The Market
The Retailer/Tenant Market
The 50 largest retailers in America racked up $478 billion in 1992 sales, a growth of 6.1% over 1991. Retailing is big business. Retailing is also a profitable business. The Service 500 published by Fortune marked "Retailing" as one of the top industries in the service category in total return to investors (19.2%) between 1982-1992. Return on assets for 1992 ranked first at 5.3%. Retailing was number one with $5.51 of sales per dollar of shareholder's equity. Return on Shareholder's equity for 1992 was the highest at 14.0%. Sales per retail employee averaged $ 122,740. Wal-Mart ranked number one in service sector profits with almost $2.0 billion. Retailing has demonstrated profit potential. CSI is targeting a large and lucrative group of tenants.
Business Week proclaimed on its cover that "Retailing Will Never Be The Same." As indicated in the previous paragraph, America's retailers are a large and profitable group. However, the business of retailing is going to change forever with the emergence of the "electronic superhighway." Changes in retailing are not new to the American public (see chart below), but the magnitude of the "Electronic Distribution Era" will have a profound effect on the business.
Modern American Shopping
| 1940-1960 - Department Store Era | ||
| Downtown | Neighborhood | Home |
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| 1960-1980-Mall Era | ||
| From Downtown to Suburbs | Neighborhood | Home |
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| 1980-Present - Super Discount Era | ||
| Suburbs | Neighborhood | Home |
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| Future - Electronic Distribution Era | ||
| Suburb & Downtown | Neighborhood | Home |
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The media hype that surrounded the proposed QVC/Paramount acquisition is a foreshadowing of things to come. Every retailer in America has seen not only the $3 billion in "Home Shopping" TV sales, but the speed and efficiency with which that retailing environment allows companies to operate. CSI has developed exactly what key retailing executives are looking for: 1) Additional retail distribution outlets ("outside of their walls"); 2) Utilization of technology to reduce costs; 3) Reduction in Sales personnel/Increase in sales per employee; 4) Better inventory management and cost control; 5) The ability to provide high service and low prices to their consumers. With the introduction of the PCB and the RPCD, CSI has created exactly what the market has been looking for.
CSI's target market for retailer/tenants will be those companies whose products and/or services are information intensive. The ideal product or service to market through the PCB is one which has a high gross margin and a low "close time" (see chart below). The industries which are best suited for this retailing environment include, but are not limited to, travel, financial services, and consumer electronics. However, CSI believes that a number of retailers which currently market their products through catalogs would benefit from the PCB. In any event, one of the overriding factors effecting the tenant market that CSI targets will be the location of each of the PCBs.
The Landlord Market
A key to CSI's ultimate success will be the site locations of the PCSCs. The initial test PCSC will be located inside Bob's Grocery, a 106,000 square foot grocery superstore that has 25,000 customers weekly. The agreement with Bob's Grocery includes a provision, upon the success of the initial live test, to move forward with a joint venture which will enable CSI to locate PCSCs in additional stores. CSI's management team is keenly aware of the need to locate the PCSCs in the proper locations. In addition to grocery chains, CSI intends to pursue large regional malls, high traffic downtown locations such as high rise office buildings, and public use areas such as airports and train stations.
The immediate benefits to the company of the grocery store location is the high traffic count which is extremely attractive to tenants as well as non-tenant advertisers. It is also an extremely large market with the 30 largest chains accounting for over 6,000 stores of 30,000 square feet or larger.
The benefit to Bob's Grocery as well as any other grocery store location will be increased traffic. Unlike most marketing companies that are soliciting grocery chains to permit the installation of video walls and monitors on which to advertise consumer goods, the PCSC will not simply advertise to the existing customers, but will bring additional traffic into the store. Eventually, shoppers will visit Bob's Grocery with the primary goal being to pick up their airline tickets from the PCSC, but they will most likely make ancillary purchases during their visit to the PCSC.
The other Landlord locations that CSI will pursue can benefit from some of the same factors that make this appealing to Bob's Grocery. Future PCSC and PCB sites will eventually use the kiosk as an amenity to attract commercial tenants. This is particularly true in the case of large downtown office buildings. In addition, with the PCB only occupying 18 square feet, CSI, with the advantage of multiple tenants paying rent in the 18 square feet, can offer significant compensation to the Landlord relative to the amount of space that is necessary. If the market rent for major retail or commercial space is $25 per square foot, CSI will be able to offer landlords the equivalent of $ 100 per foot for the amount of space that the kiosk will occupy.
The initial rollout of PCBs will be concentrated in the Atlanta and Chicago markets. The company has the ability to monitor the units closely and with a significant concentration in a single metropolitan area, the benefits of media exposure and advertising are very significant. To date, the company has secured locations in some of the premiere office buildings in these markets, at Northwestern University, and at both Mega hotel locations. Several more landlord locations are in the final contract process.
