Towers Market: Background Information for All Merchants

Introduction
In this situation you will play the role of one of the merchants who is collectively negotiating a deal with
Towers Market. At issue is whether to join with the others to open a single integrated “store”
representing each merchant on the ground floor of this building. If a satisfactory agreement can be
reached, you will be able to open your store with a single, very favorable long-term lease. If not, you
will each be on your own in finding a new location for expansion of your businesses.

Background Information
Parducci’s Grocery, a successful East Side establishment, has proposed developing a Market consisting
of a number of shops all catering to similar upscale clientele. Parducci’s idea is to have each shop owned
and managed by other retailers who have successfully created niches for themselves by providing
quality products to similar consumers, while increasing overall client traffic by co-locating at Towers
Market.

The Market would have an open plan with a common decor. The products would be arranged in
“departments,” where customers would be able to purchase imported beer and wines, deli sandwiches,
flowers, and fresh pastries by crossing aisles instead of streets. There would also be a common area
with tables where customers may sit, socialize, and sample items sold in the stores. Moreover, because
several stores will share the same location, shopping will be more convenient for customers and they
may be likely to purchase from more than one merchant on any single visit. Member stores would
benefit from the arrangement not only by gaining access to more customers, but also by potentially
sharing maintenance, advertising, and personnel costs.

The Market plans to lease two floors of a primarily residential building, with one level for the Market
and the other for storage, offices, preparation areas, and so on. The Market would be located on the
upper West Side, an area currently being settled by young urban professionals—the potential customer
pool.

A suitable space has been located, the 88th Street Towers. The owner is excited about leasing the
building’s retail space to a single group, since this reduces her search for new tenants and she will be
able to deal with a single entity. She believes that the quality of the merchants’ products will attract a
desirable clientele who might also be interested in renting apartments in the building. Since she has so
much to gain, she proposed a long-term discounted commercial rent and will pay for renovations to the
first floor. This would lead to significant cost savings for each merchant relative to what they would pay
to open individual stores in new locations.

The merchants interested in joining the Market are Parducci’s Grocery, Jardin Florist, Jacqui’s Bakery,
and Donovan’s Liquors. Parducci’s is a successful gourmet grocery currently located on the East Side. It
carries a wide range of high-quality grocery items ranging from Russian caviar to English tea biscuits to
organically grown products.

Jardin Florist has built a reputation for its artistic styling of bouquets reminiscent of French and English
country gardens. It is interested in using the Market to demonstrate its unique style and to expand its
production to include made-to-order, while-you-wait arrangements that will still incorporate its elegant
styling.

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Jacqui’s Bakery is a traditional French bakery currently located on the East Side. It offers a wide
selection of French breads, croissants, brioches, and pizzas, as well as delectable pastries and desserts.
In discussions with the other partners, it agreed to sell coffee, espresso, and tea.

Donovan’s Liquors is proud of its stock of over 300 international beers as well as many prized wines.
Customers are drawn by its fine selection of scotches, whiskeys, and other liquors.

The potential partners have been in discussions for some time and have already resolved many issues
including most financial and legal terms. While quite interested in the Market concept, they
nevertheless have a remaining set of issues to resolve in order to make the final go/no-go decision.
Because extensive prior discussions have narrowed down the options to a final set of proposals, the
issues to be resolved do NOT allow for modifications to the terms listed below. The final issues to
resolve include:

Temperature. Since the merchants will be sharing common space, they must decide as a group what
temperature to maintain within the Market space. Some merchants believe that the temperature of
their departments and the common area will affect the demand for their products. The final set of
proposals includes the following:

a. 77 degrees b. 74 degrees c. 71 degrees d. 68 degrees e. 65 degrees

Advertising. Some of the interested merchants feel that the Market should be promoted as a unit, while
others would prefer to do their own advertising in the manner that they have found to be most
successful. The final set of options is:

a. A combined campaign involving advertising for market as a whole, with design and printing costs to
be divided equally among the Market merchants.
b. A combined campaign involving advertising for market as a whole, to be paid according to
percentage of the Market’s gross profits contributed by each merchant.
c. A combined campaign advertising the stores as individual units (i.e., separate design costs) but on
the same flyers with each member allocated and paying for one fourth of the ads.
d. Separate campaigns for each member, with members contributing 6% of gross profits to advertising
(since members will reap benefits from others’ advertising).
e. Separate campaigns for each member, amounts spent up to individual merchants.

Clerks. The major issue here seems to be whether the Market should continue to offer the highly
personalized service that participating merchants have provided in their original stores, or whether they
should economize through the agreement and share the costs of hiring, training, and compensation for
sales clerks. The final options have been set as:

a. Hire clerks as a group, train them as a group, distribute them equally across departments, and
contribute equally to their pay.
b. Hire clerks as a group, train them as a group, distribute them according to floor space, and
contribute equally to their pay.
c. Hire clerks as a group, train them individually, distribute them according to demand for service,
contribute equally to their pay.
d. Hire clerks individually, train them individually, but distribute them according to demand for
service, with each merchant paying its clerks from individual profits.

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e. Hire clerks individually, train them individually, with each merchant to decide how many clerks to
have on staff and each merchant to pay clerks from its own profits.

Maintenance. One of the potential benefits of this venture would be a reduction in maintenance costs
for each merchant’s retail space. However, there is a disagreement on how those costs should be
distributed and who should take responsibility for maintenance of the common areas. The final set of
options is:

a. Shared maintenance costs with each equally responsible for total costs (i.e., 1/4th).
b. Shared maintenance costs with each responsible for a percentage according to its percentage of
total floor space occupied.
c. Shared maintenance costs with each responsible for a percentage according to its floor space
occupied, but with the bakery paying double its percentage due to the messy nature of its carryout
business.
d. Separate maintenance costs with each responsible for its own floor space, plus a common area
maintenance cost based on the percentage of floor space occupied.
e. Separate maintenance costs with each responsible for its own floor space, plus equal contributions
for the common area maintenance.

Location of Departments. The building’s first floor must be divided up among the participating
merchants. Although the building owner is willing to remodel this space, the merchants must decide
what the layout of the Market will be, particularly with respect to what will be situated near the single
common main entrance. The final options, which involve different principles for making this decision,
are:

a. Merchants reliant on “spontaneous purchases” near the main entrance.

b. Merchants with smaller departments near the main entrance.
c. Common area (open, with tables and chairs) near the main entrance.
d. Merchants with the highest volume of sales near the main entrance.
e. Merchants stocking heavier products near the main entrance (for customer convenience).

NOTE: negotiators should refrain from discussing their individual point totals until after a final
agreement has been reached. In other words, you may not (a) communicate or discuss point values
associated with any of the options until after a final agreement has been reached, or (b) re-negotiate
final settlements once point totals become known.

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