Pure play

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]

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 designing or selling to consumers) may refer to itself as a pure play manufactory.

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

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]

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.

Unlevered Beta of B = Equity Beta of B / (1 + DE_B × (1 − Tax Rate_B))

Equity Beta A = Unlevered Beta of B × (1 + DE_A × (1 − Tax Rate_A))

where DE_A and DE_B 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. In contrast, Integrated Device Manufacturer (IDM) foundries such as IBM, NEC, Texas Instruments and Samsung provides both foundry design services and ICs fabrication.[4]

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

Main article: Bricks and clicks

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

• Diversification (strategy)

Further reading

• Cleveland S. Patterson (1995). "Estimating for non-traded assets". The Cost of Capital: Theory and Estimation. Quorum/Greenwood. pp. 221–224. ISBN 978-0-89930-862-3. OCLC 31012404.
• John Frederick Weston & Eugene F. Brigham (1974). "The Pure Play Method". Essentials of managerial finance. Dryden Press. pp. 623–624. ISBN 978-0-03-030733-1.
• N.R. Parasuraman (November 2002). "Ascertaining the divisional Beta for project evaluation — the Pure Play Method — a discussion" (PDF). The Chartered Accountant. 31 (5): 546–549.
• Collier, HW; Grai, T; Haslitt, S & McGowan, CB (October 2006). "Computing the divisional cost of capital using the pure play method" (PDF). Applied Financial Economics Journal. Taylor and Francis.
• Larry A. Cox & Gary L. Griepentrog (September 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.

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. 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. "Do pure-play etailers need stores?". Retail Week. 2011-11-04. ISSN 1360-8215. ProQuest 902018601.
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.