Retail Management 12th Edition by Barry Berman ,Joel Evans

Exercise 4

Case 3: Examining Rue 21's Location Strategy
Rue 21 (www.rue21.com) is the fast-growing specialty retailer that sells fashion items (including footwear, fragrance and beauty items, jewelry, intimate apparel and sleepwear, and accessories) to girls and young men at value-oriented prices. Most of Rue 21's merchandise is trendy and priced below $35. According to the retailer's annual report, "Our merchandise is designed to appeal to 11- to 17-year-olds who aspire to be '21.'"
As of the end of its 2011 fiscal year, the chain operated 740 stores in 45 states. Rue 21 opened 110 stores in 2011 alone; and it ultimately plans to have more than 1,000 U.S. retail stores. Its average store is 5,000 square feet. Most of its new stores will be in strip centers and regional malls in small- and middle-market communities.
Rue 21 credits its success to its flexible real-estate strategy as well as its sourcing model. Rue 21's overall location strategy is not based on market area or location type. Although many of Rue 21's stores are in rural markets, where it has little direct competition, it also has many successful stores in urban locations. As of the beginning of 2012, 52 percent of Rue 21's stores were located in strip centers, 31 percent in regional malls, and 17 percent in outlet centers. Rue 21 favors locations that share customer traffic with adjacent retailers such as Wal-Mart, Target, and Kohl's.
Unlike some other retailers, Rue 21 does not own any real-estate. Most store leases have initial terms of five to ten years, with additional five-year renewal options. Many of these leases have early cancellation clauses that permit Rue 21 to terminate the lease if certain sales levels are not achieved or if a strip center does not meet specific overall occupancy levels.
The retailer's store leases also provide for additional rental payments, based on a percentage of net sales, if Rue 21's sales at a given location exceed specified levels. Leases also require payment of common maintenance charges, real-estate insurance, and real-estate taxes. This shifts the burden of higher operating expenses from the property owner to Rue 21. Renewal options generally require higher rental payments in subsequent years.
Rue 21 faces several risks with regard to its real-estate strategy. In some instances, even with an early cancellation clause, it may be unable to get out of a lease at an unsuccessful location. In these cases, the chain would be bound to continue rental payments. Bankruptcies and store closings in adjacent locations can reduce store traffic in a shopping center and adversely affect the remaining tenants, including Rue 21. In addition, Rue 21 may not be able to renew a lease at a very successful location.
Rue 21 relies on more than 450 domestic suppliers and importers for product sourcing. Although most of its clothing and accessories are made by overseas suppliers, domestic suppliers are used when quick deliveries are needed to capitalize on a fast-moving fashion trend. Goods are shipped daily to each store to motivate shoppers to constantly visit the store location. Rue 21 also maintains its products' distinctiveness through its private-label brands: Rue 21 etc!, Carbon Elements, Ruse Beauté, and Tarea.
1. Evaluate the pros and cons to Rue 21 of each location type: strip center, regional mall, and outlet center.
2. Describe the pros and cons of Rue 21 not owning any real-estate.
3. How could Rue 21 reduce the risks associated with its real-estate strategy
4. Should Rue 21 expand beyond the United States Explain the complexities of doing so.