Book Store Expansion

Prepared by Cesar Flores April 15, 2007

Executive Summary This report outlines the results of investigation into the feasibility of expanding XXXXX into Miami to build upon the company’s rapid growth in the New York and Stanford markets. Primary and secondary market research was conducted and the preliminary findings and data were evaluated and analyzed. The following is a summary of the findings collected regarding population growth trends, median income, cost of living, competition and tax incentives. This is an analysis collectively comparing advantages and disadvantages and similarities and differences in the company’s regions. Statistical comparisons and inferences are made relative to existing operations in both New York and Stanford. The target market consists of the Mature and Senior Free-Time Endowed demographic segment. Consumers aged 40-59 and 60+ represent this population segment. This niche provides an immediate marketing opportunity, and according to industry experts, it will grow steadily for the foreseeable future with the aging of the baby boom generation. Of the three markets, Miami currently has the largest populations of these groups. In addition, , Miami has the lowest cost-ofliving and therefore large disposable incomes that can be spent on the company’s product line. Additional factors that favor expansion in the region are the ideal total population size and growth forecasts as well as excellent tax incentives for businesses relocating in the region. The following analysis supports our test market experience and reinforces our confidence that a significant portion of our target market will readily accept SMARTSBOOKS in the Miami metropolitan area.

Summary of Findings Population Miami’s population of 362,470 is relatively small compared to New York’s 8,143,197; yet is larger and closer in scale when compared with Stanford’s 13,263 (figure 1). This mid-size population offers an ideal opportunity to justify the scale and logistics of a new market entry. The small size of the market in Stanford is believed to have contributed to the disappointing results after launch of operations there. In addition, it is expected that market share will be captured rapidly in Miami, due to the relative ease of penetrating the retail book market in a population of this size.

Miami’s mid-size population is ideal for a new market entry

Figure 1.

Growth Trends The total population growth in Miami is 10%. This compares favorably with New York’s 35% and Stanford’s 15% growth for the same period (figure 2). This concentration of growth is expected to continue in the long-term according to experts. The steady pace of population growth will permit future graduated expansion of operations and sales in the Miami market. New York’s rapid growth rate generated negative effects from the company’s attempt to keep pace.

Miami’s population growth steady yet not excessive

Figure 2.

Median Income Although Miami’s median household income is $ 7,345 lower than New York’s and $ 5,113 lower than Stanford’s (figure 3), the total disposable income per person in Miami is assumed to be much higher than for either New York or Stanford.

Incomes are comparable in all markets

Figure 3.

This is due the larger percentage of retired and semi-retired seniors living in the Miami area (figure 4) and also attributable to the presumably smaller average household number of persons in this region. Prevailing industry market research has shown that books are a desirable purchase choice for this demographic segment nationwide and this should hold for Miami as well.

Miami has a large population of 40-59 and 60+

Figure 4.

Cost of Living The 39% composite cost-of-living index in Miami is considerably less than for both New York and Stanford, at 90% and 56% respectively (figure 5). Not surprisingly, Miami is lower in each category of living expense measured as well: Food, Housing, Utilities and Health (figure 6). The low cost of living in Miami contributes to a larger disposable income available for luxury purchases such as books and magazines.

Miami has a lower cost-of-living

Figure 5.

Figure 6.

Competition Competition in the Miami retail book sector is strong. Primary market research has revealed that the total number of retail book outlets in Miami is actually greater than in both New York and Stanford (figure 7), this is especially significant when considering the relative population sizes . Nevertheless, the target market niche of Mature and Senior Free-Time Endowed is currently underserved by retail bookstores in the Miami area. The retail market offerings are considered to be deficient due to competitors' exploitative pricing strategies, indifferent customer service and lack of social correctness and awareness when serving the needs of a mature and senior clientele.

Miami Retail Book Competition is strong

Figure 7.

Incentives The City of Miami government offers two key incentives to attract new business and present an excellent tax climate for the company’s expansion plan. Both the Ad Valorum tax exception and Work opportunity tax credit will significantly reduce operating costs and compare favorably with the governmental incentives offered in New York and Stanford (table 1).

Miami Government Tax incentives are favorable New York Utility discounts or reduced cost of electricity and gas for new businesses

Stanford Miami SBA 504 loans are offered by Ad Valorum tax exceptions to Certified Development new and/or expanded Corporations who provide 90% businesses located in the real estate financing Enterprise Zone. Wage tax credits and sales tax Net Loss Carryover-New Work opportunity tax credit for credit for business locating in businesses can carry over 100% of qualified businesses located in the Empire Zone. loss over an 8 year period if the the Empowerment Zone loss is in the first year of business

Table 1.

Conclusions The mid-size population and steady growth rate are ideal for a new store launch in Miami. The company suffered adverse effects from the rapid population growth rate in New York. Similarly, the small population size in Stanford resulted in lower than anticipated gross sales. The median income in Miami is not as high as either New York or Stanford, this is understandable due to the large percentage of retirement aged persons in the region. More significant, is the lower cost of living and subsequent higher disposable incomes of the target market that can generate high demand for company products. Although the competition for the retail book customer’s dollar in Miami seems significant, it may not adversely impact XXXXX new store launch since the niche segment is not currently targeted by existing competitors. This will allow the company to quickly gain a foothold and make inroads into the retail book market in measured stages.

Recommendations A team should be appointed to determine which retail recreational reading products and follow-ons the market is ready for; establish quality and cost parameters; evaluate positioning, packaging and marketing communications; and continually monitor the market

to reduce the risk of substitution by competitors. Additional data should be harvested for a wealth of market information up and down the book value-chain. Industry media must be monitored. Trade shows should be attended and vendors and potential customers surveyed. Points of sale should be staffed to talk with shoppers. Questionnaires should be distributed in-pack at points of sale. Customers can be called or emailed on a regular basis to monitor their satisfaction. Focus groups should be conducted to evaluate product and service concepts and marketing communications. It is advisable to initiate an plan for logistic and supply chains, partnering with just-in-time source suppliers and publishers of books; establish optimal distribution, supply, inventory and delivery schedules to minimize in-house costs and merchandising delays of first-run books. A team should investigate and identify a location with options on leasing a 100,000 sq. ft. space in a well serviced high profile commercial store front situated in a high traffic shopping mall or mixed-use zone. This location should offer ample single level parking with good access for disabled or limited-mobility customers and be close to mass transit points.