Pure play

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A pure play company is a company that focuses only on a particular product or activity. Investing in a pure play company can be considered as investing in a particular commodity or product of a company. [1]

Contents

Pure play firms either specialize in a specific niche, or have little to no vertical integration. For example, a coffee shop may call itself a "pure play" restaurant, and a factory that only produces goods (not design or sell to consumers) may refer to itself as a pure play manufactory.

Vertical integration When a company owns its supply chain

In microeconomics and management, vertical integration is an arrangement in which the supply chain of a company is owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It is contrasted with horizontal integration, wherein a company produces several items which are related to one another. Vertical integration has also described management styles that bring large portions of the supply chain not only under a common ownership, but also into one corporation.

E-commerce companies are often referred to as pure play retailers, as they sell only through the Internet.

E-commerce is the activity of buying or selling of products on online services or over the Internet. Electronic commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems.

Pure play method

In finance, the "pure play method" is an approach used to estimate the cost of equity capital of private companies, which involves examining the beta coefficient of other public and single focused companies. [2]

In finance, the cost of equity is the return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital. Firms need to acquire capital from others to operate and grow. Individuals and organizations who are willing to provide their funds to others naturally desire to be rewarded. Just as landlords seek rents on their property, capital providers seek returns on their funds, which must be commensurate with the risk undertaken.

Equity (finance) difference between the value of the assets/interest and the cost of the liabilities of something owned

In accounting, equity is the difference between the value of the assets and the value of the liabilities of something owned. It is governed by the following equation:

In finance, the beta of an investment is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors.

Here, when estimating a private company A's equity beta coefficient, the equity beta coefficient of a public company B is needed; the latter can be calculated by regressing the return on B's stock on the return on the relevant stock index. The following calculation is then applied to return the beta coefficient of company A.

Linear regression statistical approach for modeling the relationship between a scalar dependent variable and one or more explanatory variables

In statistics, linear regression is a linear approach to modeling the relationship between a scalar response and one or more explanatory variables. The case of one explanatory variable is called simple linear regression. For more than one explanatory variable, the process is called multiple linear regression. This term is distinct from multivariate linear regression, where multiple correlated dependent variables are predicted, rather than a single scalar variable.

Unlevered Beta of B = Equity Beta of B / (1 + DEB × (1 − Tax RateB))
Equity Beta A = Unlevered Beta of B × (1 + DEA × (1 − Tax RateA))
where DEA and DEB are the debt to equity ratios of company A and B respectively. [3]

Pure play foundries

Pure play foundries such as TSMC and GlobalFoundries are foundries who do not have any in-house design capabilities but only fabricate the Integrated Circuits (ICs) for fabless semiconductor companies such as Qualcomm, Broadcom, Xilinx, Nvidia and others.[ citation needed ][ dubious ] In contrast, Integrated Device Manufacturer (IDM) foundries such as IBM, NEC, Texas Instruments and Samsung provides both foundry design services and ICs fabrication. [4]

TSMC semiconductor foundry company

Taiwan Semiconductor Manufacturing Company, Limited, also known as Taiwan Semiconductor, is the world's largest dedicated independent (pure-play) semiconductor foundry, with its headquarters and main operations located in the Hsinchu Science and Industrial Park in Hsinchu, Taiwan.

GlobalFoundries is an American semiconductor foundry headquartered in Santa Clara, California, United States. GlobalFoundries was created by the divestiture of the manufacturing arm of Advanced Micro Devices (AMD). The Emirate of Abu Dhabi is the owner of the company through its subsidiary Advanced Technology Investment Company (ATIC).

Qualcomm American global semiconductor company

Qualcomm Incorporated is an American multinational semiconductor and telecommunications equipment company that designs and markets wireless telecommunications products and services. It derives most of its revenue from chipmaking and the bulk of its profit from patent licensing businesses. The company headquarter is located in San Diego, California, United States, and has 224 worldwide locations. The parent company is Qualcomm Incorporated (Qualcomm), which has a number of wholly owned subsidiaries: Qualcomm CDMA Technologies (QCT) sells all of Qualcomm’s products and services ; Qualcomm Technology Licensing (QTL) is responsible for the patent licensing business; and Qualcomm Technologies, Inc. (QTI) operates nearly all of Qualcomm's R&D activities.

Pure play E-retailers

Advantages

Compared to traditional retail stores, pure play e-retailers can serve a wider audiences without physical boundaries and distance. Pure play e-retailers target specific customer groups without the high cost of obtaining information from these groups. [5]

Disadvantages

Compared to companies that integrate both offline and online, pure online internet retails do not have brand recognition and reputation at the start-up stage so it lacks customer bases. In addition, pure plays' customers are unable to touch, examine and test real products before buying them. Furthermore, online shopping experience lacks human contact with consumers which is considered as an effective way to respond to questions, provide professional advice and motivate purchases. [5]

Pure play gets physical

Beginning in 2015, Amazon.com customers in mainland UK with pickup codes can get the order at collection lockers distributed in shopping centers and commercial blocks. [6] Amazon also opened its first physical stores at Purdue University campus in Indiana in 2015. [7]

By 2015, Simply Be had sixteen physical stores. [8]

Net-a-porter Launched a pop up window shop and apply image recognition technology to enable customers to find video content of the clothes and the online shop. [9]

In 2015, Kiddicare, a childcare brand, announced plan to open 12 stores in the UK. [9]

Ocado launched a virtual shopping wall at One New Change, Birmingham's Bullring shopping center and Bristol. Customers can shop by using Ocado's “on the go” app to scan product's barcode on the wall. [10]

eBay opened an inspiration shop in New York in 2011. [11]

See also

Further reading

Related Research Articles

Shopping buying goods

Shopping is an activity in which a customer browses the available goods or services presented by one or more retailers with the potential intent to purchase a suitable selection of them. A typology of shopper types has been developed by scholars which identifies one group of shoppers as recreational shoppers, that is, those who enjoy shopping and view it as a leisure activity.

Morrisons chain of supermarkets in the United Kingdom

Wm Morrison Supermarkets plc, trading as Morrisons, is the fourth largest chain of supermarkets in the United Kingdom, and is headquartered in Bradford, West Yorkshire, England.

Retail Sale of goods and services from individuals or businesses to the end-user

Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain. The term "retailer" is typically applied where a service provider fills the small orders of a large number of individuals, who are end-users, rather than large orders of a small number of wholesale, corporate or government clientele. Shopping generally refers to the act of buying products. Sometimes this is done to obtain final goods, including necessities such as food and clothing; sometimes it takes place as a recreational activity. Recreational shopping often involves window shopping and browsing: it does not always result in a purchase.

Distribution (marketing) making products available to customers

Distribution is one of the four elements of the marketing mix. Distribution is the process of making a product or service available for the consumer or business user who needs it. This can be done directly by the producer or service provider, or using indirect channels with distributors or intermediaries. The other three elements of the marketing mix are product, pricing, and promotion.

The Modigliani–Miller theorem is an influential element of economic theory; it forms the basis for modern thinking on capital structure. The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. Since the value of the firm depends neither on its dividend policy nor its decision to raise capital by issuing stock or selling debt, the Modigliani–Miller theorem is often called the capital structure irrelevance principle.

Waitrose & Partners chain of British supermarkets

Waitrose & Partners is a chain of British supermarkets, which forms the food retail division of Britain's largest employee-owned retailer, the John Lewis Partnership. Its head office is located in Bracknell, Berkshire, England. Waitrose & Partners has 353 shops across the United Kingdom, including 65 "little Waitrose" convenience shops, and a 5.1% share of the market, making it the eighth-largest retailer of groceries in the UK. They also export products to 52 countries and have locations in the Middle East.

The APV was introduced in 1974 bij Stewart Myers. According to Myers, the value of the levered firm is equal to the value of the firm with no debt plus the present value of the tax savings due to the tax deductability of interest payments, the so called value of the tax shield (VTS). Myers proposes calculating the VTS by discounting the tax savings at the cost of debt (Kd). The argument is that the risk of the tax saving arising from the use of debt is the same as the risk of the debt. The method is to calculate the NPV of the project as if it is all-equity financed. Then the base-case NPV is adjusted for the benefits of financing. Usually, the main benefit is a tax shield resulted from tax deductibility of interest payments. Another benefit can be a subsidized borrowing at sub-market rates. The APV method is especially effective when a leveraged buyout case is considered since the company is loaded with an extreme amount of debt, so the tax shield is substantial.

Online shopping is a form of electronic commerce which allows consumers to directly buy goods or services from a seller over the Internet using a web browser. Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine, which displays the same product's availability and pricing at different e-retailers. As of 2016, customers can shop online using a range of different computers and devices, including desktop computers, laptops, tablet computers and smartphones.

Ocado British online supermarket

Ocado is a British online supermarket that describes itself as 'the world's largest dedicated online grocery retailer'. In contrast to its main competitors, the company has no chain of stores and does all home deliveries from its warehouses. The company was floated on the London Stock Exchange on 21 July 2010, and is a member of the FTSE 100 Index.

Wesfarmers Australian conglomerate

Wesfarmers Limited is an Australian conglomerate, headquartered in Perth, Western Australia, with interests predominantly in Australian and New Zealand retail, chemicals, fertilisers, coal mining and industrial and safety products. With AU$65.98 billion in the 2016 financial year, it is the largest Australian company by revenue, overtaking Woolworths and BHP. Wesfarmers is the largest private employer in Australia, with approximately 220,000 employees.

Phones 4u

Phones 4u was a large independent mobile phone retailer in the United Kingdom. It was part of the 4u Group based in Newcastle-under-Lyme, Staffordshire. Opening in 1996, it expanded to over 600 stores. On 14 September 2014, EE and Vodafone, the company's final remaining suppliers, ended their contracts.

Stock management is the function of understanding the stock mix of a company and the different demands on that stock. The demands are influenced by both external and internal factors and are balanced by the creation of purchase order requests to keep supplies at a reasonable or prescribed level. Stock management is important for every other business enterprise.

In corporate finance, Hamada’s equation, named after Robert Hamada, is used to separate the financial risk of a levered firm from its business risk. The equation combines the Modigliani-Miller theorem with the capital asset pricing model. It is used to help determine the levered beta and, through this, the optimal capital structure of firms.

mySupermarket is an independent shopping and comparison shopping website for groceries in the United Kingdom. It retrieves price information from multiple online retailers, so that customers can compare their prices.

Superdrug Stores plc is a health and beauty retailer in the United Kingdom, and the second largest behind Boots UK. The company has been a subsidiary of A.S. Watson Group since October 2002, itself part of the Hong Kong conglomerate CK Hutchison Holdings.

Bricks and clicks

Bricks and clicks (aka clicks and bricks; click and mortar; bricks, clicks and flips; Womble Store Method ; or WAMBAM is a jargon term for a business model by which a company integrates both offline and online presences, sometimes with the third extra flips. Additionally, many will also offer telephone ordering and mobile phone apps, or at least provide telephone sales support. The advent of mobile web has made businesses operating bricks and clicks businesses especially popular, because it means customers can do tasks like shopping when they have spare time and do not have to be at a computer. Many of these users prefer to use mobile shopping sites.

Poundworld was a British value variety store that sold most of its items for £1. The chain was founded in 1974 by Yorkshire-based father-and-son team Chris Edwards Sr. and Chris Edwards Jr. In contrast to many high street retailers, Poundworld maintained strong sales and growth during the global recession that started in 2007.

The term dark store, dark supermarket or dotcom centre refers to a retail outlet or distribution centre that caters exclusively for online shopping. A dark store is generally a large warehouse that can either be used to facilitate a "click-and-collect" service, where a customer collects an item they have ordered online, or as an order fulfilment platform for online sales. The format was initiated in the United Kingdom, and its popularity has also spread to France followed by the rest of the European Union.

References

  1. Law, Jonathan (2014). Dictionary of Finance and Banking. Oxford: Oxford University Press Print Publication. ISBN   9780199664931.
  2. Cox, Larry A.; Griepentrog, Gary L. (1988). "The Pure-Play Cost of Equity for Insurance Divisions". The Journal of Risk and Insurance. 55 (3): 442–452. doi:10.2307/253253. JSTOR   253253.
  3. R, Fuller; H, Kerr (1981). "Estimating the Divisional Cost of Capital: An Analysis of the Pure-Play Technique". Journal of Finance. 36 (5): 997–1009. doi:10.1111/j.1540-6261.1981.tb01071.x.
  4. Mutschler, Ann Steffora (2008). "Pure-play foundries comprise 84% of market, IC Insights says". Electronics News. Australia: Reed Business Information Pty Ltd, a division of Reed Elsevier Inc.
  5. 1 2 Kim, Eonsoo; Nam, Dae-il; Stimpert, J.L. (2004). "The Applicability of Porter's Generic Strategies in the Digital Age: Assumptions, Conjectures, and Suggestions". Journal of Management. 30 (5): 580. doi:10.1016/j.jm.2003.12.001.
  6. "Amazon.co.uk Help: About Amazon Locker". www.amazon.co.uk. Retrieved 2015-11-01.
  7. Johnston, Chris (2015-02-03). "Amazon's first bricks-and-mortar store opens in Indiana". theGuardian. Retrieved 2015-10-25.
  8. "Simply Be Store Locator". www.simplybe.co.uk. Retrieved 2015-11-01.
  9. 1 2 "Do pure-play etailers need stores?". Retail Week. 2011-11-04. ISSN   1360-8215 . Retrieved 2015-10-24.
  10. "Window Shopping..." www.ocadogroup.com. Retrieved 2015-11-01.
  11. "eBay and Jonathan Adler Partner to Open "the eBay Inspiration Shop" – 24/7 Shoppable Storefront Powered Exclusively by eBay Mobile | Business Wire". www.businesswire.com. 2011-10-20. Retrieved 2015-11-04.