BUS613: Advanced International Business

Sports Apparel Inc. (SAI)

Budgeting and managing spending are a critical component of running a successful pop-up shop. Part of being a great manager is to minimize or control as many of the costs as possible – be they overhead (fixed) or sales-related (variable). Sports Apparel Inc. (SAI) is a small pop-up shop that moves from location to location every season. Moving so often comes with the added complexities of 3-4 rental negotiations, interior decorating and preparations, moving and storing inventory, advertising and signage, etc.  In order to minimize these added complexities and their associated costs, SAI utilizes various entrepreneurial tactics to a high degree of success.

The SAI Approach:

By looking at the overall situation from the point of view of major stakeholders, SAI has been able to craft a lasting, value-added and palatable strategy:

1. Landlords: are looking for a new source of income, a credible and reliable tenant, improved visibility of their location, improved condition of the location (e.g., renovating or painting and signage), and the higher chance that a permanent tenant will be found.
2. Local Businesses: can be seen as competition, or colleagues. Nearby businesses don't want a new pop-up to take business away from them; they are looking for ways to send and receive referrals and increase the foot traffic in their vicinity.
3. Suppliers: want a reliable, consistent and reasonable way to get rid of overstocked, undersold, and out of season apparel, and are often at a disadvantage in negotiating the sale of said items. They want to sell their wares without being taken advantage of.

SAI crafted the following strategy based on their stakeholders' wants and needs:

1. By catering their inventory to the local population, SAI has garnered a small army of followers that are always on the lookout for their new location. This group of followers is a major asset in negotiating with landlords in that it brings with it major credibility, foot traffic and awareness (of the location). Additionally, when catering to dedicated followers, a retailer must meet their expectations in terms of signage, décor, displays, etc., all of which will help a landlord find a permanent tenant as they necessarily help make the location look more presentable. SAI actively looks for a permanent tenant for each location they occupy, often working out commission deals with the landlord in the process. They have a 100% success rate of finding permanent tenants at their locations, which itself is a very powerful negotiating tool when discussing commissions and rent.
2. SAI's owner visited nearby businesses and discussed her goal to collaborate with them rather than compete with them. She looked for innovative ways to send her own customers to these neighbouring businesses, and even helped people find the products and services her neighbours were selling. She earned their respect and goodwill, and soon people were visiting her after hearing good things from her neighbours.
3. SAI's owner had years of negotiating experience in a very competitive industry before moving to the retail fashion industry. She used that experience to negotiate with suppliers and acquire all her inventory on consignment. The case she made to her suppliers was simple, effective and logical: there are only so many customers that she can expect each day, limiting the number of items she can purchase or store, the tastes of customers are dynamic, she doesn't have the cash flows to purchase any inventory outright, and the suppliers want both sales and exposure of their apparel. Thus, the only logical path to take was to offer their wares on consignment to her, allowing her to better choose items representative of her customers' desires (at the time), and not bottlenecking her operations with heavy inventory costs.

Results:

Sports Apparel Inc. has now been moving from location to location, successfully, for over three and a half years. Each time, their model has been validated, and has served to add to the customer base, fan base, credibility, number of businesses and landlords that are willing to vouch for the owner, and the exposure she needs to make opening each new location a success.

Consider the following questions:

1. How did Sports Apparel Inc. make the budgeting of each new location easier than if it were their first pop-up?
2. SAI's purchase of inventory on consignment is extremely rare. Explain why that is, and why you should not expect suppliers to do the same with other pop-ups.
3. What forms of financing could the owner of SAI have used in opening up her latest pop-up shop? What are the consequences (good or bad) of each?