To what extent would it be beneficial for Company XYZ to open a new store in one of Lima Top’s districts to gain a greater customer base?

Company XYZ is a Peruvian private limited company offering a wide selection of national and foreign household and kitchenware products. Its mission is to provide every customer with quality and innovative products to equip their kitchens and dining tables. However, according to its Head of Institutional Sales, a significant portion of its sales are digital due to limited store proximity to some customers, not allowing it to efficiently showcase its full product portfolio. Hence, it is considering opening a store in a new location to also help it increase its customer base.

During the process, certain initially considered business tools such as Porter’s Generic Strategies were eliminated due to word count limitations, and after finding others more effective in addressing the research question. Furthermore, additional secondary research during the report writing was conducted to explore the benefits of Lima Top more comprehensively.

I would like to thank Individual X, and Individual Y for their contributions and cooperation in making this investigation on Company XYZ a reality. Specifically, I express my gratitude towards them for providing me with financial documents and their time to interview them.

 

Moreover, I would also like to thank my IB Business Management teacher for all the guidance and feedback throughout the process of writing this assessment.

Company XYZ (XYZ) is a private limited company based in Lima, Peru, offering a wide range of household and kitchenware products. Due to the distant locations of its two Downtown Lima stores, XYZ heavily relies on its e-commerce platform, limiting its capacity to showcase its complete product range. Thus, this study aims to evaluate the potential benefits for XYZ of opening a new store in Lima Top.

 

Tools such as the Ansoff Matrix, SWOT & STEEPLE analysis, and financial ratios were utilized to achieve a holistic perspective on the decision. Primary research, specifically interviews with two key company executives, formed the core of the investigation. This was supplemented with secondary research, including financial statements and research on Lima Top.

 

The findings of this exploration revealed that the expansion in Lima Top would be beneficial to a great extent if the company’s strengths and opportunities are exploited, and a more careful approach towards Market Development is implemented. The proposed location and XYZ’s financial performance also provide a strong foundation for this project. However, limited investment cost and return information hindered precise analysis. Thus, the company should collect this data in the future to ensure the viability of this expansion.

Company XYZ (XYZ), established by Individual Z in 1971 in Lima, Peru, is a private limited company with over 50 years of experience commercializing national and foreign kitchenware and household goods. It primarily serves the HORECA sector, supplying mainly wholesalers but also retail stores.

 

The company's current focus is on maintaining its industry leadership, enhancing customer loyalty, and sustaining profitability. Moreover, it wants to continue to ensure that all its customers can find the ideal products for their kitchens and dining tables.

 

However, the lack of proximity of both of its stores in Downtown Lima to some of its customers has required XYZ to depend on its e-commerce platform, limiting its ability to showcase its full portfolio and allowing competitors to gain a competitive edge.

 

Hence, the company’s determination not to fall behind has led to the research question: “To what extent would it be beneficial for Company XYZ to open a new store in one of Lima Top’s districts to gain a greater customer base?”

This investigation relied on primary research through two 30-minute interviews with key executives: a member of the Board of Directors and the Head of Institutional Sales. This was valuable in gathering specialized information relevant to the research question from different perspectives. However, potential bias may have occurred.

 

Secondary data supported the investigation, including XYZ's 2022 financial statement and annual report for assessing the company's financial status. Nonetheless, non-financial factors were not included, providing an incomplete view. Hence, the company’s website was also used, though it offered limited information, reinforcing the need for interviews. Additionally, online research about the proposed location was performed, but it provided general insights potentially not applicable to XYZ.

 

For theory and tools, Paul Hoang’s IB Business and Management 4th Edition textbook, specifically Unit 1 (Business Organization and Environment), was used to ensure accuracy. An Ansoff Matrix was utilized to evaluate previous expansion efforts, providing useful insights for the decision. However, its limitation was not considering any current factors. Thus, a SWOT and STEEPLE analysis were applied to thoroughly evaluate XYZ’s current strengths and weaknesses and the external environment’s opportunities and threats that could also impact on its new store. However, this analysis was limited to using potentially outdated information. A financial analysis, using ratios such as gross and net profit margins, and return on capital employed, was also carried out to assess the company's financial health comprehensively.

Analyzing Company XYZ’s previous growth strategies was vital for an informed decision about expanding in Lima Top, as these provided insights into past outcomes. Thus, these have been categorized depending on their risk in Figure 6’s Ansoff Matrix.

This analysis has highlighted XYZ’s use of diverse growth strategies throughout its journey. While Product Development and Market Penetration have improved sales and customer retention, they have not significantly expanded market reach and brand awareness. Hence, further exploring Market Development by opening a store in “Lima Top” and after more thorough planification compared to the Miraflores showroom could help it to greatly expand its customer base. Without market research and advertising, it might face loyalty challenges, as seen in the past.

 

Nevertheless, it's crucial to note that this analysis solely relies on historical data and lacks insights into Lima Top's current market dynamics and competition.

An analysis of Lima Top was also conducted to assess its suitability for a new XYZ store. “Lima Top” refers to an area of prosperous districts in Peru’s capital. Specifically, the Surco and San Borja districts are considered excellent options for many local businesses due to their strong market demand and more affordable business premises than other districts in this area, an opportunity XYZ could also exploit. The customer base in this sector consists of high-income residents who seek quality products, aligning perfectly with what XYZ can offer. Furthermore, their strategic location near some of the busiest avenues in the city, namely “Aviación” and “San Luis”, could help the company to draw a larger crowd of potential customers to its new store.

 

Given these insights, Lima Top emerges as a promising location for a potential XYZ store, offering opportunities to diversify its customer base and expand its market share. Moreover, it would also help minimize the challenge for XYZ of trying to fully exhibit its portfolio digitally to customers distant from their current stores. However, the location would need to be large enough for XYZ to have a warehouse. Also, opening a store in this location would involve higher costs that other alternatives in the city and competition from established brands with loyal customers.

A SWOT Analysis (Figure 7) was conducted to assess Company XYZ’s current strengths and weaknesses. The opportunities and threats it could face in its possible new store were also considered utilizing some STEEPLE factors. This will be useful in making an informed decision on whether opening a new store would be advantageous or if it would bring many challenges.

After this analysis, valuable insights have emerged. Several strengths and opportunities for XYZ have been seen, placing it in a competitive position that could be potentially exploited in a new store. However, although this analysis has demonstrated that it would be beneficial for XYZ to proceed with this decision, it would need to carefully adapt to the distinct customer preferences and expectations to succeed.

 

It is vital to highlight that this analysis is limited to a brief exploration of each factor and doesn't fully account for the dynamic industry changes, evolving customer preferences, and competitive landscape.

In the evaluation of Company XYZ’s potential opening of a new store, it was also crucial to conduct a financial analysis to evaluate its readiness for such expansion. Therefore, ratios and metrics were used.

As depicted in Figure 7, XYZ’s retained profits remarkably increased from 2021 to 2022, signaling improved financial health with more available capital for the potential new store. Additionally, Figure 8 illustrates that XYZ maintained a stable GPM in 2021 and 2022, surpassing the 23.3% average for general retail in the United States in 2023. Moreover, Figure 9, shows a slight increase in its NPM from 2021 to 2022, indicating increased efficiency in converting revenue into profit. Therefore, XYZ’s stable condition has been demonstrated, allowing it to make the investment proposed.

Also, as seen in Figure 11, the company notably improved its ROCE, surpassing the 20% benchmark. This suggests that it has the capacity to generate higher returns on invested capital, indicating potential profitability for the new store.

 

All of this has shown that XYZ possesses a solid financial foundation for opening a new store. It has proved to be well positioned to maximize profits in its new location. However, effective financial strategies are needed to manage new investment costs without a significant short-term financial impact, specifically in liquidity. Furthermore, external financing may be required for setup expenses, affecting XYZ's Gearing Ratio.

This analysis has proven that opening a new store in Lima Top would be beneficial for Company XYZ to a great extent. The Ansoff Matrix has revealed that XYZ has followed various approaches to achieve growth and a larger customer base, the main ones being Product Development and Market Penetration. Still, despite the previous failure in Market Development with the Miraflores showroom, this strategy could bring much more substantial benefits with careful planning, evaluation, and comprehensive advertising and research.

 

It has also been demonstrated that the location itself holds many advantages for a company such as XYZ when looking to diversify and expand its customer base. Given that it is also closer to the company’s customers who currently find themselves too far from the company’s stores in Downtown Lima, it could help XYZ in its pursuit to showcase its full portfolio to all its customers efficiently.

 

Additionally, the SWOT and STEEPLE analysis have highlighted XYZ’s existing strengths and opportunities that can benefit a new Lima Top store. Nonetheless, these have stressed the need for XYZ to adapt to the area's unique customer preferences and expectations.

 

Lastly, the financial analysis carried out confirmed XYZ's capability for this investment. However, it underscored the need for an effective financial strategy to manage costs without severe short-term financial impact.

Limited prior research by XYZ meant no investment cost or return data was available, greatly restricting the financial analysis depth. Also, limited access to competitors’ data, mainly due to their private limited company status, hindered a thorough assessment of competitive threats.

1. XYZ should gather detailed information on investment costs and potential returns to conduct investment appraisal methods. This will provide a clearer understanding of the project’s profitability and if it would truly align with the company’s financial goals.
2. It should also conduct surveys in Lima Top, specifically in Surco and San Borja, to understand its new potential customer base’s preferences and expectations. This will guide XYZ in adapting its product portfolio to cater to local needs.
3. Furthermore, XYZ should regularly assess Lima Top’s market conditions, including dynamics, competition, and regulations, before opening the new store. This ongoing assessment will guarantee the location's continued stability and alignment with XYZ's strategic objectives.

Castañeda, C. (2020, July). Más de 3,2 millones de peruanos podrían incorporarse a la clase media. Cámara de Comercio de Lima. https://apps.camaralima.org.pe/repositorioaps/0/0/par/r757_2/02.pdf

 

Hayes, A. (2023, July 5). Return on Capital Employed (ROCE): Ratio, Interpretation, and Example. Investopedia. https://www.investopedia.com/terms/r/roce.asp

 

Hoang, P. (2018). Business Management 4th Edition. IBID Press.

 

IGI Global. (2021). What is Horeca. InfoScipedia. https://www.igi-global.com/dictionary/the-effect-of-covid-19-on-the-spanish-wine-industry/101540

 

New York University. (2023). Operating and Net Margins. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html

 

Redacción Gestión. (2023, May 31). Lima Top: ¿Qué debes saber si deseas adquirir una propiedad en este segmento? Gestión. https://gestion.pe/economia/lima-top-que-debes-saber-si-deseas-adquirir-una-propiedad-en-este-segmento-noticia/

 

Rojas, P. (2023, March 21). E-commerce: cuatro de cada 10 peruanos ya gasta más de S/. 1,000 al mes en compras online. Gestión. https://gestion.pe/economia/e-commerce-cuatro-de-cada-10-peruanos-ya-gasta-mas-de-s-1000-al-mes-en-compras-online-compras-online-cyber-days-camara-de-comercio-de-lima-noticia/

 

Rudder, A. (2022, August 26). Scope Creep: Definition, Examples & How To Prevent It. Forbes. https://www.forbes.com/advisor/business/scope-creep/

 

Company XYZ. (2022). [Financial Statements]. Unpublished internal company report.

 

Company XYZ. (2022). [Annual Report 2022]. Unpublished internal company report.

 

Company XYZ. (2023).

Translated transcript from the in-person interview with Individual X, member of XYZ’s Board of Directors (Originally conducted in Spanish on May 20, 2023)

• Could you briefly explain what the business is about and what it does?
  • XYZ is a family business that was founded by my grandfather, Individual Z, and that is currently engaged in the importing, buying and selling of national products. For example, some of these include household goods, plastics, glassware, cutlery, among many others.
• How was the business created?
  • Started by my grandfather 50 years ago, XYZ started as an importer of Japanese products, these mainly being gifts, and car parts. Years went by and there were problems with imports in Peru as these became prohibited. Because of this, they had to look for national suppliers and later, when the prohibition was eliminated, they started to contact suppliers from other countries such as China, Brazil, and Colombia. So now, it currently focuses on importing and buying national and foreign household products.
• What types of products does it sell and in what industry would you consider the company to be?
  • Some examples of our products include plates, cutlery, glasses, pots, plastics, among others. Yet, in terms of the industry we belong to, I can’t exactly say which one it would be since we just buy and sell a wide range of products without producing any.
• What would you consider to be the strengths of XYZ as a business?
  • Well, one of its greatest strengths, I think, is basically the good relationship it has with its customers and with its suppliers. In many cases, we are exclusive to certain brands, that is, we are exclusive customers. This means that the suppliers only sell to us. In addition, on the side of our customers, these are usually mainly wholesalers that we have had for years and that are loyal to our company. Basically, they are customers who buy wholesale to sell in Lima and in the provinces and constantly come to us to buy wholesale.
    • And do you also sell to consumers directly?
      • Yes, we do. We sell both to wholesalers and directly to consumers, but the largest percentage of sales is wholesale. Direct consumers can purchase our products in the store and also through the website that was made available just a few years ago as a consequence of the pandemic.
• What would be the weaknesses of the company?
  • Well, actually, like any family business, there are some problems in the transition from one generation to the next generation. I mean, the founder was my grandfather and the company was then managed by the previous generation to mine, which is my uncle and the general manager who has between 40 and 50 years in the company. So, now we are making the transition to my generation, which would be the third generation, but it is complicated because all this entails a series of changes and challenges.
    
    For example, there are rules that have to be established because in family businesses everything usually works in a more natural way. However, you really want it to be a bit more professional as a company, so these rules are necessary. That's why we have made a family protocol that will serve as a legacy of 24 the basic rules that define how we are going to behave ethically and that will serve not only for the current generation but also for the following ones. In addition, we also have a family assembly. So, all this helps the family to make a viable transition, because studies show that the transition from the second generation to the third generation is very difficult and that few family businesses survive.
• What are the main objectives and priorities of the company at the moment?
  • Well, right now, as I said, we are focused in the process of transitioning from one generation to another, but we are also focused on continuing to generate good profitability and continuing to build customer loyalty.
• Which companies do you consider to be your main competition?
  • Actually, I think there are no companies that are direct competitors, because there are no very similar companies. So, because we are wholesalers, it is hard to find companies that focus on the buying and selling of the same types of products that we do.
    
    However, for example, Thermos is the supplier of XYZ but while we sell their products, they also sell them directly. However, it is not direct competition because we buy from Thermos.
    
    Other examples are Facusa or Record, a company that sells cookware and those kinds of products, for which we are also exclusive customers.
    
    In addition, we also supply supermarkets in the household part, and hotels. So, they clearly sell these products, but they sell our products.
• In your opinion, what is your competitive advantage against these?
  • I believe that our company has always been characterized by being a family that generates trust, both for suppliers and customers. And that trust is reflected in the fact that customers come back and are loyal to us.
• Apart from that, would you say you have a cost advantage or a differentiation and uniqueness one?
  • Well, I'd say we have both. In terms of price, ours are quite competitive, especially being wholesale because that means lower prices for our customers. In addition, we also have a very large variety of products. So, for example, if you need to implement your house or a restaurant, you can find everything you need at XYZ.
• What is your position in the market in terms of market share?
  • ​​​​​​​I’m not really sure about it.
• What strategies has the company implemented to grow over time?
  • ​​​​​​​​​​​​​​Well, really the strategies have been mainly focused on being a reliable company, a leader in the industry.
• Therefore would you say the company has focused on either promoting existing and/or new products on either existing and/or current markets?
  • Well actually, every year we travel to fairs in both China and Europe so we are constantly bringing new products that help to expand our portfolio and the number of customers that may be interested in what we have to offer. However, we always aim to sell to the local market, in Lima and provinces, focusing mainly on the sale of household products, so we have not explored other markets as much.
    
    In addition, we have certainly also focused on continuing to promote the products we have in our current market by having the competitive prices that characterize us. Also, we have done 25 this by expanding our distribution channels to not only be our physical location in "Cercado de Lima" but also through the web and Whatsapp.​​​​​​​
• Regarding sales through digital channels, how well has this gone compared to sales through the physical store?
  • ​​​​​​​To be honest, it's not a significant percentage, but let's say it's what's growing the most over the years. It is a new channel for us. We also have as a differentiator that this is not really a sale online, but more by Whatsapp. In this way, the customer calls the salesperson and a video call is made to show him the products and how they work. Then, the customer can even ask for photos of the different angles of the product with complete freedom, which makes the customer feel more accompanied and feel that there is a more personalized treatment. Obviously we also sell through the web, but our sales through Whatsapp are more popular than through our website.
• Do you make use of social media to promote the business?
  • ​​​​​​​Yes! We do! XYZ has multiple social media accounts such as Instagram, Facebook and Youtube where we aim to post frequently.
• What external (uncontrollable) factors do you think have an effect on your business? Are they negative or positive?
  • ​​​​​​​Well, actually, for example, the closure due to the pandemic or also, especially in the store that is in downtown Lima, the closure of it when there were a lot of protests specifically in the center of the city meant that there was not a lot of public affluence. Also, the weather certainly played against us when there was a series of floods due to heavy rains a few months ago that caused distribution processes, especially to the provinces, to be delayed or even canceled. Political instability also has had a great negative effect and also, the variability in terms of imports, since, for example, in the year 2021, freight rates went up a lot, so the prices of products went up as well.
    
    But, if we had to think about how an external factor had a partly positive impact, despite the fact that the increase in freight rates meant that we had to put up our prices, we must acknowledge that there were certainly some businesses that were not able to assume these increased costs at all. Thus, because we are a medium-sized business, we had the capacity to assume these by making our prices somewhat higher but still competitive when compared to others during this same period.
• Why did you choose to start the business in “El centro de lima” and not another district?
  • ​​​​​​​The store located in downtown Lima is the "historic" one, as it was opened 50 years ago and is still in operation today. Specifically, it is located here because at that time, most of the stores were located in this area. We have tried to open other stores in other districts, for example, in Miraflores, where there is a showroom, but customers still remain loyal to downtown Lima, especially wholesalers, who mainly come to this area.
• Personally, would you consider opening up a new store?
  • Yes, I think it could be an option to evaluate. Actually, we are always evaluating new options to continue expanding.​​​​​​​
• For which reasons do you think this would be a good idea?
  • I think that opening stores in another district could bring other types of customers who are looking for different products. The same thing happens with the online channel, where sometimes customers are not necessarily looking for the same thing as customers who are wholesalers. Therefore, this could attract more and different customers than the ones we usually have.
• What would be its short-term and long-term implications?
  • ​​​​​​​In reality, opening a store implies a whole study and an evaluation, and we have not yet done that study in depth, because many factors and cost-benefits have to be evaluated.
• What location would you consider suitable to open this new store?
  • ​​​​​​​Actually, I believe that an additional store in the center of Lima could be an option, but we could also try to open a new store in other districts. However, as I say, there is still no concrete evaluation of which would be the best place.
• What do you think should be changed in the company to adapt to this new location?
  • ​​​​​​​To be honest, I think that the stores we currently have, have a wholesale store appearance, which is not so much focused on aesthetics but more on functionality. However, if we were to adapt to another type of public, we would have to change the aesthetics and the presentation of the products.
• If you were to open this new store, would you be able to fully finance it with the company’s capital or would you need to seek for external financing?
  • ​​​​​​​It depends, because to buy premises, always to buy fixed assets, I think the normal thing to do is to ask for financing. However, if it is rented, it could be with own resources.

Translated transcript from the interview in Zoom with Individual Y, XYZ’s Head of Institutional Sales (Originally conducted in Spanish on June 15, 2023)

• What would you consider to be the strengths of XYZ as a business?
  • Definitely, one of the strengths of the company is the organizational culture. The structure has been maintained as a family business, and it has been possible to bring down all the non-family staff. So there is this feeling that we are all one family, there is a great emphasis on teamwork, the areas are quite integrated, there have been some workshops over time that have been very useful for us to develop leadership, improve communication, etc.
    
    Another of our strengths is definitely our experience. We are a company with more than 50 years in the market, being leaders in our category. We have maintained our leadership throughout all these years and we are a national benchmark in the sector, specifically as wholesale importers of kitchenware.
• What would be its weaknesses?
  • Although it's not exactly a weakness, one thing that does work against us is the constant competition. Also, the organizational structure is quite focused on the leadership of our managing director and there is no clear line of succession.
• Which companies do you consider to be your main competition?
  • Well, to be honest, I don’t think there is a company like ours that competes in all categories, but there are definitely competitors for each of our subcategories. For example, "Establecimientos Inca" is a company quite similar to ours, which represents other brands, but they also have the strength that one of their branches is the Facusa factory, so Facusa and Establecimientos Inca are part of the same family group. This is why they have this brand dominance, which is very well positioned in the market, and they also import brands similar to ours.
    
    In addition, the supermarkets that we sell to in my field also import from China, so they become clients but also competitors.
• In your opinion, what is your competitive advantage against the competition?
  • I think definitely having the representation of leading brands, where in some cases we even have exclusive representation.
• And would you say that the company focuses more on offering competitive prices, or on
  having a differentiated portfolio, in the sense that they are products that you probably
  can't find elsewhere?
  • I think we have both a focus on competitive pricing and differentiation because both are pillars of what we offer at XYZ. We offer a very broad portfolio and a portfolio with excellent prices. Until a few years ago I would have told you that we had the lowest prices in the market but not anymore because there is a large informal market that sets prices at rock bottom. Therefore, this is a market in which we do not compete and neither do we compete in low quality; we compete in moderate quality of what we bring from China, for example.
• What is your position in the market in terms of market share?
  • Although at the moment I don't have the exact percentage of our market share, as I said, we are a leading company in the market, so our percentage is high compared to other companies.
• What strategies has the company implemented to grow over time?
  • ​​​​​​​We are always on a constant search for new suppliers and new categories. For example, we used to have very basic things but today we have a portfolio that is on trend. We always go to trend fairs, such as the fair in Germany, where we see what is being used, what is coming, what Europe is launching in order to bring all this to Peru. So we are betting on a lot of trends. Today we have an ultra-modern, modern crockery that’s rather rustic, and which despite not being cheap, is like the whole trend in gastronomy right now.
    
    The other thing has been to modernize. Eight years ago, we implemented the first SAP. And it was a big challenge for us. In the store we used to take the order by hand, we took it in a guide, and then we transferred it to the computer. And well, eight years ago we started this SAP implementation project, and we have been evolving in the SAP versions as well, which has brought us a lot of value in a lot of aspects: in reports, in online information, in connection with all the sites. For example, all the salespeople have tablets that have up-to-the-minute information on stock, on everything.
    
    The other thing is that we launched e-commerce four years ago and well, that was a game changer. In other words, although sales have not soared as they have with "Saga Falabella", for example, it has been quite significant for the company.
    • Therefore would you say the company has focused on promoting existing and/or newproducts on either existing and/or current markets?
      • I’d say we have focused on bringing new products but promoting these on our existing market.
• In terms of marketing, how have you implemented these strategies to grow your market share?
  • ​​​​​​​In terms of marketing, although it is a separate field from my own, we have definitely worked ondatabases and all the social networks.
  • Definitely through e-commerce, we have been able to obtain databases and direct communication with customers. The marketing area has developed many digital tools that have allowed us to reach customers that we were not reaching, virtual catalogs, etcetera.
• What external / uncontrollable factors do you think have had an effect on the business, both negatively and positively?
  • ​​​​​​​Look, to be honest, the pandemic benefited us enormously because suddenly everyone realized that they needed cups, plates and pans in their homes. So the demand for our products soared enormously.
    
    This coincided with the fact that COVID caused all the ports in China to close, so there were no imports from China and as we are wholesalers we always have very high inventory levels. So the pandemic caught us with very high inventory levels and at this time, all of Peru was willing to buy at any price, so it was a great opportunity for us.
    
    In addition, we had just launched e-commerce, so that allowed us to continue working and also to obtain special permits for delivery during the curfew. This allowed us to continue to grow and make ourselves known to those who didn't know us in the traditional way and didn't want to come to the centre.
    
    In terms of the negative, with COVID, the whole HORECA channel (hotels, restaurants and catering) perished. So, because all the hotels and restaurants closed down, nobody in that sector was buying from us anymore.
• Personally, would you consider opening up a new store would be beneficial? Why?
  • I think so. The thing is that entering the centre of Lima is becoming increasingly chaotic. Although an important percentage of the sales of the shop itself are digital, the staff does it by Whatsapp or by mail. Its almost like we have personal shoppers, who send you videos of the shop but they can’t really show everything we have. Therefore, having a new shop in a different location could help us solve this problem. Now, I don't know what kind of shop, I don't know if it's retail style or a clone of what is now XYZ in another part of Lima, I don't know yet.
• So, if you were to open up a new store, in what area would you consider doing this?
  • ​​​​​​​To tell you the truth, I don't know what the secret to success would be.
    • And in which areas do you consider it would definitely not work?
      • ​​​​​​​I mean, I don't believe it would work on very residential area. Besides, I think that something
        very important and indispensable is to have a warehouse. So, it would have to be a large store.
        
        In fact, some time ago we had a project of a showroom in Miraflores. The idea was for it to be a showroom for hotels and restaurants, but it did not work because it was distorted over time and it ended up becaming like a retail storr. We also did not have a warehouse. So, everything became a bit confusing and we ended up closing it.
• Do you think it would be a good idea to start selling directly to the consumer in this potential new store?
  • ​​​​​​​​​​​​​​Hmm, if we were to open this new store, I think it would be a good idea.
    ​​​​​​​
    In reality, a format like that is not really popular in Peru. In other countries, there are these specialty stores where you go and find everything for the kitchen. Instead, here you go to a supermarket and many times, you don't always find what you are looking for since there are limited options, so you have to go from store to store. Thus, this idea could maybe solve this problem.
    • How would you change the product proposition to make this possible?
      • ​​​​​​​Look, our portfolio is quite versatile. Since in my area we deal with supermarkets, we have packaging that is already ready for the final consumer. So, in that sense, I don't think we would have to change much.
        
        The only thing we would have to do is to have a differentiated price list and a distinctive communication. I would even go to the point of renaming the store because XYZ is the store that is in the center, the store of a life time, the store with the low prices. It would have to be like a smaller sister company. Maybe with a more modern communication and with other prices.
• Do you think that if you opened a store in this area, you would be in competition with new competitors such as department stores, supermarkets, etc.?
  • ​​​​​​​Definitely yes because we sell to all of them. So, we would have to have the same retail price as them in order not to cannibalize them.
• How would they try to stay competitive against them?
  • ​​​​​​​I think our strong point would be the variety. If you buy cups for your house today, for example, where do you go? If you go to Wong, there is not much, because there are maybe four models. In your case, where do you normally go?
    
    I would normally go to “Uno mas Uno” because its relatively near to my house.
    
    That’s our competitor! They are also a very specialized business, just like us. Still, you don’t have all the categories.
    
    If you want to buy a nice dish rack, you can go to "Saga Falabella", but you will only find three expensive brands. You can also go to Wong, but you will not find so many things.​​​​​​​
    • So, would the characteristic low prices still be a feature of this new store?
      • ​​​​​​​Yes, that’s one of our pillars, isn't it? It would be inappropriate to put this new store as stores like “Crate & Barrel”. Prices should be affordable, similar, or even lower than what retail stores offer.

Financial data and ratio analysis calculations from XYZ’s Balance Sheet and Income Statement

 

Due to confidentiality, the company has requested that the full Balance Sheet and Income Statement remain unpublished. Thus, only the relevant data has been extracted and presented below.

 

All data presented uses Peru’s currency, Soles, also referred to as S/.