THE SHOPPES AT RIVERSIDE 

Fonda L. Carter, Columbus State University Kirk Heriot, Columbus State University 

CASE DESCRIPTION 

This case asks the students to recommend a decision to a group of individuals on whether or not to pursue purchasing The Shoppes at Riverside, even when the purchase price is minimal ($1). It is based on the actual experiences of one of the authors. The Shoppes at Riverside is a unique business located in a historic building in a downtown area. The store occupies approximately 5,500 square feet of space (leased from a local foundation) and subleases space to dealers selling upscale merchandise including art, antiques, home accessories, and gift items. The store charges a monthly rent to each dealer (based on their booth square footage) along with a 10% commission on sales. The students are given basic information provided by the present owner and are asked to evaluate the information given to project monthly cash flows and then to make a recommendation to the potential purchasers. They are also asked to evaluate and suggest other lines of business that might be added to the present business to increase the profitability of the store. This case is appropriate to use in an Intro to Small Business Class as the size of the business is ideal for any course that emphasizes entrepreneurs or small businesses. This assignment can be completely individually or as a group assignment. 

CASE SYNOPSIS 

The primary focus of the case is a purchase decision. The information given to the students to utilize in formulating their decision includes store sales by month for each of the last three years as well as operating expenses. From the information given, the students are asked to construct pro- forma cash flows for the year 2007 by month based on their assumptions regarding sales and occupancy levels. They are also asked to research other product lines the potential buyers could add to the store to complement the present merchandise presently being sold by dealers. Although the store does collect rental income, there is a cap on percentage rents at 10% of sales which in turn limits the total revenues of the store. The students are given some ideas on lines of business to research within the questions of the case. They may have others they would also like to research. 

A second phase of the case analysis would be to break the case into group assignments and have each group research and prepare presentation on such topics as (1) the various type of 

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advertising options and the related costs applicable to small retail businesses in order to develop and implement a marketing plan; (2) the type of business formation available to small businesses (i.e. Corporation, Sub-S Corporation, Partnership, LLP; (3) additional product lines to add to increase revenues of the business; and (4) the advantages and disadvantages of developing a website and selling “on-line” with this type of business. As a result of the individual and group projects, classroom discussions could be held based on the findings of the groups as well as other current issues faced by small businesses. The advantage of this case is that it presents students with a real-life purchase decision and presents relevant topics for in-class discussions. 

INTRODUCTION 

Laura Lewis, Patricia Robbins, and Mary Farley were eating lunch at a local delicatessen. The ladies were excited about a recent business opportunity that was presented to them by Lucy Taylor, the owner of The Shoppes at Riverside. Lucy wanted to sell her business to someone that would take over her vision for an art and antique store in the uptown Columbus, Georgia area.

Laura: Patricia: Mary: Laura:

Mary:

Laura:

“So what do ya’ll think?”
“I’m pretty excited about it. I think we can do this.”
“I don’t want to jump into this purchase without considering all the facts.”

“Mary what do you mean? Lucy has given us all of the fact as she has given us a copy of a letter (originally written to the local real estate company handling the new lease) outlining all the employees and their pay rates; all of the operating expenses for the store; and the sales by month for the last three years. It all looks good to me.”

“Yes, I am wearing my accountant’s hat. We need to evaluate not only the business, but also other issues as well. For example, which one of us is going to manager the business on a day to day basis? I can’t do this because I have a full time job. I have the expertise in accounting and finance to advise the business and prepare all the accounting records but that would have to be the extent of my involvement.”

“Patricia and I neither one work. We would be available to manage the store on a day to day basis. Besides, Helen Mitchell, the manager of the store states she wants to stay on with the new owner. We would only have to oversee her. Patricia and I could split the duties. I could handle the employees and their work schedules and Patricia could handle the issues with the vendors”.

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“I think there may be other issues as well. Even though the purchase price is minimal, there is the opportunity cost of our time and effort that could be utilized elsewhere. Let’s take a couple of days and think about it and evaluate all the advantages and disadvantages. I will prepare a cash flow analysis for the year 2007. We can meet again in a week to make a decision.”

CASE HISTORY 

The Shoppes at Riverside was originally opened in 1998 by two partners (Lucy Taylor and Sally Owens) in an older brick storefront in downtown in Columbus, Georgia. Columbus, Georgia is located on the Chattahoochee River (separating the city from the Alabama state line) approximately 150 miles southwest of Atlanta. It is the third largest city in Georgia and has a population in the metropolitan area of approximately 250,000 people.

The first building occupied by the store was approximately 3,000 square feet. The original intent of the business was to offer space to art and antique dealers for the sale of their merchandise. The purpose of opening the business was two-fold. The primary purpose was to offer upscale merchandise in Columbus as there were no other businesses that offered quality art and antiques. The second purpose was for it to be a secondary source of additional income for the two owners. The store opened with approximately twenty vendors. The store leased “booths” to these vendors ranging from 100 sq. feet to 200 sq. feet each. Rent was charged based on the size of the booth and rangedfrom$150to$250pervendorpermonth. Theownersofthestorealsochargedeachvendor 10% of each sale as a commission and 2.5% for credit card sales to cover credit card fees. The owners were responsible for collection and remittance of sales taxes, credit card processing, and employment of sales assistants. While the original intent was to have only art and antique vendors, in order to lease all of the space, the owners added vendors that merchandised clothing, jewelry and gifts. Vendors were required to complete an application for space and were highly scrutinized to insure a high level of quality merchandise. In fact, the owners knew the majority of the vendors personally. The store also included a “tea room” that served a light lunch. Although no income statements were available for review, the owners stated that business was profitable at this location. Occupancy of the rented booths remained nearly 100% at all times.

In 2003, one of the partners, Lucy Taylor purchased two larger historic buildings in the next block with a separate partner (John Thomas as an investment. Each building housed three floors each with approximately 5,500 square feet on each floor. A floor on each building is located below the street level. The other two floors were above street level and both run parallel to a city street and both buildings take up a side of an entire block. The buildings were renovated from their original use as a clothing factory. The historic buildings’ outside façade is attractive old brick. Since the lease at the previous location was up for renewal at the same time, Lucy and Sally then decided to move The Shoppes at Riverside into one of these old buildings. They spent approximately $30,000

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in renovating the second floor (street level) of Building One. Renovation included subdividing the 5,500 square feet into booths for individual vendor spaces, adding a counter front/cash register station at the front of the store, installing a security system, installing phone lines, installing wiring/lights in each booth, and a kitchen area in the back of the store. The two bathrooms also had to be updated to comply with the city building code.

At the new location, the owners were able to add more vendors. This building space allowed for 28 booth rentals and 14 wall spaces for rent (see Table Two for a breakdown). Some artists were interested only in renting wall space located between individual booths. At this location, the owners stated the business was profitable for several years. The actual statements were not available for review. In 2005, Sally Owens decided to leave the business and Lucy Taylor bought out her interest. Over the next few years, the store experienced a decline in sales. According to Lucy, one of the main reasons was major construction work that was taking place in the downtown area where the store was located. Each city street underwent substantial work on the sewer lines causing problems in traffic flow. The construction project was projected to last a period of over two years. Even though only one street was under construction at a time, it was a nightmare trying to maneuver around the “construction of the moment”. Many shoppers that had frequented downtown shops went to the north area of town. The construction was scheduled to be completed by the end of 2007.

In early 2007, Lucy Taylor and John Thomas decided to sell the two historic buildings to the foundation of a local college. The college had been establishing a downtown campus for the art and music departments. The two historic buildings were located on the block between two new structures the college owned. Adjacent to the two historic buildings was a large parking lot which was deemed a prime location for parking for the college’s downtown campus. In the fall of 2007, Lucy Taylor also decided to sell The Shoppes at Riverside. She did not need any secondary income from the shops and basically used the ownership as a hobby. She was willing to sell all of the equipment, including cash registers, security system, sound system and inventory (a few books and wrapping products) for a nominal amount. Her main goal was to have someone take over the business that would continue her vision for an art and antiques store.

POTENTIAL PURCHASERS 

Three of the present vendors (Patricia Robbins, Laura Lewis and Mary Farley) of The Shoppes at Riverside were approached by the owner, as well as the president of the Uptown Business Association, to see if they would be interested in purchasing the business. The potential purchasers were very familiar with the business but none of them had actual retail experience other than their present booth ownership. Patricia Robbins and Mary Farley owned a booth together featuring furniture and home accessories. Laura Lewis owned a booth with another individual. All three were good friends. Patricia Robbins and Laura Lewis were college graduates but at the present time did not work by choice. However, since they did not work they would have the time

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to spend on a day to day basis with the on-sight management of the business. Mary was a CPA but was currently teaching accounting at a local college. Her contribution would be financial advice as well as all of the bookkeeping duties of the business, including payroll taxes and returns; sales taxes and returns; and any other business related matters. Their initial purchase price would be minimal ($1). Lucy, the present owner, along with the management of the local college foundation and the management of the Uptown Business Association were looking for someone to purchase the business and retain its current retail focus.

The purchase price would include two computers; computer retail software (specifically written for the consignment store); build-outs for the booths including electrical outlets for each, a large front counter for the cash register with a laser printer; a kitchen area with a free-standing ice maker, a refrigerator, a microwave, sink, and built in cabinets; two bathrooms; all wrapping products (tissue paper, ribbon, cellophane bags, and shopping bags); a small inventory of books; an installed security system; and a sound system. The present owner basically wanted to walk away from the business and leave everything.

The owner has made available information to the potential purchasers in order to make their decision. A summary of the relevant information is given below.

STORE LOCATION 

The store is located in approximately 5,500 square feet of space. It is an open building with walls separating the facility into individual booths. The walls between the booths run approximately 80% of the height of the ceiling leaving an open, airy feeling to the store. It is located across the street from the City of Columbus Center for Performing Arts, a Marriott Hotel, and the local convention center. While more retail businesses have located in the north end of town, local retail business in the uptown area has begun to grow again with the scheduled completion of the construction on the major streets. A local uptown business association has also started a more concentrated marketing effort for the “Uptown Area” (previously referred to as downtown Columbus). One of the adjacent buildings to the new store location also houses the local Convention and Trade Bureau and the floor below the store houses a Quiznos restaurant.

While the store is not located in the “booming” north end of town, there is potential for retail development. There are several major employers in the uptown/downtown area. One is a major credit card processor with approximately 3,000 employees in their uptown campus. It is located seven blocks away on the other side of the uptown area. Another employer is a bank holding company with approximately 500 employees located only three blocks away. A little further away but still within a close driving distance is the home office of large insurance company. There is also the local government center (two blocks away) as well as many smaller businesses, primarily law offices. One of the challenges of the new owners would be to target market to these companies and promote awareness of the store.

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STORE INCOME 

The store has several sources of income. There are direct store sales primarily from inventory of books (cook books and art related books) owned by the store itself. There is additional income from vendors in the form of rent and commissions. Each vendor pays three types of fees. A fee for the booth rental (the rental rates for the available booth and wall spaces are shown in Table Two); a percentage rent or 10% of each sale as a commission; and a fee twice a year for advertising. The fee for advertising is $100 for a booth renters and $50 for wall renters and is due on March 1 and October 1 each year. At the present time, the majority of the booth and wall spaces are rented. However, there are a few vacancies. The present owner stated she has not tried to rent these vacant spaces as she is not sure that she will continue the business if she cannot fine a purchaser. She does have a waiting list for individuals wanting to lease space. Vendors are required to sign a six-month lease and pay the first and last months’ rent payment upon signing the lease. They are to give thirty days written notice to terminate the lease after the initial six-month period.

Rent Expense 

The building the store occupies is currently being managed by a local real estate company on behalf of the foundation. With new ownership, the monthly rental will be $4,322 and a three year lease will be required. This rental rate is below local rental rates per square foot in the area. The rental payment includes the utilities for water and repairs for major maintenance costs. The lessee is responsible for minor repairs.

Utilities 

Monthly electricity cost runs from $800-$1000 per month. It is typically higher in the summer months. The building is all electric and there are no other utility costs.

Employees 

The store hours are from 10:00am to 5:30pm on Monday thru Friday and from 10:00am to 4:00 pm on Saturdays. The store is closed on Sundays. Two employees are needed during these hours and they usually arrive 15 minutes before the store is opened and leave 15 minutes after the closing time. They do not take a lunch hour but are allowed to take a break and eat lunch in the back kitchen area. During the holidays, additional employees may be needed. One employee acts as a manager and works four days (Monday – Thursday) a week and is paid $10 an hour. The manager has worked at the store for five years and would like to continue with the new ownership if possible. A second employee works two days during the week and is paid $8 an hour. Two additional

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employees work one day a week and are paid $7 an hour. The rest of the hours are completed by part-time employees paid $6.50 per hour. Employees are paid bi-weekly for the week ending the previous Saturday. The first payroll in the year 2007 is January 11th. The employees receive no benefits other than the payroll taxes required by law.

Insurance 

Insurance has been averaging $2200 a year and includes general liability and workmen’s compensation. It does not include any insurance on the items owned by the vendors but does include property insurance on the items owned by the company.

Janitorial Service 

The store provides janitorial service for the common area, kitchen area and bathrooms. The cleaning crew comes once a week and the charge has been running $75 per week. Vendors are responsible for cleaning their own booths.

Advertising 

Lucy Taylor, the current owner has an advertising contract with the local newspaper. This contract is $240 a month and includes three advertisements per week in a local newspaper. An annual contract has to be signed to obtain this rate. Some advertising is also done in two local magazines. Both magazines are bi-monthly and average $350 for a 1⁄4 page ad space. Lucy stated she tried television advertising but it was too expensive in the current market. Lucy stated that the most effective advertising seemed to be direct mail. She currently has a list of approximately 1,200 customers. The cost to print and mail a basic two-color postcard averages around $600. She usually sends out a postcard twice a year. While some of the cost of the advertising is supplemented by the required fee, the cost of advertising in the past has been over and above that paid by the vendors. At the current time, there is no utilization of Internet advertising. The store does have a basic website that contains only two pages of information.

Telephone 

The cost of telephone service averages around $350 a month and includes a two-line business phone and a separate line for a fax machine. Currently no Internet listing is utilized and there is no Internet connection. To add Internet to the present computers, it would add $60 a month and to add an Internet advertisement on Yellowpages.com, it would add approximately $95 a month.

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Other operating expenses 

Other operating expenses include store supplies (cleaning supplies, printer paper, bathroom supplies, etc...) and average up to $200 a month. Wrapping products (gift bags, tissue, and ribbon) are frequently used as the store offers “free gift wrapping” as a customer service. The wrapping products along with the bags used in each sale average 2% of sales.

Taxes 

As stated previously, the store pays employment taxes on employees consisting of FICA at 7.65%; State Unemployment taxes on the first $8,000 of earnings at 2.7%; and Federal Unemployment taxes on the first $7,000 in earnings at .8%. Other taxes and fees include an annual fee for a business license ($100) and a fee for gross receipts (or .03% of each sale). The store collects and remits the state and local 7% sales taxes on all sales.

THE PURCHASE DECISION 

The three individuals (Laura Lewis, Patricia Robbins and Mary Farley) need to evaluate the information given to them by Lucy and decide if they want to “purchase” the business. If they decide to purchase the business, they would also be required to sign a three-year lease on the building. An investment of cash would also be required for operating expenses and they would need to set up a credit card or line of credit with a bank. If the business is purchased, they also want to evaluate adding a line of business to increase direct income to the store owners. It would be essential for the new line of business not to compete with merchandise currently sold by the present vendors. Some of the types of businesses considered would be a stationery/personalized gift business oralunchtimerestaurant. Otherdecisionstobemadeifthegroupdecidestopurchasethebusiness would be the type of business organization to form with the three individual owners and how the management duties would be divided between them.

 

 

QUESTIONS 

·  As an advisory board member of a nonprofit organization, discuss whether it is in your best interest to acquire the Shoppes.

·  Assuming the Shoppes were acquired, discuss what changes would be recommended to generate more income from the Shoppes at Riverside to further fund DDC operations.

·  Most of your participation points come this week via this assignment. This is an opportunity for the instructor to provide detailed, critical, feedback to you on a low stakes assignment that can be leveraged to inform your case analysis and write ups that follow. Don't miss the chance to develop your skills with low point values and detailed feedback. It will pay off for the remainder of the course.

Your work should follow proper case analysis formatting. Use the following guidelines to help you develop your case analysis:

Without being too prescriptive, each section should generally contain the following for individual cases, with expanded detail for team efforts:

Introduction to Case and Major Objectives: 100 Words

Evaluation of the Case: 200 Words

Proposed Solution/Changes: 100 Words

Your Recommended Course of Action: 100 Words

In addition, your analysis should:

Tie the case analysis to the course learning outcomes for this module.

Address the prompts that are provided in the assignment introduction.

 

Answer rating: 100% (QA)

Before forming a nonprofit organization you should understand the types of structures available so that you can choose the one that will provide the most benefits to the type of organization you are p... View the full answer