The Retailing Strategy

More attention to long-term strategic planning than ever before

Due to the emergence of ■ New competitors■ New formats■ New technologies■ Shifts in customer needs

Elements in Retail Strategy

■ Target Market the market segment(s) toward which the retailer plans

to focus its resources and retail mix

■ Retail Format the nature of the retailer’s operations—its retail mix

■ Sustainable Competitive Advantage an advantage over the competition

Why Does a Retailer Need to Focus on a Specific Target Market?

Why Not Sell to Everyone?

Target Market

Target market and retail format: Retail Market Opportunities for Women’s Apparel

Criteria For Selecting A Target Market

■ Attractiveness -- Large,

Growing, Little

Competition More

Profits

■ Consistent with Your

Competitive Advantages

Opportunities for retailers to develop sustainable competitive advantages

■ Customer Loyalty■ Location■ Human Resource Management■ Distribution and Information Systems■ Unique Merchandise■ Vendor Relations■ Customer Service

Can A Retailer Develop a Sustainable Competitive Advantage by:

■ Dropping the Price of Your Merchandise?

■ Building a Store at the Best Location?

■ Deciding to Sell Some Hot Merchandise?

■ Increasing Your Level of Advertising?

■ Attracting Better Sales Associates by Paying Higher Wages?

■ Providing Better Customer Service?

Sources of Competitive Advantage

More Sustainable■ Location■ Customer Loyalty■ Customer Service ■ Exclusive Merchandise ■ Low Cost Supply Chain

Management■ Information Systems■ Buying Power with Vendors■ Committed Employees

Less Sustainable■ Better Computers■ More Employees■ More Merchandise■ Greater Assortments■ Lower Prices■ More Advertising■ More Promotions■ Cleaner Stores

Internal and External Bases for Competitive Advantage

Retail Firm•Low Cost

•Large Size•Efficient Distribution, Operations

• Unique Knowledge• Loyal Employees

Sources ofCapital

Vendors, Suppliers

Customers

What does loyalty mean?

Is It the same as liking a store?

…Going to the store frequently?

Loyalty

Customer Loyalty

■ More than simply liking one retailer over another

■ Customers will be reluctant to patronize competitive retailers

■ Retailers build loyalty by:

Developing a strong brand for the store or store brands

Developing clear and precise positioning strategies

Creating an emotional attachment with customers through loyalty programs

Retail Branding

Retail brand

■ Can create an emotional tie with customers that build their trust and loyalty

■ Facilitates store loyalty because it stands for a predictable level of quality

Stores use brand (store’s name and store brands – private label brands) to build customer loyalty

Loyalty Programs

■ Part of an overall Customer Relationship Management (CRM) program

■ Purchase behaviors of members of loyalty programs Are identified when they buy because they use some type of loyalty

card Saved in Data Warehouse

• What they buy• When they buy• How much they buy• How often they buy• How much they spend• What channel they use

■ Develop personalized marketing effort to them

Approaches for Building Customer Loyalty

■ Unique Positioning

■ Location

■ Customer Service

■ Information About Customers (Database)

■ Unique Merchandise

Example of Positioning

Location

■ What are the three most important things in retailing?

“location, location, location”

■ Location is a competitive advantage

A high density of Starbucks stores

• Creates a top-of-mind awareness

• Makes it very difficult for a competitor to enter a market and find a good locations

Human Resources

■ “Employees are key to build a sustainable competitive advantage”

■ Strategies for Recruiting and Retaining Talented Employees

■ Employee Branding

■ Develop positive organizational culture

Distribution and Info Systems

Flow of Information

Vendor

Distribution Center

Store -Better services

-Increase in breadth and depth

-Decrease in prices

By decreasing costs here, the is more money available to invest in:

Unique Merchandise: Private Labels

Sears’ Kenmore -- appliances

Federated’s Inc. – fine apparel

Kmart’s Martha Stewart -- home

JCPenney’s Arizona -- jeans

Vendor Relationships

■ Low Cost - Efficiency Through Coordination

Electronic Data Interchange (EDI)

Collaborative Planning and Forecasting to Reduce Inventory and Distribution Costs

■ Exclusive Sale of Desirable Brands

■ Special Treatment

Early Delivery of New Styles

Shipment of Scare Merchandise

High Quality Customer Service

■ Difficult to Achieve

People Are Not Machines -- Inconsistent

Retail Sales Associates At Bottom of Labor Pool

■ Goes Beyond Hiring Good People at High Wages and Training Them -- Organizational Culture

■ Market Penetration

■ Market Expansion

■ Retail Format Development

■ Diversification Related vs. Unrelated

Growth Strategies

Growth Opportunities

Market Penetration

■ Attract customers from target market – Walgreens “on every corner”

■ Get current customer to visit store more often or buy on each visit

Cross Selling – sales associates in one department sell complimentary merchandise from other departments

Example: Manicurist sells services plus hand lotion or nail polish

Example: Salesperson sells leaf blower directs customer to electrical department to purchase a 100 foot extension cord.

Market Expansion

■ Market expansion growth opportunity involves using the existing retail format in new market segments

Dunkin’ Donuts – new stores (and at gas stations) outside northeastern

Abercrombie & Fitch (for college students) opens lower-priced chain Hollister Co. for high school students

Retail Format Development

■ Develops a new retail format with a different retail mix for the same target market

■ Multi-channel retailing

■ UK based TESCO:

Tesco Express: small stores located close to where customers live and work

Tesco Metro: bring convenience to city center location by specializing in ready-to-eat meals

Tesco Superstores: traditional stores

Tesco Extra: one-stop destination with the widest range of food and non-food products

Diversification

■ Introduces a new retail format toward a market segment that is not currently served by the retailer

■ Related diversification

■ Unrelated diversification

■ Vertical integration into wholesaling or manufacturing

Key to Success in Global Retailing

■ Globally sustainable competitive advantage Low cost, efficient operations - Wal-Mart,

Carrefour Strong private label brands: Starbucks, KFC Fashion Reputation - The Gap, Zara, H&M Category dominance – Best Buy, IKEA, Toys R

Us

■ Adaptability

■ Global Culture

■ Financial Resources

International Market Entry Strategies

Direct Investment

Joint Ventures

Strategic Alliances

Franchising

Profit and Risk

Stages in the Strategic Retail Planning Process

1. Define the business mission

2. Conduct a situation audit: Market attractiveness analysis Competitor analysis Self-analysis

3. Identify strategic opportunities

5. Establish specific objectives and allocate resources

7. Evaluate performance and make adjustments

6. Develop a retail mix to implement strategy

4. Evaluate strategic alternatives

STEP 1: Define the Business Mission

■ It is a broad description of retailer’s objectives and the scope of activities it plans to undertake.

■ It defines general nature of target market segments and retail formats on which the firm will focus

■ Developing a mission statement calls in for answering the following questions:

What business are we in What should be our business in the future? Who are our consumers? What are our capabilities? What do we want to accomplish?

Mission Statement for Gifts To Go

■ The mission of Gifts-to-Go is – “To be the leading retailers of higher-priced gifts in the Chicago and provide a stable income of $100,000 per year for the owner.”

■ The mission clarifies that the management won’t Consider retail opportunities outside Chicago area Sell low priced gifts Do something that would jeopardize its ability to generate

$100,000 annual income

STEP 2: Conduct a Situation Audit

■ Market Factors Size Growth Seasonality Business cycles

■ Competitive Factors Barriers to entry Bargaining power of

vendors Competitive rivalry

■ Environmental factors Technology Economic Regulatory Social

■ Analysis of strengths & weaknesses

Market Factors

■ Market size – large markets attractive to large retail firms

■ Growth – typically more attractive than mature or declining

■ Seasonality – can be an issue as resources are necessary during peak season only

■ Business cycles – retail markets can be affected by economic conditions. Few retail establishments get more affected than others due to economic factors

Competitive Factors

■ Barriers to entry Scale economies of big box retailers Barriers are also created by well established retailers that have developed loyal

group of customers. Example – Home Depot in Atlanta region Service and unique, high-end products of small retailers Availability of location can be another impediment.

■ Bargaining power of vendors Markets are less attractive when only a few vendors control the merchandise

sold within it

■ Competitive rivalry Defines the frequency and intensity of reactions to actions undertaken by

competitors Conditions leading to intense rivalry: a large number of same size retailers, slow

growth, high fixed costs, a lack of perceived differences between competing retailers

Environmental Factors

• New developments or changes -- technologies, regulations, social factors, economic conditions

• Likelihood changes will occur

• Key factors determining change

• Impact of change on retail market firm, competitors

Strength & Weakness Analysis

■ At what is our company good?

■ In which of these areas is our company better than our competitors?

■ In which of these areas does our company’s unique capabilities provide a sustainable advantage or a basis for developing one?

Strengths and Weaknesses Analysis

Management Capability: Capabilities and experience of top managementDepth of Management--capabilities of middle managementManagement’s commitment to firm

Financial Resources:Cash flow from existing businessAbility to raise debt or equity financing

Operations:Overhead cost structureQuality of operating systemsDistribution capabilitiesManagement information systemsLoss prevention systemsInventory control system

Merchandising Capabilities:Knowledge and skills of buyersRelationships with vendorsCapabilities in developing private capabilities

Store Management CapabilitiesManagement capabilitiesQuality of sales associatesCommitment of sales associates to firm

Locations

CustomersLoyalty of customers

Situation Analysis of Gifts to Go

■ Market Factors

Chicago is an attractive market. (+)

Relatively expensive gifts are not affected much by the economy. (+)

Gifts are highly seasonal. (-)

■ Competitive Factors

Many in area. Primary department stores, craft galleries, catalogs, and Internet retailers (-)

Lack of large suppliers, customer (+)

Opportunities for differentiation (+)

Limited competitive rivalry. (+)

Situation Analysis of Gifts to Go

■ Environmental Factors

Potential Threat - Development of electronic channel by traditional bricks and mortar retailers (-)

■ Strengths and Weaknesses

Management Capability – Limited

Financial Resources – Good

Operations – Poor

Merchandise Capabilities – Good

Store Management Capabilities – Excellent

Locations – Excellent

Customer Loyalty – Good

Customer Database - Good

STEP 3: Identifying Strategic Opportunities

■ Kelly Bradford presently competes in gifts retailing using a specialty store format

■ The strategic alternatives, for Gifts to Go, she is considering are defined in terms of growth opportunities

■ Market Penetration Increase size of present stores Open additional gifts stores in Chicago area

■ Market Expansion Open gift stores outside Chicago area Sell lower priced gifts in present stores

Growth Opportunities for Gifts to Go

■ Retail Format Development Sell non-gift merchandise to same customers in

present or new stores Sell similar gifts to same customers through an

electronic channel

■ Diversification Manufacture craft gifts Open an apparel store targeting teenagers Open a category killer store selling a broader

assortment of gifts

STEP4: Evaluating Growth Opportunities

■ Evaluation determines retailers’ potential to establish a sustainable competitive advantage and reap long term profits from opportunities being evaluated

■ Both market attractiveness and strengths & weaknesses (competitive position) must be considered in evaluating strategic opportunities

STEP4: Evaluating Growth Opportunities for Gifts to Go

Growth OpportunityMarket

Attractiveness Competitive

Position

Increase size of present stores and amount of merchandise in stores

Low High

Open additional gift stores in Chicago area Medium Medium

Open gift stores outside the Chicago area (new geographic segment)

Medium Low

Sell lower priced gifts in present stores or open new stores selling low – priced gifts

Medium Low

Sell apparel & other non – gift merchandise to same customers in the same or new stores

High Medium

Sell similar gift merchandise to the same market segment using the internet

High Low

Open apparel stores targeted at teenagers High Low

Open a category specialist selling low priced gifts

High Low

Step 5: Establish Specific Objectives & Allocate Resources

■ The next step is to establish a specific objective for each opportunity

■ specific objectives have three components:

1. Performance sought, including a benchmark against which progress may be measured

2. A time frame within which a goal is to be achieved

3. The level of investment needed to achieve the objectives

■ Typically performance levels are financial criteria such as RoI, sales or profits

■ Kelly’s objective is to increase profits by 20% in each of the next five years

■ She expects to invest additional $25,000 for her apparel and other non gift merchandise inventory

Step 6: Develop Retail Mix to Implement Strategy

■ Develop a retail mix for each opportunity in which an investment will be made

■ The retail mix includes:

Location

Merchandise assortments

Pricing

Communication mix

Store design & display

Customer service

Step 7: Evaluate Performance & Make Adjustments

■ If retailer is meeting or exceeding objectives, changes aren’t required

■ If retailer fails to meet the objectives reanalysis is required

■ It starts with reconsidering the mission statement, starting new planning process including new situation audit