $14.0
million and increased as a percentage of sales from 1.4% to 1.6% primarily as a
result of increased shoe licensee sales.

                                       18

<PAGE>   19



         During the year ended July 29, 1995, the Company recognized $0.4
million of net expenses for certain employee termination benefits and other exit
costs related to closing two stores pursuant to their lease expirations. Net
operating losses through the closing date for these stores, exclusive of this
restructuring charge, were approximately $0.6 million.

         Operating profit decreased from $62.2 million to $24.2 million, a
decrease of $38.0 million or 61.1%, and decreased as a percentage of sales from
7.2% to 2.8% as a result of the above factors.

         Amortization of excess net assets over cost was approximately $1.5
million in 1995 and 1994.

         Interest expense, net of interest income, decreased from $2.4 million
to $1.9 million due to lower outstanding borrowings offset in part by reduced
interest income in the current year.

         Income before income taxes decreased from $60.7 million to $23.5
million, a decrease of $37.2 million or 61.3%, and decreased as a percentage of
sales from 7.0% to 2.7%.

SEASONALITY

         The Company's business is affected by the pattern of seasonality common
to most retail businesses. Historically, the majority of its sales and operating
profit have been generated during the first six months of its fiscal year, which
includes the back-to-school and Christmas selling seasons.

FISCAL YEAR

         During 1996, the Company changed its fiscal year from the last Saturday
in July to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. As a result, fiscal year 1996 has 53
weeks.

INCOME TAXES

         Income taxes are computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". The
effective tax rate for the year ended August 3, 1996 was 39.9% before being
increased by 0.2% for permanent differences and other items for a total tax rate
of 40.1%. The effective tax rate for the year ended July 29, 1995 was 39.0%
before being increased by 2.2% for changes to prior year tax estimates, for a
total tax rate of 41.2%.

ADOPTION OF ACCOUNTING STANDARDS

         The Financial Accounting Standards Board ("FASB") periodically issues
Statements on Financial Accounting Standards, some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.

                                       19

<PAGE>   20



         Statement of Financial Accounting Standard No.121 ("SFAS 121") -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and SFAS 123 - "Accounting for Stock-Based Compensation" are
effective for fiscal year 1997. The adoption of SFAS 121 is not expected to have
a significant impact on the results of operations or financial condition of the
Company. The Company will adopt the new disclosure requirements of SFAS 123 in
1997.

INFLATION

         The results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the impact of
inflation because of the nature of the estimates required, management believes
that the effect of inflation, if any, on the results of operations and financial
condition has been minor.

LIQUIDITY AND CAPITAL RESOURCES

         Net working capital was $160.8 million and $154.1 million at August 3,
1996 and July 29, 1995, respectively. Current ratios at those dates were 2.20
and 2.48, respectively.

         Net cash provided from operating activities totaled $21.4 million,
$28.5 million and $41.3 million for fiscal years 1996, 1995 and 1994,
respectively. Net income, adjusted for depreciation and amortization, provided
$45.6 million of operating cash flow for fiscal year 1996. This was partially
offset by $19.2 million representing an increase in inventories net of an
increase in accounts payable of $22.6 million.

         During fiscal year 1995, net income, adjusted for depreciation and
amortization, provided $33.2 million of operating cash which was partially 
offset by reductions in accounts payable of $11.5 million and an increase in 
prepaid and other current assets of $8.2 million.

         Net cash used for capital expenditures and other assets totaled $47.7
million, $29.7 million and $21.2 million for fiscal years 1996, 1995 and 1994,
respectively.

         During 1996, capital expenditures for new stores aggregated $31.8
million, including $4.1 million for the purchase of a building for a spring 1997
opening. This was an opportunistic purchase and is the first such investment in
real estate that the Company has undertaken. Other capital expenditures include
$6.5 million for capital improvements in existing stores, $0.9 million for
energy management systems, $4.4 million for renovations in existing warehouses,
$0.2 million for transportation equipment and $1.6 million for M.I.S. equipment
upgrades. Capital expenditures were offset by $0.1 million of proceeds from the
sale of property and equipment. Other investing activities include cash outlays
of $2.0 million under a note receivable agreement to facilitate the acquisition
of a store lease and $0.4 million primarily for new store lease acquisition
costs. Capital expenditures for 1997 are estimated at $48.5 million which
includes expenditures for eleven new store openings.


                                       20

<PAGE>   21



         At August 3, 1996, the Company had a $75.0 million credit facility with
its bank bearing interest at or below the prime lending rate depending on
certain borrowing elections made by the Company. At August 3, 1996 the prime
rate was 8.25%, borrowings aggregated $33.0 million, $21.5 million of letters of
credit were issued and outstanding for merchandise purchases and $20.5 million
was available under the facility. During October 1996, the Company's credit
facility was increased by $15.0 million to $90.0 million with no changes in
terms or fees. The Company is in the process of completing a private placement
for $50.0 million of senior unsecured notes. The Company has obtained
commitments from investors for this private placement. The proceeds will be used
to repay demand notes payable. Accordingly, such demand notes are classified as
long-term obligations at August 3, 1996. The senior unsecured notes require
principal payments of $2,143,000 in December 1997 and 1998 and payments of
$9,143,000 annually beginning December 1, 1999 through December 1, 2003 and bear
interest at an average rate of 7.22% per annum. The Company believes that the
cash generated by its operations, along with the available proceeds from the
credit facility and other sources of financing will be sufficient to meet its
future obligations including capital expenditures.

         On December 21, 1994, the Board of Directors authorized the purchase of
up to $5.0 million of the Company's common shares through December 31, 1995.
Pursuant to this plan, the Company acquired 368,600 shares at an average price
of $7.67 per share for a total of $2.8 million.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report, the Form 10-K or made by management of the Company involve risks
and uncertainties, and are subject to change based on various important factors.
The following factors, among others, in some cases have affected and in the
future could affect the Company's financial performance and actual results and
could cause actual results for 1997 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: changes in consumer
spending patterns, consumer preferences and overall economic conditions, the
impact of competition and pricing, changes in weather patterns, changes in 
existing or potential duties, tariffs or quotas, paper and printing costs, 
availability of suitable store locations at appropriate terms and ability to 
hire and train associates.



                                       21

<PAGE>   22



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial statements and financial statement schedules of the
Company and the Report of Independent Accountants thereon are filed pursuant to
this Item 8 and are included in this report beginning on page F-1.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         None.


                                       22

<PAGE>   23



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
         NAME                           AGE            POSITION
         ----                           ---            --------

         <S>                            <C>            <C>                                                        
         Jay L. Schottenstein           42             Chairman of the Company, Chief Executive Officer and Director
         Saul Schottenstein             74             Vice Chairman of the Company and Director
         George A. Iacono               55             President, General Merchandise Manager and Director
         Donald R. Andrus               52             Senior Vice President and Chief Operating Officer
         Robert M. Wysinski             48             Senior Vice President, Chief Financial Officer,
                                                       Treasurer, Secretary and Director
         Denis G. Fredrick              52             Vice President - Management Information Systems
         Richard J. Giordano            53             Vice President - Distribution Apparel
         Mark Heitin                    44             Vice President - Merchandise Planning and Allocation
         Herbert E. Minkin              56             Vice President - Human Resources
         Dennis O'Malley                52             Vice President - Merchandise Control
         Daniel P. Reilly               51             Vice President - Distribution and Transportation Services
         Myrna Reiss                    46             Vice President - Advertising
         Robert Tavenner                53             Vice President - Loss Prevention
         Garry L. Thibodeau             55             Vice President - Operations
         Richard L. Walters             44             Vice President - Controller, Chief Accounting Officer,  Assistant
                                                       Treasurer and Assistant Secretary
         Geraldine Schottenstein        63             Director
         Jon P. Diamond                 39             Director
         Richard Gurian                 78             Director
         Dr. Norman Lamm                68             Director
         Robert L. Shook                58             Director
</TABLE>

         Jay L. Schottenstein has been Chairman of the Company, American Eagle
Outfitters, Inc. and SSC since March 1992 and Chief Executive Officer of the
Company since April 1991. Mr. Schottenstein served as Vice Chairman of the
Company from April 1991 to March 1992. Vice Chairman of SSC from 1986 until
March 1992, and a director of SSC since 1982(1). He served SSC as President of
the Furniture Division from 1985 through June 1993 and in various other
executive capacities since 1976.

         Saul Schottenstein has been Vice Chairman of the Company since April
1991.  Mr. Schottenstein has served as President of SSC since 1984, and a 
director of SSC since 1982 and served SSC and its predecessors in various 
executive capacities since 1946(1).

         George A. Iacono has been President and General Merchandise Manager of
the Company since April 1991. He served as President of SSC's Department Store
Division (the "Division"), the predecessor of the Company, since May 1989,
served as Senior Vice President - Merchandising of the Division since November
1985, and upon joining the Division in May 1984, served as Senior Vice President
- General Merchandise Manager and Vice President - Ladies Apparel. Before
joining SSC, Mr. Iacono served as Vice President/General Merchandise Manager 
and held other merchandising

                                       23

<PAGE>   24



positions with Marshalls, Inc. since 1976.

         Donald R. Andrus was appointed Senior Vice President and Chief
Operating Officer of the Company upon joining the Company in September 1995.
Prior to that time, Mr. Andrus was a prior Chairman and Chief Operating Officer
of Foley's, a division of May Department Stores. Mr. Andrus also held various
other senior management positions for certain divisions of the May Co.

         Robert M. Wysinski has been Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of the Company since April 1991 and served as
Vice President of SSC from June 1987 until June 1991, and as Treasurer of SSC
from June 1986 until June 1991. Prior to that time, he served as Assistant
Secretary and Assistant Treasurer and in a variety of positions in the finance
area since joining SSC in 1973.

         Denis G. Fredrick became Vice President - Management Information
Systems in December 1989. Prior to that time, Mr. Fredrick served as Director of
Management Information Systems since joining SSC in December 1988. Prior to
joining SSC, Mr. Fredrick served as Vice President - Management Information
Systems of Talbots, Inc., a women's specialty retailer and catalog chain owned
by General Mills Corporation.

         Richard J. Giordano became Vice President - Distribution Apparel in
November 1994. Prior to joining the Company, Mr. Giordano served as Director of
Distribution Services for Marshalls Inc., from 1975 to 1994.

         Mark Heitin joined the Company in April 1996 as Vice President -
Merchandise Planning and Allocation. Previously he was Vice President of
Merchandise Planning for American Eagle Outfitters for approximately two years.
Prior to that he held various merchandising positions during an 18 year tenure
with Marshalls Inc., including Vice President of Planning and Allocation.

         Herbert E. Minkin was appointed Vice President - Human Resources of SSC
in August 1985 and had served as Personnel Director of the Division since 1973.

         Dennis O'Malley joined the Company in March of 1995 as Vice President -
Merchandise Control. Prior to that time Mr. O'Malley served in a variety of
capacities, including Vice President of Store Planning, Vice President of
Merchandise Control and Controller, for Marshalls, Inc.

         Daniel P. Reilly joined the Company in April 1995 as Vice President of
Distribution and Transportation Services. Prior to joining the Company, Mr.
Reilly served as Vice President of Distribution and Transportation Services for
Consolidated Stores Inc., an off-price retailer, from September 1989 to April
1995. Prior to that, Mr. Reilly also served as a General Manager of Distribution
for Marshalls Inc., an off-price retailer, since 1976.


                                       24

<PAGE>   25



         Myrna Reiss joined the Company in August 1996 as Vice President -
Advertising. Prior to that, Ms. Reiss served as Vice President Creative and
Visual Advertising for Filene's Basement, an off-price retailer. Her tenure
there was from 1985 to 1996. Ms. Reiss' experience preceding that includes
various positions in Advertising at divisions of Allied, Macy's and Federated
Department Stores.

         Robert Tavenner became Vice President - Loss Prevention in November
1989. He served as Director of Loss Prevention since joining SSC in November
1988. Prior to joining SSC, Mr. Tavenner served as Vice President of Loss
Prevention and Internal Audit for Gold Circle Stores, Inc., a division of
Federated Stores, Inc., since 1978.

         Garry L. Thibodeau was appointed Vice President - Operations in June
1987, having served as Regional Manager since joining the Division in 1985. Mr.
Thibodeau served as Regional Merchandise Manager and District Manager of
Marshalls, Inc. From 1980 until 1985.

         Richard L. Walters became Vice President of the Company in April 1992,
Assistant Secretary of the Company in June 1991, Assistant Treasurer of the
Division in August 1990 and Controller of the Division in June 1986. Prior to
that time, Mr. Walters served as Accounting manager for the Division since
September 1985 and in a variety of other accounting positions since joining SSC
in 1979.

         Geraldine Schottenstein has been a Director of the Company and SSC
since April 1992. She has served as a volunteer and board member for a variety
of charitable and community organizations for more than the past five years.

         Jon P. Diamond has been Executive Vice President and Chief Operating
Officer of Safe Auto Insurance Company, a property and casualty insurance
company, since March 1993. Mr. Diamond served as Vice President of SSC from 
March 1987 to March 1993 and served SSC in various management positions 
since 1983(1).

         Richard Gurian has been President of Richard Gurian Consultants, Inc.,
formerly Venture Horizons, Inc., since 1980.

         Dr. Norman Lamm has been President of Yeshiva University, New York, New
York, since 1976.

         Robert L. Shook has been an author of business-related books since
1978.
----------
(1)      SSC is a controlling shareholder of the Company. For information with
         respect to the beneficial ownership of the voting stock of SSC by
         nominees for election to the Board of the Company and beneficial
         ownership of Common Shares of the Company by such persons and officers
         of the Company, see Item 12. "Security Ownership of Certain Beneficial 
         Owners and Management." Geraldine Schottenstein is the mother of Jay L.
         Schottenstein, the sister-in-law of Saul Schottenstein and the
         mother-in-law of Jon P. Diamond


                                       25

<PAGE>   26



COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who are beneficial owners of more than
ten percent of the Company's Common Stock ("reporting persons") to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Reporting persons are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms filed
by them. Based on its review of the copies of Section 16(a) forms received by
it, the Company believes that, during fiscal year 1996, all filing requirements
applicable to reporting persons were complied with.

         Jay L. Schottenstein and Saul Schottenstein are directors of the Valley
Fair Corporation and American Eagle Outfitters, Inc., each of which is a company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934.

INFORMATION CONCERNING BOARD OF DIRECTORS

         During the fiscal year ended August 3, 1996, the Board met twice
and acted by unanimous written consent three times.

         The Board has standing Audit and Stock Option Committees.

         The members of the Audit Committee are Richard Gurian, Dr. Norman Lamm
and Robert L. Shook. Its function is to recommend to the Board a firm of
accountants to serve as the Company's auditors and to review with the
independent auditors and the appropriate corporate officers matters relating to
corporate financial reporting and accounting procedures and policies, adequacy
of financial, accounting and operating controls, and the scope of the audit. The
Audit Committee met four times in fiscal 1996. Dr. Norman Lamm participated in 
all but one of the meetings.

         The members of the Stock Option Committee are Richard Gurian, Dr.
Norman Lamm and Robert L. Shook. Its function is to recommend to the Board the
number and terms of any stock options to be granted under the Company's stock
option plan. The committee met seven times in fiscal 1996.


                                       26

<PAGE>   27



ITEM 11. EXECUTIVE COMPENSATION.

EXECUTIVE OFFICER COMPENSATION

         The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and to each of the Company's other four most
highly compensated executive officers.


<TABLE>
<CAPTION>
                                           SUMMARY COMPENSATION TABLE
                                                                LONG TERM COMPENSATION
                                      ANNUAL COMPENSATION       ----------------------      
                                      -------------------     RESTRICTED
NAME AND                   FISCAL                                STOCK          OPTIONS/         ALL OTHER
PRINCIPAL POSITION         YEAR     SALARY(1)        BONUS    AWARDS(2)         SARs(#)(3)       COMPENSATION(4)
------------------         ----     ---------        -----    ---------         ----------       ---------------


<S>                         <C>     <C>            <C>              <C>        <C>                   <C>    
Jay L. Schottenstein(5)     1996    $250,000           None         None          None                   ---
Chairman and Chief          1995    $250,000           None         None       150,000                   ---
Executive Officer           1994    $250,000           None         None        30,000                   ---

George A. Iacono(6)         1996    $350,000       $300,000         None          None               $10,216
President and General       1995    $350,000       $325,000         None        39,000               $11,833
Merchandise Manager         1994    $300,000       $275,000         None          None               $10,219

Saul Schottenstein          1996    $250,000           None         None          None                   ---
Vice Chairman               1995    $250,000           None         None        45,000                   ---
                            1994    $250,000           None         None         5,000                   ---

Robert M. Wysinski          1996    $226,667        $85,000         None          None                $7,996
Senior Vice President,      1995    $226,667        $49,583         None        32,000                $9,058
Secretary and Chief         1994    $215,000        $71,500         None          None                $8,450
Finanical Officer     

Donald R. Andrus(7)         1996    $393,750        $50,000         None          None               $70,516
Senior Vice President       1995         N/A            N/A          N/A           N/A                   N/A
Chief Operating Officer     1994         N/A            N/A          N/A           N/A                   N/A

<FN>
----------
(1)      Includes amounts deferred by the executive officer pursuant to SSC's
         Associates Profit Sharing and 401(k) Plan (the "401(k) Plan"), which
         was adopted effective as of August 1, 1989, and in which associates of
         the Company are eligible to participate. The 401(k) Plan is a prototype
         defined contribution plan that qualifies for favorable tax treatment
         under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986,
         as amended. The 401(k) Plan permits eligible associates of the Company
         to contribute a percentage of their pre-tax wages to the plan and the
         Company will match the contributions up to a maximum of 3% of covered
         wages. The Company also may contribute up to an additional 1.5% of
         covered wages as a profit sharing contribution.

(2)      The number and value (in thousands of dollars) of aggregate restricted
         stock holdings of each of the named executives on August 3, 1996 was:
         Mr. Jay Schottenstein, None; Mr. Iacono, 132,336 shares ($1,323); Mr.
         Saul Schottenstein, None; Mr. Wysinski, 20,587 shares ($206) and Mr. 
         Andrus, None. The value of the restricted stock is determined by
         multiplying the total shares held by each named executive by the 
         closing price on the New York Stock Exchange on August 3, 1996 
         ($10.00).
</TABLE>

                                       27

<PAGE>   28



(3)      The number of options granted in fiscal 1995 includes options granted
         in prior years which were repriced during fiscal 1995.

(4)      Represents amounts contributed by the Company to the 401(k) Plan,
         including both matching contributions and any profit-sharing
         contributions, and the value of Company paid life insurance. The amount
         of 401(k) Plan contributions for fiscal 1996 was: Mr. Jay
         Schottenstein, None; Mr. Iacono, $3,750; Mr. Saul Schottenstein, None;
         Mr. Wysinski, $3,750; and, Mr. Andrus, None. The balance for Mr. Iacono
         and Mr. Wysinski represents the value of Company paid life insurance.
         The balance for Mr. Andrus represents relocation reimbursements of
         $25,535, tax reimbursements of $28,976 and the remainder for auto and
         insurance allowances.

(5)      Jay L. Schottenstein is also Chairman of SSC and American Eagle
         Outfitters, Inc. He does not devote his full business time to the
         business of the Company.

(6)      George A. Iacono has entered into an employment agreement with the
         Company for a term ending June 4, 1997. The agreement provides for an
         annual salary of $250,000, through June 4, 1992 increasing to $300,000
         thereafter, together with a bonus in the discretion of the Chairman.
         The agreement also provides for a severance payment equal to $15,625
         per month for the remaining term of the agreement in the event that the
         Company terminates Mr. Iacono's employment, with or without cause. Mr.
         Iacono's base was increased to $350,000 in fiscal 1995.

(7)      Mr. Andrus joined the Company on September 18, 1995 and entered into an
         employment agreement with the Company for a term ending on September
         18, 1997. The agreement provides for an annual salary of $450,000, 
         annual car allowance of $16,000 and annual stock options for 10,000 
         shares at the completion of each year of employment. Minimum 
         guaranteed bonuses are $160,000 in the first year and $125,000 in the
         second year. 


                                       28

<PAGE>   29



AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

         None of the executive officers named in the Summary Compensation Table
exercised options during the 1996 fiscal year. The following table provides
certain information on the number and value of stock options held by the
executive officers named in the Summary Compensation Table at August 3, 1996.

<TABLE>
<CAPTION>
                                                                                       VALUE OF UNEXERCISED
                                                              NUMBER OF                    IN-THE-MONEY
                                                        UNEXERCISED OPTIONS                 OPTIONS AT
                         SHARES          VALUE         AT FISCAL YEAR END (#)         FISCAL YEAR END ($) (1)
                       ACQUIRED ON     REALIZED        ----------------------         -----------------------
    NAME              EXERCISE (#)        ($)        EXERCISABLE UNEXERCISABLE     EXERCISABLE UNEXERCISABLE
------------        ----------------  -------------- ----------- -------------     ----------- -------------


<S>                        <C>           <C>          <C>           <C>             <C>          <C>     
Jay L. Schottenstein       ---           ---          72,000        78,000          $139,700     $151,300

George A. Iacono           ---           ---          19,800        19,200           $38,400      $37,250

Saul Schottenstein         ---           ---          34,000        11,000           $66,000      $21,350

Robert M. Wysinski         ---           ---          16,400        15,600           $31,800      $30,250

Don Andrus                 ---           ---             ---           ---               ---          ---

<FN>
(1)      Represents the total gain which would be realized if all in-the-money
         options held at year end were exercised, determined by multiplying the
         number of shares underlying the options by the difference between the
         per share option exercise price and the per share fair market value at
         year end of $10.00. An option is in-the-money if the fair market value
         of the underlying shares exceeds the exercise price of the option.
</TABLE>


                                       29

<PAGE>   30



COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Jay L. Schottenstein, Saul Schottenstein and George A. Iacono each of
whom is an executive officer of the Company, are also members of the Company's
Board of Directors. As stated, the Company's Chairman, Jay L. Schottenstein,
with the input of its President, George A. Iacono, determined the annual salary
and bonus compensation of the officers of the Company, other than the
Chairman's, and such determination was not formally considered and ratified by
the Board of Directors. Jay L. Schottenstein is also Chairman and Chief
Executive Officer of SSC. For information regarding the relationships
between the Company and SSC, see "Relationship With SSC And Its Affiliates".

         The Stock Option Committee administers and grants options under the
Company's 1991 Stock Option Plan. The Stock Option Committee consists of Messrs.
Gurian, Lamm and Shook. None of the members of the Committee are present or
former officers of the Company or are themselves or have affiliates that are
parties to agreements with the Company.


COMPENSATION OF DIRECTORS

         Directors who are not employees are paid $2,000 for each Board and
Committee meeting attended, with a minimum annual compensation of $8,000, and
are automatically granted options each quarter to purchase 1,000 Common Shares
of the Company pursuant to the Non-employee Director Stock Option Plan described
below. Directors who are also employees of the Company do not receive additional
compensation for serving as directors.

         The Company's Non-employee Director Stock Option Plan as amended and
subject to shareholder approval (the "Non-employee Director Plan") provides 
for the issuance of options to purchase up to 130,000 Common Shares of the 
Company, subject to adjustment for stock splits and other changes in the 
Company's capitalization. Under the Non-employee Director Plan, one option to 
purchase 1,000 Common Shares is automatically granted to each non-employee 
director on the first NYSE trading day in each calendar quarter. The exercise 
price for each option is the fair market value of the Common Shares on the 
date of grant. The exercise price must be paid either in cash, with previously 
acquired Common Shares of the Company, the optionholder's promissory note or 
any combination of the foregoing, provided, however, use of consideration 
other than cash requires the consent of the Board. All of the options under 
the Non-employee Director Plan become exercisable one year after the date of 
grant and remain exercisable for a period of ten years from the date of grant, 
subject to earlier termination after termination of the optionholder's service 
as a director of the Company. The options are transferable by the holder 
either (i) if transferred without consideration to immediate family members or 
entities they control, or (ii) if the transfer is approved by the Board.


                                       30

<PAGE>   31



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

OWNERSHIP OF COMMON SHARES

         The following table sets forth, as of October 29, 1996, certain
information with regard to the beneficial ownership of the Company's Common
Shares by each holder of 5% of such shares, each director individually and all
officers and directors as a group.

<TABLE>
<CAPTION>
Name of                                       Amount and Nature of          Percent of
Beneficial Owner                              Beneficial Ownership (1)      Outstanding Shares (2)
----------------                              ------------------------      ----------------------

<S>                                                      <C>                        <C>
Jon P. Diamond (3)                                        21,700                      *
George A. Iacono (4)                                     153,936                      *
Richard Gurian                                             9,300                      *
Dr. Norman Lamm                                           11,300                      *
Geraldine Schottenstein (5)(6)(7)                         39,000                      *
Jay L. Schottenstein (5)(6)(7)                           124,736                      *
Saul Schottenstein (5)(6)                                 59,000                      *
Robert L. Shook                                           17,000                      *
Robert M. Wysinski (4)                                    38,387                      *
All directors and officers as a group
   (20 persons)(4)(5)(6)                                 668,453                     2.1%
Schottenstein Stores Corporation (6)                  20,568,334                    64.9%
--------------
<FN>
* Represents less than 1% of outstanding Common Shares, net of Treasury Shares.

(1)    Except as otherwise noted, the persons named in this table have sole
       power to vote and dispose of the shares listed and includes the number of
       Common Shares, if any, as to which the named person has the right to
       acquire beneficial ownership upon the exercise of stock options
       exercisable within 60 days of October 29, 1996.

(2)    The percent is based upon the 31,715,745 Common Shares outstanding, net
       of Treasury Shares at October 29, 1996.

(3)    Includes 2,000 shares held by Mr. Diamond's wife.

(4)    Includes 132,336 shares for Mr. Iacono, 20,587 shares for Mr. Wysinski
       and 197,552 shares for all directors and executive officers as a group,
       which are owned subject to a risk of forfeiture on termination of
       employment with vesting over a period of years pursuant to the terms of
       Restricted Stock Agreements with the Company.

(5)    Does not include the 20,568,334 Common Shares owned by SSC of 1800 Moler
       Road, Columbus, Ohio 43207. Jay L. Schottenstein is the Chairman and
       Chief Executive Officer of SSC. Jay L. Schottenstein, Saul Schottenstein
       and Geraldine Schottenstein are members of the Board of Directors of
       SSC. See "Ownership of SSC," below.

(6)    Does not include 359,445 Common Shares owned by El-An Foundation, a
       private charitable foundation, and 1,312,500 Common Shares owned by GB
       Stores, a Pennsylvania limited partnership. Combined, the shares owned by
       El-An Foundation and GB Stores represent 5.3% of the Company's
       outstanding Common Shares. SSC owns a 96% limited partnership interest in
       GB Stores and its corporate general partner is an affiliate of SSC. The
       sole members, trustees and officers of the El-An Foundation are Saul
       Schottenstein and Jay Schottenstein.

(7)    Includes 30,000 shares as to which Geraldine Schottenstein and Jay L.
       Schottenstein share voting and investment power as trustees of a trust
       which owns the shares. Geraldine Schottenstein is also a beneficiary
       of the trust.
</TABLE>

                                       31

<PAGE>   32



OWNERSHIP OF SSC

       The following table indicates the shares of SSC common stock beneficially
owned by each nominee for election to the Board of Directors of the Company and
by all directors and officers of the Company as a group, as of October 29,
1996:
<TABLE>
<CAPTION>
                                                            SHARES OF SSC         PERCENT
                                                            COMMON STOCK          OF CLASS
                                                            ------------          --------

<S>                                                           <C>                    <C>  
             Jay L. Schottenstein (1)                         299.32766              78.4%

             Geraldine Schottenstein (2)                       27.41707               7.2%

             Jon P. Diamond (3)                                27.41707               7.2%

             Directors and officers as a group                354.1619               92.8%

-----------------
<FN>
(1)    Represents sole voting and investment power over 299.32766 shares held in
       irrevocable trusts for family members as to which Jay L. Schottenstein is
       trustee and as to which shares Mr. Schottenstein may be deemed to be the
       beneficial owner.
(2)    Represents sole voting and investment power over 27.41707 shares held by
       Geraldine Schottenstein as trustee of an irrevocable trust for family
       members as to which shares Geraldine Schottenstein may be deemed to be 
       the beneficial owner.
(3)    Represents sole voting and investment power over 27.41707 shares held by
       Susan Schottenstein Diamond, the wife of Jon Diamond, as trustee of an
       irrevocable trust for family members, as to which shares Mr. Diamond may
       be deemed to be the beneficial owner.
</TABLE>


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                    RELATIONSHIP WITH SSC AND ITS AFFILIATES

         Prior to the completion of its initial public offering on June 18,
1991, the Company was operated as the Department Store Division of SSC. On that
date, SSC transferred substantially all of the net assets of the Division to the
Company in exchange for 22,500,000 Common Shares of the Company. At October 29,
1996, SSC owned 64.9% of the Company's outstanding Common Shares. So long as SSC
owns more than 50% of the Company's voting shares, it will continue to have the
power acting alone to approve any action requiring a vote of the majority of the
voting shares of the Company and to elect all of the Company's directors. For
information with respect to the beneficial ownership of the voting stock of SSC
by nominees for election to the Board of the Company and beneficial ownership of
Common Shares of the Company by such persons and officers of the Company, see
"Item 12. Security Ownership of Certain Beneficial Owners and Management."

REAL ESTATE LEASES AND SUBLEASES

         The Company leases or subleases from SSC or affiliates of SSC thirty 
two store locations and all of its warehouse and office facilities.

                                       32

<PAGE>   33



Generally, the agreements require the Company to pay for insurance, taxes,
common area maintenance and other costs associated with the properties on a
"triple net" basis for freestanding locations, and on a pro rata share basis for
locations that are part of a larger parcel.

         SSC leases to the Company 14 store locations and two warehouse/office
locations and a fixture shop under the terms of two Master Lease Agreements. The
Master Store Lease, as amended, provides for certain base rentals which
approximate $1.93 per square foot and the Master Warehouse Lease, as amended,
provides for specified rent which approximates $1.10 per square foot. Beginning
in fiscal 1992, the Master Store Lease also provides for the payment of
percentage rent by the Company equal to 3% of the amount by which total sales,
including sales of licensees ("Total Sales"), for all of the 14 stores exceed
the Total Sales for such stores in fiscal 1991. For fiscal 1996, the Company
recorded expense to SSC, including contingent rent, of $3,308,983 pursuant to
the Master Store Lease and $662,416 pursuant to the Master Warehouse Lease.

         SSC subleases to the Company three store locations that are owned by
affiliates of SSC under a Master Sublease. The Master Sublease provides for an
annual base rent of $1.148 per square foot. Beginning in fiscal 1992, the Master
Sublease also provides for the payment of percentage rent by the Company equal
to 3% of the amount by which Total Sales for all of the three stores exceed the
aggregate Total Sales for such stores in fiscal 1991. For fiscal 1996 the
Company recorded expense to SSC, including contingent rent, of $640,439 pursuant
to the Master Sublease.

         Both Master Leases have a term of five years which began in June 1991,
and are renewable thereafter, by individual location, at the option of the
Company, for five additional renewal terms of five years each. The Company
exercised the first renewal to extend both Master Leases during fiscal 1996.
This extension causes both Master Leases to expire on July 31, 2001 with four
five-year renewal terms remaining for each leased location. The Master Sublease
provides for an initial five-year term which began in June 1991 and is renewable
for generally at least five additional renewal terms of five years each, by
individual locations, at the option of the Company. The Company has exercised
renewals for each store under the Master Sublease to cause the Master Sublease
terms to expire between May 31, 2001 and September 30, 2002 resulting in four
five-year renewal terms remaining. Each renewal term in the aforementioned
leases and subleases will be on the same terms as the initial term, except for
rent. For fiscal 1997 through 2001, the Master Store Lease and Master Sublease
provide for a minimum percentage rent of $1.00 per square foot. For each
succeeding five-year renewal term, the minimum percentage rent will increase by
$0.50 per square foot. In no event, commencing fiscal 1997, shall total rent be
less than 2% of Total Sales. The Master Warehouse Lease provides for additional
rent of $0.85 per square foot for fiscal years 1997 through 2001 and an
additional $0.30 per square foot for each succeeding five-year renewal term.

         The Company also leases or subleases six warehouse facilities and a
trailer yard from SSC or affiliates of SSC. The warehouse facilities consist of
approximately 1,258,000 square feet for rents of $1.50 to $4.03 per square foot
with lease control ranging from 2001 through 2012. Generally, the lease renewal
terms are at the same terms and conditions as the original term except rent
which increases by $0.25 to $0.50 per square foot for the renewal terms. During
fiscal 1996, the Company closed three temporary warehouses consisting of
approximately 120,000 square feet. The Company also leases, from an affiliate of
SSC, a trailer yard of approximately 19 acres with lease control through April
2009 having rents that range from $25,000 to $30,000 per year during the
period of lease control.

                                       33

<PAGE>   34



During fiscal 1996, the Company recorded expenses in the aggregate to SSC
and affiliates of SSC of $4,010,378 pursuant to these leases and assignments.

         Additionally, the Company leases nine store locations from SSC or
affiliates of SSC, two of which were opened in fiscal 1996. Generally, the
leases provide for percentage rent equal to 2% of Total Sales in excess of a
specified sales level or base rent with base rents ranging from $2.25 to $6.00
per square foot for the initial term and provide lease control ranging from 2001
through 2036. Generally, the renewal terms are at the same terms and conditions
as the original term except rent which may increase for the renewal terms.
During fiscal 1996, the Company recorded expenses in the aggregate to SSC and
affiliates of SSC of $4,678,083 pursuant to these leases.

         During fiscal 1996, the Company leased one additional store from an
affiliate of SSC. The lease expires January 31, 2007 and provides for percentage
rent equal to 2% of Total Sales subject to a minimum rent of $4.75 per square
foot with six additional renewal options of five years each. For fiscal 1996,
the Company recorded expenses to this affiliate of $125,522 for this lease.

         In addition to the foregoing, SSC subleases one store location to the
Company under an agreement that provides for the payment of additional rent to
SSC in order for SSC to recover the costs of the initial acquisition of the
leasehold interest. The sublease has an initial term expiring in fiscal 2000 and
provides for rent in the amount of 2% of Total Sales, with a minimum rent equal
to $2.00 per square foot and provides five additional five-year renewal terms.
During fiscal 1996, the Company recorded expenses in the aggregate to SSC of
$210,457 pursuant to this sublease.

         Effective August 1995, SSC acquired one of the Company's unrelated
party store leases. The lease term expires April 30, 2002, has a base rent of
$1.53 per square foot and provides for one additional renewal term of ten years
under the same terms and conditions as the current lease term. For fiscal 1996,
the Company recorded expenses to SSC of $195,162 for this lease.

         Effective January 1, 1996, the Company subleased from SSC a lease
previously assigned to the Company by SSC to enable SSC to recover the costs of
remodeling the demised premises. The Company's sublease expires December 31,
2007 and provides for percentage rent equal to 2% of Total Sales in excess of a
minimum base rent of $4.50 per square foot with three additional renewal terms
of five years each. For fiscal 1996, the Company recorded expenses to SSC of
$211,570 for this sublease.

         The Company has entered into leases for one additional store location
from SSC and one additional store location from an affiliate of SSC which are to
open in fiscal 1997. These leases provide for percentage rent equal to 2% of
Total Sales in excess of a specified sales level or base rent with base rents
ranging from $5.50 to $7.00 per square foot for the initial term and provide
lease renewal terms of three five-year terms and four five-year terms,
respectively. Generally, the renewal terms are at the same terms and conditions
as the original term except rent which may increase for the renewal terms.

         SSC operates a chain of furniture stores, four of which operate in
separate space subleased from the Company at four of its store locations. Each
of these furniture store subleases (the "Furniture Subleases") are for a term
concurrent with the respective lease between the Company and

                                       34

<PAGE>   35



a third party landlord. Each Furniture Sublease provides for the payment by SSC
of base rent and other charges in amounts at least equal to its pro rata share
based on square footage and its pro rata share of any percentage rent based on
its gross sales. Effective January 1, 1996, one of these Furniture Subleases was
terminated, and as a result the furniture store now subleases directly from 
SSC. For fiscal 1996, SSC paid to the Company an aggregate of $960,517 
pursuant to these Furniture Subleases.

LICENSE AGREEMENTS WITH AFFILIATES

         The Company operates as licensee the apparel, housewares and domestic
departments in two department stores operated by The Valley Fair Corporation
("Valley Fair") in New Jersey. SSC controls Valley Fair by virtue of certain
common officers and directors and its ownership of 78.2% of the outstanding
stock of Valley Fair and the ownership by an affiliate of 14.8% of such stock,
the balance of which stock is publicly owned. The Company pays Valley Fair a
license fee of 7.3% of the net sales of the departments for occupancy and 3.7%
of net sales for advertising, against an annual aggregate minimum of $733,000
for both stores. The Company uses employees of Valley Fair to operate the
departments and reimburses Valley Fair for all costs associated with such
employees. The aggregate license fees, including advertising, paid by the
Company to Valley Fair during fiscal 1996 were $2,568,181.

         Valley Fair's wholly owned subsidiary, L.F. Widmann, Inc. ("Widmann"),
has entered into a license agreement to operate the health and beauty aids
departments in the Company's stores. The license agreement, as amended, expires
in June of 1997. Widmann pays annual license fees to the Company based on 5.0%
of net sales. Widmann is required to reimburse the Company 2% of its sales for
advertising and 2.9% of its sales for administrative expenses. The license
fees paid by Widmann to the Company during fiscal 1996 were $1,941,879

         SSC owns 50% of the stock of Shonac Corporation ("Shonac"), and the
remaining 50% is owned by certain members of the management of Shonac and their
families. The Company has license agreements with Shonac for the operation of
the shoe departments in all of the Company's stores. The agreements expire in
the year 2004. Under the terms of the agreements as amended, Shonac pays a
license fee to the Company in an amount approximating 11% of its net sales in
the Company's stores. Shonac is required to reimburse the Company 0.9% of its
sales for administrative expenses. Shonac is also required to reimburse the
Company 10% of the Company's aggregate costs for advertising expenses. The
aggregate license fees paid by Shonac to the Company for fiscal 1996 were
$13,219,936.

MERCHANDISE TRANSACTIONS WITH AFFILIATES

         The Company from time to time purchases merchandise from affiliates of
SSC. Some of such affiliates manufacture, import and wholesale apparel as their
principal business. The members of the Company's merchandising staff use these
sources and make their purchasing decisions in the same manner as with
unaffiliated sources. Any merchandise purchased from such sources is on terms at
least as favorable to the Company as could be obtained in an arm's-length
transaction with an unaffiliated third party, and in certain instances, the
Company is given terms preferential to those available to unaffiliated
customers. Total purchases by the Company

                                       35

<PAGE>   36



from SSC and affiliates for fiscal 1996 were $6,620,539, representing 1.0% of
the Company's total purchases during the fiscal year.

         Certain affiliates of SSC from time to time purchase merchandise from
the Company, in some instances on a regular basis. Such purchases are generally
made from merchandise in the Company's warehouse inventory at prices equal to
the Company's cost plus a handling fee of up to 11.0%. Steinbach's Inc., an S
Corp owned by affiliates of SSC, purchased $304,170 of merchandise from the
Company during fiscal 1996. Steinbach's operated 29 department stores on the
East Coast until its operations were sold to a third party in January 1996.

SERVICES AGREEMENTS

         The Company shares with SSC and its affiliates certain incidental
support personnel and services for the purpose of achieving economies of scale
and cost savings. These shared services include certain architectural, legal,
advertising, buying and administrative services. The Company and SSC have
entered into a Corporate Services Agreement that sets forth the terms for
payment of the costs of these shared services. The Company believes that it is
able to obtain such services at a cost which is equal to or below the cost of
providing such services by itself or obtaining such services from unaffiliated
third parties. For fiscal 1996, the Company paid SSC or its affiliates
$1,362,026 for such services and the Company was reimbursed $180,458 by SSC and
its affiliates for such services. The Corporate Services Agreement also provides
for participation by the Company in the self-insurance program maintained by SSC
on the same basis as previous participation by the Division. Under that program,
the Company is self-insured for purposes of personal injury and property damage,
motor vehicle and Ohio workers' compensation claims up to various specified
amounts, and for casualty losses up to $100,000. Claims and losses in excess of
the specified amounts are covered by stop-loss or excess liability policies
maintained by SSC, which include the Company as a named insured. SSC maintains
reserves and pays claims for self-insured amounts under the program and will
continue to do so with respect to the Company's participation in the program.
SSC charges its divisions, affiliates and the Company premiums based, among 
other factors, on loss experience, and its actual payroll and related costs 
for administering the program. For fiscal 1996, the Company paid SSC 
$5,629,667 for participation in the program.


                                       36

<PAGE>   37



                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

14(a)(1) FINANCIAL STATEMENTS
           The documents listed below are filed as part of this Form 10-K and
begin on Page F-1:
<TABLE>
<CAPTION>
                                                                                                           Page in
                                                                                                            Form
                                                                                                            ----
10-K
----

           <S>                                                                                              <C>
           Report of Independent Accountants                                                                F - 1
           Consolidated Balance Sheets at August 3, 1996 and July 29, 1995                                  F - 2
           Consolidated Statements of Income for the years ended August 3,
              1996, July 29, 1995, and July 30, 1994                                                        F - 3
           Consolidated Statements of Shareholders' Equity for the years ended
              August 3, 1996, July 29, 1995, and July 30, 1994                                              F - 4
           Consolidated Statements of Cash Flows for the years ended August 3,
              1996, July 29, 1995, and July 30, 1994                                                        F - 5
           Notes to the Consolidated Financial Statements                                                   F - 6

14(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
        The schedule listed below is filed as part of this Form 10-K and begin
on Page S-1:

            Schedule II.   Valuation and Qualifying Accounts and Reserves                                   S-1
</TABLE>

         Schedules not listed above are omitted because of the absence of the
         conditions under which they are required or because the required
         information is included in the financial statements or the notes
         thereto.

14(a)(3) EXHIBITS:

         See Index to Exhibits which begins on Page E-1.

14(b) REPORTS ON FORM 8-K

         The Company did not file any reports on Form 8-K during the quarter
ended August 3, 1996.


                                       37

<PAGE>   38



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                       VALUE CITY DEPARTMENT STORES, INC.

Date:  October 31, 1996                      By:                         *
                                                --------------------------
                                                (Jay L. Schottenstein, Chairman)

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                             TITLE                                    DATE
---------                                             -----                                    ----

<S>                                           <C>                                            <C>
           *                                  Chairman of the                                10/31/96
---------------------------                   Board of Directors
(Jay L. Schottenstein)                       (Principal Executive Officer)

           *                                  Vice Chairman of the                           10/31/96
---------------------------                   Board of Directors
(Saul Schottenstein)                          Director

           *                                  President, General Merchandise                 10/31/96
---------------------------                   Manager and Director
(George A. Iacono) 

/s/ Robert M. Wysinski                        Senior Vice President, Secretary               10/31/96
---------------------------                   and Treasurer (Principal
(Robert M. Wysinski)                          Financial Officer)
                                              Director

           *                                  Controller, Assistant Treasurer                10/31/96
---------------------------                   and Assistant Secretary (Principal
(Richard L. Walters)                          Accounting Officer)

           *                                  Director                                       10/31/96
---------------------------
(Geraldine Schottenstein)

           *                                  Director                                       10/31/96
---------------------------
(Jon P. Diamond)

           *                                  Director                                       10/31/96
---------------------------
(Norman Lamm)

           *                                  Director                                       10/31/96
---------------------------
(Richard Gurian)

           *                                  Director                                       10/31/96
---------------------------
(Robert L. Shook)

<FN>
*By:/s/ Robert M. Wysinski
    ----------------------
     Robert M. Wysinski
     (Attorney-in-Fact)
</TABLE>

                                       38

<PAGE>   39



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Shareholders of Value City
Department Stores, Inc.:

                  We have audited the consolidated financial statements and
financial statement schedule of Value City Department Stores, Inc. (a majority
owned subsidiary of Schottenstein Stores Corporation), its partnerships and its
wholly owned subsidiaries (the Company) as listed in Item 14(a) of this Form
10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

                  We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

                  In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Value City Department Stores, Inc., its partnerships and its wholly owned
subsidiaries as of August 3, 1996 and July 29, 1995 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended August 3, 1996 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.


Coopers & Lybrand L.L.P.


Columbus, Ohio
October 28, 1996

                                      F - 1

<PAGE>   40



                           CONSOLIDATED BALANCE SHEETS
                       at August 3, 1996 and July 29, 1995
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

                                                      ASSETS
                                                                                   1996                  1995
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                              <C>                   <C>    
CURRENT ASSETS:
  Cash and equivalents                                                           $10,484               $17,374
  Accounts receivable, net                                                         4,525                 3,422
  Receivables from affiliates                                                        769                 1,240
  Inventories                                                                    261,370               219,476
  Prepaids and other                                                               8,569                 9,583
  Deferred income taxes                                                            8,928                 6,844
                                                                                --------              --------
           TOTAL CURRENT ASSETS                                                  294,645               257,939

PROPERTY AND EQUIPMENT, AT COST:
  Furniture, fixtures and equipment                                              129,081               115,281
  Leasehold improvements                                                          78,217                55,470
  Building                                                                         4,100                   -
  Capital leases                                                                   8,973                 2,607
                                                                                --------              --------
                                                                                 220,371               173,358
  Accumulated depreciation and amortization                                      (87,610)              (76,837)
                                                                                --------              --------
  Property and equipment, net                                                    132,761                96,521

NOTES RECEIVABLE - NON-CURRENT                                                     2,613                   653
OTHER ASSETS                                                                       6,991                 6,774
                                                                                --------              --------

           TOTAL ASSETS                                                         $437,010              $361,887
                                                                                ========              ========


------------------------------------------------------------------------------------------------------------------------------------


                                       LIABILITIES AND SHAREHOLDERS' EQUITY

------------------------------------------------------------------------------------------------------------------------------------

CURRENT LIABILITIES:
  Accounts payable                                                               $70,711               $49,605
  Accounts payable to affiliates                                                   7,402                 5,862
  Accrued expenses:
    Compensation                                                                   9,056                 8,879
    Taxes                                                                         12,216                 9,629
    Other                                                                         23,587                19,056
  Current maturities of long-term obligations                                     10,836                10,796
                                                                                --------              --------
           TOTAL CURRENT LIABILITIES                                             133,808               103,827

LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES                                  46,942                20,853

DEFERRED INCOME TAXES                                                              3,888                 2,926

MINORITY INTEREST IN PARTNERSHIPS                                                    -                   1,363

EXCESS NET ASSETS OVER COST OF ACQUIRED BUSINESS                                     927                 2,317

SHAREHOLDERS' EQUITY:
  Common shares, without par value;
    80,000,000 authorized; issued, including
    Treasury shares, 32,058,745 shares
      and 32,050,745 shares, respectively                                        109,450               109,385
  Contributed capital                                                              9,688                 9,704
  Retained earnings                                                              135,504               113,786
  Less deferred compensation expense, net                                           (368)               (1,043)
  Treasury shares, at cost, 368,600 shares and
    148,900 shares, respectively                                                  (2,829)               (1,231)
                                                                                --------              --------
           TOTAL SHAREHOLDERS' EQUITY                                            251,445               230,601
                                                                                --------              --------

           TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $437,010              $361,887
                                                                                ========              ========

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.

                                      F - 2

<PAGE>   41



<TABLE>
                        CONSOLIDATED STATEMENTS OF INCOME
       for the years ended August 3, 1996, July 29, 1995 and July 30, 1994
                    (in thousands, except per share amounts)

-------------------------------------------------------------------------------------------------------------------

                                                                         1996             1995            1994
                                                                       53 Weeks         52 Weeks        52 Weeks
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>          <C>
Net sales, excluding sales of licensed departments                  $954,308        $871,949       $864,855
Cost of sales                                                       (599,460)       (547,377)      (535,705)
                                                                    --------        --------       --------

   Gross profit                                                      354,848         324,572        329,150

Selling, general and administrative expenses                        (337,097)       (317,000)      (282,527)
License fees from affiliates                                          15,162          13,958         12,504
Other operating income                                                 3,300           3,093          3,110
Restructuring charges                                                   -               (414)           -
                                                                    --------        --------        -------

   Operating profit                                                   36,213          24,209         62,237

Amortization of excess net assets over cost                            1,390           1,451          1,511
Interest expense, net                                                 (1,328)         (1,921)        (2,439)
Other income (expense), net                                               33             (15)          (263)
                                                                    --------        --------        -------

   Income before income taxes and minority interest                   36,308          23,724         61,046

Minority interest in partnerships                                        (41)           (232)          (318)
                                                                    --------        --------        -------

   Income before income taxes                                         36,267          23,492         60,728

Provision for income taxes                                           (14,549)         (9,673)       (21,792)
                                                                    --------        --------        -------


   Net income                                                        $21,718         $13,819        $38,936
                                                                     =======         =======        =======

-------------------------------------------------------------------------------------------------------------------


Earnings per share                                                     $0.68           $0.43          $1.21
                                                                     =======         =======        =======

-------------------------------------------------------------------------------------------------------------------
</TABLE>





The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 3

<PAGE>   42




                           CONSOLIDATED STATEMENTS OF
                              SHAREHOLDERS' EQUITY
       for the years ended August 3, 1996, July 29, 1995 and July 30, 1994
                                 (in thousands)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                      Number of Shares
                                      ----------------
                                               Common                                                Deferred
                                    Common     Shares      Common    Contributed    Retained     Compensation     Treasury
                                    Shares   in Treasury   Shares      Capital      Earnings        Expense        Shares    Total
----------------------------------------------------------------------------------------------------------------------------------


<S>                                 <C>          <C>      <C>         <C>           <C>            <C>        <C>        <C>     
BALANCE, JULY 31, 1993              32,033                $109,215    $9,737         $61,031       $(2,464)              $177,519

  Net income                                                                          38,936                               38,936
  Exercise of stock options             16                     139        28                                                  167
  Tax benefit realized on
    vested restricted shares                                              46                                                   46
  Amortization of deferred
    compensation expense                                                                               710                    710
                        ----------------------------------------------------------------------------------------------------------

BALANCE, JULY 30, 1994              32,049                 109,354     9,811          99,967        (1,754)               217,378

  Net income                                                                          13,819                               13,819
  Exercise of stock options              2                      31         7                                                   38
  Tax liability incurred on
    vested restricted shares                                           (114)                                                 (114)
  Repurchase of common shares                    149                                                          $(1,231)     (1,231)
  Amortization of deferred
    compensation expense                                                                               711                    711
                        ----------------------------------------------------------------------------------------------------------

BALANCE, JULY 29, 1995              32,051       149       109,385     9,704         113,786        (1,043)    (1,231)    230,601

  Net income                                                                          21,718                               21,718
  Exercise of stock options              8                     65         7                                                    72
  Tax liability incurred on
    vested restricted shares                                            (23)                                                  (23)
  Repurchase of common shares                    220                                                           (1,598)     (1,598)
  Amortization of deferred
    compensation expense                                                                               675                    675
                        ----------------------------------------------------------------------------------------------------------

BALANCE, AUGUST 3, 1996             32,059       369      $109,450    $9,688        $135,504         $(368)   $(2,829)   $251,445
                              ====================================================================================================
</TABLE>




The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 4

<PAGE>   43



                     CONSOLIDATED STATEMENTS OF CASH FLOWS
      for the years ended August 3, 1996, July 29, 1995 and July 30, 1994
                                 (in thousands)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------


                                                           1996          1995          1994
                                                         53 Weeks      52 Weeks      52 Weeks

-----------------------------------------------------------------------------------------------


Cash flows from operating activities:

<S>                                                      <C>          <C>          <C>    
Net income                                               $ 21,718     $ 13,819     $ 38,936
Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization                          23,903       19,341       16,666
    Amortization of excess net assets over cost            (1,390)      (1,451)      (1,511)
    Minority interest in partnerships                          41          232          318
    Deferred income taxes                                  (1,122)       4,130        2,616
    (Gain) loss on disposal of property and equipment         (33)          15          365
    Restructuring charge                                     --            414         --
    Change in working capital, assets
      and liabilities:
      Receivables                                            (632)        (961)       1,432
      Inventories                                         (41,894)       1,030          796
      Prepaids and other                                   (3,045)      (8,201)      (1,911)
      Accounts payable                                     22,646      (11,452)     (13,172)
      Income taxes payable                                   --           --           (720)
      Accrued expenses                                      1,234       11,594       (2,498)
                                                         --------     --------     --------
Net cash provided by operating activities                  21,426       28,510       41,317
                                                         --------     --------     --------

Cash flows from investing activities:

  Capital expenditures                                    (45,407)     (28,592)     (21,450)
  Proceeds from sale of property and equipment                 65           27          277
  Notes receivable - non-current                           (1,960)        (653)        --
  Other assets                                               (376)        (457)        --
                                                         --------     --------     --------
Net cash used in investing activities                     (47,678)     (29,675)     (21,173)
                                                         --------     --------     --------

Cash flows from financing activities:

  Net proceeds from issuance of common shares                  65           31          139
  Net borrowings under
    line-of-credit agreements                              33,000         --           --
  Principal payments of long-term obligations             (10,777)     (10,702)     (20,708)
  Purchase of treasury shares                              (1,598)      (1,231)        --
  Distributions to partners in minority
    partnerships, net                                      (1,328)        (225)        (183)
                                                         --------     --------     --------
Net cash provided by (used in)financing
  activities                                               19,362      (12,127)     (20,752)
                                                         --------     --------     --------

Net decrease in cash and equivalents                       (6,890)     (13,292)        (608)
Cash and equivalents, beginning of year                    17,374       30,666       31,274
                                                         --------     --------     --------
Cash and equivalents, end of year                        $ 10,484     $ 17,374     $ 30,666
                                                         ========     ========     ========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                      F - 5

<PAGE>   44


                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------


1.       BUSINESS OPERATIONS AND BASIS OF PRESENTATION:

The accompanying consolidated financial statements include the accounts of Value
City Department Stores, Inc. ("VCDS") and its wholly owned subsidiaries and for
fiscal 1995 and 1994, two partnerships. These entities are herein referred to
collectively as the "Company". The Company operates a chain of full-line
off-price department stores, principally under the name "Value City". As of
August 3, 1996 a total of 86 stores were open, located principally in Ohio (24
stores) and Pennsylvania (18 stores). The remaining stores are dispersed among
12 other states in the Midwest and Eastern sections of the country.

To facilitate comparisons with the current year, certain amounts in prior years'
financial statements have been reclassified to conform to the current year
presentation.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

FISCAL YEAR:

During 1996, the Company changed its fiscal year from the last Saturday in July
to the Saturday closest to July 31 to conform to the National Retail
Federation's suggested retail calendar. As a result, fiscal year 1996 has 53
weeks. Reference herein to the years ended July 29, 1995 and July 30, 1994
include 52 weeks.

CONSOLIDATION:

The consolidated financial statements include the accounts of the Company,
including 75% owned partnerships in fiscal years 1995 and 1994, after
elimination of material intercompany accounts and transactions. During 1996 the
Company bought the 25% minority interests for approximately $1,328,000 which
represented the net book value of the minority interests in those partnerships.

CASH EQUIVALENTS:

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents included overnight
repurchase agreements of $1,432,000, $4,278,000 and $13,344,000 at August 3,
1996, July 29, 1995 and July 30, 1994, respectively.

INVENTORIES:

Merchandise inventories are stated at the lower of cost or market using the
retail method.

PRE-OPENING EXPENSES:

Pre-opening expenses are charged to operations ratably over the first twelve
months of a new store's operations. Pre-opening costs expensed were $4,059,000,
$2,064,000 and $1,751,000 for fiscal years 1996, 1995 and 1994, respectively.

PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Depreciation and amortization are
recognized principally on the straight-line method in amounts adequate to
amortize costs over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of their useful lives or
lease term. The estimated useful lives by class of asset are:

Buildings 39 years
Furniture, fixtures and equipment 5 to 10
years
Leasehold improvements 10 to 20 years

Repairs and maintenance are charged to expense as incurred; renewals and
betterments which significantly extend the useful lives of existing property and
equipment are capitalized. The cost of assets sold or retired and the related
accumulated depreciation or amortization are removed from the related accounts
with any resulting gain or loss included in net income.

NOTES RECEIVABLE:

To facilitate acquisitions of two store leases, the Company advanced funds to
two third party landlords in exchange for notes receivable bearing interest at
various levels above the bank prime lending rate with maturities from two to
seven years. The notes are collateralized by the properties under lease.


                                      F - 6

<PAGE>   45
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------

REVENUE RECOGNITION:

Layaway sales are recorded on the deposit method, whereby the sale is recognized
once the customer has paid for the merchandise in full.

ADVERTISING EXPENSE:

The cost of advertising is expensed as incurred. During fiscal years 1996, 1995
and 1994, advertising expense was $36,020,000, $34,129,000 and $28,851,000,
respectively.

EXCESS NET ASSETS OVER ACQUISITION COST OF
ACQUIRED BUSINESS:

The excess of net assets over acquisition cost of acquired business is being
amortized over seven years and will be fully amortized in the third quarter of
fiscal 1997.

In fiscal year 1995, the Company wrote off $262,000 related to the closing of a
former GB store.

RESTRUCTURING CHARGES

During fiscal year 1995, the Company recognized $414,000 of net expenses for
certain employee termination benefits and other exit costs related to closing
two stores pursuant to their lease expirations. Net charges to the reserve for
such items aggregated $300,000 in 1995 and $114,000 in 1996. The operating
losses to close these stores, exclusive of the restructuring charge, aggregated
approximately $600,000 during the year ended July 29,1995.

EARNINGS PER SHARE:

Earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding, including the effect of dilutive stock
options.

USE OF ESTIMATES:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board ("FASB") periodically issues
Statements on Financial Accounting Standards ("SFAS"), some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.

Financial Accounting Standard No. 121 ("SFAS 121") - "Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and
Financial Accounting Standard No. 123 ("SFAS 123") - "Accounting for Stock-Based
Compensation" are effective for fiscal year 1997. The adoption of SFAS 121 is
not expected to have a significant impact on the results of operations or
financial condition of the Company. The Company will adopt the new disclosure
requirements of SFAS 123 in 1997.

3. RELATED PARTY TRANSACTIONS

The Company purchases merchandise from and sells merchandise to affiliates of
Schottenstein Stores Corporation ("SSC"), direct owner of approximately 65% of
the Company's common shares. Sales of merchandise from the Company's warehouses
generally are at cost plus handling charges. The Company also purchases certain
directly shipped merchandise on behalf of affiliates of SSC. Such merchandise is
billed by the Company to affiliates at cost plus delivery charges. The related
party transactions are as follows:

<TABLE>
<CAPTION>
                                      1996      1995       1994
---------------------------------------------------------------------
                                           (in thousands)
<S>                                   <C>       <C>        <C> 
Purchases of merchandise
 from affiliates                      $ 6,621   $4,446     $719
Merchandise sold to
 affiliates, including
 handling charges                         354    1,348       50
Merchandise purchased
 on behalf of and shipped
 directly to affiliates, at
 cost plus delivery charges                46      -         -
----------------------------------------------------------------------
</TABLE>

Not included in the preceding table are

                                      F - 7
<PAGE>   46


            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
            -----------------------------------------------

purchases made through SSC's Importing Division which charges the Company its
cost plus an administrative charge.

The Company has license agreements with L.F. Widmann, Inc. (Widmann) and Shonac
Corporation (Shonac), both related parties as a result of significant ownership
of such entities by SSC. The license agreement with Widmann for the operation of
health and beauty departments in certain of the Company's stores expires in
1997. The license agreement with Shonac is for operation of shoe departments in
all of the Company's stores and expires in 2004. Both license agreements provide
for fees based on percentages of sales, as defined. License fees earned are as
follows:


<TABLE>
<CAPTION>
                                  1996    1995     1994
-------------------------------------------------------

                                     (in thousands)
<S>                               <C>     <C>      <C>   
Widmann                           $1,942  $2,339   $2,315
Shonac                            13,220  11,619   10,189

--------------------------------------------------------
</TABLE>


The Company also leases certain store and warehouse locations owned by SSC as
described in Note 4.

Accounts receivable from and payable to affiliates principally result from
commercial transactions with entities owned or controlled by SSC or intercompany
transactions with SSC.

The Company shares certain personnel, administrative and service costs with SSC
and its affiliates. The costs of providing these services are allocated among
the Company, SSC and its affiliates without a premium. The allocated amounts are
not significant. SSC does not charge the Company for general corporate
management services. In the opinion of the Company and SSC management, the
aforementioned charges are reasonable.

The Company participates in SSC's self insurance program for general liability,
casualty loss and Ohio workers' compensation. The Company expensed $6,696,000,
$6,832,000 and $5,330,000 in fiscal years 1996, 1995 and 1994, respectively, for
such coverage.

During 1996, the Company paid $1,120,000 to a private charitable foundation
controlled by the Schottenstein family.

4.       LEASES:

The Company operates stores and warehouses under various arrangements with
related and unrelated parties. Such leases expire through 2016 and in most cases
provide for renewal options. Generally, the Company is required to pay real
estate taxes, maintenance, insurance and contingent rentals based on sales in
excess of specified levels.

The Company has entered into several leasing agreements with SSC and affiliates.
Under two Master Lease Agreements, as amended, the Company leases 14 store
locations and three other facilities owned by SSC for an annual base rental of
$2,980,000 and contingent rents based on aggregate sales in excess of specified
sales levels for the store locations. The Company leased or subleased from SSC
or affiliates of SSC 16 store locations, six warehouse facilities and a parcel
of land for specified base rentals, plus contingent rents based on sales in
excess of specified sales levels for the store locations. During fiscal 1996,
the Company terminated one warehouse lease assigned by SSC and the agreements on
two warehouses leased or subleased from affiliates of SSC. These three
facilities were considered temporary warehouse space and aggregated less than
120,000 square feet. Leases and subleases with related parties are for initial
periods generally ranging from five to twenty years, provide for renewal options
and require the Company to pay real estate taxes, maintenance and insurance.

The Company has a capital lease agreement for transportation equipment that
expires in 1997. During fiscal 1996, the Company entered into two additional
capital lease agreements that expire in 2018 and 2037 for two new store
locations. Capital leases are amortized over the terms of the related leases.
The accumulated amortization for the capital leases was $2,172,000 and
$1,651,000 at August 3, 1996 and July 29, 1995, respectively.

Future minimum lease payments required under the aforementioned leases,
exclusive of real estate taxes, insurance and maintenance costs, at August 3,
1996 are as follows:


                                      F - 8

<PAGE>   47
            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
            -----------------------------------------------
<TABLE>
<CAPTION>
                            Operating Leases
                            ----------------
Fiscal                                   Related
Year               Capital   Unrelated    Party
Ending             Leases  Party Leases   Leases   Total
----------------------------------------------------------
(in thousands)
<S>               <C>       <C>         <C>       <C>    
1997              $1,009    $14,972     $14,332   $30,313
1998                 379     14,094      13,014    27,487
1999                 337     13,183      13,024    26,544
2000                 338     11,477      12,942    24,757
2001                 337     10,349      12,966    23,652
Future Years       9,380     51,397      50,109   110,886
-----------------------------------------------------------
</TABLE>

Total minimum       
 lease payments      11,780

Less amount
 representing
 interest            (7,242)
                     ------
Present value
 of minimum
 lease payments       4,538

Less current
 portion               (656)
                     ------
                     $3,882
                     ======

The Company operates apparel, houseware and domestic departments in two stores
owned by a related party under a license agreement and pays a license fee of 11%
of sales against an aggregate minimum license fee of $733,000 per annum.
Two-thirds of this fee is charged to rent expense and the remainder is charged
to advertising expense.

<TABLE>
<CAPTION>
The composition of rental expense is:
                             1996         1995       1994
-----------------------------------------------------------
                                     (in thousands)
<S>                         <C>         <C>         <C>    
Minimum rentals:
 Unrelated parties          $13,222     $11,625     $10,205
 Related parties             11,400       9,156       7,733

Contingent rentals:
 Unrelated parties            2,288       2,580       2,962
 Related parties              1,757       1,594       1,750
                            -------     -------     -------
 Total                      $28,667     $24,955     $22,650
                            =======     =======     =======
</TABLE>

5.       LONG-TERM OBLIGATIONS AND NOTES PAYABLE:

Long-term obligations consist of the following:

<TABLE>
<CAPTION>
                                        1996       1995
-----------------------------------------------------------
                                         (in thousands)
<S>                                   <C>         <C>    
Senior notes                          $20,000     $30,000
Demand note payable
 subsequently refinanced               33,000        -
Capital lease obligations               4,538       1,215
Other                                     240         434
                                      -------     -------
                                       57,778      31,649
Less current maturities               (10,836)    (10,796)
                                      -------     -------
                                      $46,942     $20,853
                                      =======     =======
------------------------------------------------------------
</TABLE>

The senior notes require principal payments of $10.0 million annually on October
1, 1996 and 1997 and bear interest at a fixed rate of 5.73% per annum.

The Company is in the process of completing a private placement for $50.0
million of senior unsecured notes. The Company has obtained commitments from
investors for this private placement. The proceeds will be used to repay demand
notes payable. Accordingly, such demand notes are classified as long-term
obligations at August 3, 1996. The senior unsecured notes require principal
payments of $2,143,000 in December 1997 and 1998 and payments of $9,143,000
annually beginning December 1999 through December 2003 and bear interest at an
average fixed rate of 7.2% per annum.

The terms of the senior notes and the senior unsecured notes require the Company
to comply with certain restrictive covenants, maintain minimum income and net
worth levels and meet certain financial ratio tests during the terms of the
debt. The most restrictive of these covenants is that the Company's consolidated
funded debt (as defined in the debt agreements) may not exceed 50% of
consolidated total capitalization (as defined). At August 3, 1996, the Company
was in compliance with the required covenants.

Other long-term obligations represent an Industrial Revenue Bond with interest
related to the prime rate and is payable through November 1997.

The book value of notes payable and long-term debt approximates fair value.

Aggregate maturities of long-term obligations excluding capital leases at August
3, 1996 are:

<TABLE>
<CAPTION>
Fiscal Year
Ending                               (in thousands)
--------------------------------------------------------
<S>                                      <C>    
1997                                     $10,180
1998                                      12,203
1999                                       2,143
2000                                       9,143
2001                                       9,143
Future years                              10,428
                                         -------
                                         $53,240
                                         =======
</TABLE>

At August 3, 1996, the Company had available from its bank a $75.0 million
credit facility. All borrowings under the credit facility bear interest at or
below the prime lending rate depending on certain borrowing elections made

                                      F - 9
<PAGE>   48


            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
            -----------------------------------------------

by the Company. At August 3, 1996, direct borrowings aggregated $33.0 million,
$21.5 million of letters of credit were issued and outstanding for merchandise
purchases and $20.5 million was available under the facility. During October
1996, the Company's credit facility was increased by $15.0 million to $90.0
million with no changes in terms or fees. The weighted average interest rate on
short-term borrowings during fiscal years 1996 and 1995 was 7.30% and 7.90%,
respectively.


6.       BENEFIT PLANS:

The Company participates in the SSC sponsored 401(k) savings plan (the "401(k)
Plan"). Full-time employees who have attained twenty-one years of age and have
completed one year of service can contribute up to fifteen percent of their
salaries to the 401(k) Plan on a pre-tax basis, subject to IRS limitations. The
Company will match up to three percent of participants' eligible compensation.
Additionally, the Company contributes a discretionary profit sharing amount to
the 401(k) Plan each year. The Company incurred costs associated with the 401(k)
Plan of $3,197,000, $2,971,000 and $2,687,000 for fiscal years 1996, 1995 and
1994, respectively. Certain employees of the Company are covered by
union-sponsored, collectively bargained, multi-employer pension plans, the costs
of which are not material to the consolidated financial statements.

During 1992, the Company implemented an Associate Stock Purchase Plan.
Eligibility requirements are similar to the 401(k) Plan. Eligible employees can
purchase common shares of the Company through payroll deductions. The Company
will match 15% of employee investments up to a maximum investment level. Plan
costs to the Company for fiscal years 1996, 1995 and 1994 were not material to
the consolidated financial statements.


7.       SHAREHOLDERS' EQUITY:

During fiscal year 1993, the Company issued common shares to certain key
employees pursuant to its 1992 Bonus Stock Plan (the "1992 Plan"). The 1992 Plan
consists of a one time grant of restricted shares issued pursuant to a form of
restricted stock agreement between the Company and the employee. As a result,
the Company recorded the market value of the shares at the date of grant of
$2,100,000 as deferred compensation expense. The agreements condition the
vesting of the shares upon continued employment with the Company with such
restriction expiring as to 20% of the shares on each of the five anniversary
dates of the grant. Deferred compensation is charged to income on a
straight-line basis over the period during which the restrictions lapse.

Also during fiscal year 1993, the Company adopted a Non-employee Director Stock
Option Plan (the" Non-employee Director Plan") which provides for the issuance
of options to purchase up to 50,000 common shares. Prior to March 30, 1995, one
option to purchase 2,000 common shares was automatically granted to each
non-employee director on the first New York Stock Exchange ("NYSE") trading day
in each calendar year for five years beginning in fiscal year 1993. An
amendment, effective March 30, 1995, increased the grant to one option to
purchase 1,000 common shares on the first NYSE trading day in each calendar
quarter. The exercise price for each option is the fair market value of the
common shares on the date of grant. All options become exercisable one year
after the grant date and remain exercisable for a period of ten years from the
grant date, subject to continuation of the optionholder's service as a director
of the Company.

The Company adopted the 1991 Stock Option Plan which provides for the grant of
options to purchase up to 1,800,000 common shares. Such options are exercisable
20% per year on a cumulative basis and remain exercisable for a period of ten
years from the date of grant.

On March 30, 1995, The Stock Options Committee ("the Committee") of the Board of
Directors determined that the outstanding options which had been granted
previously at exercise prices of $9.75 and higher would no longer provide
sufficient incentives as a result of the decline in market price of the
Company's common shares. Accordingly, the Committee authorized the "repricing"
of the originally issued options by canceling the outstanding options and
granting the same number of new options. The new options were priced at $8.06,
which, in accordance with the formula in the stock option plan, was determined
by

                                     F - 10

<PAGE>   49


            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
            -----------------------------------------------

averaging the low of $7.88 and the high of $8.25, the trading prices of the
Company's common shares on March 30, 1995.

The following is a summary of stock option activity since July 31, 1993:

<TABLE>
<CAPTION>
              Option Price       Out-      Exer-   Available
                  per share    standing   cisable  for grant

---------------------------------------------------------------

<S>             <C>             <C>       <C>        <C>   
Balance At
July 31, 1993*  $9.75-$18.63    788,920   154,568    64,000
Granted*         13.69-15.31     63,500             (63,500)
Exercised           9.75        (15,500)
Canceled                        (42,350)             42,350
Increase
 available
 shares                                             300,000
---------------------------------------------------------------
Balance At
July 30, 1994    9.75-18.63     794,570   291,362   342,850
Granted*          7.31-8.13     589,200            (589,200)
Exercised         9.75           (2,000)
Canceled                        (40,250)             40,250
Increase
 available
 shares                                             600,000
----------------------------------------------------------------
Balance At
July 29, 1995     7.31-8.13   1,341,520   438,876   393,900
Granted          5.87-10.44     362,500            (362,500)
Exercised         8.06-8.13      (8,000)
Canceled                       (140,700)            140,700

----------------------------------------------------------------
Balance At
August 3, 1996  $8.06-$10.44  1,555,320   678,900   172,100
                              =========   =======   =======
<FN>
* "Repriced" at $8.06 on March 30, 1995
----------------------------------------------------------------
</TABLE>


On December 21, 1994, the Board of Directors authorized the purchase of up to
$5,000,000 of the Company's common shares. As of July 29, 1995, the Company had
acquired 148,900 shares at an average price of $8.27 per share for a total cost
of $1,231,000. Pursuant to this plan, the Company acquired a total of 368,600
shares at an average price of $7.67 per share for a total of $2,829,000.


8.       COMMITMENTS AND CONTINGENCIES:

The Company is involved in various legal proceedings that are incidental to the
conduct of its business. In the opinion of management, the amount of any
liability with respect to these proceedings will not be material.


9.       INCOME TAXES:

Income taxes are computed in accordance with SFAS No. 109, "Accounting for
Income Taxes".


The provision for income taxes consists of the following:


<TABLE>
<CAPTION>
                             1996       1995       1994
----------------------------------------------------------
                                     (in thousands)
<S>                         <C>        <C>        <C>    
Current:
  Federal                   $11,315    $5,272     $17,247
  State and local             2,588     1,014       4,042
                            -------    ------     -------
                             13,903     6,286      21,289
Deferred:
  Federal                       474     2,865       1,447
  State and local               172       522        (944)
                            -------    ------     -------
                                646     3,387         503
                            -------    ------     -------
Income tax expense          $14,549    $9,673     $21,792
                            =======    ======     =======
----------------------------------------------------------
</TABLE>


The provision (benefit) for deferred income taxes includes the following
amounts.

<TABLE>
<CAPTION>
                                  1996    1995     1994
-----------------------------------------------------------
                                     (in thousands)
<S>                              <C>      <C>      <C>
Type of temporary differences
  Basis differences
    in inventory                 $(279)   $70      $44
  Store closing reserve             21     45    1,334
  Depreciation                     526    394      301
  Amortization of excess
    net assets over cost           572    612      645
  Change in valuation
    allowance                       -      -    (1,588)
  Other                           (194) 2,266     (233)
                                  ---- ------   ------
                                  $646 $3,387     $503
                                  ==== ======   ======
-----------------------------------------------------------
</TABLE>


A reconciliation of the expected income taxes based upon the statutory federal
rate and the effective rate for the years ended August 3, 1996, July 29, 1995
and July 30, 1994 are as
follows:

<TABLE>
<CAPTION>
                                  1996      1995       1994
--------------------------------------------------------------
                                       (in thousands)
<S>                             <C>        <C>       <C>    
Income tax expense at
 federal statutory rate         $12,693    $8,222    $21,255
Targeted jobs credit                 -       (495)      (455)
State and local taxes, net        1,794     1,344      3,279
Change in valuation
  allowance                          -        -       (1,588)
Change in estimates                  -        508         -
Effect of tax law
  changes as applied to prior
  year                               -       -          (629)
Other                                62        94        (70)
                                -------    ------    -------

                                $14,549    $9,673    $21,792
                                =======    ======    =======
--------------------------------------------------------------
</TABLE>

                                     F - 11

<PAGE>   50

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
            -----------------------------------------------


The components of the net deferred tax asset as of August 3, 1996 and July 29,
1995 are:
<TABLE>
<CAPTION>

                                            1996     1995
----------------------------------------------------------
                                          (in thousands)
Deferred Tax Assets:
<S>                                       <C>       <C>   
  Basis differences in inventory          $7,237    $6,055
  Basis differences in fixed assets        2,467     1,440
  Accrued expenses                         1,616       810
  Other state and local taxes              1,652     1,401
  Excess net assets over cost of
    acquired business                        382     1,088
  Deferred compensation                      270       284
  Other                                    1,617       938
                                         -------    ------
                                          15,241    12,016

Deferred Tax Liabilities:
  Depreciation                            (7,322)   (6,098)
  Prepaid expenses                          (838)   (1,573)
  Other                                   (2,041)     (427)
                                         -------    ------
                                         (10,201)   (8,098)
                                         -------    ------
Total net                                 $5,040    $3,918
                                         =======    ======
----------------------------------------------------------
</TABLE>


The net deferred tax assets are recorded on the Company's consolidated balance
sheet as of August 3, 1996 and July 29, 1995 as follows:
<TABLE>
<CAPTION>

                                            1996     1995
----------------------------------------------------------
                                          (in thousands)
<S>                                        <C>      <C>   
Current deferred tax assets                $8,928   $6,844

Non-current deferred tax liability         (3,888)  (2,926)
                                           ------   ------

Net deferred tax assets                    $5,040   $3,918
                                           ======   ======
----------------------------------------------------------
</TABLE>


                                     F - 12

<PAGE>   51
            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
            -----------------------------------------------

10.      QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
                                       QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
                                    -----------------------------------------------------
                                        (in thousands, except per share amounts)
FISCAL YEAR ENDED AUGUST 3, 1996
<CAPTION>
                                     1st Qtr.      2nd Qtr.      3rd Qtr.      4th Qtr.
                                     10/28/95      2/3/96(1)      5/4/96        8/3/96
                                    (13 weeks)    (14 weeks)    (13 weeks)    (13 weeks)
                                     ----------------------------------------------------
<S>                                  <C>           <C>           <C>           <C>      
Net Sales                            $ 217,790     $ 296,390     $ 207,620     $ 232,508
Cost of Sales                         (134,740)     (184,833)     (131,437)     (148,450)
                                     ---------     ---------     ---------     ---------
  Gross Profit                          83,050       111,557        76,183        84,058
Selling, general and
 administrative expenses               (83,376)      (89,523)      (79,434)      (84,764)
License fees and other
 operating income                        4,657         4,832         4,340         4,633
                                     ---------     ---------     ---------     ---------
  Operating profit                       4,331        26,866         1,089         3,927
Interest expense, net                     (446)         (204)           13          (691)
Amortization of excess
 net assets over cost                      348           347           348           347
Other income, (expense)                     40             3             4           (14)
                                     ---------     ---------     ---------     ---------
  Income before minority interest        4,273        27,012         1,454         3,569
Minority Interest                          (41)         --            --            --
                                     ---------     ---------     ---------     ---------
  Income before income taxes             4,232        27,012         1,454         3,569
Provision for income
  taxes                                 (1,730)      (10,841)         (556)       (1,422)
                                     ---------     ---------     ---------     ---------
  Net income                         $   2,502     $  16,171     $     898     $   2,147
                                     =========     =========     =========     =========
  Earnings per share                 $    0.08     $    0.51     $    0.03     $    0.07
                                     =========     =========     =========     =========
</TABLE>

FISCAL YEAR ENDED JULY 29, 1995
<TABLE>
<CAPTION>
                                      1st Qtr.      2nd Qtr.     3rd Qtr.      4th Qtr.
                                      10/29/94     1/28/95(1)     4/29/95       7/29/95
                                     (13 weeks)    (13 weeks)   (13 weeks)    (13 weeks)
                                     ----------------------------------------------------
<S>                                  <C>           <C>           <C>           <C>      
Net Sales                            $ 201,254     $ 275,677     $ 183,375     $ 211,643
Cost of Sales                         (124,220)     (170,396)     (115,154)     (137,607)
                                     ---------     ---------     ---------     ---------
  Gross Profit                          77,034       105,281        68,221        74,036
Selling, general and
 administrative expenses               (72,732)      (82,781)      (77,261)      (84,226)
License fees and other
 operating income                        4,357         4,163         3,950         4,167
                                     ---------     ---------     ---------     ---------
  Operating profit                       8,659        26,663        (5,090)       (6,023)
Interest expense, net                     (402)         (231)         (679)         (609)
Amortization of excess
 net assets over cost                      378           377           348           348
Other income, (expense)                   --               3          --             (18)
                                     ---------     ---------     ---------     ---------
  Income before minority interest        8,635        26,812        (5,421)       (6,302)
Minority Interest                          (60)         (187)            4            11
                                     ---------     ---------     ---------     ---------
  Income before income taxes             8,575        26,625        (5,417)       (6,291)
(Provision) Benefit for
  income taxes                          (3,456)      (10,705)        2,225         2,263
                                     ---------     ---------     ---------     ---------
  Net income                         $   5,119     $  15,920     $  (3,192)    $  (4,028)
                                     =========     =========     =========     =========
  Earnings per share                 $    0.16     $    0.50     $   (0.10)    $   (0.13)
                                     =========     =========     =========     =========
<FN>
(1)   The results of operations for the quarters ended 2/3/96 and 1/28/95 
      include reductions of $4.4 million and $4.8 million, respectively, to 
      cost of sales representing the annual book to physical adjustment for 
      the physical inventory completed in the respective quarters.
</TABLE>
                                     F - 13
<PAGE>   52
            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
            -----------------------------------------------

11.      SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                                            1996              1995             1994
                                                           ------------------------------------------
                                                                         (in thousands)
<S>                                                        <C>               <C>              <C>    
Cash paid during the year for:
    Interest                                               $ 2,255           $ 2,409          $ 3,039
                                                           =======           =======          =======

    Income taxes                                           $ 8,972           $ 8,493          $20,287
                                                           =======           =======          =======
</TABLE>

Supplemental schedule of non-cash investing and financing activities:

During 1996, the Company entered into lease agreements for rent at two new store
locations that qualified for treatment as capital leases. Non-cash amounts of
$3,906,000 were capitalized as part of property and equipment and long-term
obligations in relation to these leases.

Liabilities of $5,992,000 were capitalized as property and equipment for real
estate improvements and construction at new stores as of August 3, 1996.


                                    F - 14
<PAGE>   53

                       VALUE CITY DEPARTMENT STORES, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (dollars in thousands)

<TABLE>
<CAPTION>
COLUMN A                            COLUMN B              COLUMN C              COLUMN D              COLUMN E
--------                            --------              --------              --------              --------
                                   Balance at             Charge to                                  Balance at
                                    Beginning             Costs and                                      End
Description                         Of Period             Expenses           Deductions (1)           Of Period
-----------                         ---------             --------           --------------           ---------

<S>                                  <C>                       <C>               <C>                       <C>
Allowance deducted
  from asset to which
  it applies:
     Allowance for
     doubtful accounts:

     Year ended
       July 30, 1994                 $1,122                  $377                  $507                  $992

     Year ended
       July 29, 1995                    992                   467                   986                   473

     Year ended
       August 3, 1996                   473                   294                   276                   491

     Valuation allowance 
     against deferred taxes:

     Year ended
       July 30, 1994                  1,606                (1,606)  (2)               0                     0

     Year ended
       July 29, 1995                      0                     0                     0                     0

     Year ended
       August 3, 1996                     0                     0                     0                     0

<FN>
(1) The deductions in Column D are amounts written off against the respective
reserve.

(2) Represents the elimination of a valuation allowance for state and local taxes.

</TABLE>

                                      S - 1

<PAGE>   54


            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


                       VALUE CITY DEPARTMENT STORES, INC.

           SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - Concluded
                             (dollars in thousands)

<TABLE>
<CAPTION>
COLUMN A                            COLUMN B              COLUMN C              COLUMN D              COLUMN E
--------                            --------              --------              --------              --------
                                   Balance at             Charge to                                  Balance at
                                    Beginning             Costs and                                      End
Description                         Of Period             Expenses           Deductions (1)           Of Period
-----------                         ---------             --------           --------------           ---------

<S>                                  <C>                       <C>               <C>                       <C>
Reserves
     Store Closing
     Reserve:

     Year ended
       July 30, 1994                 $1,900                    $0                $1,900                    $0


     Year ended
       July 29, 1995                      0                   414                   299                   115

     Year ended
       August 3, 1996                   115                   (21)                   94                     0


<FN>
(1) The deductions in Column D are amounts written off against the respective
    reserve.
</TABLE>


                                      S - 2

<PAGE>   55



                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
Exhibit
                                                                                     Exhibit 
Index
  No.                                     Description                                Page No.
  ---                                     -----------                                --------

<S>      <C>                                                  <C>
    3.1  First Amended and Restated Articles                  Previously filed as Exhibit 3.2 to Registration
         of Incorporation of the Company.                     Statement on Form S-1 (file no. 33-40214)
                                                              filed April 29, 1991, and incorporated herein
                                                              by reference.

    3.2  Code of Regulations of the                           Previously filed as Exhibit 3.3 to Registration
         Company.                                             Statement on Form S-1 (file no. 33-40214)
                                                              filed April 29, 1991, and incorporated herein
                                                              by reference.

 10.1.1  Corporate Services Agreement, dated                  Previously filed on Exhibit 10.1.1 to Form
         October 12, 1994, between the Company                10-Q (file no. 1-10767) filed December 12,
         and Schottenstein Stores Corporation.                1994, and incorporated herein by reference.

 10.1.2  Corporate Services Agreement, dated                  Previously filed as Exhibit 10.1.2 to
         September 27, 1995 between                           Form 10-K (file no. 1-10767) filed
         the Company and SSC.                                 October 27, 1995, and incorporated
                                                              herein by reference.

 10.1.3  Corporate Services Agreement, dated                  
         October 1996 between the Company
         and SSC.

   10.2  License Agreement, dated June 5, 1991,               Previously filed as Exhibit 10.2 to
         between the Company and SSC                          Amendment No. 1 to Form S-1
         re Service Marks.                                    Registration Statement (file no. 33-40214)
                                                              filed June 6, 1991, and incorporated herein
                                                              by reference.

   10.3  License Agreement, dated July 1989,                  Previously filed as Exhibit 10.3 to
         between the Company, by assignment                   Form S-1 Registration Statement ( file no.
         from SSC, and Shonac Corporation                     33-40214) filed April 29, 1991, and
         re shoe departments.                                 incorporated herein by reference.

 10.3.1  Amendments dated November 9, 1993                    Previously filed as Exhibit 10.3.1 to
         to License Agreement dated in July                   Form 10-K  (file no. 1-10767) filed
         1989, between the Company and Shonac                 October 26, 1994, and incorporated
         Corporation re shoe departments.                     herein by reference.
</TABLE>


                                      E - 1

<PAGE>   56


<TABLE>

<S>      <C>                                                  <C>
 10.3.2  Amendment dated 1995, to                             Previously filed as Exhibit 10.3.2 to
         License Agreement dated in July 1989,                Form 10-Q (file no. 1-10767) filed
         between the Company and Shonac                       December 12, 1995, and incorporated
         Corporation re shoe departments.                     herein by reference.

 10.4    License Agreement, dated July 1, 1987,               Previously filed as Exhibit 10.4 to
         as amended, between the Company, by                  Form S-1 Registration Statement (file no
         assignment from SSC, and L.F. Widmann,               33-40214) filed April 29, 1991, and
         Inc. re health and beauty aids departments.          incorporated herein by reference.

 10.4.1  Amendment dated June 23, 1993 to                     Previously filed as Exhibit 10.4.1 to
         License Agreement, dated July 1, 1987,               Form 10-K (file no. 1-10767) filed
         as amended, between the Company, by                  October 26, 1993, and incorporated
         assignment from SSC, and L.F. Widmann,               herein by reference.
         Inc. re health and beauty aids departments.

 10.4.2  Amendment dated September 2, 1993 to                 Previously filed as Exhibit 10.3.1 to
         License Agreement dated July 1, 1987, as             Form 10-K (file no. 1-10767) filed
         amended, between the Company, by                     October 26, 1994, and incorporated
         assignment from SSC, and L.F. Widmann,               herein by reference.
         Inc. re health and beauty aids departments.

 10.4.3  Amendment dated December 5, 1995 to                  Previously filed as Exhibit 10.4.3 to
         License Agreement dated July 1, 1987, as             Form 10-Q (file no. 1-10767) filed
         as amended, between the Company by                   December 12, 1995, and incorporated
         assignment from SSC, and                             herein by reference.
         L.F. Widmann, Inc. re health and
         beauty aids department.

 10.4.4  Letter Agreement dated May 1, 1996,                  
         between the Company and L.F. Widmann,
         Inc. extending the license agreement dated
         July 1, 1987 to June 30, 1997.

 10.6    Employment Agreement, dated April 26,                Previously filed as Exhibit 10.6 to
         1991, between George Iacono and                      Form S-1 Registration Statement (file no.
         the Company.                                         33-40214) filed April 29, 1991, and
                                                              incorporated herein by reference.

 10.7    Form of Indemnification Agreement,                   Previously filed as Exhibit 10.7 to
         dated 1991, between the Company                      Amendment No. 1 to Form S-1
         and its directors and executive officers.            Registration Statement (file no. 33-40214)
                                                              filed June 6, 1991, and incorporated herein
                                                              by reference.
</TABLE>


                                     E - 2

<PAGE>   57


<TABLE>
<S>      <C>                                                  <C>

   10.8  Form of Company's 1991 Stock                         Previously filed as Exhibit 10.8 to
         Option Plan.                                         Amendment No. 1 to Form S-1
                                                              Registration Statement (file no. 33-40214)
                                                              filed June 6, 1991, and incorporated herein
                                                              by reference.

   10.9  Master Store Lease, dated April 25, 1991,            Previously filed as Exhibit 10.9 to
         between the Company, as lessee, and SSC,             Form S-1 Registration Statement (file no.
         as lessor, re fourteen stores.                       33-40214) filed April 29, 1991, and
                                                              incorporated herein by reference.

 10.9.1  First Amendment to Master Store Lease,               Previously filed as Exhibit 10.9.1 to
         dated February 1991, between the                     Form S-1 Registration Statement (file no.
         Company, as lessee, and SSC,                         33-47252) filed April 16, 1992, and
         as lessor, re fourteen stores.                       incorporated herein by reference.

 10.9.2  Lease Modification Agreement to Master               Previously filed as Exhibit 10.9.2 to
         Store Lease, dated June 5, 1995, between             Form 10-K (file no. 1-10767) filed
         the Company, as lessee, and SSC,                     October 27, 1995, and incorporated
         as lessor, re Beckley, West Virginia.                herein by reference.

 10.9.3  Exercise of the first five-year renewal              Previously filed as Exhibi 10.9.3 to 
         option commencing August 1, 1996                     Form 10-Q (file no. 1-10767) filed
         under Master Store Lease, dated                      March 19, 1996, and incorporated
         June 5, 1995, as amended, between                    herein by reference.
         the Company, as lessee, and SSC, as
         lessor, re fourteen stores.

  10.10  Master Warehouse Lease, dated April 25,              Previously filed as Exhibit 10.10 to
         1991, between the Company, as lessee,                Form S-1 Registration Statement (file no.
         and SSC, as lessor, re three warehouses,             33-40214) filed April 29, 1991, and
         office, and shop locations.                          incorporated herein by reference.

10.10.1  First Amendment to Master Warehouse                  Previously filed as Exhibit 10.10.1 to
         Lease, dated February 1992, between the              Form S-1 Registration Statement (file no.
         Company, as lessee, and SSC, as lessor, re           33-47252) filed April 16, 1992, and
         three warehouse, office, and shop.                   incorporated herein by reference.
         locations.

10.10.2  Second Amendment to Master Warehouse                 Previously filed as Exhibit 10.10.2 to
         Lease, dated June 1993, between the                  Form 10-K (file no.1-10767) filed
         Company, as lessee, and SSC, as lessor, re           October 26, 1993, and incorporated 
         three warehouse, office, and shop                    herein by reference.
         locations.
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<TABLE>

<S>      <C>                                                  <C>
10.10.3  Exercise of the first five-year renewal              Previously filed as Exhibit 10.10.3 to 
         option commencing August 1, 1996                     Form 10-Q (filed no. 1-10767) filed
         under Master Store Lease, dated                      March 19, 1996, and incorporated
         April 25, 1991, as amended, between                  herein by reference.
         the Company, as lessee and SSC, as
         lessor, re three warehouse
         locations.

  10.11  Master Sublease, dated April 25, 1991,               Previously filed as Exhibit 10.11 to
         between the Company, as sublessee, and               Form S-1 Registration Statement (file no.
         SSC, as sublessor, re three stores.                  33-40214) filed April 29, 1991, and
                                                              incorporated herein by reference.

  10.12  Sublease, dated April 25, 1991, between              Previously filed as Exhibit 10.12 to
         the Company, as sublessor, and SSC, as               Form S-1 Registration Statement (file no.
         sublessee, re one warehouse, with                    33-40214) filed April 29, 1991 and
         underlying Lease, dated July 15, 1981,               incorporated herein by reference.
         between SSC, as lessee, and J.A.L. Realty
         Co., an affiliate of SSC, as lessor.

10.12.1  Exercise of five-year renewal option                 Previously filed as Exhibit 10.12.1 to
         commencing July 16, 1996 under                       Form 10-Q (file no. 1-10767) filed
         Sublease, dated April 25, 1991 between               March 19, 1996, and incorporated
         the Company, as sublessee, and SSC, as               herein by reference.
         sublessor, re 3681 Westerville
         Road warehouse.

  10.13  Lease, dated July 7, 1987, between the               Previously filed as Exhibit 10.13 to
         Company, by assignment from SSC, as                  Amendment No. 1 to Form S-1
         lessee, and Schottenstein Trustees, an               Registration Statement (file no.
         affiliate of SSC, as lessor, re one store.           33-40214) filed June 6, 1991, and
                                                              incorporated herein by reference.

10.14.1  Lease, dated June 28, 1989, between                  Previously filed as Exhibit 10.14.1 to
         the Company, by assignment from SSC,                 Form S-1 Registration Statement (file no.
         as lessor, re one warehouse.                         33-40214) filed April 29, 1991, and
                                                              incorporated herein by reference.

10.14.2  Lease, dated October 27, 1989, between               Previously filed as Exhibit 10.14.2 to
         the Company, by assignment from SSC,                 Form S-1 Registration Statement (file no.
         as lessee, and Southeast Industrial                  33-40214) filed April 29, 1991, and
         Park Realty Company, an affiliate of                 incorporated herein by reference.
         SSC, as lessor, re one warehouse.
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<TABLE>
<S>      <C>                                                  <C>

10.14.3  Lease, dated March 7, 1989, between                  Previously filed as Exhibit 10.14.3 to 
         the Company, by assignment from SSC,                 Form S-1 Registration Statement (file no. 
         as lessee, and Southeast Industrial Park             33-40214) filed April 29, 1991, and 
         Realty Company, an affiliate of SSC,                 incorporated herein by reference.
         as lessor, re one warehouse.

10.15.1  Sublease, dated April 25, 1991, between              Previously filed as Exhibit 10.15.1 to
         the Company, as sublessor, and SSC, as               Form S-1 Registration Statement (file no.
         sublessee, re Baltimore, MD (Eastpoint)              33-40214) filed April 29, 1991, and
         furniture store location.                            incorporated herein by reference.

10.15.2  Sublease, dated April 25, 1991, between              Previously filed as Exhibit 10.15.2 to
         the Company, as sublessor, and SSC, as               Form S-1 Registration Statement (file no.
         sublessee, re Baltimore, MD (Westview)               33-40214) filed April 29, 1991, and
         furniture store location.                            incorporated herein by reference.

10.15.3  Sublease, dated April 25, 1991, between              Previously filed as Exhibit 10.15.3 to
         the Company, as sublessor, and SSC, as               Form S-1 Registration Statement (file no.
         sublessee, re Lansing, MI furniture                  33-40214) filed April 29, 1991, and
         store location.                                      incorporated herein by reference.

10.15.4  Sublease, dated April 25, 1991, between              Previously filed as Exhibit 10.15.4 to
         the Company, as sublessor, and SSC, as               Form S-1 Registration Statement (file no.
         sublessee, re Louisville, KY (Preston                33-40214) filed April 29, 1991, and
         Highway) furniture store location.                   incorporated herein by reference.

  10.16  Form of Assignment and Assumption                    Previously filed as Exhibit 10.16 to
         Agreement between the Company, as                    Form S-1 Registration Statement (file no.
         assignee, and SSC, as assignor, re                   33-40214) filed April 29, 1991, and
         separate assignments of leases                       incorporated herein by reference.
         for 31 stores.

  10.17  Form of Restricted Stock Agreement,                  Previously filed as Exhibit 10.17 to
         dated 1991, among SSC, the                           Amendment No. 1 to Form S-1
         Company and certain officers.                        Registration Statement (file no. 33-40214)
                                                              filed June 6, 1991, and incorporated herein
                                                              by reference.

  10.18  License Agreements, dated April 13,                  Previously filed as Exhibit 10.18 to
         1984, as amended, between the Company,               Form S-1 Registration Statement (file no.
         by assignment from SSC, and the Valley               33-40214) filed April 29, 1991, and
         Fair Corporation for licensed apparel                incorporated herein by reference.
         departments operated by the Company.
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<PAGE>   60


<TABLE>
<S>      <C>                                                  <C>

  10.19  Lease Agreement, dated as of July 1,                 Previously filed as Exhibit 10.19 to
         1988, between SSC as sublessor and the               Form 10-K (file no.1-10767) filed
         Company as sublessee, by assignment                  October 24, 1991, and incorporated
         dated April 25, 1991, re Benwood, W.Va.              herein by reference.
         store location.

  10.20  Lease, dated July 2, 1991, between the               Previously filed as Exhibit 10.20 to
         Company as lessee and Allied Company/                Form 10-K (file no.1-10767) filed
         Saul Schottenstein Realty Company                    October 24, 1991, and incorporated
         as lessor re Springfield, Ohio store.                herein by reference.

10.20.1  Exercise of the first five-year renewal              Previously filed as Exhibit 10.20.1 to
         option commencing November 1, 1996                   Form 10-Q (file no. 1-10767) filed
         under Lease dated July 2, 1991                       March 19, 1996, and incorporated
         between the Company, as lessee, and                  herein by reference.
         Allied Company/Saul Schottenstein
         Realty Company, as lessor,  re
         Springfield, Ohio store.

  10.27  Form of Restricted Stock Agreement,                  Previously filed as Exhibit 10.27 to
         dated 1992, between the Company                      Amendment No. 1 to Form S-1 Registration
         and certain employees                                Statement (file no. 33-47252) filed April 27,
                                                              1992, and incorporated herein by reference.

  10.28  The Company's Non-employee Director                  Previously filed as Exhibit 10.28 to
         Stock Option Plan                                    Form 10-K (file no.1-10767) filed
                                                              October 22, 1992, and incorporated
                                                              herein by reference.

  10.29  Lease, dated September 1, 1992, between              Previously filed as Exhibit 10.29 to
         the Company, as lessee, and SSC, as                  Form 10-K (file no.1-10767) filed
         lessor, re South Bend, IN store.                     October 22, 1992, and incorporated
                                                              herein by reference.

  10.30  Lease, dated January 27, 1992, between               Previously filed as Exhibit 10.30 to
         the Company, as lessee, and J.A.L. Realty            Form 10-K (file no.1-10767) filed
         Company, as lessor, as amended on July               October 22, 1992, and incorporated
         29, 1992, re 3080 Alum Creek warehouse.              herein by reference.

10.30.1  Exercise of the first five-year renewal              Previously filed as Exhibit 10.30.1 to
         option commencing February 1, 1997                   Form 10-Q (file no. 1-10767) filed
         under lease, dated January 27, 1992,                 March 19, 1996, and incorporated
         as amended, between the Company, as                  herein by reference.
         lessee, and J.A.L. Realty Company, as
         lessor, re 3080 Alum Creek warehouse.
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<PAGE>   61


<TABLE>
<S>      <C>                                                  <C>

  10.31  Lease, dated July 29, 1992, between the              Previously filed as Exhibit 10.31 to
         Company, as lessee, and J.A.L. Realty                Form 10-K (file no.1-10767) filed
         Company, as lessor, re 3232 Alum Creek               October 22, 1992, and incorporated
         warehouse.                                           herein by reference.

  10.32  License Agreements, dated as of June 1,              Previously filed as Exhibit 10.32 to
         1992, between the Company, as licensee,              Form 10-K (file no.1-10767) filed
         and Valley Fair, as licensor, re Linen               October 22, 1992, and incorporated
         Depts.                                               herein by reference.

10.32.1  Letter Agreement, dated December 18,                 Previously filed as Exhibit 10.32.1 to 
         1995, extending License Agreements,                  Form 10-Q (file no. 1-10767) filed 
         dated as of June 1, 1992 and as of                   March 19, 1996, and incorporated 
         January 12, 1994, between the Company,               herein by reference.
         as licensee, and Valley Fair Corporation, 
         as licensor, re Apparel and Linen 
         Departments and Housewares 
         Departments, respectively.

  10.33  Lease, dated October 26, 1993 between                Previously filed as Exhibit 10.33 to
         the Company, as lessee, and J.A.L. Realty            Form 10-Q (file no. 1-10767) filed
         Company, as lessor. re 2560 Valuway,                 March 14, 1994, and incorporated
         Columbus, OH 43224.                                  herein by reference.

10.33.1  Lease Modification Agreement dated                   Previously filed as Exhibit 10.33.1
         to June 16, 1995 to Lease, dated October             Form 10-K (file no.1-10767) filed 
         26, 1993, between the Company, as                    October 27, 1995, and incorporated 
         lessee, and J.A.L. Realty Company,                   herein by reference.
         as lessor, re 2560 Valuway, Columbus,
         Ohio 43224.

  10.34  License Agreement dated as of January                Previously filed as Exhibit 10.34 to
         12, 1994 between the Company, as                     Form 10-K (file no. 1-10767) filed
         licensee, and  Valley Fair Corporation,              October 26, 1994, and incorporated
         as licensor, re Housewares Depts.                    herein by reference.

  10.35  Ground lease, dated April 15, 1994,                  Previously filed as Exhibit 10.35 to
         between the Company, as lessee, and                  Form 10-K (file no 1-10767) filed
         J.A.L. Realty Company, as lessor, re                 October 26, 1994, and incorporated
         19 acres.                                            herein by reference.

  10.36  Agreement of Lease dated September 1,                Previously filed as Exhibit 10.36 to Form 10-Q
         1994, between Company, as tenant, and                (file no. 1-10767) filed December 12, 1994,
         Jubilee Limited Partnership, as landlord,            and incorporated herein by reference.
         re Carol Stream, IL store.
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<PAGE>   62


<TABLE>
<S>      <C>                                                  <C>

  10.37  Agreement of Lease, dated March 1, 1994,             Previously filed as Exhibit 10.37 to Form 10-Q
         between the Company, as tenant, and                  (file no. 1-10767) filed December 12, 1994,
         Jubilee Limited Partnership, as landlord,            and incorporated herein by reference.
         re Hobart, IN store.

  10.38  Agreement of Lease, date February 10,                Previously filed as Exhibit 10.38 to Form 10-Q
         1995, between the Company, as tenant,                (file no. 1-10767) filed March 14, 1995 and
         and Jubilee Limited Partnership, as                  incorporated herein by reference.
         landlord, re Gurnee Mills, IL store.

  10.39  Agreement of Lease, dated January 13,                Previously filed as Exhibit 10.39 to Form 10-Q
         1995, between the Company, as tenant,                (file no. 1-10767) filed March 14, 1995 and
         and Westland Partners, as landlord, re               incorporated herein by reference.
         Westland, MI store

  10.40  Agreement of Lease, dated January 31,                Previously filed as Exhibit 10.40 to Form 10-Q
         1995, between the Company, as tenant,                (file no. 1-10767) filed March 14, 1995 and
         and Taylor Partners, as landlord, re                 incorporated herein by reference.
         Taylor, MI store.

  10.41  Sublease, dated December 28, 1994,                   Previously filed as Exhibit 10.41 to Form 10-Q
         between the Company, as subtenant, and               (file no. 1-10767) filed March 14, 1995 and
         Shonac Corporation, as sublandlord, re               incorporated herein by reference.
         Alum Creek Drive warehouse space.

  10.42  Employment Agreement, dated                          Previously filed as Exhibit 10.42 to
         September 11, 1995, between the                      Form 10-K (file no. 1-10767) filed
         Company and Donald R. Andrus.                        October 27, 1995, and incorporated
                                                              herein by reference.

  10.43  Analysis sheet for Lease re Ft. Wayne,               Previously filed as Exhibit 10.43 to
         Indiana acquired by SSC pursuant to                  Form 10-K (file no. 1-10767) filed
         Assignment and Assumption Agreement                  October 27, 1995, and incorporated
         dated July 21, 1995.                                 herein by reference.

  10.44  Merchandise Royalty Agreement, dated                 Previously filed as Exhibit 10.44  to
         July 15, 1995, between American Eagle                Form 10-Q (file no. 1-10767) filed
         Outfitters, Inc., and the Company                    December 12, 1995, and incorporated
         re American Eagle merchandise sold                   herein by reference.
         to Value City Department Stores, Inc.

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<PAGE>   63


<TABLE>
<S>      <C>                                                  <C>

  10.45  Agreement of Lease, dated April 10, 1995,            Previously filed as Exhibit 10.45  to
         between the Company as tenant, and                   Form 10-Q (file no. 1-10767) filed
         Independence Limited Liability Company,              December 12, 1995, and incorporated
         as landlord, re Charlotte, North Carolina            herein by reference.
         Store.

  10.46  Sublease and Occupancy Agreement,                    Previously filed as Exhibit 10.46 to
         dated December 15, 1995, between the                 Form 10-Q (file no. 1-10767) filed
         Company, SSC and SSC dba Value City                  March 19, 1996, and incorporated
         Furniture, re Louisville, Kentucky                   herein by reference.
         (Preston Highway) store.

  10.47  Agreement of Lease, dated March 13,                  Previously filed as Exhibit 10.47 to
         1996, between the Company as tenant,                 Form 10-Q (file no. 1-10767) filed
         and Jubilee Limited Partnership, as                  March 19, 1996, and incorporated
         landlord, re Saginaw, Michigan                       herein by reference.
         store.

  10.48  Asset Purchase Agreement, dated as of                Previously filed as Exhibit 10.48 to
         April 24, 1996, between the Company,                 Form 10-Q (file no. 1-10767) filed
         as buyer and Steinbach Stores, Inc., a               June 18, 1996 and incorporated
         subsidiary of SSC, as seller, re the                 herein by reference.
         Seaview, Shore Mall, Paramus and
         Manalapan, NJ Stores.

  10.49  Agreement of lease, dated 1996                       
         between the Company, as tenant,
         and SSC, as landlord, re the Melrose
         Park, IL store.

  10.50  Agreement of Lease, dated October 4,                 
         1996, between the Company, as tenant, 
         and Hickory Ridge Pavilion, Ltd., as 
         landlord, re the Memphis, TN store.

     11  Statement Regarding Computation of                   
         Net Income Per Share.

     21  List of  Subsidiaries                                

     23  Consent of Independent Accountants                   

     27  Financial Data Schedule                              

</TABLE>

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