Retail Assignment 1 PDF

Preview

Summary

Assignment 1...

Description

Retailing

Retail Location Analysis Assignment 1

Khemis Jacob – S3785793 Mingze le – s3857867 Licheng zhang – s3665240

Table of Contents

DECLARATION ..............................................................................................................................1 EXECUTIVE SUMMARY ...............................................................................................................2 GENERAL TRADING AREA................................................................................................................2 MERITS OF TRADING AREA.............................................................................................................3 PRIMARY TRADING AREA ANALYSIS...............................................................................................5 CHECKLIST FOR SITE EVALUATION............................................................................................................7 APPENDIX .......................................................................................................................................11 REFERENCE LIST ......................................................................................................................11

Declaration Khemis Jacob 50% contribution – S3785793 Mingze le 25% contribution – s3857867 Licheng zhang 25% contribution– s3665240

Executive Summary As compulsory for the course of Retailing, this report investigates and analyses the location analysis of 2XU. This report covers the field of the general trading area, in terms of the retail location theory, Reilly’s Law and also Saturation theory. This report analyses 2XU’s trading location as primary trading analysis is conducted and expressed throughout the report. The report concludes with the checklist, that 2XU’s management would’ve completed to choose their desired location at Chadstone.

General Trading Area As discussed, this report evaluates the trading area of the retail store 2XU, which operates the Chadstone Shopping Centre located in the Melbourne’s suburb of Malvern East. 2XU is located on the lower level in Chadstone. A store founded in 2005, 2XU is a sport and high-performance apparel company. They specialise in tight and compression apparel for men and women. The general trading area of a retail business or company is defined as the “geographic location or region where a company transacts business – (Businessdictionary.com). This specific area determines or represents a location or store where the majority of the sales volume for 2XU exists. The general trade area of 2XU is defined in relation to the location in which it is located, and in this case, its Chadstone Shopping Centre. Defining the trade area of a retail store is important to ascertain the boundaries in which customers can travel to the specific retail store. For a business to select the optimised location to benefit both the business and the consumers of the business, there are 3 steps identified to select a retail location. According to Buxtonco, the first step is to research and find the specific target market that the retail store will serve. This step could involve measuring macro or external factors, such as the population, employment rates, consumer spending etc. There needs to be a right balance of competitors as well as supply and demand for the product or service. Once the desired target consumers have been identified, the next step is to use each target segment and determine the “trade areas that offer the best growth potential”. This step involves evaluating the possible trade areas that are suitable in terms of growth potential. Identifying trade areas based on “Drive-time yields will have more impacts as it takes into consideration the consumers mindset. The best possible trade area must meet criteria based on forecasted performance, right level of competition, etc. Once the optimal trade area or geographic location has been identified, the optimal site location can be considered. This last step involves discovering the site location of the store that's when the above-mentioned geographic area. This site location needs to have attributes such as the right mix of draw factors, as well ease of access to the location and a location that can meet the financial budgets of the store. Retail Location Theory

To define the trading areas of a specific retail store or shopping location, there are several methods to achieve this. Some examples could include using the postcodes provided to ascertain the travel distance of consumers. Another simple example is to conduct surveys of customers and gather information through the home suburbs and shopping behaviour of consumers. A common method is to use gravity models in order to ascertain the general trade boundaries of the specific retail location. To do this, Reilly’s Law of gravitation is introduced. Reilly’s Law suggests that a retail location will service the trade area it operates in. Reilly’s law measures the attraction of 2 or more shopping centres in a small geographic location comparably to the first shopping centre. Appendix 1a demonstrates the formula for Reilly’s Law, where d is the point of indifference or break point. This is the point where the attractiveness of the shopping centre in focus meets the point of attractiveness of the other centres. For Example, if the break point for Chadstone is 14 km then supposedly this is the point where the trading area for Chadstone concludes. D is the distance between shopping centre A and B, etc. PA and PB are the population of the two cities that are being measured. Although to adapt this formula for shopping centres, the area or size of the shopping centre can be used instead. (Converse, P.D. (1949). Appendix 1b demonstrates the application of Reilly’s Law of gravitation in relation to the surrounding shopping centres to the north, east, south and west of Chadstone. From the results, Westfield Doncaster has a breakpoint of 7.9 km, Westfield Southland has a breakpoint of 6.65 km, Westfield Knox has a breakpoint of 10.3 km and Highpoint has a breakpoint of 15.98 km. This Information indicates that if a marker is drawn at the break point in each direction, and the markers are connected, it will show the perceived trading area for Chadstone and its stores. Although Reilly's Law is simple, it has some limitations and assumptions that must be considered. The law doesn’t take into consideration different cultural backgrounds and the different behaviours of consumers. Reilly’s law also fails to consider the differences in the services provided by each shopping centre which could affect their purchasing decisions. The theory also assumes that each consumer has the same mindset, and shopping behaviours. The distance is measured in km, not time taken to travel, as traffic, congestion and road issues are ignored. Reilly’s law also assumes that the geographic area of the shopping centre is flat, with no mountains or rivers, which isn’t always the case. As discussed, Chadstone is one of Australia’s biggest shopping centres (Wikipedia.) and therefore has a huge gravitational pull and reputation. We believe that the trading area of 2XU is determined by Chadstone. 2XU is one of Chadstone’s 500 plus stores (about us. Chadstone), most customers visit Chadstone because of its name and brand, not just one specific store. The Chadstone shopping experience is the main gravitational pull and 2XU are taking advantage of this.

Chadstone has competing shopping centres surrounding its trading area. The nearby shopping centre is Westfield Doncaster, with a size of 122,842 m 2. Westfield Doncaster is to the north of Chadstone. It operates in the Doncaster region. Another close competing shopping centre is Westfield Southland, which has the size of 128,981 M2. This shopping centre operates in the Cheltenham region in Victoria.

Merits of trading area

Retail Saturation Chadstone, named the biggest shopping centre in the southern hemisphere (Chadstone.), is home to over 550 individual stores, all in direct competition to each other. 2xu, a sporting goods store, sees many competitions from rivals such as Rebel Sports, Nike, Adidas, etc. This leads us to question whether the market of Chadstone and the trading area is saturated. Retail saturation Is defined as the condition or situation where there are enough store facilities for a store type to satisfactorily serve a particular population or consumer base while maintaining and yielding profit for the owners. For example, in the trading area of Chadstone, the owners of 2XU would have to ask whether there are already enough sporting goods stores located in the shopping centre and whether they would have enough customers to break even or make a profit compared to their competitors such as Nike and Adidas. The theory suggests that the specific market will be too saturated if there were too many competitors compared to the demand in terms of households and consumers. Retail saturation theory defines some possible outcomes of the market in question. Firstly, the retail market becomes saturated when there are enough stores to align with consumer needs. Most stores involved are successful and the population is being served efficiently. The second outcome is when there aren’t enough stores in the trading area to supply the demand from consumers. This is defined as an under stored Market. The final outcome is over stored. This is when there are so many similar stores selling similar products that they cannot earn adequate profits in that specific trading area. To analyse this based on 2xu and its competition, we need to understand the number of competitors stores located in the trading area of Chadstone. If the number of stores per 1000 households is low that it's under-stored, whereas if the number is too large then the market is considered over-stored. In terms of 2XU, there are two specific Adidas stores, two Rebel Sports stores, one Nike store, one New Balance store, and many more sporting goods stores located at Chadstone. By definition, the sporting goods market at Chadstone is overstored. In an Overstored market, 2XU may fail to generate great profit, as many competitors are fighting to draw consumer traffic to their stores. Leading to lower prices from competitors and lower profit. However, other factors may have influenced the decision makers at 2XU to open a store at Chadstone. We have hypothesised some factors that may have influenced the decisions made by 2XU’s management. The first factor may be that there is no representative of the 2XU brand in the general vicinity before the Chadstone store opened. Closest store was located DFO South Wharf and DFO Moorabbin. This could have been a ploy to take advantage of the gravitational pull of Chadstone. Another hypothesis would be that 2XU wanted to join the competition at Chadstone, in order to take market share from competition. In order to help retail managers to understand the demand of products in a trading area, the index of retail saturation was developed. The Index of retail saturation is basically the ratio of the demand for a product divided by the supply available. The demand is measured through the households in the area multiplied by their expenditure for a particular product, and in 2xu’s case, it’s the purchasing activity of sporting goods within Chadstone. The supply is determined by the square foot of retail space for the retail sector within the trading area. The formula for the index is IRS = (H x RE)/RF, where H is the number of households, RE is the expenditure and RF is the square foot of the retail space available.

When analysing the potential demand for the particular product, there are specific factors that management will look into. The population statistics available for the trading area is useful to understand the total market and allow segmentation of each group of potential consumers. For 2XU, this information can help to determine the potential consumers and the amount of ideal target market consumers in the area. Characteristics such as age, occupation, sex can be examined. Another useful factor is the buyer behaviour patterns and activity. Characteristics such as loyalty, purchase activity, consumer lifestyle will be used in the case of 2XU. Other factors such as Household income, age profile, and composition can provide pivotal information to decision makers. This will help to identify the demand coming from each type of consumer in the trading area. The remaining demand factors include population density, community life cycle and mobility are all different for different populations around the world. Therefore, it needs to be analysed in order to see its effect. For example, for a trading area with low mobility, there will be less stores as people aren’t willing to travel further as it isn’t easy to travel. Therefore, for 2XU, they will choose to locate less stores in each community with less mobility. When deciding to open a new store in a new location, it is important to consider the supply factors such as the square feet per employee, and per store. Also, the growth in the stores, and quality of the competition must be analysed. The average square feet per store will help 2XU decide whether most stores in Chadstone have a largeor small-scale retailing. A higher average square feet per employee will inform 2XU that each employee can handle more space and also provides opportunity for retail technology such as self-service. A Greater growth rate if the stores within the community will mean that the competition of 2XU will be greater as they have had rapid growth in recent years.

Primary Trading Area Analysis. Financial performance objectives In 2017, 2XU had already predicted that it would seventy-five million in sales that year. At the same time, Australia has achieved double-digit growth in 2017. Moreover, this is also a business with a high rate of return, strong profitability and strong cash-generating ability(Lenz, Carrie, 05 june 2017). Mr. Davenport's dream of turning 2XU into Australia's first global sportswear brand with a revenue of US$1 billion does not look so flashy. 2XU's sales in 2013 are expected to reach 65 million US dollars(Mitchell, Sue; 02 DEC 2013). These transactions, as well as cooperation with sports organizations such as Swimming Australia and Professional Golf Association of Australia (PGA), have helped 2XU achieve a 40% compound annual sales growth in the past four years, and have opened up in the field of sportswear. A profitable niche market. In the most recent round of private equity financing, the company was valued at more than A $100 million. In the year ending in July 2012,

the company's sales are expected to reach 40 million Australian dollars and profits will reach 10 million Australian dollars. 2XU can produce 2% of the aerobic capacity of players who are recovering from training. It can be increased by 1% after replying. This improvement is the gap between the first and fourth place(Hugh Ume, Neal; May 16, 2012). Although after the new owner implemented an ambitious growth plan, the jungle clothing brand has gone through several years of wind and rain and fell into a deficit. However, the company is slowly recovering. In 2XU invested 75 million US dollars for store decoration, expansion of production capacity in Adelaide, as well as brand and packaging transformation, losses are shrinking. It is even considering opening a second factory to increase production. According to the financial statements, in the year ended July 2, 2017, Williams lost $1.7 million, compared with a loss of $3.1 million in 2016. Group sales increased from 118.7 million US dollars last year to 126.7 million US dollars in 2017(Lenz, Carrie; 09 July 2018). From the above data, it can be concluded that the local consumers love the products of this brand. It can also be seen that the quality of the brand is very good and the management of the company by the executives is very good. Although sales have fallen, replication has risen. But because 2XU has very advanced technology, it is deeply loved by consumers. Similarly, many athletes (such as the example from the above question) are using 2XU, including many star athletes, such as basketball players. So according to the above content and data, the sales situation is still good. Marketing performance objec tives

In the past five years, the company's EBITDA has grown at a rate of 25% per month. Expect strong double-digit revenue growth(Lenz, Carrie; 27 Mar 2015: 19). 2XU's products are in a leading position in the industry in terms of comfort, style and performance. At the same time, this brand is also specially designed for specialized athletes. It has the advantages of improving blood flow, reducing muscle soreness and accelerating recovery. 2XU is not limited to compression and training clothing, but also includes custom clothing for fleets and bicycles(New,20 Feb 2018). 2XU's products are cheaper than its peers because the company's factory is located in China. Because labor prices in China are lower, but the quality of the products produced is better(Hugh Ume, Neal; May 16, 2012). From the above-mentioned data and content, it can also be concluded that consumers like them. However, it can also be concluded that, under the premise that 2XU has high-quality products, the prices are good and cheap, which also caters to consumers' psychology. As a result, 2XU's sales and profits are getting higher and higher. Societal objectives and Personal objectives

Tantra Capital's company led by John holds an 18% stake in 2XU. At the same time, Kramer joined 2XU in 2017 and represents the company's long-term shareholder (Lenz, Carrie, 05 June 2017). 2XU announced the appointment of Kevin Roberts as CEO. The founder and chairman of 2XU believes that Roberts can lead the company's sales growth with his previous experience and ability. Because Roberts was engaged in retail and wholesale sales in his early years. Previously held positions in Nestlé and Adidas Australia. The 21st century led the rugby clothing brand to turn losses into profits. In 2005, Davenport, triathlete James Hunt (James Hunt) and sales and marketing expert Aidan Clarke (Aidan Clarke) founded the company. The founder still holds 42% of the shares (News, Thursday March 26, 2013). The 2XU brand is a leader in this field and has a reputation for authenticity and credibility (Mitchell, Sue; 02 Dec 2013).

2XU involves cycling, running, open water swimming and general fitness clothing. It also made the world's lightest running clothes, compression calf sleeves and leg warmers. Many stars have also put on 2XU, such as James and many NFL players (Lenz, Carrie, 05 June 2017). 2XU has its own unique products, such as good fabrics and beautiful designs, which makes 2XU very popular among elites. At the same time, it is not only worn by endurance and running people, but also by people who are doing fitness and yoga. Because everyone thinks they look good (Ap, Tiffany. South China Morning Post; 12 April 2014). From 2XU's founder and sales and marketing director, Ottoman Clark, in an interview with Women's Wear Daily, said that 2XU is a household name in Australia (Palmieri, February 25, 2015). It can be concluded that 2XU is very much loved by the Australian people. At the same time, the valuation of 2XU when it is estimated to go public in 2015 has already exceeded 600 million (Lenz, Carrie; 27 Mar 2015: 19). 2XU's clothing is designed for triathletes and has the advantages of improving blood flow, reducing muscle soreness and accelerating recovery. Years of updates have allowed the two sports powers to work together to help competitors reach their full performance potential. The United States Triathlon is the world's largest multi-sport organization, sanctions more than 4,300 competitions, and connects with more than 400,000 members each year (New, 20 Feb 2018). Founded in 2005, 2XU is a top sportswear brand endorsed by outstanding athletes around the world. It promotes human performance by developing world-leading compression clothing. 2XU is considered one of Australia's most innovative companies. At the same time, this brand is in a l...