Question

1. Under what circumstances would it be more desirable for a retailer to buy or lease an existing facility rather than to build a new store? (5 marks)

Answer 1

For any business, having an asset is one of the key benefits in the long term. When we focus on a retailer for instance, the more stores they have more power and reach they have in the industry. While the stores only act as the front of business, the key aspect for a successful store always lies in the experience that is provided to the customers. There are few major aspect to be considered while discussing customer experience. If the retail store is part of a bigger chain then it all the retail outlets should be identical in nature. And this is the area, where the ownership of the store comes into play.

Suppose the store is owned by the retail group, then it would mean they have all the power to change it as they like. But suppose the retail group wants to start afresh in a new area, then they have to take the decision on whether to buy, lease of build a store. If we consider these three aspects, we can see that there is huge investment needed and time invested to build up a store from scratch. Under the following circumstances it would be wiser to buy or lease a store rather than build it from nothing.

• The retail store needs to be opened fast. If there is not time within the agenda to wait for a new store, then it would be wise to buy or lease an existing facility to act as a retail store
• If the retail business is new and there is very low investment, then leasing is the best option compared to buying or building a store
• Buying an existing facility means the retail group gets an asset without making too much investment of time and resource into carefully building the store.
• Buying or leasing can also be considered when the facility does not need any major renovations or changes to infrastructure.
• Buying or leasing is also used when there is no expertise within the group regarding such ventures
• Building a store from scratch would mean the retail store management team would need to constantly supervise the business and the practices.

In all other circumstances apart from these, building a new store could be beneficial. Building a new store would mean the retail group has complete control over the planning, designing and the placement of interiors rather than being forced to fit in a place. Another advantage of building a store is that it gives them enough decision making into minute and intricate details that goes into store`s construction. But that would also mean there needs to be a team which is constantly monitoring such events. All this can be avoided if the retail group buys or leases a facility.